FILED PURSUANT TO RULE 424(b)(2)
REGISTRATION NO. 333-57888
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 11, 2001)
$750,000,000
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
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AVALONBAY COMMUNITIES, INC.
THE COMPANY: AvalonBay Communities, Inc. Our executive offices are located at
2900 Eisenhower Avenue, Suite 300, Alexandria, Virginia 22314 and our telephone
number is (703) 329-6300.
TERMS: We plan to offer and sell notes from time to time, in various amounts.
The notes will have various terms, including the following:
- Ranking as senior unsecured indebtedness of AvalonBay
- Stated maturities of nine months or more from date of issue
- Redemption and/or repayment provisions, if applicable, whether mandatory
or at the option of AvalonBay or noteholders
- Payments in U.S. dollars or one or more foreign currencies
- Minimum denominations 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 indices plus or minus a spread
and/or multiplied by a spread multiplier.
- Interest payments on fixed rate notes as specified in a pricing supplement
and on the maturity date
- 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.
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE S-1.
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Neither the SEC 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.
AGENTS' DISCOUNTS AND
PRICE TO PUBLIC COMMISSIONS PROCEEDS TO AVALONBAY
--------------- --------------------- ---------------------------
Per Note........................ 100% 0.125% - 0.750% 99.875% - 99.250%
Total........................... $750,000,000 $937,500 - $5,625,000 $749,062,500 - $744,375,000
We are offering the notes on a continuous basis to or through the agents
listed below acting as agents or principals using their reasonable efforts on
our behalf. AvalonBay reserves the right to cancel or modify this offer without
notice. AvalonBay or an agent, if the agent solicits the offer on an agency
basis, may reject any offer to purchase notes in whole or in part. See
"Supplemental Plan of Distribution."
---------------------
LEHMAN BROTHERS
BANC OF AMERICA SECURITIES LLC
FIRST UNION SECURITIES, INC.
FLEET SECURITIES, INC.
JPMORGAN
PNC CAPITAL MARKETS, INC.
SALOMON SMITH BARNEY
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THE DATE OF THIS PROSPECTUS SUPPLEMENT IS SEPTEMBER 5, 2001
You should rely only on the information contained or incorporated by
reference in this prospectus supplement, the accompanying prospectus and any
pricing supplement. Neither we nor any agent has authorized any other person to
provide you with different or additional information. If anyone provides you
with different or additional information, you should not rely on it. Neither we
nor any agent is making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the information
contained or incorporated by reference in this prospectus supplement, the
accompanying prospectus and any pricing supplement is accurate only as of the
date on the front cover of the applicable document.
References in this prospectus supplement to "AvalonBay," "the Company," "our
company," "we," "us," or "our" or similar expressions in this prospectus
supplement refer collectively to AvalonBay Communities, Inc., a Maryland
corporation, and its subsidiaries, and their respective predecessor entities for
the applicable periods, considered as a single enterprise.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
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Risk Factors................................................ S-1
About This Prospectus Supplement; Pricing Supplements....... S-3
Description of the Notes.................................... S-3
United States Federal Income Taxation Considerations........ S-31
Supplemental Plan of Distribution........................... S-39
Legal Matters............................................... S-40
PROSPECTUS
PAGE
--------
Risk Factors................................................ 1
Forward-looking Statements.................................. 8
About this Prospectus....................................... 10
Where You Can Find More Information......................... 10
About AvalonBay Communities, Inc............................ 11
Ratios of Earnings to Combined Fixed Charges and Preferred
Stock Dividends........................................... 11
Ratios of Earnings to Fixed Charges......................... 12
How We Intend to Use the Proceeds........................... 13
Description of the Debt Securities.......................... 13
Description of Preferred Stock.............................. 28
Description of Common Stock................................. 34
Limits on Ownership of Stock................................ 36
Federal Income Tax Considerations and Consequences of Your
Investment................................................ 38
How We Plan to Sell the Securities.......................... 50
Experts..................................................... 52
Legal Opinions.............................................. 52
(i)
RISK FACTORS
This prospectus supplement does not describe all of the risks of an
investment in medium-term notes. AvalonBay and the agents named on the front
page of this prospectus supplement or in any pricing supplement disclaim any
responsibility to advise prospective investors of these risks as they exist at
the date of this prospectus supplement or as they change from time to time.
Before investing in these notes, you should consult your own financial and legal
advisors as to the risks, including those described below, entailed by an
investment in these notes. This is particularly true if the notes offered are
denominated or payable in, or determined by reference to a currency or composite
currency other than United States dollars, or to one or more interest rates,
currencies or other indices or formulas. Notes of that type are not an
appropriate investment for investors who are unsophisticated with respect to
foreign currency transactions or transactions involving the applicable interest
rate index or currency index or other indices or formulas.
NOTES INDEXED TO INTEREST RATES, CURRENCIES OR OTHER INDICES OR FORMULAS HAVE
INHERENT RISKS NOT ASSOCIATED WITH A CONVENTIONAL DEBT SECURITY.
If you invest in notes indexed to one or more interest rates, currencies or
composite currencies or other indices or formulas, you will be subject to
significant risks not associated with a conventional fixed rate or floating rate
debt security. These risks include fluctuation of the indices or formulas and
the possibility that you will receive a lower, or no, amount of principal,
premium or interest and at different times than you expected. We have no control
over a number of matters, including economic, financial and political events,
that are important in determining the existence, magnitude and longevity of
these risks and their results. In addition, if an index or formula used to
determine any amounts payable in respect of the notes contains a multiplier or
leverage factor, the effect of any change in the particular index or formula
will be magnified. In recent years, values of these indices and formulas have
been volatile and volatility in those and other indices and formulas may be
expected in the future.
THERE MAY NOT BE ANY TRADING MARKET FOR YOUR NOTES.
We cannot assure you that a trading market for your notes will be maintained
or ever develop. Many factors independent of our creditworthiness may affect the
trading market of your notes and the value of the applicable index or indices,
or formula or formulas. These factors include:
- the complexity and volatility of the index or formula applicable to the
notes;
- the possibility that each index or formula may be subject to significant
changes;
- the method of calculating the principal, premium and interest in respect
of the notes;
- the time remaining to the maturity of the notes;
- the outstanding amount of the notes;
- the redemption features of the notes;
- the amount of other securities linked to the index or formula applicable
to the notes; and
- the level, direction and volatility of market interest rates generally.
Finally, because some notes may be designed for specific investment
objectives or strategies, those notes will have a more limited trading market
and may experience more price volatility than other forms of debt securities.
The notes will not have an established trading market when issued, and there can
be no assurance of a secondary market for the notes or the liquidity of this
market if one develops. This may affect the price you receive for these notes,
your anticipated yield, or your ability to sell the notes at all. You should not
purchase any of these notes unless you understand and know that you can bear the
related investment risks.
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REDEMPTION MAY ADVERSELY AFFECT YOUR RETURN ON THE NOTES.
If the notes are redeemable at our option, we may choose to redeem the notes
at times when prevailing interest rates are relatively low. In addition, if the
notes are subject to mandatory redemption, we may also be required to redeem the
notes at times when prevailing interest rates are relatively low. As a result,
you generally will not be able to reinvest the redemption proceeds in a
comparable security at an effective interest rate as high as the notes being
redeemed.
THE CREDIT RATINGS ASSIGNED TO OUR NOTES MAY NOT REFLECT ALL RISKS OF AN
INVESTMENT IN THE NOTES.
The credit ratings assigned to our medium-term notes reflect the rating
agencies' assessments of our ability to make payments on the notes when due.
Consequently, real or anticipated changes in these credit ratings will generally
affect the market value of your notes. These credit ratings, however, may not
reflect the potential impact of risks related to structure, market or other
factors related to the value of your notes or the possibility that payments on
indexed notes may be less than anticipated because of changes in the specified
index.
FLUCTUATIONS IN EXCHANGE RATES AND MODIFICATION OF EXCHANGE CONTROLS MAY IMPAIR
YOUR INVESTMENT IN THE NOTES.
An investment in foreign currency notes entails significant risks that are
not associated with a similar investment in a debt security denominated and
payable in United States dollars. These risks include:
- the possibility of significant changes in the exchange rate between the
United States dollar and the applicable foreign currency or composite
currency; and
- the possibility of the imposition or modification of exchange controls by
the applicable governments or monetary authorities.
These risks generally depend on factors over which we have no control, such
as economic, financial and political events and the supply and demand for the
applicable currencies or composite currencies. In addition, if payments on your
foreign currency notes are determined by reference to a formula containing a
multiplier or leverage factor, the effect of any change in the applicable
currencies or composite currencies will be magnified.
In recent years, exchange rates between the United States dollar and foreign
currencies or composite currencies have been volatile and this volatility may
continue or increase in the future. Fluctuations between currencies that have
occurred in the past are not necessarily indicative, however, of fluctuations
that may occur in the future. Depreciation of the foreign currency or composite
currency in which a foreign currency note is payable against the United States
dollar would result in a decrease:
- in the United States dollar-equivalent yield of the foreign currency note;
- in the United States dollar-equivalent value of the principal and premium,
if any, payable on the maturity date of the foreign currency note; and
- in the United States dollar-equivalent market value of the foreign
currency note.
In addition, government and monetary authorities may impose or revise
exchange controls. These controls could affect exchange rates and the
availability of the foreign currency or composite currency in which payments on
the notes may be made. Even if there are no exchange controls, it is possible
that the foreign currency or composite currency in which a payment due on a
foreign currency note is to be made will not be available on the required
payment date due to other circumstances beyond our control. In these cases, we
may satisfy our obligations in respect of the foreign currency note in United
S-2
States dollars. See "Special Provisions Relating to Foreign Currency
Notes--Availability of Specified Currency."
ABOUT THIS PROSPECTUS SUPPLEMENT; PRICING SUPPLEMENTS
We may use this prospectus supplement, together with the attached prospectus
and an attached pricing supplement, to offer the notes from time to time. The
total initial public offering price of the notes that we may offer by use of
this prospectus supplement is $750,000,000 (or the equivalent in one or more
foreign currencies).
This prospectus supplement sets forth some of the terms of the notes that we
may offer. It supplements the description of our debt securities that is
contained in the attached prospectus. If information in this prospectus
supplement is inconsistent with the prospectus, this prospectus supplement will
apply and will supersede the information in the prospectus.
Each time we issue notes under this prospectus supplement, we will attach a
pricing supplement to this prospectus supplement. The pricing supplement will
contain the specific description of the notes being offered and the terms of the
offering. The pricing supplement may also add, update or change information in
this prospectus supplement or the attached prospectus. Any information in the
pricing supplement, including any changes in the method of calculating interest
on any note, that is inconsistent with this prospectus supplement will apply and
will supersede the information in this prospectus supplement.
It is important for you to read and carefully consider all information
contained in this prospectus supplement and the attached prospectus and pricing
supplement in making your investment decision. You should also read and
carefully consider the information in the documents we have referred you to in
"Where You Can Find More Information" in the attached prospectus.
DESCRIPTION OF THE NOTES
We will issue the notes as a series of debt securities, which refers to all
debt securities including the notes, issued and issuable under the Indenture.
When we refer to the Indenture, we are referring collectively to an original
Indenture dated as of January 16, 1998, referred to as the Original Indenture, a
First Supplemental Indenture, dated as of January 20, 1998, a Second
Supplemental Indenture, dated as of July 7, 1998, and an Amended and Restated
Third Supplemental Indenture, dated as of July 10, 2000, each between AvalonBay
and the State Street Bank and Trust Company, the Trustee. The Indenture is
subject to, and governed by, the Trust Indenture Act of 1939. The following
summary of the notes and the Indenture is not complete. You should read the
actual provisions of the notes and the Indenture, which we have filed as
exhibits to the documents we have filed with the Securities and Exchange
Commission. Capitalized terms used but not defined in this prospectus supplement
will have the meanings given to them in the accompanying prospectus, the notes
or the Indenture, as the case may be. The following description of the
particular terms of the notes offered, referred to in the accompanying
prospectus as the senior securities, supplements, and to the extent inconsistent
replaces, the description of the general terms and provisions of the senior
securities set forth in the prospectus, to which description reference is made.
The following description of the notes applies to each note offered under
this prospectus supplement unless otherwise specified in the applicable pricing
supplement.
GENERAL
All of our debt securities, including the notes, will be unsecured
obligations of AvalonBay and will rank equally with all of our other unsecured
and unsubordinated indebtedness. The notes are effectively subordinated to
mortgages and other secured indebtedness of AvalonBay, which encumber
S-3
the assets of AvalonBay, and to indebtedness and other liabilities of
subsidiaries of AvalonBay. Accordingly, we must satisfy these mortgages and
other secured indebtedness in full before holders of the notes may realize any
value from encumbered or indirectly-held properties. In addition, we will repay
the notes solely from the assets of AvalonBay and, therefore, holders of the
notes will not have recourse against any director, officer or stockholder of
AvalonBay for repayment of the notes.
The Indenture does not limit the aggregate amount of debt securities that we
may issue. As a result, we may issue debt securities in one or more series up to
the aggregate initial offering price authorized by us for each series. We may
also, without the consent of the holders of the notes, provide for the issuance
of notes or other debt securities under the Indenture in addition to the
$750,000,000 aggregate initial offering price of the notes offered by this
prospectus supplement.
The notes are currently limited to up to $750,000,000 aggregate initial
offering price, or the equivalent in one or more foreign or composite
currencies. However, the $750,000,000 aggregate amount may be reduced by our
sale of other securities referred to in the accompanying prospectus.
Interest-bearing notes will either be fixed rate notes or floating rate notes,
as specified in the applicable pricing supplement. We may also issue notes that
do not bear any interest currently or that bear interest at a below market rate.
Each note will mature on any day nine months or more from its date of issue,
as specified in the applicable pricing supplement, unless the principal or any
installment of principal becomes due and payable prior to the stated maturity
date, whether, as applicable, by the declaration of acceleration of maturity,
notice of redemption at our option, notice of the registered holder's option to
elect repayment or otherwise.
Unless we otherwise specify in the applicable pricing supplement, the notes
will be denominated in, and payments of principal, premium, if any, and/or
interest, if any, will be made in, United States dollars. The notes also may be
denominated in, and payments of principal, premium, if any, and/or interest, if
any, may be made in, one or more foreign currencies or composite currencies. See
"Special Provisions Relating to Foreign Currency Notes--Payment of principal,
premium and interest." The currency or composite currency in which a note is
denominated, whether in United States dollars or otherwise, is referred to in
this prospectus supplement as the Specified Currency.
You will be required to pay for the notes in the applicable Specified
Currency. At the present time, there are limited facilities in the United States
for the conversion of United States dollars into foreign currencies or composite
currencies and vice versa. In general, commercial banks do not offer non-United
States dollar checking or savings account facilities in the United States. Each
agent may be prepared to arrange for the conversion of United States dollars
into the applicable Specified Currency to enable you to pay for the related
foreign currency note, provided that you make a request to the agent on or prior
to the fifth Business Day, as defined below, preceding the date of delivery of
the foreign currency note, or by any other day as determined by the agent. An
agent will make each conversion on the terms and subject to the conditions,
limitations and charges as the agent may from time to time establish in
accordance with its regular foreign exchange practices. You will be required to
bear all costs of exchange in respect of your foreign currency note. See
"Special Provisions Relating to Foreign Currency Notes--Payment of principal,
premium and interest."
Interest rates offered by us with respect to the notes may differ depending
upon the aggregate principal amount of notes purchased in any single
transaction. Interest rates or formulas and other terms of the notes are subject
to change by AvalonBay, but no change will affect any note already issued or as
to which we have accepted an offer to purchase.
We will issue each note in fully registered form as a book-entry note
represented by one or more global securities or a certificated note. The
authorized denominations of each note other than a foreign
S-4
currency note will be $1,000 and integral multiples of $1,000, while the
authorized denominations of each foreign currency note will be specified in the
applicable pricing supplement.
We will make payments of principal of, and premium, if any, and interest on,
book-entry notes through the Trustee to The Depository Trust Company, referred
to as DTC. See "Description of the Notes--DTC's procedures."
In the case of certificated notes, we will make payments of principal and
premium, if any, due on the stated maturity date or any prior date on which the
principal, or an installment of principal, of each certificated note becomes due
and payable, whether by:
- the declaration of acceleration;
- notice of redemption at the option of AvalonBay; or
- notice of the holder's option to elect repayment or otherwise
in immediately available funds upon their presentation and surrender, or, in the
case of any repayment on an optional repayment date, upon their presentation and
surrender and a duly completed election form in accordance with the provisions
described below, at the office or agency maintained by AvalonBay for this
purpose in the Borough of Manhattan, The City of New York, which is currently
the corporate trust office of the Trustee located at 61 Broadway, New York, New
York 10005. We will make payments of interest due on the maturity date of each
certificated note to the person to whom payment of the principal and premium, if
any, shall be made. We will make payments of interest due, if any, on each
certificated note on any interest payment date, other than the maturity date, at
the office or agency referred to above maintained by AvalonBay for this purpose
or, at the option of AvalonBay, by check mailed to the address of the holder
that is entitled as that address appears in the Security Register of AvalonBay.
However, a registered holder of $10,000,000 (or, if the applicable Specified
Currency is other than United States dollars, the equivalent in the Specified
Currency) or more in aggregate principal amount of notes, whether having
identical or different terms and provisions, will be entitled to receive
interest payments on any interest payment date other than the maturity date by
wire transfer of immediately available funds if the holder has delivered
appropriate wire transfer instructions in writing to the Trustee not less than
15 calendar days prior to that interest payment date. Any wire transfer
instructions received by the Trustee will remain in effect until revoked by the
registered holder. For special payment terms applicable to foreign currency
notes, see "Special Provisions Relating to Foreign Currency Notes--Payment of
principal, premium and interest."
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which commercial banks are authorized or
required by law, regulation or executive order to close in The City of New York;
provided, however, that, if the Specified Currency is other than United States
dollars, the day must also not be a day on which commercial banks are authorized
or required by law, regulation or executive order to close in the Principal
Financial Center, as defined below, of the country issuing the Specified
Currency, or, 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,
or TARGET, System is open; provided, further, that, with respect to floating
rate notes as to which LIBOR is an applicable interest rate basis, the day must
also be a London Banking Day, as defined below.
"London Banking Day" means a day on which commercial banks are open for
business, including dealings in the LIBOR Currency, as defined below, in London.
"Principal Financial Center" means, as applicable:
- the capital city of the country issuing the Specified Currency; or
S-5
- the capital city of the country to which the LIBOR Currency relates;
provided, however, that with respect to United States dollars, Australian
dollars, Canadian dollars, Deutsche marks, Dutch guilders, Italian lire, South
African rand and Swiss francs, the Principal Financial Center shall be The City
of New York, Sydney and, solely in the case of the Specified Currency,
Melbourne, Toronto, Frankfurt, Amsterdam, Milan, London, solely in the case of
the LIBOR Currency, Johannesburg and Zurich, respectively.
Book-entry notes may be transferred or exchanged only through DTC. See
"Description of the Notes--Book-entry notes--Description of the global notes
and--DTC's procedures." Registration of transfer or exchange of certificated
notes will be made at the office or agency maintained by AvalonBay for this
purpose in the Borough of Manhattan, The City of New York. No service charge
will be imposed for any registration of transfer or exchange of notes, but we
may require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed other than exchanges in accordance with the Indenture
not involving any transfer.
REOPENING OF ISSUE
We may from time to time, without the consent of existing note holders,
issue additional notes having the same terms and conditions (including maturity
and interest payment terms) as previously issued notes in all respects, except
for issue date, issue price and the first payment of interest. Additional notes
issued in this manner will be consolidated with and will form a single series
with the previously issued notes.
REDEMPTIONS AT THE OPTION OF AVALONBAY
The notes will not be subject to, or entitled to the benefit of, any sinking
fund. We may redeem the notes at our option before their stated maturity only if
an initial redemption date is specified in the notes and in the pricing
supplement. If indicated in the pricing supplement, we may redeem the notes at
our option on any date on or after the initial redemption date. On or after the
initial redemption date, if any, we may at our option redeem the related note at
any time in whole, or from time to time in part, at the redemption price
together with unpaid interest on the principal of the note payable to the
redemption date. We must give written notice to registered holders of the notes
to be redeemed not more than 60 nor less than 30 days before the redemption
date. We will redeem the notes in increments of $1,000, provided that any
remaining principal amount will be an authorized denomination of the note. The
redemption price with respect to a note will initially be the initial redemption
percentage of the principal amount of the note to be redeemed specified in the
pricing supplement multiplied by the unpaid principal amount to be redeemed.
This initial redemption percentage, if any, shall decline at each anniversary of
the initial redemption date by a percentage, specified in the pricing
supplement, of the principal amount to be redeemed until the redemption price is
100% of the principal amount. For a discussion of the redemption of original
issue discount notes, see "--Original issue discount notes."
REPAYMENT AT THE OPTION OF THE HOLDER
The pricing supplement will indicate if the notes are repayable at the
option of their registered holders on a date specified prior to the notes'
maturity date and, unless otherwise specified in the pricing supplement, these
notes will be repayable at a price equal to 100% of their principal amount,
together with unpaid interest accrued to the date of repayment.
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In order for a note to be repaid, the Trustee must receive, at least
30 days but not more than 60 days, prior to the repayment date, either:
(1) in the case of a certificated note, the note with a completed "Option to
Elect Repayment" form, which is located on the reverse side of the note;
or
(2) a telegram, telex, facsimile transmission, or a letter from a member of
a national securities exchange, the National Association of Securities
Dealers, Inc., referred to as the NASD, a commercial bank or a trust
company in the United States which sets forth the following:
(A) the name of the registered holder of the note,
- the principal amount of the note,
- the principal amount of the note to be repaid, and
- the certificate number or a description of the terms of the note;
(B) a statement that the option to elect repayment is being exercised;
and
(C) a guarantee that the note to be repaid, together with the completed
"Option to Elect Repayment" form, will be received by the Trustee not
later than the fifth Business Day after the date of the telegram,
telex, facsimile or letter. This election by the holder of the note
will only be effective if the note and completed form are received by
the Trustee or its designated agent by this time.
The exercise of the repayment option by the holder of a note will be
irrevocable. The holder of a note may exercise the repayment option for less
than the entire principal amount of the note. However, the principal amount of
the note remaining outstanding after repayment must be in an authorized
denomination.
If a note is represented by a global note, DTC's nominee will be the holder
of the note and, therefore, will be the only entity that can exercise the right
to repayment. In order to ensure that DTC's nominee will timely exercise a right
to repayment with respect to a particular note, the beneficial owner of the note
must instruct the broker or other direct participant or indirect participant
through which it holds an interest in the note to notify DTC of its desire to
exercise a right to repayment. Different firms have different deadlines for
accepting instructions from their customers. Accordingly, each beneficial owner
should consult the broker or other direct participant or indirect participant
through which it holds an interest in a note in order to determine the deadline
by which an instruction must be given in order for notice to be delivered to DTC
on time. Please see, "Description of the Notes--DTC procedures."
If applicable, we will comply with the requirements of Rule 14e-1 under the
Securities Exchange Act of 1934, referred to as the Exchange Act, and any other
securities laws or regulations in connection with any repayment.
We may at any time purchase notes at any price or prices in the open market
or otherwise. Notes purchased by us may, at our discretion, be held, resold or
surrendered to the Trustee for cancellation.
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INTEREST
Each interest-bearing note will bear interest from its date of issue at the
rate per annum, in the case of a fixed rate note, or in accordance with the
interest rate formula, in the case of a floating rate note, until its principal
is paid or made available for payment. We will make interest payments in respect
of fixed rate notes and floating rate notes in an amount equal to the interest
accrued from and including the immediately preceding interest payment date in
respect of which interest has been paid or made available for payment, or from
and including the date of issue, if no interest has been paid or made available
for payment with respect to the applicable note, to but excluding the applicable
interest payment date or the maturity date, each referred to as an Interest
Period.
Interest on fixed rate notes and floating rate notes will be payable in
arrears on each interest payment date and on the maturity date. The first
payment of interest on any note originally issued between a record date, which
is the fifteenth calendar day, whether or not a Business Day, immediately
preceding the related interest payment date, and the related interest payment
date will be made on the interest payment date immediately following the next
record date to the holder as of the next record date.
FIXED RATE NOTES
Interest on fixed rate notes will be payable in arrears on the interest
payment dates specified in the applicable pricing supplement and on the maturity
date. Each fixed rate note will bear interest from the date of issue at the rate
per annum stated on the face of the note until the principal amount of the note
is paid or made available for payment. Interest on fixed rate notes will be
computed on the basis of a 360-day year of twelve 30-day months.
If any 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 related payment of
principal, premium, if any, and/or interest on the next succeeding Business Day
as if made on the date the payment was due, and no interest will accrue on the
amount payable for the period from and after the interest payment date or the
maturity date, as the case may be.
FLOATING RATE NOTES
Interest on floating rate notes will be determined by reference to the
applicable interest rate basis or interest rate bases, which may be one or more
of:
- the CD Rate,
- the CMT Rate,
- the Commercial Paper Rate,
- the Eleventh District Cost of Funds Rate,
- the Federal Funds Rate,
- LIBOR,
- the Prime Rate,
- the Treasury Rate, or
- any other interest rate basis or interest rate formula that is specified
in the pricing supplement.
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Each pricing supplement will specify the terms of the floating rate note
being offered, including:
- whether the floating rate note is:
(1) a Regular Floating Rate Note,
(2) a Floating Rate/Fixed Rate Note, or
(3) an Inverse Floating Rate Note,
- the fixed rate commencement date, if applicable,
- the fixed interest rate, if applicable,
- the interest rate basis or bases,
- the interest rate in effect from the date of issue until the date on which
this interest rate on the related floating rate note will be reset,
- the date on which the interest rate on the related floating rate note will
be reset,
- the interest payment period and dates,
- the period to maturity of the instrument or obligation with respect to
which the interest rate basis or bases will be calculated, referred to as
the Index Maturity,
- a maximum numerical limitation, or ceiling, on the rate at which interest
may accrue during any interest period, if any,
- a minimum numerical limitation, or floor, on the rate at which interest
may accrue during any interest period, if any,
- the number of basis points to be added to or subtracted from the related
interest rate basis or bases, referred to as the Spread,
- the percentage of the related interest rate basis or bases by which the
interest rate basis or bases will be multiplied to determine the
applicable interest rate, referred to as the Spread Multiplier,
- if one or more of the specified interest rate bases is LIBOR, the Index
Currency and the Designated LIBOR Page, and
- if one or more of the specified interest rate bases is the CMT Rate, the
Designated CMT Telerate Page and Designated CMT Maturity Index.
The interest rate borne by the floating rate notes will be determined as
follows:
REGULAR FLOATING RATE NOTES. Unless a floating rate note is designated as a
Floating Rate/Fixed Rate Note, an Inverse Floating Rate Note or as having an
addendum attached or as having "Other/ Additional Provisions" apply relating to
a different interest rate formula, it will be a Regular Floating Rate Note and,
except as described below or in a pricing supplement, will bear interest at the
rate determined by reference to the applicable interest rate basis or bases:
- plus or minus the applicable Spread, if any, and/or
- multiplied by the applicable Spread Multiplier, if any.
Commencing on the first interest reset date, the rate at which interest on
the Regular Floating Rate Note will be payable will be reset as of each interest
reset date. However, the interest rate in effect for the period from the date of
issue to the first interest reset date will be the initial interest rate.
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FLOATING RATE/FIXED RATE NOTES. If a floating rate note is designated as a
Floating Rate/Fixed Rate Note, then, except as described below or in a pricing
supplement, it will bear interest at the rate determined by reference to the
applicable interest rate basis or bases:
- plus or minus the applicable Spread, if any, and/or
- multiplied by the applicable Spread Multiplier, if any.
Commencing on the first interest reset date, the rate at which interest on
the Floating Rate/Fixed Rate Note will be payable will be reset as of each
interest reset date; provided, however, that:
- the interest rate in effect for the period 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, and including, the date on
which interest begins to accrue on a fixed rate basis to maturity will be
the fixed interest rate, if the rate is specified in the pricing
supplement, or if no fixed interest rate is specified, the interest rate
in effect on the Floating Rate/Fixed Rate Note on the day immediately
preceding the date on which interest begins to accrue on a fixed rate
basis.
INVERSE FLOATING RATE NOTES. If a floating rate note is designated as an
Inverse Floating Rate Note, it will bear interest at the fixed interest rate
specified in the related pricing supplement minus the rate determined by
reference to the applicable interest rate basis or bases:
- plus or minus the applicable Spread, if any, and/or
- multiplied by the applicable Spread Multiplier, if any;
provided, however, that the interest rate on the Inverse Floating Rate Note will
not be less than zero. Commencing on the first interest reset date, the rate at
which interest on the Inverse Floating Rate Note is payable will be reset as of
each interest reset date. However, the interest rate in effect for the period
from the date of issue to the first interest reset date will be the initial
interest rate.
Each interest rate basis shall be the rate determined in accordance with the
provisions below. The interest rate in effect on each day will be:
- if the day is an interest reset date, the interest rate determined as of
the interest determination date, as defined below, immediately preceding
the interest reset date, or
- if the day is not an interest reset date, the interest rate determined as
of the interest determination date immediately preceding the most recent
interest reset date.
INTEREST RESET DATES. The pricing supplement will specify whether the
interest rate on the related floating rate note will be reset daily, weekly,
monthly, quarterly, semi-annually, annually or any other basis (each referred to
in this prospectus supplement as an interest reset period), and the dates on
which the interest rate on the related floating rate note will be reset (each
referred to in this prospectus supplement as an interest reset date). The
interest reset date will be, in the case of floating rate notes which reset:
- daily--each Business Day;
- weekly--the Wednesday of each week, with the exception of weekly reset
floating rate notes where the Treasury Rate is an applicable interest rate
basis, which will reset the Tuesday of each week, except as described
below;
- monthly--the third Wednesday of each month, with the exception of monthly
reset floating rate notes where the Eleventh District Cost of Funds Rate
is an applicable interest rate basis, which will reset on the first
calendar day of the month;
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- quarterly--the third Wednesday of March, June, September and December of
each year;
- semiannually--the third Wednesday of the two months specified in the
pricing supplement; and
- annually--the third Wednesday of the month specified in the pricing
supplement;
provided, however, that with respect to Floating Rate/Fixed Rate Notes, the rate
of interest will not reset after the date on which interest on a fixed rate
basis begins to accrue.
If any interest reset date for any floating rate note would otherwise be a
day that is not a Business Day, the interest reset date will be postponed to the
next succeeding day that is a Business Day, except that in the case of a
floating rate note as to which LIBOR is an applicable interest rate basis and if
the Business Day falls in the next succeeding calendar month, then the interest
reset date will be the immediately preceding Business Day. In addition, in the
case of a floating rate note as to which the Treasury Rate is an applicable
interest rate basis, if the interest determination date would otherwise fall on
an interest reset date, the particular interest reset date will be postponed to
the next succeeding Business Day.
MAXIMUM AND MINIMUM INTEREST RATES. A floating rate note may have either or
both of the following:
- a maximum numerical limitation, or ceiling, on the rate at which interest
may accrue during any interest period, referred to as a maximum interest
rate, and
- a minimum numerical limitation, or floor, on the rate at which interest
may accrue during any period, referred to as a minimum interest rate.
The Indenture is, and any notes issued under the Indenture will be, governed
by and construed in accordance with the laws of the State of New York. In
addition to any maximum interest rate that may apply to any floating rate note,
the interest rate will in no event be higher than the maximum rate permitted by
New York law, as the same may be modified by United States law of general
application.
INTEREST PAYMENTS. Each pricing supplement will specify the dates on which
interest will be payable. Each floating rate note will bear interest from the
date of issue at the rates specified in the floating rate note until the
principal of the note is paid or otherwise made available for payment. Except as
provided below or in the pricing supplement, the interest payment dates with
respect to floating rate notes will be, in the case of floating rate notes which
reset:
- daily, weekly or monthly--the third Wednesday of each month or on the
third Wednesday of March, June, September and December of each year, as
specified in the pricing supplement;
- quarterly--the third Wednesday of March, June, September and December of
each year;
- semiannually--the third Wednesday of the two months of each year specified
in the pricing supplement;
- annually--the third Wednesday of the month of each year specified in the
pricing supplement; and
- at the maturity date.
If any interest payment date for any floating rate note, other than an
interest payment date at maturity, would otherwise be a day that is not a
Business Day, the interest payment date will be postponed to the next succeeding
day that is a Business Day, except that in the case of a floating rate note as
to which LIBOR is an applicable interest rate basis and if the Business Day
falls in the next succeeding calendar month, the interest payment date will be
the immediately preceding Business Day. If the maturity of a floating rate note
falls on a day that is not a Business Day, the payment of
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principal, premium, if any, and interest will be made on the next succeeding
Business Day, and no additional interest will accrue in respect of the payment
made on that next succeeding Business Day.
All percentages resulting from any calculation on floating rate notes will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five one-millionths of a percentage point rounded upwards. For example,
9.876545%, or .09876545, would be rounded to 9.87655%, or .0987655. All dollar
amounts used in or resulting from any calculation on floating rate notes will be
rounded to the nearest cent, or in the case of a foreign currency or composite
currency to the nearest unit, with one-half cent or unit being rounded upwards.
With respect to each floating rate note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. The accrued
interest factor is computed by adding the interest factor calculated for each
day in the period for which accrued interest is being calculated.
- In the case of floating rate notes for which the interest rate basis is
the CD Rate, the Commercial Paper Rate, the Eleventh District Cost of
Funds Rate, the Federal Funds Rate, LIBOR or the Prime Rate, the interest
factor for each day will be computed by dividing the interest rate
applicable to each day by 360.
- In the case of floating rate notes for which the interest rate basis is
the CMT Rate or the Treasury Rate, the interest factor for each day will
be computed by dividing the interest rate applicable to each day by the
actual number of days in the year.
- In the case of floating rate notes for which the interest rate is
calculated with reference to two or more interest rate bases, the interest
factor will be calculated in each period in the same manner as if only one
of the applicable interest rate bases specified in the pricing supplement
applied.
INTEREST DETERMINATION DATES. The interest rate applicable to each interest
reset period commencing on the interest reset date with respect to that interest
reset period will be determined by the calculation agent and calculated on or
prior to the calculation date, as specified below, except with respect to LIBOR
and the Eleventh District Costs of Funds Rate, which will be calculated on the
interest determination date.
- The interest determination date with respect to the CD Rate, the CMT Rate,
the Commercial Paper Rate, the Federal Funds Rate and the Prime Rate will
be the second Business Day immediately preceding each interest reset date
for the related note.
- The interest determination date with respect to the Eleventh District Cost
of Funds Rate will be the last Business Day of the month preceding each
interest reset date on which the Federal Home Loan Bank of San Francisco
publishes the Index, as defined below.
- The interest determination date with respect to LIBOR will be the second
London Business Day immediately preceding each 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.
- The interest determination date with respect to the Treasury Rate will be
the day in the week in which the related interest reset date falls on
which day Treasury Bills, as defined below, are normally 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, except that the auction may be held on the
preceding Friday and if an auction is held on the Friday of the week
preceding the related interest reset date, the related interest
determination date will be the preceding Friday.
- If the interest rate of a note is determined with reference to two or more
interest rate bases, then the interest determination date for the note
will be the most recent Business Day, which is
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at least two Business Days prior to the applicable interest reset date on
which each interest rate basis is determinable.
- The interest determination date pertaining to a floating rate note the
interest rate of which is determined with reference to two or more
interest rate bases will be the latest Business Day which is at least two
Business Days before the interest reset date for the floating rate note on
which each interest rate basis is determinable.
- Each interest rate basis will be determined accordingly, and the
applicable interest rate will commence on the applicable interest reset
date.
CALCULATION DATE. Unless otherwise specified in the applicable pricing
supplement, the Trustee will be the calculation agent with respect to any
floating rate note. 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 as a result of a
determination made for the next interest reset date with respect to that
floating rate note, unless otherwise provided in the pricing supplement. The
calculation date, if applicable, pertaining to any interest determination date
will be the earlier of:
- the tenth calendar day after the interest determination date, or, if the
tenth calendar day is not a Business Day, the next succeeding Business
Day, or
- the Business Day immediately preceding the interest payment date or
maturity, as the case may be.
The calculation agent will determine each interest rate basis in accordance
with the following provisions, unless otherwise specified by a pricing
supplement:
CD RATE. "CD Rate" means:
(1) the rate on the particular interest determination date for
negotiable United States dollar certificates of deposit having the Index
Maturity specified in the applicable pricing supplement as published in
H.15(519), as defined below, under the caption "CDs (secondary market)", or
(2) if the rate referred to in clause (1) is not published by
3:00 P.M., New York City time, on the related calculation date, the rate on
the particular interest determination date for negotiable United States
dollar certificates of deposit of the particular Index Maturity as published
in H.15 Daily Update, as defined below, or other recognized electronic
source used for the purpose of displaying the applicable rate, under the
caption "CDs (secondary market)", or
(3) if the rate referred to in clause (2) is not published by
3:00 P.M., New York City time, on the related calculation date, the rate on
the particular interest determination date calculated by the calculation
agent as the arithmetic mean of the secondary market offered rates as of
10:00 A.M., New York City time, on that interest determination date, of
three leading nonbank dealers in negotiable United States dollar
certificates of deposit in The City of New York, which may include the
agents or their affiliates, selected by the calculation agent for negotiable
United States dollar certificates of deposit of major United States dollar
money market banks for negotiable United States dollar certificates of
deposit with a remaining maturity closest to the particular Index Maturity
in an amount that is representative for a single transaction in that market
at that time, or
(4) if the dealers selected by the calculation agent are not quoting as
mentioned in clause (3), the CD Rate in effect on the particular interest
determination date.
"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.
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"H.15 Daily Update" means the daily update of H.15(519), available through
the world-wide-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.
CMT RATE. "CMT Rate" means:
(1) if CMT Telerate Page 7051 is specified in the applicable pricing
supplement:
(a) the percentage equal to the yield for United States Treasury
securities at constant maturity having the Index Maturity specified in
the applicable pricing supplement as published in H.15(519) under the
caption "Treasury Constant Maturities", as the yield is displayed on
Bridge Telerate, Inc., or any successor service, on page 7051, or any
other page as may replace the specified page on that service, referred to
as Telerate Page 7051, for the particular interest determination date, or
(b) if the rate referred to in clause (a) does not appear on Telerate
Page 7051, the percentage equal to the yield for United States Treasury
securities at constant maturity having the particular Index Maturity and
for the particular interest determination date as published in
H.15(519) under the caption "Treasury Constant Maturities", or
(c) if the rate referred to in clause (b) does not appear in
H.15(519), the rate on the particular interest determination date for the
period of the particular Index Maturity as may then be published by
either the Federal Reserve System Board of Governors or the United States
Department of the Treasury that the calculation agent determines to be
comparable to the rate which would otherwise have been published in
H.15(519), or
(d) if the rate referred to in clause (c) is not published, the rate
on the particular interest determination date calculated by the
calculation agent as a yield to maturity based on the arithmetic mean of
the secondary market bid prices at approximately 3:30 P.M., New York City
time, on that interest determination date of three leading primary United
States government securities dealers in The City of New York, which may
include the agents or their affiliates, each referred to as a Reference
Dealer, selected by the calculation agent from, five Reference Dealers
selected by the calculation agent 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 United
States Treasury securities with an original maturity equal to the
particular Index Maturity, a remaining term to maturity no more than
1 year shorter than that Index Maturity and in a principal amount that is
representative for a single transaction in the securities in that market
at that time, or
(e) if fewer than five but more than two of the prices referred to in
clause (d) are provided as requested, the rate on the particular interest
determination date calculated by the calculation agent based on the
arithmetic mean of the bid prices obtained and neither the highest nor
the lowest of the quotations shall be eliminated, or
(f) if fewer than three prices referred to in clause (d) are provided
as requested, the rate on the particular interest determination date
calculated by the calculation agent as a yield to maturity based on the
arithmetic mean of the secondary market bid prices as of approximately
3:30 P.M., New York City time, on that interest determination date of
three Reference Dealers selected by the calculation agent from five
Reference Dealers selected by the calculation agent 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
United States Treasury securities with an original maturity greater than
the particular Index Maturity, a remaining term to maturity closest to
that Index Maturity and in a principal amount that is representative for
a single transaction in the securities in that market at that time, or
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(g) if fewer than five but more than two prices referred to in
clause (f) are provided as requested, the rate on the particular interest
determination date calculated by the calculation agent based on the
arithmetic mean of the bid prices obtained and neither the highest nor
the lowest of the quotations will be eliminated, or
(h) if fewer than three prices referred to in clause (f) are provided
as requested, the CMT Rate in effect on the particular interest
determination date.
If two United States Treasury securities with an original maturity greater
than the Index Maturity specified in the applicable pricing supplement have
remaining terms to maturity equally close to the particular Index Maturity,
the quotes for the United States Treasury security with the shorter original
remaining term to maturity will be used.
(2) if CMT Telerate Page 7052 is specified in the applicable pricing
supplement:
(a) the percentage equal to the one-week or one-month, as specified
in the applicable pricing supplement, average yield for United States
Treasury securities at constant maturity having the Index Maturity
specified in the applicable pricing supplement as published in
H.15(519) opposite the caption "Treasury Constant Maturities", as the
yield is displayed on Bridge Telerate, Inc., or any successor service, on
page 7052, or any other page as may replace the specified page on that
service, referred to as, Telerate Page 7052, for the week or month, as
applicable, ended immediately preceding the week or month, as applicable,
in which the particular interest determination date falls, or
(b) if the rate referred to in clause (a) does not appear on Telerate
Page 7052, the percentage equal to the one-week or one-month, as
specified in the applicable pricing supplement, average yield for United
States Treasury securities at constant maturity having the particular
Index Maturity and for the week or month, as applicable, preceding the
particular interest determination date as published in
H.15(519) opposite the caption "Treasury Constant Maturities," or
(c) if the rate referred to in clause (b) does not appear in
H.15(519), the one-week or one-month, as specified in the applicable
pricing supplement, average yield for United States Treasury securities
at constant maturity having the particular Index Maturity as otherwise
announced by the Federal Reserve Bank of New York for the week or month,
as applicable, ended immediately preceding the week or month, as
applicable, in which the particular interest determination date falls, or
(d) if the rate referred to in clause (c) is not published, the rate
on the particular interest determination date calculated by the
calculation agent as a yield to maturity based on the arithmetic mean of
the secondary market bid prices at approximately 3:30 P.M., New York City
time, on that interest determination date of three Reference Dealers
selected by the calculation agent, from five Reference Dealers selected
by the calculation agent 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 United States Treasury
securities with an original maturity equal to the particular Index
Maturity, a remaining term to maturity no more than 1 year shorter than
that Index Maturity and in a principal amount that is representative for
a single transaction in the securities in that market at that time, or
(e) if fewer than five but more than two of the prices referred to in
clause (d) are provided as requested, the rate on the particular interest
determination date calculated by the calculation agent based on the
arithmetic mean of the bid prices obtained and neither the highest nor
the lowest of the quotations shall be eliminated, or
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(f) if fewer than three prices referred to in clause (d) are provided
as requested, the rate on the particular interest determination date
calculated by the calculation agent as a yield to maturity based on the
arithmetic mean of the secondary market bid prices as of approximately
3:30 P.M., New York City time, on that interest determination date of
three Reference Dealers selected by the calculation agent from, five
Reference Dealers selected by the calculation agent 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
United States Treasury securities with an original maturity greater than
the particular Index Maturity, a remaining term to maturity closest to
that Index Maturity and in a principal amount that is representative for
a single transaction in the securities in that market at the time, or
(g) if fewer than five but more than two prices referred to in
clause (f) are provided as requested, the rate on the particular interest
determination date calculated by the calculation agent based on the
arithmetic mean of the bid prices obtained and neither the highest or the
lowest of the quotations will be eliminated, or
(h) if fewer than three prices referred to in clause (f) are provided
as requested, the CMT Rate in effect on that interest determination date.
If two United States Treasury securities with an original maturity greater
than the Index Maturity specified in the applicable pricing supplement have
remaining terms to maturity equally close to the particular Index Maturity,
the quotes for the United States Treasury security with the shorter original
remaining term to maturity will be used.
COMMERCIAL PAPER RATE. "Commercial Paper Rate" means:
(1) the Money Market Yield, as defined below, on the particular interest
determination date of the rate for commercial paper having the Index
Maturity specified in the applicable pricing supplement as published in
H.15(519) under the caption "Commercial Paper--Nonfinancial", or
(2) if the rate referred to in clause (1) is not published by
3:00 P.M., New York City time, on the related calculation date, the Money
Market Yield of the rate on the particular interest determination date for
commercial paper having the particular Index Maturity as published in H.15
Daily Update, or other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption "Commercial
Paper--Nonfinancial", or
(3) if the rate referred to in clause (2) is not published by
3:00 P.M., New York City time, on the related calculation date, the rate on
the particular interest determination date calculated by the calculation
agent as the Money Market Yield of the arithmetic mean of the offered rates
at approximately 11:00 A.M., New York City time, on that interest
determination date of three leading dealers of United States dollar
commercial paper in The City of New York, which may include the agents or
their affiliates, selected by the calculation agent for commercial paper
having the particular Index Maturity placed for industrial issuers whose
bond rating is "Aa", or the equivalent, from a nationally recognized
statistical rating organization, or
(4) if the dealers selected by the calculation agent are not quoting as
mentioned in clause (3), the Commercial Paper Rate in effect on the
particular interest determination date.
"Money Market Yield" means a yield, expressed as a percentage, calculated in
accordance with the following formula:
D x 360
Money Market Yield = ------------ x 100
360 - (D x M)
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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 applicable interest reset period.
ELEVENTH DISTRICT COST OF FUNDS RATE. "Eleventh District Cost of Funds
Rate" means:
(1) the rate equal to the monthly weighted average cost of funds for the
calendar month immediately preceding the month in which the particular
interest determination date falls as set forth under the caption "11th
District" on the display on Bridge Telerate, Inc., or any successor service,
on page 7058, or any other page as may replace the specified page on that
service, referred to as Telerate Page 7058, as of 11:00 A.M., San Francisco
time, on that interest determination date, or
(2) if the rate referred to in clause (1) does not appear on Telerate
Page 7058, the monthly weighted average cost of funds paid by member
institutions of the Eleventh Federal Home Loan Bank District that was most
recently announced, referred to as the Index, by the Federal Home Loan Bank
of San Francisco as the cost of funds for the calendar month immediately
preceding that interest determination date, or
(3) if the Federal Home Loan Bank of San Francisco fails to announce the
Index on or prior to the particular interest determination date for the
calendar month immediately preceding that interest determination date, the
Eleventh District Cost of Funds Rate in effect on the particular interest
determination date.
FEDERAL FUNDS RATE. "Federal Funds Rate" means:
(1) the rate on the particular interest determination date for United
States dollar federal funds as published in H.15(519) under the caption
"Federal Funds (Effective)" and displayed on Bridge Telerate, Inc., or any
successor service, on page 120, or any other page as may replace the
specified page on that service, referred to as Telerate Page 120, or
(2) if the rate referred to in clause (1) does not appear on Telerate
Page 120 or is not published by 3:00 P.M., New York City time, on the
related calculation date, the rate on the particular interest determination
date for United States dollar federal funds as published in H.15 Daily
Update, or any other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption "Federal Funds
(Effective)", or
(3) if the rate referred to in clause (2) is not published by
3:00 P.M., New York City time, on the related calculation date, the rate on
the particular interest determination date calculated by the calculation
agent as the arithmetic mean of the rates for the last transaction in
overnight United States dollar federal funds arranged by three leading
brokers of United States dollar federal funds transactions in The City of
New York, which may include the agents or their affiliates, selected by the
calculation agent prior to 9:00 A.M., New York City time, on that interest
determination date, or
(4) if the brokers selected by the calculation agent are not quoting as
mentioned in clause (3), the Federal Funds Rate in effect on the particular
interest determination date.
LIBOR. "LIBOR" means:
(1) if "LIBOR Telerate" is specified in the applicable pricing
supplement or if neither "LIBOR Reuters" nor "LIBOR Telerate" is specified
in the applicable pricing supplement as the method for calculating LIBOR,
the rate for deposits in the LIBOR Currency having the Index Maturity
specified in the applicable pricing supplement, commencing on the related
interest reset date, that appears on the LIBOR Page, as defined below, as of
11:00 A.M., London time, on the particular interest determination date, or
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(2) if "LIBOR Reuters" is specified in the applicable pricing
supplement, the arithmetic mean of the offered rates, calculated by the
calculation agent, or the offered rate, if the LIBOR Page by its terms
provides only for a single rate, for deposits in the LIBOR Currency having
the particular Index Maturity, commencing on the related interest reset
date, that appear or appears, as the case may be, on the LIBOR Page as of
11:00 A.M., London time, on the particular interest determination date, or
(3) if fewer than two offered rates appear, or no rate appears, as the
case may be, on the particular interest determination date on the LIBOR Page
as specified in clause (1) or (2), as applicable, the rate calculated by the
calculation agent of at least two offered quotations obtained by the
calculation agent after requesting the principal London offices of each of
four major reference banks, which may include affiliates of the agents, in
the London interbank market to provide the calculation agent with its
offered quotation for deposits in the LIBOR Currency for the period of the
particular Index Maturity, commencing on the related interest reset date, to
prime banks in the London interbank market at approximately 11:00 A.M.,
London time, on that interest determination date and in a principal amount
that is representative for a single transaction in the LIBOR Currency in
that market at that time, or
(4) if fewer than two offered quotations referred to in clause (3) are
provided as requested, the rate calculated by the calculation agent as the
arithmetic mean of the rates quoted at approximately 11:00 A.M., in the
applicable Principal Financial Center, on the particular interest
determination date by three major banks, which may include affiliates of the
agents, in that Principal Financial Center selected by the calculation agent
for loans in the LIBOR Currency to leading European banks, having the
particular Index Maturity and in a principal amount that is representative
for a single transaction in the LIBOR Currency in that market at that time,
or
(5) if the banks selected by the calculation agent are not quoting as
mentioned in clause (4), LIBOR in effect on the particular interest
determination date.
"LIBOR Currency" means the currency specified in the applicable pricing
supplement as to which LIBOR shall be calculated or, if no currency is
specified in the applicable pricing supplement, United States dollars.
"LIBOR Page" means either:
- if "LIBOR Reuters" is specified in the applicable pricing supplement, the
display on the Reuter Monitor Money Rates Service, or any successor
service, on the page specified in the applicable pricing supplement, or
any other page as may replace that page on that service, for the purpose
of displaying the London interbank rates of major banks for the LIBOR
Currency; or
- if "LIBOR Telerate" is specified in the applicable pricing supplement or
neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the
applicable pricing supplement as the method for calculating LIBOR, the
display on Bridge Telerate, Inc., or any successor service, on the page
specified in the applicable pricing supplement, or any other page as may
replace that page on that service, for the purpose of displaying the
London interbank rates of major banks for the LIBOR Currency.
PRIME RATE. "Prime Rate" means:
(1) the rate on the particular interest determination date as published
in H.15(519) under the caption "Bank Prime Loan", or
(2) if the rate referred to in clause (1) is not published by
3:00 P.M., New York City time, on the related calculation date, the rate on
the particular interest determination date as published in H.15 Daily
Update, or any other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption "Bank Prime Loan", or
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(3) if the rate referred to in clause (2) is not published by
3:00 P.M., New York City time, on the related calculation date, the rate on
the particular interest determination date calculated by the calculation
agent as the arithmetic mean of the rates of interest publicly announced by
each bank that appears on the Reuters Screen US PRIME 1 Page, as defined
below, as the applicable bank's prime rate or base lending rate as of
11:00 A.M., New York City time, on that interest determination date, or
(4) if fewer than four rates referred to in clause (3) are published by
3:00 p.m., New York City time, on the related calculation date, the rate on
the interest determination date calculated by the calculation agent as the
arithmetic mean of the prime rates or base lending rates quoted on the basis
of the actual number of days in the year divided by a 360-day year as of the
close of business on that interest determination date by three major banks,
which may include affiliates of the agents, in The City of New York selected
by the calculation agent, or
(5) if the banks selected by the calculation agent are not quoting as
mentioned in clause (4), the Prime Rate in effect on the particular interest
determination date.
"Reuters Screen US PRIME 1 Page" means the display on the Reuter Monitor
Money Rates Service, or any successor service, on the "US PRIME 1" page, or
any other page as may replace that page on that service for the purpose of
displaying prime rates or base lending rates of major United States banks.
TREASURY RATE. "Treasury Rate" means:
(1) the rate from the auction held on the interest determination date,
of direct obligations of the United States, or Treasury Bills, referred to
as the Auction, having the Index Maturity specified in the applicable
pricing supplement under the caption "INVESTMENT RATE" on the display on
Bridge Telerate, Inc., or any successor service, on page 56, or any other
page as may replace that page on that service, referred to as Telerate Page
56, or page 57, or any other page as may replace that page on that service,
referred to as Telerate Page 57, or
(2) if the rate referred to in clause (1) is not published by
3:00 P.M., New York City time, on the related calculation date, the Bond
Equivalent Yield, as defined below, of the rate for the applicable Treasury
Bills as published in H.15 Daily Update, or another recognized electronic
source used for the purpose of displaying the applicable rate, under the
caption "U.S. Government Securities/Treasury Bills/Auction High", or
(3) if the rate referred to in clause (2) is not published by
3:00 P.M., New York City time, on the related calculation date, the Bond
Equivalent Yield of the auction rate of the applicable Treasury Bills as
announced by the United States Department of the Treasury, or
(4) if the rate referred to in clause (3) is not announced by the United
States Department of the Treasury, or if the Auction is not held, the Bond
Equivalent Yield of the rate on the particular interest determination date
of the applicable Treasury Bills as published in H.15(519) under the caption
"U.S. Government Securities/Treasury Bills/Secondary Market", or
(5) if the rate referred to in clause (4) not published by 3:00 P.M.,
New York City time, on the related calculation date, the rate on the
particular interest determination date of the applicable Treasury Bills as
published in H.15 Daily Update, or another recognized electronic source used
for the purpose of displaying the applicable rate, under the caption "U.S.
Government Securities/ Treasury Bills/Secondary Market", or
(6) if the rate referred to in clause (5) is not published by
3:00 P.M., New York City time, on the related calculation date, the rate on
the particular interest determination date calculated by the calculation
agent as the Bond Equivalent Yield of the arithmetic mean of the secondary
market bid rates, as of approximately 3:30 P.M., New York City time, on that
interest determination date,
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of three primary United States government securities dealers, which may
include the agents or their affiliates, selected by the calculation agent,
for the issue of Treasury Bills with a remaining maturity closest to the
Index Maturity specified in the applicable pricing supplement, or
(7) if the dealers selected by the calculation agent are not quoting as
mentioned in clause (6), the Treasury Rate in effect on the particular
interest determination date.
"Bond Equivalent Yield" means a yield, expressed as a percentage, calculated in
accordance with the following formula:
D x N
Bond Equivalent Yield = ------------ x 100
360 - (D x M)
where "D" refers to the applicable per annum rate for Treasury Bills quoted on a
bank discount basis and expressed as a decimal, "N" refers to 365 or 366, as the
case may be, and "M" refers to the actual number of days in the applicable
interest reset period.
OTHER PROVISIONS; ADDENDA
Any provisions with respect to an issue of notes, including the
determination of one or more interest rate bases, the specification of one or
more interest rate bases, the calculation of the interest rate applicable to a
floating rate note, the interest payment dates, the stated maturity date, any
redemption or repayment provisions or any other matter relating to the notes,
may be modified by the terms as specified under "Other/Additional Provisions" on
the face of the notes or in an addendum relating to the notes, if specified on
the face of the notes, and in the pricing supplement.
AMORTIZING NOTES
We may offer amortizing notes. Interest on each amortizing note will be
computed on the basis of a 360-day year of twelve 30-day months. Payments with
respect to amortizing notes will be applied first to interest due and payable on
that amortizing note and then to the reduction of its unpaid principal amount.
Further information concerning additional terms and conditions of any issue of
amortizing notes will be provided in the pricing supplement, including a table
setting forth repayment information in respect of each amortizing note.
ORIGINAL ISSUE DISCOUNT NOTES
We may offer notes from time to time that have an issue price that is less
than 100% of their principal amount, referred to as discount notes. Discount
notes may not bear any interest currently or may bear interest at a rate that is
below market rates at the time of issuance. The difference between the issue
price of a discount note and 100% of the principal amount is referred to as the
discount. In the event of redemption, repayment or acceleration of maturity of a
discount note, the amount payable to the holder of a discount note will be equal
to the sum of:
(1) the issue price, increased by any accruals of discount, and, in the
event of any redemption of the discount note, if applicable, multiplied by
the initial redemption percentage specified in the applicable pricing
supplement, as adjusted by the annual redemption percentage reduction, if
applicable, specified in the applicable pricing supplement; plus
(2) any unpaid interest on the discount note accrued from the date of
issue to the date of the redemption, repayment or acceleration of maturity.
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Unless otherwise specified in the applicable pricing supplement, for
purposes of determining the amount of discount that has accrued as of any date
on which a redemption, repayment or acceleration of maturity occurs for a
discount note, the discount will accrue using a constant yield method:
- The constant yield will be calculated using a 30-day month, 360-day year
convention, a compounding period that, except for the period from the date
of issue to the initial interest payment date for a discount note,
referred to as the initial period, corresponds to the shortest period
between interest payment dates for the applicable discount note with
ratable accruals within a compounding period, a coupon rate equal to the
initial coupon rate applicable to the discount note and an assumption that
the maturity of the discount note will not be accelerated.
- If the initial period is shorter than the compounding period for the
discount note, a proportionate amount of the yield for an entire
compounding period will be accrued.
- If the initial period is longer than the compounding period, then this
period will be divided into a regular compounding period and a short
period with the short period being treated as provided in the preceding
sentence.
The accrual of the applicable discount may differ from the accrual of
original issue discount for purposes of the Internal Revenue Code of 1986,
referred to as the Code, discount notes may not be treated as having original
issue discount within the meaning of the Code, and notes other than discount
notes may be treated as issued with original issue discount for federal income
tax purposes. See "United States Federal Income Tax Considerations."
INDEXED NOTES
We may issue notes with the amount of principal, premium and/or interest
payable 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, including a
composite currency, relative to an indexed currency; or
- to any other price(s) or exchange rate(s), as specified in the applicable
pricing supplement.
We refer to these types of notes in this prospectus supplement as indexed
notes.
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 payable in respect of indexed notes, particular
historical information with respect to the specified indexed item and tax
considerations associated with an investment in indexed notes will be specified
in the applicable pricing supplement. See also "Risk Factors."
BOOK-ENTRY NOTES
AvalonBay has established a depository arrangement with DTC with respect to
the book-entry notes, the terms of which are summarized below. Any additional or
differing terms of the depositary arrangement with respect to the book-entry
notes will be described in the applicable pricing supplement.
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DESCRIPTION OF THE GLOBAL NOTES
Upon issuance, all book-entry notes having the same date of issue, maturity
and otherwise having identical terms and provisions will be represented by one
or more fully registered global notes. Each global note will be deposited with,
or on behalf of, DTC registered in the name of DTC or a nominee of DTC. Unless
and until it is exchanged in whole or in part for notes in certificated form, no
global note may be transferred except as a whole by DTC to a nominee of DTC, or
by a nominee of DTC to DTC or another nominee of DTC, or by DTC or any nominee
to a successor of DTC or a nominee of the successor.
So long as DTC, or its nominee, is the registered owner of a global note,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the notes represented by the global note for all purposes under the
Indenture. Except as provided below, beneficial owners of a global note will not
be entitled to have the notes represented by a global note registered in their
names, will not receive or be entitled to receive physical delivery of the notes
in definitive form and will not be considered the owners or holders thereof
under the indenture. Accordingly, each person owning a beneficial interest in a
global note must rely on the procedures of DTC and, if that person is not a
participant, on the procedures of the participant through which that person owns
its interest, to exercise any rights of a holder under the indenture. AvalonBay
understands that under existing industry practices, in the event that AvalonBay
requests any action of holders or that an owner of a beneficial interest in a
global note desires to give or take any action which a holder is entitled to
give or take under the Indenture, DTC would authorize the participants holding
the relevant beneficial interests to give or take the desired action, and the
participants would authorize beneficial owners owning through the participants
to give or take the desired action or would otherwise act upon the instructions
of beneficial owners. The laws of some states may require that purchasers of
securities take physical delivery of securities in definitive form. These laws
may impair the ability to own, transfer or pledge beneficial interests in global
notes.
Each global note will be exchangeable for notes in certificated form of like
tenor and of an equal aggregate principal amount, in denominations of $1,000 and
integral multiples of $1,000, only if:
(a) DTC is at any time unwilling or unable to continue as depository and
a successor depository is not appointed by AvalonBay within 90 days,
(b) AvalonBay executes and delivers to the Trustee a company order to
the effect that the global notes shall be exchangeable, or
(c) an Event of Default has occurred and is continuing with respect to
the notes and beneficial owners representing a majority in aggregate
principal amount of the book-entry notes represented by the global note
advise DTC to stop acting as the depository.
The certificated notes will be registered in the name or names as DTC instructs
the Trustee. It is expected that instructions may be based upon directions
received by DTC from participants with respect to ownership of beneficial
interests in global notes.
DTC'S PROCEDURES
The following is based on information furnished by DTC:
DTC will act as securities depository for the book-entry notes. The
book-entry notes will be issued as fully registered securities registered in the
name of Cede & Co., DTC's partnership nominee. One fully registered global note
will be issued for each issue of book-entry notes, each in the aggregate
principal amount of the issue, and will be deposited with DTC. If, however, the
aggregate principal amount of any issue exceeds $500,000,000, one global note
will be issued with respect to each
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$500,000,000 of principal amount and an additional global note will be issued
with respect to any remaining principal amount of the issue.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered in accordance with the provisions of Section 17A of the Exchange Act.
DTC holds securities that its participants deposit with DTC. DTC also
facilitates the settlement among participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
of DTC include securities brokers and dealers, banks, trust companies, clearing
corporations and other organizations. DTC is owned by a number of its direct
participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, LLC, and the NASD Dealers, Inc. Access to DTC's system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
Purchases of book-entry notes under DTC's system must be made by or through
direct participants, which will receive a credit for those book-entry notes on
DTC's records. The ownership interest of each actual purchaser of each
book-entry note represented by a global note is, in turn, to be recorded on the
records of direct participants and indirect participants. Beneficial owners of
book-entry notes will not receive written confirmation from DTC of their
purchases, but beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the direct participants or indirect participants through which
the beneficial owner entered into the transaction. Transfers of ownership
interests in a global note representing book-entry notes are to be accomplished
by entries made on the books of participants acting on behalf of beneficial
owners. Beneficial owners of a global note representing book-entry notes will
not receive notes in certificated form representing their ownership interests in
those notes, except in the event that use of the book-entry system for the
book-entry notes is discontinued.
To facilitate subsequent transfers, all global notes representing book-entry
notes which are deposited with, or on behalf of, DTC are registered in the name
of DTC's nominee, Cede & Co. The deposit of global notes with, or on behalf of,
DTC and their registration in the name of Cede & Co. effect no change in
beneficial ownership. DTC has no knowledge of the actual beneficial owners of
the global notes representing the book-entry notes. DTC's records reflect only
the identity of the direct participants to whose accounts the book-entry notes
are credited, which may or may not be the beneficial owners. The participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners, will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the global
notes representing the book-entry notes. Under its usual procedures, DTC mails
an omnibus proxy to AvalonBay as soon as possible after the applicable record
date. The omnibus proxy assigns Cede & Co.'s consenting or voting rights to
those direct participants, identified in a listing attached to the omnibus proxy
to whose accounts the book-entry notes are credited on the applicable record
date.
AvalonBay will make principal and any premium and interest payments on the
global notes representing the book-entry notes in immediately available funds to
DTC. DTC's practice is to credit direct participants' accounts on the applicable
payment date in accordance with their respective
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holdings shown on DTC's records unless DTC has reason to believe that it will
not receive payment on the applicable payment date. Payments by participants to
beneficial owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
the applicable participant and not of DTC, the Trustee or AvalonBay, subject to
any statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and any premium and interest to DTC is the responsibility
of AvalonBay or the Trustee, disbursement of payments to direct participants
will be the responsibility of DTC, and disbursement of payments to the
beneficial owners will be the responsibility of direct participants and indirect
participants.
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the book-entry notes within the same issue are being redeemed, DTC's
practice is to determine by lot the amount of the interest of each direct
participant in the issue to be redeemed.
A beneficial owner will give notice of any option to elect to have its
book-entry notes repaid by AvalonBay, through its participant, to the Trustee,
and will effect delivery of the applicable book-entry notes by causing the
direct participant to transfer the participant's interest in the global note
representing the book-entry notes, on DTC's records, to the Trustee. The
requirement for physical delivery of book-entry notes in connection with a
demand for repayment will be deemed satisfied when the ownership rights in the
global note representing the book-entry notes are transferred by direct
participants on DTC's records.
DTC may discontinue providing its services as securities depository with
respect to the book-entry notes at any time by giving reasonable notice to
AvalonBay or the Trustee. In the event that a successor securities depository is
not obtained, notes in certificated form are required to be printed and
delivered.
AvalonBay may decide to discontinue use of the system of book-entry
transfers through DTC or a successor securities depository. In that event, notes
in certificated form will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that AvalonBay believes to be reliable, but AvalonBay
takes no responsibility for the accuracy of the information.
COVENANTS OF AVALONBAY
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS. We will not, and will not permit
any Subsidiary, as defined below, to, incur any Indebtedness, as defined below,
if immediately after giving effect to the incurrence of any additional
Indebtedness and the application of its proceeds, the aggregate principal amount
of all outstanding Indebtedness of AvalonBay and its subsidiaries on a
consolidated basis, determined in accordance with GAAP is greater than 60% of
the sum of, without duplication:
- the Total Assets, as defined below, of us and our Subsidiaries as of the
end of the calendar quarter covered in AvalonBay's Annual Report on
Form 10-K or Quarterly Report on Form 10-Q most recently filed with the
SEC, or, if this filing is not permitted under the Exchange Act, with the
Trustee, prior to the incurrence of this additional Indebtedness; and
- the purchase price of any real estate assets or mortgages receivable
acquired, and the amount of any securities offering proceeds received, to
the extent that these proceeds were not used to acquire real estate assets
or mortgages receivable or used to reduce Indebtedness, by AvalonBay or
any Subsidiary since the end of the calendar quarter, including those
proceeds obtained in connection with the incurrence of this additional
Indebtedness.
In addition, AvalonBay will not, and will not permit any Subsidiary to,
incur any Indebtedness secured by any Encumbrance, as defined below, upon any of
the property of AvalonBay or any
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Subsidiary if, immediately after giving effect to the incurrence of this
additional Indebtedness and the application of its proceeds, the aggregate
principal amount of all outstanding Indebtedness of AvalonBay and its
subsidiaries on a consolidated basis which is secured by any Encumbrance on
property of AvalonBay or any Subsidiary is greater than 40% of the sum of,
without duplication:
- the Total Assets of AvalonBay and its Subsidiaries as of the end of the
calendar quarter covered in AvalonBay's Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, most recently filed with the SEC, or, if
that filing is not permitted under the Exchange Act, with the Trustee,
prior to the incurrence of that additional Indebtedness; and
- the purchase price of any real estate assets or mortgages receivable
acquired, and the amount of any securities offering proceeds received, to
the extent that those proceeds were not used to acquire real estate assets
or mortgages receivable or used to reduce Indebtedness, by AvalonBay or
any Subsidiary since the end of the calendar quarter, including those
proceeds obtained in connection with the incurrence of this additional
Indebtedness.
AvalonBay and its Subsidiaries may not at any time, own Total Unencumbered
Assets, as defined below, equal to less than 150% of the aggregate outstanding
principal amount of the Unsecured Indebtedness of AvalonBay and its Subsidiaries
on a consolidated basis.
In addition, AvalonBay will not, and will not permit any Subsidiary to,
incur any Indebtedness if the ratio of Consolidated Income Available for Debt
Service, as defined below, to the Annual Service Charge, as defined below, for
the four consecutive fiscal quarters most recently ended prior to the date on
which the additional Indebtedness is to be incurred will have been less than
1.5:1, on a pro forma basis after giving effect to it and to the application of
its proceeds, and calculated on the assumption that:
- this Indebtedness and any other Indebtedness incurred by AvalonBay and its
Subsidiaries since the first day of that four-quarter period and the
application of its proceeds, including to refinance other Indebtedness,
had occurred at the beginning of that period;
- the repayment or retirement of any other Indebtedness by AvalonBay and its
Subsidiaries since the first day of the four-quarter period had been
repaid or retired at the beginning of the period, except that, in making
this computation, the amount of Indebtedness under any revolving credit
facility will be computed based upon the average daily balance of the
Indebtedness during that period;
- in the case of Acquired Indebtedness, as defined below, or Indebtedness
incurred in connection with any acquisition since that first day of the
four-quarter period, the related acquisition had occurred as of the first
day of the period with the appropriate adjustments with respect to the
acquisition being included in this pro forma calculation; and
- in the case of any acquisition or disposition by AvalonBay or its
Subsidiaries, of any asset or group of assets since the first day of the
four-quarter period, whether by merger, stock purchase or sale, or asset
purchase or sale, this acquisition or disposition or any related repayment
of Indebtedness had occurred as of the first day of that period with the
appropriate adjustments with respect to that acquisition or disposition
being included in this pro forma calculation.
As used in this prospectus supplement and in the Indenture:
"Acquired Indebtedness" means Indebtedness of a Person:
- existing at the time this Person becomes a Subsidiary, or
- assumed in connection with the acquisition of assets from that Person, in
each case, other than Indebtedness incurred in connection with, or in
contemplation of, that Person becoming a Subsidiary or any acquisition.
Acquired Indebtedness will be deemed to be incurred on the date
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of the related acquisition of assets from any Person or the date the
acquired Person becomes a Subsidiary.
"Annual Service Charge" for any period means the maximum amount which is
payable during any period for interest on, and original issue discount of,
Indebtedness of AvalonBay and its Subsidiaries and the amount of dividends which
are payable during that period in respect of any Disqualified Stock, as defined
below.
"Capital Stock" means, with respect to any Person, any capital stock,
including preferred stock, shares, interests, participations or other ownership
interests, however designated, of any Person and any rights, other than debt
securities convertible into or exchangeable for corporate stock, warrants or
options.
"Consolidated Income Available for Debt Service" for any period means
Earnings from Operations, as defined below, of AvalonBay and its Subsidiaries,
plus amounts which have been deducted, and minus amounts which have been added,
for the following, without duplication:
- interest on Indebtedness of AvalonBay and its Subsidiaries,
- provision for taxes of AvalonBay and its Subsidiaries based on income,
- amortization of debt discount and other deferred financing costs,
- provisions for gains and losses on properties and property depreciation
and amortization,
- the effect of any noncash charge resulting from a change in accounting
principles in determining Earnings from Operations for that period, and
- amortization of deferred charges.
"Disqualified Stock" means, with respect to any Person, any Capital Stock of
that Person which by the terms of that Capital Stock, or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable, upon the happening of any event or otherwise:
- matures or is mandatorily redeemable, other than Capital Stock which is
redeemable solely in exchange for common stock,
- is convertible into or exchangeable or exercisable for Indebtedness or
Disqualified Stock, or
- is redeemable at the option of its holder, in whole or in part, other than
Capital Stock which is redeemable solely in exchange for Capital Stock
which is not Disqualified Stock, in each case on or prior to the Stated
Maturity of the notes.
"Earnings from Operations" for any period means net earnings excluding gains
and losses on sales of investments, extraordinary items and property valuations
losses, net as reflected in the financial statements of AvalonBay and its
Subsidiaries for any period determined on a consolidated basis in accordance
with GAAP.
"Encumbrance" means any mortgage, lien, charge, pledge or security interest
of any kind.
"Indebtedness" of AvalonBay or any Subsidiary means, without duplication,
any indebtedness of AvalonBay or any Subsidiary, whether or not contingent, in
respect of:
(1) borrowed money or evidenced by bonds, notes, debentures or similar
instruments,
(2) indebtedness for borrowed money secured by any Encumbrance existing on
property owned by AvalonBay or any Subsidiary,
(3) the reimbursement obligations, contingent or otherwise, in connection
with any letters of credit actually issued, other than letters of credit
issued to provide credit enhancement or
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support with respect to other indebtedness of AvalonBay or any Subsidiary
otherwise reflected as Indebtedness under the Indenture, or amounts
representing the balance deferred and unpaid of the purchase price of any
property or services, except any balance that constitutes an accrued
expense or trade payable, or all conditional sale obligations or
obligations under any title retention agreement,
(4) the principal amount of all obligations of AvalonBay or any Subsidiary
with respect to redemption, repayment or other repurchase of any
Disqualified Stock,
(5) any lease of property by AvalonBay or any Subsidiary as lessee which is
reflected on AvalonBay's consolidated balance sheet as a capitalized
lease in accordance with GAAP, or
(6) interest rate swaps, caps or similar agreements and foreign exchange
contracts, currency swaps or similar agreements, to the extent, in the
case of items of indebtedness under (1) through (3) above, that any of
these items, other than letters of credit, would appear as a liability on
AvalonBay's consolidated balance sheet in accordance with GAAP, and also
includes, any obligation by AvalonBay or any Subsidiary to be liable for,
or to pay, as obligor, guarantor or otherwise, other than for purposes of
collection in the ordinary course of business, Indebtedness of another
person. However, it is understood that Indebtedness shall be deemed to be
incurred by AvalonBay or any Subsidiary whenever AvalonBay or any
Subsidiary shall create, assume, guarantee or otherwise become liable for
any Indebtedness.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
of any of these entities.
"Significant Subsidiary" means any subsidiary which is a "Significant
Subsidiary," as defined in Article I, Rule 1-02 of Regulation S-X, under the
Securities Act, of AvalonBay.
"Subsidiary" means, with respect to any Person, any corporation, limited
liability company, partnership or other entity of which a majority of the voting
power of the Voting Equity Securities or the outstanding equity interests are
owned, directly or indirectly, by that Person. For the purposes of this
definition, Voting Equity Securities means equity securities having voting power
for the election of directors, whether at all times or only so long as no senior
class of security has this voting power by reason of any contingency.
"Total Assets" as of any date means the sum of the Undepreciated Real Estate
Assets, as defined below, and all other assets of AvalonBay and its Subsidiaries
determined in accordance with GAAP, but excluding accounts receivable and
intangibles.
"Total Unencumbered Assets" means the sum of those Undepreciated Real Estate
Assets not subject to an Encumbrance for borrowed money and all other assets of
AvalonBay and its Subsidiaries not subject to an Encumbrance for borrowed money,
determined in accordance with GAAP, but excluding accounts receivable and
intangibles.
"Undepreciated Real Estate Assets" as of any date means the cost, original
cost plus capital improvements, of real estate assets of AvalonBay and its
Subsidiaries on any date, before depreciation and amortization, determined on a
consolidated basis in accordance with GAAP.
"Unsecured Indebtedness" means Indebtedness which is not secured by any
Encumbrance upon any of the properties of AvalonBay or any Subsidiary.
See "Description of the Debt Securities--Covenants" in the accompanying
prospectus for a description of additional covenants applicable to AvalonBay.
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MERGER, CONSOLIDATION OR TRANSFER OF ASSETS
AvalonBay may, without the consent of the holders of any outstanding debt
securities, consolidate with, or sell, lease or convey all or substantially all
of its assets to, or merge with or into, any other entity provided that:
- either AvalonBay will be the continuing entity, or the successor entity,
if other than AvalonBay, formed by or resulting from any consolidation or
merger or which shall have received the transfer of those assets is
organized under the laws of any domestic jurisdiction and assumes
AvalonBay's obligations to pay principal of, and premium or make-whole
amount, if any, and interest on all of the debt securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in each Indenture;
- immediately after giving effect to this transaction and treating any
indebtedness that becomes an obligation of AvalonBay or any Subsidiary as
a result of the transaction as having been incurred by AvalonBay or any
Subsidiary at the time of this transaction, no Event of Default, as
provided by the Indenture, and no event which, after notice or the lapse
of time, or both, would become an Event of Default, shall have occurred
and be continuing; and
- an officers' certificate and legal opinion covering these conditions shall
be delivered to the Trustee.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each of the following is an Event of Default, as provided by the Indenture,
with respect to the notes, regardless of the reason for its occurrence:
- default in the payment of any interest on any note when the interest
becomes due and payable, and continuance of the default for 30 days;
- default in the payment of principal of, or any premium or other amount
which may be required to be paid in connection with any optional
redemption or accelerated payment on any note, when due;
- default in the performance or breach of any covenant or warranty, of
AvalonBay contained in the Indenture for the benefit of the notes or in
the notes, and the continuance of the default or breach for 60 days after
written notice has been given;
- any default with respect to any Indebtedness of AvalonBay or any of its
Subsidiaries, the repayment of which we have guaranteed or for which we
are directly responsible or liable as obligor or guarantor, which results
in the acceleration of at least $10,000,000 of Indebtedness, whether the
Indebtedness now exists or shall be subsequently created in principal
amount being accelerated, unless the acceleration is rescinded or annulled
within 10 days after written notice has been given; provided, however,
that a default on Indebtedness which constitutes a tax-exempt financing
having an aggregate principal amount outstanding not exceeding $25,000,000
that results solely from a failure of an entity providing credit support
for that Indebtedness to honor a demand for payment on a letter of credit
will not constitute an Event of Default; and
- any bankruptcy, insolvency or reorganization of AvalonBay or any of its
Significant Subsidiaries.
See "Description of the Debt Securities--Events of Default, notice and
waiver" in the accompanying prospectus for a description of rights, remedies and
other matters relating to Events of Default.
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DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The provisions of Article 14 of the Indenture relating to defeasance and
covenant defeasance, which are described under "Description of Debt
Securities--Discharge, defeasance and covenant defeasance" in the accompanying
prospectus, will apply to the notes. Each of the covenants described under
"Description of the Notes--Covenants of AvalonBay" in this prospectus supplement
and "Description of Debt Securities--Covenants" in the accompanying prospectus
will be subject to covenant defeasance.
NO PERSONAL LIABILITY OR RECOURSE
No recourse under or upon any obligation, covenant or agreement contained in
the Indenture or the notes, or because of any indebtedness evidenced by these
documents, shall be had against any past, present or future stockholder,
employee, officer or director of AvalonBay or any successor, either directly or
through AvalonBay or any successor, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise. Each holder of notes waives and releases
all of this liability by accepting the notes. The waiver and release are part of
the consideration for the issue of the notes.
SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless otherwise specified in the applicable pricing supplement, foreign
currency notes will not be sold in, or to residents of, the country issuing the
Specified Currency. The information set forth in this prospectus supplement is
directed to prospective purchasers who are United States residents and, with
respect to foreign currency notes, is incomplete. AvalonBay and the agents
disclaim any responsibility to advise prospective purchasers who are residents
of countries other than the United States with respect to any matters that may
affect the purchase, holding or receipt of payments of principal of, and
premium, if any, and interest, if any, on, the foreign currency notes. These
purchasers should consult their own financial and legal advisors with regard to
these matters. See "Risk Factors--Fluctuations in exchange rates and
modification of exchange controls may impair your investment in the notes."
PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST
Unless otherwise specified in the applicable pricing supplement, we are
obligated to make payments of principal of, and premium, if any, and interest,
if any, on a foreign currency note in the applicable Specified Currency, or, if
this Specified Currency is not at the time of the payment legal tender for the
payment of public and private debts, in any other coin or currency of the
country which issued the Specified Currency which is at the time of the payment
is legal tender for the payment of the debts. Any amounts payable by AvalonBay
in the Specified Currency will, unless otherwise specified in the applicable
pricing supplement, be converted by the exchange rate agent named in the
applicable pricing supplement into United States dollars for payment to holders.
However, the holder of a foreign currency note may elect to receive any amounts
in the Specified Currency.
Any United States dollar amount to be received by a holder of a foreign
currency note will be based on the highest bid quotation in The City of New York
received by the exchange rate agent at approximately 11:00 A.M., New York City
time, on the second Business Day preceding the applicable payment date from
three recognized foreign exchange dealers, one of whom may be the exchange rate
agent, selected by the exchange rate agent and approved by AvalonBay for the
purchase by the quoting dealer of the Specified Currency for United States
dollars, for settlement on the payment date, in the aggregate amount of the
Specified Currency payable to all holders of foreign currency notes scheduled to
receive United States dollar payments and at which the applicable dealer commits
to execute a contract. All currency exchange costs will be borne by the holders
of the foreign currency notes by
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deductions from these payments. If three bid quotations are not available,
payments will be made in the Specified Currency.
A holder of a foreign currency note may elect to receive all or a specified
portion of any payment of the principal of, and premium, if any, and/or
interest, if any, on the foreign currency note in the Specified Currency by
submitting a written request for this payment to AvalonBay at the office or
agency maintained by AvalonBay for this purpose in the Borough of Manhattan, The
City of New York on or prior to the applicable record date or at least 15
calendar days prior to the maturity date. This written request may be mailed or
hand delivered or sent by cable, telex, or other form of facsimile transmission.
A holder of a foreign currency note may elect to receive all or a specified
portion of all future payments in the Specified Currency in respect of the
principal, premium, if any, and/or interest and need not file a separate
election for each payment. This election will remain in effect until revoked by
written notice to the Trustee, but written notice of any revocation must be
received by the Trustee on or prior to the applicable record date or at least 15
calendar days prior to the maturity date, as the case may be. Holders of foreign
currency notes whose notes are to be held in the name of a broker or nominee
should contact the broker or nominee to determine whether and how an election to
receive payments in the Specified Currency may be made.
We will make payments of the principal of, and premium, if any, and/or
interest, if any, on foreign currency notes which are to be made in United
States dollars in the manner specified with respect to notes denominated in
United States dollars. See "Description of the Notes--General." We will make
payments of interest on foreign currency notes which are to be made in the
Specified Currency on an interest payment date other than the maturity date by
check mailed to the address of the holders of the foreign currency notes, as
they appear in the security register, subject to the right to receive an
interest payments by wire transfer of immediately available funds under
circumstances described under "Description of the Notes--General."
We will make payments of principal of, and premium, if any, and/or interest,
if any, on foreign currency notes which are to be made in the Specified Currency
on the maturity date by wire transfer of immediately available funds to an
account with a bank designated at least 15 calendar days prior to the maturity
date by each holder, provided that the bank has the appropriate facilities and
that the applicable foreign currency note is presented and surrendered at the
principal corporate trust office of the Trustee in time for the Trustee to make
these payments in the funds in accordance with its normal procedures.
Unless otherwise specified in the applicable pricing supplement, a
beneficial owner of a Global Note or securities representing book-entry notes
payable in a Specified Currency other than United States dollars that elects to
receive payments of principal, premium, if any, and/or interest in the Specified
Currency must notify the participant through which it owns its interest on or
prior to the applicable record date or at least 15 calendar days prior to the
maturity date. The participant must notify DTC of this election on or prior to
the third Business Day after the record date or at least 12 calendar days prior
to the maturity date and DTC will notify the Trustee of this election on, or
prior to, the fifth Business Day after the record date, or at least ten calendar
days prior to the maturity date. If complete instructions are received by the
participant from the beneficial owner and forwarded by the participant to DTC,
and by DTC to the Trustee, on or prior to the applicable dates, then the
beneficial owner will receive payments in the applicable Specified Currency.
AVAILABILITY OF SPECIFIED CURRENCY
If the Specified Currency for a foreign currency note is not available for
the required payment of principal, premium, if any, and/or interest, if any, due
to the imposition of exchange controls or other circumstances beyond our control
we will be entitled to satisfy our obligations to the holder of the foreign
currency note by making the payment in United States dollars on the basis of the
Market
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Exchange Rate, as defined below, on the second Business Day prior to the payment
or, if the Market Exchange Rate is not then available, on the basis of the most
recently available Market Exchange Rate or as otherwise specified in the
applicable pricing supplement.
The "Market Exchange Rate" for a Specified Currency other than United States
dollars means the noon dollar buying rate in The City of New York for cable
transfers for the Specified Currency as certified for customs purposes by, or if
not certified, as otherwise determined, by the Federal Reserve Bank of New York.
Any payment made in United States dollars under these circumstances, where the
required payment is in a Specified Currency other than United States dollars,
will not constitute an Event of Default under the Indenture with respect to the
notes.
All determinations referred to above made by the exchange rate agent shall
be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on the holders of the foreign currency
notes.
GOVERNING LAW AND JUDGMENTS
The notes will be governed by and construed in accordance with the laws of
the State of New York. Under current New York law, where a cause of action is
based upon an obligation denominated in a non-United States currency, a state
court in the State of New York rendering a judgment on an obligation would be
required to render its judgment in the non-United States currency, and this
judgment would be converted into United States dollars at the exchange rate
prevailing on the date of entry of the judgment. The holders of these notes
could be subject to exchange rate fluctuations occurring after the judgment is
rendered. It is not certain, however, that a non-New York court would follow the
same rules with respect to conversion.
UNITED STATES FEDERAL INCOME TAXATION CONSIDERATIONS
The following summary of the material United States Federal income tax
consequences of the purchase, ownership and disposition of the notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change, including changes in effective dates, or possible differing
interpretations. It deals only with notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal with
holders other than original purchasers, except where otherwise specifically
noted. Persons considering the purchase of the notes should consult their own
tax advisors concerning the application of United States Federal income tax laws
to their particular situations as well as any consequences of the purchase,
ownership and disposition of the notes arising under the laws of any other
taxing jurisdiction.
As used in this prospectus, the term "U.S. Holder" means a beneficial owner
of a note that is for United States Federal income tax purposes:
(1) a citizen or resident of the United States,
(2) a corporation or a partnership, including an entity treated as a
corporation or a partnership for United States Federal income tax
purposes, created or organized in or under the laws of the United States,
any state thereof or the District of Columbia, unless, in the case of a
partnership, Treasury Department regulations are adopted that provide
otherwise,
(3) an estate whose income is subject to United States Federal income tax
regardless of its source,
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(4) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust, or
(5) any other person whose income or gain in respect of a note is
effectively connected with the conduct of a United States trade or
business.
Trusts not described in clause (4) above in existence on August 20, 1996 that
elect to be treated as a United States person will also be a U.S. Holder for
purposes of the following discussion. As used in this prospectus supplement, the
term "non-U.S. Holder" means a beneficial owner of a note that is not a U.S.
Holder.
U.S. HOLDERS
PAYMENTS OF INTEREST. Payments of interest on a note generally will be
includable in income of U.S. Holders as ordinary interest income at the time
these payments are accrued or are received, in accordance with the U.S. Holder's
regular method of tax accounting.
ORIGINAL ISSUE DISCOUNT. The following summary is a general discussion of
the United States Federal income tax consequences to U.S. Holders of the
purchase, ownership and disposition of notes issued with original issue
discount, referred to as discount notes. The following summary is based upon
final Treasury regulations, referred to as the OID Regulations released by the
Internal Revenue Service on January 27, 1994, as amended on June 11, 1996, under
the original issue discount provisions of the Code.
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a note over its issue
price, if this excess equals or exceeds a DE MINIMIS amount, generally 1/4 of 1%
of the note's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date or, in the case of a note
providing for the payment of any amount other than qualified stated interest, as
defined below, before maturity, multiplied by the weighted average maturity of
the note. The issue price of each note of an issue of notes equals the first
price at which a substantial amount of the notes has been sold, ignoring sales
to bond houses, brokers, or similar persons or organizations acting in the
capacity of underwriters, placement agents, or wholesalers. The stated
redemption price at maturity of a note is the sum of all payments provided by
the note other than "qualified stated interest" payments. The term "qualified
stated interest" generally means stated interest that is unconditionally payable
in cash or property, other than debt instruments of the issuer, at least
annually at a single fixed rate. In addition, under the OID Regulations, if a
note bears interest for one or more accrual periods at a rate below the rate
applicable for the remaining term of the note, for example, notes with teaser
rates or interest holidays, and if the greater of either the resulting foregone
interest on the note or any "true" discount on the note, for example, the excess
of the note's stated principal amount over its issue price, equals or exceeds a
specified de minimis amount, then the stated interest on the note would be
treated as original issue discount rather than qualified stated interest.
Payments of qualified stated interest on a note are taxable to a U.S. Holder
as ordinary interest income at the time these payments are accrued or are
received, in accordance with the U.S. Holder's regular method of tax accounting.
A U.S. Holder of a discount note must include original issue discount in income
as ordinary interest for United States Federal income tax purposes as it accrues
under a constant yield method in advance of receipt of the cash payments
attributable to this income, regardless of the U.S. Holder's regular method of
tax accounting. In general, the amount of original issue discount included in
income by the initial U.S. Holder of a discount note is the sum of the daily
portions of original issue discount with respect to the discount note for each
day during the taxable year, or portion of the taxable year, on which the U.S.
Holder held the discount note. The "daily portion" of original issue discount on
any discount note is determined by allocating to each day in any
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accrual period a ratable portion of the original issue discount allocable to
that accrual period. An "accrual period" may be of any length and the accrual
periods may vary in length over the term of the discount note, provided that
each accrual period is no longer than one year and each scheduled payment of
principal or interest occurs either on the final day of an accrual period or on
the first day of an accrual period. The amount of original issue discount
allocable to each accrual period is generally equal to the difference between:
- the product of the discount note's adjusted issue price at the beginning
of the accrual period and its yield to maturity, determined on the basis
of compounding at the close of each accrual period and appropriately
adjusted to take into account the length of the particular accrual period,
and
- the amount of any qualified stated interest payments allocable to the
accrual period.
The "adjusted issue price" of a discount note at the beginning of any accrual
period is the sum of the issue price of the discount note plus the amount of
original issue discount allocable to all prior accrual periods minus the amount
of any prior payments on the discount note that were not qualified stated
interest payments. Under these rules, U.S. Holders generally will have to
include in income increasingly greater amounts of original issue discount in
successive accrual periods.
A U.S. Holder who purchases a discount note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal to
the sum of all amounts payable on the discount note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the discount note at an "acquisition premium." Under the acquisition
premium rules, the amount of original issue discount which the U.S. Holder must
include in its gross income with respect to the discount note for any taxable
year, or portion thereof in which the U.S. Holder holds the discount note, will
be reduced, but not below zero, by the portion of the acquisition premium
properly allocable to the period.
Under the OID Regulations, floating rate notes and indexed notes, referred
to as variable notes, are subject to special rules whereby a variable note will
qualify as a "variable rate debt instrument" if:
- its issue price does not exceed the total non-contingent principal
payments due under the variable note by more than a specified de minimis
amount, and
- it provides for stated interest, paid or compounded at least annually, at
current values of:
- one or more qualified floating rates,
- a single fixed rate and one or more qualified floating rates,
- a single objective rate, or
- a single fixed rate and a single objective rate that is a qualified
inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of this rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
variable note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
equal to the product of a qualified floating rate and a fixed multiple that is
greater than 0.65 but not more than 1.35 will constitute a qualified floating
rate. A variable rate equal to the product of a qualified floating rate and a
fixed multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate, will also constitute a qualified floating rate. In
addition, under the OID Regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the variable note, for example, two or more qualified floating rates
with values within 25 basis points of each other as determined on the variable
note's issue date, will be treated as a single qualified floating rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute a
qualified floating rate but which is subject to one or more restrictions such as
a maximum
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numerical limitation, referred to as a cap, or a minimum numerical limitation,
referred to as a floor, may, in some circumstances, fail to be treated as a
qualified floating rate under the OID Regulations unless this cap or floor is
fixed throughout the term of the note. An "objective rate" is a rate that is not
itself a qualified floating rate but which is determined using a single fixed
formula that is based on objective financial or economic information. A rate
will not qualify as an objective rate if it is based on information that is
within the control of the issuer, or a related party, or that is unique to the
circumstances of the issuer, or a related party, such as dividends, profits, or
the value of the issuer's stock, although a rate does not fail to be an
objective rate merely because it is based on the credit quality of the issuer.
A "qualified inverse floating rate" is any objective rate where this rate is
equal to a fixed rate minus a qualified floating rate, as long as variations in
the rate can reasonably be expected to inversely reflect contemporaneous
variations in the qualified floating rate. The OID Regulations also provide that
if a variable note provides for stated interest at a fixed rate for an initial
period of one year or less followed by a variable rate that is either a
qualified floating rate or an objective rate and if the variable rate on the
variable note's issue date is intended to approximate the fixed rate, for
example, the value of the variable rate on the issue date does not differ from
the value of the fixed rate by more than 25 basis points, then the fixed rate
and the variable rate together will constitute either a single qualified
floating rate or objective rate, as the case may be.
If a variable note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, and if
the interest on a variable note is unconditionally payable in cash or property,
other than debt instruments of the issuer, at least annually, then all stated
interest on the variable note will constitute qualified stated interest and will
be taxed accordingly. Thus, a variable note that provides for stated interest at
either a single qualified floating rate or a single objective rate throughout
the term thereof and that qualifies as a "variable rate debt instrument" under
the OID Regulations will generally not be treated as having been issued with
original issue discount unless the variable note is issued at a "true" discount,
for example, at a price below the variable note's stated principal amount, in
excess of a specified DE MINIMIS amount. The amount of qualified stated interest
and the amount of original issue discount, if any, that accrues during an
accrual period on a variable note is determined under the rules applicable to
fixed rate debt instruments by assuming that the variable rate is a fixed rate
equal to:
- 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 an objective rate, other than a qualified inverse floating
rate, a fixed rate that reflects the yield that is reasonably expected for
the variable note.
The qualified stated interest allocable to an accrual period is increased, or
decreased, if the interest actually paid during an accrual period exceeds, or is
less than, the interest assumed to be paid during the accrual period in
accordance with the foregoing rules.
In general, any other variable note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the variable note. The OID Regulations
generally require that a variable note be converted into an "equivalent" fixed
rate debt instrument by substituting any qualified floating rate or qualified
inverse floating rate provided for under the terms of the variable note with a
fixed rate equal to the value of the qualified floating rate or qualified
inverse floating rate, as the case may be, as of the variable note's issue date.
Any objective rate, other than a qualified inverse floating rate, provided for
under the terms of the variable note is converted into a fixed rate that
reflects the yield that is reasonably expected for the variable note. In the
case of a variable note that qualifies as a "variable rate debt instrument" and
provides for stated
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interest at a fixed rate, in addition to either one or more qualified floating
rates or a qualified inverse floating rate, the fixed rate is initially
converted into a qualified floating rate, or a qualified inverse floating rate,
if the variable note provides for a qualified inverse floating rate. Under those
circumstances, the qualified floating rate or qualified inverse floating rate
that replaces the fixed rate must be so that the fair market value of the
variable note as of the variable note's issue date is approximately the same as
the fair market value of an otherwise identical debt instrument that provides
for either the qualified floating rate or qualified inverse floating rate rather
than the fixed rate. Subsequent to converting the fixed rate into either a
qualified floating rate or a qualified inverse floating rate, the variable note
is then converted into an "equivalent" fixed rate debt instrument in the manner
described above.
Once the variable note is converted into an "equivalent" fixed rate debt
instrument in accordance with the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the variable note will account for the original issue discount and qualified
stated interest as if the U.S. Holder held the "equivalent" fixed rate debt
instrument. For each accrual period appropriate adjustments will be made to the
amount of qualified stated interest or original issue discount assumed to have
been accrued or paid with respect to the "equivalent" fixed rate debt instrument
in the event that these amounts differ from the actual amount of interest
accrued or paid on the variable note during the accrual period.
If a variable note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the variable note would be treated as a
contingent payment debt obligation. On June 11, 1996, the Treasury Department
issued final regulations, referred to as the CPDI Regulations, concerning the
proper United States Federal income tax treatment of contingent payment debt
instruments. In general, the CPDI Regulations would cause the timing and
character of income, gain or loss reported on a contingent payment debt
instrument to substantially differ from the timing and character of income, gain
or loss reported on a contingent payment debt instrument under general
principles of current United States Federal income tax law. Specifically, the
CPDI Regulations generally require a U.S. Holder of this instrument to include
future contingent and noncontingent interest payments in income as the interest
accrues based upon a projected payment schedule. Moreover, in general, under the
CPDI Regulations, any gain recognized by a U.S. Holder on the sale, exchange, or
retirement of a contingent payment debt instrument will be treated as ordinary
income and all or a portion of any loss realized could be treated as ordinary
loss as opposed to capital loss, depending upon the circumstances. The CPDI
Regulations apply to debt instruments issued on or after August 13, 1996. The
proper United States Federal income tax treatment of variable notes that are
treated as contingent payment debt obligations will be more fully described in
the pricing supplement. Furthermore, any other special United States Federal
income tax considerations, not otherwise discussed in this prospectus
supplement, which are applicable to any particular issue of notes will be
discussed in the pricing supplement.
We may issue notes which:
- may be redeemable at our option before their stated maturity, referred to
as a call option, and/or
- may be repayable at the option of the holder before their stated maturity,
referred to as a put option.
Notes containing these features may be subject to rules that differ from the
general rules discussed above. Investors intending to purchase notes with these
features should consult their own tax advisors, since the original issue
discount consequences will depend, in part, on the particular terms and features
of the purchased notes.
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U.S. Holders may generally, upon election, include in income all interest,
including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium, that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to limitations and
exceptions.
FOREIGN-CURRENCY NOTES. The United States Federal income tax consequences
of the purchase, ownership and disposition of notes providing for payments
denominated in a currency other than U.S. dollars will be more fully described
in the applicable pricing supplement.
SHORT-TERM NOTES. Notes that have a fixed maturity of one year or less,
referred to as short-term notes will be treated as having been issued with
original issue discount. In general, an individual or other cash method U.S.
Holder is not required to accrue the original issue discount unless the U.S.
Holder elects to do so. If the election is not made, any gain recognized by the
U.S. Holder on the sale, exchange or maturity of the short-term note will be
ordinary income to the extent of the original issue discount accrued on a
straight-line basis, or upon election under the constant yield method, based on
daily compounding, through the date of sale or maturity, and a portion of the
deductions otherwise allowable to the U.S. Holder for interest on borrowings
allocable to the short-term note will be deferred until a corresponding amount
of income is realized. U.S. Holders who report income for United States Federal
income tax purposes under the accrual method, and other holders including banks
and dealers in securities, are required to accrue original issue discount on a
short-term note on a straight-line basis unless an election is made to accrue
the original issue discount under a constant yield method, based on daily
compounding.
MARKET DISCOUNT. If a U.S. Holder purchases a note subsequent to the note's
issuance, other than a discount note, for an amount that is less than its stated
redemption price at maturity, or, in the case of a discount note, for an amount
that is less than its adjusted issue price as of the purchase date, this U.S.
Holder may be treated as having purchased the note at a "market discount,"
unless the market discount is less than a specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment, or, in the case of a discount note, any payment that
does not constitute qualified stated interest, on, or any gain realized on the
sale, exchange, retirement or other disposition of, a note as ordinary interest
income to the extent of the lesser of:
- the amount of the payment or realized gain, or
- the market discount which has not previously been included in income and
is treated as having accrued on the note at the time of the payment or
disposition.
Market discount will be considered to accrue ratably during the period from the
date of acquisition to the maturity date of the note, unless the U.S. Holder
elects to accrue market discount on the basis of a constant interest rate.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a note with market discount until the maturity of the note or
earlier dispositions, because a current deduction is only allowable to the
extent the interest expense exceeds an allocable portion of market discount. A
U.S. Holder may elect to include market discount in income currently as it
accrues, on either a ratable or constant interest rate basis, in which case the
rules described above regarding the treatment as ordinary income of gain upon
the disposition of the note and upon the receipt of cash payments and regarding
the deferral of interest deductions will not apply. Generally, a currently
included market discount is treated as ordinary interest for United States
Federal income tax purposes. This election will apply to all debt
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instruments acquired by the U.S. Holder on or after the first day of the taxable
year to which the election applies and may be revoked only with the consent of
the IRS.
PREMIUM. If a U.S. Holder purchases a note for an amount that is greater
than the sum of all amounts payable on the note after the purchase date other
than payments of qualified stated interest, the U.S. Holder will be considered
to have purchased the note with "amortizable bond premium" equal in amount to
the excess. A U.S. Holder may elect to amortize this premium using a constant
yield method over the remaining term of the note and may offset interest
otherwise required to be included in respect of the note during any taxable year
by the amortized amount of the excess for the taxable year. However, if the note
may be optionally redeemed after the U.S. Holder acquires it at a price in
excess of its stated redemption price at maturity, special rules would apply
which could result in a deferral of the amortization of some bond premium until
later in the term of the note. Any election to amortize bond premium applies to
all taxable debt obligations then owned and thereafter acquired by the U.S.
Holder and may be revoked only with the consent of the IRS.
DISPOSITION OF A NOTE. Except as discussed above, upon the sale, exchange
or retirement of a note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement, other than amounts representing accrued and unpaid interest, and
the U.S. Holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax
basis in a note generally will equal the U.S. Holder's initial investment in the
note increased by any original issue discount included in income, and accrued
market discount, if any, if the U.S. Holder has included a market discount in
income, and decreased by the amount of any payments, other than qualified stated
interest payments, received and amortizable bond premium taken with respect to
the note. This gain or loss generally will be long-term capital gain or loss if
the note were held for more than one year. Long-term capital gains of
individuals are subject to reduced capital gain rates while short-term capital
gains are subject to ordinary income rates. The deductibility of capital losses
is generally subject to limitations. Prospective investors should consult their
own tax advisors concerning these tax law provisions.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium, if any, or interest, including original issue
discount or market discount, if any, on a note, unless the non-U.S. Holder is a
direct or indirect 10% or greater shareholder of AvalonBay, a controlled foreign
corporation related to AvalonBay, a bank receiving interest described in
section 881(c)(3)(A) of the Code, or an individual present in the United States
for 183 days or more in the taxable year in which premium, if any, is paid. To
qualify for the exemption from taxation, the last withholding agent, as defined
below, must have received a statement from the individual or corporation that:
- is signed by the beneficial owner of the note under penalties of perjury,
- certifies that owner is not a U.S. Holder, and
- provides the name and address of the beneficial owner.
A withholding agent is any United States payor, or a non-U.S. payor who is a
qualifying intermediary, U.S. branch of a foreign person, or withholding foreign
partnership, in the chain of payment prior to payment to a non-U.S. Holder,
which itself is not a withholding agent. Generally, this statement is made on an
IRS Form W-8BEN, which is effective for the remainder of the year of signature
plus three full calendar years unless a change in circumstances makes any
information on the form incorrect. Notwithstanding the preceding sentence, a
Form W-8BEN with a U.S. taxpayer identification number will remain in effect
until a change in circumstances makes any information on the form incorrect,
provided, that, the withholding agent reports at least annually to the
beneficial owner on
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Form 1042-S. The beneficial owner must inform the withholding agent within
30 days of this change and furnish a new Form W-8BEN. A noteholder who is not an
individual or corporation, or an entity treated as a corporation for federal
income tax purposes, holding the notes on its own behalf may have substantially
increased reporting requirements and should consult its tax advisor.
Generally, a foreign holder whose income with respect to its investment in a
note is effectively connected with the conduct of U.S. trade or business will
generally be taxed as if the holder is a U.S. person provided the holder files
IRS Form W-8ECI.
Securities clearing organizations, and other entities who are not beneficial
owners, may be able to provide a signed statement to the withholding agent.
However, in that case, the signed statement may require a copy of the beneficial
owner's W-8BEN, or the substitute form. Generally, a non-U.S. Holder will not be
subject to United States Federal income taxes on any amount which constitutes
capital gain upon retirement or disposition of a note, provided the gain is not
effectively connected with the conduct of a trade or business in the United
States by the non-U.S. Holder and, if the non-U.S. holder is an individual, the
non-U.S. Holder is not present in the United States for 183 days or more in the
taxable year of the sale. Other exceptions may be applicable, and a non-U.S.
Holder should consult its tax advisor in this regard.
The notes will not be includible in the estate of a non-U.S. Holder who is
not domiciled in the United States unless the individual is a direct or indirect
10% or greater shareholder of AvalonBay or, at the time of that individual's
death, payments in respect of the notes would have been effectively connected
with the conduct by that individual of a trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 30.5%
(which rate will be reduced periodically to 28% for payments made in 2006) may
apply to payments made in respect of the notes to registered owners who are not
"exempt recipients" and who fail to provide identifying information, such as the
registered owner's taxpayer identification number, in the required manner.
Generally, individuals are not exempt recipients, whereas corporations and
other entities generally are exempt recipients. Payments made in respect of the
notes to a U.S. Holder must be reported to the IRS, unless the U.S. Holder is an
exempt recipient or establishes an exemption. Compliance with the identification
procedures described in the preceding section would establish an exemption from
backup withholding for those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a note to, or through, a broker, the broker
must withhold 30.5% (which rate will be reduced periodically to 28% in 2006) of
the entire purchase price, unless either:
- the broker determines that the seller is a corporation or other exempt
recipient, or
- the seller provides, in the required manner, identifying information and,
in the case of a non-U.S. Holder, certifies that seller is a non-U.S.
Holder, and other conditions are met.
This sale must also be reported by the broker to the IRS, unless either:
- the broker determines that the seller is an exempt recipient, or
- the seller certifies its non-U.S. status, and other conditions are met.
Certification of the registered owner's non-U.S. status would be made normally
on an IRS Form W-8BEN under penalties of perjury, although in cases it may be
possible to submit other documentary evidence. In addition, prospective U.S.
Holders are strongly urged to consult their own tax advisors with respect to the
new withholding regulations. See "United States Federal Income
Taxation--Non-U.S. Holders".
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Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against that
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
SUPPLEMENTAL PLAN OF DISTRIBUTION
We are offering the notes on a continuous basis for sale to or through
Lehman Brothers Inc., Banc of America Securities LLC, First Union
Securities, Inc., Fleet Securities, Inc., J.P. Morgan Securities Inc., PNC
Capital Markets, Inc. and/or Salomon Smith Barney Inc. or through one or more
other member firms of the NASD, as may be designated or approved by AvalonBay
and identified in the applicable pricing supplement. Each of these agents may
purchase notes, as principal, from AvalonBay from time to time for resale to
investors and other purchasers at varying prices relating to prevailing market
prices at the time of resale as determined by the applicable agent(s), or, if
specified in the applicable pricing supplement, for resale at a fixed offering
price. However, we may agree with an agent for that agent to utilize its
reasonable efforts on an agency basis to solicit offers to purchase the notes at
100% of their principal amount, unless otherwise specified in the applicable
pricing supplement. We will pay a commission to an agent, ranging from 0.125% to
0.750% of the principal amount of each note, depending upon its stated maturity,
sold through the agent. We will negotiate commissions with respect to notes with
stated maturities in excess of 30 years that are sold through an agent at the
time of sale.
Unless otherwise specified in the applicable pricing supplement, any note
sold to an agent as principal will be purchased by that agent at a price equal
to 100% of its principal amount less a percentage of the principal amount equal
to the commission applicable to an agency sale of a note of identical maturity.
An agent may sell notes it has purchased from AvalonBay as principal to other
dealers for resale to investors and other purchasers, and may allow all or any
portion of the discount received in connection with that purchase from AvalonBay
to those dealers. After the initial offering of notes, the offering price in the
case of notes to be resold on a fixed price basis, the concession and the
discount may be changed.
We may sell the notes directly to investors, and may solicit and accept
offers to purchase notes directly from investors from time to time on our own
behalf. We will not pay any commission on notes that we sell directly. We may
offer notes to or through additional agents named in the applicable pricing
supplement.
We may withdraw, cancel or modify this offer made without notice and may
reject offers in whole or in part, whether placed directly with us or through
the agents. Each agent will have the right, in its discretion reasonably
exercised, to reject in whole or in part any offer to purchase notes received by
it on an agency basis.
Unless otherwise specified in the applicable pricing supplement, you will be
required to pay the purchase price of the notes in immediately available funds
in the Specified Currency in The City of New York on the date of settlement. See
"Description of the Notes--General."
Upon issuance, the notes will not have an established trading market. The
notes will not be listed on any securities exchange. The agents have advised
AvalonBay that they may from time to time purchase and sell notes in the
secondary market, but the agents are not obligated to do so, and any of these
sales and purchases may be discontinued at any time without notice. There can be
no assurance that there will be a secondary market for the notes or that there
will be liquidity in a secondary market if one develops. The agents may make a
market in the notes, but the agents are not obligated to do so and may
discontinue any market-making activity at any time without notice.
The agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933. AvalonBay has agreed to indemnify the agents against
liabilities, including liabilities under the
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Securities Act, or contribute to payments the agents may be required to make in
respect in accordance with the Securities Act. AvalonBay has agreed to reimburse
the agents for other expenses.
In the ordinary course of their respective businesses, the agents and their
affiliates have engaged in, and may in the future engage in, investment and/or
commercial banking transactions with AvalonBay and its affiliates. The Chase
Manhattan Bank, an affiliate of J.P. Morgan Securities Inc., one of the agents;
Fleet National Bank, an affiliate of Fleet Securities, Inc., one of the agents;
Bank of America, N.A., an affiliate of Banc of America Securities LLC, one of
the agents; First Union National Bank, an affiliate of First Union Securities,
Inc., one of the agents; and Citicorp Real Estate, Inc., an affiliate of Salomon
Smith Barney Inc., one of the agents, are each a co-agent and a lender under
AvalonBay's unsecured revolving credit facility. In addition, PNC Bank, National
Association, an affiliate of PNC Capital Markets, Inc., one of the agents, and
Lehman Commercial Paper Inc., an affiliate of Lehman Brothers Inc., one of the
agents, are each a lender under AvalonBay's unsecured revolving credit facility.
Affiliates of Fleet Securities, Inc., Banc of America Securities LLC and PNC
Capital Markets, Inc. are lenders under a construction loan to one of
AvalonBay's consolidated joint ventures. An affiliate of Fleet Securities, Inc.
is also a lender under a loan to an unconsolidated joint venture in which
AvalonBay is a minority partner. AvalonBay may use the proceeds from any notes
offered to repay indebtedness, including indebtedness under this revolving
credit facility.
In connection with an offering of notes purchased by one or more agents as
principal on a fixed offering price basis, the agents will be permitted to
engage in transactions that stabilize the price of notes. These transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of notes. If the agents create a short position in notes, for example,
they sell notes in an aggregate principal amount exceeding the amount referred
to in the applicable pricing supplement, these agents 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.
Finally, the syndicate may reclaim selling concessions allowed for distributing
notes in the offering, if the syndicate repurchases previously distributed notes
in the market to cover a short position or to stabilize the price of the notes.
The agents are not required to engage in any of these activities and may end any
of them at any time.
Neither AvalonBay nor any of the agents makes any representation or
prediction as to the direction or magnitude of any effect that these
transactions described in the preceding paragraph may have on the price of
notes. In addition, neither AvalonBay nor any of the agents makes any
representation that the agents will engage in any of these transactions or that
these transactions, once commenced, will not be discontinued without notice.
From time to time, we may sell other Securities referred to in the
accompanying prospectus. These offerings may be concurrent with an offering of
the notes through the agents.
LEGAL MATTERS
Legal matters relating to the notes will be passed upon for AvalonBay by
Goodwin Procter LLP, Boston, Massachusetts and for the agents by O'Melveny &
Myers LLP, San Francisco, California. The opinions of Goodwin Procter LLP and
O'Melveny & Myers LLP will be based upon, and subject to, assumptions as to
future actions required to be taken in connection with the issuance and sale of
the notes and as to other events that may affect the validity of the notes but
that cannot be ascertained on the date of these opinions.
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$750,000,000
[LOGO]
MEDIUM-TERM NOTES DUE
NINE MONTHS OR MORE
FROM DATE OF ISSUE
-----------------------
PROSPECTUS SUPPLEMENT
SEPTEMBER 5, 2001
---------------------
LEHMAN BROTHERS
BANC OF AMERICA SECURITIES LLC
FIRST UNION SECURITIES, INC.
FLEET SECURITIES, INC.
JPMORGAN
PNC CAPITAL MARKETS, INC.
SALOMON SMITH BARNEY