NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES until further notice, management believes the change in accounting treatment for capital securities (i.e., de-consolidation) may prompt changes in the capital treatment of such securities in the future. Because no specific proposal to this effect has been published, however, management cannot determine how such change would affect Key. To the extent the trusts have funds available to make payments, as guarantor, KeyCorp continues to unconditionally guarantee payment of: Prior to July 1, 2003, KeyCorp fully consolidated these business trusts. The capital securities were carried as liabilities on Key’s balance sheet; Key’s financial statements did not reflect the debentures or the related effects on the income statement because they were eliminated in consolidation. In accordance with Interpretation No. 46, Key determined that these business trusts are VIEs for which it is not the primary beneficiary. Therefore, effective July 1, 2003, the trusts were de-consolidated and are accounted for using the equity method. Additional information regarding Interpretation No. 46 and these business trusts is included in Note 1 (“Summary of Significant Accounting Policies”), which begins on page 50, and in Note 8 (“Loan Securitizations and Variable Interest Entities”) under the heading “Business trusts issuing mandatorily redeemable preferred capital securities” on page 65. The characteristics of the business trusts and capital securities have not changed with the de-consolidation of the trusts. The capital securities provide an attractive source of funds since they constitute Tier 1 capital for regulatory reporting purposes, but have the same advantages as debt for federal income tax purposes. Although the Federal Reserve Board has indicated that it will continue to treat capital securities as Tier 1 capital During 2003, two new business trusts issued capital securities. The Capital V trust issued $175 million of securities in July 2003, and the Capital VI trust issued $75 million of securities in December 2003. Additionally, the business trusts repurchased $30 million of higher cost capital securities during 2003, and KeyCorp repurchased a like amount of the related debentures.  The capital securities, common stock and related debentures are summarized as follows: • required distributions on the capital securities; • the redemption price when a capital security is redeemed; and • amounts due if a trust is liquidated or terminated. Principal Interest Rate Maturity Capital Amount of of Capital of Capital Securities, Common Debentures, Securities and Securities and dollars in millions Net of Discount a Stock Net of Discount b Debentures c Debentures DECEMBER 31, 2003 KeyCorp Institutional Capital A $ 397 $11 $ 361 7.826% 2026 KeyCorp Institutional Capital B 170 4 154 8.250 2026 KeyCorp Capital I 210 8 218 1.900 2028 KeyCorp Capital II 175 8 165 6.875 2029 KeyCorp Capital III 225 8 197 7.750 2029 KeyCorp Capital V 174 5 180 5.875 2033 KeyCorp Capital VI 75 2 77 6.125 2033 Total $1,426 $46 $1,352 6.548% GLYPH<209> DECEMBER 31, 2002 $1,260 $40 $1,136 6.779% GLYPH<209> a The capital securities must be redeemed when the related debentures mature, or earlier if provided in the governing indenture. Each issue of capital securities carries an interest rate identical to that of the related debenture. Prior to July 1, 2003, the capital securities constituted minority interests in the equity accounts of KeyCorpGLYPH<213>s consolidated subsidiaries. Effective July 1, 2003, the business trusts that issued the capital securities were de-consolidated. However, until further notice from the Federal Reserve Board, the capital securities continue to qualify as Tier 1 capital under Federal Reserve Board guidelines. Included in certain capital securities at December 31, 2003 and 2002, are basis adjustments of $120 million and $164 million, respectively, related to fair value hedges. See Note 19 (GLYPH<210>Derivatives and Hedging ActivitiesGLYPH<211>), which begins on page 80 for an explanation of fair value hedges. b KeyCorp has the right to redeem its debentures: (i) in whole or in part, on or after December 1, 2006 (for debentures owned by Capital A), December 15, 2006 (for debentures owned by Capital B), July 1, 2008 (for debentures owned by Capital I), March 18, 1999 (for debentures owned by Capital II), July 16, 1999 (for debentures owned by Capital III), July 21, 2008 (for debentures owned by Capital V), and December 15, 2008 (for debentures owned by Capital VI); and, (ii) in whole at any time within 90 days after and during the continuation of a GLYPH<210>tax event,GLYPH<211> GLYPH<210>investment company eventGLYPH<211> or a GLYPH<210>capital treatment eventGLYPH<211> (as deGLYPH<222>ned in the applicable offering circular). If the debentures purchased by Capital A or Capital B are redeemed before they mature, the redemption price will be the principal amount, plus a premium, plus any accrued but unpaid interest. If the debentures purchased by Capital I, Capital V or Capital VI are redeemed before  they mature, the redemption price will be the principal amount, plus any accrued but unpaid interest. If the debentures purchased by Capital II or Capital III are redeemed before they mature, the redemption price will be the greater of: (a) the principal amount, plus any accrued but unpaid interest or (b) the sum of the present values of principal and interest payments discounted  at the Treasury Rate (as deGLYPH<222>ned in the applicable offering circular), plus 20 basis points (25 basis points for Capital III), plus any accrued but unpaid interest. When debentures are redeemed  in response to tax or capital treatment events, the redemption price generally is slightly more favorable to Key. c The interest rates for Capital A, Capital B, Capital II, Capital III, Capital V and Capital VI are GLYPH<222>xed. Capital I has a GLYPH<223>oating interest rate equal to three-month LIBOR plus 74 basis points;  it reprices quarterly. The rates shown as the total at December 31, 2003 and 2002, are weighted-average rates. 14. SHAREHOLDERSGLYPH<213> EQUITY SHAREHOLDER RIGHTS PLAN $82.50 — for each KeyCorp common share owned. All of the Rights expire on May 14, 2007, but KeyCorp may redeem Rights earlier for $.005 apiece, subject to certain limitations. KeyCorp has a shareholder rights plan, which was adopted in 1989 and subsequently amended. Under the plan, each shareholder received one Right — representing the right to purchase a common share for NEXT PAGE BACK TO CONTENTS SEARCH PREVIOUS PAGE 70