Preliminary Prospectus Supplement
(To Prospectus Dated January 31, 1996)
J.P. Morgan & Co. Incorporated
[$100,000,000]
[ ]% Exchangeable Notes Due , 2003
(Exchangeable for Basket of Consumer Stocks)
Issue Price: 100%
The [ ]% Exchangeable Notes Due [ ], 2003 (the "Notes"), are being
offered by J.P. Morgan & Co. Incorporated, a Delaware corporation ("J.P.
Morgan"). The Notes will mature on [ ], 2003. Interest on the Notes, at
the rate of [ ] of the principal amount per annum, is payable
semi-annually on [ ] and [ ], commencing [ ], 1996, unless previously
redeemed or exchanged. Notes are not subject to any sinking fund prior
to maturity.
Each Note will be exchangeable at the option of the holder following May
[ ], 1996, and on or prior to maturity, unless previously redeemed, for
the the value (the "Basket Value") of a basket (a "Basket of Consumer
Stocks") consisting of a fixed number of shares of certain stocks (the
"Consumer Basket Stocks") as specified below under "Consumer Basket
Stocks" (the "Basket Value"), at an exchange rate of [ ] Baskets of
Consumer Stocks per $1,000 principal amount of Notes. The Basket Value
as of the date of this Prospectus Supplement is [approximately $100.00].
The number of shares of each Basket Stock comprising a Basket of
Consumer Stocks (collectively, the "Basket Composition"; and with
respect to each Consumer Basket Stock, the "Basket Composition Amount")
will be subject to adjustment upon the occurrence of certain events
affecting the Consumer Basket Stocks.
The Notes are not redeemable by J.P. Morgan prior to [ ], 1999. On and
after that date, the Notes are redeemable in cash at the option of J.P.
Morgan, in whole or in part, at the full principal amount, together with
accrued interest to the date fixed for redemption.
The Notes will be represented by Global Securities registered in the
name of the nominee of The Depository Trust Company, which will act as
the Depository. Interests in the Notes represented by Global Securities
will be shown on, and transfers thereof will be effected only through,
records maintained by the Depository and its direct and indirect
participants. Except as described herein, Notes in definitive form will
not be issued. Settlement for the Notes will be made in immediately
available funds. The Notes will trade in the Depository's Same-Day Funds
Settlement System and secondary market trading activity for the Notes
will therefore settle in immediately available funds. All payments of
principal and interest will be made by J.P. Morgan in immediately
available funds or the equivalent.
For a discussion of certain United States federal income tax
consequences for holders of Notes, see "Certain United States Federal
Income Tax Considerations."
J.P. Morgan is not affiliated with any issuer of a Consumer Basket Stock
(each, a "Consumer Basket Company") and no Consumer Basket Company has
any obligations with respect to the Notes. See "Risk Factors--No
Affiliation Between J.P. Morgan and Consumer Basket Companies."
The Notes will not be listed on any stock exchange.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED UNDER "RISK FACTORS".
THESE SECURITIES ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER
OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER FEDERAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to
Public (1) Compensation J.P. Morgan (1)
Per Notes........... 100.00% 0.2000% 99.8000%
Total............... $ $ $
- -----------------------------------------------------------------------
(1) Plus accrued interest, if any, from [ ], 1996 to the date of
delivery.
The Notes are offered subject to receipt and acceptance by the
Underwriter, to prior sales and to the Underwriter's right to reject any
order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the Notes will be made
at the office of J.P. Morgan & Co. Incorporated, 60 Wall Street, New
York, New York, or through the facilities of The Depository Trust
Company, on or about [ ], 1996.
J.P. Morgan & Co.
[ ] , 1996
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
NOTES AND THE CONSUMER BASKET STOCKS AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED
ON THE NYSE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Incorporation of Certain Documents by Reference
J.P. Morgan hereby incorporates by reference in this Prospectus
Supplement J.P. Morgan's Annual Report on Form 10-K for the year ended
December 31, 1994 (included in its Annual Report to Stockholders), J.P.
Morgan's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1995, June 30, 1995 and September 30, 1995, and J.P. Morgan's Reports on
Form 8-K dated January 12, 1995, February 14, 1995, February 27, 1995,
April 13, 1995, May 23, 1995, June 21, 1995, July 13, 1995, July 18,
1995, October 12, 1995, December 13, 1995, December 14, 1995, January
11, 1996, February 6, 1996, and February 23, 1996, heretofore filed
pursuant to Section 13 of the 1934 Act.
In addition, all reports and definitive proxy or information statements
filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Notes shall be deemed to be
incorporated by reference into this Prospectus Supplement and to be a
part hereof from the date of filing of such documents. Any statement
contained herein or 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 Supplement to the extent that
a statement contained herein or in any 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 Supplement.
J.P. Morgan will provide without charge to each person, including any
beneficial owner, to whom this Prospectus Supplement is delivered, on
the written or oral request of any such person, a copy of any or all of
the foregoing documents incorporated herein by reference (other than
exhibits to such documents). Written requests should be directed to the
Office of the Secretary, J.P. Morgan & Co. Incorporated, 60 Wall Street,
New York, New York 10260-0060. Telephone requests may be directed to
(212) 648-1440.
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Risk Factors
As described in more detail below, the trading price of the Notes may
vary considerably prior to maturity (including by acceleration or
otherwise, "Maturity") due to, among other things, fluctuations in the
price of each Consumer Basket Stock and other events that are difficult
to predict and beyond J.P. Morgan's control.
No Affiliation Between J.P. Morgan and Consumer Basket Companies
J.P. Morgan is not affiliated with any Consumer Basket Company and,
although J.P. Morgan has no knowledge of any event that would have a
material adverse effect on any Consumer Basket Company or on the price
of any Consumer Basket Stock, such events are beyond J.P. Morgan's
ability to control and are difficult to predict.
No Consumer Basket Company has any obligations with respect to the
Notes, including any obligation to take the needs of J.P. Morgan or of
holders of the Notes into consideration for any reason. No Consumer
Basket Company will receive any of the proceeds of the offering of the
Notes made hereby and no such company is responsible for, or has
participated in, the determination or calculation of the Basket
Composition. No Consumer Basket Company is involved with the
administration or trading of the Notes or has any obligations with
respect to the Consumer Basket Stocks receivable by holders upon any
exchange of Notes for a Basket of Consumer Stocks.
Possible Illiquidity of the Secondary Market
It is not possible to predict how the Notes will trade in the secondary
market or whether such market will be liquid or illiquid. The Notes are
novel and innovative securities and there is currently no secondary
market for the Notes. The Underwriter currently intends, but is not
obligated, to make a market in the Notes. There can be no assurance that
a secondary market will develop or, if a secondary market does develop,
that it will provide the holders of the Notes with liquidity of
investment or that it will continue for the life of the Notes.
The Notes will not be listed or traded on any securities exchange or
trading market. Thus, pricing information for the Notes may be more
difficult to obtain and the liquidity of the Notes may be less than if
the Notes were listed or traded on a securities exchange or trading
market.
The Calculation Agent
Because the Calculation Agent is an affiliate of J.P. Morgan, potential
conflicts of interest may exist between the Calculation Agent and the
holders of the Notes, including with respect to the determination of the
existence of a Market Disruption Event during any Determination Period.
See "Exchange Rights" and "The Calculation Agent".
Use of Proceeds
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A portion of the proceeds to be received by J.P. Morgan from the sale of
the Notes may be used by J.P. Morgan or one or more of its subsidiaries
to acquire Consumer Basket Stocks, instruments convertible into Consumer
Basket Stocks or listed or over-the-counter options contracts in, or
other derivative or synthetic instruments related to, Consumer Basket
Stocks. The balance of such proceeds will be used for general corporate
purposes. From time to time after the initial offering and prior to the
maturity of the Notes, depending on market conditions (including the
market price of Consumer Basket Stocks), in connection with hedging with
respect to the Notes, J.P. Morgan expects that it or one or more of its
subsidiaries will increase or decrease their initial hedging positions
using dynamic hedging techniques and may take long or short positions in
Consumer Basket Stocks, in listed or over- the-counter options contracts
in, or other derivative or synthetic instruments related to, Consumer
Basket Stocks. In addition, J.P. Morgan or one or more of its
subsidiaries may purchase or otherwise acquire a long or short position
in the Notes from time to time and may, in its sole discretion, hold or
resell such Notes. J.P. Morgan or one or more of its subsidiaries may
also take positions in other types of appropriate financial instruments
that may become available in the future. To the extent that J.P. Morgan
or one or more of its subsidiaries have a long hedge position in any
Consumer Basket Stocks or options contracts in, or other derivative or
synthetic instruments related to any Consumer Basket Stocks, J.P. Morgan
or one or more of its subsidiaries may liquidate a portion of their
holdings at or about the time of the maturity of the Notes. Depending,
among other things, upon future market conditions, the aggregate amount
and the composition of such positions are likely to vary over time.
J.P. Morgan & Co. Incorporated
J.P. Morgan, whose origins date to a merchant banking firm founded in
London in 1838, is the holding company for a group of global
subsidiaries that provide a wide range of financial services to
corporations, governments, financial institutions, institutional
investors, professional firms, privately held companies, nonprofit
organizations, and financially sophisticated individuals. J.P. Morgan's
activities are summarized in the accompanying Prospectus.
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Consumer Basket Stocks
Following are the Consumer Basket Stocks comprising a Basket of Consumer
Stocks, indicating (by percentages and by number of shares) the
proportion of each comprising the initial Basket Composition:
===========================================================================
Initial Basket Initial Basket
Composition Composition
Consumer Basket Company Amount Percentage
- ---------------------------------------------------------------------------
Archer Daniels Midland Co. Common 0.126667 [2.296]
Stock
ConAgra Inc. Common Stock 0.059993 [2.535]
Campbell Soup Co. Common Stock 0.060620 [3.865]
CPC Intl. Inc. Common 0.035464 [2.465]
General Mills Inc. Common Stock 0.038714 [2.289]
H.J. Heinz Co. Common Stock 0.089946 [3.103]
Hershey Foods Corp. Common Stock 0.018836 [1.439]
Kellogg Co. Common Stock 0.052904 [4.100]
Quaker Oats Co. Common Stock 0.032680 [1.115]
Ralston Purina Co. Ral-Pur GP 0.025781 [1.737]
Sara Lee Corp. Common Stock 0.117778 [3.901]
Wm Wrigley Jr. Co. Common Stock 0.028262 [1.727]
Colgate Palmolive Common Stock 0.035423 [2.838]
Clorox Co. Del. Common Stock 0.012631 [1.080]
Kimberly Clark Corp. Common Stock 0.067919 [5.315]
Procter & Gamble Corp. Common Stock 0.167018 [14.238]
Coca Cola Co. Common Stock 0.305210 [25.180]
Pepsico Inc. Common Stock 0.191717 [12.078]
Alberto Culver Co. Class B Convertible 0.006759 [0.263]
Stock
Avon Products Inc. Common Stock 0.016513 [1.424]
Gillette Co. Common Stock 0.107975 [5.655]
International Flavors and Fragrances 0.027000 [1.357]
Common Stock
According to publicly available documents, each Consumer Basket Company
is subject to the informational requirements of the Exchange Act.
Accordingly, each Consumer Basket Company files reports, proxy
statements and other information with the Securities and Exchange
Commission (the "Commission"). Copies of such registration statements,
reports, proxy statements and other information may be inspected and
copied at certain offices of the Commission.
This Prospectus Supplement relates only to the Notes offered hereby and
does not relate to any Consumer Basket Stock. All disclosures contained
in this Prospectus Supplement regarding Consumer Basket Companies are
derived from the publicly available documents described in the preceding
paragraph. J.P. Morgan has not participated in the preparation of such
documents and has not made any due diligence inquiry with
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respect to the information provided therein. There can be no assurance
that all events occurring prior to the date hereof (including events
that would affect the accuracy or completeness of the publicly available
documents described in the preceding paragraph) that would affect the
trading price of any Consumer Basket Stock have been publicly disclosed.
J.P. Morgan or one or more affiliates may presently be engaged or may
from time to time engage in business with any Consumer Basket Company,
including extending loans to or making equity investments in Consumer
Basket Companies or providing advisory services (such as merger and
acquisition advisory services) to Consumer Basket Companies. In the
course of such actions, J.P. Morgan or such affiliates may acquire
non-public information with respect to Consumer Basket Companies.
Additionally, J.P. Morgan or its affiliates may publish research reports
with respect to Consumer Basket Companies. However, J.P. Morgan does not
make any representation to any purchaser of Notes with respect to any
matters whatsoever relating to any Consumer Basket Companies. Any
prospective purchaser of Notes should undertake an independent
investigation of the Consumer Basket Companies to make an informed
decision with respect to a potential investment in Consumer Basket
Stocks.
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Price Range and Dividend History of Consumer Basket Stocks
The following table sets forth, for the periods indicated, the high and
low bid and offer prices of each Consumer Basket Stock as reported on
the NYSE Composite Tape and cash dividends per share of each Consumer
Basket Stock:
ARCHER DANIELS MIDLAND CO COMMON STOCK
Trading Symbol--ADM
Trading Price
High Low Dividend
1992 17 31/32 12 17/64 0.05553
1993 16 45/64 12 43/64 0.05832
1994 20 1/8 13 17/32 1.56123
1995 20 14 9/32 0.12143
1996 19 5/8 16 3/4 0.05000
CONAGRA INC. COMMON STOCK
Trading Symbol--CAG
Trading Price
High Low Dividends
1992 35 3/4 24 1/2 0.056000
1993 33 5/8 22 3/4 0.645000
1994 33 1/8 25 1/2 0.747500
1995 41 3/4 29 3/4 0.860000
1996 47 1/8 41 3/8 0.23750
CAMPBELL SOUP CO. COMMON STOCK
Trading Symbol--CPB
Trading Price
High Low Dividends
1992 45 1/4 31 1/2 No dividends
1993 45 3/8 35 1/4 available
1994 46 34 1/4 in
1995 61 1/4 41 date
1996 67 3/8 58 range.
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CPC INTL. INC. COMMON STOCK
Trading Symbol--CPC
Trading Price
High Low Dividends
1992 51 5/8 39 3/4 1.20000
1993 51 1/8 39 7/8 1.38000
1994 55 5/8 44 1/4 1.38000
1995 74 1/2 51 5/8 1.10000
1996 75 1/2 67 5/8 0.38000
GENERAL MILLS INC. COMMON STOCK
Trading Symbol--GIS
Trading Price
High Low Dividends
1992 75 7/8 58 3/4 1.78000
1993 74 1/8 56 7/8 1.78000
1994 62 1/4 49 3/8 1.41000
1995 64 5/8 49 3/4 13.2550
1996 60 1/2 52 7/8 0.97000
H.J. HEINZ CO. COMMON STOCK
Trading Symbol--HNZ
Trading Price
High Low Dividends
1992 30 21/64 23 27/64 0.76000
1993 30 11/64 22 3/4 0.84000
1994 26 20 1/2 0.92000
1995 34 7/8 24 1/4 1.03000
1996 36 5/8 32 1/4 0.26500
HERSHEY FOODS CORP. COMMON STOCK
Trading Symbol--HSY
Trading Price
High Low Dividends
1992 48 3/8 38 1/4 1.03000
1993 55 7/8 43 1/2 1.14000
1994 53 1/2 41 1/8 1.25000
1995 67 7/8 48 1.37000
1996 81 1/4 63 7/8 0.36000
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KELLOGG CO
Trading Symbol--K
Trading Price
High Low Dividends
1992 75 3/8 54 3/8 1.20000
1993 67 7/8 47 1/4 1.32000
1994 60 3/4 47 3/8 1.40000
1995 79 1/2 52 1/2 1.50000
1996 80 5/8 72 1/2 0.39000
QUAKER OATS CO. COMMON STOCK
Trading Symbol--OAT
Trading Price
High Low Dividends
1992 37 3/16 25 1/8 0.91000
1993 38 1/2 30 3/16 1.01000
1994 42 1/2 29 11/16 1.10000
1995 37 1/2 30 3/8 1.14000
1996 35 7/8 32 3/4 0.28500
RALSTON PURINA CO. RAL-PUR GP
Trading Symbol--RAL
Trading Price
High Low Dividends
1992 58 7/8 40 7/8 1.20000
1993 52 1/8 33 1/2 2.75700
1994 46 3/8 33 1/2 6.53300
1995 67 43 1/2 1.20000
1996 68 1/4 57 7/8 0.30000
SARA LEE CORP. COMMON STOCK
Trading Symbol--SLE
Trading Price
High Low Dividends
1992 32 7/16 23 5/16 0.44750
1993 31 1/8 21 0.59500
1994 26 19 3/8 0.65000
1995 33 3/4 24 1/4 0.70000
1996 35 1/2 29 7/8 0.19000
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WM WRIGLEY JR. CO. COMMON STOCK
Trading Symbol--WWY
Trading Price
High Low Dividends
1992 39 7/8 22 1/8 0.61999
1993 46 1/8 29 1/2 0.75000
1994 53 7/8 38 1/8 0.90000
1995 54 42 7/8 0.96000
1996 62 7/8 52 1/4 0.34000
COLGATE PALMOLIVE CO. COMMON STOCK
Trading Symbol--CL
Trading Price
High Low Dividends
1992 60 5/8 45 1/8 1.15000
1993 67 1/4 46 3/4 1.34000
1994 65 3/8 49 1/2 1.18000
1995 77 3/8 58 1.76000
1996 84 8 7/8 0.47000
CLOROX CO. DEL. COMMON STOCK
Trading Symbol--CLX
Trading Price
High Low Dividends
1992 52 39 1/2 0.165000
1993 55 3/8 44 0.177000
1994 59 1/2 47 0.186000
1995 79 1/4 55 1/4 0.202000
1996 89 3/8 70 0.530000
KIMBERLY CLARK CORP. COMMON STOCK
Trading Symbol--KMB
Trading Price
High Low Dividends
1992 63 1/4 46 1/4 1.64000
1993 62 44 5/8 1.72000
1994 60 47 1.76000
1995 83 47 1/4 9.47500
1996 83 75 1/8 0 .46000
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PROCTER & GAMBLE CORP. COMMON STOCK
Trading Symbol--PG
Trading Price
High Low Dividends
1992 55 3/4 45 1/8 1.07500
1993 58 7/8 45 1/4 1.16000
1994 64 5/8 51 1/4 1.42000
1995 89 1/2 60 5/8 1.50000
1996 90 5/8 81 1/8 0.40000
COCA COLA CO. COMMON STOCK
Trading Symbol--KO
Trading Price
High Low Dividends
1992 45 3/8 35 9/16 0.56000
1993 45 1/8 37 1/2 0.68000
1994 53 1/2 38 7/8 0.78000
1995 80 3/8 48 3/4 0.88000
1996 84 3/8 72 1/8
PEPSICO INC. COMMON STOCK
Trading Symbol--PEP
Trading Price
High Low Dividends
1992 43 3/8 30 1/2 0.51000
1993 43 5/8 34 1/2 0.61000
1994 41 1/8 29 1/4 0.70000
1995 58 3/4 33 7/8 0.78000
1996 66 7/8 54 1/2 0.20000
ALBERTO CULVER CO. CLASS B CONVERTIBLE STOCK
Trading Symbol--ACV
Trading Price
High Low Dividends
1992 32 21 1/4 0.26000
1993 28 1/4 20 1/8 0.26000
1994 27 3/8 19 3/8 0.28000
1995 36 1/2 25 7/8 0.32000
1996 39 3/8 32 1/2 0.09000
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AVON PRODUCTS INC. COMMON STOCK
Trading Symbol--AVP
Trading Price
High Low Dividends
1992 60 1/4 44 1.50000
1993 64 3/8 47 5/8 1.70000
1994 63 5/8 48 3/8 1.90000
1995 78 3/8 54 2.10000
1996 88 5/8 72 5/8 0.58000
GILLETTE CO. COMMON STOCK
Trading Symbol--G
Trading Price
High Low Dividends
1992 30 5/8 21 15/16 0.34750
1993 31 7/8 23 11/16 0.40000
1994 38 1/4 28 7/8 0.48000
1995 55 3/8 35 3/8 2.575000
1996 57 7/8 50 0.150000
INTERNATIONAL FLAVORS AND FRAGRANCES
COMMON STOCK
Trading Symbol--IFF
Trading Price
High Low Dividends
1992 38 3/4 31 1/2 0.88001
1993 39 53/64 33 1.02000
1994 47 7/8 35 5/8 1.12000
1995 55 7/8 45 1/8 1.27000
1996 51 7/8 47 1/8
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J.P. Morgan makes no representation as to the amount of dividends, if
any, that any Consumer Basket Company will pay with respect to any
Consumer Basket Stock in the future. In any event, holders of Notes will
not be entitled to receive any dividends that may be payable on any
Consumer Basket Stock. See "Description of Notes."
Although historical data with respect to the Consumer Basket Stocks is
included in these offering materials, investors should understand that
historical performance should not be taken as an indication of future
performance, and no assurance can be given, and none is intended to be
given, that the future performance of the Consumer Basket Stocks will
reflect past performance.
HOLDERS OF NOTES WILL HAVE NO RIGHT TO RECEIVE THE CONSUMER BASKET
STOCKS.
Description of Notes
The following description of the particular terms of the Notes
supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of Debt Securities set
forth in the Prospectus, to which description reference is hereby made.
General
The Notes are a single series of Debt Securities (as defined in the
Prospectus), to be issued under an indenture dated as of August 15, 1982
and all indentures supplemental thereto, including the First
Supplemental Indenture dated as of May 5, 1986 and the Second
Supplemental Indenture dated as of February 27, 1996 (collectively
referred to as the "Indenture"), between J.P. Morgan and First Trust of
New York, National Association, successor to Chemical Bank (formerly
Manufacturers Hanover Trust Company), as trustee (the "Trustee").
The Notes will be unsecured and will rank on a parity with all other
unsecured and unsubordinated indebtedness of J.P. Morgan. The Notes will
be limited to [$100,000,000] aggregate principal amount. The Notes will
mature on [ ], 2003. In the future J.P. Morgan may issue additional Debt
Securities or other securities with terms similar to those of the Notes.
Each Note will bear interest at the rate of [ ]% of the principal amount
per annum from [ ], 1996. Interest on the Notes will be payable
semi-annually in arrears on each [ ], and [ ], commencing [ ], 1996
(each, an "Interest Payment Date"), to the persons in whose names the
Notes are registered at the close of business on the [last] day of the
calendar month immediately preceding such Interest Payment Date;
provided that accrued and unpaid interest from the Interest Payment Date
preceding any Redemption Date (as defined below) shall be payable on
such Redemption Date to any holder of record on the [ ] day prior to
such Redemption Date who following provision of notice from J.P. Morgan
regarding such redemption but prior to such Redemption Date exchanges
Notes called for redemption on such date; provided further, that
interest payable at maturity shall be payable to the person to whom the
principal is payable on such date. Interest on the Notes will be
computed on the basis of a 360-day year of twelve 30-day months. If an
Interest Payment Date falls on a day that is not a Business Day (as
defined below), the interest payment to be made on such
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Interest Payment Date will be made on the next succeeding Business Day
with the same force and effect as if made on such Interest Payment Date,
and no additional interest will accrue as a result of such delayed
payment.
The principal amount of each Note is payable at Maturity (including as a
result of acceleration or otherwise). Interest on and principal of the
Notes will be payable at the office of the Trustee. The Notes will be
issued only in fully registered form in denominations of $1,000 of
principal amount or an integral multiple thereof. Notes may be presented
for exchange and for registration of transfer at the office of the
Trustee. See "Book Entry System" below.
The Notes will be transferable at any time or from time to time at the
aforementioned office. No service charge will be made to the holder for
any such transfer except for any tax or governmental charge incidental
thereto.
Redemption
No sinking fund is provided for the Notes. The Notes are not redeemable
prior to [ ], 1999. On and after that date, the Notes are redeemable in
cash at the option of J.P. Morgan, in whole or in part, for the full
principal amount thereof together with accrued interest to the date
fixed for redemption (the "Redemption Date"); provided that, if the
Redemption Date is an Interest Payment Date, interest accrued to the
Redemption Date will be payable to the person to whom the relevant Note
was registered on the [ ] day prior to such Interest Payment Date. If
fewer than all of the outstanding Notes are to be redeemed, the Trustee
shall select the Notes to be redeemed in principal amounts at maturity
by lot or pro rata in such manner as the Trustee considers fair and
appropriate, in each case in integral multiples of $1,000. If a portion
of a holder's Note is selected for partial redemption and such holder
exchanges a portion of such Note prior to such redemption, such
exchanged portion shall be deemed (to the extent possible) to be the
portion selected for redemption.
J.P. Morgan will be required to give notice (the "Redemption Notice") on
a date not less than 30 calendar days nor more than 60 calendar days
prior to the Redemption Date to all holders of Notes to be redeemed at
their addresses shown in the register of the Trustee stating, among
other things, the Redemption Date, the Redemption Price and the
principal amount of the Notes of such holder to be redeemed.
Payment of the principal amount upon redemption of all or a portion of a
Note is conditioned upon delivery or book-entry transfer of such portion
of such Note (together with necessary endorsements) to the Trustee at any
time (whether prior to, on or after the Redemption Date) after the
Redemption Notice is given. See "Book-Entry Issuance: The Depository
Trust Company" below. Payment of the principal amount upon redemption of
such portion of such Note will be made by the delivery of cash not later
than the second Business Day following the later of the Redemption Date
or the time of delivery or transfer of such portion of such Note. If the
Trustee holds, in accordance with the terms of the Indenture, money
sufficient to pay the principal amount to be redeemed of such Note on the
Business Day following a Redemption Date, then, immediately after such
Redemption Date, such portion of such Note will cease to be outstanding
and interest on such portion of such Note will cease to accrue, whether
or not such portion of such Note is delivered to the Trustee, and all
other rights of the holder with respect to such portion of such Note,
including the holder's right to exchange such portion of such Note for
Exchange Property, shall terminate and lapse (other than the
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right to receive payment of the principal amount redeemed and accrued
interest, if applicable upon delivery of such portion of such Note).
Exchange Rights
A holder of a Note may exchange it in whole or in part at any time after
May [ ], 1996, and before the close of business on [ ], 2003; provided
that if all or a portion of any Note is called for redemption, the
holder thereof may exchange such portion only until the close of
business on the Redemption Date. A holder may exchange a portion of such
holder's Note so long as such portion is in a principal amount of $1,000
or an integral multiple thereof.
Upon presentation of all or a portion of a Note for exchange in
accordance with its terms, the holder will be entitled to receive the
Basket Value for the Determination Period of [ ] Baskets of Consumer
Stocks per $1,000 principal amount of the Notes. The Basket Value shall
be determined as the sum of the average for the Determination Period for
each Consumer Basket Stock of the product of (i) the Closing Price for
each Determination Day of such Consumer Basket Stock multiplied by (ii)
the then-applicable Basket Composition Amount of such Consumer Basket
Stock.
"Determination Period" shall mean (i) with respect to any Optional
Exchange Date, the 5 Determination Days ending on the second Trading Day
preceding such Optional Exchange Date or (ii) with respect to any other
Exchange Date, the 10 Determination Days ending on the second Trading
Day preceding such Exchange Date.
The "Closing Price" of any security on any date of determination means
the closing sale price (or, if no closing price is reported, the last
reported sale price) of such security on the New York Stock Exchange on
such date or, if such security is not listed for trading on the New York
Stock Exchange on any such date, as reported in the composite
transactions for the principal United States securities exchange on
which such security is so listed, or if such security is not listed on a
United States national or regional securities exchange, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation
System, or if such security is not so reported, the last quoted bid
price for such security in the over-the- counter market as reported by
the National Quotation Bureau or similar organization, or if such bid
price is not available, the market value of such security as determined
by a nationally recognized independent investment banking firm retained
for such purpose by J.P. Morgan.
A "Determination Day" with respect to any Consumer Basket Stock is any
Trading Day during the Determination Period on which no Market
Disruption Event has occurred, except that if, as of any Trading Day
within the Determination Period ending on the second Trading Day prior
to Maturity (the "Final Determination Period"), the number of
Determination Days remaining in the Final Determination Period equals
the number of scheduled Trading Days prior to Maturity, then each
Trading Day remaining in such Determination Period shall be deemed to be
a Determination Day (whether or not a Market Disruption Event occurs);
provided that, if any scheduled Trading Day during the Final
Determination Period shall not be a Trading Day, the market price of
such stock shall be determined as of the earliest practicable time, or
if no market price can be determined prior to the end of the Final
Determination Period, the Closing Price for any such Trading Day shall
equal zero. A "Trading Day" shall be any day on which trading occurs on
the New York Stock Exchange.
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A "Market Disruption Event" shall mean, with respect to any Consumer
Basket Stock on any Determination Day, (i) the suspension, absence or
material limitation of trading of such Consumer Basket Stock on the
primary market therefor during the one-half hour period preceding the
close of trading in such market or the suspension or material limitation
on the primary market for trading in options contracts related to such
Consumer Basket Stock, if available, during the one-half hour period
preceding the close of trading in the applicable market, in each case as
determined by the Calculation Agent in its sole discretion; and (ii) a
determination by the Calculation Agent in its sole discretion that the
event described in clause (i) materially interfered with the ability of
J.P. Morgan or any of its affiliates to unwind all or a material portion
of the hedge with respect to the Notes. For purposes of determining
whether a Market Disruption Event has occurred, a limitation on the
hours or number of days of trading will not constitute a Market
Disruption Event if it results from an announced change in the regular
business hours of the relevant exchange.
To exchange a Note in whole or in part for the applicable Basket Value,
a holder must (i) complete and manually sign the exchange notice on the
back of the Note (or complete and manually sign a facsimile thereof) and
deliver such notice to the Trustee, (ii) surrender or arrange for
book-entry transfer of the portion of the Note to be exchanged to the
Trustee, (iii) if required, furnish appropriate endorsements and
transfer documents, and (iv) if required, pay all transfer and similar
taxes. The date on which all of the foregoing requirements have been
satisfied is the "Exchange Notice Date". The date 7 Trading Days
(subject to extension in the case of a Market Disruption Event)
following the Exchange Notice Date is an "Optional Exchange Date";
provided, however, that if such Exchange Notice Date occurs following a
call for redemption by J.P. Morgan or within [30 calendar days] of
Maturity, such date shall be an "Exchange Date" (which term shall also
include any Optional Exchange Date) and such Exchange Date shall occur
on the applicable Redemption Date or at Maturity, as the case may be.
J.P. Morgan shall pay the Basket Value no later than the relevant
Exchange Date.
Exchange Property
The Exchange Property comprising one Basket of Consumer Stocks consists
of (i) the Basket Composition Amount of each Consumer Basket Stock, (ii)
any property (other than cash dividends and other cash distributions
paid by the issuer thereof that do not constitute Extraordinary Cash
Dividends and other than interest, if any, paid in respect thereof)
distributed in respect of the Basket Composition Amount of each Consumer
Basket Stock or other Exchange Property and (iii) any property issued or
distributed upon the exchange or conversion of the Basket Composition
Amount of each Consumer Basket Stock or other Exchange Property,
including upon any reorganization, consolidation or merger or any sale
or transfer or lease of all or substantially all the assets of the
issuer of such Exchange Property; provided that Exchange Property shall
not include any property distributed in respect of other Exchange
Property for which an antidilution adjustment to the Basket Composition
Amount has been made pursuant to the Indenture. In the case of a tender
or exchange offer for all or a part of the Exchange Property of a
particular type, the Exchange Property shall include all cash or other
property actually received in the tender or exchange offer upon the
consummation thereof. Any Exchange Property actually exchanged or
converted as referred to in clause (iii) above or actually tendered or
exchanged as described in the immediately preceding sentence shall cease
to be Exchange Property upon consummation of the transaction
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in which new Exchange Property is issued or distributed in substitution,
exchange or payment therefor. As used herein, an "Extraordinary Cash
Dividend" means, with respect to any one- year period, all cash
dividends on the Exchange Property during such period to the extent such
dividends exceed on a per share basis 15% of the average price of the
Exchange Property over the 10 Trading Days immediately prior to the date
of such payment (less any such dividends for which an adjustment to the
applicable Basket Composition Amount was previously made).
Dilution Adjustments
The Basket Composition Amount with respect to each Consumer Basket Stock
is subject to adjustment (and the Exchange Property is subject to
replacement) if the applicable Consumer Basket Company shall (i) pay a
stock dividend or make a distribution with respect to such Consumer
Basket Stock in shares of such stock, (ii) subdivide or split its
outstanding shares of such Consumer Basket Stock, (iii) combine its
outstanding shares of such Consumer Basket Stock into a smaller number
of shares, (iv) issue by reclassification of its shares of such Consumer
Basket Stock any shares of common stock of such Consumer Basket Company,
(v) issue rights or warrants to all holders of such Consumer Basket
Stock entitling them to subscribe for or purchase shares of such
Consumer Basket Stock at a price per share less than the market price at
such time of such Consumer Basket Stock (other than rights to purchase
such Consumer Basket Stock pursuant to a plan for the reinvestment of
dividends or interest) or (vi) pay a dividend or make a distribution to
all holders of such Consumer Basket Stock of evidences of its
indebtedness or other assets (excluding any dividends or distributions
referred to in clause (i) above and any cash dividends other than any
Extraordinary Cash Dividends) or issue to all holders of such Consumer
Basket Stock rights or warrants to subscribe for or purchase any of its
securities (other than those referred to in clause (v) above). In the
case of the events referred to in clauses (i), (ii), (iii) and (iv)
above, the Basket Composition Amount of such Consumer Basket Stock in
effect immediately prior to such event shall each be adjusted so that
the holder of any Note shall thereafter be entitled to receive, upon
exchange of $1,000 in principal amount of such Note, the Basket Value of
[ ] Baskets of Consumer Stocks including the number of shares of such
Consumer Basket Stock which such holder would have been entitled to
receive immediately following any such event had such $1,000 in
principal amount been exchanged immediately prior to such event or any
record date with respect thereto. In the case of the event referred to
in clause (v) above, the applicable Basket Composition Amount shall be
adjusted by multiplying the Basket Composition Amount in effect
immediately prior to the date of issuance of the rights or warrants
referred to in clause (v) above by a fraction, the numerator of which
shall be the sum of the number of shares of such Consumer Basket Stock
outstanding on the date of issuance of such rights or warrants
immediately prior to such issuance plus the number of additional shares
of such Consumer Basket Stock offered for subscription or purchase
pursuant to such rights or warrants, and the denominator of which shall
be the sum of the number of shares of such Common Basket Stock
outstanding on the date of issuance of such rights or warrants
immediately prior to such issuance plus the number of additional shares
of such Consumer Basket Stock which the aggregate offering price of the
total number of shares of such Consumer Basket Stock so offered for
subscription or purchase pursuant to such rights or warrants would
purchase at the market price (determined as the average Closing Price
per share of such Consumer Basket Stock on the [20] Trading Days
immediately prior to the date such rights or warrants are issued), which
shall be determined by multiplying such total number of shares by the
exercise price of each such right or warrant and dividing the product
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so obtained by such market price. To the extent that shares of such
Consumer Basket Stock are not delivered after the expiration of such
rights or warrants, the Basket Composition Amount shall be readjusted to
the Basket Composition Amount which would then be in effect had such
adjustments for the issuance of such rights or warrants been made upon
the basis of delivery of only the number of shares of such Consumer
Basket Stock actually delivered. In the case of the event referred to in
clause (vi) above, the applicable Basket Composition Amount shall be
adjusted by multiplying the Basket Composition Amount in effect on the
record date by a fraction, the numerator of which shall be the market
price per share of such Consumer Basket Stock on the record date for the
determination of stockholders entitled to receive the dividend or
distribution referred to in clause (vi) above (such market price being
the average Closing Price per share of such Consumer Basket Stock on the
[20] Trading Days immediately prior to such record date) and the
denominator of which shall be such market price per share of such
Consumer Basket Stock less the fair market value (as determined by J.P.
Morgan) as of such record date of the portion of the assets or evidences
of indebtedness so distributed or of such subscription rights or
warrants applicable to one share of such Consumer Basket Stock. All
adjustments to any Basket Composition Amount will be calculated to the
nearest 1/10,000th of a share of the applicable Consumer Basket Stock
(or if there is not a nearest 1/10,000th of a share, to the next lower
1/10,000th of a share). No adjustment in any Basket Composition Amount
shall be required unless such adjustment would require an increase or
decrease of at least one percent therein; provided, however, that any
adjustments which by reason of the foregoing are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment.
In the event of (A) any consolidation or merger of any Consumer Basket
Company, or any surviving entity or subsequent surviving entity of such
Consumer Basket Company (a "Consumer Basket Company Successor"), with or
into another entity (other than a merger or consolidation in which such
Consumer Basket Company is the continuing corporation and in which the
applicable Consumer Basket Stock outstanding immediately prior to the
merger or consolidation is not exchanged for cash, securities or other
property of such Consumer Basket Stock or another corporation), (B) any
sale, transfer, lease or conveyance to another corporation of the
property of such Consumer Basket Company or any Consumer Basket Company
Successor as an entirety or substantially as an entirety, (C) any
statutory exchange of securities of such Consumer Basket Company or any
Consumer Basket Company Successor with another corporation (other than
in connection with a merger or acquisition) or (D) any liquidation,
dissolution or winding up of such Consumer Basket Company or any
Consumer Basket Company Successor (any such event, a "Reorganization
Event"), the applicable Basket Composition Amount will be adjusted to
provide that each holder of Notes will be entitled to the Basket Value
of Exchange Property in an amount equal to (i) for any cash received in
any such Reorganization Event, the amount or cash received per the
Basket Composition Amount of such Consumer Basket Stock and (ii) for any
property other than cash received in any such Reorganization Event, the
amount of such property received per the Basket Composition Amount of
the applicable Consumer Basket Stock, determined in the case of clause
(ii) as the Closing Price thereof or, in the case of property other than
securities, as the fair market value thereof determined by the
Calculation Agent in good faith, which shall be conclusive absent
manifest error. Holders of the Notes will be responsible for the payment
of any and all brokerage and other transaction costs upon the sale of
such securities or other property. The kind and amount of Exchange
Property after consummation of such transaction shall be subject to
adjustment as described in the immediately preceding paragraph following
the date of consummation of such transaction.
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J.P. Morgan is required, within ten Business Days following the
occurrence of an event that requires an adjustment to the any Basket
Composition Amount (or if J.P. Morgan is not aware of such occurrence,
as soon as practicable after becoming so aware), to provide written
notice to the Trustee of the occurrence of such event and a statement in
reasonable detail setting forth the method by which the adjustment to
the applicable Basket Composition Amount was determined and setting
forth such revised Basket Composition Amount.
The Indenture does not contain any restriction on the ability of J.P.
Morgan to sell, pledge or otherwise convey all or any portion of the
Exchange Property (including any Consumer Basket Stock) held by it, and
no such Exchange Property will be pledged or otherwise held in escrow
for use upon exchange of the Notes. Consequently, in the event of a
bankruptcy, insolvency or liquidation of J.P. Morgan, the Exchange
Property, if any, owned by J.P. Morgan will be subject to the claims of
the creditors of J.P. Morgan. Holders of the Notes will not be entitled
to any rights with respect to any Consumer Basket Stock or any other
Exchange Property (including, without limitation, the exercise of voting
rights and any right to receive any dividends or other distributions in
respect thereof).
Calculation Agent
J.P. Morgan Securities Inc., a wholly-owned subsidiary of J.P. Morgan,
shall be the Calculation Agent. Because the Calculation Agent is an
affiliate of J.P. Morgan, potential conflicts of interest may exist
between the Calculation Agent and the holders of the Notes, including
with respect to the determination as to the existence of a Market
Disruption Event. The Calculation Agent will make any such
determinations in good faith, and such determinations shall be
conclusive absent manifest error.
Book-Entry Issuance: The Depository Trust Company
The Notes initially will be represented by one or more global securities
(the "Global Securities") deposited with The Depository Trust Company
("DTC") and registered in the name of a nominee of DTC. Except as set
forth below, the Notes will be available for purchase in denominations
of $1,000 and integral multiples thereof in book-entry form only. The
term "Depository" refers to DTC or any successor Depository.
DTC has advised J.P. Morgan and the Underwriter as follows: DTC is a
limited-purpose trust company organized under the New York Banking Law,
a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities of persons who have
accounts with the DTC ("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. DTC's participants include securities brokers
and dealers (including the Underwriter), banks, trust companies,
clearing corporations and certain other organizations, some of which
(and/or their representatives) own DTC. Access to the DTC'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.
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<PAGE>
Upon the issuance by J.P. Morgan of Notes represented by the Global
Securities, the Depository or its nominee will credit, on its book-entry
registration and transfer system, the respective principal amounts of
the Notes represented by such Global Securities to the accounts of
participants. The accounts to be credited shall be designated by the
Underwriter. Ownership of beneficial interests in the Notes represented
by the Global Securities will be limited to participants or persons that
hold interests through participants. Ownership of such beneficial
interest in Notes will be shown on, and the transfer of those ownership
interests will be effected only through, records maintained by the
Depository (with respect to interests of participants in the
Depository), or by participants in the Depository or persons that may
hold interests through such participants (with respect to persons other
than participants in the Depository). The laws of some states 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 transfer beneficial interests in notes represented by Global
Securities.
So long as the Depository for a Global Security, or its nominee, is the
registered owner of such Global Security, the Depository or its nominee,
as the case may be, will be considered the sole owner or holder of the
Notes represented by such Global Security for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in
Notes represented by Global Securities will not be entitled to have the
Notes represented by such Global Securities registered in their names,
will not receive or be entitled to receive physical delivery of the
Notes in definitive form and will not be considered the owners or
holders thereof under the Indenture. Unless and until the Global
Securities are exchanged in whole or in part for individual certificates
evidencing the Notes represented thereby, such Global Securities may not
be transferred except as a whole by the Depository or another nominee of
such Depository or by the Depository or any nominee of such Depository
to a successor Depository or any nominee of such successor Depository.
Payments of principal of and any interest on the Notes represented by
Global Securities registered in the name of the Depository or its
nominee will be made by J.P. Morgan through the Paying Agent to the
Depository or its nominee, as the case may be, as the registered owner
of the Notes represented by such Global Securities.
J.P. Morgan has been advised that the Depository or its nominee, upon
receipt of any payment of principal or interest in respect of the Notes
represented by Global Securities, will credit immediately the accounts
of the related participants with payments in amounts proportionate to
their respective beneficial interests in the Notes represented by the
Global Securities as shown on the records of the Depository. J.P. Morgan
also expects that payments by participants to owners of beneficial
interests in the Notes represented by the Global Securities 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". Such payments will be the
responsibility of such participants.
Redemption notices shall be sent by J.P. Morgan to the Depository or its
nominee. If less than all of the Notes are being redeemed, DTC's
practice is to determine by lot the amount of the interest of each
participant in such issue to be redeemed.
A beneficial owner shall give notice to elect to have its Notes
exchanged, through its participant, to the Trustee, and shall effect
delivery of such Notes by causing the participant to transfer a portion
of its interest in the Notes, on DTC's records, to the Trustee. The
requirement for physical delivery of Notes in connection with an
exchange, redemption or at
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maturity will be deemed satisfied when the ownership rights in the Notes
are transferred by participants on DTC's records.
If the Depository is at any time unwilling or unable to continue as
Depository and a successor Depository is not appointed by J.P. Morgan
within 90 days, J.P. Morgan will issue individual Notes in definitive
form in exchange for the Global Securities. In addition, J.P. Morgan may
at any time and in its sole discretion determine not to have Global
Securities and, in such event, will issue individual Notes in definitive
form, equal in aggregate principal amount to the Global Securities. In
either instance, J.P. Morgan will issue Notes in definitive form, equal
in aggregate principal amount to the Global Securities, in such names
and in such principal amounts as the Depository shall request. Notes so
issued in definitive form will be issued in denominations of $1,000 and
intergral multiples thereof and will be issued in registered form only,
without coupons.
Neither J.P. Morgan, the Trustee or any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Notes
represented by such Global Securities or for maintaining, supervision or
reviewing any records relating to such beneficial ownership interests.
Regarding the Trustee
J.P. Morgan and its subsidiaries have normal banking relationships with
the Trustee, First Trust of New York, National Association, 100 Wall
Street, Suite 1600, New York, New York 10005.
Certain United States Federal Income Tax Considerations
The following is a summary of certain U.S. federal income tax
consequences that may be relevant to a citizen or resident of the United
States, a corporation, partnership or other entity created or organized
under the laws of the United States, or an estate or trust the income of
which is subject to U.S. federal income taxation regardless of its
source (any of the foregoing, a "U.S. person") who is the beneficial
owner of a Note (a "U.S. Holder"). All references to "holders"
(including U.S. Holders) are to beneficial owners of the Notes. This
summary is based on current U.S. federal income tax law and on the
advice of Cravath, Swaine & Moore, special tax counsel to J.P. Morgan.
However, in the absence of clear authority (as discussed below), neither
J.P. Morgan nor Cravath, Swaine & Moore makes any representation as to
the U.S. federal income tax consequences to any holder or purchaser of
Notes.
This summary deals only with holders who are initial holders of the
Notes and who will hold the Notes as capital assets. It does not address
tax considerations applicable to investors that may be subject to
special U.S. federal income tax treatment, such as dealers in securities
or persons holding the Notes as a position in a "straddle" (within the
meaning in Section 1092 of the Internal Revenue Code of 1986, as amended
(the "Code")), as part of a "conversion transaction" (within the meaning
of Section 1258 of the Code) or as part of a "synthetic security" or
other integrated investment, and does not address the consequences under
state, local or foreign law.
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No statutory, judicial or administrative authority directly addresses
the characterization of the Notes or instruments similar to the Notes
for U.S. federal income tax purposes. As a result, significant aspects
of the U.S. federal income tax consequences of an investment in the
Notes are not certain. No ruling is being requested from the Internal
Revenue Service (the "IRS") with respect to the Notes and no assurance
can be given that the IRS will agree with the conclusions expressed
herein. ACCORDINGLY, A PROSPECTIVE INVESTOR (INCLUDING A TAX-EXEMPT
INVESTOR) IN THE NOTES SHOULD CONSULT ITS TAX ADVISOR IN DETERMINING THE
TAX CONSEQUENCES OF AN INVESTMENT IN THE NOTES, INCLUDING THE
APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS.
In the absence of clear authority, J.P. Morgan will treat the Notes as
contingent debt instruments with interest accruing (and currently
taxable to holders) at the stated coupon rate. Holders of Notes may be
required to take the same position on their tax returns unless
appropriate disclosures are made that a different position is being
taken. Under this approach:
(1) a U.S. Holder would be required to include such interest
in income as it is paid or
accrued, in accordance with the U.S. Holder's method of accounting; and
(2) at the Maturity, redemption or exchange (all of the
foregoing, "Retirement") of a
Note, a U.S. Holder would have income or loss equal to the difference
between (i) the principal amount or Basket Value, as applicable,
received by such Holder and (ii) such Holder's cost of the Note; it is
expected that any such income would be ordinary interest income rather
than capital gain, and that any such loss would be a capital loss;
(3) upon the sale or other disposition (other than Retirement)
of a Note, a U.S. Holder would have gain or loss equal to the difference
between the amount realized and such Holder's cost of the Note; any such gain
is expected to be capital gain but may be ordinary income, and any such
loss would be a capital loss; and
(4) any capital gain or loss realized by a U.S. Holder
(whether at Retirement, or upon sale or other disposition of the Notes) will
be long-term capital gain or loss if the Notes were held for more than one
year at the time of Retirement, sale or other disposition.
However, in the absence of authority concerning the proper tax treatment
of the Notes, no assurance can be provided that the above tax
characterization would be accepted by the IRS or upheld by a court. As a
result, different tax consequences may apply. For example, (i) as
indicated above, gain on sale or other disposition of the Notes may be
ordinary income rather than capital gain, or (ii) a U.S. Holder might be
required to accrue interest income at a rate greater than the stated
rate on the Notes, and have less income or gain (or a greater loss) at
Retirement or upon sale or other disposition of the Notes. If clause
(ii) is applicable, a U.S. Holder's tax basis for the Notes would be
their original cost, increased by accruals of income and decreased by
payments of interest.
In connection with clause (ii) of the preceding paragraph, recently
proposed Treasury Regulations would require the accrual of interest
income on the Notes based on the projected
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yield to maturity of the Notes. The projected yield would take into
account a projected payment at Retirement of the Notes (based, among
other things, upon forward pricing for the Consumer Basket Stocks). This
method might result in an annual inclusion of income at a rate in excess
of the stated rate of interest on the Notes. An adjustment would be made
at Retirement or upon sale or other disposition to reflect the actual
payment on the Notes as compared to the projected payment. Moreover, any
gain on the sale or other disposition of the Notes would be ordinary
income. These proposed regulations by their terms only apply to debt
issued at least 60 days after publication of final regulations, and
therefore would not apply to the Notes. However, no assurance can be
given that the IRS or the courts would not apply the principles of the
regulations to the Notes.
Non-United States Persons
In the case of a holder of Notes that is not a U.S. person, payments
made with respect to the Notes should not be subject to U.S. withholding
tax, provided that such holder complies with applicable certification
requirements. Any capital gain realized at Retirement or upon the sale
or other disposition of the Notes by a holder that is not a U.S. person
will generally not be subject to U.S. federal income tax if (i) such
gain is not effectively connected with a U.S. trade or business of such
holder and (ii) in the case of an individual, such individual is not
present in the United States for 183 days or more in the taxable year of
Retirement, sale or other disposition.
Backup Withholding and Information Reporting
A holder of Notes may be subject to information reporting and to backup
withholding at a rate of 31 percent of certain amounts paid to the
holder unless such holder provides proof of an applicable exemption or
correct taxpayer identification number, and otherwise complies with
applicable requirements of the backup withholding rules.
Underwriting
The Underwriter has agreed, subject to the terms and conditions set
forth in the Underwriting Agreement, to purchase from J.P. Morgan the
entire principal amount of Notes.
J.P. Morgan has been advised that the Underwriter proposes to offer the
Notes to the public initially at the offering price set forth on the
cover of this Prospectus Supplement and that, after the initial public
offering, such public offering price may be changed.
J.P. Morgan has agreed in the Underwriting Agreement to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act, or contribute to payments the Underwriter may be
required to make in respect thereof.
The Underwriter and its associates may be customers of, engage in
transactions with, and perform services for, J.P. Morgan and its
subsidiaries in the ordinary course of business.
J.P. Morgan has been advised by the Underwriter that it may make a
market in the Notes; however, J.P. Morgan cannot provide any assurance
that a secondary market for the Notes will develop.
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This Prospectus Supplement and the Prospectus may be used by direct or
indirect wholly-owned subsidiaries of J.P. Morgan in connection with
offers and sales related to secondary market transactions in the Notes.
Such subsidiaries may act as principal or agent in such transactions.
Such sales will be made at prices related to prevailing market prices at
the time of a sale.
The Underwriter is an indirect wholly-owned subsidiary of J.P. Morgan.
The offer and sale of the Notes by the Underwriter will comply with the
requirements of Schedule E of the By- laws of the National Association
of Securities Dealers, Inc. (the "NASD") regarding underwriting of
securities of an affiliate.
Legal Opinions
The validity of the Notes will be passed upon for J.P. Morgan by
Margaret M. Foran, Vice President, Assistant General Counsel and
Assistant Secretary of J.P. Morgan, and for the Underwriter by Cravath,
Swaine & Moore. Certain tax matters with respect to the Notes will also
be passed upon by Cravath, Swaine & Moore. Cravath, Swaine & Moore has
represented and continues to represent J.P. Morgan from time to time in
other matters. Ms. Foran owns or has the right to acquire a number of
shares of common stock of J.P. Morgan equal to or less than 0.01% of the
outstanding common stock of J.P. Morgan.
Experts
The financial statements incorporated by reference in the Annual Report
on Form 10-K of J.P. Morgan for the year ended December 31, 1994
(included in J.P. Morgan's Annual Report to Stockholders), are
incorporated by reference in this Prospectus Supplement in reliance on
the report of Price Waterhouse LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
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