1
 
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 21, 1994)
 
                                  $500,000,000
 
                            BANPONCE FINANCIAL CORP.
                          MEDIUM-TERM NOTES, SERIES B
                   DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
             UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL,
                        PREMIUM, IF ANY, AND INTEREST BY
                                   BANPONCE
                                       CORPORATION
                             ---------------------
 
     BanPonce Financial Corp., a Delaware corporation (the "Company"), may offer
from time to time its Medium-Term Notes, Series B (the "Notes") at an aggregate
initial offering price not to exceed $500,000,000 or its equivalent in one or
more foreign currencies, including composite currencies. The Notes will be
unconditionally guaranteed as to payment of principal, premium, if any, and
interest (the "Guarantees") by BanPonce Corporation (the "Guarantor"). Each Note
will mature nine months or more from its date of issue, as selected by the
purchaser and agreed to by the Company. Unless otherwise indicated in the
applicable Pricing Supplement to this Prospectus Supplement (a "Pricing
Supplement"), and except as set forth in the accompanying Prospectus under
"Description of Debt Securities and Guarantees -- Redemption -- For Taxation", a
Note may not be redeemed at the option of the Company or be repaid at the option
of the Holder thereof prior to Maturity (which date for purposes hereof, shall
be the stated maturity date or date of redemption or repayment, as the case may
be) and will be issued in denominations of $1,000 or integral multiples thereof.
If any of the Notes are to be denominated in a foreign or composite currency,
provisions with respect thereto will be set forth in the applicable Pricing
Supplement.
                                                        (continued on next page)
                             ---------------------
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
   EXCHANGE COMMISSION, THE SECURITIES OFFICE OF THE COMMISSIONER OF
   FINANCIAL INSTITUTIONS OF THE COMMONWEALTH OF PUERTO RICO OR ANY STATE
     SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
       COMMISSION, SUCH SECURITIES OFFICE, OR ANY STATE SECURITIES
        COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
          PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY SUPPLEMENT
                  HERETO. ANY REPRESENTATION TO THE CONTRARY
                            IS A CRIMINAL OFFENSE.

- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
                                            PRICE TO       AGENTS' DISCOUNTS OR        PROCEEDS TO
                                            PUBLIC(1)         COMMISSIONS(2)          COMPANY(2)(3)
- ----------------------------------------------------------------------------------------------------------
                                                                       
Per Note..............................         100%            .125% - .750%        99.875% - 99.250%
- ----------------------------------------------------------------------------------------------------------
Total(4)..............................     $500,000,000    $625,000- $3,750,000 $499,375,000- $496,250,000
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------

 
(1) Each Note will be sold at 100% of its principal amount except as may be
    provided in the applicable Pricing Supplement.
(2) The Company will pay a commission to Merrill Lynch & Co., Merrill Lynch,
    Pierce, Fenner & Smith Incorporated, CS First Boston Corporation and First
    Chicago Capital Markets, Inc. (each, an "Agent", and, collectively, the
    "Agents"), in the form of a discount, ranging from .125% to .750%, depending
    upon the maturity of the Note, of the principal amount of any Note sold
    through such Agents except that the commission payable by the Company to the
    agents with respect to Notes with maturities of greater than 30 years will
    be negotiated at the time of issuance. The Company may also sell Notes to an
    Agent, as principal, for resale to investors or other purchasers at varying
    prices related to prevailing market prices at the time of resale to be
    determined by such Agent or, if so agreed, at a fixed public offering price.
    Unless otherwise specified in the applicable Pricing Supplement, any Note
    sold to an Agent as principal will be purchased by such Agent at a price
    equal to 100% of the principal amount thereof less a percentage equal to the
    commission applicable to an agency sale of a Note of identical maturity, and
    may be resold by such Agent. The Company may also sell Notes directly to
    investors on its own behalf, in which case no commission will be payable.
    The Company and the Guarantor have agreed, jointly and severally, to
    indemnify the Agents against certain civil liabilities, including
    liabilities under the Securities Act of 1933, as amended.
(3) Before deducting other expenses payable by the Company estimated to be
    approximately $491,000, including reimbursement of certain of the Agents'
    expenses.
(4) Or the equivalent thereof in foreign currencies or composite currencies.
 
    The Notes are being offered on a continuous basis by the Company through the
Agents, each of which has agreed to use its reasonable efforts to solicit offers
to purchase the Notes. In addition, the Notes may also be sold to an Agent, as
principal, for resale to investors or other purchasers. The Company may also
sell Notes directly to investors on its own behalf in those jurisdictions where
it is authorized to do so. The Notes will not be listed on any securities
exchange, and there can be no assurance that the Notes offered by this
Prospectus Supplement will be sold or that there will be a secondary market for
the Notes. The Company reserves the right to withdraw, cancel or modify the
offer made hereby without notice. The Company or any Agent may reject any offer
to purchase the Notes in whole or in part. See "Supplemental Plan of
Distribution" in this Prospectus Supplement.
                             ---------------------
    MERRILL LYNCH & CO.
                             CS FIRST BOSTON
                                         FIRST CHICAGO CAPITAL MARKETS, INC.
                             ---------------------
 
           The date of this Prospectus Supplement is August 1, 1994.
   2
 
(continued from previous page)
 
     THE NOTES WILL BE UNSECURED OBLIGATIONS OF THE COMPANY AND THE GUARANTOR
AND WILL NOT BE SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR
NONBANK SUBSIDIARY OF THE COMPANY OR THE GUARANTOR AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENT AGENCY.
 
     The interest rate, if any, or interest rate formula on each Note and other
variable terms will be established by the Company at the date of issuance of
such Note and will be set forth therein and specified in a Pricing Supplement.
Interest rates and interest rate formulae are subject to change by the Company,
but no change will affect any Note already issued or as to which an offer to
purchase has been accepted by the Company. Unless otherwise indicated in the
applicable Pricing Supplement, the Notes will bear interest at fixed rates
("Fixed Rate Notes") or at floating rates ("Floating Rate Notes") determined by
reference to one or more of the Certificate of Deposit Rate, Commercial Paper
Rate, CMT Rate, Eleventh District Cost of Funds Rate, Federal Funds Rate, LIBOR,
Prime Rate, Treasury Rate or other interest rate basis or formula, as adjusted
by any Spread and/or Spread Multiplier applicable to such Notes. See
"Description of Notes" in this Prospectus Supplement and "Description of Debt
Securities and Guarantees" in the accompanying Prospectus. Interest on Fixed
Rate Notes will accrue from their date of issue and, unless otherwise provided
in the applicable Pricing Supplement, will be payable semi-annually on each June
15 and December 15 and at Maturity. Interest on Floating Rate Notes will accrue
from their date of issue and will be payable on the dates indicated therein and
in the applicable Pricing Supplement and at Maturity. The Notes may also be
issued at original issue discounts and such Notes may or may not bear interest.
 
     Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be issued in fully registered certificated or book-entry form. Ownership of
beneficial interests in Notes issued in book-entry form will be shown on, and
transfers thereof will be effected only through, records maintained by The
Depository Trust Company in The City of New York (with respect to participants'
interests), as Depository, and its participants. Owners of beneficial interests
in Notes issued in book-entry form will be entitled to physical delivery of
Notes in certificated form equal in principal amount to their respective
beneficial interests only under the limited circumstances described herein. See
"Description of Notes -- Book-Entry Notes" in this Prospectus Supplement.
 
                                       S-2
   3
 
                              DESCRIPTION OF NOTES
 
     The following description of the particular terms of the Notes hereby
supplements, and to the extent inconsistent therewith, replaces the description
of the general terms and provisions of the Notes set forth under the headings
"Description of Debt Securities and Guarantees" and "Terms Applicable to
Guaranteed Securities" in the accompanying Prospectus dated July 21, 1994, to
which general description reference is hereby made. The particular terms of the
Notes offered by any Pricing Supplement will be described therein and in such
Note. However, unless otherwise provided in the Pricing Supplement applicable to
a Note, each Note will have the following terms.
 
GENERAL
 
     The Notes are to be issued as one or more series of debt securities (the
"Debt Securities"), unlimited as to aggregate principal amount. The maximum
amount of Securities (as defined and described in the accompanying Prospectus)
registered under the registration statement under which the Debt Securities are
registered is $500,000,000, therefore the Notes are limited in amount to
$500,000,000 as set forth on the cover page hereof, less an amount equal to the
aggregate proceeds to the Company from the sale of any other Securities issued
from time to time. The Notes are to be issued under the indenture among the
Company, the Guarantor and Citibank, N.A., as trustee (the "Trustee"), dated as
of October 1, 1991 (the "Indenture"), which is more fully described in the
accompanying Prospectus. In addition, $550,000,000 principal amount of
medium-term notes previously were issued by the Company and guaranteed by the
Guarantor under the Indenture. The following summaries of certain provisions of
the Indenture do not purport to be complete, are subject to, and are qualified
in their entirety by reference to, all of the provisions of the Indenture and
the Notes, including the definitions therein of certain terms. In addition, all
capitalized terms used in this Prospectus Supplement and not otherwise defined
herein shall have the respective meanings ascribed to them in the Indenture. The
terms and conditions set forth below will apply to each Note unless otherwise
specified in the applicable Pricing Supplement or Foreign Currency,
Multi-Currency and Indexed Note Prospectus Supplement (as hereinafter defined).
 
     The Indenture does not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and provides that Debt Securities may
be issued in one or more series up to the aggregate principal amount which may
be authorized from time to time by the Company. The Company may, from time to
time, 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
$500,000,000 principal amount of Notes authorized and available for issuance as
of the date of this Prospectus Supplement. The Notes will be denominated in and
payable in United States dollars except as may otherwise be provided in the
applicable Pricing Supplement.
 
     The Notes will be direct, unsecured debt of the Company and will rank pari
passu among themselves and with all other unsecured and unsubordinated existing
and future indebtedness of the Company from time to time outstanding.
 
     The Notes will be offered on a continuous basis and will mature on any day
nine months or more from the date of issue, as selected by the initial purchaser
and agreed to by the Company. Unless otherwise indicated in a Pricing
Supplement, each interest bearing Note will bear interest at (a) a fixed rate
("Fixed Rate Note") or (b) a floating rate ("Floating Rate Note") determined by
reference to one or more of the Base Rates described below as adjusted by a
Spread and/or Spread Multiplier (as defined below), if any, applicable to such
Note until the principal thereof is paid or made available for payment. Notes
may be issued at significant discounts from their principal amount payable at
Maturity ("Original Issue Discount Notes"), and some such Notes may not bear
interest.
 
     Unless otherwise indicated in the applicable Pricing Supplement, the Notes
will be issued in fully registered certificated or book-entry form and, unless
otherwise specified in a supplement hereto, in denominations of $1,000 and
integral multiples thereof. Notes issued in certificated form may be transferred
or exchanged as described below. In the event Notes are issued in book-entry
form through the facilities of The Depository Trust Company in The City of New
York (the "Depository"), transfers or exchanges may be similarly effected
through a participating member of the Depository. See "Book-Entry Notes". No
service
 
                                       S-3
   4
 
charge will be made for the registration of transfer or exchange of Notes issued
in certificated form, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
 
     Payments on Notes issued in book-entry form will be made to the Depository
or its nominee in accordance with the arrangements then in effect between the
Trustee and the Depository. See "Book-Entry Notes". Principal and interest on
Notes issued in certificated form due at Maturity on each Note will be payable
in immediately available funds upon presentation of the Note at the office of
the Trustee at 111 Wall Street, New York, New York 10043, Attention: Corporate
Trust Services. Interest payable at Maturity will be payable to the person to
whom the principal of the Note shall be paid. Interest due other than at
Maturity will be payable by check mailed to the record holder of such Note as of
the Regular Record Date with respect to such Interest Payment Date at the
address shown in the register maintained by the Trustee. Transfers of the Notes
will be registrable at the above-stated office of the Trustee.
 
     Interest payments shall be the amount of interest accrued from and
including the next preceding Interest Payment Date in respect of which interest
has been paid (or from and including the date of issue, if no interest has been
paid with respect to such Note), to, but excluding, the succeeding Interest
Payment Date or at Maturity, as the case may be (each an "Interest Accrual
Period"). The principal and interest payable at Maturity on each Note will be
paid on such date in immediately available funds against presentation of the
Note at the above-referenced office of the Trustee. Notwithstanding the
foregoing, a Holder of $10,000,000 or more in an aggregate principal amount of
Notes issued in certificated form and having the same Interest Payment Dates
may, upon receipt of written instruction by the Trustee before a Regular Record
Date, receive payments of interest by transfer of immediately available funds to
an account at a bank located in The City of New York (or other bank consented to
by the Company) designated in such notice by such Holder (provided that such
bank has appropriate facilities therefor) commencing with the next Interest
Payment Date succeeding such Regular Record Date. Any such designation for wire
transfer purposes shall be made by filing the appropriate information with the
Paying Agent at its Corporate Trust Office in the Borough of Manhattan, The City
of New York, and unless revoked by written notice to the Paying Agent received
on or prior to the Regular Record Date immediately preceding the applicable
Interest Payment Date or the fifteenth day preceding Maturity, shall remain in
effect with respect to any further payment to such Holder. The Company has
initially appointed Citibank, N.A. as the Paying Agent and Security Registrar.
 
REDEMPTION
 
     The Notes will be subject to redemption in the circumstances set forth in
the accompanying Prospectus under "Description of Debt Securities and
Guarantees -- Redemption -- For Taxation". The Notes will also be subject to
redemption by the Company on and after the initial redemption date, if any,
fixed at the time of sale and set forth in the applicable Pricing Supplement and
the applicable Note (the "Initial Redemption Date"). If no Initial Redemption
Date is indicated with respect to a Note, such Note will not be redeemable prior
to the Stated Maturity. On and after the Initial Redemption Date with respect to
any Note, such Note will be redeemable in whole or in part in increments of
$1,000 at the option of the Company at a price (the "Redemption Price")
determined in accordance with the following paragraph, together with interest
thereon payable to the date of redemption, on notice given no more than 60 nor
less than 30 days prior to the date of redemption.
 
     The Redemption Price for each Note subject to redemption shall initially be
equal to a certain percentage (the "Initial Redemption Percentage") of the
principal amount of such Note to be redeemed and shall decline at each
anniversary of the Initial Redemption Date with respect to such Note by a
percentage (the "Annual Redemption Percentage Reduction") of the principal
amount to be redeemed until the Redemption Price is 100% of such principal
amount. The Initial Redemption Percentage and any Annual Redemption Percentage
Reduction with respect to each Note subject to redemption prior to its Stated
Maturity will be fixed at the time of sale and set forth in the applicable
Pricing Supplement and the applicable Note.
 
                                       S-4
   5
 
REPAYMENT
 
The Notes will be subject to repayment at the option of the Holders thereof in
accordance with the terms of the Notes on their respective optional repayment
dates, if any, fixed at the time of sale and set forth in the applicable Pricing
Supplement and the applicable Note (the "Optional Repayment Dates"). If no
Optional Repayment Date is indicated with respect to a Note, such Note will not
be repayable at the option of the Holder prior to the Stated Maturity. On any
Optional Repayment Date with respect to any Note, such Note will be repayable in
whole, or in part in increments of $1,000 at the option of the Holder thereof,
at a price equal to 100% of the principal amount to be repaid, together with
interest thereon payable to the date of repayment, on notice given not more than
60 nor less than 30 days prior to the Optional Repayment Date. Unless otherwise
indicated in the applicable Pricing Supplement, in order for the exercise of the
repayment option to be effective and the Note to be repaid, the Company must
receive at the office of the Paying Agent or at such other place or places of
which the Company shall from time to time notify the Holder of such Note, on or
before the thirtieth, but not earlier than the sixtieth calendar day, or, if
such day is not a Business Day (as hereinafter defined), the next succeeding
Business Day, prior to the repayment date, either (i) the Note, with the form
entitled "Option to Elect Repayment" duly completed, or (ii) a telegram, telex,
facsimile transmission, or letter from a member of a national securities
exchange or the National Association of Securities Dealers, Inc. or a commercial
bank or a trust company in the United States of America setting forth (a) the
name, address, and telephone number of the Holder of the Note, (b) the principal
amount of the Note and the amount of the Note to be repaid, (c) a statement that
the option to elect repayment is being exercised thereby, and (d) a guarantee
stating that the Paying Agent on behalf of the Company will receive this Note,
with the form entitled "Option to Elect Repayment" duly completed, not later
than five Business Days after the date of such telegram, telex, facsimile
transmission, or letter (and the Note and form duly completed are received by
the Paying Agent on behalf of the Company by such fifth Business Day). Any such
election shall be irrevocable.
 
     While the Book-Entry Notes are represented by the Global Securities held by
or on behalf of the Depository, and registered in the name of the Depository or
the Depository's nominee, the option for repayment may be exercised by the
applicable participant that has an account with the Depository, on behalf of the
beneficial owners of the Global Security or Securities representing such
Book-Entry Notes, by delivering a written notice substantially similar to the
above mentioned form to the Trustee at its Corporate Trust Office (or such other
address of which the Company shall from time to time notify the Holders), not
more than 60 nor less than 30 days prior to the date of repayment. Notices of
elections from participants on behalf of beneficial owners of the Global
Security or Securities representing such Book-Entry Notes to exercise their
option to have such Book-Entry Notes repaid must be received by the Trustee by
5:00 P.M., New York City time, on the last day for giving such notice. In order
to ensure that a notice is received by the Trustee on a particular day, the
beneficial owner of the Global Security or Securities representing such Book-
Entry Notes must so direct the applicable participant before such participant's
deadline for accepting instructions for that day. Different firms may have
different deadlines for accepting instructions from their customers.
Accordingly, beneficial owners of the Global Security or Securities representing
Book-Entry Notes should consult the participants through which they own their
interest therein for the respective deadlines for such participants. All notices
shall be executed by a duly authorized officer of such participant (with
signature guaranteed) and shall be irrevocable. In addition, beneficial owners
of the Global Security or Securities representing Book-Entry Notes shall effect
delivery at the time such notice of election is given to the Depository by
causing the applicable participant to transfer such beneficial owner's interest
in the Global Security or Securities representing such Book-Entry Notes, on the
Depository's records, to the Trustee. See "Book-Entry Notes."
 
     The Company may at any time purchase Notes at any price or prices in the
open market or otherwise. Notes so purchased by the Company may be held or
resold or, at the discretion of the Company, may be surrendered to the Trustee
for cancellation.
 
                                       S-5
   6
 
FIXED RATE NOTES
 
     Each Fixed Rate Note will bear interest from the date of issue at the rate
per annum stated on the face thereof until the principal amount thereof 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.
 
     Unless otherwise specified in the applicable Pricing Supplement, interest
on Fixed Rate Notes will be payable semi-annually in arrears on June 15 and
December 15 of each year (each, an "Interest Payment Date") and at Maturity. The
Regular Record Date for Fixed Rate Notes with respect to any June 15 or December
15 Interest Payment Date will be the June 1 or December 1, whether or not such
date shall be a Business Day, immediately preceding such Interest Payment Date.
If any Interest Payment Date or Maturity with respect to a Fixed Rate Note falls
on a day that is not a Business Day, the related payment of principal, premium,
if any, or interest shall be made on the next Business Day as if it were made on
the date such payment was due, and no interest shall accrue on the amount so
payable for the period from and after such Interest Payment Date or at Maturity.
If the Original Issue Date of a Note is between a Regular Record Date and the
corresponding Interest Payment Date, the initial interest payment will be made
on the Interest Payment Date following the next succeeding Regular Record Date
to the Holder on such next succeeding Regular Record Date.
 
FLOATING RATE NOTES
 
     Interest on Floating Rates Notes will be determined by reference to one or
more "Base Rates" which shall be (a) the "Certificate of Deposit Rate"
("Certificate of Deposit Rate Notes"), (b) the "Commercial Paper Rate"
("Commercial Paper Rate Notes"), (c) the "CMT Rate" ("CMT Rate Notes"), (d) the
"Eleventh District Cost of Funds Rate" ("Eleventh District Cost of Funds Rate
Notes"), (e) the "Federal Funds Rate" ("Federal Funds Rate Notes"), (f) "LIBOR"
("LIBOR Notes"), (g) the "Prime Rate", ("Prime Rate Notes"), (h) the "Treasury
Rate" ("Treasury Rate Notes") or (i) such other interest rate basis or formula
as may be set forth in an applicable Pricing Supplement. The interest rate on
each Floating Rate Note will be calculated by reference to one or more specified
Base Rates based upon the Index Maturity and adjusted by a Spread and/or Spread
Multiplier, if any, as specified in the applicable Pricing Supplement, if
applicable, and subject to the Minimum Interest Rate, if any, and the Maximum
Interest Rate, if any. The "Index Maturity" is the period to maturity of the
instrument or obligation from which the Base Rate is calculated. The "Spread" is
the number of basis points above or below the Base Rate applicable to the
interest rate for such Floating Rate Note, and the "Spread Multiplier" is the
percentage of the Base Rate applicable to the interest rate for such Floating
Rate Note. The Spread, Spread Multiplier, Index Maturity and other variable
terms of the Floating Rate Notes are subject to change by the Company from time
to time, but no such change will affect any Floating Rate Note theretofore
issued or as to which an offer has been accepted by the Company.
 
     The applicable Pricing Supplement will specify certain terms for each
Floating Rate Note in connection with which it is being delivered, including the
following: Base Rate, Initial Interest Rate, Interest Rate Reset Period or
Interest Reset Dates, Interest Payment Dates, Index Maturity, Maturity, Maximum
Interest Rate and Minimum Interest Rate, if any, Spread or Spread Multiplier, if
any, Optional Repayment Dates, if any, Initial Redemption Date, if any, Initial
Redemption Percentage, Annual Redemption Percentage Reduction and Alternate Rate
Event Spread, if applicable.
 
     The rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semi-annually or annually (each, an "Interest Rate
Reset Period"), as specified in the applicable Pricing Supplement. The "Interest
Reset Date" will be, in the case of Floating Rate Notes which reset (a) daily,
each Business Day; (b) weekly, the Wednesday of each week (with the exception of
weekly reset Treasury Rate Notes, which reset Tuesday of each week except as
provided below); (c) monthly, the third Wednesday of each month (with the
exception of Eleventh District Cost of Funds Rate Notes, which reset the first
Business Day of each month); (d) quarterly, the third Wednesday of March, June,
September and December of each year; (e) semi-annually, the third Wednesday of
the two months specified in the applicable Pricing Supplement; and (f) annually,
the third Wednesday of the month specified in the applicable Pricing
 
                                       S-6
   7
 
Supplement. If any Interest Reset Date for any Floating Rate Note would
otherwise be a day that is not a Business Day, such Interest Reset Date shall be
postponed to the next succeeding day that is a Business Day, except that in the
case of a LIBOR Note or Notes, if such Business Day is in the next succeeding
calendar month, such Interest Reset Date shall be the next preceding Business
Day. Unless otherwise specified in the applicable Pricing Supplement, "Business
Day" means any day, other than a Saturday, Sunday or other day on which banks in
The City of New York are required or authorized by law, regulation or executive
order to close, and with respect to LIBOR Notes, that is also a London Banking
Day. "London Banking Day" means any day on which dealings in deposits in U.S.
dollars are transacted in the London interbank market.
 
     A Floating Rate Note may also have either or both of the following: (i) a
maximum limit, or ceiling (the "Maximum Interest Rate"), on the rate of interest
which may accrue during any Interest Period (as defined below); and (ii) a
minimum limit, or floor (the "Minimum Interest Rate"), on the rate of interest
which may accrue during any Interest Period. Notwithstanding any Maximum
Interest Rate which may be applicable to any Floating Rate Note pursuant to the
above provisions, the interest rate on Floating Rate Notes 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. Under present New York
law, the maximum rate of interest is 25% per annum on a simple interest basis.
The limit may not apply to Floating Rate Notes in which $2,500,000 or more has
been invested.
 
     The interest rate in effect with respect to a Floating Rate Note during any
Interest Period commencing as of an Interest Reset Date will be the rate
determined as of the "Interest Determination Date." The Interest Determination
Date pertaining to an Interest Reset Date for Certificate of Deposit Rate Notes,
Commercial Paper Rate Notes, CMT Rate Notes, Federal Funds Rate Notes and Prime
Rate Notes will be the second Business Day preceding such Interest Reset Date.
The Interest Determination Date with respect to an Interest Reset Date for LIBOR
Notes will be the second London Banking Day preceding such Interest Reset Date.
With respect to Treasury Rate Notes, the Interest Determination Date with
respect to an Interest Reset Date will be the day of the week in which the
Interest Reset Date falls on which Treasury bills are 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 most frequently held on the following
Tuesday, except that such auction may be held on the preceding Friday);
provided, however, that if as a result of a legal holiday an auction is held on
the Friday of the week preceding an Interest Reset Date, the related Interest
Determination Date shall be such preceding Friday; and; provided, further that
if an auction shall fall on any Interest Reset Date, then the Interest Reset
Date shall instead be the first Business Day following such auction. The
Interest Determination Date with respect to an Interest Reset Date for Eleventh
District Cost of Funds Rate Notes will be the last Business Day of the month
immediately preceding such Interest Reset Date on which the Federal Home Loan
Bank of San Francisco (the "FHLB of San Francisco") publishes the monthly
Eleventh District Cost of Funds Index (as defined below).
 
     The interest rate determined with respect to any Interest Determination
Date will become effective on and as of the next succeeding Interest Reset Date,
subject to any maximum or minimum interest rate limitation referred to above;
provided, however, that the interest rate in effect with respect to a Floating
Rate Note for the period from the date of issue to the initial Interest Reset
Date will be the "Initial Interest Rate" specified in the applicable Pricing
Supplement.
 
     Each Floating Rate Note will bear interest from the date of issue at the
rates determined as described herein until the principal thereof is paid or
otherwise made available for payment. Except as provided below or in the
applicable Pricing Supplement, interest will be payable, in the case of Floating
Rate Notes which reset (a) daily, weekly or monthly, on the third Wednesday of
each month or on the third Wednesday of March, June, September and December of
each year, as specified in the applicable Pricing Supplement; (b) quarterly, on
the third Wednesday of March, June, September and December of each year; (c)
semi-annually, on the third Wednesday of the two months of each year specified
in the applicable Pricing Supplement; and (d) annually, on the third Wednesday
of the month specified in the applicable Pricing Supplement (each, an "Interest
Payment Date") and, in each case, at Maturity.
 
                                       S-7
   8
 
     If any Interest Payment Date with respect to any Floating Rate Note would
otherwise fall on a day that is not a Business Day with respect to such Note,
such Interest Payment Date shall be postponed to the next day that is a Business
Day, except that in the case of a LIBOR Note, if such Business Day falls in the
next succeeding calendar month, such Interest Payment Date shall be advanced to
the immediately preceding Business Day. If the date of Maturity of any Floating
Rate Note would fall on a day that is not a Business Day, the payment of
principal, premium, if any, and interest shall be made on the next succeeding
Business Day, and no interest on such payment shall accrue for the period from
and after Maturity.
 
     The "Regular Record Date" for Floating Rate Notes with respect to any
Interest Payment Date shall be the fifteenth calendar day, whether or not such
date shall be a Business Day, prior to such Interest Payment Date.
 
     Unless otherwise specified in the applicable Pricing Supplement, with
respect to a Floating Rate Note, accrued interest will be calculated by
multiplying the face amount of such Floating Rate Note by an accrued interest
factor. Such accrued interest factor is computed by adding the interest factor
calculated for each day in the period for which accrued interest is being
calculated. Unless otherwise specified in the applicable Pricing Supplement, the
interest factor for each such day is computed by dividing the interest rate
applicable to such day by 360 (or, in the case of Treasury Rate Notes or CMT
Rate Notes, by the actual number of days in the year).
 
     Unless otherwise provided for in the applicable Pricing Supplement,
Citibank, N.A. will be the "Calculation Agent" for the Floating Rate Notes. Upon
the request of the Holder of any Floating Rate Note, the Calculation Agent will
provide the interest rate then in effect and, if determined, the interest rate
that will become effective as a result of a determination made for the next
Interest Reset Date with respect to such Floating Rate Note. The Calculation
Agent will calculate the Interest Rate on or before any applicable Calculation
Date. Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date", where applicable, pertaining to any Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date or, if any such day is not a Business Day, the next
succeeding Business Day or (ii) the Business Day preceding the applicable
Interest Payment Date or Maturity, as the case may be.
 
     All percentages resulting from any calculation on Floating Rate Notes will
be rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upward (e.g.,
9.876545% (or .09876545) will be rounded upward to 9.87655% (or .0987655)), and
all dollar amounts used in or resulting from such calculation on Floating Rate
Notes will be rounded to the nearest cent (with one-half cent being rounded
upward).
 
     As mentioned above, the Initial Interest Rate will be specified in the
applicable Pricing Supplement. The interest rate that will become effective on
each subsequent Interest Reset Date will be determined by the Calculation Agent
as set forth below plus or minus any Spread and/or multiplied by any Spread
Multiplier and subject to the Minimum Interest Rate, if any, and the Maximum
Interest Rate, if any, as specified in the applicable Pricing Supplement.
 
     Certificate of Deposit Rate:  Unless otherwise indicated in the applicable
Pricing Supplement, "Certificate of Deposit Rate" means, with respect to any
Interest Determination Date relating to a Certificate of Deposit Rate Note (a
"Certificate of Deposit Rate Interest Determination Date"), the rate on that day
for negotiable certificates of deposit having the Index Maturity specified in
the applicable Pricing Supplement as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates", or any successor publication ("H.15(519)"), under the heading "CDs
(Secondary Market)," or, if not so published by 3:00 P.M., New York City time,
on the Calculation Date pertaining to such Certificate of Deposit Rate Interest
Determination Date, then the Certificate of Deposit Rate shall be the rate on
such Certificate of Deposit Rate Interest Determination Date for negotiable
certificates of deposit of the Index Maturity specified in the applicable
Pricing Supplement as published by the Federal Reserve Bank of New York in its
daily statistical release "Composite 3:30 P.M. quotations for U.S. Government
Securities" or any successor publication of the Federal Reserve Bank of New York
("Composite Quotations") under the heading "Certificates of Deposit". If such
rate is not published by 3:00 P.M., New York City time, on such
 
                                       S-8
   9
 
Calculation Date, in either H.15(519) or Composite Quotations, then the
Certificate of Deposit Rate for such Certificate of Deposit Rate Interest
Determination Date shall be the arithmetic mean calculated by the Calculation
Agent of the secondary market offered rates as of 10:00 A.M., New York City
time, on such Certificate of Deposit Rate Interest Determination Date, of three
leading nonbank dealers in negotiable U.S. dollar certificates of deposit in The
City of New York (which may include the Agents) selected by the Calculation
Agent for negotiable certificates of deposit of major United States money center
banks (in the market for negotiable certificates of deposit) with a remaining
maturity closest to the Index Maturity specified in the applicable Pricing
Supplement in denominations of $5,000,000; provided, however, that if fewer than
three dealers selected as aforesaid by the Calculation Agent are quoting rates
as mentioned in this sentence, then the Certificate of Deposit Rate with respect
to such Certificate of Deposit Rate Interest Determination Date shall be the
Certificate of Deposit Rate in effect on such Certificate of Deposit Rate
Interest Determination Date.
 
     Commercial Paper Rate:  Unless otherwise indicated in the applicable
Pricing Supplement, "Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Commercial Paper Rate Note (a "Commercial Paper
Rate Interest Determination Date"), the Money Market Yield (as defined below) on
such 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 heading
"Commercial Paper". In the event that such rate is not so published by 3:00
P.M., New York City time, on the Calculation Date pertaining to such Commercial
Paper Rate Interest Determination Date, then the Commercial Paper Rate shall be
the Money Market Yield on such Commercial Paper Rate Interest Determination Date
of the rate for commercial paper of the specified Index Maturity as published in
Composite Quotations under the heading "Commercial Paper". If the rate for a
Commercial Paper Rate Interest Determination Date is not published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
Calculation Date, the Commercial Paper Rate for that Commercial Paper Rate
Interest Determination Date shall be calculated by the Calculation Agent and
shall be the Money Market Yield of the arithmetic mean of the offered rates, as
of 11:00 A.M., New York City time, on such Commercial Paper Rate Interest
Determination Date, of three leading dealers in commercial paper in The City of
New York (which may include the Agents) selected by the Calculation Agent for
commercial paper of the specified Index Maturity placed for an industrial issuer
whose bond rating is "AA", or the equivalent, from a nationally recognized
rating agency; provided, however, that if fewer than three dealers selected as
aforesaid by the Calculation Agent are quoting rates as mentioned in this
sentence, the Commercial Paper Rate with respect to such Commercial Paper Rate
Interest Determination Date shall be the Commercial Paper Rate in effect on such
Commercial Paper Rate Interest Determination Date.
 
     "Money Market Yield" shall be the yield (expressed as a percentage rounded
as aforesaid) calculated in accordance with the following formula:
 
                                                    
                                    D X 360
Money Market Yield =  ----------------------------------- X 100
                                 360 - (D X M)


 
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal, and "M" refers to the actual number
of days in the period for which interest is being calculated.
 
     CMT Rate Notes.  Unless otherwise specified in the applicable Pricing
Supplement, "CMT Rate" means, with respect to any Interest Determination Date
relating to a CMT Rate Note (a "CMT Rate Interest Determination Date"), the rate
displayed on the Designated CMT Telerate Page (as defined below) under the
caption " . . . Treasury Constant Maturities . . . Federal Reserve Board Release
H.15 . . . Mondays Approximately 3:45 P.M." under the column for the Designated
CMT Maturity Index (as defined below) for (i) if the Designated CMT Telerate
Page is 7055, the rate on such CMT Rate Interest Determination Date and (ii) if
the Designated CMT Telerate Page is 7052, the week, or the month, as applicable,
ended immediately preceding the week in which the related CMT Rate Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page, or if not displayed by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate for such CMT Rate Interest Determination
Date will be such treasury constant maturity rate for the Designated CMT
Maturity Index as published in the relevant
 
                                       S-9
   10
 
H.15(519). If such rate is no longer published, or if not published by 3:00
P.M., New York City time, on the related Calculation Date, then the CMT Rate for
such CMT Rate Interest Determination Date will be such treasury constant
maturity rate for the Designated CMT Maturity Index (or other United States
Treasury rate for the Designated CMT Maturity Index) for the CMT Rate Interest
Determination Date with respect to such Interest Reset Date as may then be
published by either the Board of Governors of the Federal Reserve System or the
United States Department of the Treasury that the Calculation Agent determines
to be comparable to the rate formerly displayed on the Designated CMT Telerate
Page and published in the relevant H.15(519). If such information is not
provided by 3:00 P.M., New York City time, on the related Calculation Date, then
the CMT Rate for the CMT Rate Interest Determination Date will be calculated by
the Calculation Agent and will be a yield to maturity, based on the arithmetic
mean of the secondary market closing offer side prices as of approximately 3:30
P.M., New York City time, on the CMT Rate Interest Determination Date reported,
according to their written records, by three leading primary United States
government securities dealers (each, a "Reference Dealer") in The City of New
York (which may include an Agent or its affiliates) selected by the Calculation
Agent (from five such 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 the most recently issued direct noncallable fixed rate obligations
of the United States ("Treasury Notes") with an original maturity of
approximately the Designated CMT Maturity Index and a remaining term to maturity
of not less than such Designated CMT Maturity Index minus one year. If the
Calculation Agent cannot obtain three such Treasury Note quotations, the CMT
Rate for such CMT Rate Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity based on the arithmetic mean
of the secondary market offer side prices as of approximately 3:30 P.M., New
York City time, on the CMT Rate Interest Determination Date of three Reference
Dealers in The City of New York (from five such 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 Treasury Notes with an original maturity of
the number of years that is the next highest to the Designated CMT Maturity
Index and a remaining term to maturity closest to the Designated CMT Maturity
Index and in an amount of at least $100 million. If three or four (and not five)
of such Reference Dealers are quoting as described above, then the CMT Rate will
be based on the arithmetic mean of the offer prices obtained and neither the
highest nor the lowest of such quotes will be eliminated; provided however, that
if fewer than three Reference Dealers selected by the Calculation Agent are
quoting as described herein, the CMT Rate will be the CMT Rate in effect on such
CMT Rate Interest Determination Date. If two Treasury Notes with an original
maturity as described in the third preceding sentences have remaining terms to
maturity equally close to the Designated CMT Maturity Index, the quotes for the
Treasury Note with the shorter remaining term to maturity will be used.
 
     "Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in the applicable Pricing Supplement (or any
other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)). If no such
page is specified in the applicable Pricing Supplement, the Designated CMT
Telerate Page shall be 7052, for the most recent week.
 
     "Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20, or 30 years)
specified in the applicable Pricing Supplement with respect to which the CMT
Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be 2 years.
 
     Eleventh District Cost of Funds Rate.  Unless otherwise specified in the
applicable Pricing Supplement, "Eleventh District Cost of Funds Rate" means,
with respect to any Interest Determination Date relating to an Eleventh District
Cost of Funds Rate Note (an "Eleventh District Cost of Funds Rate Interest
Determination Date"), the rate equal to the monthly weighted average cost of
funds for the calendar month immediately preceding the month in which such
Eleventh District Cost of Funds Rate Interest Determination Date falls, as set
forth under the caption "11th District" on Telerate Page 7058 as of 11:00 A.M.,
San Francisco time, on such Eleventh District Cost of Funds Rate Interest
Determination Date. If such rate does not appear on Telerate Page 7058 on any
related Eleventh District Cost of Funds Rate Interest Determination Date, the
 
                                      S-10
   11
 
Eleventh District Cost of Funds Rate for such Eleventh District Cost of Funds
Rate Interest Determination Date shall be the monthly weighted average cost of
funds paid by member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "Index") by the FHLB of San
Francisco as such cost of funds for the calendar month immediately preceding the
date of such announcement. If the FHLB of San Francisco fails to announce such
rate for the calendar month immediately preceding such Eleventh District Cost of
Funds Rate Interest Determination Date, then the Eleventh District Cost of Funds
Rate determined as of such Eleventh District Cost of Funds Rate Interest
Determination Date will be the Eleventh District Cost of Funds in effect on such
Eleventh District Cost of Funds Rate Interest Determination Date.
 
     In determining that the FHLB of San Francisco has failed in any month to
publish the Eleventh District Cost of Funds Index, the Calculation Agent may
rely conclusively on any written advice from the FHLB of San Francisco to such
effect.
 
     Federal Funds Rate:  Unless otherwise indicated in the applicable Pricing
Supplement, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Federal Funds Rate Note (a "Federal Funds Rate
Interest Determination Date"), the rate on that day for Federal Funds as
published in H.15(519) under the heading "Federal Funds (Effective)" or, if not
so published by 3:00 P.M., New York City time, on the Calculation Date
pertaining to such Federal Funds Rate Interest Determination Date, the Federal
Funds Rate shall be the rate on such Federal Funds Rate Interest Determination
Date as published in Composite Quotations under the heading "Federal
Funds/Effective Rate". If such rate is not published by 3:00 P.M., New York City
time, on such Calculation Date in either source, the Federal Funds Rate shall be
the arithmetic mean calculated by the Calculation Agent of the rates for the
last transaction in overnight Federal Funds arranged by three leading brokers of
Federal Funds transactions in The City of New York selected by the Calculation
Agent as of 9:00 A.M., New York City time, on such Federal Funds Interest
Determination Date; provided, however, that if fewer than three brokers selected
as aforesaid by the Calculation Agent are quoting rates as described above, the
Federal Funds Rate with respect to such Federal Funds Rates Interest
Determination Date shall be the Federal Funds Rate in effect on such Federal
Funds Interest Determination Date.
 
     LIBOR:  Unless otherwise indicated in the applicable Pricing Supplement,
LIBOR will be determined by the Calculation Agent in accordance with the
following provisions:
 
          (i) With respect to an Interest Determination Date relating to a LIBOR
     Note (a "LIBOR Interest Determination Date"), LIBOR will be, as specified
     in the applicable Pricing Supplement, either (a) the arithmetic mean of the
     offered rates for deposits in U.S. dollars having the Index Maturity
     designated in the applicable Pricing Supplement, commencing on the second
     London Banking Day immediately following such LIBOR Interest Determination
     Date, that appear on the Reuters Screen LIBO Page as of 11:00 A.M., London
     time, on such LIBOR Interest Determination Date, if at least two such
     offered rates appear on the Reuters Screen LIBO Page ("LIBOR Reuters"), or
     (b) the rate for deposits in U.S. dollars having the Index Maturity
     designated in the applicable Pricing Supplement, commencing on the second
     London Banking Day immediately following such LIBOR Interest Determination
     Date, that appears on Telerate Page 3750 as of 11:00 A.M., London time, on
     such LIBOR Interest Determination Date ("LIBOR Telerate"). "Reuters Screen
     LIBO Page" means the display designated as page "LIBO" on the Reuters
     Monitor Money Rates Service (or such other page as may replace page LIBO on
     that service for the purpose of displaying London interbank offered rates
     of major banks). "Telerate Page 3750" means the display designated as page
     "3750" on the Telerate Service (or such other page as may replace the 3750
     page on that service or such other service or services as may be nominated
     by the British Bankers' Association for the purpose of displaying London
     interbank offered rates for U.S. dollar deposits). If neither LIBOR Reuters
     nor LIBOR Telerate is specified in the applicable Pricing Supplement, LIBOR
     will be determined as if LIBOR Telerate had been specified. If LIBOR
     Reuters is specified in the applicable Pricing Supplement and at least two
     such offered rates appear on the Reuters Screen LIBO Page, the rate in
     respect of such LIBOR Interest Determination Date will be the arithmetic
     mean of such offered rates as determined by the Calculation Agent. If fewer
     than two offered rates appear on the Reuters Screen LIBO Page, or if no
     rate appears on Telerate Page 3750, as
 
                                      S-11
   12
 
     applicable, LIBOR in respect of such LIBOR Interest Determination Date will
     be determined as if the parties had specified the rate described in (ii)
     below.
 
          (ii) With respect to a LIBOR Interest Determination Date on which
     fewer than two offered rates appear on the Reuters Screen LIBO Page, as
     specified in (i)(a) above, or on which no rate appears on Telerate Page
     3750, as specified in (i)(b) above, as applicable, LIBOR will be determined
     on the basis of the rates at which deposits in U.S. dollars having the
     Index Maturity designated in the applicable Pricing Supplement are offered
     at approximately 11:00 A.M., London time, on such LIBOR Interest
     Determination Date by four major banks in the London interbank market
     selected by the Calculation Agent (the "Reference Banks") to prime banks in
     the London interbank market, commencing on the second London Banking Day
     immediately following such LIBOR Interest Determination Date and in a
     principal amount equal to an amount of not less than U.S. $1 million that
     is representative for a single transaction in such market at such time. The
     Calculation Agent will request the principal London office of each of the
     Reference Banks to provide a quotation of its rates. If at least two such
     quotations are provided, LIBOR for such LIBOR Interest Determination Date
     will be the arithmetic mean of such quotations. If fewer than two
     quotations are provided, LIBOR for such LIBOR Interest Determination Date
     will be the arithmetic mean of the rates quoted by 11:00 A.M., New York
     City time, on such LIBOR Interest Determination Date by three major banks
     in The City of New York selected by the Calculation Agent for loans in U.S.
     dollars to leading European banks, having the Index Maturity specified in
     the applicable Pricing Supplement, commencing on the second London Banking
     Day immediately following such LIBOR Interest Determination Date and in a
     principal amount equal to an amount of not less than U.S. $1 million that
     is representative for a single transaction in such market at such time;
     provided, however, that if the banks selected as aforesaid by the
     Calculation Agent are not quoting as mentioned in this sentence, LIBOR will
     be LIBOR in effect on such LIBOR Interest Determination Date.
 
     Prime Rate:  Unless otherwise indicated in the applicable Pricing
Supplement, "Prime Rate" means, with respect to any Interest Determination Date
relating to a Prime Rate Note (a "Prime Rate Interest Determination Date"), the
rate set forth in H.15(519) for such date opposite the caption "Bank Prime
Loan". If such rate is not yet published by 9:00 A.M., New York City time, on
the Calculation Date, the Prime Rate for such Prime Rate Interest Determination
Date will be the arithmetic mean of the rates of interest publicly announced by
each bank named on the Reuters Screen NYMF Page as such bank's prime rate or
base lending rate as in effect for such Prime Rate Interest Determination Date
as quoted on the Reuters Screen NYMF Page on such Prime Rate Interest
Determination Date, or, if fewer than four such rates appear on the Reuters
Screen NYMF Page for such Prime Rate Interest Determination Date, the rate shall
be the arithmetic mean of the prime rates quoted on the basis of the actual
number of days in the year divided by 360 as of the close of business on such
Prime Rate Interest Determination Date by at least two of the three major money
center banks in The City of New York selected by the Calculation Agent from
which quotations are requested. If fewer than two quotations are provided, the
Prime Rate shall be calculated by the Calculation Agent and shall be determined
as the arithmetic mean of the prime rates quoted in The City of New York on such
date by the approximate number of banks or trust companies organized and doing
business under the laws of the United States, or any State thereof, each having
total equity capital of at least $500 million and being subject to supervision
or examination by a Federal or State authority, selected by the Calculation
Agent to quote such rate or rates; provided, however, that if the Prime Rate is
not published in H.15(519) and the banks or trust companies selected as
aforesaid are not quoting as mentioned in this sentence, the Prime Rate with
respect to such Prime Rate Interest Determination Date will be the interest rate
otherwise in effect on such Prime Rate Interest Determination Date. "Reuters
Screen NYMF Page" means the display designated as page "NYMF" on the Reuters
Monitor Money Rates Service (or such other page as may replace page NYMF on that
service for the purpose of displaying prime rates or base lending rates of major
United States banks).
 
     Treasury Rate:  Unless otherwise indicated in the applicable Pricing
Supplement, "Treasury Rate" means, with respect to any Interest Determination
Date relating to a Treasury Rate Note (a "Treasury Rate Interest Determination
Date"), the rate applicable to the most recent auction of direct obligations of
the United States ("Treasury bills") having the Index Maturity specified in the
applicable Pricing Supplement as such rate is published in H.15(519) under the
heading "Treasury bills -- auction average (investment)" or, if
 
                                      S-12
   13
 
not so published by 3:00 P.M., New York City time, on or prior to the
Calculation Date pertaining to such Treasury Rate Interest Determination Date,
the auction average rate (expressed as a bond equivalent on the basis of a year
of 365 or 366 days, as applicable, and applied on a daily basis) for such
auction as otherwise announced by the United States Department of the Treasury.
In the event that the results of the auction of Treasury bills having the
specified Index Maturity are not published or reported as provided above by 3:00
P.M., New York City time, on such Calculation Date, or if no such auction is
held for a particular week, then the Treasury Rate shall be a yield to maturity
(expressed as a bond equivalent on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 P.M., New York City time,
on such Treasury Rate Interest Determination Date, of three leading primary
United States government securities dealers as selected by the Calculation
Agent, for the issue of Treasury bills with a remaining maturity closest to the
applicable Index Maturity; provided, however, that if fewer than three dealers
selected as aforesaid by the Calculation Agent are quoting rates as mentioned in
this sentence, the Treasury Rate with respect to such Treasury Rate Interest
Determination Date shall be the Treasury Rate in effect on such Treasury Rate
Interest Determination Date.
 
ORIGINAL ISSUE DISCOUNT NOTES
 
     The Notes may be issued as Original Issue Discount Notes. An "Original
Issue Discount Note" is a Note (bearing no interest or interest at a rate which
at the time of issuance is below market rates) which is issued at a price lower
than the stated principal amount thereof and which provides that upon redemption
prior to Stated Maturity or upon acceleration of the Maturity thereof an amount
less than the principal amount thereof shall become due and payable. In the
event of redemption prior to Stated Maturity or upon acceleration of the
Maturity of an Original Issue Discount Note, the amount payable to the Holder of
such Note upon such redemption or acceleration will be determined in accordance
with the terms of such Note, but will be an amount less than the amount payable
at the Stated Maturity of such Note. In addition, a Note issued at a discount
may, for United States federal income tax purposes, be considered "Discount
Note", regardless of the amount payable upon redemption or acceleration of
maturity of such Note. See "United States Taxation -- Original Issue Discount"
below. Any other special considerations applicable to any such discounted Notes
will be described in the Pricing Supplement relating thereto.
 
BOOK-ENTRY NOTES
 
     The Notes may be issued in whole or in part in the form of one or more
fully-registered global Notes (each, a "Book-Entry Note") which will be
deposited with, or on behalf of, the Depository and registered in the name of
the Depository's nominee. Except as set forth below, a Book-Entry Note may not
be transferred except as a whole by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any nominee to a successor of
the Depository or a nominee of such successor.
 
     The Depository has advised the Company and the Agents that it is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934, as amended. The Company understands that the Depository was created to
hold securities of its participants and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (including the
Agents), banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own the Depository.
Access to the Depository's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Persons who are not participants may beneficially own securities held by the
Depository only through participants.
 
     Upon the issuance of Notes by the Company represented by a Book-Entry Note,
the Depository will credit, on its book-entry registration and transfer system,
the respective principal amounts of the Notes
 
                                      S-13
   14
 
represented by such Book-Entry Note to the accounts of participants. The
accounts to be credited shall be designated by the Agents or by the Company, if
such Notes are offered and sold directly by the Company. Ownership of beneficial
interests in a Book-Entry Note will be limited to participants or persons that
may hold interests through participants. Ownership interests in a Book-Entry
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by the Depository (with respect to beneficial
interests of participants), or by participants or persons that may hold
interests through participants (with respect to beneficial interests of other
beneficial owners). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in certificated form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Book-Entry Note.
 
     So long as the Depository for a Book-Entry Note, or its nominee, is the
Holder of a Book-Entry Note, the Depository or its nominee, as the case may be,
will be considered the sole owner or Holder of the Notes represented by such
Book-Entry Note for all purposes under the Indenture. Except as provided below,
owners of beneficial interests in a Book-Entry Note will not be entitled to have
Notes represented by such Book-Entry Note registered in their names, will not
receive or be entitled to receive physical delivery of Notes in certificated
form, and will not be considered the owners or holders thereof under the
Indenture.
 
     Principal, premium, if any, and interest payments on Notes issued in
book-entry form and represented by one or more Book-Entry Notes will be made by
the Company to the Depository or its nominee, as the case may be, as the Holder
of the related Book-Entry Note or Notes. None of the Company, the Guarantor, the
Agents nor the Trustee will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests of a Book-Entry Note, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. The Company expects
that the Depository, upon receipt of any payment of principal, premium, if any,
or interest in respect of a Book-Entry Note, will credit immediately the
accounts of the related participants with payment in amounts proportionate to
their respective holdings in principal amount of beneficial interest in such
Book-Entry Note as shown on the records of the Depository. The Company also
expects that payments by participants to owners of beneficial interests in a
Book-Entry Note will be governed by standing customer instructions and customary
practices, as is now the case with securities held for the accounts of customers
in bearer form or registered in "street name" and will be the responsibility of
such participants.
 
     If the Depository is at any time unwilling or unable to continue as
depository or ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended, and a successor depository is not appointed by
the Company within 90 days after the Company receives notice or becomes aware
that the Depository is no longer so registered or, if an Event of Default or an
event which, with the lapse of time, the giving of notice or both, would be an
Event of Default, has occurred and is continuing, the Company will issue Notes
in certificated form in exchange for each Book-Entry Note. In addition, the
Company may at any time determine not to have Notes represented by one or more
Book-Entry Notes, and, in such event, will issue Notes in certificated form in
exchange for all the Book-Entry Notes representing such Notes. In any such
instance, an owner of a beneficial interest in Book-Entry Notes will be entitled
to physical delivery in certificated form of Notes equal in principal amount to
such beneficial interest and to have such Notes registered in its name. Notes so
issued in certificated form will be issued in denominations of $1,000 and
integral multiples thereof and will be issued in registered form only, without
coupons.
 
FOREIGN CURRENCY NOTES, MULTI-CURRENCY NOTES AND INDEXED NOTES
 
     If any Note is not to be denominated in U.S. dollars, certain provisions
with respect thereto will be set forth in a foreign currency or indexed currency
supplement included in the applicable Pricing Supplement (a "Foreign Currency,
Multi-Currency and Indexed Note Pricing Supplement") which will specify the
currency or currencies, including composite currencies such as the European
Currency Unit, in which the principal, premium, if any, and interest with
respect to such Note are to be paid (the "Specified Currency"), along with any
other terms relating to the non-U.S. dollar denomination. Such additional
information contained in the applicable Foreign Currency, Multi-Currency and
Indexed Note Pricing Supplement shall constitute a part of this Prospectus
Supplement.
 
                                      S-14
   15
 
     The Notes also may be issued with the principal amount payable at Maturity
to be determined with reference to the exchange rate of a Specified Currency
relative to an indexed currency (the "Indexed Currency") or other index, each as
set forth in the Foreign Currency, Multi-Currency and Indexed Note Pricing
Supplement. Holders of such Notes may receive a principal amount at Maturity
that is greater than or less than the face amount of the Note depending upon the
relative value at Maturity of the Specified Currency compared to the Indexed
Currency or as otherwise set forth in the applicable Foreign Currency, Multi-
Currency or Indexed Note Pricing Supplement. Information as to the method for
determining the principal amount payable at Maturity and certain additional
risks and tax considerations associated with investment in such Notes will be
set forth in the applicable Foreign Currency, Multi-Currency and Indexed Note
Pricing Supplement.
 
                             UNITED STATES TAXATION
 
     The following summary of the principal United States federal income tax
consequences of ownership of Notes is based upon the opinion of Sullivan &
Cromwell, counsel to the Company. It deals only with Notes held as capital
assets by initial purchasers, and not with special classes of holders, such as
dealers in securities or currencies, banks, tax-exempt organizations, life
insurance companies, persons that hold Notes that are a hedge or that are hedged
against currency risks or that are part of a straddle or conversion transaction
or persons whose functional currency is not the U.S. dollar. Moreover, the
summary deals only with Notes that are due to mature 30 years or less from the
date on which they are issued. The United States federal income tax consequences
of ownership of Notes that are due to mature more than 30 years from their date
of issue will be discussed in an applicable Pricing Supplement.
 
     The summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), its legislative history, existing and proposed regulations thereunder,
published rulings and court decisions, all as currently in effect and all
subject to change at any time, perhaps with retroactive effect.
 
     Prospective purchasers of Notes should consult their own tax advisors
concerning the consequences, in their particular circumstances, under the Code
and the laws of any other taxing jurisdiction, of ownership of Notes.
 
UNITED STATES HOLDERS
 
  Payments of Interest
 
     Interest on a Note, whether payable in U.S. dollars or a currency,
composite currency or basket of currencies other than U.S. dollars (a "Specified
Currency"), other than interest on a "Discount Note" that is not "qualified
stated interest" (each as defined below under "Original Issue
Discount -- General"), will be taxable to a United States Holder as ordinary
income at the time it is received or accrued, depending on the holder's method
of accounting for tax purposes. A United States Holder is a beneficial owner who
or that is (i) a citizen or resident of the United States, (ii) a domestic
corporation or (iii) otherwise subject to United States federal income taxation
on a net income basis in respect of the Note.
 
     If an interest payment is denominated in, or determined by reference to, a
Specified Currency, the amount of income recognized by a cash basis United
States Holder will be the U.S. dollar value of the interest payment, based on
the exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into U.S. dollars.
 
     An accrual basis United States Holder may determine the amount of income
recognized with respect to an interest payment denominated in, or determined by
reference to, a Specified Currency in accordance with either of two methods.
Under the first method, the amount of income accrued will be based on the
average exchange rate in effect during the interest accrual period (or, with
respect to an accrual period that spans two taxable years, the part of the
period within the taxable year). Upon recept of the interest payment (including
a payment attributable to accrued but unpaid interest upon the sale or
retirement of a Note) denominated in, or determined by reference to, a Specified
Currency, the United States Holder will recognize ordinary income or loss
measured by the difference between the average exchange rate used to accrue
interest income and the exchange rate in effect on the date of receipt,
regardless of whether the payment is in fact converted into U.S. dollars.
 
                                      S-15
   16
 
     Under the second method, the United States Holder may elect to determine
the amount of income accrued on the basis of the exchange rate in effect on the
last day of the accrual period or, in the case of an accrual period that spans
two taxable years, the exchange rate in effect on the last day of the part of
the period within the taxable year. Additionally, if a payment of interest is
actually received within five business days of the last day of the accrual
period or taxable year, an electing accrual basis United States Holder may
instead translate such accrued interest into U.S. dollars at the exchange rate
in effect on the day of actual receipt. Any such election will apply to all debt
instruments held by the United States Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the United
States Holder, and will be irrevocable without the consent of the Internal
Revenue Service (the "Service").
 
  Original Issue Discount
 
     General.  A Note, other than a Note with a term of one year or less (a
"short-term Note"), will be treated as issued at an original issue discount (a
"Discount Note") if the excess of the Note's "stated redemption price at
maturity" over its issue price is more than a "de minimis amount" (as defined
below). Generally, the issue price of a Note will be the first price at which a
substantial amount of Notes included in the issue of which the Note is a part is
sold to other than 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 total of all payments
provided by the Note that are not payments of "qualified stated interest". A
qualified stated interest payment is generally any one of a series of stated
interest payments on a Note that are unconditionally payable at least annually
at a single fixed rate (with certain exceptions for lower rates paid during some
periods) applied to the outstanding principal amount of the Note. Special rules
for "Variable Rate Notes" (as defined below under "Original Issue
Discount -- Variable Rate Notes") are described below under "Original Issue
Discount -- Variable Rate Notes".
 
     In general, if the excess of a Note's stated redemption price at maturity
over its issue price is less than 1/4 of 1 percent of the Note's stated
redemption price at maturity multiplied by the number of complete years to its
maturity (the "de minimis amount"), then such excess, if any, constitutes "de
minimis original issue discount" and the Note is not a Discount Note. Unless the
election described below under "Election to Treat All Interest as Original Issue
Discount" is made, a United States Holder of a Note with de minimis original
issue discount must include such de minimis original issue discount in income as
stated principal payments on the Note are made. The includible amount with
respect to each such payment will equal the product of the total amount of the
Note's de minimis original issue discount and a fraction, the numerator of which
is the amount of the principal payment made and the denominator of which is the
stated principal amount of the Note.
 
     United States Holders of Discount Notes having a maturity of more than one
year from their date of issue must include original issue discount ("OID") in
income calculated on a constant-yield method before the receipt of cash
attributable to such income, and generally will have to include in income
increasingly greater amounts of OID over the life of the Note. The amount of OID
includible in income by a United States Holder of a Discount Note is the sum of
the daily portions of OID with respect to the Discount Note for each day during
the taxable year or portion of the taxable year on which the United States
Holder holds such Discount Note ("accrued OID"). The daily portion is determined
by allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. Accrual periods with respect to a Note may be
of any length selected by the United States Holder and may vary in length over
the term of the Note as long as (i) no accrual period is longer than one year
and (ii) each scheduled payment of interest or principal on the Note occurs on
either the final or first day of an accrual period. The amount of OID allocable
to an accrual period equals the excess of (a) the product of the Discount Note's
adjusted issue price at the beginning of the accrual period and such Note's
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(b) the sum of the payments of qualified stated interest on the Note allocable
to the accrual period. The "adjusted issue price" of a Discount Note at the
beginning of any accrual period is the issue price of the Note increased by (x)
the amount of accrued OID for each prior accrual period and decreased by (y) the
amount of any payments previously made on the Note that were not qualified
stated interest payments. For purposes of determining the amount of OID
 
                                      S-16
   17
 
allocable to an accrual period, if an interval between payments of qualified
stated interest on the Note contains more than one accrual period, the amount of
qualified stated interest payable at the end of the interval (including any
qualified stated interest that is payable on the first day of the accrual period
immediately following the interval) is allocated pro rata on the basis of
relative lengths to each accrual period in the interval, and the adjusted issue
price at the beginning of each accrual period in the interval must be increased
by the amount of any qualified stated interest that has accrued prior to the
first day of the accrual period but that is not payable until the end of the
interval. The amount of OID allocable to an initial short accrual period may be
computed using any reasonable method if all other accrual periods other than a
final short accrual period are of equal length. The amount of OID allocable to
the final accrual period is the difference between (x) the amount payable at the
maturity of the Note (other than any payment of qualified stated interest) and
(y) the Note's adjusted issue price as of the beginning of the final accrual
period.
 
     Acquisition Premium.  A United States Holder that purchases a Note for an
amount less than or equal to the sum of all amounts payable on the Note after
the purchase date other than payments of qualified stated interest but in excess
of its adjusted issue price (any such excess being "acquisition premium") and
that does not make the election described below under "Election to Treat All
Interest as Original Issue Discount" is permitted to reduce the daily portions
of OID by a fraction, the numerator of which is the excess of the United States
Holder's adjusted basis in the Note immediately after its purchase over the
adjusted issue price of the Note, and the denominator of which is the excess of
the sum of all amounts payable on the Note after the purchase date, other than
payments of qualified stated interest, over the Note's adjusted issue price.
 
     Market Discount.  A Note, other than a short-term Note, will be treated as
purchased at a market discount (a "Market Discount Note") if (i) the amount for
which a United States Holder purchased the Note is less than the Note's issue
price (as determined above under "Original Issue Discount -- General") and (ii)
the Note's stated redemption price at maturity or, in the case of a Discount
Note, the Note's "revised issue price", exceeds the amount for which the United
States Holder purchased the Note by at least 1/4 of 1 percent of such Note's
stated redemption price at maturity or revised issue price, respectively,
multiplied by the number of complete years to the Note's maturity. If such
excess is not sufficient to cause the Note to be a Market Discount Note, then
such excess constitutes "de minimis market discount". The Code provides that,
for these purposes, the "revised issue price" of a Note generally equals its
issue price, increased by the amount of any OID that has accrued on the Note.
 
     Any gain recognized on the maturity or disposition of a Market Discount
Note will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on such Note. Alternatively, a United States
Holder of a Market Discount Note may elect to include market discount in income
currently over the life of the Note. Such an election shall apply to all debt
instruments with market discount acquired by the electing United States Holder
on or after the first day of the first taxable year to which the election
applies. This election may not be revoked without the consent of the Service.
 
     Market discount on a Market Discount Note will accrue on a straight-line
basis unless the United States Holder elects to accrue such market discount on a
constant-yield method. Such an election shall apply only to the Note with
respect to which it is made and may not be revoked without the consent of the
Service. A United States Holder of a Market Discount Note that does not elect to
include market discount in income currently generally will be required to defer
deductions for interest in borrowings allocable to such Note in an amount not
exceeding the accrued market discount on such Note until the maturity or
disposition of such Note.
 
     Pre-Issuance Accrued Interest.  If (i) a portion of the initial purchase
price of a Note is attributable to pre-issuance accrued interest, (ii) the first
stated interest payment on the Note is to be made within one year of the Note's
issue date and (iii) the payment will equal or exceed the amount of pre-issuance
accrued interest, then the United States Holder may elect to decrease the issue
price of the Note by the amount of pre-issuance accrued interest. In that event,
a portion of the first stated interest payment will be treated as a return on
the excluded pre-issuance accrued interest and not as an amount payable on the
Note.
 
     Notes Subject to Contingencies Including Optional Redemption.  In general,
if a Note provides for an alternative payment schedule or schedules applicable
upon the occurrence of a contingency or contingencies
 
                                      S-17
   18
 
and the timing and amounts of the payments that comprise each payment schedule
are known as of the issue date, the yield and maturity of the Note are
determined by assuming that the payments will be made according to the Note's
stated payment schedule. If, however, based on all the facts and circumstances
as of the issue date, it is more likely than not that the Note's stated payment
schedule will not occur, then, in general, the yield and maturity of the Note
are computed based on the payment schedule most likely to occur.
 
     Notwithstanding the general rules for determining yield and maturity in the
case of Notes subject to contingencies, if the Company has an unconditional
option or options to redeem a Note, or the Holder has an unconditional option or
options to cause a Note to be repurchased, prior to the Note's stated maturity,
then (i) in the case of an option or options of the Company, the Company will be
deemed to exercise or not exercise an option or combination of options in the
manner that minimizes the yield on the Note and (ii) in the case of an option or
options of the Holder, the Holder will be deemed to exercise or not exercise an
option or combination of options in the manner that maximizes the yield on the
Note. For purposes of those calculations, the yield on the Note is determined by
using any date on which the Note may be redeemed or repurchased as the maturity
date and the amount payable on such date in accordance with the terms of the
Note as the principal amount payable at maturity.
 
     If a contingency (including the exercise of an option) actually occurs or
does not occur contrary to an assumption made according to the above rules (a
"change in circumstances") then, except to the extent that a portion of the Note
is repaid as a result of a change in circumstances and solely for purposes of
the accrual of OID, the yield and maturity of the Note are redetermined by
treating the Note as reissued on the date of the change in circumstances for an
amount equal to the Note's adjusted issue price on that date.
 
     Election to Treat All Interest as Original Issue Discount.  A United States
Holder may elect to include in gross income all interest that accrues on a Note
using the constant-yield method described above under the heading "Original
Issue Discount -- General", with the modifications described below. For purposes
of this election, interest includes stated interest, OID, de minimis original
issue discount, market discount, de minimis market discount and unstated
interest, as adjusted by any amortizable bond premium (described below under
"Notes Purchased at a Premium") or acquisition premium.
 
     In applying the constant-yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal the electing
United States Holder's adjusted basis in the Note immediately after its
acquisition, the issue date of the Note will be the date of its acquisition by
the electing United States Holder, and no payments on the Note will be treated
as payments of qualified stated interest. This election will generally apply
only to the Note with respect to which it is made and may not be revoked without
the consent of the Service. If this election is made with respect to a Note with
amortizable bond premium, then the electing United States Holder will be deemed
to have elected to apply amortizable bond premium against interest with respect
to all debt instruments with amortizable bond premium (other than debt
instruments the interest on which is excludible from gross income) held by the
electing United States Holder as of the beginning of the taxable year in which
the Notes with respect to which the election is made is acquired or thereafter
acquired. The deemed election with respect to amortizable bond premium may not
be revoked without the consent of the Service.
 
     If the election to apply the constant-yield method to all interest on a
Note is made with respect to a Market Discount Note, the electing United States
Holder will be treated as having made the election discussed above under
"Original Issue Discount -- Market Discount" to include market discount in
income currently over the life of all debt instruments held or thereafter
acquired by such United States Holder.
 
     Variable Rate Notes.  A "Variable Rate Note" is a Note that: (i) has an
issue price that does not exceed the total noncontingent principal payments by
more than the lesser of (1) the product of (x) the total noncontingent principal
payments, (y) the number of complete years to maturity from the issue date and
(z) .015, or (2) 15 percent of the total noncontingent principal payments, and
(ii) provides for stated interest compounded or paid at least annually at (1)
one or more "qualified floating rates", (2) a single fixed rate and one or more
qualified floating rates, (3) a single "objective rate" or (4) a single fixed
rate and a single objective rate that is a "qualified inverse floating rate".
 
                                      S-18
   19
 
     A qualified floating rate or objective rate in effect at any time during
the term of the instrument must be set at a "current value" of that rate. A
"current value" of a rate is the value of the rate on any day that is no earlier
than 3 months prior to the first day on which that value is in effect and no
later than 1 year following that first day.
 
     A variable rate is a "qualified floating rate" if (i) variations in the
value of the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the Note
is denominated or (ii) it is equal to the product of such a rate and either (a)
a fixed multiple that is greater than zero but not more than 1.35, or (b) a
fixed multiple greater than zero but not more than 1.35, increased or decreased
by a fixed rate. A rate is not a qualified floating rate, however, if the rate
is subject to certain restrictions (including caps, floors, governors, or other
similar restrictions) unless such restrictions are fixed throughout the term of
the Note or are not reasonably expected to significantly affect the yield on the
Note.
 
     An "objective rate" is a rate, other than a qualified floating rate, that
is determined using a single, fixed formula and that is based on (i) one or more
qualified floating rates, (ii) one or more rates each of which would be a
qualified floating rate for a debt instrument denominated in a currency other
than the currency in which the debt instrument is denominated, (iii) the yield
or changes in the price of one or more actively traded items of personal
property other than stock or debt of the issuer or a related party, or (iv) a
combination of objective rates. A variable rate is not an objective rate,
however, if it is reasonably expected that the average value of the rate during
the first half of the Note's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of the Note's term. An objective rate is a "qualified inverse floating rate" if
(i) the rate is equal to a fixed rate minus a qualified floating rate, and (ii)
the variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the cost of newly borrowed funds. Under these
rules, CD Rate Notes, Commercial Paper Rate Notes, Eleventh District Cost of
Funds Rate Notes, Federal Funds Rate Notes, LIBOR Notes, Prime Rate Notes and
Treasury Rate Notes will generally be treated as Variable Rate Notes.
 
     In general, if a Variable Rate Note provides for stated interest at a
single qualified floating rate or objective rate, all stated interest on the
Note is qualified stated interest and the amount of OID, if any, is determined
by using, in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date of the qualified floating rate or qualified
inverse floating rate, or, in the case of any other objective rate, a fixed rate
that reflects the yield reasonably expected for the Note.
 
     If a Variable Rate Note does not provide for stated interest at a single
qualified floating rate or objective rate, or at a single fixed rate (other than
at a single fixed rate for an initial period), the amount of interest and OID
accruals on the Note are generally determined by (i) determining a fixed rate
substitute for each variable rate provided under the Variable Rate Note
(generally, the value of each variable rate as of the issue date or, in the case
of an objective rate that is not a qualified inverse floating rate, a rate that
reflects the reasonably expected yield on the Note), (ii) constructing the
equivalent fixed rate debt instrument (using the fixed rate substitute described
above), (iii) determining the amount of qualified stated interest and OID with
respect to the equivalent fixed rate debt instrument, and (iv) making the
appropriate adjustments for actual variable rates during the applicable accrual
period.
 
     If a Variable Rate Note provides for stated interest either at one or more
qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate (other than at a
single fixed rate for an initial period), the amount of interest and OID
accruals are determined as in the immediately preceding paragraph with the
modification that the Variable Rate Note is treated, for purposes of the first
three steps of the determination, as if it provided for a qualified floating
rate (or a qualified inverse floating rate, as the case may be) rather than the
fixed rate. The qualified floating rate (or qualified inverse floating rate)
replacing the fixed rate must be such that the fair market value of the Variable
Rate Note as of the issue date would be approximately the same as the fair
market value of an otherwise identical debt instrument that provides for the
qualified floating rate (or qualified inverse floating rate) rather than the
fixed rate.
 
                                      S-19
   20
 
     The applicable Pricing Supplement will contain a discussion of any special
United States federal income tax rules with respect to Notes that are not
subject to the rules governing Variable Rate Notes payments on which are
determined by reference to any index.
 
     Short-Term Notes.  In general, an individual or other cash basis United
States Holder of a short-term Note is not required to accrue OID (as specially
defined below for the purposes of this paragraph) for United States federal
income tax purposes unless it elects to do so (but may be required to include
any stated interest in income as the interest is received). Accrual basis United
States Holders and certain other United States Holders, including banks,
regulated investment companies, dealers in securities, common trust funds,
United States Holders who hold Notes as part of certain identified hedging
transactions, certain pass-thru entities and cash basis United States Holders
who so elect, are required to accrue OID on short-term Notes on either a
straight-line basis or under the constant-yield method (based on daily
compounding), at the election of the United States Holder. In the case of a
United States Holder not required and not electing to include OID in income
currently, any gain realized on the sale or retirement of the short-term Note
will be ordinary income to the extent of the OID accrued on a straight-line
basis (unless an election is made to accrue the OID under the constant-yield
method) through the date of sale or retirement. United States Holders who are
not required and do not elect to accrue OID on short-term Notes will be required
to defer deductions for interest on borrowings allocable to short-term Notes in
an amount not exceeding the deferred income until the deferred income is
realized.
 
     For purposes of determining the amount of OID subject to these rules, all
interest payments on a short-term Note, including stated interest, are included
in the short-term Note's stated redemption price at maturity.
 
     Specified Currency Discount Notes.  OID for any accrual period on a
Discount Note that is denominated in, or determined by reference to, a Specified
Currency will be determined in the Specified Currency and then translated into
U.S. dollars in the same manner as stated interest accrued by an accrual basis
United States Holder, as described under "Payments of Interest". Upon receipt of
an amount attributable to OID (whether in connection with a payment of interest
or the sale or retirement of a Note), a United States Holder may recognize
ordinary income or loss.
 
  Notes Purchased at a Premium
 
     A United States Holder that purchases a Note for an amount in excess of its
principal amount may elect to treat such excess as "amortizable bond premium",
in which case the amount required to be included in the United States Holder's
income each year with respect to interest on the Note will be reduced by the
amount of amortizable bond premium allocable (based on the Note's yield to
maturity) to such year. In the case of a Note that is denominated in, or
determined by reference to, a Specified Currency, bond premium will be computed
in units of Specified Currency, and amortizable bond premium will reduce
interest income in units of the Specified Currency. At the time amortized bond
premium offsets interest income, exchange gain or loss (taxable as ordinary
income or loss) is realized measured by the difference between exchange rates at
that time and at the time of the acquisition of the Notes. Any election to
amortize bond premium shall apply to all bonds (other than bonds the interest on
which is excludible from gross income) held by the United States Holder at the
beginning of the first taxable year to which the election applies or thereafter
acquired by the United States Holder, and is irrevocable without the consent of
the Service. See also "Original Issue Discount -- Election to Treat All Interest
as Original Issue Discount".
 
  Purchase, Sale and Retirement of the Notes
 
     A United States Holder's tax basis in a Note will generally be its U.S.
dollar cost (as defined below), increased by the amount of any OID or market
discount included in the United States Holder's income with respect to the Note
and the amount, if any, of income attributable to de minimis original issue
discount and de minimis market discount included in the United States Holder's
income with respect to the Note, and reduced by (i) the amount of any payments
that are not qualified stated interest payments, and (ii) the amount of any
amortizable bond premium applied to reduce interest on the Note. The U.S. dollar
cost of a Note purchased
 
                                      S-20
   21
 
with a Specified Currency will generally be the U.S. dollar value of the
purchase price on the date of purchase or, in the case of Notes traded on an
established securities market, as defined in the applicable Treasury
Regulations, that are purchased by a cash basis United States Holder (or an
accrual basis United States Holder that so elects), on the settlement date for
the purchase.
 
     A United States Holder will generally recognize gain or loss on the sale or
retirement of a Note equal to the difference between the amount realized on the
sale or retirement and the tax basis of the Note. The amount realized on a sale
or retirement for an amount in Specified Currency will be the U.S. dollar value
of such amount on the date of sale or retirement or, in the case of Notes traded
on an established securities market, as defined in the applicable Treasury
Regulations, sold by a cash basis United States Holder (or an accrual basis
United States Holder that so elects), on the settlement date for the sale.
Except to the extent described above under "Original Issue
Discount -- Short-Term Notes" or "Original Issue Discount -- Market Discount" or
described in the next succeeding paragraph or attributable to accrued but unpaid
interest, gain or loss recognized on the sale or retirement of a Note will be
capital gain or loss and will be long-term capital gain or loss if the Note was
held for more than one year.
 
     Gain or loss recognized by a United States Holder on the sale or retirement
of a Note that is attributable to changes in exchange rates will be treated as
ordinary income or loss. However, exchange gain or loss is taken into account
only to the extent of total gain or loss realized on the transaction.
 
  Exchange of Amounts in Other Than U.S. Dollars
 
     Specified Currency received as interest on a Note or on the sale or
retirement of a Note will have a tax basis equal to its U.S. dollar value at the
time such interest is received or at the time of such sale or retirement.
Specified Currency that is purchased will generally have a tax basis equal to
the U.S. dollar value of the Specified Currency on the date of purchase. Any
gain or loss recognized on a sale or other disposition of a Specified Currency
(including its use to purchase Notes or upon exchange for U.S. dollars) will be
ordinary income or loss.
 
UNITED STATES ALIEN HOLDERS
 
     For purposes of this discussion, a "United States Alien Holder" is any
holder who or that is (i) a nonresident alien individual or (ii) a foreign
corporation, partnership or estate or trust, in either case not subject to
United States Federal income tax on a net income basis in respect of a Note.
 
     Under present United States federal income and estate tax law and subject
to the discussion of backup withholding below:
 
          (i) payments of principal, premium (if any) and interest (including
     OID) by the Company or any of its paying agents to any holder of a Note who
     or which is a United States Alien Holder will not be subject to United
     States federal withholding tax if, in the case of interest or OID, (a) the
     beneficial owner of the Note does not actually or constructively own 10% or
     more of the total combined voting power of all classes of stock of the
     Company entitled to vote, (b) the beneficial owner of the Note is not a
     controlled foreign corporation that is related to the Company through stock
     ownership, (c) the interest on the Note is not contingent interest to which
     Section 871(h)(4)(A) of the Code is applicable, and (d) either (A) the
     beneficial owner of the Note certifies to the Company or its agent, under
     penalties of perjury, that it is not a United States Holder and provides
     its name and address or (B) a securities clearing organization, bank or
     other financial institution that holds customers' securities in the
     ordinary course of its trade or business (a "financial institution") and
     holds the Note certifies to the Company or its agent under penalties of
     perjury that such statement has been received from the beneficial owner by
     it or by a financial institution between it and the beneficial owner and
     furnishes the payor with a copy thereof;
 
          (ii) a United States Alien Holder of a Note will not be subject to
     United States federal withholding tax on any gain realized on the sale or
     exchange of a Note; and
 
                                      S-21
   22
 
          (iii) a Note held by an individual who at death is not a citizen or
     resident of the United States will not be includible in the individual's
     gross estate for purposes of the United States federal estate tax as a
     result of the individual's death if the individual did not actually or
     constructively own 10% or more of the total combined voting power of all
     classes of stock of the Company entitled to vote and the income on the Note
     would not have been effectively connected with a United States trade or
     business of the individual at the individual's death and in the case of a
     Note on which all or a portion of the interest payments are contingent
     interest to which Section 871(h)(4)(A) of the Code is applicable, only to
     the extent that the value of the Note is not allocable to such interest.
 
BACKUP WITHHOLDING AND INFORMATION REPORTING
 
  United States Holders
 
     In general, information reporting requirements will apply to payments of
principal, any premium and interest on a Note and the proceeds of the sale of a
Note before maturity within the United States to, and to the accrual of OID on a
Discount Note with respect to, non-corporate United States Holders, and "backup
withholding" at a rate of 31% will apply to such payments and to payments of OID
if the United States Holder fails to provide an accurate taxpayer identification
number or to report all interest and dividends required to be shown on its
federal income tax returns.
 
  United States Alien Holders
 
     Information reporting and backup withholding will not apply to payments of
principal, premium (if any) and interest (including OID) made by the Company or
a paying agent to a United States Alien Holder on a Note if the certification
described in clause (i)(c) under "United States Alien Holders" above is
received, provided that the payor does not have actual knowledge that the holder
is a United States person.
 
     Payments of the proceeds from the sale by a United States Alien Holder of a
Note made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is a
United States person, a controlled foreign corporation for United States tax
purposes or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting may apply to such payments. Payments of the
proceeds from the sale of a Note to or through the United States office of a
broker is subject to information reporting and backup withholding unless the
holder or beneficial owner certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and backup
withholding.
 
                       SUPPLEMENTAL PLAN OF DISTRIBUTION
 
     The Notes are being offered on a continuous basis for sale by the Company
through the Agents, each of which has agreed to use its reasonable efforts to
solicit purchasers of the Notes. The Company will pay the applicable Agent a
commission which, depending on the maturity of the Notes, will range from .125%
to .750%, of the principal amount of any Note sold through such Agent. The
Company may also sell Notes to an Agent, as principal, at a discount from the
principal amount thereof, and such Agent may later resell such Notes to
investors and other purchasers at varying prices related to prevailing markets
prices at the time of resale as determined by such Agent or, if so agreed, on a
fixed public offering price basis. The Company may also sell Notes directly to
investors on its own behalf in those jurisdictions where it is authorized to do
so.
 
     In addition, the Agents may offer the Notes they have purchased as
principal to other dealers. The Agents may sell Notes to any dealer at a
discount and, unless otherwise specified in the applicable Pricing Supplement,
such discount allowed to any dealer will not be in excess of the discount to be
received by such Agent from the Company. Unless otherwise indicated in the
applicable Pricing Supplement, any Note sold to an Agent as principal will be
purchased by such Agent at a price equal to 100% of the principal amount thereof
less a percentage equal to the commission applicable to any agency sale of a
Note of identical maturity, and may be resold by the Agent to investors and
other purchasers as described above. After the initial public
 
                                      S-22
   23
 
offering of Notes to be resold to investors and other purchasers, the public
offering price (in the case of fixed price public offering), concession and
discount may be changed.
 
     The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject orders in whole or in part whether placed
directly with the Company or through an Agent. Each Agent will have the right,
in its discretion reasonably exercised, to reject any offer to purchase Notes
received by it in whole or in part.
 
     Unless otherwise provided in a Foreign Currency, Multi-Currency and Indexed
Note Prospectus Supplement, payment of the purchase price of the Notes will be
required to be made in immediately available funds in The City of New York on
the date of settlement.
 
     The Company and the Guarantor have agreed to indemnify the Agents against
and to make contributions relating to certain liabilities, including liabilities
under the Securities Act of 1933. The Agents may be deemed to be "underwriters"
within the meaning of such Act. The Company and the Guarantor have also agreed
to reimburse the Agents for certain expenses.
 
                      VALIDITY OF THE NOTES AND GUARANTEES
 
     The validity of the Notes and Guarantees will be passed upon for the
Company by Sullivan & Cromwell and for the Agents by Brown & Wood. The validity
of the Guarantee will be passed upon as to matters of Puerto Rico law for the
Guarantor by Brunilda Santos de Alvarez, counsel to the Corporation. Sullivan &
Cromwell and Brown & Wood will rely as to all matters of the laws of the
Commonwealth of Puerto Rico upon the opinion of Brunilda Santos de Alvarez. The
opinions of Sullivan & Cromwell, Brunilda Santos de Alvarez and Brown & Wood
will be conditioned upon, and subject to, certain assumptions regarding future
action to be taken by the Company and the Trustee in connection with the issue
and sale of any Note, the specific terms of Notes and other events which may
affect the validity of the Notes and the Guarantee but which can not be
ascertained on the date of such opinions.
 
                                      S-23
   24
 
PROSPECTUS
- -----------------
                                DEBT SECURITIES
                                       OF
 
                              BANPONCE CORPORATION
                                       OR
 
                        POPULAR INTERNATIONAL BANK INC.
                          (UNCONDITIONALLY GUARANTEED
                            BY BANPONCE CORPORATION)
                                       OR
 
                            BANPONCE FINANCIAL CORP.
                          (UNCONDITIONALLY GUARANTEED
                            BY BANPONCE CORPORATION)
 
                                PREFERRED STOCK
                                       OF
 
                              BANPONCE CORPORATION
                                       OR
 
                        POPULAR INTERNATIONAL BANK INC.
                          (UNCONDITIONALLY GUARANTEED
                            BY BANPONCE CORPORATION)
                             ---------------------
 
     BanPonce Corporation (the "Corporation") intends to issue from time to time
in one or more series its (i) unsecured debt securities, which may be either
senior or subordinated, and (ii) shares of preferred stock. BanPonce Financial
Corp. ("Financial") intends to issue from time to time in one or more series its
unsecured debt securities. Popular International Bank Inc. ("PIB") intends to
issue from time to time in one or more series its (i) unsecured debt securities,
which may be either senior or subordinated, and (ii) shares of preferred stock.
Unsecured debt securities issued by Financial or PIB will be unconditionally
guaranteed as to the payment of principal, premium, if any, and interest by the
Corporation. Shares of preferred stock issued by PIB will be guaranteed as to
the payment of dividends, redemption price, if any, and liquidation preference,
if any, by the Corporation. The foregoing debt securities and shares of
preferred stock are collectively referred to herein as the "Securities." The
Securities will be limited to an aggregate initial offering price not to exceed
$500,000,000 or, in the case of debt securities, the equivalent thereof in one
or more foreign currencies, including composite currencies. The Securities
offered may be offered, separately or together, in separate series, in amounts,
at prices and on terms to be determined at the time of sale and to be set forth
in a supplement to this Prospectus (a "Prospectus Supplement").
     The subordinated debt securities when issued will be subordinated as
described herein under "Description of Debt Securities and Guarantees." Unless
otherwise indicated in the Prospectus Supplement, payment of the principal of
the subordinated debt securities may be accelerated only in the case of certain
events involving the bankruptcy, insolvency or reorganization of the Corporation
or PIB, as the case may be. There is no right of acceleration of payment of
subordinated debt securities in the case of a default in the performance of any
covenant of the Corporation or PIB, including the payment of principal or
interest.
     The specific terms of the Securities in respect of which this Prospectus is
being delivered, including (i) in the case of debt securities, the issuer, the
specific designation, aggregate principal amount, denominations, maturity,
premium, if any, rate (which may be fixed or variable) and time of payment of
interest, if any, terms for redemption at the option of the Corporation,
Financial, PIB or the holder, if any, currency or currencies of denomination and
payment, if other than U.S. dollars, the terms, if any, for conversion into
other debt securities or preferred stock and any other terms in connection with
the offering and sale of the debt securities in respect of which this Prospectus
is being delivered, as well as the initial public offering price, and the
principal amounts, if any, to be purchased by underwriters and (ii) in the case
of preferred stock, the issuer, the specific title and stated value, number of
shares or fractional interests therein, any dividend, liquidation, redemption,
voting and other rights, the terms, if any, for conversion into other preferred
stock, the securities exchanges, if any, on which the preferred stock is to be
listed, the initial public offering price, and the number of shares, if any, to
be purchased by the underwriters, will be as set forth in the accompanying
Prospectus Supplement. All or a portion of the debt securities may be issued in
permanent global form.
     The Securities may be sold to underwriters for public offering pursuant to
terms of offering fixed at the time of sale. In addition, the Securities may be
sold by the Corporation directly or through dealers or agents designated from
time to time, which agents may be affiliates of the Corporation. The Prospectus
Supplement will also set forth with respect to the sale of the Securities in
respect of which this Prospectus is being delivered the names of the
underwriters, dealers or agents, if any, together with the terms of offering,
the compensation of such underwriters and the net proceeds to the Corporation.
                             ---------------------
 
     THE SECURITIES WILL BE UNSECURED OBLIGATIONS OF THE CORPORATION AND WILL
NOT BE SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS
ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
  EXCHANGE COMMISSION, THE SECURITIES OFFICE OF THE OFFICE OF THE COMMISSIONER
  OF FINANCIAL INSTITUTIONS OF THE COMMONWEALTH OF PUERTO RICO OR ANY STATE
      SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
      COMMISSION, SUCH SECURITIES OFFICE, OR ANY STATE SECURITIES
        COMMISSION, PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
        PROSPECTUS. ANY       REPRESENTATION TO THE CONTRARY IS A
          CRIMINAL OFFENSE.
                             ---------------------
 
                  The date of this Prospectus is July 21, 1994
   25
 
                             AVAILABLE INFORMATION
 
     The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information concerning the Corporation can be inspected and
copied at the Commission's office at 450 Fifth Street, N.W., Washington, D.C.
20549, and the Commission's Regional Offices in New York (7 World Trade Center,
New York, New York 10048) and Chicago (Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661). Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. This Prospectus does not contain
all of the information set forth in the Registration Statement which the
Corporation has filed with the Commission under the Securities Act of 1933 (the
"Act"), to which reference is hereby made.
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
     The Corporation hereby incorporates by reference into this Prospectus the
following documents filed by the Corporation with the Commission:
 
          1. The Corporation's Annual Report on Form 10-K for the year ended
     December 31, 1993, as amended by the Corporation's Amendment on Form
     10-K/A, dated June 22, 1994, provided however, that the information
     referred to in Item 402(a)(8) of Regulation S-K promulgated by the
     Commission shall not be deemed to be specifically incorporated by reference
     herein.
 
          2. The Corporation's Quarterly Report on Form 10-Q for the quarter
     ended March 31, 1994.
 
          3. The Corporation's Current Report on Form 8-K, dated June 21, 1994.
 
          4. The Corporation's Registration Statement on Form 8-A, dated August
     18, 1988, filed pursuant to Section 12(g) of the Exchange Act, pursuant to
     which the Corporation registered its Series A Participating Cumulative
     Preferred Stock Purchase Rights.
 
          5. The Corporation's Registration Statement on Form 8-A, dated June
     17, 1994, as amended by the Corporation's Amendment on Form 8-A/A, dated
     June 21, 1994, filed pursuant to Section 12(g) of the Exchange Act,
     pursuant to which the Corporation registered its 8.35% Non-Cumulative
     Monthly Income Preferred Stock, 1994 Series A.
 
     All documents filed by the Corporation subsequent to the date of this
Prospectus and prior to the termination of the offering of the Securities
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act shall be
deemed to be incorporated by reference into this Prospectus and to be a part
thereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
 
     Any person receiving a copy of this Prospectus, including any beneficial
owner, may obtain without charge, upon oral or written request, a copy of any of
the documents incorporated by reference herein, except for the exhibits to such
documents. Written requests should be mailed to Mr. Orlando Berges, Senior Vice
President, BanPonce Corporation, P.O. Box 362708, San Juan, Puerto Rico
00936-2708. Telephone requests may be directed to (809) 765-9800.
 
                                        2
   26
 
                              BANPONCE CORPORATION
 
     The Corporation is a bank holding company registered under the Bank Holding
Company Act of 1956 and incorporated in 1984 under the laws of the Commonwealth
of Puerto Rico ("Puerto Rico"). The Corporation is the largest financial
institution in Puerto Rico, with consolidated assets of $11.5 billion, total
deposits of $8.5 billion and stockholders' equity of $834.2 million as of
December 31, 1993. Based on both total assets and total deposits at December 31,
1993, the Corporation was the 55th largest bank holding company in the United
States. The Corporation's principal executive offices are located at 209 Munoz
Rivera Avenue, Hato Rey, Puerto Rico 00918 and its telephone number is (809)
765-9800.
 
     The Corporation's principal subsidiary, Banco Popular de Puerto Rico
("Banco Popular" or the "Bank"), was incorporated over 100 years ago in 1893 and
is Puerto Rico's largest bank with total assets of $11.0 billion, deposits of
$8.5 billion and stockholders' equity of $763.3 million at December 31, 1993.
The Bank accounted for 95% of the total consolidated assets of the Corporation
at December 31, 1993. A consumer-oriented bank, Banco Popular has the largest
retail franchise in Puerto Rico, operating 205 branches and 253 automated teller
machines. The Bank also has the largest trust operation in Puerto Rico and is a
leader in the mortgage banking business. In addition, it operates the largest
Hispanic bank branch network in the mainland United States with 30 branches in
New York, one branch in Chicago and one branch in Los Angeles. As of December
31, 1993, these branches had a total of approximately $1.4 billion in deposits.
The Bank also operates seven branches in the U.S. Virgin Islands and one branch
in the British Virgin Islands.
 
     The Corporation has two other principal subsidiaries: Vehicle Equipment
Leasing Company, Inc. ("VELCO") and Financial. VELCO is engaged primarily in the
finance leasing of passenger vehicles and is the largest leasing company in
Puerto Rico. For additional information regarding Financial, see "BanPonce
Financial Corp."
 
                        POPULAR INTERNATIONAL BANK INC.
 
     PIB is a wholly owned subsidiary of the Corporation organized in 1992 under
the laws of the Commonwealth of Puerto Rico and operating as an "international
banking entity" under the International Banking Center Regulatory Act of Puerto
Rico (the "IBC Act"). PIB owns all of the outstanding capital stock of
Financial. Summary consolidated financial statements of PIB are included in the
notes to the Corporation's consolidated financial statements.
 
                            BANPONCE FINANCIAL CORP.
 
     Financial, a wholly owned subsidiary of PIB and an indirect, wholly owned
subsidiary of the Corporation, was organized in 1991 under the laws of the State
of Delaware. Financial acquired all of the common stock of Spring Financial
Services, Inc. ("Spring") on September 30, 1991. Spring is engaged in the
business of providing consumer and dealer finance loans and operates through 70
branches in 19 mid-Atlantic states. Prior to the acquisition of Spring,
Financial had no significant business operations.
 
     On March 31, 1994, Financial acquired all of the common stock of Pioneer
Bancorp, Inc., a Delaware corporation, and the parent company of Pioneer Bank
and Trust Company ("Pioneer Bank"). Pioneer Bank is an Illinois bank with 2
branches in the Chicago area. It is expected that Pioneer Bank will acquire the
Bank's existing branch in Chicago.
 
     Summary consolidated financial statements of Financial are included in the
notes to the Corporation's consolidated financial statements.
 
                                        3
   27
 
                CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
                               OF THE CORPORATION
 


                                                                          YEAR ENDED DECEMBER 31,
                                                  QUARTER ENDED     ------------------------------------
                                                  MARCH 31, 1994    1993    1992    1991    1990    1989
                                                  --------------    ----    ----    ----    ----    ----
                                                                                  
Ratio of Earnings to Fixed Charges:
  Excluding Interest on Deposits................        2.9         3.0     2.9     2.1     3.6     2.4
  Including Interest on Deposits................        1.5         1.5     1.3     1.2     1.3     1.2
Ratio of Earnings to Fixed Charges and Preferred
  Stock Dividends
  Excluding Interest on Deposits................        2.8         3.0     2.9     2.0     3.6     2.4
  Including Interest on Deposits................        1.5         1.5     1.3     1.2     1.3     1.2

 
     For purposes of computing these consolidated ratios, earnings represent
income (loss) before income taxes, cumulative effect of a change in accounting
principles and equity in undistributed income of unconsolidated subsidiaries and
affiliates, plus fixed charges excluding capitalized interest. Fixed charges
represent all interest expense (ratios are presented both excluding and
including interest on deposits), the portion of net rental expense which is
deemed representative of the interest factor, the amortization of debt issuance
expense and capitalized interest.
 
                                USE OF PROCEEDS
 
     The Corporation intends to use the net proceeds from the sale of the
Securities for general corporate purposes, including investments in, or
extensions of credit to, its existing and future subsidiaries, for the
acquisition of other banking and financial institutions and repayment of
outstanding borrowings. The Corporation does not at present have any plans to
use the proceeds from any offering for a material acquisition or to repay
outstanding borrowings. All or a substantial portion of the proceeds from the
sale of Securities issued by Financial will be lent by Financial to Spring or
used by Financial for general corporate purposes. The net proceeds from the sale
of Securities by PIB will be lent by PIB to its affiliates or used by PIB for
general corporate purposes. The precise amounts and timing of the application of
proceeds will depend on various factors existing at the time of offering of the
Securities, including the Corporation's subsidiaries' funding requirements and
the availability of other funds. Pending such use, the proceeds may be
temporarily invested in short-term obligations.
 
                           CERTAIN REGULATORY MATTERS
 
GENERAL
 
     The Corporation is a bank holding company subject to supervision and
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") under the Bank Holding Company Act of 1956 (the "BHC Act"). As a
bank holding company, the Corporation's activities and those of its banking and
nonbanking subsidiaries are limited to the business of banking and activities
closely related or incidental to banking, and the Corporation may not directly
or indirectly acquire the ownership or control of more than 5% of any class of
voting shares or substantially all of the assets of any company in the United
States, including a bank, without the prior approval of the Federal Reserve
Board. In addition, bank holding companies are generally prohibited under the
BHC Act from engaging in nonbanking activities, subject to certain exceptions.
 
     Banco Popular is considered a foreign bank for purposes of the
International Banking Act of 1978 (the "IBA"). Under the IBA and the BHC Act,
the Corporation and Banco Popular are not permitted to operate a branch or
agency, or acquire more than 5% of any class of the voting shares or
substantially all the assets of, or control of, an additional bank or bank
holding company that is located outside of their "home state," except that (i)
the Corporation may acquire control of a bank in a state if the laws of that
state explicitly authorize a bank holding company from such bank holding
company's home state to do so and (ii) Banco Popular may continue to operate a
"grandfathered" branch or agency. Puerto Rico is not considered a state for
purposes of these geographic limitations. Banco Popular has designated the state
of New York as its home state. In
 
                                        4
   28
 
addition, some states have laws prohibiting or restricting foreign banks from
acquiring banks located in such states and treat Puerto Rico's banks and bank
holding companies as foreign banks for such purposes.
 
     Banco Popular and Pioneer Bank are subject to supervision and examination
by applicable federal and state banking agencies including, in the case of Banco
Popular, the Federal Reserve Board and the Office of the Commissioner of
Financial Institutions of Puerto Rico and, in the case of Pioneer Bank, the
Federal Deposit Insurance Corporation (the "FDIC") and the Illinois Commissioner
of Banks and Trust Companies. Banco Popular and Pioneer Bank are subject to
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of other investments that may be made and
the types of services that may be offered. Various consumer laws and regulations
also affect the operations of Banco Popular and Pioneer Bank. In addition to the
impact of regulation, commercial banks are affected significantly by the actions
of the Federal Reserve Board as it attempts to control the money supply and
credit availability in order to influence the economy.
 
HOLDING COMPANY STRUCTURE
 
     Banco Popular and Pioneer Bank are subject to restrictions under federal
law that limit the transfer of funds by them to the Corporation, Financial, PIB
and the Corporation's other nonbanking subsidiaries, whether in the form of
loans, other extensions of credit, investments or asset purchases. Such
transfers by Banco Popular or Pioneer Bank to the Corporation or any one
nonbanking subsidiary are limited in amount to 10% of Banco Popular's or Pioneer
Bank's capital stock and surplus and, with respect to the Corporation and all
nonbanking subsidiaries, to an aggregate of 20% of Banco Popular's or Pioneer
Bank's capital stock and surplus. Furthermore, such loans and extensions of
credit are required to be secured in specified amounts.
 
     Because the Corporation, PIB and Financial are holding companies, their
right to participate in the assets of any subsidiary upon the latter's
liquidation or reorganization will be subject to the prior claims of the
subsidiary's creditors (including depositors in the case of bank subsidiaries)
except to the extent that the Corporation, PIB or Financial, as the case may be,
may itself be a creditor with recognized claims against the subsidiary.
 
     Under Federal Reserve Board policy, a bank holding company, such as the
Corporation, is expected to act as a source of financial strength to each of its
subsidiary banks and to commit resources to support each such subsidiary bank.
This support may be required at times when, absent such policy, the bank holding
company might not otherwise provide such support. In addition, any capital loans
by a bank holding company to any of its subsidiary banks are subordinate in
right of payment to deposits and to certain other indebtedness of such
subsidiary bank. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment. Banco Popular and Pioneer Bank
are currently the only subsidiary banks of the Corporation.
 
     Under the Federal Deposit Insurance Act (the "FDIA"), a depository
institution (which term includes both banks and savings associations), the
deposits of which are insured by the FDIC, can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC after August 9,
1989 in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to any
commonly controlled FDIC-insured depository institution "in danger of default."
"Default" is defined generally as the appointment of a conservator or a receiver
and "in danger of default" is defined generally as the existence of certain
conditions indicating that a default is likely to occur in the absence of
regulatory assistance. Banco Popular and Pioneer Bank are currently the only
controlled FDIC-insured depository institutions of the Corporation.
 
CAPITAL ADEQUACY
 
     Under the Federal Reserve Board's risk-based capital guidelines for bank
holding companies and member banks, the minimum guidelines for the ratio of
total capital ("Total capital") to risk-weighted assets (including certain
off-balance sheet items, such as standby letters of credit) is 8%. At least half
of the Total
 
                                        5
   29
 
capital is to be comprised of common equity, retained earnings, minority
interests in unconsolidated subsidiaries, noncumulative perpetual preferred
stock and a limited amount of cumulative perpetual preferred stock, less
goodwill and certain other intangible assets discussed below ("Tier 1 capital").
The remainder may consist of a limited amount of subordinated debt, other
preferred stock, certain other instruments, and a limited amount of loan and
lease loss reserves ("Tier 2 capital").
 
     Effective for periods ending on or after March 15, 1993, the Federal
Reserve Board adopted regulations that require most intangibles, including core
deposit intangibles, to be deducted from Tier 1 capital. The regulations,
however, permit the inclusion of a limited amount of intangibles related to
purchased mortgage servicing rights and purchased credit card relationships and
include a "grandfather" provision permitting the continued inclusion of certain
pre-existing intangibles.
 
     In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies and member banks. These guidelines
provide for a minimum ratio of Tier 1 capital to total assets, less goodwill and
certain other intangible assets discussed below (the "leverage ratio") of 3% for
bank holding companies and member banks that meet certain specified criteria,
including that they have the highest regulatory rating. All other bank holding
companies and member banks will be required to maintain a leverage ratio of 3%
plus an additional cushion of at least 100 to 200 basis points. The guidelines
also provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets. Furthermore, the guidelines indicate that the Federal Reserve Board will
continue to consider a "tangible Tier 1 leverage ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities. The tangible Tier 1 leverage ratio is the ratio of
a banking organization's Tier 1 capital, less all intangibles, to total assets,
less all intangibles.
 
     Under the Federal Reserve Board's requirements, the Corporation's and Banco
Popular's capital ratios at December 31, 1993 are set forth below:
 


                                                                 CORPORATION     BANCO POPULAR
                                                                 -----------     -------------
                                                                           
    Tier 1 capital.............................................     12.29%           11.85%
    Total capital..............................................     13.95%           13.72%
    Leverage ratio.............................................      6.95%            6.56%

 
     Pioneer Bank is subject to similar capital requirements adopted by the
FDIC.
 
     Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business, which are described below
under "FDICIA."
 
     Bank regulators have in the past indicated their desire to raise capital
requirements applicable to banking organizations beyond current levels. However,
management is unable to predict whether and when higher capital requirements
would be imposed and, if so, at what levels or on what schedule.
 
FDICIA
 
     On December 19, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. FDICIA substantially revises the depository
institution regulatory and funding provisions of the FDIA and makes revisions to
several other federal banking statutes. Among other things, FDICIA requires the
federal banking regulators to take prompt corrective action in respect of
depository institutions that do not meet minimum capital requirements. FDICIA
and regulations thereunder establish five capital tiers: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized." A depository institution is deemed well
capitalized if it maintains a leverage ratio of at least 5%, a risk-based Tier 1
capital ratio of at least 6% and a risk-based Total capital ratio of at least
10% and is not subject to any written agreement or directive to meet a specific
capital level. A depository institution is deemed adequately capitalized if it
is not well capitalized but maintains a leverage ratio of at least 4% (or at
least 3% if given the highest regulatory rating and not experiencing or
anticipating
 
                                        6
   30
 
significant growth), a risk-based Tier 1 capital ratio of at least 4% and a
risk-based Total capital ratio of at least 8%. A depository institution is
deemed undercapitalized if it fails to meet the standards for adequately
capitalized institutions (unless it is deemed significantly or critically
undercapitalized). An institution is deemed significantly undercapitalized if it
has a leverage ratio of less than 3%, a risk-based Tier 1 ratio of less than 3%
or a risk-based Total capital ratio of less than 6%. An institution is deemed
critically undercapitalized if it has tangible equity equal to 2% or less of
total assets. A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives a less than satisfactory examination rating in any one of four
categories.
 
     FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans. A depository institution's
holding company must guarantee the capital plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. The federal banking agencies may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized. Significantly
undercapitalized depository institutions may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to reduce total assets, and
cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
 
     At March 31, 1994, Banco Popular was well capitalized.
 
     Various other legislation, including proposals to revise the banking
regulatory system and to limit the investments that a depository institution may
make with insured funds, is from time to time introduced in Congress.
 
DIVIDEND RESTRICTIONS
 
     The principal source of cash flow for the Corporation is dividends from
Banco Popular. Various statutory provisions limit the amount of dividends Banco
Popular can pay to the Corporation without regulatory approval. As a member bank
subject to the regulation of the Federal Reserve Board, Banco Popular must
obtain the approval of the Federal Reserve Board for any dividend if the total
of all dividends declared by the bank in any calendar year would exceed the
total of its net profits, as defined by the Federal Reserve Board, for that
year, combined with its retained net profits for the preceding two years. In
addition, a member bank may not pay a dividend in an amount greater than its
undivided profits then on hand after deducting its losses and bad debts. For
this purpose, bad debts are generally defined to include the principal amount of
loans that are in arrears with respect to interest by six months or more unless
such loans are fully secured and in the process of collection. Moreover, for
purposes of this limitation, a member bank is not permitted to add the balance
in its allowance for loan losses account to its undivided profits then on hand;
however, it may net the sum of its bad debts as so defined against the balance
in its allowance for loan losses account and deduct from undivided profits only
bad debts as so defined in excess of that account. At March 31, 1994, Banco
Popular could have declared a dividend of approximately $128.6 million without
such approval. Illinois law contains similar limitations on the amount of
dividends that Pioneer Bank can pay.
 
     The payment of dividends by Banco Popular or Pioneer Bank may also be
affected by other regulatory requirements and policies, such as the maintenance
of adequate capital. If, in the opinion of the applicable regulatory authority,
a bank under its jurisdiction is engaged in, or is about to engage in, an unsafe
or unsound practice (that, depending on the financial condition of the bank,
could include the payment of dividends), such authority may require, after
notice and hearing, that such bank cease and desist from such practice. The
Federal Reserve Board has issued a policy statement that provides that insured
banks and bank holding
 
                                        7
   31
 
companies should generally pay dividends only out of current operating earnings.
In addition, all insured depository institutions are subject to the
capital-based limitations described under "FDICIA."
 
     See "Certain Regulatory Matters -- Puerto Rico Regulation" for a
description of certain restrictions on Banco Popular's ability to pay dividends
under Puerto Rico law.
 
FDIC INSURANCE ASSESSMENTS
 
     Banco Popular and Pioneer Bank are subject to FDIC deposit insurance
assessments.
 
     Pursuant to FDICIA, the FDIC adopted, effective January 1, 1994, a
risk-based assessment system, under which the assessment rate for an insured
depository institution varies according to the level of risk incurred in its
activities. An institution's risk category is based partly upon whether the
institution is well capitalized, adequately capitalized or less than adequately
capitalized. Each insured depository institution would also be assigned to one
of the following "supervisory subgroups": "A," "B" or "C". Group "A"
institutions are financially sound institutions with only a few minor
weaknesses; group "B" institutions are institutions that demonstrate weaknesses
which, if not corrected, could result in significant deterioration; and group
"C" institutions are institutions for which there is a substantial probability
that the FDIC will suffer a loss in connection with the institution unless
effective action is taken to correct the areas of weakness. Based on its capital
and supervisory subgroups, each Bank Insurance Fund member institution is
assigned an annual FDIC assessment rate varying between 0.23% and 0.31%. It
remains possible that assessments will be raised to higher levels in the future.
Any such increase would have an adverse effect upon the net earnings of Banco
Popular and Pioneer Bank and, therefore, the Corporation.
 
BROKERED DEPOSITS
 
     FDIC regulations adopted under FDICIA govern the receipt of brokered
deposits. Under these regulations, a bank cannot accept, rollover or renew
brokered deposits (which term is defined also to include any deposit with an
interest rate more than 75 basis points above prevailing rates) unless (i) it is
well capitalized, or (ii) it is adequately capitalized and receives a waiver
from the FDIC. A bank that is adequately capitalized may not pay an interest
rate on any deposits in excess of 75 basis points over certain prevailing market
rates specified by regulation. There are no such restrictions on a bank that is
well capitalized. The Corporation does not believe the brokered deposits
regulation has had or will have a material effect on the funding or liquidity of
Banco Popular or Pioneer Bank.
 
PUERTO RICO REGULATION
 
  General
 
     As a commercial bank organized under the laws of the Commonwealth, Banco
Popular is subject to supervision, examination and regulation by the Office of
the Commissioner of Financial Institutions of the Commonwealth (the "Office of
the Commissioner"), pursuant to the Puerto Rico Banking Act of 1933, as amended
(the "Banking Law").
 
     Section 27 of the Banking Law requires that at least ten percent (10%) of
the yearly net income of the Bank be credited annually to a reserve fund. This
apportionment shall be done every year until the reserve fund shall be equal to
ten percent (10%) of the total deposits or the total paid-in capital, whichever
is greater. At the end of its most recent fiscal year, Banco Popular had an
adequate reserve fund established.
 
     Section 27 of the Banking Law also provides that when the expenditures of a
bank are greater than the receipts, the excess of the former over the latter
shall be charged against the undistributed profits of the bank, and the balance,
if any, shall be charged against the reserve fund, as a reduction thereof. If
there is no reserve fund sufficient to cover such balance in whole or in part,
the outstanding amount shall be charged against the capital account and no
dividend shall be declared until said capital has been restored to its original
amount and the reserve fund to 20% of the original capital.
 
                                        8
   32
 
     Section 16 of the Banking Law requires every bank to maintain a legal
reserve which shall not be less than 20% of its demand liabilities, except
government deposits (federal, state and municipal) which are secured by actual
collateral. However, if a bank becomes a member of the Federal Reserve System,
the 20% legal reserve shall not be effective and the reserve requirements
demanded by the Federal Reserve System shall be applicable. Pursuant to an order
of the Federal Reserve Board dated November 24, 1982, the Bank has been exempted
from such reserve requirements with respect to deposits payable in Puerto Rico.
 
     Section 17 of the Banking Law permits the Bank to make loans to any one
person, firm, partnership or corporation, up to an aggregate amount of fifteen
percent (15%) of the paid-in capital and reserve fund of the Bank. As of
December 31, 1993, the legal lending limit for the Bank under this provision was
approximately $83 million. If such loans are secured by collateral worth at
least twenty-five percent (25%) more than the amount of the loan, the aggregate
maximum amount may reach one third of the paid-in capital of the Bank, plus its
reserve fund. There are no restrictions under Section 17 on the amount of loans
which are wholly secured by bonds, securities and other evidences of
indebtedness of the Government of the United States or the Commonwealth, or by
current debt bonds, not in default, of municipalities or instrumentalities of
the Commonwealth.
 
     The Finance Board, which is a part of the Office of the Commissioner, but
also includes as its members the Secretary of the Treasury, the Secretary of
Commerce, the Secretary of Consumer Affairs, the President of the Planning
Board, and the President of the Government Development Bank for Puerto Rico, has
the authority to regulate the maximum interest rates and finance charges that
may be charged on loans to individuals and unincorporated businesses in the
Commonwealth. In February 1992, the Finance Board approved Regulation 26-A,
which provides that the applicable interest rate on loans to individuals and
unincorporated businesses (including real estate development loans but excluding
certain other personal and commercial loans secured by mortgages on real estate
properties) is to be determined by free competition. Prior to February 1992, the
applicable interest rate ceilings for consumer loans were set at 130% of the
average prime rate for the previous three months, and at rates ranging from the
prime rate to 3% above the prime rate (plus certain additional finance charges)
for loans to unincorporated businesses.
 
     The Finance Board also has authority to regulate the maximum finance
charges on retail installment sales contracts (including credit card purchases),
which are currently set at 21%. There is no maximum rate set for installment
sales contracts involving motor vehicles, commercial, agricultural and
industrial equipment, commercial electric appliances and insurance premiums.
 
     Section 14 of the Banking Law authorizes the Bank to conduct certain
financial and related activities directly or through subsidiaries, including
finance leasing of personal property and operating a small loan company. Banco
Popular engages in these activities through its wholly owned subsidiaries,
Popular Leasing & Rental, Inc. and Popular Consumer Services, Inc.,
respectively, both of which are organized and operate solely in Puerto Rico.
 
  IBC Act
 
     Under the IBC Act, without the prior approval of the Office of the
Commissioner, PIB may not amend its articles of incorporation or issue
additional shares of capital stock or other securities convertible into
additional shares of capital stock unless such shares are issued directly to the
shareholders of PIB previously identified in the application to organize the
international banking entity, in which case notification to the Office of the
Commissioner must be given within ten business days following the date of the
issue. Pursuant to the IBC Act, without the prior approval of the Office of the
Commissioner, PIB may not initiate the sale, encumbrance, assignment, merger or
other transfer of shares if by such transaction a person or persons acting in
concert could acquire direct or indirect control of 10% or more of any class of
the Company's stock. Such authorization must be requested at least 30 days prior
to the transaction.
 
     PIB must submit to the Office of the Commissioner a report of its condition
and results of operation on a monthly basis and its annual audited financial
statement at the close of its fiscal year. Under the IBC Act, PIB may not deal
with domestic persons as such term is defined in the IBC Act. Also, it may only
engage in those activities authorized in the IBC Act, the regulations adopted
thereunder and its license.
 
                                        9
   33
 
     The IBC Act empowers the Office of the Commissioner to revoke or suspend,
after a hearing, the license of an international banking entity if, among other
things, it fails to comply with the IBC Act, regulations issued by the Office of
the Commissioner, or the terms of its license or if the Office of the
Commissioner finds that the business of the international banking entity is
conducted in a manner not consistent with the public interest.
 
                 DESCRIPTION OF DEBT SECURITIES AND GUARANTEES
 
     The Corporation's senior debt securities (the "Senior Debt Securities") may
be issued from time to time in one or more series under an Indenture (the
"Senior Indenture") between the Corporation and the trustee named in the
applicable Prospectus Supplement, as trustee (the "Senior Trustee"). The
Corporation's subordinated debt securities (the "Subordinated Debt Securities")
may be issued from time to time in one or more series under an Indenture (the
"Subordinated Indenture") between the Corporation and the trustee named in the
applicable Prospectus Supplement, as trustee (the "Subordinated Trustee"). PIB's
senior debt securities (the "PIB Senior Debt Securities") may be issued from
time to time in one or more series under an Indenture (the "PIB Senior
Indenture") among the Corporation, PIB and the trustee named in the applicable
Prospectus Supplement, as trustee (the "PIB Senior Trustee"). PIB's subordinated
debt securities ("PIB Subordinated Debt Securities") may be issued from time to
time in one or more series under an Indenture (the "PIB Subordinated Indenture")
among the Corporation, PIB and the trustee named in the applicable Prospectus
Supplement, as trustee (the "PIB Subordinated Trustee"). The senior debt
securities issued by Financial (the "Guaranteed Securities") may be issued from
time to time in one or more series under an Indenture (the "Guaranteed
Indenture") among the Corporation, Financial and the trustee named in the
applicable Prospectus Supplement, as trustee (the "Guaranteed Trustee"). The
Senior Debt Securities, the Subordinated Debt Securities, the PIB Senior Debt
Securities, the PIB Subordinated Debt Securities, and the Guaranteed Securities
are sometimes referred to collectively as the "Debt Securities." The Senior
Indenture, the Subordinated Indenture, the PIB Senior Indenture, the PIB
Subordinated Indenture and the Guaranteed Indenture are sometimes referred to
collectively as the "Indentures," and the Senior Trustee, the Subordinated
Trustee, the PIB Senior Trustee, the PIB Subordinated Trustee and the Guaranteed
Trustee are sometimes referred to collectively as the "Trustees." The statements
under this caption are brief summaries of material provisions contained in the
Indentures, do not purport to be complete and are qualified in their entirety by
reference to the Indentures, including the definition therein of certain terms,
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus is a part.
 
GENERAL
 
     Each Indenture provides for the issuance of debt securities in one or more
series, and does not limit the principal amount of debt securities which may be
issued thereunder.
 
     Reference is made to the Prospectus Supplement for the following terms of
the Debt Securities being offered hereby: (1) the specific title of the Debt
Securities; (2) whether the Debt Securities are Senior Debt Securities,
Subordinated Debt Securities, PIB Senior Debt Securities, PIB Subordinated Debt
Securities or Guaranteed Securities; (3) the aggregate principal amount of the
Debt Securities; (4) the percentage of their principal amount at which the Debt
Securities will be issued; (5) the date or dates on which the Debt Securities
will mature; (6) the rate or rates (which may be fixed or variable) per annum or
the method for determining such rate or rates, if any, at which the Debt
Securities will bear interest; (7) the times, if any, at which any such interest
will be payable; (8) any provisions relating to optional or mandatory redemption
of the Debt Securities; (9) the denominations in which the Debt Securities are
authorized to be issued; (10) the extent to which Debt Securities will be
issuable in global form and, if so, the identity of the Depositary for such
global Debt Securities; (11) the currency or units of two or more currencies in
which the Debt Securities are denominated, if other than United States dollars,
and the currency in which interest is payable if other than the currency in
which the Debt Securities are denominated; (12) the place or places at which the
Corporation, PIB or Financial will make payments of principal (and premium, if
any) and interest, if any, and the method of such payment; (13) the Person to
whom any Debt Security of such series will be payable, if other than the Person
in whose name that Debt Security (or one or more Predecessor Debt Securities) is
 
                                       10
   34
 
registered at the close of business on the Regular Record Date for such
interest; (14) whether the Debt Securities may be issued as Original Issue
Discount Securities; (15) whether the amount of payment of principal of or any
premium or interest on any Debt Security may be determined with reference to an
index, formula or other method and the manner in which such amount shall be
determined; (16) any additional covenants and Events of Default and the remedies
with respect thereto not currently set forth in the respective Indenture; and
(17) any other specific terms of Debt Securities.
 
     One or more series of the Debt Securities may be issued as Discount
Securities. A "Discount Security" is a debt security, including any zero-coupon
security, which is issued at a price lower than the amount payable at the Stated
Maturity thereof and which provides that upon redemption or acceleration of the
Maturity thereof an amount less than the amount payable upon the Stated Maturity
thereof and determined in accordance with the terms thereof shall become due and
payable.
 
     Unless otherwise indicated in the applicable Prospectus Supplement, the
covenants contained in the Indentures and the Debt Securities will not afford
holders of the Debt Securities protection in the event of a sudden decline in
credit rating that might result from a recapitalization, restructuring, or other
highly leveraged transaction.
 
FORM, EXCHANGE, REGISTRATION AND TRANSFER
 
     Debt Securities of a series may be issuable in certificated or global form.
Debt Securities in certificated form may be presented for registration of
transfer (with the form of transfer endorsed thereon duly executed), at the
office of the Security Registrar or at the office of any transfer agent
designated by the Corporation, PIB or Financial, as the case may be, for such
purpose with respect to any series of Debt Securities and referred to in an
applicable Prospectus Supplement, without service charge and upon payment of any
taxes and other governmental charges as described in the relevant Indenture.
Such transfer or exchange will be effected upon the Security Registrar being
satisfied with the documents of title and identity of the Person making the
request. The Security Registrar with respect to the Debt Securities will be
designated in the applicable Prospectus Supplement. If a Prospectus Supplement
refers to any transfer agents (in addition to the Security Registrar) initially
designated by the Corporation, PIB or Financial with respect to any series of
Debt Securities, the Corporation, PIB or Financial, as the case may be, may at
any time rescind the designation of any such transfer agent or approve a change
in the location through which any such transfer agent acts, except that the
Corporation, PIB or Financial, as the case may be, will be required to maintain
a transfer agent in each Place of Payment for such series. The Corporation, PIB
or Financial, as the case may be, may at any time designate additional transfer
agents with respect to any series of Debt Securities.
 
     In the event of any redemption in part, the Corporation, PIB or Financial,
as the case may be, shall not be required to (i) issue, register the transfer of
or exchange any Debt Security during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of Debt Securities
of like tenor and of the series of which such Debt Security is a part and ending
at the close of business on the day of such mailing and (ii) register the
transfer of or exchange any Debt Security so selected for redemption, in whole
or in part, except the unredeemed portion of any Debt Security being redeemed in
part.
 
PAYMENT AND PAYING AGENT
 
     Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and premium (if any) on any Debt Security will be made only
against surrender to the Paying Agent of such Debt Security. Unless otherwise
indicated in an applicable Prospectus Supplement, principal of and any premium
and interest on the Debt Securities will be payable, subject to any applicable
laws and regulations, at the office of such Paying Agent or Paying Agents as the
Corporation, PIB or Financial, as the case may be, may designate from time to
time, except that at the option of the Corporation, PIB or Financial, as the
case may be, payment of any interest may be made by check mailed to the address
of the person entitled thereto as such address shall appear in the Security
Register with respect to such Debt Securities. Unless otherwise indicated in an
applicable Prospectus Supplement, payment of interest on a Debt Security on any
Interest Payment
 
                                       11
   35
 
Date will be made to the Person in whose name such Debt Security (or Predecessor
Debt Security) is registered at the close of business on the Regular Record Date
for such interest.
 
     The Paying Agent for payments with respect to Debt Securities of each
series will be specified in the applicable Prospectus Supplement. The
Corporation, PIB or Financial, as the case may be, may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent or
approve a change in the office through which any Paying Agent acts, except that
the Corporation, PIB or Financial, as the case may be, will be required to
maintain a Paying Agent in each Place of Payment for each series of Debt
Securities.
 
     All moneys paid by the Corporation, PIB or Financial, as the case may be,
to a Paying Agent for the payment of the principal of and any premium or
interest on any Debt Security which remain unclaimed at the end of two years
after such principal, premium or interest shall have become due and payable will
be repaid to the Corporation, PIB or Financial, as the case may be, and the
Holder of such Debt Security will thereafter look only to the Corporation, PIB
or Financial, as the case may be, for payment thereof.
 
CERTAIN COVENANTS
 
     Each of the Senior Indenture, PIB Senior Indenture and the Guaranteed
Indenture provides that the Corporation, subject to the provisions described
under "Consolidation, Merger, Sale or Conveyance," will not sell, assign,
transfer, or otherwise dispose of, or permit Banco Popular to issue, sell,
assign, transfer or otherwise dispose of any shares of, or securities
convertible into or options to subscribe for, Voting Stock of Banco Popular
unless Banco Popular remains a Controlled Subsidiary (as defined below) of the
Corporation, and will not permit Banco Popular to merge or consolidate or
convey, transfer, lease or sell its properties substantially as an entirety,
unless the surviving corporation or transferee, as the case may be, is a
Controlled Subsidiary of the Corporation. There is no similar restriction in the
Subordinated Indenture or the PIB Subordinated Indenture.
 
     Each of the Senior Indenture, PIB Senior Indenture and the Guaranteed
Indenture also provides that the Corporation will not, and it will not permit
any Material Banking Subsidiary (as defined below) at any time directly or
indirectly to, create, assume, incur or permit to exist any indebtedness for
borrowed money secured by a pledge, lien or other encumbrance on the Voting
Stock of any Material Banking Subsidiary without making effective provision
whereby the Debt Securities and the Guarantees (and, if the Corporation so
elects, any other indebtedness ranking on a parity with the Debt Securities and
the Guarantees) shall be secured equally and ratably with such secured
indebtedness so long as such other indebtedness shall be so secured; provided,
however, that the foregoing covenant shall not be applicable to liens for taxes
or assessments or governmental charges or levies not then due and delinquent or
the validity of which is being contested in good faith or which are less than
$10,000,000 in amount, liens created by or resulting from any litigation or
legal proceeding which is currently being contested in good faith by appropriate
proceedings or which involve claims of less than $10,000,000, or deposits to
secure (or in lieu of) surety, stay, appeal or customs bonds. There is no
similar restriction in the Subordinated Indenture or the PIB Subordinated
Indenture.
 
     For the purpose of the foregoing provisions, "Material Banking Subsidiary"
means any Controlled Subsidiary chartered as a banking corporation under
federal, state or Puerto Rican law which is a significant subsidiary of the
Corporation as defined in Rule 1-02 of Regulation S-X of the Rules and
Regulations of the Commission. "Controlled Subsidiary" means any corporation
more than 80% of the outstanding Voting Stock of which is owned by the
Corporation. As of the date of this Prospectus, Banco Popular is the only
"Material Banking Subsidiary" of the Corporation.
 
REDEMPTION
 
  General
 
     If the Debt Securities of a series provide for mandatory redemption by the
Corporation, PIB or Financial, as the case may be, or redemption at the election
of the Corporation, PIB or Financial, as the case may be, unless otherwise
provided in the applicable Prospectus Supplement, such redemption shall be on
not less than 30 nor more than 60 days' notice and, in the event of redemption
of Debt Securities of a series of like tenor in
 
                                       12
   36
 
part, the Debt Securities to be redeemed will be selected by the Trustee in such
usual manner as it shall deem fair and appropriate. Notice of such redemption
will be mailed to Holders of Debt Securities of such series to their last
addresses as they appear on the register of the Debt Securities of such series.
 
  For Taxation
 
     Should the Corporation or PIB, on the occasion of the next payment in
respect of any series of the Debt Securities, be obliged to pay any Additional
Amounts as are referenced in "Taxation by the Commonwealth of Puerto Rico"
below, due to a change in law, regulation or interpretation, the Corporation,
PIB or Financial, as the case may be, may, at its option, on the giving of not
less than 30 nor more than 60 days' notice to the Holders of the Debt Securities
of each series, redeem such series of the Debt Securities as a whole at a
redemption price of 100% of the principal amount thereof with the accrued
interest to the date fixed for redemption or such other redemption price as set
forth in the applicable Prospectus Supplement.
 
  Global Securities
 
     The Debt Securities may be issued in whole or in part in the form of one or
more Global Securities that will be deposited with, or on behalf of, a
depositary (the "Depositary") identified in the Prospectus Supplement relating
to such Debt Securities. Unless and until it is exchangeable in whole or in part
for Debt Securities in definitive form, a Global Security may not be transferred
except as a whole by the Depositary for such Global Security to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor of such Depositary or a nominee of such successor.
 
     The specific terms of the depositary arrangement, if any, with respect to a
series of Debt Securities will be described in the Prospectus Supplement
relating to such series. The Corporation, PIB and Financial anticipate that the
following provisions will apply to all depositary arrangements.
 
     Ownership of beneficial interests in a Global Security will be limited to
persons that have accounts with the Depositary for such Global Security or its
nominee ("Participant") or persons that may hold interests through Participants.
Such accounts shall be designated by the underwriters or agents with respect to
the Debt Securities underwritten or solicited by them or by the Corporation, PIB
or Financial in the case of Debt Securities offered and sold directly by the
Corporation, PIB or Financial, as the case may be. The Corporation, PIB or
Financial, as the case may be, will obtain confirmation from the Depositary that
upon the issuance of a Global Security the Depositary for such Global Security
will credit, on its book-entry registration and transfer system, the
Participants' accounts with the respective principal amounts of the Debt
Securities represented by such Global Security. Ownership of beneficial
interests in such Global Security will be shown on, and the transfer of such
ownership interests will be effected only through, records maintained by the
Depositary (with respect to interests of Participants) and on the records of
Participants (with respect to interests of persons held through Participants).
The laws of some states may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to own, transfer or pledge beneficial interests in a
Global Security.
 
     So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or Holder of the Debt
Securities represented by such Global Security for all purposes under the
Indentures. Except as provided below, owners of beneficial interests in a Global
Security will not be entitled to have the Debt Securities represented by such
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of the Debt Securities in definitive form and will not
be considered the owners or Holders thereof under the Indentures. Accordingly,
each person owning a beneficial interest in such a Global Security must rely on
the procedures of the Depositary and, if such person is not a Participant, on
the procedures of the Participant through which such person owns its interests,
to exercise any rights of a Holder under the applicable Indenture. The
Corporation, PIB and Financial understand that under existing industry
practices, in the event that the Corporation, PIB or Financial, as the case may
be, requests any action of Holders or that an owner of a beneficial interest in
such a Global Security desires to give or take any action
 
                                       13
   37
 
which a Holder is entitled to give or take under the applicable Indenture, the
Depositary would authorize the Participants holding the relevant beneficial
interests to give or take such action, and such Participants would authorize
beneficial owners owning through such Participants to give or take such action
or would otherwise act upon the instructions of beneficial owners owning through
them.
 
     Payment of principal of, and premium and interest, if any, on Debt
Securities registered in the name of a Depositary or its nominee will be made to
the Depositary or its nominee, as the case may be, as the registered owner of
the Global Security representing such Debt Securities. None of the Corporation,
Financial, the Trustee, any Paying Agent or any other agent of the Corporation,
PIB, Financial or the Trustee will have any responsibility or liability for any
aspect of the records relating to payments made on account of beneficial
ownership interests in the Global Security for such Debt Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
 
     The Corporation, PIB or Financial, as the case may be, will obtain
confirmation from the Depositary that upon receipt of any payment of principal
of, or premium or interest on, a Global Security, the Depositary will
immediately credit Participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of such Global
Security as shown on the records of the Depositary. Payments by Participants to
owners of beneficial interests in such Global Security held through such
Participants will be the responsibility of such Participants, as is now the case
with securities held for the accounts of customers registered in "street names."
 
     If the Depositary for any Debt Securities represented by a Global Security
notifies the Corporation, PIB or Financial, as the case may be, that it is
unwilling or unable to continue as Depositary or ceases to be a clearing agency
registered under the Exchange Act and a successor Depositary is not appointed by
the Corporation, PIB or Financial, as the case may be, then within ninety days
after receiving such notice or becoming aware that Depositary is no longer so
registered, the Corporation, PIB or Financial, as the case may be, will issue
such Debt Securities in definitive form in exchange for such Global Security. In
addition, if an event of default, or an event which with notice or the lapse of
time or both would become an event of default, with respect to the Debt
Securities of a series has occurred and is continuing or either the Corporation,
PIB or Financial, as the case may be, at any time and in its sole discretion
determines not to have the Debt Securities represented by one or more Global
Securities, the Corporation, PIB or Financial, as the case may be, will issue
Debt Securities in definitive form in exchange for all of the Global Securities
representing such Debt Securities.
 
TAXATION BY THE COMMONWEALTH OF PUERTO RICO
 
     All payments of, or in respect of, principal of, and any premium or
interest on, the Debt Securities and all payments pursuant to the Guarantees
will be made without withholding or deduction for, or on account of, any present
or future taxes, duties, assessments or governmental charges of whatever nature
imposed or levied by or on behalf of Puerto Rico or by or with any district,
municipality or other political subdivision thereof or authority therein having
power to tax unless such taxes, duties, assessments or governmental charges are
required by law to be withheld or deducted.
 
     In the event that the Corporation or PIB is required by law to deduct or
withhold any amounts in respect of taxes, duties, assessments or governmental
charges, the Corporation or PIB, as the case may be, will pay such additional
amounts of, or in respect of, principal, premium and interest as will result
(after deduction of the said taxes, duties, assessments or governmental charges)
in the payment to the Holders of the Debt Securities, of the amounts which would
otherwise have been payable in respect to the Debt Securities in the absence of
such deduction or withholding ("Additional Amounts"), except that no such
Additional Amounts shall be payable:
 
          (i) to any Holder of a Debt Security or any interest therein or rights
     in respect thereof where such deduction or withholding is required by
     reason of such Holder having some connection with Puerto Rico or any
     political subdivision or taxing authority thereof or therein other than the
     mere holding of and payment in respect of such Debt Security;
 
                                       14
   38
 
          (ii) in respect of any deduction or withholding that would not have
     been required but for the presentation by the Holder of a Debt Security for
     payment on a date more than 30 days after Maturity or the date on which
     payment thereof is duly provided for, whichever occurs later; or
 
          (iii) in respect of any deduction or withholding that would not have
     been required but for the failure to comply with any certification,
     identification or other reporting requirements concerning the nationality,
     residence, identity or connection with Puerto Rico, or any political
     subdivision or taxing authority thereof or therein, of the Holder of a Debt
     Security or any interest therein or rights in respect thereof, if
     compliance is required by Puerto Rico, or any political subdivision or
     taxing authority thereof or therein, as a precondition to exemption from
     such deduction or withholding.
 
GOVERNING LAW
 
     The Indentures, the Debt Securities and the Guarantees will be governed by,
and construed in accordance with, the laws of the State of New York.
 
               TERMS APPLICABLE TO THE SENIOR DEBT SECURITIES OR
                          SUBORDINATED DEBT SECURITIES
 
MODIFICATION OF THE SENIOR AND SUBORDINATED INDENTURES
 
     The Senior and Subordinated Indentures contain provisions permitting the
Corporation and the respective Trustees, with the consent of Holders of not less
than a majority in principal amount of the Senior Debt Securities or
Subordinated Debt Securities which are affected by the modification, to modify
the particular Indenture or any supplemental indenture or the rights of the
Holders of the Senior Debt Securities or Subordinated Debt Securities issued
under such Indenture; provided that no such modification may, without the
consent of the Holder of each Outstanding Senior Debt Security or Subordinated
Debt Security affected thereby, (a) change the stated maturity date of the
principal of, or any installment of principal of or interest, if any, on, any
Senior Debt Security or Subordinated Debt Security, (b) reduce the principal
amount of, or premium or rate of interest, if any, on, any Senior Debt Security
or Subordinated Debt Security, (c) reduce the amount of principal of an Original
Issue Discount Security payable upon acceleration of the maturity thereof, (d)
change the place or coin or currency of payment of principal of, or premium or
interest, if any, on, any Senior Debt Security or Subordinated Debt Security,
(e) impair the right to institute suit for the enforcement of any payment on or
with respect to any Senior Debt Security or Subordinated Debt Security, (f)
reduce the percentage in principal amount of Outstanding Senior Debt Securities
or Subordinated Debt Securities of any series, the consent of whose Holders is
required for modification or amendment of the Indenture or for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (g) modify (with certain exceptions) any provision of the Indenture
which requires the consent of the Holder of each Outstanding Senior Debt
Security or Subordinated Debt Security affected thereby or (h) with respect to
the Subordinated Indenture, modify the subordination provisions in a manner
adverse to Holders of Outstanding Subordinated Debt Securities.
 
SUBORDINATION
 
     Unless otherwise indicated in the applicable Prospectus Supplement, the
following provisions shall apply to the Subordinated Debt Securities.
 
     The payment of the principal of, premium, if any, and interest on the
Subordinated Debt Securities will, to the extent set forth in the Subordinated
Indenture, be subordinated in right of payment to the prior payment in full of
all Senior Indebtedness (as defined below) of the Corporation. In certain events
of insolvency, the payment of the principal of, premium, if any, and interest on
the Subordinated Debt Securities will, to the extent set forth in the
Subordinated Indenture, also be effectively subordinated in right of payment to
the prior payment in full of all Other Financial Obligations (as defined below)
of the Corporation. As of March 31, 1994, $652.7 million aggregate principal
amount of Senior Indebtedness and no Other Financial Obligations of the
Corporation were outstanding. Upon any payment or distribution of assets to
creditors upon any
 
                                       15
   39
 
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Corporation, the holders of all Senior Indebtedness of the
Corporation will first be entitled to receive payment in full of all amounts due
or to become due thereon before the Holders of the Subordinated Debt Securities
will be entitled to receive any payment in respect of the principal of, premium,
if any, or interest on the Subordinated Debt Securities. If, upon any such
payment or distribution of assets to creditors, there remain, after giving
effect to such subordination provisions in favor of the holders of Senior
Indebtedness of the Corporation, any amounts of cash, property or securities
available for payment or distribution in respect of Subordinated Debt Securities
(as defined in the Subordinated Indenture, "Corporation Excess Proceeds") and
if, at such time, any person entitled to payment pursuant to the terms of Other
Financial Obligations of the Corporation has not received payment in full of all
amounts due or to become due on or in respect of such Other Financial
Obligations of the Corporation, then such Corporation Excess Proceeds shall
first be applied to pay or provide for the payment in full of such Other
Financial Obligations of the Corporation before any payment or distribution may
be made in respect of the Subordinated Debt Securities. In the event of the
acceleration of the maturity of any Subordinated Debt Securities, the holders of
all Senior Indebtedness of the Corporation will first be entitled to receive
payment in full of all amounts due or to become due thereon before the Holders
of the Subordinated Debt Securities will be entitled to receive any payment of
the principal of, premium, if any, or interest on the Subordinated Debt
Securities. Accordingly, in case of such an acceleration, all Senior
Indebtedness of the Corporation would have to be repaid before any payment could
be made in respect of the Subordinated Debt Securities. No payments on account
of principal, premium, if any, or interest in respect of the Subordinated Debt
Securities may be made if there shall have occurred and be continuing a default
in any payment with respect to any Senior Indebtedness of the Corporation, or an
event of default with respect to any Senior Indebtedness of the Corporation
permitting the holders thereof to accelerate the maturity thereof, or if any
judicial proceeding shall be pending with respect to any such default.
 
     By reason of such subordination, in the event of the insolvency of the
Corporation, creditors of the Corporation who are not holders of Senior
Indebtedness of the Corporation or the Subordinated Debt Securities may recover
less, ratably, than holders of Senior Indebtedness of the Corporation and may
recover more, ratably, than Holders of the Subordinated Debt Securities.
 
     "Senior Indebtedness" of the Corporation is defined in the Subordinated
Indenture to mean the principal of, premium, if any, and interest on (i) all
indebtedness of the Corporation for money borrowed (including indebtedness of
others guaranteed by the Corporation) other than the Subordinated Debt
Securities, whether outstanding on the date of the Subordinated Indenture or
thereafter created, assumed or incurred and (ii) any amendments, renewals,
extensions, modifications and refundings of any such indebtedness, unless in
either case in the instrument creating or evidencing any such indebtedness or
pursuant to which it is outstanding it is provided that such indebtedness is not
superior in right of payment to the Subordinated Debt Securities. For the
purposes of this definition, "indebtedness for money borrowed" is defined as (i)
any obligation of, or any obligation guaranteed by, the Corporation for the
repayment of borrowed money, whether or not evidenced by bonds, debentures,
notes or other written instruments, (ii) any deferred payment obligation of, or
any such obligation guaranteed by, the Corporation for the payment of the
purchase price of property or assets evidenced by a note or similar instrument,
and (iii) any obligation of, or any such obligation guaranteed by, the
Corporation for the payment of rent or other amounts under a lease of property
or assets which obligation is required to be classified and accounted for as a
capitalized lease on the balance sheet of the Corporation under generally
accepted accounting principles.
 
     "Other Financial Obligations" of the Corporation is defined in the
Subordinated Indenture to mean all obligations of the Corporation to make
payment pursuant to the terms of financial instruments, such as (i) securities
contracts and foreign currency exchange contracts, (ii) derivative instruments,
such as swap agreements (including interest rate and currency and foreign
exchange rate swap agreements), cap agreements, floor agreements, collar
agreements, interest rate agreements, foreign exchange agreements, options,
commodity futures contracts, commodity options contracts and (iii) similar
financial instruments; provided that the term Other Financial Obligations shall
not include (x) obligations on account of Senior Indebtedness
 
                                       16
   40
 
of the Corporation and (y) obligations on account of indebtedness for money
borrowed ranking pari passu with or subordinate to the Subordinated Debt
Securities.
 
EVENTS OF DEFAULT
 
  Senior Indenture
 
     An Event of Default with respect to Senior Debt Securities of any series is
defined in the Senior Indenture as being: default for 30 days in payment of any
interest on Senior Debt Securities of such series; default in payment of
principal of, or premium, if any, any Senior Debt Securities of such series;
default in deposit of any mandatory sinking fund payment required by the Senior
Debt Securities of such series; default for 60 days after notice, in performance
or breach of any other covenant or warranty in the Senior Indenture (except for
a covenant expressly relating to a series of Senior Debt Securities other than
that series of Senior Debt Securities) or in the Senior Debt Securities of such
series; acceleration of the Senior Debt Securities of any other series or any
other indebtedness for borrowed money of the Corporation or any Material Banking
Subsidiary, in each case exceeding $10,000,000 in an aggregate principal amount,
as a result of a default under the terms of the instrument or instruments under
which such indebtedness is issued or secured, unless such acceleration is
annulled within 30 days after written notice as provided in the Indenture,
provided that if such default is remedied or cured by the Corporation or any
Material Banking Subsidiary or waived by holders of such indebtedness, the Event
of Default by reason thereof shall be deemed to have been thereupon remedied,
cured or waived; certain events of bankruptcy, insolvency or reorganization with
respect to the Corporation or any Material Banking Subsidiary; or any other
Event of Default specified in the applicable Prospectus Supplement. In case an
Event of Default with respect to Senior Debt Securities of any series shall
occur and be continuing, the Senior Trustee or the Holders of not less than 25%
in principal amount of the Senior Debt Securities of such series then
outstanding may declare the principal of all such Senior Debt Securities of such
series to be due and payable. The Corporation is required to furnish to the
Senior Trustee annually a statement as to the performance by the Corporation of
its obligations under the Senior Indenture and as to any default in such
performance. Under certain circumstances any declaration of acceleration with
respect to Senior Debt Securities of any series may be rescinded and past
defaults (except a default in the payment of principal of or interest on the
Senior Debt Securities) may be waived by the Holders of a majority in aggregate
principal amount of the Senior Debt Securities of such series then outstanding.
The Senior Indenture provides that the Senior Trustee may withhold notice to the
Holders of Senior Debt Securities of any series of any continuing default
(except in the payment of the principal of (or premium, if any) or interest on
any Senior Debt Securities of such series) if such Senior Trustee considers it
in the interest of Holders of such series of Senior Debt Securities to do so.
 
  Subordinated Indenture
 
     An Event of Default with respect to the Subordinated Debt Securities of any
series is defined in the Subordinated Indenture as being certain events
involving a bankruptcy, insolvency or reorganization of the Corporation. If an
Event of Default with respect to Subordinated Debt Securities of any series
shall have occurred and be continuing, either the Subordinated Trustee or the
Holders of not less than 25% in aggregate principal amount of the Subordinated
Debt Securities of such series then outstanding may declare the principal of the
Subordinated Debt Securities of such series to be due and payable immediately.
The Corporation is required to furnish to the Subordinated Trustee annually a
statement as to the performance by the Corporation of its obligations under the
Subordinated Indenture and as to any default in such performance. Under certain
circumstances, any declaration of acceleration with respect to Subordinated Debt
Securities of any series may be rescinded and past defaults (except a default in
the payment of principal of or interest on the Subordinated Debt Securities) may
be waived by the Holders of a majority in aggregate principal amount of the
Subordinated Debt Securities of such series then outstanding. The Subordinated
Indenture provides that the Subordinated Trustee may withhold notice to the
Holders of the Subordinated Debt Securities of any series of any continuing
default (except in the payment of the principal of (or premium, if any) or
interest on any Subordinated Debt Securities of such series) if the Subordinated
Trustee considers it in the interest of the Holders of such series of
Subordinated Debt Securities to do so.
 
                                       17
   41
 
     The Subordinated Indenture does not provide for any right of acceleration
of the payment of principal of a series of Subordinated Debt Securities upon a
default in the payment of principal or interest or in the performance of any
covenant or agreement in the Subordinated Debt Securities of the particular
series or in the Subordinated Indenture.
 
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
 
     The Corporation has covenanted in the Senior and Subordinated Indentures
that it will not merge or consolidate with any other corporation or sell,
convey, transfer or lease all or substantially all of its assets to any person,
firm or corporation unless the Corporation is the continuing corporation or the
successor corporation expressly assumes the obligations under any outstanding
Senior Debt Securities and Subordinated Debt Securities and the respective
Senior and Subordinated Indentures and the Corporation or such successor
corporation is not, immediately after such merger, consolidation, sale or
conveyance, in default in the performance of any of the covenants or conditions
of the respective Indenture. The Indentures do not contain any other covenant
which restricts the Corporation's ability to merge or consolidate with any other
corporation, sell, convey, transfer or lease all or substantially all of its
assets to any persons, firm or corporation or otherwise engage in restructuring
transactions.
 
                   TERMS APPLICABLE TO GUARANTEED SECURITIES
 
MODIFICATION OF THE INDENTURE
 
     The Guaranteed Indenture contains provisions permitting Financial, the
Corporation and the Guaranteed Trustee, with the consent of Holders of not less
than a majority in principal amount of the Guaranteed Securities which are
affected by the modification, to modify the Guaranteed Indenture or any
supplemental indenture or the rights of the Holders of the Guaranteed Securities
issued under such Indenture, provided that no such modification may, without the
consent of the Holder of each Outstanding Guaranteed Security affected thereby,
(a) change the stated maturity date of the principal of, or any installment of
principal of or interest, if any, on, any Guaranteed Security, (b) reduce the
principal amount of, or premium or rate of interest, if any, on, any Guaranteed
Security, (c) reduce the amount of principal of an Original Issue Discount
Guaranteed Security payable upon acceleration of the maturity thereof, (d)
change the place or coin or currency of payment of principal of, or premium or
interest, if any, on, any Guaranteed Security, (e) impair the right to institute
suit for the enforcement of any payment on or with respect to any Guaranteed
Security, (f) modify or affect in any manner adverse to Holders the terms and
conditions of the obligations of the Guarantor in respect of the due and
punctual payment of principal or any premium and interest, sinking fund payment
or Additional Amounts in respect of the Guaranteed Securities, (g) reduce the
percentage in principal amount of Outstanding Guaranteed Securities of any
series the consent of whose Holders is required for modification or amendment of
the Guaranteed Indenture or for waiver of compliance with certain provisions of
the Guaranteed Indenture or for waiver of certain defaults, or (h) modify (with
certain exceptions) any provisions of the Guaranteed Indenture which require the
consent of the Holder of each Outstanding Guaranteed Security affected thereby.
 
EVENTS OF DEFAULT
 
     An Event of Default with respect to Guaranteed Securities of any series is
defined in the Guaranteed Indenture as being: default for 30 days in payment of
any interest on Guaranteed Securities of such series; default in payment of
principal of (or premium, if any) on any Guaranteed Security of such series;
default in deposit of any mandatory sinking fund payment required by the
Guaranteed Securities of such series; default for 60 days, after notice, in
performance or breach of any other covenant or warranty in the Guaranteed
Indenture (except for a covenant expressly relating to a series of Guaranteed
Securities other than that series of Guaranteed Securities) or in the Guaranteed
Securities of such series; acceleration of the Guaranteed Securities of any
other series or any other indebtedness for borrowed money of the Corporation,
Financial or any Material Banking Subsidiary, in each case exceeding $10,000,000
in an aggregate principal amount, as a result of a default under the terms of
the instrument or instruments under which such indebtedness is issued or
 
                                       18
   42
 
secured, unless such acceleration is annulled within 30 days after written
notice as provided in the Indenture, provided that if such default is remedied
or cured by the Corporation, Financial or any Material Banking Subsidiary or
waived by the holders of such indebtedness, the Event of Default by reason
thereof shall be deemed to have been thereupon remedied, cured or waived;
certain events of bankruptcy, insolvency or reorganization of the Corporation,
any Material Banking Subsidiary or Financial; or any other Event of Default
specified in the applicable Prospectus Supplement. In case an Event of Default
with respect to Guaranteed Securities of any series shall occur and be
continuing, the Guaranteed Trustee or the Holders of not less than 25% in
principal amount of the Guaranteed Securities of such series then outstanding
may declare the principal of all the Guaranteed Securities of such series to be
due and payable. Financial and the Corporation are required to furnish to the
Guaranteed Trustee annually a statement or statements as to the performance by
Financial and the Corporation of their respective obligations under the
Guaranteed Indenture of such series and as to any default in such performance.
Under certain circumstances any declaration of acceleration with respect to
Guaranteed Securities of any series may be rescinded and past defaults (except a
default in the payment of principal of or interest on the Guaranteed Securities)
may be waived by the Holders of a majority in aggregate principal amount of the
Guaranteed Securities of such series then outstanding. The Guaranteed Indenture
provides that the Guaranteed Trustee may withhold notice to the Holders of
Guaranteed Securities of any series of any continuing default (except in the
payment of the principal of (or premium, if any) or interest on any Guaranteed
Securities of such series) if such Guaranteed Trustee considers it in the
interest of Holders of such series of Guaranteed Securities to do so.
 
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
 
     Each of the Corporation and Financial has covenanted in the Guaranteed
Indenture that it will not merge or consolidate with any other corporation or
sell, convey, transfer or lease all or substantially all of its assets to any
person, firm or corporation unless the Corporation or Financial, as the case may
be, is the continuing corporation or the successor corporation expressly
assumes, in the case of Financial, or guarantees, in the case of the
Corporation, the obligations under the Guaranteed Securities and the Guaranteed
Indenture and the Corporation or Financial, as the case may be, or such
successor corporation is not, immediately after such merger, consolidation, sale
or conveyance, in default in the performance of any of the covenants or
conditions of the Guaranteed Indenture. The Guaranteed Indenture does not
contain any other covenant which restricts the Corporation's or Financial's
ability to merge or consolidate with any other corporation, sell, convey,
transfer or lease all or substantially all of its assets to any person, firm or
corporation or otherwise engage in restructuring transactions.
 
GUARANTEE
 
     The Corporation will guarantee the punctual payment of the principal of,
premium, if any, and interest on the Guaranteed Securities, when and as the same
are due and payable. The guarantee is absolute and unconditional, irrespective
of any circumstance that might otherwise constitute a legal or equitable
discharge of a surety or guarantor. To evidence the guarantee, a Guarantee,
executed by the Corporation, will be endorsed on each Guaranteed Security.
Holders of the Guaranteed Securities may proceed directly against the
Corporation in the event of default under the Guaranteed Securities without
first proceeding against Financial. The Guarantees will rank pari passu with all
other unsecured and unsubordinated obligations of the Corporation.
 
               TERMS APPLICABLE TO THE PIB SENIOR DEBT SECURITIES
                      OR PIB SUBORDINATED DEBT SECURITIES
 
MODIFICATION OF THE PIB SENIOR AND PIB SUBORDINATED INDENTURES
 
     The PIB Senior and PIB Subordinated Indentures contain provisions
permitting the Corporation, PIB and the respective PIB Trustees, with the
consent of Holders of not less than a majority in principal amount of the PIB
Senior Debt Securities or PIB Subordinated Debt Securities which are affected by
the modification, to modify the particular Indenture or any supplemental
indenture or the rights of the Holders of the PIB
 
                                       19
   43
 
Senior Debt Securities or PIB Subordinated Debt Securities issued under such
Indenture; provided that no such modification may, without the consent of the
Holder of each outstanding PIB Senior Debt Security or PIB Subordinated Debt
Security affected thereby, (a) change the stated maturity date of the principal
of, or any installment of principal of or interest, if any, on, any PIB Senior
Debt Security or PIB Subordinated Debt Security, (b) reduce the principal amount
of, or premium or rate of interest, if any, on, any PIB Senior Debt Security or
PIB Subordinated Debt Security, (c) reduce the amount of principal of an
Original Issue Discount Security payable upon acceleration of the maturity
thereof, (d) change the place or coin or currency of payment of principal of, or
premium or interest, if any, on, any PIB Senior Debt Security or PIB
Subordinated Debt Security, (e) impair the right to institute suit for the
enforcement of any payment on or with respect to any PIB Senior Debt Security or
PIB Subordinated Debt Security, (f) reduce the percentage in principal amount of
Outstanding PIB Senior Debt Security or PIB Subordinated Debt Securities of any
series, the consent of whose Holders is required for modification or amendment
of the Indenture or for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults, (g) modify (with certain
exceptions) any provision of the Indenture which requires the consent of Holders
of each Outstanding PIB Senior Debt Security or PIB Subordinated Debt Security
affected thereby or (h) with respect to the PIB Subordinated Indenture, modify
the subordination provisions in a manner adverse to Holders of Outstanding PIB
Subordinated Debt Securities.
 
SUBORDINATION
 
     Unless otherwise indicated in the applicable Prospectus Supplement, the
following provisions shall apply to the PIB Subordinated Debt Securities and the
guarantee of them by the Corporation.
 
     The payment of the principal of, premium, if any, and interest on the PIB
Subordinated Debt Securities and the Corporation's Guarantees thereof (the
"Subordinated Guarantees") will, to the extent set forth in the PIB Subordinated
Indenture, be subordinated in right of payment to the prior payment in full of
all Senior Indebtedness (as defined below) of PIB or the Corporation, as the
case may be. In certain events of insolvency, the payment of the principal of,
premium, if any, and interest on the PIB Subordinated Debt Securities and any
payments with respect to the Subordinated Guarantees will, to the extent set
forth in the PIB Subordinated Indenture, also be effectively subordinated in
right of payment to the prior payment in full of all Other Financial Obligations
(as defined below) of PIB or the Corporation, as the case may be. As of May 31,
1994, no Senior Indebtedness and no Other Financial Obligations of PIB were
outstanding. Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of PIB or the Corporation, the holders of all Senior Indebtedness
thereof will first be entitled to receive payment in full of all amounts due or
to become due thereon before the Holders of the PIB Subordinated Debt Securities
or the Subordinated Guarantees will be entitled to receive any payment in
respect of the principal of, premium, if any, or interest on the PIB
Subordinated Debt Securities or the Subordinated Guarantees, as the case may be.
If, upon any such payment or distribution of assets to creditors, there remain,
after giving effect to such subordination provisions in favor of the holders of
Senior Indebtedness of PIB and the Corporation, any amounts of cash, property or
securities available for payment or distribution in respect of PIB Subordinated
Debt Securities or the Subordinated Guarantees (as defined in the PIB
Subordinated Indenture, "PIB Excess Proceeds") and if, at such time, any person
entitled to payment pursuant to the terms of Other Financial Obligations of PIB
or the Corporation (as defined in the PIB Subordinated Indenture, "PIB Entitled
Person") has not received payment in full of all amounts due or to become due on
or in respect of such Other Financial Obligations of PIB or the Corporation,
then such PIB Excess Proceeds shall first be applied to pay or provide for the
payment in full of such Other Financial Obligations of PIB or the Corporation,
as the case may be, before any payment or distribution may be made in respect of
the PIB Subordinated Debt Securities or the Subordinated Guarantees. In the
event of the acceleration of the maturity of any PIB Subordinated Debt
Securities, the holders of all Senior Indebtedness of PIB or the Corporation, as
the case may be, will first be entitled to receive payment in full of all
amounts due or to become due thereon before the Holders of the PIB Subordinated
Debt Securities or the Subordinated Guarantees will be entitled to receive any
payment of the principal of, premium, if any, or interest on the PIB
Subordinated Debt Securities or the Subordinated Guarantees, as the case may be.
 
                                       20
   44
 
Accordingly, in case of such an acceleration, all Senior Indebtedness of PIB or
the Corporation would have to be repaid before any payment could be made in
respect of the PIB Subordinated Debt Securities or the Subordinated Guarantees,
as the case may be. No payments on account of principal, premium, if any, or
interest in respect of the PIB Subordinated Debt Securities or the Subordinated
Guarantees may be made if there shall have occurred and be continuing a default
in any payment with respect to any Senior Indebtedness of PIB or the
Corporation, an event of default with respect to any Senior Indebtedness of PIB
or the Corporation permitting the holders thereof to accelerate the maturity
thereof, or if any judicial proceeding shall be pending with respect to any such
default.
 
     By reason of such subordination, in the event of the insolvency of PIB or
the Corporation, creditors of PIB or the Corporation who are not holders of
Senior Indebtedness, the PIB Subordinated Debt Securities or the Subordinated
Guarantees may recover less, ratably, than holders of Senior Indebtedness of PIB
or the Corporation, as the case may be, and may recover more, ratably, than
Holders of the PIB Subordinated Debt Securities or the Subordinated Guarantees.
 
     "Senior Indebtedness" of PIB is defined in the PIB Subordinated Indenture
to mean the principal of, premium, if any, and interest on (i) all indebtedness
of PIB for money borrowed (including indebtedness of others guaranteed by PIB)
other than the PIB Subordinated Debt Securities, whether outstanding on the date
of the PIB Subordinated Indenture or thereafter created, assumed or incurred and
(ii) any amendments, renewals, extensions, modifications and refundings of any
such indebtedness, unless in either case in the instrument creating or
evidencing any such indebtedness or pursuant to which it is outstanding it is
provided that such indebtedness is not superior in right of payment to the PIB
Subordinated Debt Securities. For the purposes of this definition, "indebtedness
for money borrowed" is defined as (i) any obligation of, or any obligation
guaranteed by, PIB for the repayment of borrowed money, whether or not evidenced
by bonds, debentures, notes or other written instruments, (ii) any deferred
payment obligation of, or any such obligation guaranteed by, PIB for the payment
of the purchase price of property or assets evidenced by a note or similar
instrument, and (iii) any obligation of, or any such obligation guaranteed by,
PIB for the payment of rent or other amounts under a lease of property or assets
which obligation is required to be classified and accounted for as a capitalized
lease on the balance sheet of PIB under generally accepted accounting
principles.
 
     "Other Financial Obligations" of PIB is defined in the PIB Subordinated
Indenture to mean all obligations of PIB to make payment pursuant to the terms
of financial instruments, such as (i) securities contracts and foreign currency
exchange contracts, (ii) derivative instruments, such as swap agreements
(including interest rate and currency and foreign exchange rate swap
agreements), cap agreements, floor agreements, collar agreements, interest rate
agreements, foreign exchange agreements, options, commodity futures contracts,
commodity options contracts and (iii) similar financial instruments; provided
that the term Other Financial Obligations shall not include (x) obligations on
account of Senior Indebtedness of PIB and (y) obligations on account of
indebtedness for money borrowed ranking pari passu with or subordinate to the
PIB Subordinated Debt Securities.
 
     "Senior Indebtedness" of the Corporation is defined in the PIB Subordinated
Indenture to mean the principal of, premium, if any, and interest on (i) all
indebtedness of the Corporation for money borrowed (including indebtedness of
others guaranteed by the Corporation other than the Subordinated Guarantees),
whether outstanding on the date of the PIB Subordinated Indenture or thereafter
created, assumed or incurred and (ii) any amendments, renewals, extensions,
modifications and refundings of any such indebtedness, unless in either case in
the instrument creating or evidencing any such indebtedness or pursuant to which
it is outstanding it is provided that such indebtedness is not superior in right
of payment to the Subordinated Guarantees. For the purposes of this definition,
"indebtedness for money borrowed" is defined as (i) any obligation of, or any
obligation guaranteed by, the Corporation for the repayment of borrowed money,
whether or not evidenced by bonds, debentures, notes or other written
instruments, (ii) any deferred payment obligation of, or any such obligation
guaranteed by, the Corporation for the payment of the purchase price of property
or assets evidenced by a note or similar instrument, and (iii) any obligation
of, or any such obligation guaranteed by, the Corporation for the payment of
rent or other amounts under a lease of property or assets which obligation is
required to be classified and accounted for as a capitalized lease on the
balance sheet of the Corporation under generally accepted accounting principles.
 
                                       21
   45
 
     "Other Financial Obligations" of the Corporation is defined in the PIB
Subordinated Indenture to mean all obligations of the Corporation to make
payment pursuant to the terms of financial instruments, such as (i) securities
contracts and foreign currency exchange contracts, (ii) derivative instruments,
such as swap agreements (including interest rate and currency and foreign
exchange rate swap agreements), cap agreements, floor agreements, collar
agreements, interest rate agreements, foreign exchange agreements, options,
commodity futures contracts, commodity options contracts and (iii) similar
financial instruments; provided that the term Other Financial Obligations shall
not include (x) obligations on account of Senior Indebtedness and (y)
obligations on account of indebtedness for money borrowed ranking pari passu
with or subordinate to the Subordinated Guarantees.
 
EVENTS OF DEFAULT
 
  PIB Senior Indenture
 
     An Event of Default with respect to PIB Senior Debt Securities of any
series is defined in the PIB Senior Indenture as being: default for 30 days in
payment of any interest on PIB Senior Debt Securities of such series; default in
payment of principal of (or premium on, if any) any PIB Senior Debt Securities
of such series; default in deposit of any mandatory sinking fund payment
required by the PIB Senior Debt Securities of such series; default for 60 days,
after notice, in performance or breach of any other covenant or warranty in the
PIB Senior Indenture (except for a covenant expressly relating to a series of
PIB Senior Debt Securities other than that series of PIB Senior Debt Securities)
or in the PIB Senior Debt Securities of such series; acceleration of the PIB
Senior Debt Securities of any other series or any other indebtedness for
borrowed money, of the Corporation, PIB or any Material Banking Subsidiary, in
each case in an aggregate principal amount exceeding $10,000,000, as a result of
a default under the terms of the instrument or instruments under which such
indebtedness is issued or secured, unless such acceleration is annulled within
30 days after written notice as provided in the Indenture, provided that if such
default is remedied or cured by the Corporation, PIB or any Material Banking
Subsidiary or waived by holders of such indebtedness, the Event of Default by
reason thereof shall be deemed to have been thereupon remedied, cured or waived;
certain events of bankruptcy, insolvency or reorganization with respect to the
Corporation, PIB or any Material Banking Subsidiary; or any other Event of
Default specified in the applicable Prospectus Supplement. In case an Event of
Default with respect to PIB Senior Debt Securities of any series shall occur and
be continuing, the PIB Senior Trustee or the Holders of not less than 25% in
principal amount of the PIB Senior Debt Securities of such series then
outstanding may declare the principal of all the PIB Senior Debt Securities of
such series to be due and payable. The Corporation and PIB are required to
furnish to the PIB Senior Trustee annually a statement as to the performance by
the Corporation and PIB of their respective obligations under the PIB Senior
Indenture and as to any default in such performance. Under certain circumstances
any declaration of acceleration with respect to PIB Senior Debt Securities of
any series may be rescinded and past defaults (except a default in the payment
of principal of or interest on the PIB Senior Debt Securities) may be waived by
the Holders of a majority in aggregate principal amount of the PIB Senior Debt
Securities of such series then outstanding. The PIB Senior Indenture provides
that the PIB Senior Trustee may withhold notice to the Holders of PIB Senior
Debt Securities of any series of any continuing default (except in the payment
of the principal of (or premium, if any) or interest on any PIB Senior Debt
Securities of such series) if such PIB Senior Trustee considers it in the
interest of Holders of such series of PIB Senior Debt Securities to do so.
 
  PIB Subordinated Indenture
 
     An Event of Default with respect to the PIB Subordinated Debt Securities of
any series is defined in the PIB Subordinated Indenture as being certain events
involving a bankruptcy, insolvency or reorganization of the Corporation or PIB.
If an Event of Default with respect to PIB Subordinated Debt Securities of any
series shall have occurred and be continuing, either the PIB Subordinated
Trustee or the Holders of not less than 25% in aggregate principal amount of the
PIB Subordinated Debt Securities of such series then outstanding may declare the
principal of the PIB Subordinated Debt Securities of such series to be due and
payable immediately. The Corporation and PIB are required to furnish to the PIB
Subordinated Trustee annually a statement as to the performance by the
Corporation and PIB of their respective obligations under the PIB
 
                                       22
   46
 
Subordinated Indenture and as to any default in such performance. Under certain
circumstances, any declaration of acceleration with respect to PIB Subordinated
Debt Securities of any series may be rescinded and past defaults (except a
default in the payment of principal of or interest on the PIB Subordinated Debt
Securities) may be waived by the Holders of a majority in aggregate principal
amount of the PIB Subordinated Debt Securities of such series then outstanding.
The PIB Subordinated Indenture provides that the PIB Subordinated Trustee may
withhold notice to the Holders of the PIB Subordinated Debt Securities of any
series of any continuing default (except in the payment of the principal of (or
premium, if any) or interest on any PIB Subordinated Debt Securities of such
series) if the PIB Subordinated Trustee considers it in the interest of the
Holders of such series of PIB Subordinated Debt Securities to do so.
 
     The PIB Subordinated Indenture does not provide for any right of
acceleration of the payment of principal of a series of PIB Subordinated Debt
Securities upon a default in the payment of principal or interest or in the
performance of any covenant or agreement in the PIB Subordinated Debt Securities
of the particular series, in the PIB Subordinated Indenture or in the
Subordinated Guarantees.
 
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
 
     The Corporation and PIB have each covenanted in the PIB Senior and PIB
Subordinated Indentures that it will not merge or consolidate with any other
corporation or sell, convey, transfer or lease all or substantially all of its
assets to any person, firm or corporation unless the Corporation or PIB, as the
case may be, is the continuing corporation or the successor corporation
expressly assumes the obligations under any outstanding PIB Senior Debt
Securities and Subordinated Debt Securities and the Subordinated Guarantees and
the respective PIB Senior and PIB Subordinated Indentures and the Corporation,
or PIB, as the case may be, or such successor corporation is not, immediately
after such merger, consolidation, sale or conveyance, in default in the
performance of any of the covenants or conditions of the respective Indenture.
The Indentures do not contain any other covenant which restricts the
Corporation's or PIB's ability to merge or consolidate with any other
corporation, sell, convey, transfer or lease all or substantially all of its
assets to any persons, firm or corporation or otherwise engage in restructuring
transactions.
 
GUARANTEE
 
  PIB Senior Debt Securities
 
     The Corporation will guarantee the punctual payment of the principal of,
premium, if any, and interest on the PIB Senior Debt Securities, when and as the
same are due and payable. The guarantee is absolute and unconditional,
irrespective of any circumstance that might otherwise constitute a legal or
equitable discharge of a surety or guarantor. To evidence the guarantee, a
Guarantee, executed by the Corporation, will be endorsed on each PIB Senior Debt
Security. Holders of the PIB Senior Debt Securities may proceed directly against
the Corporation in the event of default under the PIB Senior Debt Securities
without first proceeding against PIB. The Guarantees will rank pari passu with
all other unsecured and unsubordinated obligations of the Corporation.
 
  PIB Subordinated Debt Securities
 
     The Corporation will guarantee the punctual payment of the principal of,
premium, if any, and interest on the PIB Subordinated Debt Securities, when and
as the same are due and payable. The guarantee is absolute and unconditional,
irrespective of any circumstance that might otherwise constitute a legal or
equitable discharge of a surety or guarantor. To evidence the guarantee, a
Guarantee, executed by the Corporation, will be endorsed on each PIB
Subordinated Debt Security. Holders of the PIB Subordinated Debt Securities may
proceed directly against the Corporation in the event of default under the PIB
Subordinated Debt Securities without first proceeding against PIB. The
Subordinated Guarantees will rank pari passu with all other unsecured and
subordinated obligations of the Corporation. See "Subordination."
 
                                       23
   47
 
               DESCRIPTION OF PREFERRED STOCK OF THE CORPORATION
 
     The following summary contains a description of certain general terms of
the Corporation's preferred stock (the "Preferred Stock") to which any
Prospectus Supplement may relate. Certain terms of any series of the Preferred
Stock offered by any Prospectus Supplement will be described in the Prospectus
Supplement relating thereto. If so indicated in the Prospectus Supplement, the
terms of any series may differ from the terms set forth below. The description
of certain provisions of the Preferred Stock does not purport to be complete and
is subject to and qualified in its entirety by reference to the provisions of
the Corporation's Restated Certificate of Incorporation, as amended, the
Certificates of Designation describing the Corporation's 8.35% Non-Cumulative
Monthly Income Preferred Stock, 1994 Series A (the "Series A Preferred Stock")
and the Corporation's Series A Participating Preferred Stock (the "Series A
Participating Preferred Stock"), respectively and the Certificate of Resolution
(the "Certificate of Resolution") relating to each particular series of the
Preferred Stock, each of which will be filed or incorporated by reference, as
the case may be, as an exhibit to the Registration Statement of which this
Prospectus is a part at or prior to the time of the issuance of such Preferred
Stock.
 
GENERAL
 
     Under the Corporation's Restated Certificate of Incorporation, the Board of
Directors of the Corporation is authorized, without further stockholder action,
to provide for the issuance of up to 10,000,000 shares of preferred stock (of
which 4,000,000 shares have been designated and issued as Series A Preferred
Stock and 350,000 shares have been authorized and designated but not issued for
the Series A Participating Preferred Stock), without par value, in one or more
series, with such designations of titles; dividend rates; special or relative
rights in the event of a liquidation, distribution or sale of assets or
dissolution or winding up of the Corporation; sinking fund provisions;
redemption or purchase account provisions; conversion provisions; and voting
rights, as shall be set forth as and when established by the Board of Directors
of the Corporation. The shares of any series of Preferred Stock will be, when
issued, fully paid and non-assessable and holders thereof shall have no
preemptive rights in connection therewith.
 
     The liquidation preference of any series of the Preferred Stock is not
necessarily indicative of the price at which shares of such series of Preferred
Stock will actually trade at or after the time of their issuance. The market
price of any series of Preferred Stock can be expected to fluctuate with changes
in market and economic conditions, the financial condition and prospects of the
Corporation and other factors that generally influence the market prices of
securities.
 
RANK
 
     Any series of Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding up and dissolution rank (i) senior to all classes
of common stock of the Corporation and with all equity securities issued by the
Corporation the terms of which specifically provide that such equity securities
will rank junior to the Preferred Stock (collectively referred to as the "Junior
Securities"); (ii) on a parity with all equity securities issued by the
Corporation the terms of which specifically provide that such equity securities
will rank on a parity with the Preferred Stock (collectively referred to as the
"Parity Securities"); and (iii) junior to all equity securities issued by the
Corporation the terms of which specifically provide that such equity securities
will rank senior to the Preferred Stock. As used in any Certificate of
Resolution for these purposes, the term "equity securities" will not include
debt securities convertible into or exchangeable for equity securities.
 
DIVIDENDS
 
     Holders of each series of Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors of the Corporation out of
funds legally available therefor, cash dividends at such rates and on such dates
as are set forth in the Prospectus Supplement relating to such series of
Preferred Stock. Dividends will be payable to holders of record of the Preferred
Stock as they appear on the books of the Corporation on such record dates as
shall be fixed by the Board of Directors. Dividends on any series of Preferred
Stock may be
 
                                       24
   48
 
cumulative or non-cumulative. The Corporation's ability to pay dividends on its
Preferred Stock is subject to policies established by the Federal Reserve Board.
See "Certain Regulatory Matters -- Dividend Restrictions."
 
     No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Securities unless dividends shall have been
paid or set apart for such payment on the Preferred Stock. If full dividends are
not so paid, the Preferred Stock shall share dividends pro rata with the Parity
Securities.
 
     The holders of any series of shares of Preferred Stock at the close of
business on a dividend payment record date will be entitled to receive the
dividend payable on such shares (except that holders of shares called for
redemption on a redemption date occurring between such record date and the
dividend payment date shall not be entitled to receive such dividend on such
dividend payment date but instead will receive accrued and unpaid dividends to
such redemption date) on the corresponding dividend payment date notwithstanding
the conversion thereof or the Corporation's default in payment of the dividend
due. Except as provided above, the Corporation will make no payment or allowance
for unpaid dividends, whether or not in arrears, on converted shares or for
dividends on the shares of preferred stock or issued upon conversion.
 
CONVERSION
 
     The Prospectus Supplement for any series of Preferred Stock will state the
terms, if any, on which shares of that series are convertible into shares of
another series of preferred stock of the Corporation.
 
     For any series of Preferred Stock which is convertible, the Corporation
shall at all times reserve and keep available, out of the aggregate of its
authorized but unissued preferred stock or preferred stock held in its treasury
or both, for the purpose of effecting the conversion of the shares of such
series of Preferred Stock, the full number of shares of preferred stock then
deliverable upon the conversion of all outstanding shares of such series.
 
     No fractional shares or scrip representing fractional shares of preferred
stock will be issued upon the conversion of shares of any series of convertible
Preferred Stock. Each holder to whom fractional shares would otherwise be issued
will instead be entitled to receive, at the Corporation's election, either (a) a
cash payment equal to the current market price of such holder's fractional
interest or (b) a cash payment equal to such holder's proportionate interest in
the net proceeds (following the deduction of applicable transaction costs) from
the sale promptly by an agent, on behalf of such holders, of shares of preferred
stock representing the aggregate of such fractional shares.
 
EXCHANGEABILITY
 
     If so determined by the Board of Directors of the Corporation, the holders
of shares of Preferred Stock of any series may be obligated at any time or at
maturity to exchange such shares for preferred stock or debt securities of the
Corporation. The terms of any such exchange and any such preferred stock or debt
securities will be described in the Prospectus Supplement relating to such
series of Preferred Stock.
 
REDEMPTION
 
     A series of Preferred Stock may be redeemable at any time, in whole or in
part, at the option of the Corporation or the holder thereof upon terms and at
the redemption prices set forth in the Prospectus Supplement relating to such
series.
 
     In the event of partial redemptions of Preferred Stock, whether by
mandatory or optional redemption, the shares to be redeemed will be determined
by lot or pro rata, as may be determined by the Board of Directors of the
Corporation or by any other method determined to be equitable by the Board of
Directors.
 
     On or after a redemption date, unless the Corporation defaults in the
payment of the redemption price, dividends will cease to accrue on shares of
Preferred Stock called for redemption and all rights of holders of such shares
will terminate except for the right to receive the redemption price.
 
                                       25
   49
 
     Under current regulations, bank holding companies may not exercise any
option to redeem shares of preferred stock included as Tier 1 capital, or
exchange such preferred stock for debt securities, without the prior approval of
the Federal Reserve Board. Ordinarily, the Federal Reserve Board would not
permit such a redemption unless (1) the shares are redeemed with the proceeds of
a sale by the bank holding company of common stock or perpetual preferred stock
or (2) the Federal Reserve Board determines that the bank holding company's
condition and circumstances warrant the reduction of a source of permanent
capital.
 
LIQUIDATION PREFERENCE
 
     Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, holders of each series of Preferred Stock that ranks senior to
the Junior Securities will be entitled to receive out of assets of the
Corporation available for distribution to shareholders, before any distribution
is made on any Junior Securities, including Common Stock, distributions upon
liquidation in the amount set forth in the Prospectus Supplement relating to
such series of Preferred Stock, plus an amount equal to any accrued and unpaid
dividends. If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the amounts payable with respect to the Preferred
Stock of any series and any other Parity Securities are not paid in full, the
holders of the Preferred Stock of such series and the Parity Securities will
share ratably in any such distribution of assets of the Corporation in
proportion to the full liquidation preferences to which each is entitled. After
payment of the full amount of the liquidation preference to which they are
entitled, the holders of such series of Preferred Stock will not be entitled to
any further participation in any distribution of assets of the Corporation.
 
VOTING RIGHTS
 
     Except as indicated in the Prospectus Supplement relating to a particular
series of Preferred Stock, or except as expressly required by applicable law,
the holders of the Preferred Stock will have no voting rights.
 
     Under regulations adopted by the Federal Reserve Board, if the holders of
shares of any series of Preferred Stock of the Corporation became entitled to
vote for the election of directors, such series may then be deemed a "class of
voting securities" and a holder of 25% or more of such series (or a holder of 5%
if it otherwise exercises a "controlling influence" over the Corporation) may
then be subject to regulation as a bank holding company in accordance with the
BHC Act. In addition, at such time as such series is deemed a class of voting
securities, (i) any other bank holding company may be required to obtain the
approval of the Federal Reserve Board to acquire or retain 5% or more of such
series, and (ii) any person other than a bank holding company may be required to
file with the Federal Reserve Board under the Change in Bank Control Act to
acquire or retain 10% or more of such series.
 
     Section 12 of the Banking Law requires the prior approval of the Office of
the Commissioner to obtain control of any bank organized under the Banking Law.
The Banking Law requires that in any transfer of voting and outstanding capital
stock of any bank organized under the laws of Puerto Rico to any person or
entity that, upon consummation of the transfer, will become the owner, directly
or indirectly, of more than 5% of the voting and outstanding capital stock of
said bank, the parties to the transfer shall inform the Office of the
Commissioner of the proposed transfer at least 60 days prior to the date such
transfer is to be effected. The Banking Law does not contain any provision
allowing for the extension of such 60-day time period. The transfer requires the
approval of the Office of the Commissioner if it results in a change of control
of the bank. For the purposes of Section 12 of the Banking Law, the term
"control" means the power to, directly or indirectly, direct or influence
decisively the administration or the norms of the bank. The Department of the
Treasury (predecessor to the Office of the Commissioner) made a determination
that the foregoing provisions of the Banking Law are applicable to a change in
control of the Corporation in a letter dated April 9, 1985.
 
     Pursuant to Section 12(d) of the Banking Law, as soon as the Office of the
Commissioner receives notice of a proposed transaction that may result in the
control or in a change of control of a bank, the Office of the Commissioner
shall have the duty to make the necessary investigations. The Office of the
Commissioner shall issue authorization for the transfer of control of the bank
if the results of his investigations are in his judgment satisfactory. The
decision of the Office of the Commissioner is final and unreviewable.
 
                                       26
   50
 
                     DESCRIPTION OF PREFERRED STOCK OF PIB
 
     The following summary contains a description of certain general terms of
the PIB Preferred Stock to which any Prospectus Supplement may relate. Certain
terms of any series of the Preferred Stock offered by any Prospectus Supplement
will be described in the Prospectus Supplement relating thereto. If so indicated
in the Prospectus Supplement, the terms of any series may differ from the terms
set forth below. The description of certain provisions of the PIB Preferred
Stock does not purport to be complete and is subject to and qualified in its
entirety by reference to the provisions of the PIB's Certificate of
Incorporation, as amended, and the Certificate of Amendment relating to each
particular series of the PIB Preferred Stock, each of which will be filed or
incorporated by reference, as the case may be, as an exhibit to the Registration
Statement of which this Prospectus is a part at or prior to the time of the
issuance of such PIB Preferred Stock.
 
     The authorized capital stock of PIB consists of 1,000,000 shares of Common
Stock, par value $5.00 per share, and 25,000,000 shares of preferred stock, par
value $25.00 per share. The preferred stock is issuable in one or more series,
with such terms, and at such times and for such consideration as the Board of
Directors of PIB determines. As of the date of this Prospectus, there were
issued and outstanding no shares of preferred stock. All of the common stock of
PIB is owned by the Corporation.
 
GENERAL
 
     Under the PIB's Certificate of Incorporation, the Board of Directors of the
Corporation is authorized, without further stockholder action, to provide for
the issuance of up to 25,000,000 shares of preferred stock, par value $25.00 per
share, in one or more series, with such designations of titles; dividend rates;
special or relative rights in the event of a liquidation, distribution or sale
of assets or dissolution or winding up of PIB; sinking fund provisions; any
redemption or purchase account provisions; conversion provisions; and voting
rights, as shall be set forth as and when established by the Board of Directors
of PIB. The shares of any series of PIB Preferred Stock will be, when issued,
fully paid and nonassessable and holders thereof shall have no preemptive rights
in connection therewith.
 
     The liquidation preference of any series of the PIB Preferred Stock is not
necessarily indicative of the price at which shares of such series of PIB
Preferred Stock will actually trade at or after the time of their issuance. The
market price of any series of PIB Preferred Stock can be expected to fluctuate
with changes in market and economic conditions, the financial condition and
prospects of the Corporation and other factors that generally influence the
market prices of securities.
 
RANK
 
     Any series of PIB Preferred Stock will, with respect to dividend rights and
rights on liquidation, winding up and dissolution, rank (i) senior to all
classes of common stock of PIB and with all equity securities issued by PIB the
terms of which specifically provide that such equity securities will rank junior
to the PIB Preferred Stock (collectively referred to as the "PIB Junior
Securities"); (ii) on a parity with all equity securities issued by PIB, the
terms of which specifically provide that such equity securities will rank on a
parity with the PIB Preferred Stock (collectively referred to as the "PIB Parity
Securities"); and (iii) junior to all equity securities issued by PIB, the terms
of which specifically provide that such equity securities will rank senior to
the PIB Preferred Stock (collectively referred to as the "PIB Senior
Securities"). As used in any Certificate of Amendment for these purposes, the
term "equity securities" will not include debt securities convertible into or
exchangeable for equity securities.
 
DIVIDENDS
 
     Holders of each series of PIB Preferred Stock will be entitled to receive,
when, as and if declared by the Board of Directors of PIB out of funds legally
available therefor, cash dividends at such rates and on such dates as are set
forth in the Prospectus Supplement relating to such series of the PIB Preferred
Stock. Dividends will be payable to holders of record of the PIB Preferred Stock
as they appear on the books of PIB on such record dates as shall be fixed by the
Board of Directors. Dividends on any series of PIB Preferred Stock may be
cumulative or non-cumulative. PIB's ability to pay dividends on its Preferred
Stock is subject to
 
                                       27
   51
 
policies established by the Federal Reserve Board. See "Certain Regulatory
Matters -- Dividend Restrictions."
 
     No full dividends may be declared or paid or funds set apart for the
payment of dividends on any PIB Parity Securities unless dividends shall have
been paid or set apart for such payment on the PIB Preferred Stock. If full
dividends are not so paid, the PIB Preferred Stock shall share dividends pro
rata with the PIB Parity Securities.
 
     The holders of any series of shares of PIB Preferred Stock at the close of
business on a dividend payment record date will be entitled to receive the
dividend payable on such shares (except that holders of shares called for
redemption on a redemption date occurring between such record date and the
dividend payment date shall not be entitled to receive such dividend on such
dividend payment date but instead will receive accrued and unpaid dividends to
such redemption date) on the corresponding dividend payment date notwithstanding
the conversion thereof or PIB's default in payment of the dividend due. Except
as provided above, PIB will make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares or for dividends on the shares of
preferred stock issued upon conversion.
 
CONVERSION
 
     The Prospectus Supplement for any series of the PIB Preferred Stock will
state the terms, if any, on which shares of that series are convertible into
shares of another series of preferred stock of PIB.
 
     For any series of PIB Preferred Stock which is convertible, PIB shall at
all times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued preferred stock or shares of preferred
stock held in its treasury or both, for the purpose of effecting the conversion
of the shares of such series of PIB Preferred Stock, the full number of shares
of preferred stock then deliverable upon the conversion of all outstanding
shares of such series.
 
     No fractional shares or scrip representing fractional shares of preferred
stock will be issued upon the conversion of shares of any series of convertible
PIB Preferred Stock. Each holder to whom fractional shares would otherwise be
issued will instead be entitled to receive, at PIB's election, either (a) a cash
payment equal to the current market price of such holder's fractional interest
or (b) a cash payment equal to such holder's proportionate interest in the net
proceeds (following the deduction of applicable transaction costs) from the sale
promptly by an agent, on behalf of such holders, of shares of preferred stock
representing the aggregate of such fractional shares.
 
EXCHANGEABILITY
 
     If so determined by the Board of Directors of PIB, the holders of shares of
PIB Preferred Stock of any series may be obligated at any time or at maturity to
exchange such shares for preferred stock or debt securities of PIB. The terms of
any such exchange and any such preferred stock or debt securities will be
described in the Prospectus Supplement relating to such series of PIB Preferred
Stock.
 
REDEMPTION
 
     A series of PIB Preferred Stock may be redeemable at any time, in whole or
in part, at the option of PIB or the holder thereof upon terms and at the
redemption prices set forth in the Prospectus Supplement relating to such
series.
 
     In the event of partial redemptions of PIB Preferred Stock, whether by
mandatory or optional redemption, the shares to be redeemed will be determined
by lot or pro rata, as may be determined by the Board of Directors of PIB or by
any other method determined to be equitable by the Board of Directors.
 
     On or after a redemption date, unless PIB defaults in the payment of the
redemption price, dividends will cease to accrue on shares of PIB Preferred
Stock called for redemption and all rights of holders of such shares will
terminate except for the right to receive the redemption price.
 
                                       28
   52
 
     Under current regulations, bank holding companies may not exercise any
option to redeem shares of preferred stock included as Tier 1 capital, or
exchange such preferred stock for debt securities, without the prior approval of
the Federal Reserve Board. Ordinarily, the Federal Reserve Board would not
permit such a redemption unless (1) the shares are redeemed with the proceeds of
a sale by the bank holding company of common stock or perpetual preferred stock
or (2) the Federal Reserve Board determines that the bank holding company's
condition and circumstances warrant the reduction of a source of permanent
capital.
 
LIQUIDATION PREFERENCE
 
     Upon any voluntary or involuntary liquidation, dissolution or winding up of
PIB, holders of each series of PIB Preferred Stock that ranks senior to the PIB
Junior Securities will be entitled to receive out of assets of PIB available for
distribution to shareholders, before any distribution is made on any PIB Junior
Securities, including common stock, distributions upon liquidation in the amount
set forth in the Prospectus Supplement relating to such series of Preferred
Stock, plus an amount equal to any accrued and unpaid dividends. If upon any
voluntary or involuntary liquidation, dissolution or winding up of PIB the
amounts payable with respect to the PIB Preferred Stock of any series and any
other PIB Parity Securities are not paid in full, the holders of the PIB
Preferred Stock of such series and the PIB Parity Securities will share ratably
in any such distribution of assets of PIB in proportion to the full liquidation
preferences to which each is entitled. After payment of the full amount of the
liquidation preference to which they are entitled, the holders of such series of
PIB Preferred Stock will not be entitled to any further participation in any
distribution of assets of PIB.
 
VOTING RIGHTS
 
     Except as indicated in the Prospectus Supplement relating to a particular
series of PIB Preferred Stock, or except as expressly required by applicable
law, the holders of the PIB Preferred Stock will have no voting rights.
 
GUARANTEE
 
     Unless otherwise specified in the applicable Prospectus Supplement, the
Corporation will guarantee the punctual payment of (i) any accrued and unpaid
dividends, whether or not declared, on the PIB Preferred Stock of any series,
(ii) the redemption price for any shares of PIB Preferred Stock called or
redemption at the option of PIB or the holder thereof in accordance with the
terms of such series of PIB Preferred Stock, (iii) the liquidation preference of
PIB Preferred Stock and (iv) any additional amounts with respect to a series of
PIB Preferred Stock.
 
     The Guarantee of the PIB Preferred Stock shall constitute an unsecured
obligation of the Corporation and will rank junior to all liabilities of the
Corporation. The Guarantee will rank senior to the Corporation's common stock
and shall have such rank relative to the preferred stock of the Corporation as
shall be specified in the applicable Prospectus Supplement.
 
                         VALIDITY OF OFFERED SECURITIES
 
     The validity of the Preferred Stock and the PIB Preferred Stock will be
passed upon for the Corporation and PIB by Brunilda Santos de Alvarez, counsel
to the Corporation. The validity of the Senior Securities, the Subordinated
Securities, the PIB Senior Debt Securities, the PIB Subordinated Debt Securities
and the Guarantees will be passed upon for the Corporation and PIB by Ms.
Alvarez as to matters of the laws of the Commonwealth of Puerto Rico and by
Sullivan & Cromwell as to matters of New York law. The validity of the
Guaranteed Securities will be passed upon for Financial by Sullivan & Cromwell.
The validity of the Securities will be passed upon for any underwriters or
agents by counsel named in the Prospectus Supplement.
 
                                    EXPERTS
 
     The financial statements incorporated in this Prospectus by reference from
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1993 have been so incorporated in reliance on the
 
                                       29
   53
 
report of Price Waterhouse, independent public accountants, given upon the
authority of said firm as experts in auditing and accounting.
 
                              PLAN OF DISTRIBUTION
 
     The Corporation, PIB or Financial, as the case may be, may sell Securities
to or through underwriting syndicates represented by managing underwriters, or
through one or more underwriters without a syndicate for public offering and
sale by them or may sell Securities to investors directly or through agents. Any
such underwriter or agent involved in the offer and sale of the Securities will
be named in the Prospectus Supplement.
 
     Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, or from time to time at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. In connection with the sale of the Securities, underwriters
may be deemed to have received compensation from the Corporation, PIB or
Financial, as the case may be, in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of the Securities
for whom they may act as agent. Underwriters may sell the Securities to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent.
 
     Any compensation paid by the Corporation, PIB or Financial, as the case may
be, to underwriters or agents in connection with the offering of the Securities,
and any discounts, concessions or commissions allowed by underwriters to
participating dealers, will be set forth in the Prospectus Supplement.
Underwriters, dealers and agents participating in the distribution of the
Securities may be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of the Securities may
be deemed to be underwriting discounts and commissions under the Securities Act
of 1933. Underwriters, dealers and agents may be entitled, under agreements
entered into with Corporation, PIB or Financial, as the case may be, to
indemnification against certain civil liabilities, including liabilities under
the Securities Act of 1933.
 
     All Securities will be a new issue of securities with no established
trading market. Any underwriters to whom Securities are sold by the Corporation,
PIB or Financial, as the case may be, for public offering and sale may make a
market in such Securities, but such underwriters will not be obligated to do so
and may discontinue any market making at any time without notice. No assurance
can be given as to the liquidity of the trading market for any Securities.
 
     Certain of the underwriters and their associates may be customers of,
engage in transactions with, and perform services for, the Corporation or its
subsidiaries in the ordinary course of business.
 
                                       30
   54
 
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  NO DEALER, SALESPERSON, OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE GUARANTOR OR BY THE AGENT.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE
GUARANTOR SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
                             ---------------------
                               TABLE OF CONTENTS
 
                             PROSPECTUS SUPPLEMENT
 


                                        PAGE
                                        ----
                                     
Description of Notes..................  S-3
United States Taxation................  S-15
Supplemental Plan of Distribution.....  S-22
Validity of the Notes and
  Guarantees..........................  S-23
Available Information.................    2
Incorporation of Certain Documents by
  Reference...........................    2
BanPonce Corporation..................    3
Popular International Bank Inc. ......    3
BanPonce Financial Corp...............    3
Consolidated Ratios of Earnings to
  Fixed Charges.......................    4
Use of Proceeds.......................    4
Certain Regulatory Matters............    4
Description of Debt Securities and
  Guarantees..........................   10
Terms Applicable to the Senior Debt
  Securities or Subordinated Debt
  Securities..........................   15
Terms Applicable to Guaranteed
  Securities..........................   18
Terms Applicable to the PIB Senior
  Debt Securities or PIB Subordinated
  Debt Securities.....................   19
Description of Preferred Stock of the
  Corporation.........................   24
Description of Preferred Stock of
  PIB.................................   27
Validity of Offered Securities........   29
Experts...............................   29
Plan of Distribution..................   30

 
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                                  $500,000,000
 
                               BANPONCE FINANCIAL
                                  CORPORATION
 
                          MEDIUM-TERM NOTES, SERIES B,
                            DUE NINE MONTHS OR MORE
                               FROM DATE OF ISSUE
 
                        UNCONDITIONALLY GUARANTEED AS TO
                         PAYMENT OF PRINCIPAL, PREMIUM,
                            IF ANY, AND INTEREST BY
                                   BANPONCE
                                       CORPORATION
                   -----------------------------------------
                             PROSPECTUS SUPPLEMENT
                   -----------------------------------------
                              MERRILL LYNCH & CO.
 
                                CS FIRST BOSTON
 
                             FIRST CHICAGO CAPITAL
                                 MARKETS, INC.
                                 AUGUST 1, 1994
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