As filed with the Securities and Exchange Commission on April 15, 1996
Registration No. 333-01121
=====================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
to
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
---------------
J.P. MORGAN & CO. INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE 13-2625764
State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
J.P. MORGAN INDEX FUNDING COMPANY, LLC
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3863618
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
------------------
60 Wall Street
New York , New York 10260-0060
Tel. No. (212) 483-2323
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
RACHEL F. ROBBINS, ESQ.
General Counsel and Secretary
J.P. Morgan & Co. Incorporated
60 Wall Street
New York, New York 10260-0060
Tel No.: (212) 648-3535
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Copies to:
MARGARET M. FORAN, ESQ. B. ROBBINS KIESSLING, ESQ.
Vice President and Assistant Cravath, Swaine & Moore
General Counsel Worldwide Plaza
J.P. Morgan & Co. Incorporated 825 Eighth Avenue
60 Wall Street New York, New York 10019-7475
New York, New York 10260-0060
--------------------
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration
Statement as determined by market conditions.
If any of the securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ] If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule 415 under the
<PAGE>
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. [x]
------------------
CALCULATION OF REGISTRATION FEE
==============================================================================
Proposed Proposed maximum maximum Title of each Amount to offering aggregate
class of be price per offering Amount of securities to be registered unit
price registration registered (1) (1)(2)(3) (1)(2)(3) fee--$103,448.28
==============================================================================
Preferred Securities of the Company
- ------------------------------------------------------------------------------
Guarantees of Preferred Securities of the Company and the Senior Note
Guarantee of the Senior Note of Morgan Guaranty by, and certain back-up
obligations of, J.P. Morgan........... (4)
- ------------------------------------------------------------------------------
Total................. $300,000,000
==============================================================================
(1) Such indeterminate number of Preferred Securities of the
Company as may from time to time be issued at indeterminate prices.
(2) Estimated pursuant to Rule 457 under the Securities Act of 1933,
as amended, solely for the purpose of calculating the registration
fee. The aggregate public offering price of the Preferred Securities
of the Company registered hereby will not exceed $300,000,000. (3)
Exclusive of accrued interest and distributions, if any. (4) The
back-up obligations of J.P. Morgan, in addition to the Guarantee and
the Related Note Guarantee, consist of the obligations of J.P. Morgan
with respect to the Preferred Securities that are set forth in the LLC
Agreement and the Expense Agreement. No separate consideration will be
received for the Guarantee, the Related Note Guarantee or such back-
up obligations. See "Effect of the Obligations Under the Guarantee,
the Related Note Guarantee and the Related Notes" in the applicable
Prospectus Supplement.
-----------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED [ ] , 1996
PROSPECTUS SUPPLEMENT
(To Prospectus Dated [ ], 1996)
Commodity-Indexed Preferred Securities
(ComPS sm), Series A
J.P. Morgan Index Funding Company, LLC
[]% Series A Preferred Securities Indexed to the
JPMCI Crude Oil Excess Return Index
guaranteed to the extent set forth herein by
J.P. Morgan & Co. Incorporated
--------------------------------------
The []% Series A Preferred Securities (each, a "Preferred Security",
and collectively, the "ComPS") offered hereby are being issued by J.P.
Morgan Index Funding Company, LLC, a limited liability company formed
under the laws of the State of Delaware (the "Company"). The ComPS
represent preferred limited liability company interests in the
Company. Each Preferred Security will have an initial principal amount
of [$40] (the "Face Amount"), and thereafter, the change in value of
the principal amount per Preferred Security will be indexed to the
change in value of the JPMCI Crude Oil Excess Return Index (the
"Applicable Index"), which is calculated based on the change in value
of certain crude oil futures contracts included from time to time in
the JPM Indices (such contracts, from time to time, the "Benchmark Oil
Contracts"). J.P. Morgan & Co. Incorporated, a Delaware corporation
("J.P. Morgan"), will directly or indirectly own all the common
securities (the "Common Securities") representing voting limited
liability company interests in the Company (the ComPS and the Common
Securities, collectively, the "Securities"). The Company exists for
the sole purpose of issuing the ComPS and investing the proceeds
thereof in a [ ]% Related Note Due [ ], 20[ ] (the "Related Note") of
Morgan Guaranty Trust Company of New York, a trust company with full
banking powers organized under the laws of the State of New York and a
wholly-owned subsidiary of J.P. Morgan ("Morgan Guaranty"), and
issuing similar securities and investing the proceeds thereof in
similar notes in the future. (continued on next page) See "Risk
Factors" on Page S-[] for certain information relevant to an
investment in the Preferred Securities. The ComPS are not futures
contracts and do not represent an actual investment in futures
contracts. Additionally, the Redemption Value (as defined below) per
Preferred Security may be more or less than the Face Amount and may be
more or less than the return from an actual investment in the
Benchmark Oil Contracts. See "Description of the ComPS". "ComPS",
"JPMCI" and the "J.P. Morgan Commodity Index" are service marks of
J.P. Morgan & Co. Incorporated. The ComPS have been authorized for
listing on the [ (the " ")] under the symbol " ", subject to official
notice of issuance. Trading of the ComPS on the [ ] is expected to
commence within a 30-day period after the date of this Prospectus
Supplement. See "Underwriting".
THE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER FEDERAL
AGENCY.
<PAGE>
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 OR THE
PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Price $[40] per Preferred Security plus accrued dividends, if any.
Initial Public Underwriting Proceeds to
Offering Price(1) Commissions(2) The Company(3)(4)
Per Preferred $ (3) $
Security...........
Total.............. $ (3) $
(1) Plus accrued dividends, if any, from the Issue Date (as defined
herein).
(2) The Company and J.P. Morgan have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting".
(3) Because the proceeds of the sale of the ComPS will be invested
in the Related Note, Morgan Guaranty has agreed to pay to the
Underwriters a commission of $ per Preferred Security (or $ in the
aggregate); provided that such compensation for sales to certain
institutions will be $ per Preferred Security. See "Underwriting".
(4) Expenses of the offering which are payable by the Company and J.P.
Morgan are estimated to be $ .
The ComPS offered hereby are offered severally by the Underwriters,
as specified herein, subject to receipt and acceptance by them and subject
to their right to reject any order in whole or in part. It is expected
that delivery of the ComPS will be made on or about , 1996, through
the book-entry facilities of The Depository Trust Company, against payment
therefor in same-day funds.
J.P. Morgan & Co.
The date of this Prospectus Supplement is [ ], 1996.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
[APPLICABLE STOCK EXCHANGE(S)], IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
[GRAPHIC OMITTED]
This page contains a schematic depiction of J.P. Morgan, Morgan
Guaranty and the Company, indicating particularly that Morgan Guaranty
and the Company are each wholly-owned subsidiaries of J.P. Morgan,
that the proceeds of the ComPS and related Common Securities will be
loaned to Morgan Guaranty in return for the Related Note, and
depicting the Guarantee and the Related Note Guarantee.
<PAGE>
SUMMARY OF THE OFFERING
Securities Offered [2,500,000] [ ]% Series A Preferred
Securities ("ComPS") Indexed to the
JPMCI Crude Oil Excess Return Index.
Issuer J.P. Morgan Index Funding Company, LLC
(the "Company"), a Delaware limited
liability company and a subsidiary of
J.P. Morgan & Co. Incorporated ("J.P.
Morgan").
Guarantor J.P. Morgan, on a subordinated basis,
(i) of payments to holders of ComPS of
amounts received on the Related Note by
the Company and (ii) of payments to the
Company on the Related Note by Morgan
Guaranty, a wholly-owned subsidiary of
J.P. Morgan.
Initial Offering Price [$40].
Per Preferred Security
("Face Amount")
Aggregate Face Amount [$100,000,000].
ComPS Redemption Price Redemption Value at Stated Maturity plus
accrued and unpaid dividends.
Stated Maturity [ ], 20[ ], subject to extension in
the case of a Market Disruption Event.
Redemption Value per Face Amount X Applicable Index
Preferred Security Settlement Value Applicable Index
Commencement Value
Applicable Index JPMCI Crude Oil Excess Return Index.
Applicable Index [Set on date of pricing].
Commencement Value
Applicable Index The average of the Applicable Index over
Settlement Value the 10 consecutive Trading Days meeting
certain conditions immediately following
the 20th scheduled Business Day prior to
redemption (as described herein), unless
such value has been permanently fixed
prior to such time as described under
"Description of ComPS-Early
Determination of Applicable Index
Settlement Value".
Calculation Agent Morgan Guaranty.
<PAGE>
Dividends Cumulative cash dividends of % per annum
on the Face Amount (calculated on the
basis of a 360 day year of twelve 30-day
months) accruing from the Issue Date and
payable monthly in arrears on the last
calendar day of each month.
Cash Redemption prior to
Stated Maturity
Optional Redemption At the holders' option, on each [ ]
prior to the Stated Maturity, for the
ComPS Early Redemption Price.
Special Event Redemption Under certain circumstances, upon the
occurrence of a Tax Event or an
Investment Company Event, for the ComPS
Early Redemption Price.
Early Determination of Upon the occurrence of certain events
Applicable Index affecting the liquidity or increasing the
Settlement Value cost of holding or trading the Benchmark
Oil Contracts and the inability to find
a suitable replacement Benchmark Oil
Contract, the Applicable Index
Settlement Value may be fixed, and such
fixed value will be used upon any
subsequent Early Redemption and at
Stated Maturity.
ComPS Early Redemption Price The Early Redemption Value (as defined in
the Prospectus), which represents the
payment of the discounted present value
of dividends and Principal Amount on the
applicable Early Redemption Date. See
"Description of the ComPS-Optional
Redemption" and "- Special Event
Redemption".
Voting Rights Holders of ComPS will have limited voting
rights and will not be entitled to vote
to appoint, remove or replace the
Managing Members of the Company (as
defined in the LLC Agreement). See
"Description of the ComPS- Voting
Rights".
Use of Proceeds The proceeds to the Company from the sale
of ComPS and related Common Securities
will be used to purchase a note of
Morgan Guaranty (the "Related Note"),
and Morgan Guaranty will use such
proceeds for general corporate purposes
and for hedging its obligations under
the Related Note. See "Use of Proceeds".
<PAGE>
THE OFFERING
The information in this Prospectus Supplement concerning J.P. Morgan,
Morgan Guaranty, the Company, the ComPS, the Guarantee, the Related Note
Guarantee and the Related Note supplements, and should be read in
conjunction with, the information contained in the accompanying Prospectus.
The following summary of provisions relating to the ComPS is qualified in
its entirety by the more detailed information contained elsewhere or
incorporated by reference in this Prospectus Supplement and the Prospectus
of which this Prospectus Supplement constitutes a part. Prospective
purchasers of ComPS should carefully review such information. Certain
capitalized terms used in this Prospectus Supplement have the meanings
ascribed to them under the "Glossary of Terms" in Annex I hereto.
General
Subject to the more specific discussion of each item elsewhere in this
Prospectus Supplement or in the accompanying Prospectus, following is
a general summary of the ComPS:
ComPS are principal-at-risk securities linked directly to the
performance of the Applicable Index. If the index rises from the
starting value (which is set on the day of pricing), the Redemption
Value of such ComPS will be greater than the original issue price. If
the Applicable Index declines from the starting value, the Redemption
Value of such ComPS will be less than the original issue price. In no
circumstances will the Redemption Value of the ComPS be less than
zero, but the Redemption Value could be more or less than the issue
price. Because an investor's principal redemption is linked to the
performance of an Applicable Index calculation, it is important to
understand on what the Applicable Index calculation is based.
The ComPS pay a fixed dividend rate on the Face Amount (which equals the
initial price) and the Redemption Value of such ComPS is linked to the
performance of the JPMCI Crude Oil Excess Return Index. At maturity, an
investor will receive a principal amount determined by the following
formula: Face Amount x the 10-day average of the Applicable Index/the
Applicable Index set on the day of pricing. Thus, the Redemption Value is
linked directly to the performance of the JPMCI Crude Oil Excess Return
Index (e.g., if the average ending value of the JPMCI Crude Oil Excess
Return Index is twice the beginning value, the Redemption Value will be
twice the initial price).
An Excess Return Index, which is described more fully in the attached
Prospectus under "The JPM Indices--Excess Return Methodology",
represents the cumulative return of holding an unlevered position in
the designated nearby commodity futures contracts underlying such
Applicable Index. Generally, since the Excess Return Index is linked
directly (i.e., on a one-to-one basis) to the underlying futures
contracts, a 1% change in the value of the underlying designated
futures contract will create a 1% change in the value of the
Applicable Index. Because the designated futures contracts underlying
the Excess Return indices have maturities (generally less than three
months) which are shorter than the maturity of the ComPS, the index
calculation methodology replaces the underlying contract used to
determined the daily change in the value of the Applicable Index with
the next designated contract of the same commodity on a periodic
basis. This process of replacement is called "rolling", and the 5-day
period during which the replacement occurs is called the "Rollover
Period". For any month during which a roll occurs, the daily change in
value of an Excess Return Index for all days prior to the Rollover
Period is calculated as 100% of the daily change of the existing
("old") underlying designated contract. Beginning with the first day
after the beginning of the Rollover Period, the daily change in
<PAGE>
an Excess Return Index is calculated based on 80% on the percentage change
of the old contract and 20% on the percentage change in the replacement
("new") designated contract. Similar 20% adjustments are made in the
weights attributable to each contract's change such that, by the day after
the Rollover Period ends and for all subsequent days until the next
Rollover Period, 100% of the daily index change is attributable to the
percentage change of the newly-designated contract.
Therefore, the ComPS pay dividends at a fixed rate and amount and pay a
principal amount upon redemption or at maturity which varies directly with
the performance of the JPMCI Crude Oil Excess Return Index. The change in
the JPMCI Crude Oil Excess Return Index is linked directly to the
percentage change in the designated contracts underlying such index. Thus,
any events which affect the designated contracts underlying the JPMCI Crude
Oil Excess Return Index may affect the Redemption Value of such ComPS.
The Principal Amount of each of the ComPS, which is initially equal to the
Face Amount, will vary over the life of the ComPS in relation to the JPMCI
Crude Oil Excess Return Index (the "Applicable Index"). The Principal
Amount repayable on any Early Redemption Date, upon the occurrence of any
Special Event Redemption or at Stated Maturity will be determined, pursuant
to the terms described herein (including, without limitation, the averaging
of the Applicable Index over the Early Determination Period or
Determination Period, as applicable, and the present-valuing of the
dividends and Principal Amount in connection with early redemptions), by
comparing the level of the JPMCI Crude Oil Excess Return Index at the date
of issuance of the ComPS with the level determined pursuant to the terms
hereof for any such date of redemption. The ComPS represent preferred
limited liability company interests in the Company, the assets of which
will consist of the Related Note and other notes issued by Morgan Guaranty
in connection with other issuances of Preferred Securities. The Related
Note, in which the proceeds of the ComPS and the related Common Securities
will be invested, matures on [ ], 20[ ] (which is the "Stated Maturity"),
subject to extension in the case of a Market Disruption Event, and is
redeemable at certain times, from time to time, at the option of the
Company upon an optional redemption by one or more holders of ComPS in an
amount sufficient to fund such redemption and the redemption of the related
Common Securities and at any time by Morgan Guaranty in whole or in part
upon the occurrence of a Special Event. The ComPS will be redeemed at
Stated Maturity at the ComPS Redemption Price, which is equal to the sum of
(a) the Redemption Value (as defined below) per Preferred Security plus (b)
accrued and unpaid dividends thereon to but excluding the date of
redemption. In addition, if, as a result of a Special Event, Morgan
Guaranty redeems the Related Note in whole or in part prior to Stated
Maturity, the Company must redeem ComPS and related Common Securities
having an aggregate Principal Amount equal to the Principal Amount of the
Related Note so redeemed at the ComPS Redemption Price. See "Description of
the ComPS-Redemption at Stated Maturity";-Special Event Redemption". For
purposes of this Prospectus Supplement, "Principal Amount" means (i) in the
case of any Preferred Security, the Early Redemption Value thereof or the
Redemption Value thereof (as if determined as of such time), as applicable,
and (ii) in the case of the Related Note, the principal amount thereof at
such time determined pursuant to the terms thereof.
Dividends
The holders of ComPS are entitled to receive cumulative cash dividends at
the rate of [ ]% per annum on the Face Amount per Preferred Security,
accruing from the Issue Date, and payable monthly in arrears on the last
<PAGE>
calendar day of each month, commencing [ ], 1996, or, if any such date is
not a Business Day (as defined herein), the next succeeding Business Day
when, as and if available for payment by the Company (as described herein),
except as otherwise described herein. The first dividend payment will be
for the period from and including the Issue Date to but excluding [ ],
1996. Dividends (or amounts equal to accrued and unpaid dividends) payable
on the ComPS for any period shorter than a monthly dividend period will be
computed on the basis of a 360-day year of twelve 30-day months and on the
basis of the actual number of days elapsed in any such 30-day month. See
"Description of the ComPS-Dividends".
Redemption at Stated Maturity
Unless previously redeemed pursuant to the optional or special redemption
provisions described below, each of the outstanding ComPS will be redeemed
by the Company, in cash, on [ ] , 20[ ], which is the Stated Maturity of
the Related Note, subject to extension in the case of a Market Disruption
Event (as defined herein), at the ComPS Redemption Price, which is equal to
(a) the Redemption Value per Preferred Security plus (b) accrued and unpaid
dividends thereon to but excluding the date of redemption. See "Description
of the ComPS-Mandatory Redemption"; "Risk Factors-Extension of Settlement
Date or Stated Maturity".
Calculation of Redemption Value
The Principal Amount of each Preferred Security is indexed to the JPMCI
Crude Oil Excess Return Index (the "Applicable Index"), which is calculated
based on the change in value of certain crude oil futures contracts
included from time to time in the JPM Indices (such contracts,from time to
time, the "Benchmark Oil Contracts"). On the date of this Prospectus
Supplement, the Benchmark Oil Contract is the Light "Sweet" Crude Oil
futures contract traded on the New York Mercantile Exchange ("NYMEX"). In
summary, and subject to the complete definitions and formulae contained
herein and in the Prospectus, the Principal Amount of each Preferred
Security at Stated Maturity, subject to extension in the case of a Market
Disruption Event (the "Redemption Value"), shall be determined by
multiplying the Face Amount of each Preferred Security by a fraction, the
numerator of which is the Applicable Index Settlement Value and the
denominator of which is the Applicable Index Commencement Value. Subject to
the more complete definitions contained herein and in the accompanying
Prospectus, "Applicable Index Settlement Value" means the arithmetic
average of the values of the Applicable Index during the Determination
Period (as defined below), and "Applicable Index Commencement Value" means
[value on date of issuance]. See "Description of ComPS- Calculation of
Redemption Value" herein and "Description of ComPS-Determination Period and
Settlement Date" in the accompanying Prospectus.
Early Determination of Applicable Index Settlement Value and Redemption
Value
Upon the occurrence of certain events affecting the liquidity or increasing
the cost of holding or trading the Benchmark Oil Contracts and the
inability to find a suitable replacement Benchmark Oil Contract, Morgan
Guaranty has the right to cause the Applicable Index Settlement Value (as
<PAGE>
defined in the preceding parageraph) to be fixed. Following such an event,
the Applicable Index Settlement Value will remain fixed and will be used as
the Applicable Index Early Settlement Value for the computation of any
Early Redemption Value and as the Applicable Index Settlement Value at
Stated Maturity. See "Description of the ComPS--Early Determination of
Redemption Value".
Optional Redemption
Each holder of ComPS may, by giving notice as specified herein before the [
] of each year prior to Stated Maturity (each, an "Optional Redemption
Date"), cause the Company to redeem some or all of such holder's ComPS at
the ComPS Early Redemption Price, which is equal to (a) the Early
Redemption Value (as defined in the Prospectus) per Preferred Security as
determined at such time plus (b) accrued and unpaid dividends thereon to
but excluding the date of redemption. See "Description of the
ComPS-Optional Redemption".
Special Event Redemption
Upon the occurrence and during the continuation of a Tax Event or an
Investment Company Event (each as defined herein), Morgan Guaranty will
have the right to redeem the Related Note in whole or, if redemption of
less than all the ComPS will result in the discontinuance of such Special
Event, in part in an amount sufficient to cause such discontinuance, in
each case for cash, with the result that the Company will redeem a
Principal Amount of ComPS and related Common Securities equal to the
Principal Amount of the Related Note so redeemed for cash at the ComPS
Early Redemption Price. However, in the case of a Tax Event, Morgan
Guaranty may allow the Related Note and the Company may allow the ComPS and
related Common Securities to remain outstanding upon the receipt of
indemnification by J.P. Morgan of the Company for all taxes payable by it
as a result of such Tax Event. See "Description of the ComPS-Special Event
Redemption".
Unconditional Guarantee by J.P. Morgan
J.P. Morgan and the Company believe that the mechanisms and obligations
relating to the subordinated obligations of J.P. Morgan under the Guarantee
and the Related Note Guarantee and the obligations of J.P. Morgan under the
LLC Agreement and the Expense Agreement to pay certain obligations, costs
and expenses of the Company, taken together, are equivalent to a full and
unconditional guarantee, on a subordinated basis, by J.P. Morgan of
payments due on the ComPS. See "Risk Factors-Rights Under the Guarantee,
the Related Note Guarantee and the Related Note", "Description of the
Related Note Guarantee" and "Effect of Obligations Under the Guarantee, the
Related Note Guarantee and the Related Note".
The Guarantee
The Guarantee by J.P. Morgan guarantees to the holders of the ComPS the
payment of (i) the ComPS Early Redemption Price or the ComPS Redemption
Price, as applicable, but if and only if and to the extent that, in each
case, Morgan Guaranty has made payment of interest or principal on the
Related Note, as the case may be, and (ii) upon a Liquidation Event (as
defined herein) (other than in connection with the redemption of all the
ComPS upon maturity or redemption of Related Note), the lesser of (A) the
<PAGE>
sum of (I) the Early Redemption Value of such ComPS and (II) the amount of
accrued and unpaid dividends on such ComPS to but excluding the date of
payment (the "Liquidation Distribution"), to the extent the Company has
funds available therefor and (B) the amount of assets of the Company
remaining available for distribution to holders of the ComPS upon such
Liquidation Event. J.P. Morgan's obligations under the Guarantee will be
subordinated and junior in right of payment to all liabilities of J.P.
Morgan, pari passu with the most senior preferred stock outstanding as of
the date hereof of J.P. Morgan and senior to the common stock of J.P.
Morgan.
The Related Note Guarantee
The Related Note Guarantee by J.P. Morgan guarantees to the Company the
payment of any dividends on and principal of the Related Note as provided
pursuant to the terms of the Related Note, at such times and in such
amounts as provided therein. J.P. Morgan's obligations under the Related
Note Guarantee will be subordinated and junior in right of payment to all
liabilities of J.P. Morgan, pari passu with the most senior preferred stock
issued from time to time by J.P. Morgan and senior to the common stock of
J.P. Morgan.
Related Note
The Related Note will be issued as an unsecured obligation of Morgan
Guaranty, limited in initial principal amount to approximately $[ ], such
amount being the aggregate Face Amount of the ComPS and the related Common
Securities. The Related Note will mature on the Stated Maturity (subject to
extension in the case of a Market Disruption Event), and will bear interest
at an annual rate of [ ]% on the Face Amount (which is equivalent to the
annual dividend rate with respect to the ComPS), payable monthly in arrears
on the last day of each calendar month, commencing on [ ], 1996. The
Principal Amount of the Related Note at any time will be the aggregate
Principal Amount of the outstanding ComPS and related Common Securities
at such time. The amount payable upon maturity for the Related Note
will be the Related Note Redemption Price.
The obligations of Morgan Guaranty under the Related Note will be pari
passu with all present and future Senior Indebtedness which aggregated
$76.1 billion at December 31, 1995. Morgan Guaranty's obligations under the
Related Note are effectively subordinated to all liabilities (including
indebtedness) of its consolidated and unconsolidated subsidiaries.
Voting Rights
Holders of ComPS will have limited voting rights and will not be entitled
to vote to appoint, remove or replace the Managing Members of the Company
(as defined below). See "Description of the ComPS-Voting Rights".
Use of Proceeds
The Company will invest the proceeds from the sale of the ComPS offered
hereby and the related Common Securities in the Related Note, the proceeds
of which will be used by Morgan Guaranty for general corporate purposes and
for hedging its obligations under the Related Note. See "Use of Proceeds".
<PAGE>
Listing
[The ComPS have been authorized for listing on the [ ] under the
symbol " , subject to official notice of issuance. Trading of the ComPS on
the [ ] is expected to commence within a 30-day period after the date of
this Prospectus Supplement.] [Prior to this offering, there has been no
market for the ComPS. In order to meet one of the requirements for listing
the ComPS on the [ ], the Underwriters will undertake to sell lots of 100
or more ComPS to a minimum of 400 beneficial holders.]
RISK FACTORS
Indexation of Principal Amount
The Principal Amount of each of the ComPS, which is initially equal to the
Face Amount, will vary until Stated Maturity of the ComPS in relation to
the JPMCI Crude Oil Excess Return Index (the "Applicable Index"). The
Principal Amount repayable on any Optional Redemption Date, upon the
occurrence of any Special Event Redemption or in connection with any
Liquidation Distribution (each such redemption date, an "Early Redemption
Date") or at Stated Maturity will be determined, pursuant to the terms
described herein (including, without limitation, the averaging of the
Applicable Index over the Early Determination Period or Determination
Period, as applicable, and the present-valuing of the dividends and
Principal Amount in connection with early redemptions), by comparing the
level of the JPMCI Crude Oil Excess Return Index at the date of issuance of
the ComPS with the level determined pursuant to the terms hereof for any
such date of redemption. Accordingly, the Principal Amount to be received
upon any date of redemption will fluctuate based on the Applicable Index
and may be lower than the Face Amount.
Limitations on Rights Under the Guarantee, the Related Note Guarantee and
the Related Note
The Guarantee will be an unconditional guarantee with respect to the ComPS
from the time of issuance of such ComPS but will not apply to any payment
of dividends or other amounts due in respect of the ComPS to the extent
Morgan Guaranty has failed to make a payment of principal or interest on
the Related Note. To the extent Morgan Guaranty were to default on its
obligation to pay amounts payable on the Related Note, the Company would
lack available funds for the payment of distributions on or amounts payable
on redemption of the ComPS and, in such event, holders of the ComPS would
not be able to rely on the Guarantee for payment of such amounts. Instead,
holders of the ComPS would rely on the enforcement by the Company of its
rights as holder of the Related Note against Morgan Guaranty and as holder
of the Related Note Guarantee against J.P. Morgan. J.P. Morgan and the
Company believe that the mechanisms and obligations relating to all of the
Guarantee, the Related Note Guarantee and the obligations of J.P. Morgan
under the LLC Agreement and Expense Agreement to pay certain obligations,
costs and expenses of the Company, taken together, are equivalent to a full
and unconditional guarantee, on a subordinated basis, by J.P. Morgan of
payments due on the ComPS. See "Description of the Guarantee" and
"Description of the Related Note Guarantee".
<PAGE>
Special Event Redemption
Upon the occurrence of a Special Event, unless waived by Morgan Guaranty or
subject to cure as specified herein, Morgan Guaranty shall have the right
to redeem the Related Note, in whole or in part, in which event the Company
will redeem the ComPS and related Common Securities on a pro rata basis to
the same extent as the Principal Amount of the Related Note is redeemed by
Morgan Guaranty.
As described in more detail below, a Special Event is either (i) a Tax
Event or (ii) an Investment Company Event. A Special Event may occur at
any time. See "Description of the ComPS-Special Event Redemption".
It is possible that the occurrence of a Special Event will cause the market
price of the ComPS in any existing secondary market to decline.
Limited Voting Rights
Holders of ComPS will have limited voting rights relating to a payment
default on or adverse change to the ComPS, and will not be entitled to vote
to appoint, remove or replace the Managing Members of the Company (J.P.
Morgan and J.P. Morgan Ventures Corporation, a Delaware corporation), which
voting rights are vested exclusively in the holders of the Common
Securities. See "Description of the ComPS-Voting Rights".
Trading Price May Not Reflect Actual Economic Value
[The ComPS have been authorized for listing on the [ ] under the symbol "[
] ", subject to official notice of issuance. Trading of the ComPS on the [
] is expected to commence within a 30-day period after the date of this
Prospectus Supplement. [Prior to this offering there has been no market for
the ComPS. In order to meet one of the requirements for listing the ComPS
on the [ ], the Underwriters will undertake to sell one or more lots of 100
ComPS to a minimum of 400 beneficial holders.] However, it is not possible
to predict whether the necessary number of holders will purchase and, for
the remaining term of the ComPS, continue to hold ComPS in order that any
secondary market which does develop continues to exist. The Underwriters
are not obligated to make a market for the ComPS, and although JPMSI, as
lead Underwriter, intends to use its reasonable efforts to do so, it is
possible that no active secondary market for the ComPS will develop and
remain in existence.
There can be no assurance as to the market prices for the ComPS in any
secondary market which does develop. Accordingly, the ComPS that an
investor may purchase, whether pursuant to the offer made hereby or in the
secondary market, may trade at a discount to the price that the investor
paid to purchase the ComPS offered hereby.
Value of the ComPS
The value of the ComPS at any time will depend upon the interaction of at
least three key factors: (i) the level of the Applicable Index, (ii) the
credit quality of Morgan Guaranty and J.P. Morgan and (iii) the interest
rate environment. As discussed under "Description of the ComPS", adverse
changes in the Applicable Index will directly correlate to adverse changes
in the value of the ComPS. A decline in the credit quality of Morgan
Guaranty and J.P. Morgan could cause the trading price of any ComPS in any
<PAGE>
secondary market then existing to decline. Also, an increase in the
prevailing interest rates could cause the trading price of the ComPS in any
secondary market then existing to decline.
No Right to Interest on Related Note
Because holders of ComPS are essentially investing in a pro rata share of
the Related Note, prospective purchasers of ComPS are also making an
investment decision with regard to the Related Note and should carefully
review all the information regarding the Related Note contained herein and
in the accompanying Prospectus. However, investors in ComPS have no right
to direct interest distributions on the Related Note. See "Description of
the Related Note".
Imposition of Bank Regulatory Restrictions
The Company's ability to make distributions and other payments on the ComPS
is dependent upon Morgan Guaranty's making interest and other payments on
the Related Note as and when required or collection by the Company under
the Related Note Guarantee. As noted in the accompanying Prospectus under
"J.P. Morgan & Co. Incorporated-Regulation", Morgan Guaranty is subject to
examination and regulation by U.S. federal and state banking authorities,
and although there is no current restriction on Morgan Guaranty's ability
to make payments under the Related Note, certain other transactions with
affiliates, including the Company, are or may become subject to
restrictions imposed in the future by bank regulatory authorities.
Effect of Trading in the Benchmark Oil Contracts and Related Commodities
and Instruments
Morgan Guaranty and other affiliates of J.P. Morgan are and will be
actively involved in the trading of the Benchmark Oil Contracts and other
instruments and derivative products based thereon. Morgan Guaranty, in
particular, is an active participant in various commodity markets including
the physical petroleum, precious and base metals and related derivatives
markets. JPMSI and other affiliates may also issue or underwrite, or
authorize unaffiliated entities to issue or underwrite, other securities or
financial instruments with returns indexed to the Applicable Index, one or
more of the JPM Indices or to another commodity. Morgan Guaranty has
licensed, and may in the future license, the Applicable Index, the JPM
Indices, and related indices and sub-indices for use by affiliated and
unaffiliated parties, for publication in newspapers and periodicals, for
distribution by information and data dissemination services and for other
purposes. Morgan Guaranty currently intends to publish individual commodity
sub-indices for each of the commodities included in the JPMCI using the same
calculation methodology as that described below. The Applicable Index on the
date hereof is identical to the sub-index having the same underlying
commodity.
Trading in the foregoing contracts and commodities by Morgan Guaranty, its
affiliates (including JPMSI) and unaffiliated third parties could adversely
affect the value of the Applicable Index, which would in turn adversely
affect the return on and the value of the ComPS. See "The Applicable
Index". Furthermore, additional issuances of securities linked or
referenced to the Benchmark Oil Contracts, similar oil futures contracts or
crude oil could adversely affect the value of the ComPS.
<PAGE>
Potential for Adverse Interests
As noted above, Morgan Guaranty, JPMSI and their affiliates expect to
engage in trading activities related to the Benchmark Oil Contracts and
other instruments or derivatives products on or related to the Applicable
Index, for their accounts where permitted or for other accounts under their
management. Morgan Guaranty, JPMSI and their affiliates, as well as
unaffiliated third parties, may also engage in other activities related to
the Applicable Index, as discussed above. Because Morgan Guaranty will
issue the Related Note issued to the Company, all such activities could
create interests of Morgan Guaranty adverse to those of the holders of
ComPS. For example, the issuance of other securities indexed to the
Applicable Index, i.e., the introduction of competing products into the
marketplace, could adversely affect the value of the ComPS. To the extent
that J.P. Morgan or one of its affiliates serves as issuer, or JPMSI or one
of its affiliates serves as agent or underwriter, for such securities or
other instruments, their interests with respect to such products may be
adverse to those of the holders of the ComPS. Morgan Guaranty will serve as
Calculation Agent with respect to the ComPS and, accordingly, will in good
faith calculate the Applicable Index, which could also raise certain
adverse interests (for example, in instances where Morgan Guaranty as the
Calculation Agent is required to exercise discretion).
Risk of Carrying and Rolling Benchmark Oil Contracts
As discussed below, the Early Redemption Value and the Redemption Value of
the ComPS will be calculated with reference to the Applicable Index, the
value of which is designed to replicate to the extent provided herein the
cumulative return of holding a continuous investment in the Benchmark Oil
Contracts. At any given time, the Applicable Index will be calculated based
on the change in value of certain Benchmark Oil Contracts for delivery in
the near term (the "shorter dated contracts"). The Applicable Index will
continue to be calculated based on the change in value of such
shorter-dated contracts until they approach maturity, at which time the
Applicable Index will, as described below, cease to be calculated based on
the change in value of such shorter-dated contracts and begin to be
calculated based on the change in value of the subsequent Benchmark Oil
Contracts (the "longer-dated contracts") on a regular periodic basis so as
to be continuously indexed to the change in value of Benchmark Oil
Contracts. The period during which each such replacement of shorter-dated
contracts with longer-dated contracts as the basis for the calculation of
the change in value of the Applicable Index occurs is referred to herein as
the "Rollover Period", as further defined below. If the market for
Benchmark Oil Contracts is in "contango" (i.e., the prices of longer-dated
contracts are above the prices of shorter-dated contracts), the return on
the Applicable Index may be adversely affected. The Applicable Index would
decline if (i) the price of the longer-dated Benchmark Oil Contracts during
the Rollover Period were more than the price of the shorter-dated contracts
which they will replace and (ii) the price of the longer-dated contracts
were to decline as such contracts approach maturity (i.e., the price of the
longer-dated contracts were to converge toward the price of the replaced
shorter-dated contracts). While many of the commodities included in the JPM
Indices have historically exhibited periods of both "backwardation" (i.e.,
the prices of longer-dated contracts are below the prices of shorter-dated
contracts) and contango, there can be no assurance that backwardation will
exist at any or all times. The absence of backwardation in the market for
Benchmark Oil Contracts could adversely affect the Applicable Index and,
correspondingly, could adversely affect the value of the ComPS.
Additionally, the issuance and/or the trading of the ComPS could adversely
<PAGE>
affect the market for Benchmark Oil Contracts and the extent to which such
markets are in backwardation or contango and, correspondingly, could
adversely affect the value of the Applicable Index and the value of the
ComPS. See "Description of ComPS--Calculation of Redemption Value".
The following table sets forth the simulated month-end level of the
JPMCI Crude Oil Excess Return Index (the Applicable Index) for all
months since January, 1984:
<TABLE>
<CAPTION>
Simulated level of Applicable Index as of the end of:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
1984 86.78 89.17 90.48 89.10 90.71 87.37 80.46 84.59 85.26 81.40 78.58 75.99
1985 75.80 78.63 84.99 84.78 87.26 86.94 89.92 94.91 100.58 107.68 108.98 99.78
1986 75.09 52.87 40.67 52.32 58.22 52.36 46.52 66.99 62.08 63.17 61.49 72.95
1987 76.56 68.14 77.93 79.02 83.20 88.13 94.94 88.72 88.90 91.14 84.84 78.00
1988 79.89 75.74 81.06 86.00 83.19 71.67 76.32 70.20 62.20 64.82 73.43 84.33
1989 86.72 95.25 108.53 114.68 117.90 126.19 119.37 124.64 135.54 135.41 136.20 151.1
1990 163.59 157.56 146.88 130.02 123.49 112.51 130.33 17.25 257.96 238.20 201.16 202.7
1991 158.81 152.06 158.65 171.71 173.83 168.58 178.73 184.23 184.27 195.11 180.39 160.5
1992 157.80 154.96 159.67 170.92 180.31 176.37 178.97 176.36 179.59 171.16 164.34 160.3
1993 165.02 167.82 165.89 165.08 159.50 148.10 138.51 138.71 139.51 124.42 111.77 100.5
1994 105.93 100.18 101.57 116.48 129.40 141.12 152.76 133.60 138.83 136.52 136.36 133.8
1995 139.16 141.33 147.08 157.31 147.34 136.78 139.78 143.88 144.32 147.26 154.16 168.8
</TABLE>
The following is a graph of such simulated month end value:
Simulated Levels of JMPCI Crude Oil Excess Return Index, 1984-1996*
<PAGE>
[GRAPH OMITTED]
This Graphic depicts the simulated level of the JPMCI Crude Oil Excess
Return Index as described herein by applying such Index to historical
futures contract settlement values from January, 1984-January, 1996.
<PAGE>
Source: Morgan Guaranty
* These levels are simulated levels only, derived by applying the rules
of the JPMCI Crude Oil Excess Return Index as described herein to
historical NYMEX futures contract settlement values. Morgan Guaranty
commenced actual calculation and publication of the JPMCI Crude Oil
Excess Return Index, using the rules described herein, as of February
1, 1996.
Based on the month-end levels noted above, the hypothetical Redemption
Value as of the end of each of the past eight years for a ComPS priced on
December 31, 1988, with a hypothetical Face Amount of $40.00 and an
Applicable Index Commencement Value of 84.33 would be as follows:
Year Index Value Hypothetical Redemption Value
1988 84.33 $40.00
1989 151.1 $71.65
1990 202.7 $96.14
1991 160.5 $76.12
1992 160.3 $76.03
1993 100.5 $47.69
1994 133.8 $63.50
1995 168.8 $80.07
Volatility of Oil and Oil Futures Prices
Oil prices can fluctuate widely and are affected by numerous factors other
than economic activity. Such factors include weather, political events,
labor activity, direct government intervention such as embargos and,
especially, supply disruptions in major oil producing or consuming regions
such as the Middle East, the United States, Latin America and Russia.
Supply disruptions tend to affect oil prices worldwide, regardless of the
location of the disruption. Market expectations about these events and
speculative activity also cause prices to fluctuate.
Oil demand and supply adjust to price changes, but mainly in the long term.
That is, the adjustment that eventually corrects the imbalance that caused
the initial price fluctuation takes time. In the short term, demand/supply
responsiveness to price changes is limited and, at times, in the opposite
direction. For example, if prices rise, oil consumers will curtail their
oil demand over time; often, however, the immediate response has been an
increase in demand through increased stockpiling. In addition, the
structure of oil supply is different from that of most other commodities.
Since the early 1970's, market prices have been well above the average cost
of production, while the marginal producers have been the large, low-cost
producers of the Middle East. This cost structure also tends to prolong and
exacerbate price fluctuations and volatility. Volatility in the Benchmark
Oil Contracts will correlate directly to volatility in the Applicable
Index. Such volatility lead some investors in the Benchmark Oil Contracts
to withdraw from the applicable futures markets, which could adversely
affect the liquidity of such markets and could adversely affect the value
of the Applicable Index and, correspondingly, the value of the ComPS.
Effect of Adverse Changes in Commodity Prices
The Applicable Index is designed to replicate to the extent provided herein
the cumulative return of holding a continuous investment in the Benchmark
<PAGE>
Oil Contracts over time. In the event of sudden disruptions in the supplies
of crude oil, such as those caused by war, accidents, weather, or acts of
terrorism, prices of Benchmark Oil Contracts, and, consequently, the value
of the Applicable Index, could become extremely volatile and unpredictable.
Also, sudden and dramatic declines in Benchmark Oil Contract prices as may
occur, for example, upon a cessation of hostilities that may exist in
countries producing crude oil or upon the discovery of significant
additional sources or reserves of crude oil, the introduction of new or
previously withheld supplies into the market (e.g., Iraqi oil) or the
introduction of substitute products or commodities, could have a
significant adverse effect on the value of the Applicable Index and on the
value of the ComPS. In addition, the price of crude oil has on occasion
been subject to very rapid short-term changes due to speculative activities
which, if such activities result in a price decrease, may cause the value
of the ComPS to decrease. See "Description of the ComPS--Calculation of
Redemption Value".
Suspension or Material Disruption of Futures or Commodities Trading;
Temporary Distortions
The futures markets and the markets for oil are subject to temporary
distortions or other disruptions due to conditions of illiquidity in the
markets, the participation of speculators, government regulation and
intervention and the other factors referred to in the preceding paragraph.
In addition, U.S. futures exchanges (including the NYMEX) and certain
foreign exchanges on which replacement Benchmark Oil Contracts, if any, may
trade (which exchanges must have an information-sharing arrangement with
the Securities and Exchange Commission and be a regulated exchange located
in the United States, Canada, the United Kingdom, Japan, Singapore or a
country that at such time is a member of the Organization of Economic
Cooperation and Development) have regulations which limit the amount of
fluctuation of futures contract prices which may occur during a single
trading day. Such limits are generally referred to as "daily price
fluctuation limits" or, more commonly, "daily limits", and the maximum or
minimum price of a contract on any given day, as a result of the effect of
such limits, is referred to as a "Limit Price", as discussed below. In a
particular futures contract, once the Limit Price has been reached in such
a contract, no trades may be made on that day at a price above or below the
Limit Price, as the case may be. Limit Prices may have the effect of
precluding trading in a particular contract for all or a portion of a
trading day or forcing the liquidation of contracts at disadvantageous
times or prices. Such circumstances, particularly if they occur during the
Rollover Period for the Applicable Index or during an Early Determination
Period or the Determination Period (each as defined herein) for the
Applicable Index, could adversely affect the value of the Applicable Index
and/or could constitute a Market Disruption Event (as defined below) and,
therefore, could adversely affect the value of the ComPS.
Depending on the period of time over which a Market Disruption Event
continues, the correlation between changes in the value of the Applicable
Index and changes in the general level of prices of crude oil may be
adversely affected. Under such circumstances, the value of the Applicable
Index, and the value of the ComPS, may be adversely affected.
Market Disruption Events
In the event of a Market Disruption Event during the Determination Period,
the Early Redemption Value or Redemption Value, as applicable, payable in
<PAGE>
respect of the ComPS will be calculated using the Applicable Index on
the day or days on which open-outcry trading on either the NYMEX or
the London Metal Exchange (the "LME") is scheduled to occur or occurs
(each, a "Trading Day") immediately following the termination of such
Market Disruption Event. However, if such Market Disruption Event
remains in effect for longer than 20 consecutive Trading Days and, in
the reasonable judgment of Morgan Guaranty, such Market Disruption
Event is likely to remain in effect, then the Applicable Index
Settlement Value for each Trading Day subject to a Market Disruption
Event may be determined in good faith by Morgan Guaranty based on
alternative pricing sources reasonably believed by it to be indicative
of then-prevailing prices for notional transactions in futures
contracts or commodities equal in size to the Applicable Index
Settlement Value, although Morgan Guaranty has no obligation to do so.
Because Morgan Guaranty's obligations under the Related Note will also
be based on the Applicable Index Settlement Value, Morgan Guaranty may
have an adverse interest with respect to such determination.
Historical Correlations May Not Prevail in the Future
Although historically the JPMCI Crude Oil Excess Return Index and the spot
prices of crude oil have shown some positive correlation with inflation and
some negative correlation with stock and bond returns (in each case in the
United States), there can be no assurance that such correlations will
prevail in the future. As a result, investors who invest in ComPS in
reliance on these correlations should individually assess the likelihood
of such correlations continuing.
Changes in Laws or Regulations or Interpretations Thereof
Prices of commodities and commodity futures contracts may be adversely
affected by the promulgation of new laws or regulations or by the
reinterpretation of existing laws or regulations (including, without
limitation, those relating to taxes and duties on commodities or commodity
components) by one or more governments, governmental agencies or
instrumentalities, courts or other official bodies. Any such event could
adversely affect the value of the Applicable Index and, correspondingly,
could adversely affect the value of the ComPS. Additionally, the occurrence
of certain events increasing the cost of holding or trading the Benchmark
Oil Contracts and the inability to find a suitable replacement Benchmark
Oil Contract could lead Morgan Guaranty to cause the Applicable Index
Settlement Value to be fixed, in which event the Redemption Value of the
ComPS would not vary through Stated Maturity.
Extension of Settlement Date or Stated Maturity
If any Benchmark Oil Contract were to be affected by a Market Disruption
Event during any Early Determination Period or the Determination Period,
the applicable Settlement Date would be postponed until the fifth Business
Day after the last day of the applicable Early Determination Period or the
Determination Period. Such delay could be of indefinite duration, during
which time a holder of ComPS will not receive the Early Redemption Value or
Redemption Value thereof, as applicable. In the event that payment of the
Redemption Value is postponed beyond the Stated Maturity, interest will
accrue on the Face Amount in the manner described under the caption
"Description of the ComPS-Calculation of Redemption Value", but no
dividends will be payable after Stated Maturity. In the event payment of
<PAGE>
the Early Redemption Value is postponed beyond the applicable Early
Redemption Date, no dividends will be payable, and no interest will accrue
and be payable, with respect to ComPS redeemed on such Early Redemption
Date.
Discontinuance of Publishing of the JPMCI Crude Oil Excess Return Index
In the event that Morgan Guaranty discontinues publication of the JPM
Indices or the relevant sub-index, the Calculation Agent will continue to
calculate in good faith the Applicable Index during the remaining term of
the ComPS, based on the methodology described in the accompanying
Prospectus under "Description of the ComPS". However, such good-faith
calculation may result in a ComPS
Redemption Price or ComPS Early Redemption Price for the ComPS which is
less than the ComPS Redemption Price or ComPS Early Redemption Price, as
applicable, for such ComPS had it been calculated on the basis of the JPM
Indices or the relevant sub-index.
Potential Modifications to the JPM Indices and/or the Applicable Index
Morgan Guaranty reserves the right at its discretion to make any
modifications to the JPM Indices based on the recommendations of the JPMCI
Policy Committee. As described under "Description of the ComPS--Early
Determination of Applicable Index Settlement Value and Redemption Value",
if any Benchmark Oil Contract becomes less liquid or representative, the
JPMCI Policy Committee could recommend a replacement Benchmark Oil
Contract. Such a change from a less liquid to a more liquid contract may
result in a lower Early Redemption Value or Redemption Value for the ComPS
than would have been the case if the less liquid contract had remained the
benchmark.
If at any time no replacement contracts can be found to serve as a
Benchmark Oil Contract, the Applicable Index Settlement Value of the ComPS
will be determined at such time as described under "Description of the
ComPS-Early Determination of Applicable Index Settlement Value and
Redemption Value". Such an early determination of the Applicable Index
Settlement Value may result in the holders of the ComPS receiving an amount
that is less than what indicative commodity and futures prices prevailing
on any Early Redemption Date or at the Stated Maturity would otherwise
imply. Because Morgan Guaranty will be the Calculation Agent, such early
determination may raise adverse interests.
Additionally, if at any time any Benchmark Oil Contract, or the
trading thereof, becomes subject to any increased cost or additional
tax, Morgan Guaranty reserves the right to designate a replacement
Benchmark Oil Contract or, if no such contract is designated, to
cause, at its option, the Applicable Index Settlement Value of the
ComPS to be determined at such time as described under "Description of
the ComPS--Early Determination of Applicable Index Settlement Value
and Redemption Value. Because Morgan Guaranty will, at the time any
Benchmark Oil Contract becomes subject to such increased cost or
additional tax, in its discretion decide whether or not to cause an
early determination of the Applicable Index Settlement Value of the
ComPS, exercise of such option may raise an adverse interest.
Any early determination of the Applicable Index Settlement Value may cause
the market price of ComPS in any existing secondary market to decline.
<PAGE>
Early Redemption
The ComPS may be automatically redeemed prior to their Stated Maturity upon
the occurrence of a Special Event or redeemed at the option of the holders
thereof on each Optional Redemption Date. In the case of a redemption upon
the occurrence of a Special Event, the Early Redemption Value paid by the
Company at such time may be significantly less than the Redemption Value
that would otherwise have been payable had the ComPS not been redeemed
prior to their Stated Maturity and the occurrence of such Special Event may
cause the market price of ComPS in any existing secondary market to decline.
In the case of an optional redemption by holders, it is likely, under
usually-prevailing market conditions, that the Early Redemption Value paid
by the Company will be less than the amount such holder could have realized
by selling such ComPS in an existing secondary market, if any, ratably during
the Early Determination Period. Delay in payment of the ComPS Early Redemption
Price (as a result of a Market Disruption Event or a delay in the provision by
DTC to the Company of the Applicable Notice (as defined below)) will not
entitle holders of ComPS to additional dividends on the ComPS or the accrual of
any interest on such ComPS Early Redemption Price.
Certain Considerations Regarding Hedging
Prospective purchasers of the ComPS who intend to hedge against the risks
associated with the market for crude oil should recognize the complexities
of utilizing the ComPS in this manner. The formula under which the
Principal Amount is calculated is not guaranteed to produce distributions
to holders having readily definable relationships with other crude oil
market instruments and products. As described below, because the Applicable
Index is an Excess Return Index, the value of the ComPS will reflect not
only the price of the Benchmark Oil Contracts but also the state of the
futures market for Benchmark Oil Contracts (i.e., whether such market is in
"backwardation" or "contango", as discussed above). Also, under certain
circumstances, amounts payable on the ComPS may be based on the good faith
determination of Morgan Guaranty and not on the Applicable Index. For these
reasons, investors should be cautious in using the ComPS in a hedging
program. The risks associated with utilizing the ComPS in a hedging program
may be magnified in periods of substantial crude oil price volatility,
since properly correlating the ComPS either as a hedge of other assets or
correlating the ComPS to a hedge thereof may become more difficult.
<PAGE>
Uncertain United States Federal Income Tax Characterization of ComPS
As discussed below, assuming that the Company will be classified for
U.S. Federal income tax purposes as a partnership, each holder of
ComPS will be required to include in its gross income distributive
share of any item of income or gain realized by the Company. While
Morgan Guaranty and the Company initially intend to treat the Related
Note as a contingent debt instrument, in light of the absence of
direct authority on the proper characterization of the Related Note,
the Internal Revenue Service may apply, and may require Morgan
Guaranty, the Company and/or holders of ComPS to apply, a different
characterization. Such alternate characterization may be materially
less favorable for holders of ComPS for United States federal income
tax purposes than the characterization to be applied initially by
Morgan Guaranty and the Company. See "United States Federal Income
Taxation" below.
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.
J.P. Morgan Index Funding Company, LLC
J.P. Morgan Index Funding Company, LLC, is a Delaware limited liability
company formed pursuant to (i) the filing of a certificate of formation
with the Secretary of State of the State of Delaware on November 21, 1995
and (ii) the limited liability company agreement, dated February 16, 1996,
and effective as of November 21, 1995 (the "LLC Agreement"), filed as an
<PAGE>
exhibit to the Registration Statement of which this Prospectus Supplement
and the accompanying Prospectus form a part. J.P. Morgan will directly or
indirectly acquire all Common Securities of the Company. The Company exists
for the exclusive purposes of (i) issuing the ComPS and Common Securities,
and from time to time additional series of preferred and common securities,
(ii) investing the gross proceeds of the ComPS and Common Securities in the
Related Note, and investing the proceeds of such additional issuances of
preferred and common securities in other Senior debt obligations of Morgan
Guaranty, and (iii) engaging in only those other activities necessary or
incidental thereto.
Pursuant to the LLC Agreement, the Common Securities will initially be
owned by J.P. Morgan and by J.P. Morgan Ventures Corporation, a Delaware
corporation and a wholly- owned subsidiary of J.P. Morgan ("JPM Ventures").
J.P. Morgan and JPM Ventures will be the Managing Members of the Company
(as defined in the LLC Agreement).
The LLC Agreement and the Agreement as to Expenses and Liabilities, dated
as of [ ], 1996, between J. P. Morgan and the Company (the "Expense
Agreement"), provide that J.P. Morgan will pay for all debts and obligations
(other than with respect to the ComPS to the extent set forth herein) and all
costs and expenses of the Company, including any taxes and all costs and
expenses with respect thereto, to which the Company may become subject. The
Company and J.P. Morgan have agreed that any person to whom such debts,
obligations, costs and expenses are owed will have the right to enforce J.P.
Morgan's obligations in respect of such debts, obligations, costs and expenses
directly against J.P. Morgan without first proceeding against the Company.
The rights of the holders of the ComPS, including economic rights, rights
to information and voting rights, are set forth in the LLC Agreement. See
"Description of the ComPS".
Use of Proceeds
The Company will invest the proceeds from the sale of the ComPS offered
hereby and the related Common Securities in a Related Note of Morgan
Guaranty, the proceeds of which will be used by Morgan Guaranty for general
corporate purposes and for hedging its obligations under the Related Note.
At the time of the pricing of the ComPS, Morgan Guaranty hedged its
anticipated exposure under the Related Note and, subject to market
conditions, Morgan Guaranty expects that it will continue to hedge its
exposure under the Related Note from time to time following this offering
of ComPS by taking long or short positions in the Benchmark Oil Contracts
or in listed or over-the-counter options contracts in, or other derivative
or synthetic instruments related to, several or all of the Benchmark Oil
Contracts. There can be no assurance that Morgan Guaranty's initial hedging
did not, and that its continued hedging will not, affect the price of the
Benchmark Oil Contracts (and, as a result, the Initial Price and the
subsequent value of the ComPS). In addition, J.P. Morgan and its affiliates
may from time to time purchase or otherwise acquire a long or short
position in the ComPS and may, in their sole discretion, hold or resell
such ComPS. Morgan Guaranty may also take positions in other types of
appropriate financial instruments that may become available in the future.
To the extent Morgan Guaranty has a long hedge position in several or all
of the Benchmark Oil Contracts or options contracts in, or other derivative
or synthetic instruments related to, several or all of the Benchmark Oil
Contracts, Morgan Guaranty may liquidate a portion or all of its holdings,
as applicable, at or about the itme of any Early Redemption Date or the
<PAGE>
Stated Maturity of the Related Note (which correspond to the Early
Redemption Dates and the Stated Maturity of the ComPS). Depending on, among
other things, future market conditions, the aggregate amount and the
composition of those positions are likely to vary over time. Profits or
losses from any such position cannot be ascertained until that position is
closed out and any offsetting position or positions are taken into account.
However, none of the contracts or securities acquired in connection with
any hedging activity will be held for the benefit of holders of ComPS.
Description of the ComPS
The ComPS will be issued pursuant to the LLC Agreement. The following
summary of the principal terms and provisions of the ComPS does not purport
to be complete and is subject to, and qualified in its entirety by
reference to, the Prospectus of which this Prospectus Supplement
constitutes a part and the LLC Agreement, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus Supplement
is a part.
General
The Principal Amount of each of the ComPS, which is initially equal to the
Face Amount, will vary over the life of the ComPS in relation to the JPMCI
Crude Oil Excess Return Index (the "Applicable Index"). The Principal
Amount repayable on any Early Redemption Date, upon the occurrence of any
Special Event Redemption or at Stated Maturity will be determined, pursuant
to the terms described herein (including, without limitation, the averaging
of the Applicable Index over the Early Determination Period or the
Determination Period, as applicable, and the present-valuing of the
dividends and Principal Amount in connection with redemptions prior to
Stated Maturity), by comparing the level of the JPMCI Crude Oil Excess
Return Index at the date of issuance of the ComPS with the level determined
pursuant to the terms hereof for any such date of redemption.
The LLC Agreement authorizes the Company to issue Preferred and Common
Securities. All of the Common Securities will be owned, directly or
indirectly, by J.P. Morgan. Payments of interest on and redemptions of
principal of the ComPS and the related Common Securities will be made on a
pro rata basis among the ComPS and the related Common Securities, except
that upon the occurrence of a liquidation, termination or winding up of the
Company, the rights of the holders of the Common Securities to receive
payment of periodic dividends and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of all
Preferred Securities of the Company. The LLC Agreement does not permit the
incurrence of any indebtedness by the Company (other than any preferred
securities thereof). The payment of distributions out of money held by the
Company, and payments upon liquidation, termination or winding-up of the
Company, are guaranteed by J.P. Morgan to the extent described under
"Description of the Guarantee". The Guarantee does not cover payment of
distributions when Morgan Guaranty has not made payment of principal or
interest, as applicable, on the Related Note. In such event, the remedy of
a holder of ComPS is to direct the Company to enforce its rights under the
Related Note and the Related Note Guarantee with respect to such Related
Note. See "-Voting Rights" and "Effect of Obligations Under the Guarantee,
the Related Note Guarantee and the Related Note".
<PAGE>
Dividends
Dividends on the ComPS will be fixed at a rate per annum of [ ]% of the
Face Amount of $[40] per Preferred Security. The term "dividend" as used
herein includes any such interest payable unless otherwise stated. The
amount of dividends payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months (and actual days elapsed, in the
case of periods of less than a month) and will include the first day but
exclude the last day of such period.
Dividends on the ComPS will be cumulative, will accrue from and including
the Issue Date and will be payable monthly in arrears on the last calendar
day of each month, commencing [ ], 1996, when, as and if available for
payment.
Dividends on the ComPS will be payable to the holders thereof as they
appear on the books and records of the Company on the relevant record
dates, which, as long as the ComPS remain in book-entry only form, will be
one Business Day prior to the relevant payment dates. Subject to any
applicable laws and regulations and the provisions of the LLC Agreement,
each such payment will be made as described under "-Book-Entry Only
Issuance-The Depository Trust Company".
In the event that the ComPS do not continue to remain in book-entry only
form, the Company shall have the right to select relevant record dates,
which shall be at least one Business Day prior to the relevant payment
dates. In the event that any date on which dividends are to be made on the
ComPS is not a Business Day, then payment of the dividends payable on such
date will be made on the next succeeding Business Day with the same force
and effect as if made on such date and no interest on such distributions
will accrue from and after such date, except that, if such Business Day is
in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date. A "Business Day" shall mean any day other
than Saturday, Sunday or any other day on which banking institutions in The
City of New York, New York are permitted or required by any applicable law
to close.
The payment of dividends on the ComPS out of moneys held by the Company is
guaranteed by J.P. Morgan on a subordinated basis as and to the extent set
forth under "Description of the Guarantee". The Guarantee is a full and
unconditional guarantee from the time of issuance of the ComPS, but the
Guarantee covers dividends and other payments on the ComPS only if and to
the extent that Morgan Guaranty has made a payment to the Company of
interest or principal on the Related Note, as the case may be.
Redemption at Stated Maturity
Unless previously redeemed pursuant to the optional or special redemption
provisions and subject to extension in the case of a Market Disruption
Event (as defined below), each of the outstanding ComPS will be redeemed by
the Company, in cash, on the Stated Maturity, at the ComPS Redemption
Price. The ComPS Redemption Price is the sum of (a) the Redemption Value
per Preferred Security plus (b) accrued but unpaid dividends on such ComPS
to but excluding the date of redemption.
<PAGE>
Calculation of Redemption Value
The Principal Amount of each Preferred Security is indexed to the JPMCI
Crude Oil Excess Return Index (the "Applicable Index"), which is calculated
based on the change in value of certain crude oil futures contracts
included from time to time in the JPM Indices (such contracts, from time to
time, the "Benchmark Oil Contracts"). On the date of this Prospectus
Supplement, the Benchmark Oil Contract is the NYMEX Light "Sweet" Crude Oil
futures contract. Subject to the more complete definitions and formulae
contained in the accompanying Prospectus, the Principal Amount of each
Preferred Security payable at Stated Maturity, subject to extension in the
case of a Market Disruption Event (the "Redemption Value"), shall be
determined by multiplying the Face Amount of each Preferred Security by a
fraction, the numerator of which is the Applicable Index Settlement Value
and the denominator of which is the Applicable Index Commencement Value.
For purposes of this Prospectus Supplement, the "Applicable Index
Settlement Value" means the arithmetic average of the daily values of the
Applicable Index for each day of the Determination Period (the period of
ten consecutive Trading Days on which no Market Disruption Event occurs
commencing immediately following the twentieth scheduled Business Day prior
to Stated Maturity), and the "Applicable Index Commencement Value" means [
].
For a complete description and definition of an Excess Return Index, see
"Description of ComPS-Calculation of Redemption Value" and "The JPM
Indices-Excess Return Methodology" in the accompanying Prospectus. As
defined in the accompanying Prospectus under "Description of ComPS-Market
Disruption Events", a Market Disruption Event is the occurrence of one or
more of the following on any Trading Day with respect to any Benchmark Oil
Contract underlying the Applicable Index, or an exchange on which any
Benchmark Oil Contract is traded (a "Relevant Exchange"): (a) a day on
which the fluctuation of the price of any Benchmark Oil Contract underlying
the Applicable Index is materially limited by the rules of a Relevant
Exchange setting the maximum or minimum price for such day (a "Limit
Price"); (b) a day on which the official settlement price on the Relevant
Exchange (the "Settlement Price") is the Limit Price; (c) the failure of a
Relevant Exchange to determine, announce or publish the Settlement Price
with respect to a Benchmark Oil Contract underlying the Applicable Index;
(d) the material suspension of trading in any Benchmark Oil Contract
underlying the Applicable Index on a Relevant Exchange; (e) the failure of
trading to commence, or the permanent discontinuation of trading, in any
Benchmark Oil Contract underlying the Applicable Index on any Relevant
Exchange and (f) the imposition of any material limitation on trading in
any Benchmark Oil Contract underlying the Applicable Index on any Relevant
Exchange.
Early Determination of Applicable Index Settlement Value and Redemption Value
Morgan Guaranty reserves the right at its discretion to make any
modifications to the JPM Indices based on the recommendations of the JPMCI
Policy Committee. As discussed in the accompanying Prospectus, the JPMCI
Policy Committee advises Morgan Guaranty with respect to, among other
things, the composition of the JPM Indices, the price sources upon which
<PAGE>
the JPM Indices are based (i.e., the underlying futures contracts,
including the Benchmark Oil Contracts), and the weightings and calculation
methodology of the JPM Indices, with a view toward maintaining the JPM
Indices as appropriate commodity investment benchmarks that serve as a
measure of performance of the commodity markets. The inclusion requirements
for the futures contracts underlying the JPM Indices require that such
futures contracts be sufficiently liquid and representative price sources.
It is possible, however, that any such underlying contract could become
less liquid or representative and, as a result, the JPMCI Policy Committee
may recommend a modification in the calculation methodology or the
contracts underlying the JPM Indices and, therefore, the Applicable Index.
Any such replacement contract (i) will be required to satisfy the JPMCI
Inclusion Criteria, as described in the accompanying Prospectus under the
caption "The JPMCI Policy Committee", and (ii) must be traded in a market
or with a self-regulator which has established either (a) a comprehensive
information sharing agreement with the exchange, if any, on which the ComPS
are then traded or (b) suitable alternative arrangements with the
Commission.
If at any time no contract satisfying both clauses (i) and (ii) of the
previous paragraph can be found to serve as a Benchmark Oil Contract,
the Applicable Index Settlement Value of the ComPS will be determined
at such time (in accordance with the methodology set forth above under
the caption "Description of the ComPS-Calculation of Redemption
Value") as if the last date of the inclusion of the final Benchmark
Oil Contract in the JPM Indices were the Stated Maturity. However, the
ComPS will not be redeemed on such date; rather, the ComPS will remain
outstanding to Stated Maturity , will continue to be entitled to
dividends and will be redeemed at Stated Maturity for a Redemption
Value calculated using the Applicable Index Settlement Value
determined at such time as no contract satisfying clauses (i) and (ii)
of the previous paragraph can be found. Such ComPS will also be
subject to redemption upon the occurrence of a Special Event and
optional redemption on each Optional Redemption Date (treating the
Applicable Index Settlement Value determined pursuant to the terms of
this paragraph as the Applicable Index Early Settlement Value for any
Early Redemption Date).
Additionally, if at any time any Benchmark Oil Contract, or the trading
thereof, becomes subject to any increased cost or additional tax, whether
imposed by any exchange or otherwise, Morgan Guaranty reserves the right to
(x) designate a replacement Benchmark Oil Contract, satisfying both clauses
(i) and (ii) of the second preceding paragraph, which contract is subject
to an amount of cost or tax less than or equal to such increased amount or
(y) if no contract satisfying clause (x) of this paragraph is designated by
Morgan Guaranty, to cause, at its option, the Applicable Index Settlement
Value of the ComPS to be determined at such time (in accordance with the
methodology set forth above) as if the date of such increase in cost or tax
(or, in Morgan Guaranty's discretion, the last calendar day of the month in
which the determination of the Applicable Index Settlement Value is
completed) were the Stated Maturity. However, the ComPS will not be
redeemed at such time; rather, the ComPS will remain outstanding to Stated
Maturity, will continue to be entitled to dividends and will be redeemed at
Stated Maturity for a Redemption Value calculated using the Applicable
Index Settlement Value determined pursuant to the terms of this paragraph.
Such ComPS will also be subject to redemption upon the occurrence of a
Special Event and optional redemption on each Optional Redemption Date
(treating the Applicable Index Settlement Value determined pursuant to the
terms of this paragraph as the Applicable Index Early Settlement Value for
any Early Redemption Date) and will be redeemed at Stated Maturity for a
Redemption Value calculated using the Applicable Index Settlement Value
<PAGE>
determined pursuant to the terms of this paragraph. See "Risk
Factors--Potential Modification to the JPM Indices and/or the Applicable
Index".
Optional Redemption
The ComPS will be subject to redemption prior to their Stated Maturity at
the election of the holders thereof on each [ ] prior to the Stated
Maturity, beginning [ ], 1997 (each, an "Optional Redemption Date"). In
order to effect an Optional Redemption, any such redeeming holder will be
required to provide notice of the number of ComPS shares to be redeemed on
such Early Redemption Date to a Participant or Direct Participant in DTC,
and such Participant or Direct Participant must communicate such notice to
DTC no earlier than 32 scheduled Business Days prior to but no later than
22 scheduled Business Days prior to the applicable Early Redemption Date.
The DTC will then provide notice to the Company or its Transfer Agent of
the total number of ComPS shares to be redeemed on the Optional Redemption
Date (the "Applicable Notice"). Each Applicable Notice will be provided by
DTC to the Company by 12:30 p.m. New York time on the Business Day next
succeeding the last day of the applicable notice period. Each Applicable
Notice will be irrevocable upon receipt by the Company or its Transfer
Agent, and may not be withdrawn or modified after such receipt.
Additionally, the Early Determination Period will not commence until the
Company has received the Applicable Notice and the applicable Optional
Redemption Date will be subject to extension in the case of a Market
Disruption Event. The redeeming holders will be entitled to the ComPS Early
Redemption Price for each Preferred Security redeemed, which is equal to
(a) the Early Redemption Value for such ComPS plus (b) accrued and unpaid
dividends thereon to but excluding the scheduled Optional Redemption Date.
The Early Redemption Value of such ComPS shall be determined in accordance
with the formula specified in the Prospectus; provided that, for the
purposes of this Prospectus Supplement, "unused costs" shall equal [ ]. See
"--Book Entry Issuance--The Depository Trust Company" herein and
"Description of ComPS-Early Redemption Upon the Occurrence of a Special
Event or at the Election of the Holders of the ComPS" in the Prospectus of
which this Prospectus Supplement constitutes a part.
Special Event Redemption
The ComPS will be subject to redemption by the Company prior to Stated
Maturity, at its option, upon the occurrence of a Tax Event or an
Investment Company Event (each, a "Special Event"), as discussed herein.
"Tax Event" means that the Company shall have obtained an opinion of
nationally recognized independent tax counsel experienced in such matters
(a "Tax Opinion") to the effect that, as a result of (a) any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision
or taxing authority thereof or therein, (b) any amendment to, or change in,
an interpretation or application of any such laws or regulations by any
legislative body, court, governmental agency or regulatory authority
(including the enactment of any legislation and the publication of any
judicial decision or regulatory determination), (c) any interpretation or
pronouncement that provides for a position with respect to such laws or
regulations that differs from the theretofore generally accepted position
or (d) any action taken by any governmental agency or regulatory authority,
which amendment or change is enacted, promulgated, issued or announced or
which interpretation or pronouncement is issued or announced or which
action is taken, in each case on or after the date of this Prospectus
<PAGE>
Supplement, there is more than an insubstantial risk that at such time or
within 90 days of the date thereof (i) the Company is or would be subject
to United States Federal income tax with respect to income accrued or
received on the Related Note, (ii) the interest payable on the Related Note
is not, or would not be, deductible by Morgan Guaranty for United States
Federal income tax purposes, (iii) the contingent principal in excess of
the Face Amount, if any, payable on the Related Note is not, or would not
be, deductible by Morgan Guaranty for United States Federal income tax
purposes or (iv) the Company is or would be subject to more than a de
minimis amount of other taxes, duties, assessments or other governmental
charges.
"Investment Company Event" means that the Company shall have received an
opinion of a nationally recognized independent counsel experienced in such
matters to the effect that, as a result of the occurrence of a change in
law or regulation, a written change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or
regulatory authority or the expiration or revocation of any exemption from
any provisions of the Investment Company Act of 1940, as amended (the "1940
Act"), obtained by the Company (a "Change in 1940 Act Law"), there is more
than an insubstantial risk that the Company is or will be considered an
"investment company" that is required to be registered as such under the
1940 Act, which Change in 1940 Act Law becomes effective on or after the
date of this Prospectus Supplement.
If at any time a Tax Event or an Investment Company Event shall occur and
be continuing, J.P. Morgan shall elect to either:
(a) direct Morgan Guaranty to redeem the Related Note in whole or
in part, upon not less than 22 scheduled Business Days' notice to DTC,
within 90 days following the occurrence of such Special Event, in
which case the Company shall redeem in cash on a pro rata basis ComPS
and related Common Securities having an aggregate Principal Amount
equal to the Principal Amount of the Related Note so redeemed, at a
price per Preferred Security of the Early Redemption Value, plus an
amount equal to all accrued and unpaid dividends on such ComPS to but
excluding such Early Redemption Date; provided, that Morgan Guaranty
shall only be entitled to redeem the Related Note in part if such
partial redemption is sufficient to cause such Special Event to cease;
or
(b) in the case of a Tax Event, allow the Related Note and the
ComPS to remain outstanding and indemnify the Company for all taxes
payable by it as a result of such Tax Event (if any);
provided that, if at the time there is available to the Company the
opportunity to eliminate, within such 90-day period, the Special Event by
taking some ministerial action, such as filing a form or making an
election, or pursuing some other similar reasonable measure, that has no
adverse effect on the Company, J.P. Morgan, Morgan Guaranty or the holders
of ComPS, the Company will pursue such measure in lieu of redemption;
provided further that Morgan Guaranty shall have no right to redeem the
Related Note and J.P. Morgan shall have no right to direct the Company to
redeem the ComPS while the Company is pursuing any such ministerial action
or reasonable measure unless the Special Event shall not have been so
eliminated by the 85th day following the occurrence thereof, in which case
J.P. Morgan shall be permitted to direct Morgan Guaranty to provide notice
to the Company of the redemption of the Related Note.
Under current United States Federal income tax law, upon the occurrence of
<PAGE>
a Special Event, a redemption of ComPS, whether or not upon dissolution of
the Company, would be a taxable event to such holders. See "United States
Federal Income Taxation".
Redemption Procedures
In the case of a redemption by a holder of ComPS on an Optional Redemption
Date, any such redeeming holder will be required to provide notice of the
number of ComPS shares to be redeemed on such Optional Redemption Date to a
Participant or Direct Participant in DTC, and such Participant or Direct
Participant must communicate such notice to DTC no earlier than 32
scheduled Business Days prior to but no later than 22 scheduled Business
Days prior to the applicable Optional Redemption Date. Following receipt by
DTC of such notice, DTC will assign a new CUSIP number to ComPS with
respect to which such notice has been given, and such ComPS will no longer
be usable for settling trades with other DTC book-entry securities.
In the case of a redemption of ComPS upon the occurrence of a Special
Event, the Company will provide notice of such redemption to the Transfer
Agent and to DTC on a date not less than 22 scheduled Business Days prior
to such Early Redemption Date stating, among other things, the date of such
redemption.
The related Common Securities will be redeemed on a pro rata basis with the
ComPS except that, in the case of any dissolution or liquidation in which
the assets of the Company are insufficient to repay in full the Principal
Amount of all Preferred Securities then outstanding, all Preferred
Securities will be redeemed prior to the redemption of any Common
Securities. ComPS registered in the name of and held by DTC (as defined
herein) or its nominee will be redeemed in accordance with DTC's standard
procedures. See "-Book-Entry Only Issuance-The Depository Trust Company".
Payment of the ComPS Redemption Price or the ComPS Early Redemption Price,
as applicable, of the ComPS is conditioned upon delivery or book-entry
transfer of such ComPS (together with necessary endorsements) to the
Company at any time (whether prior to, on or after the relevant Redemption
Date) after the required notice is given (to the extent such notice is
required). See "-Book-Entry Only Issuance-The Depository Trust Company".
Payment of the ComPS Redemption Price or the ComPS Early Redemption Price,
as applicable, for such ComPS will be made by the delivery of cash no later
than the applicable Settlement Date with respect to such ComPS or, if
later, the time of delivery or book-entry transfer of such ComPS. If the
Company holds money sufficient to pay the ComPS Redemption Price or the
ComPS Early Redemption Price, as applicable, of the ComPS on the applicable
Settlement Date, then immediately at the close of business on such
Settlement Date, such ComPS will cease to be outstanding and dividends with
respect to such ComPS will cease to accrue, whether or not such ComPS are
delivered to the Company, and all rights of the holder of such ComPS shall
terminate and lapse, other than the right to receive the ComPS Redemption
Price or the ComPS Early Redemption Price, as applicable, upon delivery of
the ComPS.
Provided that Morgan Guaranty has paid to the Company the required amount
of cash due upon any redemption or at the maturity of the Related Note, the
Company will irrevocably deposit with DTC no later than the close of
business on the applicable Settlement Date funds sufficient to pay the
ComPS Redemption Price or the ComPS Early Redemption Price, as applicable,
<PAGE>
payable with respect to ComPS on such date and will give the Depositary
irrevocable instructions and authority to pay such amount to the holders of
ComPS entitled thereto. See "-Book-Entry Only Issuance-The Depository Trust
Company". In the event that any Settlement Date is not a Business Day, then
payment of the ComPS Redemption Price or the ComPS Early Redemption Price,
as applicable, payable on such date will be made on the next succeeding
Business Day with the same force and effect as if made on such date and no
interest on such distributions will accrue from and after such date, except
that, if such Business Day falls in the next calendar year such payment
will be made on the immediately preceding Business Day. In the event that
payment of the ComPS Redemption Price or the ComPS Early Redemption Price,
as applicable, is improperly withheld or refused and not paid by the
Company or by J.P. Morgan pursuant to the Guarantee, dividends on such
ComPS will continue to accrue from the original Redemption Date to the
actual date of payment by the Company to DTC.
The Company may not redeem fewer than all of the outstanding ComPS on any
Redemption Date unless all accrued and unpaid dividends have been or are
concurrently being paid on all ComPS for all monthly dividend periods
terminating on or prior to the applicable Redemption Date. If a partial
redemption as a result of a Special Event Redemption by Morgan Guaranty of
a part or all of the Related Note would result in the delisting of the
ComPS by any national securities exchange (or automated inter-dealer
quotation system, including The Nasdaq Stock Market ("Nasdaq")) on which
the ComPS are then listed, Morgan Guaranty may only redeem the Related Note
in whole and, as a result, the Company may only redeem the ComPS in whole.
Subject to the foregoing and to applicable law (including, without
limitation, United States Federal securities laws), J.P. Morgan or its
affiliates may, at any time and from time to time, purchase outstanding
ComPS by tender, in the open market or by private agreement.
Liquidation Distribution Upon Dissolution
In the event of any liquidation, dissolution, winding-up or termination of
the Company (each, a "Liquidation Event"), whether voluntary or
involuntary, the holders of ComPS on the date of such Liquidation Event
will be entitled to be paid out of the assets of the Company the
Liquidation Distribution. The "Liquidation Distribution" will be equal to
(a) the Early Redemption Value with respect to such ComPS (treating the
date of such distribution as the Early Redemption Date) plus (b) the amount
of accrued and unpaid dividends on such ComPS to but excluding the date of
payment. To the extent the assets of the Company are insufficient to repay
all amounts due to holders of all Preferred Securities of the Company,
holders of all Preferred Securities then outstanding (including the ComPS)
will be entitled to a pro rata share of the assets of the Company, based
upon the relative Principal Amounts of all Preferred Securities
outstanding. In addition, in the event that the assets of the Company
exceed the amount necessary to pay to all holders of ComPS the full amount
of the Liquidation Distribution, such excess will be paid to the holders of
Common Securities.
Pursuant to the LLC Agreement, the legal existence of the Company shall
terminate on November 21, 2105.
<PAGE>
Voting Rights
Except as described herein and under "-Modification of the LLC Agreement",
and as otherwise required by law and the LLC Agreement, the holders of the
ComPS will have no voting rights.
Pursuant to the provisions of the Guarantee, certain amendments to or
modifications of the Guarantee may only be effected with the approval of a
majority in aggregate Principal Amount at such time of the ComPS and all
other affected Preferred Securities. See "Description of the
Guarantee-Modification of the Guarantee".
Pursuant to the provisions of the Related Note, certain amendments to or
modifications of the Related Note may only be effected with the approval of
a majority in aggregate Principal Amount at such time of the ComPS. See
"Description of the Related Note-Modification of the Related Note".
Notwithstanding that holders of ComPS are entitled to vote or consent under
any of the circumstances described above, any of the ComPS that are owned
at such time by J.P. Morgan or any entity directly or indirectly
controlling or controlled by, or under direct or indirect common control
with, J.P. Morgan, shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if such ComPS were not
outstanding.
The procedures by which holders of ComPS may exercise their voting rights
are described below under "-Book-Entry Only Issuance-The Depository Trust
Company" and in the LLC Agreement.
Modification of the LLC Agreement
The LLC Agreement may be amended or modified if approved by a written
instrument executed by a majority in interest of the holders of Common
Securities; provided that, if any proposed amendment provides for (i) any
action that would adversely affect the powers, preferences or special
rights of the ComPS or (ii) the dissolution, winding up or termination of
the Company other than pursuant to the terms of the LLC Agreement, then the
holders of all affected outstanding Preferred Securities (or, in the case
of an event described in clause (ii), all Preferred Securities) of the
Company voting together as a single class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of holders of not less than a majority in
aggregate Principal Amount of all affected outstanding Preferred Securities
(or, in the case of an event described in clause (ii), all Preferred
Securities) of the Company affected thereby.
The LLC Agreement further provides that it may be amended without the
consent of the holders of the ComPS to (i) cure any ambiguity, (ii) correct
or supplement any provision in the LLC Agreement that may be defective or
inconsistent with any other provision of the LLC Agreement, (iii) add to
the covenants, restrictions or obligations of J.P. Morgan, (iv) conform to
changes in, or a change in interpretation or application of, certain
requirements of the 1940 Act by the Commission and (v) conform to certain
requirements of the Code with respect to the characterization of the
Company as a partnership for U.S. Federal income tax purposes, including,
without limitation, an alteration of the capitalization of the Company upon
any such change, which amendment does not adversely affect the rights,
preferences or privileges of the holders of the ComPS.
<PAGE>
Listing
[The ComPS have been authorized for listing on the [ ] under the symbol "[
]", subject to official notice of issuance. Trading of the ComPS on the [ ]
is expected to commence within a 30-day period after the date of this
Prospectus Supplement.] [Prior to this offering, there has been no market
for the ComPS. In order to meet one of the requirements for listing the
ComPS on the [ ], the underwriters will undertake to sell one or more lots
of 100 ComPS to a minimum of 400 beneficial holders.]
Accounting Treatment
The financial statements of the Company will be included in the
consolidated financial statements of J.P. Morgan, with the ComPS included
on the balance sheet with J.P. Morgan's other obligations.
Mergers, Consolidations or Amalgamations
The Company may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity, except
upon satisfaction of the conditions set forth in Section 2.8 of the LLC
Agreement, which includes in certain circumstances approval of 2/3 of
the outstanding Principal Amount of all Preferred Securities. In addition,
so long as any ComPS are outstanding and are not held directly or
indirectly entirely by J.P. Morgan, the Company may not voluntarily
liquidate, dissolve, wind-up or terminate on or prior to the Stated
Maturity.
Book-Entry Only Issuance-
The Depository Trust Company
The Depository Trust Company ("DTC") will act as securities depositary for
the ComPS. The ComPS will be issued only as fully-registered securities
registered in the name of Cede & Co. (DTC's nominee). One or more
fully-registered global ComPS certificates, representing the total
aggregate number of ComPS, will be issued and will be deposited with DTC.
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
Securities Exchange Act of 1934, as amended (the "Exchange Act"). DTC holds
securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others, such as securities
brokers and dealers, banks and trust companies that clear transactions
<PAGE>
through or maintain a direct or indirect custodial relationship with a
Direct Participant either directly or indirectly ("Indirect Participants").
The rules applicable to DTC and its Participants are on file with the
Commission.
Purchases of ComPS within the DTC system must be made by or through Direct
Participants, which will receive a credit for the ComPS on DTC's records.
The ownership interest of each actual purchaser of each Preferred Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which the Beneficial Owners
purchased ComPS. Transfers of ownership interests in the ComPS are to be
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in the ComPS, except in the event
that use of the book-entry system for the ComPS is discontinued.
To facilitate subsequent transfers, all the ComPS deposited by Participants
with DTC are registered in the name of DTC's nominee, Cede & Co. The
deposit of ComPS with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership. DTC has no knowledge of the
actual Beneficial Owners of the ComPS. DTC's records reflect only the
identity of the Direct Participants to whose accounts such ComPS are
credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory
requirements that may be in effect from time to time.
In the case of a Special Event Redemption, redemption notices shall be sent
to Cede & Co. If less than all of the ComPS are being redeemed, DTC will
reduce the amount of the interest of each Direct Participant in such ComPS
in accordance with its procedures. In the case of an Optional Redemption,
redemption notices shall be provided by Beneficial Owners and Participants to
DTC in accordance with its procedures. DTC will then provide the Applicable
Notice to the Company or its Transfer Agent of the number of ComPS to be
redeemed on the applicable Optional Redemption Date. The Applicable Notice will
be irrevocable upon receipt by the Company or its Transfer Agent, and may not
be withdrawn or modified after such receipt.
Although voting with respect to the ComPS is limited, in those cases where
a vote is required, neither DTC nor Cede & Co. will itself consent or vote
with respect to ComPS. Under its usual procedures, DTC would mail an
Omnibus Proxy to the Company as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co. consenting or voting rights to those
Direct Participants to whose accounts the ComPS are credited on the record
date (identified in a listing attached to the Omnibus Proxy). J.P. Morgan
and the Company believe that the arrangements among DTC, Direct and
Indirect Participants and Beneficial Owners will enable the Beneficial
Owners to exercise rights equivalent in substance to the rights that can be
directly exercised by a holder of a limited liability company interest in
the Company.
<PAGE>
Dividend payments on the ComPS will be made to DTC. DTC's practice is to
credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment
date. Payments by participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered
in "street name", and such payments will be the responsibility of such
Participant and not of DTC, the Company or J.P. Morgan, subject to any
statutory or regulatory requirements to the contrary that may be in effect
from time to time. Payment of dividends to DTC is the responsibility of the
Company, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary with
respect to the ComPS at any time by giving reasonable notice to the
Company. Under such circumstances, in the event that a successor securities
depositary is not obtained, ComPS certificates are required to be printed
and delivered. Additionally, the Company may decide to discontinue use of
the system of book-entry transfers through DTC (or any successor
depositary) with respect to the ComPS. In that event, certificates for the
ComPS will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that J.P. Morgan believes to be reliable,
but neither J.P. Morgan nor the Company takes responsibility for the
accuracy thereof.
Governing Law
The LLC Agreement and the ComPS will be governed by and interpreted in
accordance with the laws of the State of Delaware.
Description of the Related Note
Set forth below is a summary of the terms of the Related Note in which the
Company will invest the proceeds from the issuance and sale of the ComPS
and the related Common Securities. The following description does not
purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Prospectus of which this Prospectus Supplement is a
part and the Related Note, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus Supplement is a part.
Certain capitalized terms are used herein as defined in the Related Note.
<PAGE>
General
The Related Note will be issued as an unsecured, unsubordinated obligation
of Morgan Guaranty, limited in initial principal amount to approximately $[
] , such amount being the sum of the aggregate Initial Public Offering
Price shown on the cover page hereof for the ComPS and the related Common
Securities issued in connection therewith.
The Related Note is not subject to a sinking fund provision. The entire
Principal Amount of the Related Note will mature and become due and
payable, together with any accrued and unpaid interest thereon, if any, on
the Stated Maturity (subject to extension in the case of a Market
Disruption Event), subject to the prior redemption of the Related Note in
whole or in part at the option of the holders of ComPS or in certain
circumstances upon the occurrence of a Special Event. If Morgan Guaranty
redeems the Related Note in whole or in part, the Company must redeem on a
pro rata basis ComPS and related Common Securities having an aggregate
Principal Amount equal to the Principal Amount of the Related
Note so redeemed at the ComPS Early Redemption Price. See "Description of
the ComPS-Redemption at Stated Maturity; -Special Event Redemption".
Related Note Redemption Price
The amount payable under the Related Note by Morgan Guaranty to the Company
at any time shall equal (a) the Principal Amount of the Related Note at
such time plus (b) any accrued but unpaid distributions due to the Company
(the "Related Note Redemption Price"). The Principal Amount of the Related
Note at any time shall equal the aggregate Principal Amount of outstanding
ComPS and the related Common Securities at such time. The timing and amount
of payments on the Related Note mirror the aggregate financial terms of the
ComPS.
Subordination
Morgan Guaranty's obligations under the Related Note are effectively
subordinated to all liabilities (including indebtedness) of its
consolidated and unconsolidated subsidiaries. Moreover, Morgan Guaranty's
subsidiaries may incur indebtedness and other liabilities and have
obligations to third parties. Generally, the claims of such third parties
to the assets of Morgan Guaranty's subsidiaries will be superior to those
of Morgan Guaranty as a stockholder, and, therefore, the Related Note may
be deemed to be effectively subordinated to the claims of such third
parties.
Upon any payment or distribution of all or substantially all of the assets
of Morgan Guaranty or in the event of any insolvency, bankruptcy,
receivership, liquidation, dissolution, reorganization or other similar
proceeding whether voluntary or involuntary relative to Morgan Guaranty or
its creditors, the holders of all Senior Indebtedness will be entitled to
receive payment pari passu and pro rata with the Company. However,
depositors in Morgan Guaranty will have a preference over holders of Senior
Indebtedness upon any such event.
As used in the Related Note, the term "Senior Indebtedness" means the
principal of, premium, if any, and interest on (a) all indebtedness of
Morgan Guaranty for money borrowed, whether outstanding as of the date
hereof or hereafter created, issued or incurred (other than Morgan
<PAGE>
Guaranty's obligations to its depositors), except any indebtedness
expressly subordinated to such Senior Indebtedness, and (b) any deferrals,
renewals or extensions of any such Senior Indebtedness. The Related Note
does not limit the amount of Senior Indebtedness which Morgan Guaranty may
incur.
Interest
The Related Note shall bear interest at the rate of [ ] % per annum on the
Face Amount from the original date of issuance, payable monthly in arrears
on the last calendar day of each month (each, an "Interest Payment Date"),
commencing [ ], 1996, to the Company, subject to certain exceptions, at the
close of business on the Business Day next preceding the relevant Interest
Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable
for any period shorter than a full monthly period for which interest is
computed will be computed on the basis of the actual number of days elapsed
per 30-day month. In the event that any date on which interest is payable
on the Related Note is not a Business Day, payment of the interest payable
on such date will be made on the next succeeding Business Day with the same
force and effect as if made on such date and no interest on such
distributions will accrue from and after such date, except that, if such
Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date.
Optional Redemption
The Company shall have the right to call for redemption prior to each
Optional Redemption Date a Principal Amount of the Related Note sufficient
to allow it to pay the ComPS Early Redemption Price to any holders of ComPS
who exercise their right to redeem any or all of such holders' ComPS and a
pro rata portion of the related Common Securities. See "Description of the
ComPS-Optional Redemption".
Special Event Redemption
Upon the occurrence of a Special Event, Morgan Guaranty will have the right
to elect to, under certain circumstances (a) redeem the Related Note at the
Related Note Redemption Price or (b) in the case of a Tax Event, allow the
Related Note to remain outstanding and indemnify the Company for any taxes
payable by it as a result of such Tax Event. See "Description of the
ComPS-Special Event Redemption".
Events of Default
The Related Note Events of Default are described in "Description of the
Related Notes- Related Note Events of Default" in the Prospectus of which
this Prospectus Supplement constitutes a part. A default or event of
default under any Senior Indebtedness would not constitute a default or
event of default under the Related Note.
<PAGE>
Modification of the Related Note
The Related Note contains provisions permitting Morgan Guaranty and the
Company, with the consent of the holders of not less than a majority in
Principal Amount of the outstanding ComPS, to modify the Related Note,
subject to certain exceptions. See "Description of the Related Notes
- -Modification of the Related Notes" in the Prospectus of which this
Prospectus Supplement constitutes a part.
Consolidation, Merger and Sale
The Related Note provides that Morgan Guaranty may, without the consent of
the Company or the holders of the ComPS, consolidate or merge with or into,
or sell or transfer all or substantially all of its property or assets to,
any corporation or association; provided that (i) the corporation (if other
than Morgan Guaranty) or association formed by or resulting from any such
consolidation or merger or which shall have received such property or
assets shall have assumed Morgan Guaranty's obligations under the Related
Note and (ii) immediately after giving effect to such transaction, Morgan
Guaranty or such successor corporation shall not be in default under the
terms of the Notes.
Governing Law
The Related Note will be governed by, and construed in accordance with, the
laws of the State of New York.
Miscellaneous
Morgan Guaranty will have the right at all times to assign any of its
rights or obligations under the Related Note to J.P. Morgan or to a direct
or indirect wholly-owned subsidiary of Morgan Guaranty; provided that, in
the event of any such assignment, Morgan Guaranty will remain jointly and
severally liable for all such obligations. Subject to the foregoing, the
Related Note will be binding upon and inure to the benefit of the parties
thereto and their respective successors and assigns. The Related Note is
not a deposit or other obligation of a bank and is not insured by the
Federal Deposit Insurance Corporation or any other federal agency. The
obligations of Morgan Guaranty under the Related Note are pari passu with
all present and future Senior Indebtedness of Morgan Guaranty (as defined
herein), which aggregated approximately $76.1 billion at December 31, 1995,
and are junior to Morgan Guaranty's obligations to its depositors in the
event of a receivership. In addition, J.P. Morgan's obligations under the
Guarantee and the Related Note Guarantee and Morgan Guaranty's obligations
under the Related Note are effectively subordinated to all liabilities
(including indebtedness) of the consolidated and unconsolidated
subsidiaries of each.
<PAGE>
Description of the Guarantee
Set forth below is a summary of information concerning the Guarantee that
will be delivered by J.P. Morgan for the benefit of the holders of ComPS.
The terms of the Guarantee will be those set forth in the Guarantee
Agreement. The following summary does not purport to be complete and is
subject in all respects to the provisions of, and is qualified in its
entirety by reference to, the Prospectus of which this Prospectus
Supplement is a part and the form of Guarantee, which is filed as an
exhibit to the Registration Statement of which this Prospectus Supplement
forms a part.
General
Pursuant to the Guarantee, J.P. Morgan irrevocably and unconditionally
agrees, on a subordinated basis, to pay in full to the holders of the ComPS
the Guarantee Payments (as defined herein) (except to the extent paid by
the Company), as and when due, regardless of any defense, right of set-off
or counterclaim that the Company may have or assert. The following payments
with respect to ComPS issued by the Company (the "Guarantee Payments"), to
the extent not paid by the Company, will be subject to the Guarantee
(without duplication): (i)(A) any accrued and unpaid dividends that are
required to be paid on the ComPS and (B) the ComPS Early Redemption Price
<PAGE>
or the ComPS Redemption Price, as applicable, but if and only if to the
extent that, in each case, Morgan Guaranty has made payment of interest or
principal on the Related Note, as the case may be, and (ii) upon a
Liquidation Event (other than in connection with the redemption of all of
the ComPS at Stated Maturity or redemption of the Related Note) the lesser
of (A) the Liquidation Distribution to the extent the Company has funds
available therefor and (B) the amount of assets of the Company remaining
available for distribution to holders of the ComPS upon such Liquidation
Event. J.P. Morgan's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by J.P. Morgan to the
holders of ComPS or by causing the Company to pay such amounts to such
holders. The Guarantee will be an unconditional guarantee with respect to
the ComPS from the time of issuance of the ComPS to the extent Morgan
Guaranty has made payments under the Related Note. If Morgan Guaranty does
not make payments on the Related Note, the Company may not pay
distributions on the ComPS issued and may not have funds available
therefor. See "Description of the Related Note".
Modification of the Guarantee; Assignment
Except with respect to any changes that do not adversely affect the rights
of holders of all Preferred Securities (in which case no vote will be
required), the Guarantee may be amended only with the prior approval of the
holders of not less than a majority in aggregate Principal Amount of the
outstanding ComPS and all other Preferred Securities entitled to vote
thereon, voting as a single class. All guarantees and agreements contained
in the Guarantee shall bind the successors, assignees, receivers, trustees
and representatives of J.P. Morgan and shall inure to the benefit of the
holders of the ComPS.
Remedies of Holders
If J.P. Morgan fails to perform any of its payment or other obligations
with respect to the ComPS under the Guarantee, any holder of ComPS may
institute a legal proceeding directly against J.P. Morgan to enforce such
holder's rights under the Guarantee without first instituting a legal
proceeding against the Company or any other person or entity. Subject to
the award by a court of competent jurisdiction of legal fees in connection
with any such legal proceeding, each holder will be required to bear its
own costs in connection with instituting a legal proceeding directly
against J.P. Morgan, which cost may be significant.
Termination of the Guarantee
The Guarantee will terminate with respect to the ComPS upon full payment of
the aggregate ComPS Early Redemption Price or ComPS Redemption Price, as
applicable, or upon full payment of the amounts payable in accordance with
the LLC Agreement upon liquidation of the Company. The Guarantee will
continue to be effective or will be reinstated, as the case may be, if at
any time any holder of ComPS must restore payment of any sums paid under
such ComPS or the Guarantee (e.g., upon a subsequent bankruptcy of Morgan
Guaranty or J.P. Morgan).
<PAGE>
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of J.P. Morgan and
will rank (i) subordinate and junior in right of payment to all other
liabilities of J.P. Morgan, (ii) pari passu with the most senior preferred
or preference stock outstanding as of the date hereof of J.P. Morgan and
(iii) senior to J.P. Morgan's common stock. The terms of the ComPS provide
that each holder of ComPS by acceptance thereof agrees to the subordination
provisions and other terms of the Guarantee.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly
against the guarantor to enforce its rights under the Guarantee without
instituting a legal proceeding against any other person or entity).
Governing Law
The Guarantee will be governed by and construed and interpreted in
accordance with the laws of the State of New York.
Description of the Related Note Guarantee
Set forth below is a summary of information concerning the Related Note
Guarantee that will be delivered by J.P. Morgan for the benefit of the
Company. The terms of the Related Note Guarantee will be those set forth in
the Related Note Guarantee Agreement. The following summary does not
purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Prospectus of which
this Prospectus Supplement is a part and the form of Related Note
Guarantee, which is filed as an exhibit to the Registration Statement of
which this Prospectus Supplement forms a part. The Related Note Guarantee
will be held by the Company, as the holder of the Related Note.
General
Pursuant to the Related Note Guarantee, J.P. Morgan irrevocably and
unconditionally agrees, on a subordinated basis, to pay in full to the
Company the Related Note Guarantee Payments (as defined herein), as and
when due, regardless of any defense, right of set-off or counterclaim that
Morgan Guaranty may have or assert with respect to its obligation to make
such Related Note Guarantee Payments. The following payments with respect
to the Related Note issued by Morgan Guaranty (the "Related Note Guarantee
Payments") will be subject to the Related Note Guarantee (without
duplication): (i) any accrued and unpaid distributions that are required to
be paid by Morgan Guaranty on the Related Note and (ii) any principal
payable by Morgan Guaranty under the Related Note, as and when payable by
Morgan Guaranty. J.P. Morgan's obligation to make a Related Note Guarantee
Payment may be satisfied by direct payment of the required amounts by J.P.
Morgan to the Company or by causing Morgan Guaranty to pay such amounts to
the Company. The Related Note Guarantee will be a full and unconditional
guarantee with respect to the Related Note from the time of issuance of the
Related Note.
<PAGE>
Modification of the Related Note Guarantee; Assignment
The Related Note Guarantee may be amended only with the prior approval of
the Company. All guarantees and agreements contained in the Related Note
Guarantee shall bind the successors, assignees, receivers, trustees and
representatives of J.P. Morgan and shall inure to the benefit of the
Company as the holder of the Related Note.
Remedies of the Company
The Company has the sole right to direct the time, method and place of
conducting any proceeding for any remedy available to it in respect of the
Related Note Guarantee.
Termination of the Related Note Guarantee
The Related Note Guarantee will terminate with respect to the Related Note
upon full payment of the Related Note Redemption Price (as defined below)
of the Related Note. The Related Note Guarantee will continue to be
effective or will be reinstated with respect to the Related Note, as the
case may be, if at any time the Company must restore payment of any sums
paid under the Related Note or the Related Note Guarantee (e.g., upon a
subsequent bankruptcy of J.P. Morgan).
Status of the Related Note Guarantee
The Related Note Guarantee will constitute an unsecured obligation of J.P.
Morgan and will rank (i) subordinate and junior in right of payment to all
other liabilities of J.P. Morgan, (ii) pari passu with the most senior
preferred or preference stock outstanding as of the date hereof of J.P.
Morgan and (iii) senior to J.P. Morgan's common stock. The terms of the
ComPS provide that each holder of ComPS by acceptance thereof agrees to the
subordination provisions and other terms of the Related Note Guarantee.
The Related Note Guarantee will constitute a guarantee of payment and not
of collection (that is, the Company may institute a legal proceeding
directly against J.P. Morgan to enforce its rights under the Related Note
Guarantee without instituting a legal proceeding against Morgan Guaranty).
Governing Law
The Related Note Guarantee will be governed by and construed and
interpreted in accordance with the laws of the State of New York.
Effect of Obligations Under the Guarantee,
the Related Note Guarantee and the Related Note
As set forth in the LLC Agreement, the sole purpose of the Company is to
issue the Securities and other Preferred and Common Securities, and to
invest the proceeds from such issuances in the Related Note and other debt
obligations of Morgan Guaranty.
<PAGE>
As long as payments of interest and other payments are made when due on the
Related Note, such payments will be sufficient to cover dividends and
payments due on the ComPS because of the following factors: (i) the
Principal Amount of the Related Note will be equal to the sum of the
aggregate Principal Amount of the ComPS and the related Common Securities;
(ii) the interest rate and the interest and other payment dates on the
Related Note will match the dividend rate and dividend and other payment
dates for the ComPS; (iii) J.P. Morgan shall pay all, and the Company shall
not be obligated to pay, directly or indirectly, any, costs and expenses of
the Company other than principal of and dividends on the ComPS and the
related Common Securities; and (iv) the LLC Agreement further provides that
the J.P. Morgan shall not cause the Company to, among other things, engage
in any activity that is not consistent with the purposes of the Company.
Payments of dividends (to the extent Morgan Guaranty has made payments of
interest on the Related Note) and other payments due on the ComPS (to the
extent Morgan Guaranty has made payment of principal and other amounts on
the Related Note) are guaranteed by J.P. Morgan as and to the extent set
forth under "Description of the Guarantee" herein and in the accompanying
Prospectus. If Morgan Guaranty does not make interest payments on the
Related Note, it is expected that the Company will not have sufficient
funds to pay dividends on the ComPS. The Guarantee is a full and
unconditional guarantee from the time of its issuance but does not apply to
any dividends or other payments unless and until Morgan Guaranty has made
payment of interest or other payments on the Related Note.
If Morgan Guaranty fails to make interest or other payments on the Related
Note when due, the LLC Agreement provides a mechanism whereby the holders
of the ComPS, using the procedures described in the LLC Agreement, may
direct the Company to enforce its rights under the Related Note. If J.P.
Morgan fails to perform any of its payment or other obligations with
respect to the ComPS under the Guarantee, any holder of ComPS may institute
a legal proceeding directly against J.P. Morgan to enforce such holder's
rights under the Guarantee without first instituting a legal proceeding
against the Company or any other person or entity.
The Related Note Guarantee by J.P. Morgan guarantees to the Company the
payment of any distributions on and principal of the Related Note as
provided pursuant to the terms of the Related Note, at such times and in
such amounts as provided therein. J.P. Morgan's obligations under the
Related Note Guarantee will be subordinated and junior in right of payment
to all liabilities of J.P. Morgan, pari passu with the most senior
preferred stock outstanding as of the date hereof of J.P. Morgan and senior
to the common stock of J.P. Morgan.
The LLC Agreement and the Expense Agreement provide that J.P. Morgan will
pay for, or cause to be paid, all debts and obligations (other than with
respect to the ComPS) and all costs and expenses of the Company, including
any taxes and all costs and expenses with respect thereto, to which the
Company may become subject. J.P. Morgan and the Company agreed that any
person to whom such debts, obligations, costs and expenses are owed will
have the right to enforce J.P. Morgan's obligations in respect of such
debts, obligations, costs and expenses directly against J.P. Morgan without
first proceeding against the Company.
J.P. Morgan and the Company believe that the above mechanisms and
obligations, taken together, are equivalent to a full and unconditional
guarantee by J.P. Morgan of payments due on the ComPS. See "Description of
the Guarantee-General" and "Description of the Related Note
Guarantee-General" herein and in the accompanying Prospectus.
<PAGE>
Upon any voluntary or involuntary liquidation, dissolution, winding-up or
termination of the Company, the holders of Securities will be entitled to
receive the Liquidation Distribution. Holders of ComPS will be entitled to
the benefits of the Guarantee with respect to the Liquidation Distribution.
See "Description of the ComPS-Liquidation Distribution Upon Dissolution".
Upon any voluntary or involuntary liquidation or bankruptcy of Morgan
Guaranty, the Company as holder of the Related Note would be pari passu
with creditors of Morgan Guaranty (other than any depositors therein),
equal in right of payment with all Senior Indebtedness and entitled to
receive payment in full of principal, premium, if any, and interest, before
any stockholders of Morgan Guaranty receive payments of distributions.
United States Federal Income Taxation
General
The following is a summary of the material United States Federal income tax
consequences of the purchase, ownership and disposition of ComPS by U.S.
Holders (as defined herein). Unless otherwise stated, this summary deals
only with ComPS held as capital assets by holders who purchase the ComPS
upon original issuance ("Initial Holders").
This summary 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 that will hold the ComPS as a position in
a "straddle" (within the meaning of Section 1092 of the Internal Revenue
Code of 1986, as amended (the "Code")), or as part of a "conversion
transaction" (within the meaning of Section 1258 of the Code) or "synthetic
security" or other integrated investment comprised of ComPS and one or more
other investments. This summary also does not address the tax consequences
to persons that have a functional currency other than the U.S. Dollar or
the tax consequences to shareholders, partners or beneficiaries of a holder
of ComPS. Further, it does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government
or of any foreign government that may be applicable to the ComPS.
This summary is based on the Code, Treasury regulations thereunder and
administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis. In the
opinion of Cravath, Swaine & Moore, special tax counsel to J.P. Morgan and
the Company ("Tax Counsel"), the statements contained in the following
summary, to the extent they constitute matters of law, accurately describe
the material U.S. Federal income tax consequences to holders of the
acquisition, ownership and disposition of ComPS. For purposes of this
summary, a "U.S. Holder" shall mean a holder who is (i) a citizen or a
resident of the United States (or any state thereof), (ii) a corporation,
partnership or other entity created or organized in or under the laws of
the United States or any political subdivision thereof, (iii) an estate or
trust, the income of which is subject to U.S. Federal income tax regardless
of its source, and (iv) any other person subject to U.S. Federal income tax
on net income.
Classification of the Related Note
No statutory, judicial or administrative authority directly addresses the
characterization of the Related Note or instruments similar to the Related
<PAGE>
Note for U.S. Federal income tax purposes. As a result, significant aspects
of the U.S. Federal income tax consequences of investment in ComPS are not
certain. No ruling is being requested from the Internal Revenue Service
(the "IRS") with respect to the Related Note and no assurance can be given
that the IRS will agree with the conclusions expressed herein. In the
absence of clear authority and based on the advice of Tax Counsel, it is
the intention of the Company to treat the Related Note as a contingent debt
instrument with interest accruing (and currently taxable to holders) at the
stated coupon rate. By purchasing the ComPS, the holders will agree to
treat the Related Note in the same manner.
Classification of the Company
In connection with the issuance of the ComPS, it is Tax Counsel's opinion
that, under current law and assuming full compliance with the terms of the
LLC Agreement and the Related Note, and based on certain facts and
assumptions contained in the opinion of Tax Counsel, the Company will be
classified for U.S. Federal income tax purposes as a partnership and not as
an association taxable as a corporation. Accordingly, for U.S. Federal
income tax purposes, each holder of ComPS will be required to include in
its gross income its distributive share of any item of income or gain
realized by the Company including any interest accrued with respect to the
Related Note. No portion of the income accrued by the Company will be
eligible for the dividends received deduction. By acquiring one or more
ComPS, each holder thereof agrees to treat such ComPS as an interest in a
partnership holding the Related Note.
The Company will have a calendar year tax year and will use the accrual
method of accounting. Accordingly, calendar year holders will be required
to include their distributive share of the income accrued by Company in
their taxable year that corresponds to the year in which the Company
accrued such income. Holders with a different taxable year will include
such income in their taxable year that includes the December 31 of the
Company's taxable year in which the Company accrued the income.
U.S. Holders
Taxation of Income Accrued by the Company
Assuming the Related Notes are treated as contingent debt instruments for
U.S. Federal income tax purposes, the following rules are believed to
apply, subject to the discussion below:
(1) a U.S. Holder would be required to include its distributive
share of the stated interest on the Related Note in income as it is
accrued by the Company, and would not be entitled to the dividends
received deduction with respect thereto;
(2) upon the redemption of the ComPS (whether optional or Special
Event redemption or at Stated Maturity) or liquidation of the Company,
it is expected that a U.S. Holder will have gain or loss equal to the
difference between the amount realized by the U.S. Holder and such
Holder's tax basis in the ComPS; any loss would be capital loss, but
the tax characterization of gain is not clear and may be ordinary
income rather than capital gain;
(3) for the purpose of computing gain or loss, a U.S. Holder's
tax basis in the ComPS would equal the cost of the ComPS increased by
<PAGE>
such Holder's distributive share of income accrued with respect to the
income of the Company and decreased by the amount of dividends received by
such
Holder; and
(4) any capital gain or loss on the redemption of the ComPS will
be characterized as a long-term capital gain or loss if at the time of
redemption or liquidation the holding period in the ComPS is in excess
of one year.
However, even assuming the Related Note is properly treated as a contingent
debt instrument, in the absence of authority concerning the proper tax
treatment of such instruments, no assurance can be given that the above tax
consequences would be accepted by the IRS or upheld by a court. Moreover, a
variety of different tax characterizations can apply to the Related Note.
For example the Related Note can be viewed as a "notional principal
contract" (as defined in Treasury Regulations 1.446-3), a non-contingent
debt instrument coupled with a cash-settled forward purchase contract or
some other contractual arrangement.
Accordingly, the tax consequences of investment in ComPS may not be as
described above. For example, (i) gain on redemption of the ComPS or on
liquidation of the Company may be ordinary income rather than capital gain,
(ii) a U.S. Holder might be required to accrue income at a rate greater
than the stated rate on the Related Note, and have less income or
gain (or a greater loss) upon disposition or redemption of ComPS, or (iii)
all or part of the stated interest on the Related Note might be treated as
a nontaxable return of capital, increasing the amount of income or gain (or
decreasing the loss) upon disposition or redemption of ComPS.
In connection with clause (ii) of the preceding paragraph, recently
proposed Treasury Regulations with respect to contingent debt instruments
would require the accrual of interest income on the Related Note based on
the projected yield to maturity of the Related Note. The projected yield
would take into account the projected Related Note Redemption Price (based
upon forward pricing for the Applicable Index). This method might result in
an annual inclusion of income at a rate in excess of the stated rate of
interest on the Related Note. An adjustment would be made at maturity to
reflect the actual Related Note Redemption Price as compared to the
projected amount. Moreover, any gain on redemption of ComPS or upon
liquidation of the Company would be ordinary income and any loss would be
ordinary loss to the extent of the amount of prior interest accrual. 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 Related Note. However, no assurance can be given that the IRS or the
courts would not apply the principles of the regulations to the Related
Note.
Monthly Allocations of Income
In general, the Company's taxable income from the Related Note for each
month will be allocated, pursuant to a monthly convention, to holders who
hold ComPS on the record date for the payment of dividends for that month.
Thus, taxable income is allocated when paid and not on an accrual basis. As
a result, the taxable income allocated to a holder who sells (or buys)
ComPS between record dates will not accurately reflect the accrued interest
on the Related Note for the holder's actual holding period for ComPS during
the month of sale (or purchase), which may affect such holder's tax
liability and tax basis in the ComPS.
<PAGE>
However, the IRS may determine that the use of this monthly convention is
not permitted. If this monthly convention is not allowed, taxable income of
the Company from the Related Note in the month of sale might be reallocated
among the sellers and buyers of ComPS. The LLC Agreement permits the
Company to revise its method of allocation between sellers and buyers to
conform to a method permitted by future regulations.
Sale or Other Disposition of ComPS
Upon the sale or other disposition of ComPS (other than redemption of ComPS
by the Company), a U.S Holder would have gain or loss equal to the
difference between the amount realized by the U.S. Holder and such Holder's
tax basis in the ComPS disposed of. Generally, it is believed that such
gain or loss will be capital gain or loss, although such gain might be
ordinary income. Any such capital gain or loss will be a long-term capital
gain or loss if upon disposition the ComPS will have been held for more
than one year.
Non-United States Holders
In the case of a holder of ComPS that is not a U.S. Holder, although no
assurance can be given it is believed that payments made with respect to
ComPS will not be subject to U.S. withholding tax, provided that such
holder complies with applicable certification requirements. The Company may
withhold on such payments, in which case the holder will be entitled to
file a claim with the IRS claiming a refund of such withholding tax. No
assurance can be given whether such a claim would be successful. Any
capital gain realized upon the redemption, sale or other disposition of
ComPs by a holder that is not a U.S. Holder 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 the redemption, sale or other
disposition or the gain is not attributable to a fixed place of business
maintained by such individual in the United States.
Information Reporting to Holders
The Company will annually report each holder's distributive share of the
Company's income, gains, expenses and losses to the holders and the IRS on
Schedule K-1. The Company currently intends to report such information
prior to January 31 following each calendar year even though the Company is
not legally required to report to record holders until April 15
following each calendar year. The Company will provide the Schedule K-1
information to nominees (other than certain clearing agencies) that fail to
provide the information statements described below and such nominees will
be required to forward such information to the beneficial owners of the
ComPS.
Under section 6031 of the Code, any person (other than certain clearing
agencies) that holds ComPS as a nominee at any time during a calendar year
is required to furnish the Company with a statement containing certain
information on the nominee, the beneficial holders and the ComPS so held.
<PAGE>
Such information includes (i) the name, address and taxpayer identification
number of the nominee and each beneficial owner and (ii) as to each
beneficial owner (x) whether such person is a United States person, a
tax-exempt entity, a foreign government, an international organization or
any wholly-owned agency or instrumentality of the either of the foregoing
and (y) certain information on ComPS that were held, bought or sold on
behalf of such person throughout the year. In addition, brokers and
financial institutions that hold ComPS for their own account through a
clearing agency are required to furnish the Company additional information
as to themselves and their ownership of ComPS. The information referred to
above for any calendar year must be furnished to the Company on or before
the following January 31. Nominees, brokers and financial institutions that
fail to provide the Company with such information may be subject to
penalties.
Backup Withholding
Payments made on, and proceeds from the sale of, the ComPS may be subject
to a "backup" withholding tax of 31% unless the holder complies with
certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's United States Federal income tax, provided
that the required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE MAY NOT BE
APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE COMPS, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA Considerations
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") or Section 4975 of the
Code ("Plans"), may purchase ComPS, subject to the investing fiduciary's
determination that the investment in ComPS satisfies ERISA's fiduciary
standards and other requirements applicable to investments by the Plans.
In any case, J.P. Morgan, Morgan Guaranty and/or any affiliates of either
may be considered a "party in interest" (within the meaning of ERISA) or a
"disqualified person" (within the meaning of Section 4975 of the Code) with
respect to certain Plans. The acquisition and ownership of ComPS by a Plan
(or by an individual retirement arrangement or other plans described in
Section 4975(e)(i) of the Code) with respect to which J.P. Morgan, Morgan
Guaranty or any of its affiliates of either is considered a party in
interest or a disqualified person may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such ComPS are
acquired pursuant to and in accordance with an applicable exemption.
As a result, Plans with respect to which J.P. Morgan, Morgan Guaranty or
any affiliates of either is a party in interest or a disqualified person
should not acquire ComPS. Any other Plans or other entities whose assets
include plan assets subject to ERISA proposing to acquire ComPS should
consult with their own ERISA counsel.
<PAGE>
Underwriting
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
Underwriters, and the Underwriters have agreed, severally and not jointly,
to purchase, the ComPS. In the Underwriting Agreement, the Underwriters
have agreed, subject to the terms and conditions set forth therein, to
purchase all the ComPS offered hereby if any of the ComPS are purchased. In
the event of default by any Underwriter and failure by the other
Underwriters to purchase such defaulting Underwriter's portion of the
ComPS, the Underwriting Agreement provides that, in certain circumstances,
the Underwriting Agreement may be terminated.
The Underwriters propose to offer the ComPS, in part, directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus Supplement, and, in part, to certain securities dealers at
such price less a concession of $[ ] per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $[ ] per Preferred Security to certain brokers and dealers. After
the ComPS are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the ComPS will
ultimately be used to purchase the Related Note of Morgan Guaranty, the
Underwriting Agreement provides that Morgan Guaranty will pay as
compensation ("Underwriters' Compensation") to the Underwriters $[ ] per
Preferred Security (or $[ ] in the aggregate) for the accounts of the
several Underwriters; provided that such compensation for sales of ComPS to
certain institutions will be $[ ] per Preferred Security. Therefore, to the
extent of such institutional sales, the actual amount of Underwriters'
Compensation will be less than the aggregate amount specified in the
preceding sentence.
[The ComPS have been authorized for listing on the [ ] under the symbol "[
]", subject to official notice of issuance. Trading of the ComPS on the [ ]
is expected to commence within a 30-day period after the date of this
Prospectus Supplement.] [Prior to this offering, there has been no market
for the ComPS. In order to meet one of the requirements for listing the
ComPS on the [ ], the Underwriters will undertake to sell one or more lots
of 100 ComPS to a minimum of 400 beneficial holders.]
The Company and J.P. Morgan have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
This Prospectus Supplement and related 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 ComPS.
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 Underwriters, certain agents and their associates may be customers of,
engage in transactions with, and perform services for, J.P. Morgan in the
ordinary course of business.
The lead Underwriter is an indirect, wholly-owned subsidiary of J.P.
Morgan. The participation of the lead Underwriter in the offer and sale of
the ComPS complies with the requirements of Schedule E of the By-laws of
the National Association of Securities Dealers, Inc. (the "NASD") regarding
<PAGE>
underwriting of securities of an affiliate and complies with any
restrictions imposed on such Underwriters by the Board of Governors of the
Federal Reserve System, including the use of a "qualified independent
underwriter" (if required by the NASD).
Legal Matters
The validity of the Securities offered hereby will be passed upon by
Margaret M. Foran, Vice President, Assistant General Counsel and Assistant
Secretary of J.P. Morgan, and by Cravath, Swaine & Moore, New York, New
York, counsel for the Underwriter. 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 audited financial statements contained in J.P. Morgan's Annual Report
on Form 10-K 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.
ANNEX I
Glossary of Terms
The following are abbreviated definitions of certain capitalized terms used
in the Prospectus Supplement. The LLC Agreement, the Guarantee, the Related
Note Guarantee and the Related Note may contain more complete definitions
of certain of the terms defined herein, as well as definitions of certain
other terms not defined herein, and reference should be made to the LLC
Agreement, the Guarantee, the Related Note Guarantee and the Related Note,
as applicable, for complete definitions of such terms.
Applicable Index the JPMCI Crude Oil Excess Return Index.
Applicable Index [ ].
Commencement Value
Applicable Index the arithmetic average of the values of the
Settlement Value Applicable Index during the Determination
Period; provided, however, that if the
Applicable Index Settlement Value has
been permanently determined prior to
such time, the Applicable Index
Settlement Value shall equal the value
so determined.
Applicable Index Early the arithmetic average of the values of the
Settlement Value Applicable Index during the Early
Determination Period; provided, however,
that if the Applicable Index Settlement
Value has been permanently determined
prior to such time, the Applicable Index
Early Settlement Value shall equal the
value so determined.
<PAGE>
Benchmark Oil Contracts the crude oil futures contracts included
from time to time in the JPM Indices,
which shall initially be the NYMEX Light
"Sweet" Crude Oil futures contract.
Business Day any day other than a Saturday, Sunday or
any other day on which banking
institutions in The City of New York,
New York, are permitted or required by
any applicable law to close.
Code the Internal Revenue Code of 1986,
as amended.
Commission the Securities and Exchange Commission.
Common Securities the common securities of the Company
representing voting limited liability
company interests in the Company, to be
directly or indirectly owned by J.P.
Morgan.
ComPS Early Redemption On any Early Redemption Date, an amount
Price equal to (i) the Early Redemption Value
per Preferred Security plus (ii) accrued
and unpaid dividends to but excluding
the date of redemption.
ComPS Redemption Price at Stated Maturity, an amount equal to
(i) the Redemption Value per Preferred
Security plus (ii) accrued and unpaid
dividends to but excluding Stated
Maturity.
Determination Period the 10 consecutive Trading Days on which
no Market Disruption Event occurs
immediately following the 20th scheduled
Business Day prior to Stated Maturity.
Dividends cumulative cash dividends of [ ]% per
annum on the Face Amount (calculated on
the basis of a 360 day year of twelve
30-day months) accruing from the Issue
Date and payable monthly in arrears.
DTC The Depository Trust Company.
Early Redemption Value The average for the 10 days of the Early
Determination Period of the discounted
present value of the indexed Principal
Amount of the ComPS, as set forth in the
accompanying Prospectus under "Description
of ComPS--Early Redemption Upon the
Occurrence of a Special Event or at the
Election of the Holders of the ComPS".
ERISA the Employee Retirement Income Security
Act of 1974.
<PAGE>
Early Determination Period the 10 consecutive Trading Days which are
Business Days on which U.S. Treasury
Bond markets are open and on which no
Market Disruption Event occurs
immediately following the 20th scheduled
Business Day prior to the applicable
Early Redemption Date.
Early Redemption Date each Optional Redemption Date and the date
of any Special Event Redemption or
Liquidation Distribution.
Exchange Act the Securities Exchange Act of 1934,
as amended.
Face Amount [$40].
Guarantee the Guarantee Agreement executed by J.P.
Morgan on behalf of the holders of each
series of Preferred Securities.
Guarantee Payments without duplication, (i)(A) any accrued
and unpaid dividends that are required
to be paid on the ComPS and (B) the
ComPS Early Redemption Price or the
ComPS Redemption Price, as applicable,
but if and only to the extent that, in
each of case, Morgan Guaranty has made a
payment of interest or principal, as the
case may be, on the Related Note and
(ii) upon a Liquidation Event (other
than in connection with the redemption
of all the ComPS upon the maturity or
redemption of the Related Note), the
lesser of (A) the Liquidation
Distribution to the extent the Company
has funds available therefor, and (B)
the amount of assets of the Company
remaining available for distribution to
holders of all Preferred Securities upon
such Liquidation Event.
Initial Holders holders who purchase any ComPS upon
original issuance.
Interest Payment Date with respect to the Related Note, the
last calendar day of each month,
beginning [ ], 1996.
Investment Company Event the receipt by the Company of an opinion
of a nationally recognized independent
counsel experienced in such matters to
the effect that, as a result of the
occurrence of a change in law or
regulation, a written change in
interpretation or application of law or
regulation by any legislative body,
court, governmental agency or regulatory
authority or the expiration or
<PAGE>
revocation of any applicable exemption
obtained by the Company (a "Change in
1940 Act Law"), there is more than an
insubstantial risk that the Company is
or will be considered an "investment
company" that is required to be
registered under the 1940 Act, which
Change in 1940 Act Law becomes effective
on or after the date of this Prospectus.
IRS Internal Revenue Service.
Issue Date [ ], 1996.
JPMCI The J.P. Morgan Commodity Index.
Liquidation Distribution in respect of any Liquidation Event, the
sum of (a) the Early Redemption Value or
stated liquidation preference, as
applicable, plus (b) the amount of
accrued and unpaid dividends on such
Preferred Security to but excluding the
date of payment.
Liquidation Event any liquidation, dissolution, winding-up
or termination of the Company, whether
voluntary or involuntary.
LLC Agreement the limited liability company agreement
among J.P. Morgan, JPM Ventures and
holders of Preferred Securities
subsequently becoming members thereof
dated February 16, 1996, and effective
as of November 21, 1995.
Market Disruption Event the occurrence of one or more of the
following on any Trading Day with
respect to any Benchmark Oil Contract
underlying the Applicable Index, or an
exchange on which any Benchmark Oil
Contract is traded (a "Relevant
Exchange"): (a) a day on which the
fluctuation of the price of any
Benchmark Oil Contract underlying the
Applicable Index is materially limited
by the rules of a Relevant Exchange
setting the maximum or minimum price for
such day (a "Limit Price"); (b) a day on
which the Settlement Price is the Limit
Price; (c) the failure of a Relevant
Exchange to determine, announce or
publish the Settlement Price with
respect to a Benchmark Oil Contract
underlying the Applicable Index; (d) the
material suspension of trading in any
Benchmark Oil Contract underlying the
Applicable Index on a Relevant Exchange;
(e) the failure of trading to commence,
or the permanent discontinuation of
trading, in any Benchmark Oil Contract
<PAGE>
underlying the Applicable Index on any
Relevant Exchange; and (f) the
imposition of any material limitation on
trading in any Benchmark Oil Contract
underlying the Applicable Index on any
Relevant Exchange.
Nasdaq The Nasdaq Stock Market.
1940 Act the Investment Company Act of 1940,
as amended.
NYMEX the New York Mercantile Exchange.
Optional Redemption the redemption of ComPS by the holders
thereof on any Optional Redemption Date
for the ComPS Early Redemption Price.
Optional Redemption Date each [ ] prior to Stated Maturity,
subject to extension in the case of (i)
delay in the provision by DTC of the
Applicable Notice and (ii) the
occurrence and continuance of a Market
Disruption Event.
Principal Amount at any time, (i) in the case of ComPS, the
Redemption Value or Early Redemption
Value, as applicable, as if determined
as of such time, and (ii) in the case of
the Related Note, the principal amount
thereof at such time determined pursuant
to the terms thereof.
Redemption Date either the Stated Maturity or an Early
Redemption Date, as applicable.
Redemption Value at Stated Maturity, the Face Amount per
Preferred Security multiplied by a
fraction, the numerator of which is the
Applicable Index Settlement Value and
the denominator of which is the
Applicable Index Commencement Value.
Related Note the [ ]% unsecured, unsubordinated debt
obligation of Morgan Guaranty due 20[ ].
Rollover Period the period during which each replacement
of shorter-dated Benchmark Oil
Contracts with longer-dated Benchmark
Oil Contracts as the basis for the
change in value of the Applicable Index
occurs.
Securities the ComPS and the Common Securities.
Securities Act the Securities Act of 1933.
Senior Indebtedness with respect to Morgan Guaranty, the
principal of, premium, if any, and
interest on (a) all indebtedness of
<PAGE>
Morgan Guaranty for money borrowed,
whether outstanding as of the date
hereof or hereafter created, issued or
incurred (other than Morgan Guaranty's
obligations to its depositors), except
any indebtedness expressly subordinated
to such Senior Indebtedness, and (b) any
deferrals, renewals or extensions of any
such Senior Indebtedness.
Related Note Event of (i) default for 30 days in the payment of
Default interest on the Related Note; (ii) default
in payment of principal amount at the
Stated Maturity or any amount payable
upon any redemption of the Related Note;
(iii) failure by Morgan Guaranty for 90
days after receipt of notice to it to
comply with any of its covenants or
agreements contained in the Related
Note; and (iv) certain events of
bankruptcy, insolvency, receivership or
reorganization involving Morgan Guaranty
or certain affiliates.
Special Event either a Tax Event or an Investment
Company Event.
Special Redemption upon the occurrence and during the
continuation of a Special Event, Morgan
Guaranty will have the right to redeem
the Related Note in whole or in part for
cash at the Related Note Redemption
Price, with the result that the Company
will redeem on a pro rata basis ComPS
and related Common Securities in an
equal Principal Amount for cash at the
ComPS Early Redemption Price.
Special Redemption Date any date in respect of which upon the
occurrence and continuation of a Tax
Event or an Investment Company Event
Morgan Guaranty shall have called for
redemption in whole or in part the
Related Note, and the Company shall have
called for redemption on a pro rata
basis an equal Principal Amount of the
ComPS and related Common Securities.
Stated Maturity [ ]. 20[ ].
Tax Counsel Cravath, Swaine & Moore, special tax
counsel to J.P. Morgan and the Company.
Tax Event the receipt by the Company of an opinion
of nationally recognized independent tax
counsel experienced in such matters (a
"Tax Opinion") to the effect that, as a
<PAGE>
result of (a) any amendment to, or
change (including any announced
prospective change) in, the laws (or any
regulations thereunder) of the United
States or any political subdivision or
taxing authority thereof or therein, (b)
any amendment to, or change in, an
interpretation or application of such
laws or regulations by any legislative
body, court, governmental agency or
regulatory authority (including the
enactment of any legislation and the
publication of any judicial decision or
regulatory determination), (c) any
interpretation or pronouncement that
provides for a position with respect to
such laws or regulations that differs
from the theretofore generally accepted
position or (d) any action taken by any
governmental agency or regulatory
authority, which amendment or change is
enacted, promulgated, issued or
announced or which interpretation or
pronouncement is issued or announced or
which action is taken, in each case on
or after the date of this Prospectus
Supplement, that there is more than an
insubstantial risk that at such time or
within 90 days of the date thereof (i)
the Company is or would be subject to
United States Federal income tax with
respect to income accrued or received on
any Related Note, (ii) the interest
payable on any Related Note is not or
would not be deductible by Morgan
Guaranty for United States Federal
income tax purposes, (iii) the
contingent principal in excess of the
Face Amount of any series of Preferred
Securities (if any) payable on any
Related Note is not or would not be
deductible by Morgan Guaranty for United
States Federal income tax purposes or
(iv) the Company is or would be subject
to more than a de minimis amount of
other taxes, duties or other
governmental charges.
Trading Day any day on which open-outcry trading
on eith the NYMEX the London Metal
Exchange (the "LME") is scheduled
to occur or occurs.
<PAGE>
SUBJECT TO COMPLETION, DATED [ ] , 1996
PROSPECTUS SUPPLEMENT
(To Prospectus Dated [ ], 1996)
Commodity-Indexed Preferred Securities
(ComPSsm), Series [B]
J.P. Morgan Index Funding Company, LLC
[ ]% Series B Preferred Securities Indexed to Gold
guaranteed to the extent set forth herein by
J.P. Morgan & Co. Incorporated
The % Series [B] Preferred Securities (each, a "Preferred Security", and
collectively, the "ComPS") offered hereby are being issued by J.P. Morgan
Index Funding Company, LLC, a limited liability company formed under the
laws of the State of Delaware (the "Company"). The ComPS represent
preferred limited liability company interests in the Company. The issuance
price of each Preferred Security is [$40], the approximate value of
one-tenth of the London P.M. gold fixing price for one ounce of gold in the
London bullion market on [ ], 1996. After issuance, the principal amount of
each Preferred Security (the "Principal Amount") will be indexed to the
U.S. dollar value at such time (the "Dollar Equivalent Value") of one-tenth
of the London P.M. gold fixing price for one ounce of gold in the London
bullion market (such index, the "Applicable Index"). J.P. Morgan & Co.
Incorporated, a Delaware corporation ("J.P. Morgan"), will directly or
indirectly own all the common securities (the "Common Securities")
representing voting limited liability company interests in the Company (the
ComPS and the Common Securities, collectively, the "Securities"). The
Company exists for the sole purpose of issuing the ComPS and investing the
proceeds thereof in a [ ]% Related Note Due [ ], 20[ ] (the "Related Note")
of Morgan Guaranty Trust Company of New York, a trust company with full
banking powers organized under the laws of the State of New York and a
wholly-owned subsidiary of J.P. Morgan ("Morgan Guaranty"), and issuing
similar securities and investing the proceeds thereof in similar notes in
the future.
See "Risk Factors" on Page S-[] for certain information relevant to an
investment in the Preferred Securities. The ComPS are not futures contracts
and do not represent an actual investment in futures contracts, and are not
and do not represent an actual investment in gold. The Redemption Value (as
defined below) or Preferred Security may be more or less than the Face
Amount See "Description of the ComPS".
"ComPS", "JPMCI" and the "J.P. Morgan Commodity Index" are service marks of
J.P. Morgan & Co. Incorporated.
The ComPS have been authorized for listing on the [ (the " ")] under the
symbol " ", subject to official notice of issuance. Trading of the ComPS on
the [ ] is expected to commence within a 30-day period after the date of
this Prospectus Supplement. See "Underwriting".
THE SECURITIES ARE NOT DEPOSITS 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 OR THE
PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
Price $[40] per Preferred Security plus accrued dividends, if any.
Initial Public Underwriting Proceeds to
Offering Price(1) Commissions(2) The Company(3)(4)
Per Preferred Security..... $ (3) $
Total...................... $ (3) $
(1) Plus accrued dividends, if any, from the Issue Date (as defined
herein).
(2) The Company and J.P. Morgan have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(3) Because the proceeds of the sale of the ComPS will be invested in the
Related Note, Morgan Guaranty has agreed to pay to the Underwriters a
commission of $ per Preferred Security (or $ in the aggregate);
provided that such compensation for sales to certain institutions will
be $ per Preferred Security. See "Underwriting".
(4) Expenses of the offering which are payable by the Company and J.P.
Morgan are estimated to be $ .
The ComPS offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of the ComPS will be made on or about , 1996, through the
book-entry facilities of The Depository Trust Company, against payment
therefor in same-day funds.
J.P. Morgan & Co.
The date of this Prospectus Supplement is [ ], 1996.
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, solicitaion
or sale would be unlawful prior to registration or qualification under the
securities laws of any such State.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE [APPLICABLE STOCK
EXCHANGE(S)], IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING
TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
[GRAPHIC OMITTED]
This page contains a schematic depiction of J.P. Morgan, Morgan
Guaranty and the Company, indicating particularly that Morgan Guaranty
and the Company are each wholly-owned subsidiaries of J.P. Morgan,
that the proceeds of the ComPS and related Common Securities will be
loaned to Morgan Guaranty in return for the Related Note, and
depicting the Guarantee and the Related Note Guarantee.
<PAGE>
Summary of the Offering
Securities Offered....... [2,500,000] [ ]% Series B Preferred Securities
("ComPS") Indexed to the Dollar Equivalent Value
of one-tenth of the London P.M. gold fixing price
for one ounce of gold in the London bullion market.
Issuer................... J.P. Morgan Index Funding Company, LLC (the "Com-
pany"), a Delaware limited liability company and a
subsidiary of J.P. Morgan & Co. Incorporated
(J.P. Morgan").
Guarantor................ J.P. Morgan, on a subordinated basis, (i) of
payments to holders of ComPS of amounts received on
the Related Note by the Company and (ii) of payments
to the Company on the Related Note by Morgan
Guaranty, a wholly-owned subsidiary of J.P. Morgan.
Initial Offering Price [$40] (i.e., the approximate value of one-tenth of
Per Preferred Security... the London P.M. gold fixing price for one ounce of
gold in the London bullion market on [ ], 1996.
Principal Amount Per The Dollar Equivalent Value of one tenth of the
Preferred Security....... London P.M. gold fixing price on such day for one
ounce of gold in the London bullion market.
Aggregate Initial
Principal Amount......... [$100,000,000].
ComPS Redemption Price... Redemption Value at Stated Maturity plus accrued
and unpaid dividends.
Stated Maturity.......... [ ], 20[ ], subject to extension in the case
of a Market Disruption Event.
Redemption Value per The average of the Principal Amount over the 10
Preferred Security....... consecutive Trading Days meeting certain
conditions immediately following the 20th
scheduled Business Day prior to redemption (as
described herein).
Applicable Index......... The Dollar Equivalent Value of one-tenth of the
London P.M. gold fixing price for one ounce of
gold in the London bullion market.
Calculation Agent........ Morgan Guaranty.
Dividends................ Cumulative cash dividends of [ %] per annum on the
Principal Amount determined five London Business
Days prior to the applicable payment date, subject
to extension in the case of a Market Disruption
Event (calculated on the basis of a 360 day year of
twelve 30-day months), accruing from the Issue Date
and payable monthly; provided, however, that upon
the occurrence of a Market Disruption Event, such
dividend will be payable on the later of such
calendar day and the day two Business Days
following the determination of the amount thereof.
<PAGE>
Special Event Under certain circumstances, upon the occurrence
Redemption............... of a Tax Event or an Investment Company Event, for
the ComPS Early Redemption Price.
ComPS Early The Early Redemption Value (as defined in the Pro-
Redemption Price......... spectus), which represents the payments of the dis-
counted present value of dividends and Principal
Amount on the applicable Early Redemption Date. See
"Description of the ComPS--Special Event Redemption".
Voting Rights............ Holders of ComPS will have limited voting rights
and will not be entitled to vote to
appoint, remove or replace the Managing Members of
the Company (as defined in the LLC Agreement). See
"Description of the ComPS--Voting Rights".
Use of Proceeds.......... The proceeds to the Company from the sale of ComPS
and related Common Securities will be used to
purchase a note of Morgan Guaranty (the "Related
Note"), and Morgan Guaranty will use such proceeds
for general corporate purposes and for hedging its
obligations under the Related Note. See "Use of
Proceeds".
<PAGE>
The Offering
The information in this Prospectus Supplement concerning J.P. Morgan,
Morgan Guaranty, the Company, the ComPS, the Guarantee, the Related Note
Guarantee and the Related Note supplements, and should be read in
conjunction with, the information contained in the accompanying Prospectus.
The following summary of provisions relating to the ComPS is qualified in
its entirety by the more detailed information contained elsewhere or
incorporated by reference in this Prospectus Supplement and the Prospectus
of which this Prospectus Supplement constitutes a part. Prospective
purchasers of ComPS should carefully review such information. Certain
capitalized terms used in this Prospectus Supplement have the meanings
ascribed to them under the "Glossary of Terms" in Annex I hereto.
General
The issuance price of each security is [$40], the approximate value of
one-tenth of the London P.M. gold fixing price for one ounce of gold in the
London bullion market on [ ], 1996. After issuance, the Principal Amount of
each Preferred Security will be indexed to the Dollar Equivalent Value of
one-tenth of the London P.M. gold fixing price for one ounce of gold in the
London bullion market (such index, the "Applicable Index"). The Principal
Amount repayable upon the occurrence of any Special Event Redemption or at
Stated Maturity will be determined, pursuant to the terms described herein
(including, without limitation, the averaging of the Applicable Index over
the Early Determination Period or Determination Period, as applicable, and
the present-valuing of the dividends and Principal Amount in connection
with redemptions prior to Stated Maturity), based on the Dollar Equivalent
Value of one-tenth of the London P.M. gold fixing price for one ounce of
gold in the London bullion market for each day during the Determination
Period (as defined herein). The ComPS represent preferred limited liability
company interests in the Company, the assets of which will consist of the
Related Note and other notes issued by Morgan Guaranty in connection with
other issuances of Preferred Securities. The Related Note, in which the
proceeds of the Preferred Securities offered hereby and the related Common
Securities will be invested, matures on [ ], 20[ ] (which is the "Stated
Maturity"), subject to extension in the case of a Market Disruption Event,
and is redeemable at any time by Morgan Guaranty in whole or in part upon
the occurrence of a Special Event. The ComPS will be redeemed at Stated
Maturity at the ComPS Redemption Price, which is equal to the sum of (a)
the Redemption Value (as defined below) per Preferred Security plus (b)
accrued and unpaid dividends thereon to but excluding the date of
redemption. In addition, if, as a result of a Special Event, Morgan
Guaranty redeems the Related Note in whole or in part prior to Stated
Maturity, the Company must redeem ComPS and related Common Securities
having an aggregate Principal Amount equal to the Principal Amount of the
Related Note so redeemed at the ComPS Early Redemption Price. See
"Description of the ComPS--Redemption at Stated Maturity";--Special Event
Redemption".
Dividends
Dividends on the ComPS will be fixed at a rate per annum of [ ]% of the
Principal Amount per Preferred Security. The term "dividend" as used herein
includes any such interest payable unless otherwise stated. Dividends on
the ComPS will be cumulative and will be payable monthly on the last
calendar day of each month (calculated on the basis of a 360-day year of
twelve 30-day months) based on the Dollar Equivalent Value of one-tenth of
the London P.M. gold fixing price for one ounce of gold on the London
bullion market on the fifth London Business Day prior to such calendar day,
commencing [ ], 1996, when, as and if available for payment; provided,
however, that upon the occurrence of a Market Disruption Event, such
dividend will be payable on the later of such calendar day and the day two
Business Days following the determination of the amount thereof. The first
dividend payment will be for the period from and including the Issue Date
<PAGE>
to but excluding [ ], 1996. Dividends payable on the ComPS for any period
shorter than a monthly dividend period will be computed on the basis of a
360-day year of twelve 30-day months and on the basis of the actual number
of days elapsed in any such 30-day month. However, in no event will the
amount of days for which dividends are paid be greater than the actual
number of days elapsed in any such month or shorter period. See
"Description of the ComPS--Dividends".
Redemption at Stated Maturity
Unless previously redeemed pursuant to the special redemption provisions
described below, each of the outstanding ComPS will be redeemed by the
Company, in cash, on [ ], 20[ ], which is the Stated Maturity of the
Related Note, subject to extension in the case of a Market Disruption Event
(as defined herein), at the ComPS Redemption Price, which is equal to (a)
the Redemption Value per Preferred Security plus (b) accrued and unpaid
dividends thereon to but excluding the date of redemption. See "Description
of the ComPS--Redemption at Stated Maturity"; "Risk Factors--Extension of
Settlement Date or Stated Maturity".
Calculation of Redemption Value
The Principal Amount of each Preferred Security at any time is equal to
one-tenth of the Dollar Equivalent Value of the price of one ounce of gold
on the London bullion market. In summary, and subject to the complete
definitions and formulae contained herein and in the Prospectus, the
Principal Amount of each Preferred Security at Stated Maturity, subject to
extension in the case of a Market Disruption Event (the "Redemption
Value"), shall be the arithmetic average of the Dollar Equivalent Value of
one-tenth of the London P.M. gold fixing price of one ounce of gold in the
London Bullion market for each day of the Determination Period (as defined
below). See "Description of ComPS--Calculation of Redemption Value" herein
and "Description of ComPS--Determination Period and Settlement Date" in the
accompanying Prospectus.
Special Event Redemption
Upon the occurrence and during the continuation of a Tax Event or an
Investment Company Event (each as defined herein), Morgan Guaranty will
have the right to redeem the Related Note in whole or, if redemption of
less than all the ComPS will result in the discontinuance of such Special
Event, in part in an amount sufficient to cause such discontinuance, in
each case for cash, with the result that the Company will redeem a
Principal Amount of ComPS and related Common Securities equal to the
Principal Amount of the Related Note so redeemed for cash at the ComPS
Early Redemption Price. However, in the case of a Tax Event, Morgan
Guaranty may allow the Related Note and the Company may allow the ComPS to
remain outstanding upon the receipt of indemnification by J.P. Morgan of
the Company for all taxes payable by it as a result of such Tax Event. See
"Description of the ComPS--Special Event Redemption".
Unconditional Guarantee by J.P. Morgan
J.P. Morgan and the Company believe that the mechanisms and obligations
relating to the subordinated obligations of J.P. Morgan under the Guarantee
and the Related Note Guarantee and the obligations of J.P. Morgan under the
LLC Agreement and the Expense Agreement to pay certain obligations, costs
and expenses of the Company, taken together, are equivalent to a full and
unconditional guarantee; on a subordinated basis, by J.P. Morgan of
payments due on the ComPS. See "Risk Factors--Rights Under the Guarantee,
the Related Note Guarantee and the Related Note", "Description of the
Related Note Guarantee" and "Effect of Obligations Under the Guarantee, the
Related Note Guarantee and the Related Note".
<PAGE>
The Guarantee
The Guarantee by J.P. Morgan guarantees to the holders of the ComPS the
payment of (i) the ComPS Early Redemption Price or the ComPS Redemption
Price, as applicable, but if and only if and to the extent that, in each
case, Morgan Guaranty has made payment of interest or principal on the
Related Note, as the case may be, and (ii) upon a Liquidation Event (as
defined herein) (other than in connection with the redemption of all the
ComPS upon maturity or redemption of Related Note), the lesser of (A) the
sum of (I) the Early Redemption Value of such ComPS and (II) the amount of
accrued and unpaid dividends on such ComPS to but excluding the date of
payment (the "Liquidation Distribution"), to the extent the Company has
funds available therefor and (B) the amount of assets of the Company
remaining available for distribution to holders of the ComPS upon such
Liquidation Event. J.P. Morgan's obligations under the Guarantee will be
subordinated and junior in right of payment to all liabilities of J.P.
Morgan, pari passu with the most senior preferred stock outstanding as of
the date hereof of J.P. Morgan and senior to the common stock of J.P.
Morgan.
The Related Note Guarantee
The Related Note Guarantee by J.P. Morgan guarantees to the Company the
payment of any distributions on and principal of the Related Note as
provided pursuant to the terms of the Related Note, at such times and in
such amounts as provided therein. J.P. Morgan's obligations under the
Related Note Guarantee will be subordinated and junior in right of payment
to all liabilities of J.P. Morgan, pari passu with the most senior
preferred stock issued from time to time by J.P. Morgan and senior to the
common stock of J.P. Morgan.
Related Note
The Related Note will be issued as an unsecured obligation of Morgan
Guaranty, limited in initial principal amount to approximately $[ ], such
amount being the initial aggregate Principal Amount of the ComPS and the
related Common Securities. The Related Note will mature on the Stated
Maturity (subject to extension in the case of a Market Disruption Event),
and will bear interest at an annual rate of [2]% on the Principal Amount
(which is equivalent to the annual dividend rate with respect to the
ComPS), payable monthly in arrears on the last day of each calendar month,
commencing on [ ], 1996. The Principal Amount of the Related Note at any
time will be the aggregate Principal Amount of the outstanding ComPS and
related Common Securities at such time. The amount payable upon maturity
for the Related Note will be the Related Note Redemption Price.
The obligations of Morgan Guaranty under the Related Note will be pari
passu with all present and future Senior Indebtedness which aggregated
$71.6 billion at December 31, 1995. Morgan Guaranty's obligations under the
Related Note are effectively subordinated to all liabilities (including
indebtedness) of its consolidated and unconsolidated subsidiaries.
Voting Rights
Holders of ComPS will have limited voting rights and will not be entitled
to vote to appoint, remove or replace the Managing Members of the Company
(as defined below). See "Description of the ComPS--Voting Rights".
<PAGE>
Use of Proceeds
The Company will invest the proceeds from the sale of the ComPS offered
hereby and the related Common Securities in the Related Note, the proceeds
of which will be used by Morgan Guaranty for general corporate purposes and
for the hedging of its obligations under the Related Note. See "Use of
Proceeds".
Listing
[The ComPS have been authorized for listing on the [ ] under the symbol "[
]", subject to official notice of issuance. Trading of the ComPS on the [ ]
is expected to commence within a 30-day period after the date of this
Prospectus Supplement.] [Prior to this offering, there has been no market
for the ComPS. In order to meet one of the requirements for listing the
ComPS on the [ ], the Underwriters will undertake to sell one or more lots
of 100 or more ComPS to a minimum of 400 beneficial holders.]
Risk Factors
Indexation of Principal Amount
The Principal Amount of each of the ComPS will vary over the life of the
ComPS in relation to the Dollar Equivalent Value of one-tenth of the London
P.M. gold fixing price of one ounce of gold on the London bullion market
(the "Applicable Index"). The Principal Amount repayable upon the
occurrence of any Special Event Redemption or at Stated Maturity will be
determined, pursuant to the terms and calculations described herein
(including, without limitation, the averaging of gold prices over the Early
Determination Period or the Determination Period, as applicable, and the
present-valuing of the indexed dividends and Principal Amount in the case
of early redemptions), based the Dollar Equivalent Value of one-tenth of
the London P.M. fixing price of one ounce of gold on the London bullion
market. Accordingly, the Principal Amount to be received upon any date of
redemption will fluctuate based on the Applicable Index and may be lower
than the initial Principal Amount.
Limitation on Rights Under the Guarantee, the Related Note Guarantee and
the Related Note
The Guarantee will be an unconditional guarantee with respect to the ComPS
from the time of issuance of such ComPS but will not apply to any payment
of dividends or other amounts due in respect of the ComPS to the extent
Morgan Guaranty has failed to make a payment of principal or interest on
the Related Note. To the extent Morgan Guaranty were to default on its
obligation to pay amounts payable on the Related Note, the Company would
lack available funds for the payment of dividends on or amounts payable on
redemption of the ComPS and, in such event, holders of the ComPS would not
be able to rely on the Guarantee for payment of such amounts. Instead,
holders of the ComPS would rely on the enforcement by the Company of its
rights as holder of the Related Note against Morgan Guaranty and as holder
of the Related Note Guarantee against J.P. Morgan. J.P. Morgan and the
Company believe that the mechanisms and obligations relating to all of the
Guarantee, the Related Note Guarantee and the obligations of J.P. Morgan
under the LLC Agreement and Expense Agreement to pay certain obligations,
costs and expenses of the Company, taken together, are equivalent to a full
and unconditional guarantee, on a subordinated basis, by J.P. Morgan of
payments due on the ComPS. See "Description of the Guarantee" and
"Description of the Related Note Guarantee".
<PAGE>
Special Event Redemption
Upon the occurrence of a Special Event, unless waived by Morgan Guaranty or
subject to cure as specified herein, Morgan Guaranty shall have the right
to redeem the Related Note, in whole or in part, in which event the Company
will redeem the ComPS and related Common Securities on a pro rata basis to
the same extent as the Principal Amount of the Related Note is redeemed by
Morgan Guaranty.
As described in more detail below, a Special Event is either (i) a Tax
Event or (ii) an Investment Company Event. A Special Event may occur at
any time. See "Description of the ComPS--Special Event Redemption".
It is possible that the occurrence of a Special Event will cause the market
price of the ComPS in any existing secondary market to decline.
Limited Voting Rights
Holders of ComPS will have limited voting rights relating to a payment
default on or adverse change to the ComPS, and will not be entitled to vote
to appoint, remove or replace the Managing Members of the Company (J.P.
Morgan and J.P. Morgan Ventures Corporation, a Delaware corporation), which
voting rights are vested exclusively in the holders of the Common
Securities. See "Description of the ComPS--Voting Rights".
Trading Price May Not Reflect Actual Economic Value
[The ComPS have been authorized for listing on the [ ] under the symbol "[
]", subject to official notice of issuance. Trading of the ComPS on the [ ]
is expected to commence within a 30-day period after the date of this
Prospectus Supplement. [Prior to this offering there has been no market for
the ComPS. In order to meet one of the requirements for listing the ComPS
on the [ ], the Underwriter will undertake to sell one or more lots of 100
or more ComPS to a minimum of 400 beneficial holders.] However, it is not
possible to predict whether the necessary number of holders will purchase
and, for the remaining term of the ComPS, continue to hold ComPS in order
that any secondary market which does develop continues to exist. The
Underwriters are not obligated to make a market for the ComPS, and although
JPMSI, as lead Underwriter, intends to use its reasonable efforts to do so,
it is possible that no active secondary market for the ComPS will develop
and remain in existence.
There can be no assurance as to the market prices for the ComPS in any
secondary market which does develop. Accordingly, the ComPS that an
investor may purchase, whether pursuant to the offer made hereby or in the
secondary market, may trade at a discount to the price that the investor
paid to purchase the ComPS offered hereby.
Value of the ComPS
The value of the ComPS at any time will depend upon the interaction of at
least three key factors: (i) the level of the Applicable Index (i.e.,
one-tenth of the Dollar Equivalent Value of the price of one ounce of gold
on the London bullion market), (ii) the credit quality of Morgan Guaranty
and J.P. Morgan and (iii) the lease rate environment for borrowing and
lending gold. Adverse changes in any of these three factors will adversely
affect the value of the ComPS at such time. As discussed under "Description
of the ComPS", adverse changes in the Applicable Index (the Dollar
Equivalent Value of the London P.M. fixing price for one ounce of gold)
will directly correlate to adverse changes in the value of the ComPS. A
decline in the credit quality of Morgan Guaranty and J.P. Morgan could
cause the trading price of ComPS in any secondary market then existing to
decline. Also, an increase in the prevailing interest rates could cause the
trading price of ComPS in any secondary market then existing to decline.
<PAGE>
No Right to Interest on Related Note
Because holders of ComPS are essentially investing in a pro rata share of
the Related Note, prospective purchasers of ComPS are also making an
investment decision with regard to the Related Note and should carefully
review all the information regarding the Related Note contained herein and
in the accompanying Prospectus. However, investors in ComPS have no right
to direct interest distributions on the Related Note. See "Description of
the Related Note".
Imposition of Bank Regulatory Restrictions
The Company's ability to make dividends and other payments on the ComPS is
dependent upon Morgan Guaranty's making interest and other payments on the
Related Note as and when required or collection by the Company under the
Senior Note Guarantee. As noted in the accompanying Prospectus under "J.P.
Morgan & Co. Incorporated--Regulation", Morgan Guaranty is subject to
examination and regulation by U.S. federal and state banking authorities,
and although there is no current restriction on Morgan Guaranty's ability
to make payments under the Senior Note, certain other transactions with
affiliates, including the Company, are or may become subject to
restrictions.
Effect of Trading in Related Commodities and Instruments
Morgan Guaranty and other affiliates of J.P. Morgan are and will be
actively involved in the trading of gold and other instruments and
derivative products based thereon. Morgan Guaranty, in particular, is an
active participant in various commodity markets including the physical
petroleum, precious and base metals and related derivatives markets. JPMSI
and other affiliates may also issue or underwrite, or authorize
unaffiliated entities to issue or underwrite, other securities or financial
instruments with returns indexed to the Applicable Index or one or more of
the JPM Indices. Morgan Guaranty has licensed, and may in the future
license, the JPM Indices and related indices and sub-indices for use by
affiliated and unaffiliated parties, for publication in newspapers and
periodicals, for distribution by information and data dissemination
services and for other purposes. Morgan Guaranty currently intends to
publish individual commodity sub-indices for each of the commodities
included in the JPMCI using the same calculation methodology as that
described below.
<PAGE>
Trading in the foregoing commodities by Morgan Guaranty, its affiliates
(including JPMSI) and unaffiliated third parties could adversely affect the
value of the Applicable Index, which could in turn adversely affect the
return on and the value of the ComPS. See "The Applicable Index".
Furthermore, additional issuances of securities linked or referenced to the
London P.M. gold fixing price of one ounce of gold or similar gold price
sources could adversely affect the value of the ComPS.
Potential for Adverse Interests
As noted above, Morgan Guaranty, JPMSI and their affiliates expect to
engage in trading activities related to gold and other instruments or
derivatives products on or related to the Applicable Index, for their
accounts where permitted or for other accounts under their management.
Morgan Guaranty, JPMSI and their affiliates, as well as unaffiliated third
parties, may also engage in other activities related to the Applicable
Index, as discussed above. Because Morgan Guaranty will issue the Related
Note to the Company, all such activities could create interests of Morgan
Guaranty adverse to those of the holders of ComPS. For example, the
issuance of other securities indexed to the Applicable Index, i.e., the
introduction of competing products into the marketplace, could adversely
affect the value of the ComPS. To the extent that J.P. Morgan or one of its
affiliates serves as issuer, or JPMSI or one of its affiliates serves as
agent or underwriter, for such securities or other instruments, their
interests with respect to such products may be adverse to those of the
holders of the ComPS. Morgan Guaranty will serve as Calculation Agent with
respect to the ComPS and, accordingly, will in good faith calculate the
Applicable Index, which could also raise certain adverse interests (for
example, in instances where the Calculation Agent is required to exercise
discretion).
Volatility of Gold Prices
Prices of commodities are extremely volatile and can be affected by a
variety of factors, including weather, governmental programs and policies,
national and international political and economic events, changes in
interest and exchange rates and trading activity in such commodities.
Volatility in gold prices will correlate directly with volatility in the
Applicable Index. Such volatility could lead some investors in gold to
withdraw from the market, which could adversely affect the liquidity of
such market and could adversely affect the value of the Applicable Index
and, correspondingly, the value of the ComPS.
As discussed below, the Redemption Value of the ComPS will be based on the
Principal Amount, which will vary directly with the Dollar Equivalent Value
of one-tenth of the London P.M. gold fixing price of one ounce of gold on
the London bullion market. The month-end London P.M. gold fixing prices of
one ounce of gold on the London bullion market from 1985-1996 is set forth
in the table below:
U.S. Dollar Equivalent Value of London P.M. gold fixing price of one ounce
of gold as of the end of:
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sept. Oct. Nov. Dec.
1985 306.65 287.75 329.25 314.00 317.75 327.5 333.25 325.75 325.10 325.30 326.8
321.35
1986 350.50 338.15 344.00 343.20 346.75 357.50 384.70 423.20 401.00 389.50 388.8
345.75
1987 400.50 405.85 421.00 451.00 447.30 462.50 453.40 459.50 468.80 492.50 484.1
453.25
1988 458.00 426.15 456.95 455.50 436.55 436.80 427.75 396.70 412.40 422.60 410.3
449.00
1989 394.00 387.00 383.20 361.80 373.00 368.30 359.80 366.50 375.30 408.15 398.6
377.55
1990 415.05 407.70 368.50 363.05 352.20 372.30 387.75 408.40 379.50 384.85 386.2
367.75
1991 366.00 362.70 355.65 360.40 368.35 362.85 347.40 354.90 357.45 366.30 353.2
357.75
1992 354.10 353.10 341.70 337.50 343.40 357.85 340.00 349.00 339.25 334.20 332.9
336.35
1993 330.45 327.60 337.80 377.45 378.45 401.75 371.55 355.50 369.60 370.90 391.8
354.30
1994 377.90 381.55 389.20 387.60 388.25 384.00 385.75 394.85 383.85 383.10 383.3
376.45
1995 374.90 376.40 392.00 384.30 387.05 383.35 382.35 384.00 382.65 387.80 387.0
389.75
</TABLE>
The following graph sets forth such month-end values:
London P.M. Gold Fixing Price, 1985-1996
[GRAPHIC OMITTED]
Based on the month-end prices noted above, the hypothetical Redemption
Value as of the end of each of the past years for a ComPS priced on
December 31, 1991, with a hypothetical Face Amount of $35.32 and an initial
London P.M. gold fixing price for one ounce of gold of $353.12 would be as
follows:
Last Trading Dollar Equivalent Hypothetical
Day of: Value of the London P.M. Redemption
fixing price of Value
one ounce of gold
1991 $353.2 $35.32
1992 $332.9 $33.29
1993 $391.8 $39.18
1994 $383.3 $38.33
1995 $387.0 $38.70
<PAGE>
Effect of Adverse Changes in Commodity Prices
The Applicable Index is designed to replicate, to the extent provided
herein, the Dollar Equivalent Value of one-tenth of the London P.M. gold
fixing price of one ounce of gold on the London bullion market. Market gold
prices can fluctuate widely and are affected by numerous factors beyond the
Company's control, including industrial and jewelry demand, expectations
with respect to the rate of inflation, the strengh of the U.S. dollar (the
currency in which the price of gold is generally quoted) and of other
currencies, interest rates, central bank sales, forward sales by producers,
global or regional political or economic events, and production costs and
disruptions in major gold producing regions such as South Africa and the
former Soviet Union. The demand for and supply of gold affect gold prices,
but not necessarily in the same manner as supply and demand affect the
prices of other commodities. The supply of gold consists of a combination
of new mine production and existing stock of bullion and fabricated gold
held by governments, public and private financial institutions, industrial
organizations and private individuals. As the amounts produced in any
single year constitute a very small portion of the total potential supply
of gold, normal variations in production do not necessarily have a
significant impact on the supply of gold or on its price. In addition, the
price of gold has on occasion been subject to very rapid short-term changes
due to speculative activities which, if such activities result in a price
decrease, may cause the value of the ComPS to decrease. See "Description of
the ComPS--Calculation of Redemption Value.
<PAGE>
Suspension or Material Disruption of Commodities Trading; Temporary
Distortions
The markets for gold are subject to temporary distortions or other
disruptions due to conditions of illiquidity in the markets, the
participation of speculators, government regulation and intervention and
other factors. Certain events could cause there to be no London P.M. gold
fixing price on any particular day. Such circumstances, particularly if
they occur during the Determination Period (as defined herein) for the
Applicable Index, could adversely affect the value of the Applicable Index
and, therefore, the value of the ComPS.
In the event that no official London P.M. fixing price as reported by the
relevant fixing association (the "Fixing Price") is available with respect
to the price of one ounce of gold on the London bullion market for any
given day, no Applicable Index Value will be available for such day. If
such London P.M. fixing price shall have ceased as of such date to be
available for an indefinite period of time, the Applicable Index will
thereafter be calculated based on the London A.M. fixing price (or such
other successor London fixing price) until the London P.M. fixing price
again becomes available.
Market Disruption Events
In the event of a Market Disruption Event during any Early Determination
Period or the Determination Period, the Early Redemption Value or
Redemption Value, as applicable, payable in respect of the ComPS will be
calculated using the Dollar Equivalent Value of one-tenth of the London
P.M. gold fixing price for one ounce of gold on the day or days on which
the New York Mercantile Exchange (the "NYMEX") or the London Metal Exchange
(the "LME") is scheduled to occur or occurs (each, a "Trading Day")
immediately following the termination of such Market Disruption Event.
However, if such Market Disruption Event remains in effect for longer than
20 consecutive Trading Days and, in the reasonable judgment of Morgan
Guaranty, such Market Disruption Event is likely to remain in effect, then
Principal Amount for each Trading Day subject to a Market Disruption Event
may be determined in good faith by Morgan Guaranty based on alternative
pricing sources reasonably believed by it to be indicative of
then-prevailing prices for notional transactions in gold equal in size to
the aggregate Early Redemption Value or Redemption Value, as applicable, of
the ComPS, although Morgan Guaranty has no obligation to do so. Because
Morgan Guaranty's obligations under the Related Note will also be based on
the aggregate Early Redemption Value and Redemption Value of the ComPS,
Morgan Guaranty may have an adverse interest with respect to such
determination.
Historical Correlations May Not Prevail in the Future
Although historically the price of gold has shown some positive correlation
with inflation and some negative correlation with stock and bond returns
(in each case in the United States), there can be no assurance that such
correlations will prevail in the future. As a result, investors who invest
in ComPS in reliance on these correlations should individually assess the
liklihood of such correlations continuing.
<PAGE>
Changes in Laws or Regulations or Interpretations Thereof
Prices of commodities may be adversely affected by the promulgation of new
laws or regulations or by the reinterpretation of existing laws or
regulations (including, without limitation, those relating to taxes and
duties on commodities or commodity components) by one or more governments,
governmental agencies or instrumentalities, courts or other official
bodies. Any such event could adversely affect the value of the Applicable
Index and, correspondingly, could adversely affect the value of the ComPS.
Extension of Settlement Date or Stated Maturity
If the market for one ounce of gold on the London bullion market were to be
affected by a Market Disruption Event during any Early Determination Period
or the Determination Period, the applicable Settlement Date would be
postponed until the fifth Business Day after the last day of the applicable
Early Determination Period or the Determination Period. Such delay could be
of indefinite duration, during which time a holder of ComPS will not
receive the Early Redemption Value or Redemption Value thereof, as
applicable. In the event that payment of the Redemption Value is postponed
beyond the Stated Maturity, interest will accrue on the Principal Amount in
the manner described under the caption "Description of the
ComPS--Calculation of Redemption Value", but no dividends will be payable
after Stated Maturity. In the event payment of the Early Redemption Value
is postponed beyond the applicable Early Redemption Date, no dividends will
be payable, and no interest will accrue or be payable, with respect to
ComPS redeemed on such Early Redemption Date.
Early Redemption
The ComPS may be automatically redeemed prior to their Stated Maturity upon
the occurrence of a Special Event. In such case, the Redemption Value paid
by the Company at such time may be significantly less than the Redemption
Value that would otherwise have been payable had the ComPS not been
redeemed prior to their Stated Maturity, and it is possible that the
occurrence of such Special Event may cause the market price of the ComPS in
any existing secondary market to decline.
Certain Considerations Regarding Hedging
Prospective purchasers of the ComPS who intend to hedge against the risks
associated with the market for gold should recognize the complexities of
utilizing the ComPS in this manner. The formulae by which the Early
Redemption Value and Redemption Value are calculated provide for the
averaging of gold prices over the Early Determination Period or the
Determination Period, as applicable. Also, under certain circumstances,
amounts payable on the ComPS may be based on the good faith determination
of Morgan Guaranty and not on the Applicable Index. For this reason,
investors should be cautious in using the ComPS in a hedging program. The
risks associated with utilizing the ComPS for in a hedging program may be
magnified in periods of substantial gold price volatility, since properly
correlating the ComPS either as a hedge of other assets or correlating the
ComPS to a hedge thereof may become more difficult. Also, investment in
ComPS should not be considered a complete investment program.
<PAGE>
Uncertain United States Federal Income Tax Characterization of ComPS
As discussed below, assuming that the Company will be classified for U.S.
Federal income tax purposes as a partnership, each holder of ComPS will be
required to include in its gross income its distributive share of any item
of income or gain realized by the Company. While the Morgan Guaranty and
the Company initially intend to treat the Related Note as a contingent debt
instrument, in light of the absence of direct authority on the proper
characterization of the Related Note, the Internal Revenue Service may
apply, and may require Morgan Guaranty, the Company and/or holders of ComPS
to apply, a different characterization. Such alternate characterization may
be materially less favorable for holders of ComPS for United States federal
income tax purposes than the characterization to be applied initially by
Morgan Guaranty and the Company. See "United States Federal Income
Taxation" below.
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 in the accompanying
Prospectus.
J.P. Morgan Index Funding Company, LLC
J.P. Morgan Index Funding Company, LLC, is a Delaware limited liability
company formed pursuant to (i) the filing of a certificate of formation
with the Secretary of State of the State of Delaware on November 21, 1995
and (ii) the limited liability
<PAGE>
company agreement, dated February 16, 1996, and effective as of November
21, 1995 (the "LLC Agreement"), filed as an exhibit to the Registration
Statement of which this Prospectus Supplement and the accompanying
Prospectus form a part. J.P. Morgan will directly or indirectly acquire all
Common Securities of the Company. The Company exists for the exclusive
purposes of (i) issuing the ComPS and Common Securities, and from time to
time additional series of preferred and common securities, (ii) investing
the gross proceeds of the ComPS and Common Securities in the Related Note,
and investing the proceeds of such additional issuances of preferred and
common securities in other Senior debt obligations of Morgan Guaranty, and
(iii) engaging in only those other activities necessary or incidental
thereto.
Pursuant to the LLC Agreement, the Common Securities will initially be
owned by J.P. Morgan and by J.P. Morgan Ventures Corporation, a Delaware
corporation and a wholly-owned subsidiary of J.P. Morgan ("JPM Ventures").
J.P. Morgan and JPM Ventures will be the Managing Members of the Company
(as defined in the LLC Agreement).
The LLC Agreement and the Agreement as to Expenses and Liabilities, dated
as of [ ], 1996, between J. P. Morgan and the Company (the Expense
Agreement"), provide that J.P. Morgan will pay for all debts and
obligations (other than with respect to the ComPS to the extent set forth
herein) and all costs and expenses of the Company, including any taxes and
all costs and expenses with respect thereto, to which the Company may
become subject. The Company and J.P. Morgan have agreed that any person to
whom such debts, obligations, costs and expenses are owed will have the
right to enforce J.P. Morgan's obligations in respect of such debts,
obligations, costs and expenses directly against J.P. Morgan without first
proceeding against the Company.
The rights of the holders of the ComPS, including economic rights, rights
to information and voting rights, are set forth in the LLC Agreement. See
"Description of the ComPS".
Use of Proceeds
The Company will invest the proceeds from the sale of the ComPS offered
hereby and the related Common Securities in a Related Note of Morgan
Guaranty, the proceeds of which will be used by Morgan Guaranty for general
corporate purposes and for hedging its obligations under the Related Note.
At the time of the pricing of the ComPS, Morgan Guaranty hedged its
anticipated exposure under the Related Note and, subject to market
conditions, Morgan Guaranty expects that it will continue to hedge its
exposure under the Related Note from time to time following this offering
of ComPS by taking long or short positions in gold or gold futures
contracts or in listed or over-the-counter options contracts in, or other
derivative or synthetic instruments related to, gold or gold futures
contracts. There can be no assurance that Morgan Guaranty's intial hedging
did not, and that its continued hedging will not, affect the spot price of
gold (and, as a result, the Initial Price and the subsequent value of the
ComPS). In addition, J.P. Morgan and its affiliates may from time to time
purchase or othersie acquire a long or short position in the ComPS and may,
in their sole discretion, hold or resell such ComPS. Morgan Guaranty may
also take positions in other types of appropriate financial instruments
that may become available in the future. To the extent Morgan Guaranty has
a long hedge position in gold or gold futures contracts or options
contracts in, or other derivative or synthetic instruments related to, gold
or gold futures contracts, Morgan Guaranty may liquidate a portion or all
of its holdings, as applicable, at or about the time of any Early
Redemption Date or the Stated Maturity of the Related Note (which
correspond to the Early Redemption Dates and the Stated Maturity of the
ComPS). Depending on, among other things, future market conditions, the
aggregate amountg and the composition of those positions are likely to vary
over time. Profits or losses from any such position cannot be ascertained
until that position is closed out and any offsetting position or positions
are taken into account. However, none of the contracts or securities
acquired in connection with any hedging activity will be held for the
benefit of holders of ComPS.
<PAGE>
Description of the ComPS
The ComPS will be issued pursuant to the LLC Agreement. The following
summary of the principal terms and provisions of the ComPS does not purport
to be complete and is subject to, and qualified in its entirety by
reference to, the Prospectus of which this Prospectus Supplement
constitutes a part and the LLC Agreement, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus Supplement
is a part.
General
ComPS are principal-at-risk securities linked directly to the performance
of the Applicable Index. If the index rises from the starting value (which
is set on the day or pricing), the Redemption Value of the ComPS will be
greater than the original issue price. If the Applicable Index declines
from the starting value, the Redemption Value of such ComPS will be less
than the original issue price. In no circumstances will the Redemption
Value of the ComPS be less than zero, but the Redemption Value could be
more or less than the issue price. Because an investor's principal
redemption is linked to the performance of an Applicable Index calculation,
it is important to understand on what the Applicable Index calculation is
based.
The ComPS pay both interest and principal based on the price of gold. The
Principal Amount of a ComPS is the U.S. Dollar Equivalent Value of
one-tenth of an ounce of gold. Each dividend is calculated as a percentage
rate of the Principal Amount (which will fluctuate) and is paid monthly.
Each monthly dividend will be equal to one-twelfth of the annual dividend
rate times the U.S. Dollar Equivalent Value of one-tenth of the spot price
of one ounce of gold at such time in the London bullion market. Thus, the
amount of each dividend will vary. Upon redemption, the Redemption Value
will be equal to the U.S. Dollar Equivalent Value of the 10-day average of
one-tenth of the spot price of one ounce of gold in the London bullion
market. Therefore, both the dividend payments and the Redemption Value will
fluctuate based on the spot price of gold determined in the London bullion
markets. Any events which adversely affect the spot price of gold will
adversely affect both the dividend payments on and the Redemption Value of
the ComPS.
The Principal Amount of each of the ComPS will vary over the life of the
ComPS in relation to the Dollar Equivalent Value of one-tenth of the London
P.M. gold fixing price of one ounce of gold on the London bullion market
(the "Applicable Index"). The Principal Amount repayable upon the
occurrence of any Special Event Redemption or at Stated Maturity will be
determined, pursuant to the terms and calculations described herein
(including, without limitation, the average of gold prices during any early
Determination Period and the Determination Period and the present-valuing
of the indexed dividends and Principal Amount), based on the Dollar
Equivalent Value of one-tenth of the London P.M. gold fixing price of one
ounce of gold on the London bullion market.
The LLC Agreement authorizes the Company to issue Preferred and Common
Securities. All of the Common Securities will be owned, directly or
indirectly, by J.P. Morgan. Payments of interest on and redemptions of
principal of the ComPS and the related Common Securities will be made on a
pro rata basis among the ComPS and the related Common Securities, except
that upon the occurrence of a liquidation, termination or winding up of the
Company, the rights of the holders of the Common Securities to receive
payment of periodic dividends and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of all
Preferred Securities of the Company. The LLC Agreement does not permit the
incurrence of any indebtedness by the Company (other than any preferred
securities thereof). The payment of distributions out of money held by the
Company, and payments upon liquidation, termination or winding-up of the
Company, are guaranteed by J.P. Morgan to the extent described under
<PAGE>
"Description of the Guarantee". The Guarantee does not cover payment of
distributions when Morgan Guaranty has not made payment of principal or
interest, as applicable, on the Related Note. In such event, the remedy of
a holder of ComPS is to direct the Company to enforce its rights under the
Related Note and the Related Note Guarantee with respect to such Related
Note. See "--Voting Rights" and "Effect of Obligations Under the Guarantee,
the Related Note Guarantee and the Related Note".
Dividends
Dividends on the ComPS will be fixed at a rate per annum of [2]% of the
Principal Amount per Preferred Security. The term "dividend" as used herein
includes any such interest payable unless otherwise stated.. Dividends on
the ComPS will be cumulative and will be payable monthly on the last
calendar day of each month (calculated on the basis of a 360-day year of
twelve 30-day months) based on the Dollar Equivalent Value of one-tenth of
the London P.M. gold fixing price for one ounce of gold on the London
bullion market on the fifth London Business Day prior to such calendar day,
commencing [ ], 1996, when, as and if available for payment; provided,
however, that upon the occurrence of a Market Disruption Event, such
dividend will be payable on the later of such calendar day and the day two
Business Days following the determination of the amount thereof. However,
in no event will the amount of days for which dividends are paid be greater
than the actual number of days elapsed in any such month.
Dividends on the ComPS will be payable to the holders thereof as they
appear on the books and records of the Company on the relevant record
dates, which, as long as the ComPS remain in book-entry only form, will be
one London Business Day prior to the relevant payment dates. Subject to any
applicable laws and regulations and the provisions of the LLC Agreement,
each such payment will be made as described under "--Book-Entry Only
Issuance--The Depository Trust Company".
In the event that the ComPS do not continue to remain in book-entry only
form, the Company shall have the right to select relevant record dates,
which shall be at least one Business Day prior to the relevant payment
dates. In the event that any date on which dividends are to be made on the
ComPS is not a Business Day, then payment of the dividends payable on such
date will be made on the next succeeding Business Day with the same force
and effect as if made on such date and no interest on such dividends will
accrue
<PAGE>
from and after such date, except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if
made on such date. A "Business Day" shall mean any day other than Saturday,
Sunday or any other day on which banking institutions in The City of New
York, New York, are permitted or required by any applicable law to close.
The payment of dividends on the ComPS out of moneys held by the Company is
guaranteed by J.P. Morgan on a subordinated basis as and to the extent set
forth under "Description of the Guarantee". The Guarantee is a full and
unconditional guarantee from the time of issuance of the ComPS, but the
Guarantee covers dividends and other payments on the ComPS only if and to
the extent that Morgan Guaranty has made a payment to the Company of
interest or principal on the Related Note, as the case may be.
Redemption at Stated Maturity
Unless previously redeemed pursuant to the special redemption provisions
and subject to extension in the case of a Market Disruption Event (as
defined below), each of the outstanding ComPS will be redeemed by the
Company, in cash, on the Stated Maturity, at the ComPS Redemption Price.
The ComPS Redemption Price is the sum of (a) the Redemption Value per
Preferred Security plus (b) accrued but unpaid dividends on such ComPS to
but excluding the date of redemption.
Calculation of Redemption Value
The Principal Amount of each Preferred Security at any time is equal to
one-tenth of the Dollar Equivalent Value of the London P.M. gold fixing
price of one ounce of gold on the London bullion market. On the date of
this Prospectus Supplement. In summary, and subject to the complete
definitions and formulae contained herein and in the Prospectus, the
Principal Amount of each Preferred Security at Stated Maturity, subject to
extension in the case of a Market Disruption Event (the "Redemption
Value"), shall be the arithmetic average of the Dollar Equivalent Value of
one-tenth of the London P.M. gold fixing price of one ounce of gold in the
London Bullion market for each day of the Determination Period. The
"Determination Period" is the period of 10 consecutive Trading Days not
subject to a Market Disruption Event. The ComPS Redemption Price will first
be payable on the later of the Stated Maturity and the fifth Business Day
after the completion of the Determination Period.
As defined in the accompanying Prospectus under "Description of
ComPS--Market Disruption Events", a Market Disruption Event is the
occurrence of one or more of the following on any Trading Day with respect
to the London P.M. gold fixing price of one ounce of gold on the LMBA
London bullion market (the "Relevant Fixing Association"): (a) a day on
which the fluctuation of the price of one ounce of gold is materially
limited by the rules of the Relevant Fixing Association (a "Limit Price");
(b) a day on which the London P.M. gold fixing price is the Limit Price;
(c) the failure of the Relevant Fixing Association to determine, announce
or publish the London P.M. gold fixing price of one ounce of gold; provided
that if such London P.M. fixing price shall have ceased as of such date to
be available for an indefinite period of time, the Applicable Index will
thereafter be calculated based on the London A.M. fixing price (or such
other successor London fixing price) until the London P.M. fixing price
again becomes available and the absence of such price will not constitute a
Market Disruption Event; (d) the material suspension of trading of ounces
of gold or any other amount of gold on the Relevant Fixing Association
affecting the price of one ounce of gold; (e) the failure of trading to
commence, or the permanent discontinuation of trading, in ounces of gold on
the Relevant Fixing Association and (f) the imposition of any material
limitation on trading in ounces of gold or any other amount of gold on the
Relevant Fixing Association affecting the price of one ounce of gold.
<PAGE>
Special Event Redemption
The ComPS will be subject to redemption by the Company prior to Stated
Maturity, at its option, upon the occurrence of a Tax Event or an
Investment Company Event (each, a "Special Event"), as discussed herein.
"Tax Event" means that the Company shall have obtained an opinion of
nationally recognized independent tax counsel experienced in such matters
(a "Tax Opinion") to the effect that, as a result of (a) any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision
or taxing authority thereof or therein, (b) any amendment to, or change in,
an interpretation or application of any such laws or regulations by any
legislative body, court, governmental agency or regulatory authority
(including the enactment of any legislation and the publication of any
judicial decision or regulatory determination), (c) any interpretation or
pronouncement that provides for a position with respect to such laws or
regulations that differs from the theretofore generally accepted position
or (d) any action taken by any governmental agency or regulatory authority,
which amendment or change is enacted, promulgated, issued or announced or
which interpretation or pronouncement is issued or announced or which
action is taken, in each case on or after the date of this Prospectus
Supplement, there is more than an insubstantial risk that at such time or
within 90 days of the date thereof (i) the Company is or would be subject
to United States Federal income tax with respect to income accrued or
received on the Related Note, (ii) the interest payable on the Related Note
is not, or would not be, deductible by Morgan Guaranty for United States
Federal income tax purposes, (iii) the contingent principal in excess of
the Face Amount, if any, payable on the Related Note is not, or would not
be, deductible by Morgan Guaranty for United States Federal income tax
purposes or (iv) the Company is or would be subject to more than a de
minimis amount of other taxes, duties, assessments or other governmental
charges.
"Investment Company Event" means that the Company shall have received an
opinion of a nationally recognized independent counsel experienced in such
matters to the effect that, as a result of the occurrence of a change in
law or regulation, a written change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or
regulatory authority or the expiration or revocation of any exemption from
any provisions of the Investment Company Act of 1940, as amended (the "1940
Act"), obtained by the Company (a "Change in 1940 Act Law"), there is more
than an insubstantial risk that the Company is or will be considered an
"investment company" that is required to be registered as such under the
1940 Act, which Change in 1940 Act Law becomes effective on or after the
date of this Prospectus Supplement.
If at any time a Tax Event or an Investment Company Event shall occur and
be continuing, J.P. Morgan shall elect to either:
(a) direct Morgan Guaranty to redeem the Related Note in whole or
in part, upon not less than 22 scheduled Business Days' notice to DTC,
within 90 days following the occurrence of such Special Event, in
which case the Company shall redeem in cash on a pro rata basis ComPS
and related Common Securities having an aggregate Principal Amount
equal to the Principal Amount of the Related Note so redeemed, at the
ComPS Early Redemption Price per Preferred Security which is equal to
the sum of the Early Redemption Value plus an amount equal to all
accrued and unpaid dividends on such ComPS to but excluding the date
of such redemption (the "Early Redemption Date"); provided, that
Morgan Guaranty shall only be entitled to redeem the Related Note in
part if such partial redemption is sufficient to cause such Special
Event to cease; or
(b) in the case of a Tax Event, allow the Related Note and the
ComPS to remain outstanding and indemnify the Company for all taxes
payable by it as a result of such Tax Event (if any);
<PAGE>
provided that, if at the time there is available to the Company the opportun-
ity to eliminate, within such 90-day period, the Special Event by taking some
ministerial action, such as filing a form or making an election, or pursuing
some other similar reasonable measure, that has no adverse effect on the
Company, J.P. Morgan, Morgan Guaranty or the holders of ComPS, the Company will
pursue such measure in lieu of redemption; provided further that Morgan
Guaranty shall have no right to redeem the Related Note and J.P. Morgan shall
have no right to direct the Company to redeem the ComPS while the Company is
pursuing any such ministerial action or reasonable measure unless the Special
Event shall not have been so eliminated by the 85th day following the occurrence
thereof, in which case J.P. Morgan shall be permitted to direct Morgan Guaranty
to provide notice to the Company of the redemption of the Related Note.
Under current United States Federal income tax law, upon the occurrence of
a Special Event, a redemption of ComPS, whether or not upon dissolution of
the Company, would be a taxable event to such holders. See "United States
Federal Income Taxation".
Redemption Procedures
In the case of a redemption of ComPS upon the occurrence of a Special
Event, the Company will provide notice of such redemption to the Transfer
Agent and to DTC on a date not less than 22 scheduled Business Days prior
to such Early Redemption Date stating, among other things, the date of such
redemption.
The related Common Securities will be redeemed on a pro rata basis with the
ComPS except that, in the case of any dissolution or liquidation in which
the assets of the Company are insufficient to repay in full the Principal
Amount of all Preferred Securities then outstanding, all Preferred
Securities will be redeemed prior to the redemption of any Common
Securities. ComPS registered in the name of and held by DTC (as defined
herein) or its nominee will be redeemed in accordance with DTC's standard
procedures. See "--Book-Entry Only Issuance--The Depository Trust Company".
Payment of the ComPS Redemption Price or the ComPS Early Redemption Price,
as applicable, of the ComPS is conditioned upon delivery or book-entry
transfer of such ComPS (together with necessary endorsements) to the
Company at any time (whether prior to, on or after the relevant Redemption
Date) after the required notice is given (to the extent such notice is
required). See "--Book-Entry Only Issuance--The Depository Trust Company".
Payment of ComPS Redemption Price or the ComPS Early Redemption Price, as
applicable, for such ComPS will be made by the delivery of cash no later
than the applicable Settlement Date with respect to such ComPS or, if
later, the time of delivery or book-entry transfer of such ComPS. If the
Company holds money sufficient to pay the ComPS Redemption Price or the
ComPS Early Redemption Price, as applicable, of the ComPS on the applicable
Settlement Date, then immediately at the close of business on such
Settlement Date, such ComPS will cease to be outstanding and dividends with
respect to such ComPS will cease to accrue, whether or not such ComPS are
delivered to the Company, and all rights of the holder of such ComPS shall
terminate and lapse, other than the right to receive the ComPS Redemption
Price or the ComPS Early Redemption Price, as applicable, of the ComPS on
the applicable Settlement Date, then immediately at the close of business
on such Settlement Date, such ComPS will cease to be outstanding and
dividends with respect to such ComPS will cease to accrue, whether or not
such ComPS are delivered to the Company, and all rights of the holder of
such ComPS shall terminate and lapse, other than the right to receive the
ComPS Redemption Price or the ComPS Early Redemption Price, as applicable,
upon delivery of the ComPS.
<PAGE>
Provided that Morgan Guaranty has paid to the Company the required amount
of cash due upon any redemption or at the maturity of the Related Note, the
Company will irrevocably deposit with DTC no later than the close of
business on the applicable Settlement Date funds sufficient to pay the
ComPS Redemption Price or the ComPS Early Redemption Price, as applicable,
payable with respect to ComPS on such date and will give the Depositary
irrevocable instructions and authority to pay such amount to the holders of
ComPS entitled thereto. See "--Book-Entry Only Issuance--The Depository
Trust Company". In the event that any Settlement Date is not a Business
Day, then payment of the ComPS Redemption Price or the ComPS Early
Redemption Price, as applicable, payable on such date will be made on the
next succeeding Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day falls in the
next calendar year such payment will be made on the immediately preceding
Business Day. In the event that payment of the ComPS Redemption Price or
the ComPS Early Redemption Price, as applicable, is improperly withheld or
refused and not paid by the Company or by J.P. Morgan pursuant to the
Guarantee, dividends on such ComPS will continue to accrue from the
original Redemption Date to the actual date of payment by the Company to
DTC.
The Company may not redeem fewer than all of the outstanding ComPS on any
Redemption Date unless all accrued and unpaid dividends have been or are
concurrently being paid on all ComPS for all monthly dividend periods
terminating on or prior to the applicable Redemption Date. If a partial
redemption as a result of a Special Event Redemption by Morgan Guaranty of
a part or all of the Related Note would result in the delisting of the
ComPS by any national securities exchange (or automated inter-dealer
quotation system, including The Nasdaq Stock Market ("Nasdaq")) on which
the ComPS are then listed, Morgan Guaranty may only redeem the Related Note
in whole and, as a result, the Company may only redeem the ComPS in whole.
Subject to the foregoing and to applicable law (including, without
limitation, United States Federal securities laws), J.P. Morgan or its
affiliates may, at any time and from time to time, purchase outstanding
ComPS by tender, in the open market or by private agreement.
Liquidation Distribution Upon Dissolution
In the event of any liquidation, dissolution, winding-up or termination of
the Company (each, a "Liquidation Event"), whether voluntary or
involuntary, the holders of ComPS on the date of such Liquidation Event
will be entitled to be paid out of the assets of the Company the
Liquidation Distribution. The "Liquidation Distribution" will be equal to
(a) the Early Redemption Value with respect to such ComPS (treating the
date of such distribution as the Early Redemption Date) plus (b) the amount
of accrued and unpaid dividends on such ComPS to but excluding the date of
payment. To the extent the assets of the Company are insufficient to repay
all amounts due to holders of all Preferred Securities of the Company,
holders of all Preferred Securities then outstanding (including the ComPS)
will be entitled to a pro rata share of the assets of the Company, based
upon the relative Principal Amounts of all Preferred Securities
outstanding. In addition, in the event that the assets of the Company
exceed the amount necessary to pay to all holders of ComPS the full amount
of the Liquidation Distribution, such excess will be paid to the holders of
Common Securities.
Pursuant to the LLC Agreement, the legal existence of the Company shall
terminate on November 21, 2105.
<PAGE>
Voting Rights
Except as described herein and under "--Modification of the LLC Agreement",
and as otherwise required by law and the LLC Agreement, the holders of the
ComPS will have no voting rights.
Pursuant to the provisions of the Guarantee, certain amendments to or
modifications of the Guarantee may only be effected with the approval of a
majority in aggregate Principal Amount at such time of the ComPS and all
other affected Preferred Securities. See "Description of the
Guarantee--Modification of the Guarantee".
Pursuant to the provisions of the Related Note, certain amendments to or
modifications of the Related Note may only be effected with the approval of
a majority in aggregate Principal Amount at such time of the ComPS. See
"Description of the Related Note--Modification of the Related Note".
Notwithstanding that holders of ComPS are entitled to vote or consent under
any of the circumstances described above, any of the ComPS that are owned
at such time by J.P. Morgan or any entity directly or indirectly
controlling or controlled by, or under direct or indirect common control
with, J.P. Morgan, shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if such ComPS were not
outstanding.
The procedures by which holders of ComPS may exercise their voting rights
are described below under "--Book-Entry Only Issuance--The Depository Trust
Company" and in the LLC Agreement.
Modification of the LLC Agreement
The LLC Agreement may be amended or modified if approved by a written
instrument executed by a majority in interest of the holders of Common
Securities; provided that, if any proposed amendment provides for (i) any
action that would adversely affect the powers, preferences or special
rights of any Preferred Securities or (ii) the dissolution, winding up or
termination of the Company other than pursuant to the terms of the LLC
Agreement, then the holders of all affected outstanding Preferred
Securities (or, in the case of an event described in clause (ii), all
Preferred Securities) of the Company voting together as a single class will
be entitled to vote on such amendment or proposal and such amendment or
proposal shall not be effective except with the approval of holders of
not less than a majority in aggregate Principal Amount of all affected
outstanding Preferred Securities (or, in the case of an event described in
clause (ii), all Preferred Securities) of the Company.
The LLC Agreement further provides that it may be amended without the
consent of the holders of the ComPS to (i) cure any ambiguity, (ii) correct
or supplement any provision in the LLC Agreement that may be defective or
inconsistent with any other provision of the LLC Agreement, (iii) add to
the covenants, restrictions or obligations of J.P. Morgan, (iv) conform to
changes in, or a change in interpretation or application of, certain
requirements of the 1940 Act by the Commission and (v) conform to certain
requirements of the Code with respect to the characterization of the
Company as a partnership for U.S. Federal income tax purposes, including,
without limitation, an alteration of the capitalization of the Company upon
any such change, which amendment does not adversely affect the rights,
preferences or privileges of the holders of the ComPS.
<PAGE>
Listing
[The ComPS have been authorized for listing on the [ ] under the symbol "[
]", subject to official notice of issuance. Trading of the ComPS on the [ ]
is expected to commence within a 30-day period after the date of this
Prospectus Supplement.] [Prior to this offering, there has been no market
for the ComPS. In order to meet one of the requirements for listing the
ComPS on the [ ], the underwriters will undertake to sell one or more lots
of 100 or more ComPS to a minimum of 400 beneficial holders.]
Accounting Treatment
The financial statements of the Company will be included in the
consolidated financial statements of J.P. Morgan, with the ComPS included
on the balance sheet with J.P. Morgan's other obligations.
Mergers, Consolidations or Amalgamations
The Company may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity, except
upon satisfaction of the conditions set forth in Section 2.8 of the LLC
Agreement, which include in certain circumstances the approval of 2/3 of
the outstanding Principal Amount of all Preferred Securities. In addition,
so long as any ComPS are outstanding and are not held directly or
indirectly entirely by J.P. Morgan, the Company may not voluntarily
liquidate, dissolve, wind-up or terminate on or prior to the Stated
Maturity.
Book-Entry Only Issuance--The Depository Trust Company
The Depository Trust Company ("DTC") will act as securities depositary for
the ComPS. The ComPS will be issued only as fully-registered securities
registered in the name of Cede & Co. (DTC's nominee). One or more
fully-registered global ComPS certificates, representing the total
aggregate number of ComPS, will be issued and will be deposited with DTC.
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
Securities Exchange Act of 1934, as amended (the "Exchange Act"). DTC holds
securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and dealers,
<PAGE>
banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others, such as securities
brokers and dealers, banks and trust companies that clear transactions
through or maintain a direct or indirect custodial relationship with a
Direct Participant either directly or indirectly ("Indirect Participants").
The rules applicable to DTC and its Participants are on file with the
Commission.
Purchases of ComPS within the DTC system must be made by or through Direct
Participants, which will receive a credit for the ComPS on DTC's records.
The ownership interest of each actual purchaser of each Preferred Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which the Beneficial Owners
purchased ComPS. Transfers of ownership interests in the ComPS are to be
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in the ComPS, except in the event
that use of the book-entry system for the ComPS is discontinued.
<PAGE>
To facilitate subsequent transfers, all the ComPS deposited by Participants
with DTC are registered in the name of DTC's nominee, Cede & Co. The
deposit of ComPS with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership. DTC has no knowledge of the
actual Beneficial Owners of the ComPS. DTC's records reflect only the
identity of the Direct Participants to whose accounts such ComPS are
credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory
requirements that may be in effect from time to time.
In the case of a Special Event Redemption, redemption notices shall be sent
to Cede & Co. If less than all of the ComPS are being redeemed, DTC will
reduce the amount of the interest of each Direct Participant in such ComPS
in accordance with its procedures.
Although voting with respect to the ComPS is limited, in those cases where
a vote is required, neither DTC nor Cede & Co. will itself consent or vote
with respect to ComPS. Under its usual procedures, DTC would mail an
Omnibus Proxy to the Company as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co. consenting or voting rights to those
Direct Participants to whose accounts the ComPS are credited on the record
date (identified in a listing attached to the Omnibus Proxy). J.P. Morgan
and the Company believe that the arrangements among DTC, Direct and
Indirect Participants and Beneficial Owners will enable the Beneficial
Owners to exercise rights equivalent in substance to the rights that can be
directly exercised by a holder of a limited liability company interest in
the Company.
Dividend payments on the ComPS will be made to DTC. DTC's practice is to
credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment
date. Payments by participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered
in "street name", and such payments will be the responsibility of such
Participant and not of DTC, the Company or J.P. Morgan, subject to any
statutory or regulatory requirements to the contrary that may be in effect
from time to time. Payment of dividends to DTC is the responsibility of the
Company, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary with
respect to the ComPS at any time by giving reasonable notice to the
Company. Under such circumstances, in the event that a successor securities
depositary is not obtained, ComPS certificates are required to be printed
and delivered. Additionally, the Company may decide to discontinue use of
the system of book-entry transfers through DTC (or any successor
depositary) with respect to the ComPS. In that event, certificates for the
ComPS will be printed and delivered.
<PAGE>
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that J.P. Morgan believes to be reliable,
but neither J.P. Morgan nor the Company takes responsibility for the
accuracy thereof.
Governing Law
The LLC Agreement and the ComPS will be governed by and interpreted in
accordance with the laws of the State of Delaware.
Description of the Related Note
Set forth below is a summary of the terms of the Related Note in which the
Company will invest the proceeds from the issuance and sale of the ComPS
and the related Common Securities. The following description does not
purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Prospectus of which this Prospectus Supplement is a
part and the Related Note, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus Supplement is a part.
Certain capitalized terms are used herein as defined in the Related Note.
General
The Related Note will be issued as an unsecured, unsubordinated obligation
of Morgan Guaranty, limited in initial principal amount to approximately $[
] , such amount being the sum of the aggregate Initial Public Offering
Price shown on the cover page hereof for the ComPS and the Common
Securities issued in connection therewith.
The Related Note is not subject to a sinking fund provision. The entire
Principal Amount of the Related Note will mature and become due and
payable, together with any accrued and unpaid interest thereon, if any, on
the Stated Maturity (subject to extension in the case of a Market
Disruption Event), subject to the redemption of the Related Note in whole
or in part in certain circumstances upon the occurrence of a Special Event.
If Morgan Guaranty redeems the Related Note in whole or in part, the
Company must redeem ComPS and related Common Securities having an aggregate
Principal Amount equal to the Principal Amount of the Related Note so
redeemed at the ComPS Early Redemption Price. See "Description of the
ComPS--Redemption or Stated Maturity; --Special Event Redemption".
Related Note Redemption Price
The amount payable under the Related Note by Morgan Guaranty to the Company
at any time shall equal (a) the Principal Amount of the Related Note at
such time plus (b) any accrued but unpaid distributions due to the Company
(the "Related Note Redemption Price"). The Principal Amount of the Related
Note at any time shall equal the aggregate Principal Amount of outstanding
ComPS and the related Common Securities at such time. The timing and amount
of payments on the Related Note mirror the aggregate financial terms of the
ComPS.
Subordination
Morgan Guaranty's obligations under the Related Note are effectively
subordinated to all liabilities (including indebtedness) of its
consolidated and unconsolidated subsidiaries. Moreover, Morgan Guaranty's
subsidiaries may incur indebtedness and other liabilities and have
obligations to third parties. Generally, the claims of such third parties
to the assets of Morgan Guaranty's subsidiaries will be superior to those
of Morgan Guaranty as a stockholder, and, therefore, the Related Note may
be deemed to be effectively subordinated to the claims of such third
parties.
<PAGE>
Upon any payment or distribution of all or substantially all of the assets
of Morgan Guaranty or in the event of any insolvency, bankruptcy,
receivership, liquidation, dissolution, reorganization or other similar
proceeding whether voluntary or involuntary relative to Morgan Guaranty or
its creditors, the holders of all Senior Indebtedness will be entitled to
receive payment pari passu and pro rata with the Company. However,
depositors in Morgan Guaranty will have a preference over holders of Senior
Indebtedness upon any such event.
As used in the Related Note, the term "Senior Indebtedness" means the
principal of, premium, if any, and interest on (a) all indebtedness of
Morgan Guaranty for money borrowed, whether outstanding as of the date
hereof or hereafter created, issued or incurred (other than Morgan
Guaranty's obligations to its depositors), except any indebtedness
expressly subordinated to such Senior Indebtedness, and (b) any deferrals,
renewals or extensions of any such Senior Indebtedness. The Related Note
does not limit the amount of Senior Indebtedness which Morgan Guaranty may
incur.
Interest
The Related Note shall bear interest at the rate of [ ] % per annum on the
Principal Amount from the original date of issuance, payable monthly on the
last calendar day of each month (each, an "Interest Payment Date"),
commencing [ ], 1996, to the Company, subject to certain exceptions, at the
close of business on the Business Day next preceding the relevant Interest
Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable
for any period shorter than a full monthly period for which interest is
computed will be computed on the basis of the actual number of days elapsed
per 30-day month. In the event that any date on which interest is payable
on the Related Note is not a Business Day, payment of the interest payable
on such date will be made on the next succeeding day that is a Business Day
(without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date.
Special Event Redemption
Upon the occurrence of a Special Event, Morgan Guaranty will have the right
to elect to, under certain circumstances (a) redeem the Related Note at the
Related Note Redemption Price or (b) in the case of a Tax Event, allow the
Related Note to remain outstanding and indemnify the Company for any taxes
payable by it as a result of such Tax Event. See "Description of the
ComPS--Special Event Redemption".
Events of Default
The Related Note Events of Default are described in "Description of the
Related Notes --Related Note Events of Default" in the Prospectus of which
this Prospectus Supplement constitutes a part. A default or event of
default under any Senior Indebtedness would not constitute a default or
event of default under the Related Note.
Modification of the Related Note
The Related Note contains provisions permitting Morgan Guaranty and the
Company, with the consent of the holders of not less than a majority in
Principal Amount of the outstanding ComPS, to modify the Related Note,
subject to certain exceptions. See "Description of the Related Notes
- --Modification of the Related Notes" in the Prospectus of which this
Prospectus Supplement constitutes a part.
<PAGE>
Consolidation, Merger and Sale
The Related Note provides that Morgan Guaranty may, without the consent of
the Company or the holders of the ComPS, consolidate or merge with or into,
or sell or transfer all or substantially all of its property or assets to,
any corporation or association; provided that (i) the corporation (if other
than Morgan Guaranty) or association formed by or resulting from any such
consolidation or merger or which shall have received such property or
assets shall have assumed Morgan Guaranty's obligations under the Related
Note and (ii) immediately after giving effect to such transaction, Morgan
Guaranty or such successor corporation shall not be in default under the
terms of the Notes.
Governing Law
The Related Note will be governed by, and construed in accordance with, the
laws of the State of New York.
Miscellaneous
Morgan Guaranty will have the right at all times to assign any of its
rights or obligations under the Related Note to J.P. Morgan or to a direct
or indirect wholly-owned subsidiary of Morgan Guaranty; provided that, in
the event of any such assignment, Morgan Guaranty will remain jointly and
severally liable for all such obligations. Subject to the foregoing, the
Related Note will be binding upon and inure to the benefit of the parties
thereto and their respective successors and assigns. The Related Note is
not a deposit or other obligation of a bank and is not insured by the
Federal Deposit Insurance Corporation or any other federal agency.
Description of the Guarantee
Set forth below is a summary of information concerning the Guarantee that
will be delivered by J.P. Morgan for the benefit of the holders of ComPS.
The terms of the Guarantee will be those set forth in the Guarantee
Agreement. The following summary does not purport to be complete and is
subject in all respects to the provisions of, and is qualified in its
entirety by reference to, the Prospectus of which this Prospectus
Supplement is a part and the form of Guarantee, which is filed as an
exhibit to the Registration Statement of which this Prospectus Supplement
forms a part.
<PAGE>
General
Pursuant to the Guarantee, J.P. Morgan irrevocably and unconditionally
agrees, on a subordinated basis, to pay in full to the holders of the ComPS
the Guarantee Payments (as defined herein) (except to the extent paid by
the Company), as and when due, regardless of any defense, right of set-off
or counterclaim that the Company may have or assert. The following payments
with respect to ComPS issued by the Company (the "Guarantee Payments"), to
the extent not paid by the Company, will be subject to the Guarantee
(without duplication): (i)(A) any accrued and unpaid dividends that are
required to be paid on the ComPS and (B) the ComPS Redemption Price, but if
and only if to the extent that, in each case, Morgan Guaranty has made
payment of interest or principal on the Related Note, as the case may be,
and (ii) upon a Liquidation Event (other than in connection with the
redemption of all of the ComPS at Stated Maturity or redemption of the
Related Note) the lesser of (A) the Liquidation Distribution to the extent
the Company has funds available therefor and (B) the amount of assets of
the Company remaining available for distribution to holders of the ComPS
upon such Liquidation Event. J.P. Morgan's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by J.P.
Morgan to the holders of ComPS or by causing the Company to pay such
amounts to such holders. The Guarantee will be an unconditional
guarantee with respect to the ComPS from the time of issuance of the ComPS
to the extent Morgan Guaranty has made payments under the Related Note. If
Morgan Guaranty does not make payments on the Related Note, the Company may
not pay distributions on the ComPS issued and may not have funds available
therefor. See "Description of the Related Note".
Modification of the Guarantee; Assignment
Except with respect to any changes that do not adversely affect the rights
of holders of all Preferred Securities (in which case no vote will be
required), the Guarantee may be amended only with the prior approval of the
holders of not less than a majority in aggregate Principal Amount of the
outstanding ComPS and all other Preferred Securities entitled to vote
thereon, voting as a single class. All guarantees and agreements contained
in the Guarantee shall bind the successors, assignees, receivers, trustees
and representatives of J.P. Morgan and shall inure to the benefit of the
holders of the ComPS.
<PAGE>
Remedies of Holders
If J.P. Morgan fails to perform any of its payment or other obligations
with respect to the ComPS under the Guarantee, any holder of ComPS may
institute a legal proceeding directly against J.P. Morgan to enforce such
holder's rights under the Guarantee without first instituting a legal
proceeding against the Company or any other person or entity. Subject to
the award by a court of competent jurisdiction of legal fees in connection
with any such legal proceeding, each holder will be required to bear its
own costs in connection with instituting a legal proceeding directly
against J.P. Morgan, which cost may be significant.
Termination of the Guarantee
The Guarantee will terminate with respect to the ComPS upon full payment of
the aggregate ComPS Early Redemption Price or ComPS Redemption Price, as
applicable, or upon full payment of the amounts payable in accordance with
the LLC Agreement upon liquidation of the Company. The Guarantee will
continue to be effective or will be reinstated, as the case may be, if at
any time any holder of ComPS must restore payment of any sums paid under
such ComPS or the Guarantee (e.g., upon a subsequent bankruptcy of Morgan
Guaranty or J.P. Morgan).
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of J.P. Morgan and
will rank (i) subordinate and junior in right of payment to all other
liabilities of J.P. Morgan, (ii) pari passu with the most senior preferred
or preference stock outstanding as of the date hereof of J.P. Morgan and
(iii) senior to J.P. Morgan's common stock. The terms of the ComPS provide
that each holder of ComPS by acceptance thereof agrees to the subordination
provisions and other terms of the Guarantee.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly
against the guarantor to enforce its rights under the Guarantee without
instituting a legal proceeding against any other person or entity).
<PAGE>
Governing Law
The Guarantee will be governed by and construed and interpreted in
accordance with the laws of the State of New York.
Description of the Related Note Guarantee
Set forth below is a summary of information concerning the Related Note
Guarantee that will be delivered by J.P. Morgan for the benefit of the
Company. The terms of the Related Note Guarantee will be those set forth in
the Related Note Guarantee Agreement. The following summary does not
purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Prospectus of which
this Prospectus Supplement is a part and the form of Related Note
Guarantee, which is filed as an exhibit to the Registration Statement of
which this Prospectus Supplement forms a part. The Related Note Guarantee
will be held by the Company, as the holder of the Related Note.
General
Pursuant to the Related Note Guarantee, J.P. Morgan irrevocably and
unconditionally agrees, on a subordinated basis, to pay in full to the
Company the Related Note Guarantee Payments (as defined herein), as and
when due, regardless of any defense, right of set-off or counterclaim that
Morgan Guaranty may have or assert with respect to its obligation to make
such Related Note Guarantee Payments. The following payments with respect
to the Related Note issued by Morgan Guaranty (the "Related Note Guarantee
Payments") will be subject to the Related Note Guarantee (without
duplication): (i) any accrued and unpaid distributions that are required to
be paid by Morgan Guaranty on the Related Note and (ii) any principal
payable by Morgan Guaranty under the Related Note, as and when payable by
Morgan Guaranty. J.P. Morgan's obligation to make a Related Note Guarantee
Payment may be satisfied by direct payment of the required amounts by J.P.
Morgan to the Company or by causing Morgan Guaranty to pay such amounts to
the Company. The Related Note Guarantee will be a full and unconditional
guarantee with respect to the Related Note from the time of issuance of the
Related Note.
<PAGE>
Modification of the Related Note Guarantee; Assignment
The Related Note Guarantee may be amended only with the prior approval of
the Company. All guarantees and agreements contained in the Related Note
Guarantee shall bind the successors, assignees, receivers, trustees and
representatives of J.P. Morgan and shall inure to the benefit of the
Company as the holder of the Related Note.
Remedies of the Company
The Company has the sole right to direct the time, method and place of
conducting any proceeding for any remedy available to it in respect of the
Related Note Guarantee.
Termination of the Related Note Guarantee
The Related Note Guarantee will terminate with respect to the Related Note
upon full payment of the Related Note Redemption Price (as defined below)
of the Related Note. The Related Note Guarantee will continue to be
effective or will be reinstated with respect to the Related Note, as the
case may be, if at any time the Company must restore payment of any sums
paid under the Related Note or the Related Note Guarantee (e.g., upon a
subsequent bankruptcy of J.P. Morgan).
Status of the Related Note Guarantee
The Related Note Guarantee will constitute an unsecured obligation of J.P.
Morgan and will rank (i) subordinate and junior in right of payment to all
other liabilities of J.P. Morgan, (ii) pari passu with the most senior
preferred or preference stock outstanding as of the date hereof of J.P.
Morgan and (iii) senior to J.P. Morgan's common stock. The terms of the
ComPS provide that each holder of ComPS by acceptance thereof agrees to the
subordination provisions and other terms of the Related Note Guarantee.
The Related Note Guarantee will constitute a guarantee of payment and not
of collection (that is, the Company may institute a legal proceeding
directly against J.P. Morgan to enforce its rights under the Related Note
Guarantee without instituting a legal proceeding against Morgan Guaranty).
<PAGE>
Governing Law
The Related Note Guarantee will be governed by and construed and
interpreted in accordance with the laws of the State of New York.
Effect of Obligations Under the Guarantee,
the Related Note Guarantee and the Related Note
As set forth in the LLC Agreement, the sole purpose of the Company is to
issue the Securities and other Preferred and Common Securities, and to
invest the proceeds from such issuances in the Related Note and other debt
obligations of Morgan Guaranty.
As long as payments of interest and other payments are made when due on the
Related Note, such payments will be sufficient to cover dividends and
payments due on the ComPS because of the following factors: (i) the
Principal Amount of the Related Note will be equal to the sum of the
aggregate Principal Amount of the ComPS and the related Common Securities;
(ii) the interest rate and the interest and other payment dates on the
Related Note will match the dividend rate and dividend and other payment
dates for the ComPS; (iii) J.P. Morgan shall pay all, and the Company shall
not be obligated to pay, directly or indirectly, any, costs and expenses of
the Company other than principal of and dividends on the ComPS and the
related Common Securities; and (iv) the LLC Agreement further provides that
the J.P. Morgan shall not cause the Company to, among other things, engage
in any activity that is not consistent with the purposes of the Company.
Payments of dividends (to the extent Morgan Guaranty has made payments of
interest on the Related Note) and other payments due on the ComPS (to the
extent Morgan Guaranty has made payment of principal and other amounts on
the Related Note) are guaranteed by J.P. Morgan as and to the extent set
forth under "Description of the Guarantee" herein and in the accompanying
Prospectus. If Morgan Guaranty does not make interest payments on the
Related Note, it is expected that the Company will not have sufficient
funds to pay dividends on the ComPS. The Guarantee is a full and
unconditional guarantee from the time of its issuance but does not apply to
any dividends or other payments unless and until Morgan Guaranty has made
payment of interest or other payments on the Related Note.
<PAGE>
If Morgan Guaranty fails to make interest or other payments on the Related
Note when due, the LLC Agreement provides a mechanism whereby the holders
of the ComPS, using the procedures described in the LLC Agreement, may
direct the Company to enforce its rights under the Related Note. If J.P.
Morgan fails to perform any of its payment or other obligations with
respect to the ComPS under the Guarantee, any holder of ComPS may institute
a legal proceeding directly against J.P. Morgan to enforce such holder's
rights under the Guarantee without first instituting a legal proceeding
against the Company or any other person or entity.
The Related Note Guarantee by J.P. Morgan guarantees to the Company the
payment of any distributions on and principal of the Related Note as
provided pursuant to the terms of the Related Note, at such times and in
such amounts as provided therein. J.P. Morgan's obligations under the
Related Note Guarantee will be subordinated and junior in right of payment
to all liabilities of J.P. Morgan, pari passu with the most senior
preferred stock outstanding as of the date hereof of J.P. Morgan and senior
to the common stock of J.P. Morgan.
The LLC Agreement and the Expense Agreement provide that J.P. Morgan will
pay, or cause to be paid, all debts and obligations (other than with
respect to the ComPS) and all costs and expenses of the Company, including
any taxes and all costs and expenses with respect thereto, to which the
Company may become subject. J.P. Morgan and the Company agreed that any
person to whom such debts, obligations, costs and expenses are owed will
have the right to enforce J.P. Morgan's obligations in respect of such
debts, obligations, costs and expenses directly against J.P. Morgan without
first proceeding against the Company.
J.P. Morgan and the Company believe that the above mechanisms and
obligations, taken together, are equivalent to a full and unconditional
guarantee by J.P. Morgan of payments due on the ComPS. See "Description of
the Guarantee--General" and "Description of the Related Note
Guarantee--General" herein and in the accompanying Prospectus.
Upon any voluntary or involuntary liquidation, dissolution, winding-up or
termination of the Company, the holders of Securities will be entitled to
receive the Liquidation Distribution. Holders of ComPS will be entitled to
the benefits of the Guarantee with respect to the Liquidation Distribution.
See "Description of the ComPS--Liquidation Distribution Upon Dissolution".
Upon any voluntary or involuntary liquidation or bankruptcy of Morgan
Guaranty, the Company as holder of the Related Note would be pari passu
with creditors of Morgan Guaranty (other than any depositors therein),
equal in right of payment with all Senior Indebtedness and entitled to
receive payment in full of principal, premium, if any, and interest, before
any stockholders of Morgan Guaranty receive payments of distributions.
United States Federal Income Taxation
General
The following is a summary of the material United States Federal income tax
consequences of the purchase, ownership and disposition of ComPS by U.S.
Holders (as defined herein). Unless otherwise stated, this summary deals
only with ComPS held as capital assets by holders who purchase the ComPS
upon original issuance ("Initial Holders").
<PAGE>
This summary 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 that will hold the ComPS as a position in
a "straddle" (within the meaning of Section 1092 of the Internal Revenue
Code of 1986, as amended (the "Code")), or as part of a "conversion
transaction" (within the meaning of Section 1258 of the Code) or "synthetic
security" or other integrated investment comprised of ComPS and one or more
other investments. This summary also does not address the tax consequences
to persons that have a functional currency other than the U.S. Dollar or
the tax consequences to shareholders, partners or beneficiaries of a holder
of ComPS. Further, it does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government
or of any foreign government that may be applicable to the ComPS.
This summary is based on the Code, Treasury regulations thereunder and
administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis. In the
opinion of Cravath, Swaine & Moore, special tax counsel to J.P. Morgan and
the Company ("Tax Counsel"), the statements contained in the following
summary, to the extent they constitute matters of law, accurately describe
the material U.S. Federal income tax consequences to holders of the
acquisition, ownership and disposition of ComPS. For purposes of this
summary, a "U.S. Holder" shall mean a holder who is (i) a citizen or a
resident of the United States (or any state thereof), (ii) a corporation,
partnership or other entity created or organized in or under the laws of
the United States or any political subdivision thereof, (iii) an estate or
trust, the income of which is subject to U.S. Federal income tax regardless
of its source, and (iv) any other person subject to U.S. Federal income tax
on net income.
Classification of the Related Note
No statutory, judicial or administrative authority directly addresses the
characterization of the Related Note or instruments similar to the Related
Note for U.S. Federal income tax purposes. As a result, significant aspects
of the U.S. Federal income tax consequences of investment in ComPS are not
certain. No ruling is being requested from the Internal Revenue Service
(the "IRS") with respect to the Related Note and no assurance can be given
that the IRS will agree with the conclusions expressed herein. In the
absence of clear authority and based on the advice of Tax Counsel, it is
the intention of the Company to treat the Related Note as a contingent debt
instrument with interest payable (and currently taxable to holders) at the
stated rate. By purchasing the ComPS, the holders will agree to treat the
Related Note in the same manner.
Classification of the Company
In connection with the issuance of the ComPS, it is Tax Counsel's opinion
that, under current law and assuming full compliance with the terms of the
LLC Agreement and the Related Note and based on certain facts and
assumptions contained in the opinion of Tax Counsel, the Company will be
classified for U.S. Federal income tax purposes as a partnership and not as
an association taxable as a corporation. Accordingly, for U.S. Federal
income tax purposes, each holder of ComPS will be required to include in
its gross income its distributive share of any item of income or gain
realized by the Company including any interest accrued with respect to the
Related Note. No portion of the income accrued by the Company will be
eligible for the dividends received deduction. By acquiring one or more
ComPS, each holder thereof agrees to treat such ComPS as an interest in a
partnership holding the Related Note.
<PAGE>
The Company will have a calendar year tax year and will use the accrual
method of accounting. Accordingly, calendar year holders will be required
to include their distributive share of the income accrued by Company in
their taxable year that corresponds to the year in which the Company
accrued such income. Holders with a different taxable year will include
such income in their taxable year that includes the December 31 of the
Company's taxable year in which the Company accrued the income.
U.S. Holders
Taxation of Income Accrued by the Company
Assuming the Related Notes are treated as contingent debt instruments for
U.S. Federal income tax purposes, the following rules are believed to
apply, subject to the discussion below:
(1) a U.S. Holder would be required to include its distributive
share of the stated interest on the Related Note in income as it
becomes fixed and is accrued by the Company, and would not be entitled
to the dividends received deduction with respect thereto;
(2) upon the redemption of the ComPS (whether a Special Event
redemption or at Stated Maturity) or liquidation of the Company, it is
expected that a U.S. Holder will have gain or loss equal to the
difference between the amount realized by the U.S. Holder and such
Holder's tax basis in the ComPS; any loss would be capital loss, but
the tax characterization of gain is not clear and may be ordinary
income rather than capital gain;
(3) for the purpose of computing gain or loss, a U.S. Holder's
tax basis in the ComPS would equal the cost of the ComPS increased by
such Holder's distributive share of income accrued with respect to the
income of the Company and decreased by the amount of dividends
received by such Holder; and
(4) any capital gain or loss on the redemption of the ComPS will
be characterized as a long-term capital gain or loss if at the time of
redemption or liquidation the holding period in the ComPS is in excess
of one year.
However, even assuming the Related Note is properly treated as a contingent
debt instrument, in the absence of authority concerning the proper tax
treatment of such instruments, no assurance can be given that the above tax
consequences would be accepted by the IRS or upheld by a court. Moreover, a
variety of different tax characterizations can apply to the Related Note.
For example the Related Note can be viewed as a "notional principal
contract" (as defined in Treasury Regulations 1.446-3), a series of prepaid
cash-settled forward purchase contracts to buy gold, a series of loans
combined with cash-settled forward purchase contracts to buy gold or some
other contractual arrangement.
Accordingly, the tax consequences of investment in ComPS may not be as
described above. For example, (i) gain on redemption of the ComPS or on
liquidation of the Company may be ordinary income rather than capital gain,
(ii) a U.S. Holder might be required to accrue income at a rate greater
than the stated rate on the Related Note, possibly at the market rate for a
fixed debt instrument, and have less income or gain (or a greater loss)
upon disposition or redemption of ComPS, or (iii) all or part of the stated
interest on the Related Note might be treated as a nontaxable return of
capital, increasing the amount of income or gain (or decreasing the loss)
upon disposition or redemption of ComPS.
<PAGE>
In connection with clause (ii) of the preceding paragraph, recently
proposed Treasury Regulations with respect to contingent debt instruments
would require the accrual of interest income on the Related Note based on
the projected yield to maturity of the Related Note. The projected yield
would take into account the projected interest payments and project
Principal Amount at Stated Maturity (based upon forward pricing for the
Applicable Index). This method might result in an annual inclusion of
income at a rate in excess of the stated rate of interest on the Related
Note. An adjustment would be made at the end of each taxable year of the
Company and at maturity to reflect the actual interest payments and the
payment at Stated Maturity as compared to the projected amount. Moreover,
any gain on redemption of ComPS or upon liquidation of the Company would be
ordinary income and any loss would be ordinary loss to the extent of the
amount of prior interest accrual. 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 Related Note. However, no
assurance can be given that the IRS or the courts would not apply the
principles of the regulations to the Related Note.
Monthly Allocations of Income
In general, the Company's taxable income from the Related Note for each
month will be allocated, pursuant to a monthly convenstion, to holders who
hold ComPS on the record date for the payment of dividends for that month.
Thus, taxable income is allocated when paid and not on an accrual basis. As
a result, the taxable income allocated to a holder who sells (or buys)
ComPS between record dates will not accurately reflect the accrued interest
on the Related Note for the holder's actual holding period for ComPS during
the month of sale (or purchase), which may affect such holder's tax
liability and tax basis in the ComPS.
However, the IRS may determine that the use of this monthly convention is
not permitted. If this monthly convention is not allowed, taxable income of
the Company from the Related Note in the month of sale might be reallocated
among the sellers and buyers of ComPS. The LLC Agreement permits the
Company to revise its method of allocation between sellers and buyers to
conform to a method permitted by future regulations.
Sale or Other Disposition of ComPS
Upon the sale or other disposition of ComPS (other than redemption of ComPS
by the Company), a U.S Holder would have gain or loss equal to the
difference between the amount realized by the U.S. Holder and such Holder's
tax basis in the ComPS disposed of. Generally, it is believed that such
gain or loss will be capital gain or loss, although such gain might be
ordinary income. Any such capital gain or loss will be a long-term capital
gain or loss if upon disposition the ComPS will have been held for more
than one year.
Non-United States Holders
In the case of a holder of ComPs that is not a U.S. Holder, although
no assurance can be given it is believed that payments made with respect to
ComPs will not be subject to U.S. withholding tax, provided that such
holder complies with applicable certification requirements. The Company may
withhold on such payments, in which case the holder will be entitled to
file a claim with the IRS claiming a refund of such tax. No assurance can
be given whether such claim would be successful. Any capital gain realized
upon the redemption, sale or other disposition of ComPS by a holder that is
not a U.S. Holder 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 the redemption, sale or other disposition or the gain is not
attributable to a fixed place of business maintained by such individual in
the United States.
<PAGE>
Information Reporting to Holders
The Company will annually report each holder's distributive share of the
Company's income, gains, expenses and losses to the holders and the IRS on
Schedule K-1. The Company currently intends to report such information
prior to January 31 following each calendar year even though the Company is
not legally required to report to record holders until April 15 following
each calendar year. The Company will provide the Schedule K-1 information
to nominees (other than certain clearing agencies) that fail to provide the
information statements described below and such nominees will be required
to forward such information to the beneficial owners of the ComPS.
Under section 6031 of the Code, any person (other than certain clearing
agencies) that holds ComPS as a nominee at any time during a calendar year
is required to furnish the Company with a statement containing certain
information on the nominee, the beneficial holders and the ComPS so held.
Such information includes (i) the name, address and taxpayer identification
number of the nominee and each beneficial owner and (ii) as to each
beneficial owner (x) whether such person is a United States person, a
tax-exempt entity, a foreign government, an international organization or
any wholly-owned agency or instrumentality of the either of the foregoing
and (y) certain information on ComPS that were held, bought or sold on
behalf of such person throughout the year. In addition, brokers and
financial institutions that hold ComPS for their own account through a
clearing agency are required to furnish the Company additional information
as to themselves and their ownership of ComPS. The information referred to
above for any calendar year must be furnished to the Company on or before
the following January 31. Nominees, brokers and financial institutions that
fail to provide the Company with such information may be subject to
penalties.
Backup Withholding
Payments made on, and proceeds from the sale of, the ComPS may be subject
to a "backup" withholding tax of 31% unless the holder complies with
certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's United States Federal income tax, provided
that the required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE
MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION.
HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
ComPS, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR
OTHER TAX LAWS.
ERISA Considerations
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") or Section 4975 of the
Code ("Plans"), may purchase ComPS, subject to the investing fiduciary's
determination that the investment in ComPS satisfies ERISA's fiduciary
standards and other requirements applicable to investments by the Plans.
In any case, J.P. Morgan, Morgan Guaranty and/or any affiliates of either
may be considered a "party in interest" (within the meaning of ERISA) or a
"disqualified person" (within the meaning of Section 4975 of the Code) with
respect to certain Plans. The acquisition and ownership of ComPS by a Plan
(or by an individual retirement arrangement or other plans described in
Section 4975(e)(i) of the Code) with respect to which J.P. Morgan, Morgan
Guaranty or any of its affiliates of either is considered a party in
interest or a disqualified person may constitute or result in a prohibited
transaction under ERISA or Section 4975 of the Code, unless such ComPS are
acquired pursuant to and in accordance with an applicable exemption.
<PAGE>
As a result, Plans with respect to which J.P. Morgan, Morgan Guaranty or
any affiliates of either is a party in interest or a disqualified person
should not acquire ComPS. Any other Plans or other entities whose assets
include plan assets subject to ERISA proposing to acquire ComPS should
consult with their own ERISA counsel.
Underwriting
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
Underwriters, and the Underwriters have agreed to purchase, severally but
not jointly, the ComPS. In the Underwriting Agreement, the Underwriters
have agreed, subject to the terms and conditions set forth therein, to
purchase all the ComPS offered hereby if any of the ComPS are purchased. In
the event of default by any Underwriter and failure by the other
Underwriters to purchase such defaulting Underwriter's portion of the
ComPS, the Underwriting Agreement provides that, in certain circumstances,
the Underwriting Agreement may be terminated.
The Underwriters propose to offer the ComPS, in part, directly to the
public at the Initial Public Offering Price set forth on the cover page of
this Prospectus Supplement, and, in part, to certain securities dealers at
such price less a concession of $[ ] per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $[ ] per Preferred Security to certain brokers and dealers. After
the ComPS are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the ComPS will
ultimately be used to purchase the Related Note of Morgan Guaranty, the
Underwriting Agreement provides that Morgan Guaranty will pay as
compensation ("Underwriters' Compensation") to the Underwriters $[ ] per
Preferred Security (or $[ ] in the aggregate) for the accounts of the
several Underwriters; provided that such compensation for sales of ComPS to
certain institutions will be $[ ] per Preferred Security. Therefore, to the
extent of such institutional sales, the actual amount of Underwriters'
Compensation will be less than the aggregate amount specified in the
preceding sentence.
[The ComPS have been authorized for listing on the [ ] under the symbol "[
]", subject to official notice of issuance. Trading of the ComPS on the [ ]
is expected to commence within a 30-day period after the date of this
Prospectus Supplement.] [Prior to this offering, there has been no market
for the ComPS. In order to meet one of the requirements for listing the
ComPS on the [ ], the Underwriters will undertake to sell one or more lots
of 100 or more ComPS to a minimum of 400 beneficial holders.]
The Company and J.P. Morgan have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
This Prospectus Supplement and the related 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 ComPS.
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 Underwriters, certain agents and their associates may be customers of,
engage in transactions with, and perform services for, J.P. Morgan in the
ordinary course of business.
<PAGE>
The lead Underwriter is an indirect, wholly-owned subsidiary of J.P.
Morgan. The participation of the lead Underwriter in the offer and sale of
the ComPS complies 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 and complies with any
restrictions imposed on such Underwriter by the Board of Governors of the
Federal Reserve System, including the use of a "qualified independent
underwriter" (if required by the NASD).
Legal Matters
The validity of the Securities offered hereby will be passed upon by
Margaret M. Foran, Vice President, Assistant General Counsel and Assistant
Secretary of J.P. Morgan, and by Cravath, Swaine & Moore, New York, New
York, counsel for the Underwriters. 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 audited financial statements contained in J.P. Morgan's Annual Report
on Form 10-K 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.
<PAGE>
ANNEX I
Glossary of Terms
The following are abbreviated definitions of certain capitalized terms used
in the Prospectus Supplement. The LLC Agreement, the Guarantee, the Related
Note Guarantee and the Related Note may contain more complete definitions
of certain of the terms defined herein, as well as definitions of certain
other terms not defined herein, and reference should be made to the LLC
Agreement, the Guarantee, the Related Note Guarantee and the Related Note,
as applicable, for complete definitions of such terms.
Applicable Index............ the Dollar Equivalent Value of
one-tenth of the London P.M. gold
fixing price for one ounce of gold
in the London bullion market.
Business Day................ any day other than a Saturday,
Sunday or any other day on which
banking institutions in The City of
New York, New York, are permitted
or required by any applicable law
to close.
Code........................ the Internal Revenue Code of 1986,
as amended.
Commission.................. the Securities and Exchange
Commission.
Common Securities........... the common securities of the
Company representing voting limited
liability company interests in the
Company, to be directly or
indirectly owned by J.P. Morgan.
ComPS Early Redemption On any Early Redemption Date, an
Price....................... amount equal to (i) the Early
Redemption Value per Preferred
Security plus (ii) accrued and
unpaid dividends to but excluding
the date of redemption.
ComPS Redemption Price...... at Stated Maturity, an amount equal
to (i) the Redemption Value per
Preferred Security plus (ii)
accrued and unpaid dividends to but
excluding Stated Maturity.
Determination Period........ the 10 Trading Days on which no
Market Disruption Event occurs
immediately following the 20th
scheduled Business Day prior to
Stated Maturity.
Dividends................... cumulative cash dividends of [ ]%
per annum on the Principal Amount
determined five London Business
Days prior to the relevant payment
date (calculated on the basis of a
360 day year of twelve 30-day
months), accruing from the Issue
Date and payable monthly; provided,
however, that upon the occurrence
of a Market Disruption
<PAGE>
Event, such dividend will be
payable on the later of such
calendar day and the day two
Business Days following the
determination of the amount
thereof.
DTC......................... The Depository Trust Company.
Early Redemption Value...... the arithmetic average for each day
of the Early Determination Period of
the Principal Amount of the ComPS,
subject to adjustment as specified in
the accompanying Prospectus under
"Description of ComPS--Early
Redemption Upon the Occurrence of a
Special Event or at the Option of the
Holders".
ERISA....................... the Employee Retirement Income
Security Act of 1974.
Early Determination the 10 Trading Days which are Business
Period...................... Days on which U.S. Treasury Bond
markets are open and on which no
Market Disruption Event occurs
immediately following the 20th
scheduled Business Day prior to the
applicable Early Redemption Date.
Early Redemption Date....... the date of any Special Event
Redemption or Liquidation
Distribution.
Exchange Act................ the Securities Exchange Act of
1934, as amended.
Guarantee................... the Guarantee Agreement executed by
J.P. Morgan on behalf of the
holders of each series of Preferred
Securities.
Guarantee Payments.......... without duplication, (i)(A) any
accrued and unpaid dividends that
are required to be paid on the
ComPS and (B) the ComPS Early
Redemption Price or the ComPS
Redemption Price, as applicable,
<PAGE>
but if and only to the extent that,
in each of case, Morgan Guaranty
has made a payment of interest or
principal, as the case may be, on
the Related Note and (ii) upon a
Liquidation Event (other than in
connection with the redemption of
all the ComPS upon the maturity or
redemption of the Related Note),
the lesser of (A) the Liquidation
Distribution to the extent the
Company has funds available
therefor, and (B) the amount of
assets of the Company remaining
available for distribution to
holders of all Preferred Securities
upon such Liquidation Event.
Initial Holders............. holders who purchase any ComPS upon
original issuance.
Initial Offering Price [$40] (i.e., the approximate value of
per Preferred Security...... one-tenth of the London P.M. gold
fixing price for one ounce of gold
in the London bullion market on [
], 1996.
Interest Payment Date....... with respect to the Related Note,
the last calendar day of each
month, beginning [ ], 1996.
Investment Company the receipt by the Company of an
Event....................... opinion of a nationally recognized
independent counsel experienced in
such matters to the effect that, as
a result of the occurrence of
a change in law or regulation, a
written change in interpretation or
application of law or regulation by
any legislative body, court,
governmental agency or regulatory
authority or the expiration or
revocation of any applicable
exemption obtained by the Company
(a "Change in 1940 Act Law"), there
is more than an insubstantial risk
that the Company is or will be
considered an "investment company"
that is required to be registered
under the 1940 Act, which Change in
1940 Act Law becomes effective on
or after the date of this
Prospectus.
<PAGE>
IRS......................... Internal Revenue Service.
Issue Date.................. [ ], 1996.
LBMA........................ the London Bullion Market Association.
Liquidation Distribution.... in respect of any Liquidation
Event, the sum of (a) the Early
Redemption Value (treating the date
of such distribution as the Early
Redemption Date) plus (b) the
amount of accrued and unpaid
dividends on such Preferred
Security to but excluding the date
of payment.
Liquidation Event........... any liquidation, dissolution,
winding-up or termination of the
Company, whether voluntary or
involuntary.
LLC Agreement............... the limited liability company
agreement among J.P. Morgan, JPM
Ventures and holders of Preferred
Securities subsequently becoming
members thereof dated February 16,
1996, and effective as of November
21, 1995.
London Business Day......... any day other than a Saturday, Sunday
or any other day on which banking
institutions in London are permitted
or required by any applicable law
to close.
Market Disruption Event..... the occurrence of one or more of
the following on any Trading Day
with respect to the London P.M.
gold fixing price of one ounce of
gold on the LBMA London bullion
market (the "Relevant Fixing
Association"): (a) a day on which
the fluctuation of the price of one
ounce of gold is materially limited
by the rules of the Relevant Fixing
Association setting the maximum or
minimum price for such day (a
"Limit Price"); (b) a day on which
the London P.M. gold fixing price
is the Limit Price; (c) the failure
of the Relevant Fixing Association
to determine, announce or publish
the London P.M. gold fixing price
<PAGE>
of one ounce of gold; provided that
if such London P.M. fixing price
shall have ceased as of such date
to be available for an indefinite
period of time, the Applicable
Index will thereafter be calculated
based on the London A.M. fixing
price (or such successor London
fixing price) until the London P.M.
fixing price again becomes
available, and the absence of such
price will not thereafter
constitute a Market Disruption
Event; (d) the material suspension
of trading of ounces of gold or any
other amount of gold on the
Relevant Fixing Association
affecting the price of one
ounce of gold; (e) the failure of
trading to commence, or the
permanent discontinuation of
trading, in ounces of gold on the
Relevant Fixing Association; and
(f) the imposition of any material
limitation on trading in ounces of
gold or any other amount of gold on
the Relevant Fixing Association
affecting the price of one ounce of
gold.
Nasdaq...................... The Nasdaq Stock Market.
1940 Act.................... the Investment Company Act of 1940,
as amended.
NYMEX....................... the New York Mercantile Exchange.
Principal Amount............ at any time, (i) in the case of
ComPS, the Dollar Equivalent Value
of one-tenth of the London P.M.
gold fixing price on such day for
one ounce of gold in the London
bullion market, and (ii) in the
case of the Related Note, the
principal amount thereof at such
time determined pursuant to the
terms thereof.
Redemption Date............. either the Stated Maturity or an
Early Redemption Date, as
applicable.
Redemption Value............ at Stated Maturity, the average of
the Principal Amount over the 10
consecutive Trading Days meeting
certain conditions immediately
following the 20th scheduled
Business Day prior to redemption
(as described herein).
<PAGE>
Related Note ............... the [ ]% unsecured, unsubordinated
debt obligation of Morgan Guaranty
due 20[ ].
Securities.................. the ComPS and the Common Securities.
Securities Act.............. the Securities Act of 1933.
Senior Indebtedness......... with respect to Morgan Guaranty,
the principal of, premium, if any,
and interest on (a) all
indebtedness of Morgan Guaranty for
money borrowed, whether outstanding
as of the date hereof or hereafter
created, issued or incurred (other
than Morgan Guaranty's obligations
to its depositors), except any
indebtedness expressly subordinated
to such Senior Indebtedness, and
(b) any deferrals, renewals or
extensions of any such Senior
Indebtedness.
<PAGE>
Related Note Event of (i) default for 30 days in the
Default..................... payment of interest on the Related
Note; (ii) default in payment of
principal amount at the Stated
Maturity or any amount payable upon
any redemption of the Related Note;
(iii) failure by Morgan
Guaranty for 90 days after receipt
of notice to it to comply with any
of its covenants or agreements
contained in the Related Note; and
(iv) certain events of bankruptcy,
insolvency, receivership or
reorganization involving Morgan
Guaranty or certain affiliates.
Special Event............... either a Tax Event or an Investment
Company Event.
Special Redemption.......... upon the occurrence and during the
continuation of a Special Event,
Morgan Guaranty will have the right
to redeem the Related Note for cash
at the Related Note Redemption
Price, with the result that the
Company will redeem ComPS in an
equal Principal Amount for cash at
the ComPS Early Redemption Price.
Special Redemption Date..... any date in respect of which upon
the occurrence and continuation of
a Tax Event or an Investment
Company Event, Morgan Guaranty
shall have called for redemption in
whole or in part the Related Note,
and the Company shall have called
for redemption an equal Principal
Amount of the ComPS.
Stated Maturity............. [ ]. 20[ ].
Tax Counsel................. Cravath, Swaine & Moore, special
tax counsel to J.P. Morgan and the
Company.
<PAGE>
Tax Event................... the receipt by the Company of an
opinion of nationally recognized
independent tax counsel experienced
in such matters (a "Tax Opinion")
to the effect that, as a result of
(a) any amendment to, or change
(including any announced
prospective change) in, the laws
(or any regulations thereunder) of
the United States or any political
subdivision or taxing authority
thereof or therein, (b) any
amendment to, or change in, an
interpretation or application of
such laws or regulations by any
legislative body, court,
governmental agency or regulatory
authority (including the enactment
of any legislation and the
publication of any judicial
decision or regulatory
determination), (c) any
interpretation or pronouncement
that provides for a position with
respect to such laws or regulations
that differs from the theretofore
generally accepted position or (d)
any action taken by any
governmental agency or regulatory
authority, which amendment or
change is enacted, promulgated,
issued or announced or which
interpretation or pronouncement is
issued or announced or which action
is taken, in each case on or after
the date of this Prospectus
Supplement, that there is more than
an insubstantial risk that at such
time or within 90 days of the date
thereof (i) the Company is
or would be subject to United
States Federal income tax with
respect to income accrued or
received on any Related Note, (ii)
the interest payable on any Related
Note is not or would not be
deductible by Morgan Guaranty for
United States Federal income tax
purposes, (iii) the contingent
principal in excess of the Face
* Amount of any series of Preferred
Securities (if any) payable on any
Related Note is not or would not be
deductible by Morgan Guaranty for
United States Federal income tax
purposes or (iv) the Company is or
would be subject to more than a de
minimis amount of other taxes,
duties or other governmental
charges.
Trading Day................. any day on which open-ontery trading on
either NYMEX or the London Metal
Exchange (the "LME") is scheduled to
occur or occurs.
<PAGE>
No dealer, salesperson or other
individual has been authorized to give
any information or to make any
representations 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 J.P. Morgan, the Company
or the Underwriters. Neither the
delivery of this Prospectus Supplement
and the Prospectus nor any sale made
hereunder and thereunder shall under any
circumstance create an implication that Series [B]
there has been no change in the affairs Preferred Securities
of J.P. Morgan, or the Company since the Indexed to Gold
date hereof. 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 J.P. Morgan Index
which the person making such offer or Funding Company, LLC
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 Preferred Securities
guaranteed to the extent
set forth herein by
Summary of the Offering................ S-
Risk Factors........................... S-
J.P. Morgan & Co. Incorporated......... S-
J.P. Morgan Index Funding Company, LLC S-
Use of Proceeds........................ S- J.P. Morgan & Co.
Description of the ComPS............... S- Incorporated
Description of the Guarantee........... S-
Description of the Related Note
Guarantee............................ S-
Description of the Related Note........ S
Effect of Obligations Under the PROSPECTUS SUPPLEMENT
Guarantee, the Related Note Guarantee
and the Related Note................. S-
United States Federal Income Taxation.. S-
ERISA Considerations................... S
Underwriting........................... S- [ ]
Legal Matters.......................... S-
Experts................................ S-
Prospectus
Available Information..................
Documents Incorporated by Reference....
J.P. Morgan & Co. Incorporated.........
J.P. Morgan Index Funding Company,
LLC..................................
Use of Proceeds........................
Consolidated Ratios....................
Description of All Preferred
Securities...........................
<PAGE>
Description of the ComPS...............
Description of the Guarantee...........
Description of the Related Note
Guarantee............................
Description of the Related Notes.......
Plan of Distribution...................
Legal Matters..........................
Experts................................
Annex I
Glossary of Terms...................... A-1
, 1995
<PAGE>
PROSPECTUS (Subject to Completion)
[$300,000,000] J.P. Morgan Index Funding Company, LLC
Preferred Securities guaranteed to the extent set forth herein by
J.P. Morgan & Co. Incorporated
- ------------
J.P. Morgan Index Funding Company, LLC (the "Company"), a Delaware limited
liability company, may offer, from time to time, preferred securities
representing preferred limited liability company interests in the Company
("Preferred Securities"). The payment of periodic cash distributions
("distributions") with respect to Preferred Securities out of moneys held
by the Company and payments on liquidation, redemption or otherwise with
respect to such Preferred Securities will be guaranteed on a subordinated
basis by J.P. Morgan & Co. Incorporated, a Delaware corporation ("J.P.
Morgan"), to the extent described herein (the "Guarantee"). See
"Description of the Guarantee". The Company will invest the proceeds from
the issuance of Preferred Securities and, at the option of the Company,
related Common Securities in unsecured notes (each, a "Related Note") of
Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), a trust
company with full banking powers organized under the laws of the State of
New York, and payments to the Company on liquidation, redemption or
otherwise with respect to the Related Notes will be guaranteed on a
subordinated basis by J.P. Morgan to the extent described herein (the
"Related Note Guarantee"). See "Description of the Related Note Guarantee".
J.P. Morgan's obligations under the Guarantee and Related Note Guarantee
are subordinate and junior in right of payment to all other liabilities of
J.P. Morgan and rank pari passu with the most senior preferred stock
outstanding as of the date hereof of J.P. Morgan. Related Notes may be
issued and sold from time to time by Morgan Guaranty to the Company in
connection with the investment of the proceeds from the offering of
Preferred Securities and, at the option of the Company, common securities
(the "Common Securities") of the Company.
----------------
Specific terms of the Preferred Securities in respect of which this
Prospectus is being delivered (the "Offered Securities") will be set forth
in an accompanying Prospectus Supplement (the "Prospectus Supplement") with
respect to such Offered Securities, which will describe, without limitation
and where applicable, the following: (i) in the case of Preferred
Securities, the designation, number of securities, liquidation preference
per security (including, without limitation, a description of any
indexation thereof), initial public offering price, any listing on a
securities exchange, distribution rate (or method of calculation thereof),
dates on which distributions shall be payable and dates from which
distributions shall accrue, any voting rights, terms for any conversion or
exchange into other securities, any redemption, exchange or sinking fund
provisions, any other rights, preferences, privileges, limitations or
restrictions relating to the Preferred Securities and the terms upon which
the proceeds of the sale of the Preferred Securities shall be used to
purchase a specific Related Note of Morgan Guaranty; (ii) in the case of
the applicable Related Note, the specific designation, aggregate principal
amount (including, without limitation, a description of any indexation
thereof), denomination, maturity, premium, if any, any exchange,
conversion, redemption or sinking fund provisions, if any, interest rate
(which may be fixed or variable), if any, the time and method of
calculating interest payments, if any, dates on which premium, if any, and
<PAGE>
interest, if any, will be payable, the right of Morgan Guaranty, if any, to
defer payment of interest on the Related Note and the maximum length of
such deferral period, and (iii) the initial public offering price,
subordination terms, and other specific terms of the offering.
----------------
The Offered Securities may be offered in amounts, at prices and on terms to
be determined at the time of offering; provided, however, that the
aggregate initial public offering price of all Offered Securities shall not
exceed $300,000,000. Any Prospectus Supplement relating to any series of
Offered Securities will contain information concerning certain United
States Federal income tax considerations, if applicable, for purchasers and
holders of the Offered Securities.
See "Risk Factors with Respect to All Preferred Securities" on Page [ ] and
"Risk Factors with Respect to ComPS" on Page [ ] for certain information
relevant to an investment in any Preferred Securities or ComPS, as
applicable. An investor in ComPS could lose its entire investment.
----------------
The Company may sell the Offered Securities directly, through agents
designated from time to time or through underwriters or dealers. See "Plan
of Distribution". If any agents of the Company or any underwriters or
dealers are involved in the sale of the Offered Securities, the names of
such agents, underwriters or dealers and any applicable commissions and
discounts will be set forth in any related Prospectus Supplement.
----------------
No dealer, salesperson or any other individual has been authorized by the
Company or J.P. Morgan to give any information or to make any
representation other than those contained or incorporated by reference in
this Prospectus or any accompanying Prospectus Supplement and, if given or
made, such information or representation must not be relied upon as having
been authorized. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of J.P. Morgan,
Morgan Guaranty or the Company since the date hereof.
----------------
THE SECURITIES ARE NOT DEPOSITS 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. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS
SUPPLEMENT.
The date of this Prospectus is [ ], 1996.
<PAGE>
Available Information
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by J.P. Morgan and the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Offered Securities.
This Prospectus does not contain all of the information set forth in such
Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Reference is made to such
Registration Statement and to the exhibits relating thereto for further
information with respect to J.P. Morgan, the Company and the Offered
Securities. Any statements contained herein concerning the provisions of
any document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission or incorporated by reference herein are not
necessarily complete, and, in each instance, reference is made to the copy
of such document so filed for a more complete description of the matter
involved. Each such statement is qualified in its entirety by such
reference.
J.P. Morgan is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information concerning J.P.
Morgan can be inspected and copied at prescribed rates at the Commission's
Public Reference Room, Judiciary Plaza, 450 Fifth Street, Northwest,
Washington, D.C. 20549, as well as the following Regional Offices of the
Commission: Seven World Trade Center, New York, New York 10048; and
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511. Such reports, proxy statements and other information may also
be inspected at the offices of the New York Stock Exchange, on which J.P.
Morgan common stock is traded, at 20 Broad Street, New York, New York
10005.
No separate financial statements of the Company have been included herein.
J.P. Morgan does not consider that such financial statements would be
material to holders of the Preferred Securities because (i) all of the
voting securities of the Company will be owned, directly or indirectly, by
J.P. Morgan, a reporting company under the Exchange Act, (ii) the Company
has no independent operations and exists for the sole purpose of issuing
securities and investing the proceeds thereof in Related Notes to be issued
by Morgan Guaranty, and (iii) the obligations of the Company under the
Preferred Securities that may be issued from time to time are fully and
unconditionally guaranteed, on a subordinated basis, by J.P. Morgan to the
extent that the Company has funds available to meet such obligations. See
"Description of the Related Notes", "Description of the Guarantee" and
"Description of the Related Note Guarantee".
Incorporation of Certain Documents by Reference
J.P. Morgan hereby incorporates by reference in this Prospectus 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,
<PAGE>
December 13, 1995, December 14, 1995 and January 11, 1996 heretofore filed
pursuant to Section 13 of the Exchange 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 Exchange Act
subsequent to the date of this Prospectus and prior to the termination of
the offering of the Securities shall be deemed to be incorporated by
reference into this Prospectus 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 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
or in the accompanying Prospectus Supplement 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.
J.P. Morgan will provide without charge to each person, including any
beneficial owner, to whom this Prospectus 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) 648-2157.
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 below.
Finance and Advisory
J.P. Morgan provides strategic advice and capital raising services to its
broad range of clients. J.P. Morgan advises clients on the financial and
business implications of corporate strategies, which may result in mergers,
acquisitions, divestitures, recapitalizations, privatizations, joint
ventures, and restructurings. J.P. Morgan also provides advice on defensive
strategies and analysis and research on capital structure. J.P. Morgan
structures and executes financing strategies in markets throughout the
world. These strategies may involve commercial paper, syndicated loans,
private placements, and the underwriting of both debt and equity, as well
as other financing techniques. J.P. Morgan also extends credit, accepts
deposits, and provides a variety of other banking and financial services.
Sales and Trading
J.P. Morgan is an active participant, as a principal and as an agent for
clients, in the markets for all major financial instruments, and it engages
in hedging and managing a wide variety of financial risks both for clients
and its own account. J.P. Morgan trades debt and equity securities in U.S.
and international markets, and it distributes these securities to
investors. J.P. Morgan structures, executes and makes markets in swaps,
<PAGE>
options, and other derivative instruments, and it buys and sells foreign
currencies, conducting all of these transactions with clients and
counterparties around the world. J.P. Morgan also trades certain
commodities, and it buys and sells the loans of emerging market countries
and other debtors. Market activities for clients and for its own account
are supported by credit, economic, market, and fundamental industry and
company research.
Asset Management and Servicing
J.P. Morgan provides investment management services to institutional
investors and investment management and fiduciary services to private
clients, consisting of wealthy individuals, their families, and their
businesses. J.P. Morgan manages employee benefit plans for corporations,
state and local governments, and unions. Investment management services are
also provided to a broad spectrum of other institutional investors,
including foundations, endowments, sovereign governments, and insurance
companies. Discretionary and nondiscretionary investment management
services, credit and deposit products, and investment banking services are
provided to private clients as well as fiduciary services, consisting of
generational planning and trust and estate administration services.
J.P. Morgan provides operational services such as the administration of
American and other depositary receipts as well as U.S. money transfer, and
global trust and agency services. J.P. Morgan operates the Euroclear
System, the world's largest clearance and settlement system for
internationally traded securities, under contract to the Euroclear System
Societe Cooperative in Brussels, Belgium. J.P. Morgan also serves as a
futures commission merchant in the execution and clearance of futures
contracts on major futures exchanges worldwide.
Equity Investments
J.P. Morgan invests in debt and equity securities for its own account. The
firm acquires equity securities for investment purposes primarily through
private placements, recapitalizations, and corporate restructurings.
Asset and Liability Management
Asset and liability management activities include managing the interest
rate risk that arises from the firm's interest-rate-sensitive assets and
liabilities. A variety of instruments, both on- and off-balance sheet, in
numerous currencies are used in an integrated manner to achieve the firm's
objectives.
Regulation
J.P. Morgan is subject to regulation under the Bank Holding Company Act of
1956 (the "Act"). Under the Act, J.P. Morgan is required to file certain
reports with the Board of Governors of the Federal Reserve System (the
"Board") and is subject to examination by the Board. The Act generally
precludes J.P. Morgan and its subsidiaries from engaging in nonbanking
activities, or from acquiring more than 5% of any class of voting
securities of any company engaging in such activities, unless the Board has
determined, by order or regulation, that such proposed activities are
closely related to banking. Federal law and Board interpretations limit the
extent to which J.P. Morgan and its subsidiaries can engage in certain
<PAGE>
aspects of the securities business. Under Board policy, J.P. Morgan is
expected to act as a source of financial strength to each subsidiary bank
and to commit resources to support such subsidiary bank, even in
circumstances where J.P. Morgan might not be in a financial position to do
so.
The Glass-Steagall Act prohibits affiliates of banks that are members of
the Federal Reserve System, including J.P. Morgan Securities Inc.
("JPMSI"), from being "engaged principally" in bank-ineligible underwriting
and dealing activities (mainly corporate debt and equity securities). As
interpreted by the Board, this prohibition restricts JPMSI's gross revenues
from such activities to a maximum of 10% of its total gross revenues. J.P.
Morgan will continue to seek ways to expand the limits on such activities
and to achieve the reform of the Glass-Steagall Act necessary to achieve
its long-term objectives.
Morgan Guaranty, J.P. Morgan's largest subsidiary, is a member of the
Federal Reserve System. It and J.P. Morgan Delaware, another wholly owned
subsidiary of J.P. Morgan, are members of the Federal Deposit Insurance
Corporation ("FDIC"). Their businesses are subject to both U.S. federal and
state law and to examination and regulation by U.S. federal and state
banking authorities. J.P. Morgan and its nonbank subsidiaries are
affiliates of Morgan Guaranty and J.P. Morgan Delaware within the meaning
of the applicable federal statutes. Such banks are subject to restrictions
on loans and extensions of credit to J.P. Morgan and certain other
affiliates and on certain other types of transactions with them or
involving their securities.
Among other wholly owned subsidiaries:
JPMSI is a broker-dealer registered with the Securities and Exchange
Commission and is a member of the National Association of Securities
Dealers, the New York Stock Exchange, and other exchanges.
J.P. Morgan Futures Inc. is subject to regulation by the Commodity
Futures Trading Commission, the National Futures Association, and the
commodity exchanges and clearinghouses of which it is a member.
J.P. Morgan Investment Management Inc. is registered with the
Securities and Exchange Commission as an investment adviser under the
Investment Advisers Act of 1940, as amended.
J.P. Morgan subsidiaries conducting business in other countries are
also subject to regulations and restrictions imposed by those
jurisdictions, including capital requirements.
The principal executive office of J.P. Morgan is located at 60 Wall Street,
New York, New York 10260-0060, and its telephone number is (212) 483-2323.
As used in this Prospectus, unless the context otherwise requires, the term
"J.P. Morgan" refers to J.P. Morgan & Co. Incorporated and its consolidated
and unconsolidated subsidiaries.
J.P. Morgan Index Funding Company, LLC
J.P. Morgan Index Funding Company, LLC, is a Delaware limited liability
company formed pursuant to (i) the filing of a certificate of formation
with the Secretary of State of the State of Delaware on November 21, 1995
and (ii) the limited liability company agreement, dated February 16, 1996,
<PAGE>
and effective as of November 21, 1995 (the "LLC Agreement"), filed as an
exhibit to the Registration Statement of which this Prospectus Supplement
and the accompanying Prospectus form a part. J.P. Morgan will directly or
indirectly acquire all Common Securities of the Company. The Company exists
for the exclusive purposes of (i) issuing the Preferred and Common
Securities representing undivided beneficial interests in the assets of the
Company, (ii) investing the proceeds of the Preferred and, at the option of
the Company, Common Securities in Related Notes of Morgan Guaranty and
(iii) engaging in only those other activities necessary or incidental
thereto.
Pursuant to the LLC Agreement, the Common Securities will be owned by J.P.
Morgan and by J.P. Morgan Ventures Corporation, a Delaware corporation and
a wholly-owned subsidiary of J.P. Morgan ("JPM Ventures"). J.P. Morgan and
JPM Ventures will be the Managing Members of the Company, as defined in the
LLC Agreement.
Pursuant to the LLC Agreement, the Managing Members of the Company have
unlimited liability for the debts, obligations and liabilities of the
Company in the same manner as a general partner of a Delaware limited
partnership (which do not include obligations to holders of Preferred
Securities in their capacity as such), to the extent not fully satisfied
and discharged by the Company. That liability on the part of such members
is for the benefit of, and is enforceable by, the liquidating trustee of
the Company in the event of its dissolution and is for the benefit of third
parties to whom the Company owes such debts, obligations and liabilities.
The holders of the Preferred Securities, in their capacity as members of
the Company, are not liable for the debts, obligations or liabilities of
the Company (subject to their obligation to repay any funds wrongfully
distributed to them).
The rights of the holders of each series of Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in
the applicable Prospectus Supplement and this Prospectus.
Use of Proceeds
The proceeds to the Company from the sale of the Preferred Securities
offered from time to time hereby and, at the option of the Company, related
Common Securities will be invested in one or more Related Notes of Morgan
Guaranty, the proceeds of which will be used by Morgan Guaranty for general
corporate purposes and for hedging its obligation under the relevant
Related Note, except as may otherwise be set forth in the applicable
Prospectus Supplement.
<PAGE>
Consolidated Ratios of J.P. Morgan
Consolidated Ratio of Earnings to Fixed Charges
Year Ended December 31,
---------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Excluding Interest on
Deposits............... 1.35 1.40 1.70(a) 1.53(b) 1.42(c)
Including Interest on
Deposits............... 1.24 1.28 1.46(a) 1.31(b) 1.23(c)
- ----------------
(a) For the year ended December 31, 1993, the ratio of earnings to
fixed charges, including the cumulative effect of a change in the method of
accounting for postretirement benefits other than pensions, was 1.64
excluding interest on deposits and 1.43 including interest on deposits.
(b) For the year ended December 31, 1992, the ratio of earnings to
fixed charges, including the cumulative effect of a change in the method of
accounting for income taxes, was 1.67 excluding interest on deposits and
1.39 including interest on deposits.
(c) For the year ended December 31, 1991, the ratio of earnings to
fixed charges, including the extraordinary gain on early retirement of
debt, was 1.43 excluding interest on deposits and 1.24 including interest
on deposits.
Consolidated Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
Year Ended December 31,
------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Excluding Interest on
Deposits............... 1.34 1.39 1.69(a) 1.52(b) 1.40(c)
Including Interest on
Deposits............... 1.23 1.27 1.46(a) 1.31(b) 1.22(c)
- ----------------
(a) For the year ended December 31, 1993, the ratio of earnings to
combined fixed charges and preferred stock dividends, including the
cumulative effect of a change in the method of accounting for
postretirement benefits other than pensions, was 1.63 excluding interest on
deposits and 1.42 including interest on deposits.
(b) For the year ended December 31, 1992, the ratio of earnings to
combined fixed charges and preferred stock dividends, including the
cumulative effect of a change in the method of accounting for income taxes,
was 1.65 excluding interest on deposits and 1.39 including interest on
deposits.
<PAGE>
(c) For the year ended December 31, 1991, the ratio of earnings to
combined fixed charges and preferred stock dividends, including the
extraordinary gain on early retirement of debt, was 1.41 excluding interest
on deposits and 1.23 including interest on deposits.
Description of all Preferred Securities
The Company is authorized by the LLC Agreement to issue, from time to time,
one or more series of Preferred Securities having terms described in the
Prospectus Supplement relating to each. Each series of Preferred Securities
will have such terms, including distributions, redemption, voting,
liquidation rights and such other preferred or other special rights or such
restrictions, as shall be set forth in the Prospectus Supplement relating
to such Preferred Securities, including (i) the distinctive designation of
such Preferred Securities, (ii) the number of Preferred Securities issued
in such series, (iii) the annual distribution rate (or method of
determining such rate) for such Preferred Securities and the date or dates
upon which such distributions shall be payable, (iv) whether distributions
on such Preferred Securities shall be cumulative, and, in the case of
Preferred Securities having such cumulative distribution rights, the date
or dates or method of determining the date or dates from which
distributions on such Preferred Securities shall be cumulative, (v) the
amount or amounts (or the method for determining such amount or amounts)
which shall be paid out of the assets of the Company to the holders of
such Preferred Securities upon voluntary or involuntary dissolution,
winding-up or termination of the Company, (vi) the obligation, if any,
of the Company to purchase or redeem, and the option of the holders of
Preferred Securities, if any, to redeem, Preferred Securities
issued by the Company and the price or prices at which, the period or
periods within which and the terms and conditions upon which such Preferred
Securities shall be purchased or redeemed, in whole or in part, pursuant to
such obligation, (vii) the voting rights, if any, of such Preferred
Securities in addition to those required by law, including the number of
votes per Preferred Security and any requirement for the approval by the
holders of Preferred Securities as a condition to specified action or
amendments to the LLC Agreement, and (viii) any other relevant rights,
preferences, privileges, limitations or restrictions of Preferred
Securities consistent with the LLC Agreement and with applicable law.
All Preferred Securities offered hereby will be guaranteed, on a
subordinated basis, by J.P. Morgan to the extent set forth below under
"Description of the Guarantees".
Certain United States federal income tax considerations applicable to any
offering of Preferred Securities will be described in the Prospectus
Supplement relating thereto.
In connection with the issuance from time to time of Preferred Securities,
the Company may issue Common Securities. Upon an event of liquidation,
termination or winding-up of the Company, the rights of the holders of the
Common Securities to payments in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the Preferred Securities. Each holder of Common Securities
will be a "Managing Member" of the Company, as defined in the LLC
Agreement. All of the Common Securities will be directly or indirectly
owned by J.P. Morgan.
Each series of Preferred Securities will be subject to redemption prior to
the Stated Maturity thereof upon the occurrence of a Tax Event or an
<PAGE>
Investment Company Event (each, a "Special Event") upon the terms set forth
in the applicable Prospectus Supplement.
Description of the ComPS
Among the types of Preferred Securities currently contemplated for issuance
by the Company are one or more series of Preferred Securities sharing the
characteristics described below (each such series, "ComPS"). The following
description is a general description of all series of ComPS, and
prospective purchasers of any series of ComPS should consult the applicable
Prospectus Supplement for such series and other documents referred to or
incorporated by reference therein (including, without limitation, any
public documents filed after the date hereof and any amendments to any
document referred to herein).
General
The Principal Amount of each series of ComPS to be paid upon any
amortization of principal and at the Stated Maturity of such series (the
"Redemption Value") will be determined with reference to, and will
fluctuate based on, the level of a commodity index (referred to herein as
the "Applicable Index" or collectively as the "Applicable Indices"), as
specified in the applicable Prospectus Supplement.
The Applicable Index will be one of the following types: (i) an "excess
return" index, the change in value of which will be calculated with
reference to the changes in value of certain futures contracts on the
relevant commodity (the "Benchmark Contracts"), which contracts are
replaced regularly as the determinant of change in value of the Applicable
Index according to the methodology used in calculating the JPM Indices as
described herein (such index referred to herein as an "Excess Return
Index"), (ii) a "total return" index, calculated in the same manner as an
Excess Return Index but including an additional component of return (the
"Collateral Return") arising from interest accrued on the value of the
Applicable Index (such index referred to herein as a "Total Return Index")
or (iii) the price of the relevant commodity as reported in the pricing
source identified in the Prospectus Supplement, which may be the settlement
prices for futures contracts on the underlying commodity or prices of the
underlying commodity determined by the relevant market participants,
reporting services or associations at the official price determination, in
each case during the applicable distribution period, Early Determination
Period or Determination Period (such index referred to herein as a "Price
Reference Index"). ComPS for which the Applicable Index is a Price
Reference Index in which all distributions and the Principal Amount are
indexed to the value at any time in U.S. dollars (the "Dollar Equivalent
Value") of bullion (i.e., gold, silver, platinum or
palladium) will referred to as "Bullion ComPS". For the purposes of this
Prospectus, "Principal Amount" shall mean (a) in the case of Bullion ComPS,
the applicable portion of the applicable fixing price of the applicable
amount of the applicable bullion commodity at any time (the "Bullion ComPS
Principal Amount"), (b) in the case of all other Preferred Securities, the
Redemption Value, Early Redemption Value or stated liquidation preference
<PAGE>
thereof, as applicable, as if determined as of such time, and (c) in the
case of any Related Note, the principal amount thereof at such time
determined pursuant to the terms thereof.
Each commodity underlying the Applicable Index will be one of the
commodities included in the J.P. Morgan Commodity Index (the "JPMCI")
(i.e., aluminum, copper, nickel, zinc, heating oil, natural gas,
unleaded gasoline, crude oil, gold, silver and platinum), one of the
JPMCI sub-indices, palladium or such other commodity as may be
specified in the applicable Prospectus Supplement. As described
herein, the JPMCI is computed on an excess return and a total return
basis. The variations of the JPMCI, including the permutations of the
JPMCI in the form of sub-indices, which may be based on one or more
commodities (whether computed on an excess return or total return
basis) and which have been or may be originated and calculated by
Morgan Guaranty, are collectively referred to herein as the "JPM
Indices". JPM Indices which are based upon only one underlying
commodity (whether computed on an excess return or total return basis)
are referred to as "JPM Individual Indices".
ComPS are principal-at-risk securities linked directly to the performance
of the Applicable Index. For Bullion ComPS or Excess Return ComPS, if the
index rises from the starting value (which is set on the day of pricing),
the Redemption Value of such ComPS) will be greater than the original issue
price. If the Applicable Index declines from the starting value, the
Redemption Value of such ComPS will be less than the original issue price.
In no circumstances will be the Redemption Value of the ComPS be less than
zero, but the Redemption Value could be more or less than the issue price.
Because an investor's principal redemption is linked to the performance of
an Applicable Index calculation, it is important to understand on what the
Applicable Index calculation is based. Subject to the more specific
discussion of each item elsewhere in this Prospectus and in the relevant
Prospectus Supplement, following is a general summary of Bullion ComPS,
Excess Return ComPS and Total Return ComPS:
Bullion ComPS
Bullion ComPS, which are linked to the cash price of bullion (i.e, gold,
silver, platinum or palladium), pay both interest and principal based on
the price of the applicable bullion. The Principal Amount of a Bullion
ComPS is the U.S. Dollar Equivalent Value of a certain number of fraction
of ounces of the applicable bullion. Each dividend is calculated as a
percentage rate of the Principal Amount (which will fluctuate) and is paid
monthly. Each full monthly dividend will be equal to one-twelfth of the
annual dividend rate times the U.S. Dollar Equivalent Value of the spot
price of the applicable bullion at such time in the London bullion market
multiplied by the fractional number of ounces to which each Bullion ComPS
is linked. Thus, the amount of each dividend will vary. Upon redemption,
the Redemption Value will be equal to the U.S. Dollar Equivalent Value of
the 10-day average of the spot price of the applicable bullion in the
London bullion market multiplied by the number or fraction of ounces of the
applicable bullion to which each Bullion ComPS is linked. Therefore, both
the dividend payments and the Redemption Value will fluctuate based on the
spot price of the applicable bullion determined in the London bullion
markets. Any events which adversely affect the spot price of the applicable
bullion will adversely affect both the dividend payments on and the
Redemption Value of such Bullion ComPS.
<PAGE>
Excess Return ComPS
ComPS which are linked to an Excess Return Index pay a fixed dividend rate
on the Face Amount of such ComPS (which will equal the initial price) and
the Redemption Value of such ComPS is linked to the performance of the
applicable Excess Return Index. At maturity, an investor will received a
principal amount determined by the following formula: Face Amount x the
10-day average of the Applicable Index/the Applicable Index set on the day
of pricing. Thus, the Redemption Value is linked directly to the
performance of the applicable Excess Return Index (e.g., if the ending
average ending value of the Applicable Index is twice the beginning value,
the Redemption Value will be twice the initial price).
An Excess Return Index, which is described more fully herein under "The JPM
Indices--Excess Return Methodology", represents the cumulative return of
holding an unlevered position in the designated nearby commodity futures
contracts underlying such Applicable Index. Generally, since each Excess
Return Index is linked directly (i.e., on a one-to-one basis) to the
underlying futures contracts, a 1% change in the value of the underlying
designated futures contract will create a 1% change in the value of the
Applicable Index. Because the designated futures contracts underlying the
Excess Return indices have maturities (generally less than three months)
which are shorter than the maturities of the ComPS, the index calculation
methodology replaces the underlying contract used to determined the daily
change in the value of the Applicable Index with the next designated
contract of the same commodity on a periodic basis. This process of
replacement is called "rolling", and the 5-day period during which the
replacement occurs is called the "Rollover Period". For any month during
which a roll occurs, the daily change invalue of an Excess Return Index for
all days prior to the Rollover Period is calculated as 100% of the daily
change of the existing ("old") underlying designated contract. Beginning
with the first day after the beginning of the Rollover Period, the daily
change in an Excess Return Index is calculated based 80% on the percentage
change of the old contract and 20% on the percentage change in the
replacement ("new") designated contract. Similar 20% adjustments are made
in the weights attributable to each contract's change such that, by the day
after the Rollover Period ends and for all subsequent days until the next
Rollover Period, 100% of the daily index change is attributable to the
percentage change of the newly- designated contract.
Therefore, COMPS linked to an Excess Return Index pay dividends at a
fixed rate and amount and pay a principal amount upon redemption or at
maturity which varies directly with the performance of an Excess
Return Index. The change in an Excess Return Index is linked directly
to the percentage change in the designated contracts underlying such
index. Thus, any events which affect the designated contracts
underlying such Excess Return Index may affect the Redemption Value of
such ComPS.
Total Return ComPS
ComPS which are linked to a Total Return Index may pay a dividend
based on the Face Amount (i.e., the initial price) of such ComPS
<PAGE>
(which dividend rate, if any, will generally be less than that payable
on other types of ComPS), and the principal receivable upon redemption
or at maturity is directly linked to the performance of a total Return
Index. At maturity, an investor in total Return ComPS will receive a
principal amount determined by the following formula: Face Amount x
(the 10-day average of the Applicable Index/the Applicable Index set
on the day of pricing - the Factor). The Factor is a fraction which
reduces the principal amount to account for the planned expenses to be
incurred by the issuer in replicating the Total Return Index and
issuing the ComPS. Thus, the Redemption Value is linked directly to
the performance of the applicable Total Return Index (e.g., if the
ending average ending value of the applicable Index is twice the
beginning value, the Redemption Value will be twice the initial price
reduced by the Factor). However, the Redemption Value may never be
less than zero.
A Total Return Index, which is described more fully herein under "The
JPM Indices--Total Return Methodology", represents the cumulative
return of holding an unlevered position in the designated nearby
commodity futures contracts underlying such Total Return Index plus a
collateral yield on such fluctuating index value using the most
recently auctioned 3-month rate for U.S. Treasury bills. Generally,
since a Total Return Index is linked directly to the underlying
futures contracts, a 1% change in the underlying designated futures
contract will result in a 1% change in the applicable Total Return
Index (plus the small daily increase in the Applicable Index due to
the collateral yield). The designated futures contracts underlying
Total Return Indices must also be "rolled" as described above under
"Excess Return ComPS".
Therefore, ComPS linked to a Total Return Index may bear dividends
(which, if any, will be smaller than those paid on other ComPS) which
are a fixed percentage of the Face Amount (and thus will not vary),
and the principal payable upon redemption or at maturity is linked
directly to the performance of a Total Return Index (less the Factor).
The change in each Total Return Index is linked directly to the
percentage change in the designated contracts underlying such index
plus the collateral yield on the most recently auctioned 3-month U.S.
Treasury bill rate. Thus, any events which affect the designated
contracts underlying any Total Return Index may affect the Redemption
Value of such ComPS.
Calculation of Redemption Value
The Redemption Value of any particular series of ComPS will be determined
in accordance with one of the following methodologies:
Excess Return Index. In the case of ComPS for which the Applicable
Index is an Excess Return Index, the Redemption Value payable in respect of
the ComPS on the Settlement Date will be determined by the Calculation
Agent based on the following formula:
Redemption Value = FA X [Applicable Index Settlement Value]
-------------------------------------
[Applicable Index Commencement Value]
where "FA" refers to the Face Amount of the ComPS, "Applicable Index
Settlement Value" refers to the arithmetic average of the values of
the Applicable Index for the 10 consecutive days (other than a
<PAGE>
Saturday or Sunday) on which open-ontery trading on either the New
York Mercantile Exchange ("NYMEX") or the London Metal Exchange (the
"LME") is scheduled to occur or occurs (each, a "Trading Day") and on
which no Market Disruption Event occurs immediately following the 20th
scheduled Business Day prior to Stated Maturity (such 10 days, the
"Determination Period") (calculated in accordance with the methodology
described below under the caption "The JPM Indices--Excess Return
Index"); provided, that if a Market Disruption Event remains in effect
for longer than 20 consecutive Trading Days (or such period as may be
specified in the applicable Prospectus Supplement) falling within such
Determination Period and in the reasonable judgment of Morgan Guaranty
such Market Disruption Event is likely to remain in effect, then the
Applicable Index Settlement Value for such days may be determined by
Morgan Guaranty in good faith based on alternative pricing sources
reasonably believed by it to be indicative of then- prevailing prices
for transactions with a notional principal amount equal to the
Principal Amount of the outstanding ComPS, although it will have no
obligation to do so; and "Applicable Index Commencement Value" means
the value of the Applicable Index determined on the date of issuance
of such ComPS, as specified in the applicable Prospectus Supplement.
In the case of any Prospectus Supplement providing for an early
determination of Applicable Index Settlement Value, upon the
occurrence of such an event, the Applicable Index Settlement Value
shall have the value so determined.
Total Return Index. In the case of ComPS for which the Applicable
Index is a Total Return Index, the Redemption Value payable in respect of
such ComPS on the Settlement Date will be determined by the Calculation
Agent based on the following formula:
Redemption Value = FA x (Applicable Index Settlement Value - Factor x
Applicable Index Commencement Value)
---------------------------------------------------
Applicable Index Commencement Value
where each of "FA", "Applicable Index Settlement Value" and
"Applicable Index Commencement Value" refer to the respective
definitions set forth above under Excess Return Index, except that in
the case of the Applicable Index Settlement Value, such value shall be
determined in accordance with the methodology described below under
the caption "The JPM Indices--Total Return Index", and "Factor" shall
be the amount provided in the applicable Prospectus Supplement. In
the case of any Prospectus Supplement providing for an early
determination of Applicable Index Settlement Value, upon the
occurrence of such an event, the Applicable Index Settlement Value
shall have the value so determined.
Price Reference Index. In the case of ComPS for which the Applicable Index
is a Price Reference Index, the Redemption Value payable in respect of such
ComPS on the Settlement Date will be determined by the Calculation Agent
(i) in the case of Bullion ComPS, by taking the arithmetic average of the
Dollar Equivalent Value of the applicable portion of the applicable fixing
price for the applicable amount of the applicable bullion commodity during
the Determination Period, and (ii) in the case of all other Price Reference
Index ComPS, by multiplying (a) the Face Amount of such ComPS by (b) the
quotient of (I) the arithmetic average of the closing prices of the
underlying commodity as reported in the pricing source identified in the
applicable Prospectus Supplement for each day of the Determination Period
<PAGE>
(i.e., the Applicable Index Settlement Value), divided by (II) the
Applicable Index Commencement Value (as defined above).
The Calculation Agent in its sole discretion will be responsible for
determining if a Market Disruption Event has occurred. In no event shall
the Redemption Value payable in respect of any series of ComPS be less than
zero, although the Redemption Value of any series of ComPS may be more or
less than the Face Amount of such series.
Early Determination of Applicable Index Settlement Value and Redemption Value
Morgan Guaranty reserves the right at its discretion to make any
modifications to the JPM Indices based on the recommendations of the JPMCI
Policy Committee. The JPMCI Policy Committee advises Morgan Guaranty with
respect to, among other things, the composition of the JPM Indices, the
price sources upon which the JPM Indices are based (i.e., the Benchmark
Contracts), and the weightings and calculation methodology of the JPM
Indices, with a view toward maintaining the JPM Indices as appropriate
commodity investment benchmarks that serve as a measure of the performance
of the commodity markets. Currently, the inclusion requirements for the
futures contracts underlying the JPM Indices require that such contracts be
sufficiently liquid and representative price sources. It is possible,
however, that any such underlying contract could become less liquid or
representative and, as a result, the JPMCI Policy Committee may recommend a
modification in the calculation methodology or the contracts underlying the
JPM Indices and, therefore, the Applicable Index. Any such replacement
contract (i) will be required to satisfy the JPMCI Inclusion Criteria, as
described below and under the caption "The JPMCI Policy Committee", and
(ii) must be traded in a market or with self-regulator which has
established either (a) a comprehensive information sharing agreement with
the exchange, if any, on which the ComPS are then traded or (b) suitable
alternative arrangements with the Commission.
If at any time no contracts satisfying both clauses (i) and (ii) of the
previous paragraph can be found to serve as a Benchmark Contract for any
series of ComPS the Applicable Index for which is an Excess Return Index or
a Total Return Index, the Applicable Index Settlement Value of such ComPS
will be determined at such time (in accordance with the methodology set
forth in the applicable Prospectus Supplement) as if the last date of the
inclusion of the final Benchmark Contract with respect to such Applicable
Index in the JPM Indices were the Stated Maturity. However, such ComPS will
not be redeemed on such date; rather, such ComPS will remain outstanding to
Stated Maturity thereof, will continue to be entitled to dividends and will
be redeemed at Stated Maturity for a Redemption Value calculated using the
Applicable Index Settlement Value determined at such time as no contract
satisfying clauses (i) and (ii) of the previous paragraph can be found.
Such ComPS will also be subject to redemption upon the occurrence of a
Special Event and optional redemption on each Early Redemption Date if
specified in the applicable Prospectus Supplement (treating the Applicable
Index Settlement Value determined pursuant to the terms of this paragraph
as the Applicable Index Early Settlement Value for any such Early
Redemption Date).
Additionally, if at any time the benchmark contracts then serving as the
basis for calculating the Applicable Index with respect to any series of
ComPS the Applicable Index for which is an Excess Return Index or a Total
Return Index, or the trading thereof, become subject to any increased cost
or additional tax, whether imposed by any exchange or otherwise, Morgan
Guaranty reserves the right to (x) designate a replacement benchmark
<PAGE>
contract, satisfying both clauses (i) and (ii) of the second preceding
paragraph, which contract is subject to an amount of cost or tax less than
or equal to such increased amount or (y) if no contract satisfying clause
(x) of this paragraph is designated by J.P. Morgan, to cause, at its
option, the Applicable Index Settlement Value of such ComPS to be
determined at such time (in accordance with the methodology set forth in
the applicable Prospectus Supplement) as if the date of such increase in
cost or tax (or, in Morgan Guaranty's discretion, the last calendar day of
the month in which the determination of the Applicable Index Settlement
Value is completed) were the Stated Maturity. However, such ComPS will not
be redeemed on such date; rather, such ComPS will remain outstanding to
Stated Maturity thereof, will continue to be entitled to dividends and will
be redeemed at Stated Maturity for a Redemption Value calculated using the
Applicable Index Settlement Value determined pursuant to the terms of this
paragraph. Such ComPS will also be subject to redemption upon the
occurrence of a Special Event and optional redemption on each Early
Redemption Date if specified in the applicable Prospectus Supplement
(treating the Applicable Index Settlement Value determined pursuant to the
terms of this paragraph as the Applicable Index Early Settlement Value for
any such Early Redemption Date). See "Risk Factors With Respect to
ComPS--Potential Modifications to the JPM Indices and/or the Applicable
Index."
As discussed below, in order to satisfy the JPMCI Inclusion Criteria, a
futures contract must (i) be priced in U.S. dollars, or if priced in a
foreign currency, the exchange on which the contract is traded must publish
an official exchange rate for conversion of the futures contract price into
U.S. dollars; (ii) be traded on a regulated futures exchange located in the
United States, Canada, the United Kingdom, Japan, Singapore or any country
which at such time is a member of the Organization of Economic Cooperation
and Development (an "O.E.C.D. country") and (iii) have a minimum annual
trading volume of 300,000 contracts or $500,000,000 for all contract
months.
For example, assuming a Face Amount of $40 and an Applicable Index
Commencement Value of 100, an early determination of the Applicable Index
Settlement Value at the following levels would result in the following
Redemption Values:
Early Redemption Upon the Occurrence of a Special Event or at the Election
of the Holders of the ComPS
The ComPS will be subject to redemption prior to their Stated Maturity
upon the occurrence of a Special Event (a "Special Event Redemption")
or, if so indicated in the applicable Prospectus Supplement, at the
election of the holders of such series of ComPS (an "Optional
Redemption") on any one of the dates set forth in the applicable
Prospectus Supplement (each such date, an "Optional redemption Date";
each such date and each date on which a Special Event Redemption or a
Liquidation Redemption shall occur being referred to herein as an
"Early Redemption Date"). In order to effect an Optional Redemption,
the holder of such ComPS will be required to provide notice to DTC
(or, in the case of Preferred Securities which are not solely
book-entry securities, the Company's transfer agent) as specified in
the applicable Prospectus Supplement. In the case of notice provided
through DTC, the notice provided by DTC to the Company or its transfer
agent (the "Applicable Notice") shall be final and irrevocable upon
receipt. The redemption value of ComPS redeemed prior to their Stated
Maturity (the "Early Redemption Value") shall be determined during the
<PAGE>
10 consecutive Trading Days which are Business Days on which U.S.
Treasury bond markets are open and on which no Market Disruption Event
occurs immediately following the 20th scheduled Business Day prior to
the applicable Early Redemption Date (such ten days, the "Early
Determination Period"), provided, however, that the Early Redemption Period
will not begin until the day after the Company has received the Applicable
Notice. The Early Redemption Value shall be equal to the average for the 10
days of the Early Determination Period of the sum for each such day of the
results of the following:
FA x {(Dividend + Unused costs) x
AF + (IESV/ICV) x PVF}
Where "FA" means (i) in the case of Bullion ComPS, each portion of the
Bullion ComPS Principal Amount thereof which must be redeemed on the
same date and (ii) in the case of all other ComPS, each portion of the
Face Amount of the ComPS which must be redeemed on the same date.
In the case of ComPS for which the entire Face Amount matures on the same
date, the average of the sum for each day of such equation shall equal the
Early Redemption Value. In the case of ComPS for which portions of the Face
Amount must be redeemed on different dates, the Early Redemption Value
shall equal the average over the Early Redemption Period of the sum of the
results for each day of such equation for each such portion of the Face
Amount. The Company shall pay the Early Redemption Value, together with all
accrued but unpaid dividends from monthly periods prior to the Early
Redemption Date, on the Early Redemption Date. The Early Redemption Value
shall never be less than zero. Other terms used in the formula above shall
have the meanings set forth below (with each yield, lease rate, rate and
percentage rate expressed in decimal form (e.g., 3% equals 0.03)):
For all ComPS
"Dividend" means the per annum rate of dividends on the Face Amount
(or, in the case of Bullion ComPS, the Principal Amount), as specified
in the applicable Prospectus Supplement.
"AF" means the Annuity Factor for the term remaining from the
applicable Early Redemption Date until the mandatory redemption of
such portion of the Face Amount (such remaining term being referred to
herein as the "Remaining Maturity"), which shall be determined in
accordance with the following formula:
(1-VN)/y
where "V" is equal to (1/(1 + y/12)) and "y" is the yield which
shall be equal to the Base Yield (as defined below) plus the
Applicable Spread (as defined below), converted to an annualized
monthly compounded rate calculated on the basis of a 360- day year
of twelve 30-day months.
The "Base Yield" will equal (i) in the case of Bullion ComPS, the
single lowest lease rate obtained by polling three dealers in such
loans for a loan to Morgan Guaranty (or, in the case of a
Liquidation Event, to a notional counterparty rated A or higher) of
such bullion in the same notional Bullion ComPS Principal Amount,
terms, amortization and maturity as such ComPS (which may be the
same rate for all days and/or for each Remaining Maturity) or, if
there is no such rate, as calculated by the Calculation Agent in
good faith, and (ii) in the case of any other ComPS, the Constant
<PAGE>
Maturity Treasury Rate for the Remaining Maturity among the
applicable Constant Maturity Treasury rates set forth in Statistical
Release H.15(519) as such appears on Telerate Page 7051 under the
heading "Daily Treasury Constant Maturities from the Economic
Bulletin Board" (or its successor or such other pricing source as
the Calculation Agent may reasonably select) for each date of the
Early Determination Period. If the applicable rate for the Remaining
Maturity is not published on such page, the applicable rate will be
determined by calendar month weighted linear interpolation between
one Constant Maturity Treasury rate with respect to a maturity up to
or equal to the Remaining Maturity and the other Constant Maturity
Treasury rate with respect to a maturity greater than the Remaining
Maturity. If such information ceases to be provided or is not
available for any day of the Early Determination Period by the end
of the Business Day next succeeding the last day of the Early
Determination Period, the Base Yield for such day will be calculated
by the Calculation Agent by calendar month weighted linear
interpolation among the rates it shall have obtained for such
applicable date by polling three dealers of such instruments in New
York, New York for the bid side yield to maturity of the most recently
issued on-the-run direct non-callable fixed rate obligations of the
United States Treasury ("U.S. Government Securities") with a maturity
equal to the Remaining Maturity or, if no such maturity exists, by
calendar month weighted linear interpolation among rates so obtained
with a maturity up to or equal to the Remaining Maturity and a maturity
greater than the Remaining Maturity.
The "Applicable Spread" will equal (i) for all ComPS other than
Bullion ComPS, (a) in the case of a Liquidation Redemption, the
offer side U.S. dollar swap spread for the maturity closest to the
Remaining Maturity as published by International Financing Review
("IFR") Corporate Eye on Telerate Page 42276 (or such successor as
the Calculation Agent may reasonably determine) for each day of the
Early Determination Period (except that, in the case of a
determination for which the Remaining Maturity is one year or less,
"Applicable Spread" will equal the difference between then-current
yields on U.S. dollar LIBOR-based deposits and yields on
Treasury Bills with maturities approximately equal to the Remaining
Maturity as determined by the Calculation Agent) (the "Swap Spread")
and (b) in the case of all other redemptions, the greater of the
Swap Spread and the yield spread between (I) the average of
quotations from three dealers in such instruments chosen in the
discretion of the Calculation Agent for notional issuances of debt
securities of Morgan Guaranty in a notional amount equal to the Face
Amount of the ComPS being redeemed at such time and having a similar
maturity and similar subordination provisions as those contained in
the applicable Related Note and (II) U.S. Government Securities of
approximately similar maturities, as such yield spread may be
reasonably determined by the Calculation Agent (such yield spread,
the "Funding Spread") and (ii) for Bullion ComPS, (x) in the case of
a Liquidation Redemption, zero, and (y) in all other cases, the
difference between the Funding Spread and the Swap Spread, but never
less than zero. If the Telerate Page (or any successor) referred to
in clause (a) of the preceding sentence is unavailable or ceases to
report such swap spread, the Calculation Agent shall calculate such
spread based on (i) a source supplying the equivalent information or
(ii) if no such source is available, the average quotations from
three dealers in U.S. dollar swaps chosen by the Calculation Agent
in its reasonable discretion. As of the date of this Prospectus,
J.P. Morgan is among the six dealers of such instruments currently
<PAGE>
polled for the purpose of calculating the swap spread published by
IFR on Telerate Page 42276.
"PVF" means the Present Value Factor for Remaining Maturity, which
shall be determined as follows:
(1/(1+y/12)N)
where "y" has the meaning set forth above in the definition of
Annuity Factor.
"ICV" means the Applicable Index Commencement Value, or the value of
the Applicable Index determined on the date of issuance of the
applicable series of ComPS, as specified in the applicable
Prospectus Supplement.
"N" means the number of monthly periods in the Remaining Maturity
(e.g., one year = N = 12).
For ComPS calculated based on a Price Reference Index:
"Unused costs" means zero.
"IESV" means the Applicable Index Early Settlement Value, which
shall be equal to (i) in the case of Bullion ComPS, the ICV, and
(ii) in the case of all other Price Reference Index ComPS, the
average of the Applicable Index for each day of the Early
Determination Period.
For ComPS calculated based on an Excess Return Index:
"Unused costs" means the number specified as such in the applicable
Prospectus Supplement.
"IESV" means the Applicable Index Early Settlement Value, which
shall be equal to the average of the Applicable Index for each day
of the Early Determination Period provided, however, that if an
Applicable Index Settlement Value has been permanently determined
for such ComPS prior to such time, IESV shall equal the value so
determined.
For ComPS calculated based on a Total Return Index:
"Unused costs" means zero.
"IESV" means the difference of (a) the average for each day of the
Early Determination Period of the product of (i) the Applicable
Index (which, if an Applicable Index Settlement Value has been
permanently determined for such ComPS prior to such time, shall
equal the value so determined) multiplied by (ii) the Future Value
Factor less (b) the product of the Factor and the Applicable Index
Commencement Value.
"Future Value Factor" shall be determined with reference to the
following formula:
(1 + BY/12)N
where BY is the Base Yield (as determined for such day), computed on
an annualized, monthly compounded basis, expressed in decimal form.
<PAGE>
"Factor" means the number specified in the applicable Prospectus
Supplement for the applicable Remaining Maturity.
Determination Period and Settlement Date
Unless otherwise specified in the applicable Prospectus Supplement,
the term "Determination Period" with respect to Excess Return, Total Return
and Price Reference Indices shall mean the period of ten consecutive
Trading Days on which no Market Disruption Event occurs commencing
immediately following the twentieth scheduled Business Day prior to the
Stated Maturity of such ComPS.
The date on which the Early Redemption Value or Redemption Value, as
applicable, will first be payable (the "Settlement Date") in respect of any
series of ComPS will be the later of the date on which such ComPS are
eligible for redemption (the "Redemption Date") or the fifth Business Day
after the completion of the Early Determination Period or the Determination
Period, as applicable.
Market Disruption Events
The occurrence of one or more of the following events on any Trading Day
shall constitute a "Market Disruption Event" with respect to a relevant
commodity (a "Relevant Commodity"), any benchmark contract underlying the
Applicable Index (a "Relevant Contract"), the market participants or
association responsible for determining the price of a commodity (the
"Fixing Association") which determines the price of a Relevant Commodity (a
"Relevant Fixing Association") or an exchange on which a Relevant Contract
is traded (a "Relevant Exchange"): (a) a day on which the fluctuation of
the price of the applicable commodity or commodity futures contract is
materially limited by the rules of the Relevant Exchange or Relevant Fixing
Association setting the maximum or minimum price for such day (a "Limit
Price"); (b) a day on which the Settlement Price is the Limit Price; (c)
the failure of the Relevant Exchange or Relevant Fixing Association to
determine, announce or publish the Settlement or Fixing price with respect
to the Relevant Contract or commodity (as the case may be); (d) the
material suspension of trading in the Relevant Commodity by members of the
Relevant Fixing Association or otherwise or any Relevant Contract with
respect to such commodity or in any other futures contract affecting the
Relevant Contract with respect to such commodity on the Relevant Exchange;
(e) the failure of trading to commence, or the permanent discontinuation of
trading, in the Relevant Commodity by the members of the Relevant Fixing
Association or otherwise or any Relevant Contract on the Relevant Exchange
and (f) the imposition of any material limitation on trading in the
Relevant Commodity by the members of the Relevant Fixing Association or
otherwise or any Relevant Contract on the Relevant Exchange.
If a Market Disruption Event occurs and is continuing during the
Determination Period or any Early Determination Period with respect to any
series of ComPS, the Determination Period or such Early Determination
Period will be extended, with the result that the calculation of the
Applicable Index Settlement Value and the settlement of such ComPS may be
delayed for an indefinite period of time including, in the case of an
extension of the Determination Period, an indefinite period of time after
the Stated Maturity. With respect to ComPS for which the Applicable Index
is either a Price Reference Index or an Excess Return Index, in the event
that the payment of the Redemption Value is postponed beyond the Stated
Maturity, no distributions or dividends will accrue or be payable with
<PAGE>
respect to such ComPS, but interest will accrue on the Face Amount from and
including the Stated Maturity to but excluding the last day of the
Determination Period at a rate equal to the day-weighted average of the Fed
Effective Rate until the end of the Determination Period, as reported on
Telerate Page 118 (or its successor or such other pricing source as the
Calculation Agent may reasonably select), less in each case 0.25%,
calculated on the basis of a year of 360 days and payable for the actual
number of days elapsed. Payment of such interest amount and the Redemption
Value will be made on the fifth Business Day following the last day of the
Determination Period. With respect to ComPS for which the Applicable Index
is a Total Return Index, in the event that the payment of the Redemption
Value is postponed beyond the Stated Maturity, no distributions will be
payable, and no interest or dividend in respect of such ComPS will accrue
or be payable, after the Stated Maturity. With respect to all ComPS, in the
event that the payment of the Early Redemption Value is postponed beyond
the applicable Early Redemption Date, no distributions will be payable, and
no interest or dividends in respect of such ComPS will accrue or be
payable, after such Early Redemption Date.
Calculations
As discussed above, the Company will appoint Morgan Guaranty as Calculation
Agent for the purpose of determining the Applicable Index Settlement Value,
as described herein, and calculating the Early Redemption Value and
Redemption Value and, if applicable, the dividends payable in respect of
any ComPS. The Calculation Agent will determine the Applicable Index
Settlement Value and the Early Redemption Value and Redemption Value of any
ComPS and, if applicable, dividends payable in good faith, which
determination shall be final and binding on the Company and the holders of
such ComPS. Morgan Guaranty as Calculation Agent will also (i) determine
when a Market Disruption Event on any Early Determination Day or
Determination Day is sufficiently material to not use such day in the
applicable calculation and (ii) be responsible for the choice of an
alternative price source (if any) upon a Market Disruption Event of
sufficient length, as described in the applicable Prospectus Supplement.
Also, Morgan Guaranty and its affiliates may from time to time engage in
transactions with and perform services for the Company in the ordinary
course of business.
License of Applicable Index
Morgan Guaranty will enter into a license agreement (the "License
Agreement") granting the Company a non-exclusive license to use the
Applicable Index in connection with each series of ComPS the Applicable
Index for which is an Excess Return Index or a Total Return Index. The
License Agreement will provide that, in the event that Morgan Guaranty
fails to provide the Applicable Index to the Company on a regular basis
with the result that the Company is unable to determine the Applicable
Index Settlement Value and the Early Redemption Value and Redemption Value
payable in respect of such ComPS, the Company, its Calculation Agent or its
authorized designee (which shall be a major accounting firm appointed by
the Company) shall be authorized to calculate the Applicable Index. In such
event, Morgan Guaranty will provide the Company, its Calculation Agent or
such accounting firm with any and all information which may be necessary in
order to enable the Company, its Calculation Agent or such accounting firm
to perform such calculations pursuant to the same methodology to be applied
by Morgan Guaranty.
<PAGE>
Morgan Guaranty may also enter into license agreements with any or all of
the exchanges on which any benchmark futures contracts or commodities are
traded with respect to the information provided by such exchanges. However,
no such license agreement will contain any obligation or liability
provisions with respect to provision of such information by the relevant
exchange. Furthermore, no exchange on which any benchmark futures contract
or commodity is traded is or will be an issuer, underwriter or guarantor of
any Preferred Security, nor has any such exchange approved the Preferred
Securities or any terms thereof, nor is any such exchange responsible for
the calculation of any Applicable Index.
Risk Factors with Respect to All Preferred Securities
Limitations on Rights Under the Guarantee, the Related Note Guarantee and
the Related Note
The Guarantee will be an unconditional guarantee with respect to each
series of Preferred Securities from the time of issuance of such Preferred
Securities but will not apply to any payment of distributions or other
amounts due in respect of such Preferred Securities to the extent Morgan
Guaranty has failed to make a payment of principal or interest on the
applicable Related Note. To the extent Morgan Guaranty were to default on
its obligation to pay amounts payable on the applicable Related Note, the
Company would lack available funds for the payment of distributions on or
amounts payable on redemption of such Preferred Securities and, in such
event, holders of such Preferred Securities would not be able to rely on
the Guarantee for payment of such amounts. Instead, holders of such
Preferred Securities would rely on the enforcement by the Company of its
rights as holder of the applicable Related Note against Morgan Guaranty and
as holder of the Related Note Guarantee against J.P. Morgan. J.P. Morgan
and the Company believe that the mechanisms and obligations relating to all
of the Guarantee, the Related Note Guarantee and the obligations of J.P.
Morgan under the LLC Agreement and the Expense Agreement to pay certain
obligations, costs and expenses of the Company, taken together, are
equivalent to a full and unconditional guarantee, on a subordinated basis,
by J.P. Morgan of payments due on the Preferred Securities. See
"Description of the Guarantee" and "Description of the Related Note
Guarantee".
Special Event Redemption
Upon the occurrence of a Special Event, unless waived by Morgan Guaranty or
subject to cure as specified in the applicable Prospectus Supplement,
Morgan Guaranty shall have the right to redeem any or all Related Notes, in
whole or in part, in which event the Company will redeem the related
Preferred Securities and Common Securities on a pro rata basis to the same
extent as the Principal Amount of the Related Notes is redeemed by Morgan
Guaranty.
A Special Event is either (i) a Tax Event or (ii) an Investment Company
Event. A Special Event may occur at any time.
In the case of any series of ComPS, upon the occurrence of a Special Event
it is possible that the market price of such ComPS in any existing
secondary market will decline.
<PAGE>
Limited Voting Rights
Holders of Preferred Securities will have limited voting rights relating to
a payment default on or adverse change to the Preferred Securities, and
will not be entitled to vote to appoint, remove or replace the Managing
Members of the Company (J.P. Morgan and J.P. Morgan Ventures Corporation, a
Delaware corporation), which voting rights are vested exclusively in the
holders of the Common Securities.
Trading Price May Not Reflect Actual Economic Value
Preferred Securities are expected to trade at a price that takes into
account the value, if any, of accrued and unpaid distributions; thus,
purchasers will not pay and sellers will not receive any accrued and unpaid
interest with respect to their pro rata interests in the applicable Related
Note owned through the applicable Preferred Securities that is not already
included in the trading price of the applicable Preferred Securities.
Possible Illiquidity of Preferred Securities
It is possible that no secondary market will develop and continue to exist
with respect to any series of Preferred Securities. If no such market
develops, the liquidity of such Preferred Securities may be adversely
affected. Furthermore, there can be no assurance as to the market prices
for any Preferred Securities in any secondary market which does develop.
Accordingly, any Preferred Securities that an investor may purchase,
whether pursuant to the offer made hereby or in any such secondary market,
may trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby.
No Right to Interest on Related Note
Because holders of Preferred Securities are essentially investing in a pro
rata share of a Related Note, prospective purchasers of Preferred
Securities are also making an investment decision with regard to such
Related Note and should carefully review all the information regarding the
Related Note contained herein and in the relevant Prospectus Supplement.
However, investors in Preferred Securities have no right to direct interest
distributions on the applicable Related Note.
Imposition of Bank Regulatory Restrictions
The Company's ability to make distributions and other payments on the
Preferred Securities is dependent upon Morgan Guaranty's making interest
and other payments on each Related Note as and when required or collection
with respect to such Related Note under the Related Note Guarantee. As
noted herein, Morgan Guaranty is subject to examination and regulation by
U.S. federal and state banking authorities, and although there is no
current restriction on Morgan Guaranty's ability to make payments under any
Related Note, certain other transactions with affiliates, including the
Company, are or may become subject to restrictions imposed in the future by
bank regulatory authorities.
<PAGE>
RISK FACTORS WITH RESPECT TO COMPS
Effect of Trading in the Futures Contracts and Related Commodities and
Instruments
Morgan Guaranty and other affiliates of J.P. Morgan are and will be
actively involved in the trading of the futures contracts or the
commodities underlying the Applicable Index and other instruments and
derivative products based thereon. Morgan Guaranty, in particular, is
an active participant in various commodity markets including the
physical petroleum, precious and base metals and related derivatives
markets. JPMSI and other affiliates may also issue or underwrite, or
authorize unaffiliated entities to issue or underwrite, other
securities or financial instruments with returns indexed to the
Applicable Index or one or more of the JPM Indices. Morgan Guaranty
has licensed, and may in the future license, the Applicable Index, the
JPM Indices, and related indices and sub-indices for use by affiliated
and unaffiliated parties, for publication in newspapers and
periodicals, for distribution by information and data dissemination
services and for other purposes. Morgan Guaranty currently intends to
publish individual commodity sub-indices for each of the commodities
included in the JPMCI using the same calculation methodology as that
described below. The Applicable Index may be similar or identical to
the sub-index having the same underlying commodity.
Trading in the foregoing contracts and commodities by Morgan Guaranty,
its affiliates (including JPMSI) and unaffiliated third parties could
adversely affect the value of the Applicable Index, which could in
turn adversely affect the return on and the value of the ComPS. See
"The Applicable Index". Furthermore, additional issuances of
securities linked or referenced to similar futures contracts or
commodities could adversely affect the value of similar outstanding
ComPS.
Potential for Adverse Interests
As noted above, Morgan Guaranty, JPMSI and their affiliates expect to
engage in trading activities related to the futures contracts or the
commodities underlying the Applicable Index and other instruments or
derivatives products on or related to the Applicable Index, for their
accounts where permitted or for other accounts under their management.
Morgan Guaranty, JPMSI and their affiliates, as well as unaffiliated
third parties, may also engage in other activities related to the
Applicable Index, as discussed above. Because Morgan Guaranty will
issue the Related Notes to the Company, all such activities could
create interests of Morgan Guaranty adverse to those of the holders of
ComPS. For example, the issuance of other securities indexed to the
Applicable Index, i.e., the introduction of competing products into
the marketplace, could adversely affect the value of the ComPS. To
the extent that J.P. Morgan or its affiliates serve as issuer, or
JPMSI or one of its affiliates serves as agent or underwriter, for
such securities or other instruments, their interests with respect to
such products may be adverse to those of the holders of the ComPS.
Morgan Guaranty will serve as Calculation Agent with respect to the
<PAGE>
ComPS and, accordingly, will in good faith calculate the Applicable
Index, which could present certain conflicts of interest (for example,
in instances where the Calculation Agent is required to exercise
discretion).
Risk of Carrying and Rolling Commodity Futures
As discussed above, if the Applicable Index is an Excess Return Index
or a Total Return Index, the Redemption Value of the ComPS will be
calculated with reference to the Applicable Index, the value of which
is designed to replicate to the extent provided herein the cumulative
return of holding a continuous investment in the futures contracts on
the relevant commodity underlying the Applicable Index. At any given
time, the Applicable Index will be calculated based on the change in
value of certain futures contracts on the relevant commodity for
delivery in the near term (the "shorter-dated contracts"). The
Applicable Index will continue to be calculated based on the change in
value of such shorter-dated contracts until they approach maturity, at
which time the Applicable Index will, as described below, cease to be
calculated based on the change in value of such shorter-dated
contracts and begin to be calculated based on the change in value of
the subsequent futures contract (the "longer-dated contracts") on a
regular periodic basis so as to be continuously indexed to the change
in value of the futures contracts on the relevant commodity. The
period during which each such replacement of shorter-dated contracts
with longer-dated contracts as the basis for the calculation of the
change in value of the Applicable Index occurs is referred to herein
as the "Rollover Period", as further defined below. If the market for
the commodity futures contract underlying the Applicable Index is in
"contango" (i.e., the prices of longer-dated contracts are above the
prices of shorter-dated contracts), the return on the Applicable Index
may be adversely affected. The Applicable Index would decline if (i)
the price of the longer-dated contracts underlying the Applicable
Index during the Rollover Period were more than the price of the
shorter-dated contracts which they will replace and (ii) the price of
the longer-dated contracts were to decline as such contracts approach
maturity (i.e., the price of the longer-dated contracts were to
converge toward the price of the replaced shorter-dated contracts),
the value of the Applicable Indices will decline. While many of the
commodities included in the JPM Indices have historically exhibited
periods of both "backwardation" (i.e., the prices of longer-dated
contracts are below the prices of shorter-dated contracts) and
contango, there can be no assurance that backwardation will exist at
any or all times. If the Applicable Index is an Excess Return Index or
a Total Return Index, the absence of backwardation in the market for
the commodity underlying the Applicable Index could adversely affect
the Applicable Index and, correspondingly, could adversely affect the
value of the ComPS. Additionally, the issuance and/or the trading of
the ComPS could adversely affect the market for the benchmark
contracts underlying such Applicable Index and, accordingly, could
adversely affect the value of such ComPS and could result in a
substantial loss to the holders thereof. See "Description of the
ComPS--Calculation of Redemption Value.
Volatility of Commodity and Commodity Futures Prices
Prices of commodities and commodity futures contracts are extremely
volatile and can be affected by a variety of factors, including
<PAGE>
weather, governmental programs and policies, national and
international political and economic events, changes in interest and
exchange rates and trading activity in such commodities and commodity
futures contracts. Volatility in the benchmark contracts underlying
any Applicable Index will correlate directly to volatility in such
Applicable Index. Such volatility could lead some investors in the
futures market to withdraw from the applicable futures markets, which
could adversely affect the liquidity of such markets and could
adversely affect the value of such Applicable Index and,
correspondingly, the value of the ComPS.
Effect of Adverse Changes in Commodity Prices
The Applicable Index is designed to replicate, to the extent provided
herein, the performance of investing in the markets for the underlying
commodity or futures contracts on the underlying commodity over time.
In the event of sudden disruptions in the supplies of the relevant
constituent commodity for the Applicable Index, such as those caused
by war, accidents, weather, or acts of terrorism, prices of the
relevant constituent commodity, and, consequently, the value of the
Applicable Index, could become extremely volatile and unpredictable.
Also, sudden and dramatic declines in commodity and commodity futures
contract prices as may occur, for example, upon a cessation of hostilities
that may exist in countries producing the relevant commodity or upon the
discovery of significant additional sources or reserves of the relevant
commodity or the introduction of new or previously withheld supplies into
the market or the introduction of substitute products or commodities,
could have a significant adverse effect on the value of the Applicable
Index and on the value of any ComPS. In addition, the prices of
certain commodities have on occasion been subject to very rapid
short-term changes due to speculative activities which, if such
activities result in a price decrease, may cause the value of ComPS
referenced to such commodities or the related futures contracts to
decrease. See "Calculation of Redemption Value".
Suspension or Material Disruption of Futures or Commodities Trading;
Temporary Distortions
The futures markets and the markets for the commodities underlying the
Applicable Index are subject to temporary distortions or other
disruptions due to conditions of illiquidity in the markets, the
participation of speculators, government regulation and intervention
and the other factors referred to in the preceding paragraph. In
addition, U.S. futures exchanges have regulations, and the LME and
certain foreign exchanges on which replacement Benchmark Contracts, if
any, may trade (which exchanges must have an information-sharing
arrangement with the Securities and Exchange Commission and be a
regulated exchange located in the United States, Canada, the United
Kingdom, Japan, Singapore or an O.E.C.D. country) may have
regulations, which limit the amount of fluctuation of futures
contracts prices which may occur during a single trading day or the
settlement spread between adjoining contracts. Such price limits are
generally referred to as "daily price fluctuation limits" or, more
commonly, "daily limits", and such limitations on settlement spreads
are generally referred to as "spread limits", and the maximum or
minimum price of a contract on any given day, as a result of the
effect of such limits, is referred to as a "Limit Price", as discussed
below. In a particular futures contract, once the Limit Price has been
<PAGE>
reached in such a contract, no trades may be made on that day at a
price above or below the Limit Price, as the case may be. Limit Prices
may have the effect of precluding trading in a particular contract for
all or a portion of a trading day or forcing the liquidation of
contracts at disadvantageous times or prices. Such circumstances,
particularly if they occur during the Rollover Period for the
Applicable Index (which is an Excess Return Index or a Total Return
Index) or during the Early Determination Period or the Determination
Period (as defined herein) for the Applicable Index, could adversely
affect the value of the Applicable Index and/or could constitute a
Market Disruption Event (as defined herein) and, therefore, could
adversely affect the value of the applicable ComPS.
Market Disruption Event
Depending on the period of time over which a Market Disruption Event
continues, the correlation between changes in the value of the
Applicable Index and changes in the general level of prices of the
relevant commodities may be adversely affected. Under such
circumstances, the value of the Applicable Index (if the Applicable
Index is an Excess Return Index, a Total Return Index or a Price
Reference Index the pricing source for which is one or more futures
contract Settlement Prices), and the value of the ComPS, may be
adversely affected.
In the event of a Market Disruption Event during the Early
Determination Period or the Determination Period, the Early Redemption
Value or Redemption Value, as applicable, payable in respect of the
ComPS will be calculated using the Applicable Index on the Trading Day
or Days immediately following the termination of such Market
Disruption Event. However, if such Market Disruption Event remains in
effect for longer than 20 consecutive Trading Days and, in the
reasonable judgment of the Calculation Agent such Market Disruption
Event is likely to remain in effect, then the Applicable Index
Settlement Value for each day subject to a Market Disruption Event may
be determined in good faith by the Calculation Agent based on
alternative pricing sources reasonably believed by it to be indicative
of then-prevailing prices for notional transactions in futures
contracts or commodities equal in size to the Applicable Index
Settlement Value. Because Morgan Guaranty's obligations under the
related Related Note will also be based on the Applicable Index
Settlement Value, Morgan Guaranty may have an adverse interest with
respect to such determination.
Historical Correlations May Not Prevail in the Future
Although historically the JPMCI and many of the commodities underlying
it have shown a positive correlation with inflation, some positive
correlation with industrial growth and negative correlations with
stock and bond returns (in each case for the United States), there can
be no assurance that such correlations will prevail in the future. As
a result, investors who invest in ComPS in reliance on these
correlations should individually assess the likelihood of such
correlations continuing.
<PAGE>
Changes in Laws or Regulations or Interpretations Thereof
Prices of commodities and commodity futures contracts may be adversely
affected by the promulgation of new laws or regulations or by the
reinterpretation of existing laws or regulations (including, without
limitation, those relating to taxes and duties on commodities or
commodity components) by one or more governments, governmental
agencies or instrumentalities, courts or other official bodies. Any
such event could adversely affect the value of the Applicable Index
and, correspondingly, could adversely affect the value of the ComPS.
Extension of Settlement Date or Stated Maturity
If any futures contract or constituent commodity included in the
Applicable Index were to be affected by a Market Disruption Event
during any Early Determination Period or the Determination Period, the
applicable Settlement Date would be postponed until the fifth Business
Day after the last day of the applicable Early Determination Period or
the Determination Period. Such delay could be of indefinite duration,
during which time a holder of ComPS will not receive the Early
Redemption Value or Redemption Value thereof, as applicable. With
respect to ComPS for which the Applicable Index is either a Price
Reference Index or an Excess Return Index, in the event that payment
of the Redemption Value is postponed beyond the Stated Maturity,
interest will accrue on the Face Amount in the manner described
herein, but no distributions will be payable on such ComPS after the
Stated Maturity thereof. With respect to ComPS for which the
Applicable Index is a Total Return Index, in the event that the
payment of the Redemption Value is postponed beyond the Stated
Maturity, no interest, dividends or distributions in respect of such
ComPS will accrue or be payable after the Stated Maturity. With
respect to all ComPS, no distributions will be payable, and no
interest will accrue or be payable, if payment of the ComPS Early
Redemption Price is postponed beyond any applicable Early Redemption
Date. See "Market Disruption Event" above.
Discontinuance of Publishing of the Relevant JPM Index
In the event that Morgan Guaranty discontinues publication of the JPM
Indices or the relevant sub-index, the Calculation Agent will continue
to calculate in good faith the Applicable Index for each series of
ComPS during the remaining term of such ComPS, based on the
methodology described herein under "Description of the ComPS".
However, such change of calculation methodology may result in a ComPS
Redemption Price for such ComPS which is less than the ComPS
Redemption Price for such ComPS had it been calculated on the basis of
the JPM Indices or the relevant sub-index.
Potential Modifications to the JPM Indices and/or the Applicable Index
Morgan Guaranty reserves the right at its discretion to make any
modifications to the JPM Indices based on the recommendations of the
JPMCI Policy Committee. As described above under "Description of the
ComPS--Early Determination of Applicable Index Settlement Value and
Redemption Value", if the Benchmark Contract for any series of ComPS
becomes less liquid or representative, the JPMCI Policy Committee
<PAGE>
could recommend a replacement Benchmark Contract. Such a change from a
less liquid to a more liquid contract may result in a lower Redemption
Value for such ComPS than would have been the case if the less liquid
contract had remained the benchmark.
If at any time no replacement contracts can be found to serve as a
Benchmark Contract with respect to the Applicable Index for any series
of ComPS the Applicable Index for which is an Excess Return Index or a
Total Return Index, the Applicable Index Settlement Value of such
ComPS will be determined at such time as described above under
"Description of the ComPS--Early Determination of Applicable Index
Settlement Value and Redemption Value". Such ComPS will also be
subject to redemption upon the occurrence of a Special Event and
optional redemption on each Optional Redemption Date if specified in
the applicable Prospectus Supplement (treating the Applicable Index
Settlement Value determined pursuant to the terms of this paragraph as
the Applicable Index Early Settlement Value for any Early Redemption
Date). Such an early determination of the Applicable Index Settlement
Value with respect to any series of ComPS may result in the holders of
such ComPS receiving an amount that is less than what indicative
commodity and futures prices prevailing at any Early Redemption Date
or at the Stated Maturity thereof would otherwise imply. Because
Morgan Guaranty will be the Calculation Agent, such early
determination may raise adverse interests.
Additionally, if at any time the Benchmark Contracts then serving as
the basis for calculating the Applicable Index with respect to any
series of ComPS, or the trading thereof, become subject to any
increased cost or additional tax, Morgan Guaranty reserves the right
to designate a replacement Benchmark Contract or, if no such contract
is designated, to cause, at its option, the Applicable Index
Settlement Value of such ComPS to be determined at such time as
descrived above under "Description of the ComPS--Early Determination
of Applicable Index Settlement Value and Redemption Value". Because
Morgan Guaranty will, at the time any Benchmark Contract then serving
as the basis for calculating any Applicable Index becomes subject to
such increased cost or tax, in its discretion decide whether or not to
cause an early determination of the Applicable Settlement Value of any
such ComPS, exercise of such option may raise an adverse interest.
Any early determination of the Applicable Index Settlement Value may
cause the trading price of ComPS in any secondary market which then
exists to decline.
Early Redemption
All ComPS may be redeemed by the Company prior to their Stated
Maturity upon the occurrence of a Special Event or, if so specified in
the applicable Prospectus Supplement, redeemed at the option of the
holders thereof at certain times. In the case of a redemption upon the
occurrence of a Special Event, the Early Redemption Value paid by the
Company at such time may be significantly less than the Redemption
Value that would otherwise have been payable had such ComPS not been
redeemed prior to their Stated Maturity and the occurrence of such
Special Event may cause the market price of such ComPS in any existing
secondary market to decline. In the case of an optional redemption by
holders of any ComPS subject to such provisions, it is likely, under
prevailing market conditions, that the Early Redemption Value paid by
the Company will be less than the amount such holder could have
realized by selling such ComPS in an existing secondary market, if
<PAGE>
any. Delay in payment of the ComPS Early Redemption Price due to the
occurrence of a Market Disruption Event will not entitle
holders of such ComPS to additional distributions on such ComPS or the
accrual of any interest on such ComPS Early Redemption Price.
Secondary Trading in the ComPS; Possible Illiquidity of the ComPS
It is intended that each series of ComPS will be listed on a stock
exchange; however, it is not possible to predict whether the necessary
number of holders will purchase and, for the remaining term of each
series of ComPS, continue to hold such ComPS in order that a secondary
market for each series of ComPS will develop and remain in existence,
or how any ComPS will trade in any such market which does develop. The
Underwriters of any issuance of ComPS will not obligated to make a
market for such ComPS; therefore, it is possible that no active
secondary market for any ComPS will develop.
Value of the ComPS
The value of any series of ComPS at any time will depend upon the
interaction of at least three key factors: (i) the value of the
Applicable Index, (ii) the credit quality of Morgan Guaranty and J.P.
Morgan and (iii) the interest rate environment. As discussed above
under "Description of the ComPS", adverse changes in the Applicable
Index will directly correlate to adverse changes in value of the
ComPS. A decline in the credit quality of Morgan Guaranty and J.P.
Morgan could cause the trading price of any ComPS on any secondary
market then existing to decline. Also, an increase in the prevailing
interest rates could cause the trading price of such ComPS on any
secondary market then existing to decline.
Certain Considerations Regarding Hedging
Prospective purchasers of ComPS who intend to hedge against the risks
associated with the market for commodity futures or commodities should
recognize the complexities of utilizing ComPS in this manner. The
formula under which the Principal Amount is calculated is not
guaranteed to produce distributions to holders having readily
definable relationships with other commodity futures and commodity
instruments and products. As described above, in the case of ComPS for
which the Applicable Index is an Excess Return Index or a Total Return
Index, the value of such ComPS will reflect not only the price of the
benchmark contracts or the relevant commodity but also, in the case of
an Applicable Index based on futures contracts, the state of the
market in which such futures contracts are traded (i.e., whether such
market is in "backwardation" or "contango"). Also, under certain
circumstances, amounts payable on the ComPS may be based on the good
faith determination of Morgan Guaranty and not on the Applicable
Index. For these reasons, investors should be cautious in using ComPS
in a hedging program. The risks associated with utilizing the ComPS in
a hedging program may be magnified in periods of substantial futures
or commodities price volatility, since properly correlating such ComPS
either as a hedge of other assets or correlating such ComPS to the
hedge thereof may become more difficult.
<PAGE>
The Underlying Markets
Futures Markets
An exchange-traded futures contract is a bilateral agreement providing
for the purchase and sale of a specified type and quantity of a
commodity or financial instrument during a stated delivery month for a
fixed price or, in the case of a futures contract on an index,
providing for the payment and receipt of a cash settlement. By its
terms, a futures contract provides for a specified settlement month in
which the commodity or financial instrument is to be delivered by the
seller (whose position is therefore described as "short") and acquired
by the purchaser (whose position is therefore described as "long") or
in which the cash settlement amount is required to be paid. Prior to
the date on which delivery is to be made under a futures contract, the
exchange clearing house will require the holders of short positions to
state their intentions with respect to delivery and, to the extent
that such holders elect to make delivery (as opposed to cash
settlement), the clearing house will match them with holders of long
positions, who will then be required to accept delivery.
No purchase price is paid or received on the purchase or sale of a
futures contract. Instead, an amount of cash or cash equivalents,
which varies based on the requirements imposed by the exchange
clearing houses, but which may be as low as 5% or less of the value of
the contract, must be deposited with broker as "initial margin". This
margin deposit collateralizes the obligations of the parties to the futures
contract to perform their obligations under such contract. Subsequent payments
to and from the broker, referred to as "variation margin", are then
normally made on a daily basis as the price of the futures contract
fluctuates, thereby making existing positions in the futures contract
more or less valuable, a process known as "marking to the market". By
depositing and/or receiving margin in the most advantageous form
(which may vary depending on the exchange, clearing house or broker
involved), a market participant may be able to earn interest on its
margin funds, thereby increasing the potential total return which may
be realized from an investment in futures contracts.
Futures contracts are traded on organized exchanges, known as
"contract markets" in the U.S., through the facilities of a
centralized clearing house and a brokerage firm which is a member of
the clearing house (a "clearing member"). The clearing house
guarantees the performance of each clearing member which is a party to
a futures contract by, in effect, taking the opposite side of the
transaction. At any time prior to the expiration of a futures
contract, subject to the availability of a liquid secondary market, a
trader may elect to close out its position by taking an opposite
position on the exchange on which the position entered into, which
operates to terminate the position and fix the trader's profit or
loss. U.S. contract markets, as well as brokers and market
participants, are subject to regulation by the Commodity Futures
Trading Commission. Futures markets outside the U.S. are generally
subject to regulation by comparable regulatory authorities.
The principal non-U.S. futures market on which the futures contracts
which may underlie the Applicable Index are traded is the London Metal
Exchange (the "LME"). The LME, which is subject to the regulation of
the Securities and Investments Board and the Securities and Futures
<PAGE>
Authority (a self-regulatory organization), is a primary international
exchange for futures contracts on aluminum, copper, nickel and zinc
(which are included in the JPMCI) and for lead and tin. Unlike most
other futures exchanges (including those in the U.S.), the LME is a
"principal's market". This means that when a clearing member of the
LME enters into a trade with a client or non-clearing member, there
will not necessarily be an offsetting contract on the exchange.
Rather, such clearing member remains liable on such trade, though it
may then enter into an offsetting contract with another member having
substantially similar, if not necessarily identical, terms. In
addition, official LME trading is conducted by open outcry during two
daily trading sessions of short duration rather than by means of
continuous trading, as used on most exchanges. In addition to such
open outcry trading, trading takes place during the rest of the day
directly between members by means of a telephone trading system.
Settlement prices for contracts with specified settlement dates are
determined by a committee selected by the directors of the LME (the
"Quotations Committee") promptly following the morning trading
session, based on the last bid and offer prices for the relevant
commodity at such trading session or, if the Quotations Committee
determines there were no such prices, at such other level as the
Quotations Committee may in its discretion determine at the end of
each LME trading day. The Quotations Committee is similarly
responsible for determining LME closing prices. If the Quotations
Committee fails to determine such closing prices on any LME trading
day, such closing prices shall be determined by the London Clearing
House, which is the clearinghouse for the LME.
United States commodity futures exchanges typically have similar
procedures for determining end-of-day settlement prices, although each
exchange or type of commodity may have slightly different procedures.
All exchanges have quotations or settlement price committees which
determine the settlement prices using prescribed formulaic
methodologies. However, such committees may, if they believe the
application of the formulaic methodology would yield a settlement
price which is inappropriate, in their own discretion determine a
settlement price which is appropriate.
For precious metals futures contracts, exchanges typically determine
the settlement price for the most active month contract as the average
of the highest and lowest prices of trades reported in the closing
period. All other contracts settlement prices are determined as a
spread from this active contract using spreads determined in the
closing range. For energy contracts, exchanges typically determine the
settlement prices for the "more active contracts" (i.e., contracts
which meet certain open interest percentage thresholds) as the average
price of all outright transactions during the closing range for such
contract. In all other contracts, the settlement prices are determined
as spread relationships to the more active contracts.
Precious Metals Spot Markets
In the case of Bullion ComPS, it may be the case that the value of the
Bullion ComPS Principal Amount and the Applicable Index (and thus the
Redemption Value of and distributions on such ComPS) will be
determined with reference to the Fixing Price of the relevant Fixing
Association. The relevant Fixing Association for gold and silver is
the London Bullion Market Association (the "LBMA"); in the case of
platinum and palladium, the relevant Fixing Association is the London
Platinum and Palladium Market (the "LPPM"). The Fixing Price
<PAGE>
represents the spot price for the relevant underlying commodity as
determined in accordance with the procedures of the relevant Fixing
Association. The fixing procedures for the LBMA and the LPPM are
similar. Fixings occur twice each trading day for gold, platinum and
palladium and once each trading day for silver. At the commencement of
the fixing, an opening price is announced by the presiding official.
This price is relayed to the dealing rooms of the members or the
relevant Fixing Association. The price is in turn relayed to the
customers of such members and on the basis of orders received, such
members declare as a buyer or a seller. Provided that both buying and
selling interests are declared, members are then asked to state the
amount they wish to trade. If the amounts of buying and selling do not
balance, the same procedure is followed again at higher or lower
prices until a balance is achieved. The chairperson of the relevant
Fixing Association may exercise some discretion in determining the
final Fixing Price. Because members of the LBMA must submit fixed
orders for silver (i.e., no additional attempts at buying or selling
occur as described in the second preceding sentence), trade imbalances
may arise from time to time in the determination of the Fixing Price
for silver.
The London Bullion Market Association is regulated by the Bank of
England in accordance with the provisions of the London Code of
Conduct. The London Code of Conduct is issued by the Bank of England
and sets out the standards that firms are expected to meet when
trading in the London wholesale bullion and money markets. In
addition, all market marking members of the LBMA, in common with all
U.K.-based banks, are subject to capital adequacy and liquidity
requirements and regular supervisory meetings to consider the adequacy
of their management, systems and controls. The Bank of England takes
an active role in the LBMA gold market, including holding certain gold
for delivery in its vaults and holding gold in accounts.
Investing in the Commodities and Commodity Futures Markets
Investments in commodities and commodity futures markets offer
potential returns from several sources and strategies, two of which
are as follows: (i) the change in price of the underlying commodity or
commodity futures contract ("Price Return") and (ii) the cumulative
return created by a continuous investment in the same type of futures
contract by buying, holding and then selling such contracts as they
approach expiration and reinvesting the notional proceeds of such sale
in the same type of contract with a more distant expiration date (such
cumulative return, "Excess Return", is the sum of the price returns
for all such contracts held during their holding period, and such
Excess Return is often described or accounted for as the sum of Spot
Return plus Roll Return).
Price Return. Price Return is the return that arises from changes
over time in prices of futures contracts or in the prices of the
commodities themselves, as applicable. Thus, if on the first day of a
given month the price of the futures contract is $15.00, and on the
30th day of such month the price of the futures contract is $15.50,
the investor in such contract has earned a price return of 3.33% on
the initial notional amount of $15.00.
Excess Return. Excess Return is the cumulative return of holding
a continuous investment in commodity futures contracts. Excess Return
is just the cumulative return of the individual Price Returns of the
<PAGE>
contracts held during their holding period. Thus, Excess Return is
calculated as the return of holding a certain contract and, as it
nears expiration, selling such contract and reinvesting the notional
proceeds of the sale into another contract with a more distant
expiration date. Commodity market participants often describe Excess
Return as the sum of Spot Return plus Roll Return. Describing Excess
Return as Spot Return plus Roll Return helps describe the cumulative
price returns of the contracts held in terms of (a) overall trends in
the spot or nearby futures prices (Spot Return) and (b) the average
shape of the forward curve during the roll days over the holding
period (Roll Return).
"Spot Return" is defined as the change in the price of the nearest to
expiration contract underlying the Excess Return calculation from the
beginning of the calculation period to the end of the calculation
period (without regard to the actual underlying contract referenced).
"Roll Return" is the number that, when added to the Spot Return, gives
the true Excess Return. Roll Return represents the portion of return
on a continuous investment in nearby futures that one might attribute
to the average shape over the holding period of the forward curve
during the roll days (i.e., whether the forward contracts that were
rolled into were so rolled at a premium or a discount to the nearer to
expiration contracts).
Example
The following table illustrates the calculation of the Excess Return
of a continuous investment in nearby futures over a 2 month holding
period and shows how Spot Return plus Roll Return are defined and
calculated so that the sum thereof equals the actual Excess Return
calculation.
Day 1 Day 30 Day 60 Total
Futures #1 $15.00 $15.00
Futures #2 $14.75 $14.50 $15.00
Return on Futures #1 0.00%
Return on Futures #2 NA 3.4%
Return on Excess Return 0.00%(a) 3.45%(b) 3.45%
(a) return on Futures #1 for first month holding period
(b) return on Futures #2 for second month holding period
In the preceding example, if the change in value of an index had been
calculated entirely based on Futures #1 beginning on day 1, had ceased
to be based on such contract on day 30 and had begun to be calculated
entirely based on Futures #2 on such day, and had continued to be
based entirely on such contract to expiration on day 60, the index
would have appreciated by 3.45%, despite the fact that the price of
Futures #1 on day 1 and the price of Futures #2 on day 60 were equal
(i.e. Spot Return was 0.00%). Thus, while Futures #1 yielded no price
return, Futures #2 yielded a price return of 3.45% during its holding
period. Such a continuous investment in nearby futures contracts
produced a return of 3.45% over the two month holding period, which
can be accounted for as a Spot Return of 0.00% plus a Roll Return of
3.45%.* However, this is only one example of a possible futures market
<PAGE>
alignment; in any market, Excess Return, or the sum of Spot Return
plus Roll Return, could be positive or negative over any given holding
period.
The price of the longer-dated position may be higher or lower than the
price of the shorter-dated position based on a variety of factors,
including the cost of borrowing, transportation, storage and insurance
of commodities, the expectations of market participants with respect
to future price trends and general inventory, supply and demand
trends.
The JPM Indices
The JPM Indices have been developed and are calculated by Morgan
Guaranty as indicies proprietary to J.P. Morgan. The JPMCI, the
primary commodities index calculated by Morgan Guaranty, is the
arithmetic weighted average of the cumulative returns afforded by
notional investments in exchange-traded futures contracts on certain
non-financial "hard" (i.e., industrial non-edible) commodities
(including base metals, energy products and precious metals). Each of
the JPM Indices is designed as a measure of the performance over time
of the markets for the applicable commodities.
Morgan Guaranty calculates two investable versions of the JPM Indices,
the Excess Return Indices and the Total Return Indices. Subject to the
specific terms of each methodology set forth below, each methodology
represents a method for determining the cumulative change in value of
notional positions in certain commodities or commodity futures
- --------
*Spot Return is (($15.00/$15.00) -1) or 0.00%, since the beginning
price of Futures #1 is $15.00 and the ending price of Futures #2 is $15.00
over the two month index period. Because Roll Return is the number that,
when added to the Spot Return calculation, gives the true Excess Return,
and because Excess Return is 3.45% in the above example, Roll Return must
be Excess Return minus Spot Return (3.45% - 0.00%), or 3.45%.
<PAGE>
contracts, and does not represent an actual investment in commodities
or commodity futures contracts. Calculations for the JPM Indices are
based on end-of-day futures settlement prices for energy and precious
metal indices and on LME end-of-day closing prices for third Wednesday
dates for base metal indices.
Excess Return Methodology
The actual methodology applied by Morgan Guaranty in calculating
Excess Return JPM Individual Indices is set forth below. If the
Applicable Index of any series of ComPS is an Excess Return Index, the
following methodology will be applied by the Calculation Agent in
calculating the Applicable Index:
The value of the relevant Excess Return Index on any Trading Day not
subject to a Market Disruption Event will be determined with reference
to the following formula:
I(t)=I(t-1) + Change(t)
Where "I(t)" is the value of the relevant Excess Return Index on
the date of determination (such date being referred to as "(t)");
"I(t-1)" is the value of the relevant Excess Return Index on the
Trading Day not subject to a Market Disruption Event immediately
preceding the date of determination (such date being referred to
as "(t-1)"); and "Change(t)" is equal to the product of (i)
I(t-1) and (ii) the sum of the weighted percentage changes on the
date of determination of the U.S. dollar prices of the futures
contracts underlying the Applicable Index. Each such weighted
percentage change shall be equal to the product of (a) the U.S.
dollar percentage gain or loss on such underlying contracts to
the date of determination from the immediately preceding Trading
Day that is not subject to a Market Disruption Event multiplied
by (b) the applicable futures contract's weight in the Applicable
Index for such date of determination. The methodology behind the
weighting of the futures contracts is set forth under the caption
"Rebalance of JPM Indices".
For example, to calculate the value of Excess Return Index (I(t)) on a
Trading Day not subject to a Market Disruption Event for which I(t-1)
equals 100 and on which the only Benchmark Contract moves in value
from $14.50 to $15.00 (resulting in an Index change of 3.4482759%),
I(t) = 100 + (100 x 0.034482759
I(t) = 100 + 3.4482759
I(t) = 103.4482759
Total Return Methodology
The methodology applied by Morgan Guaranty in calculating Total Return
JPM Individual Indices is set forth below. If the Applicable Index of
any series of ComPS is a Total Return Index, the following methodology
will be applied by the Calculation Agent in calculating the Applicable
Index:
<PAGE>
The value of the relevant Total Return Index for any Trading Day on
which a Settlement Price is determined for the relevant contract or
contracts, as the case may be (regardless of whether or not such
Trading Day is subject to a Market Disruption Event), will be
determined with reference to the following formula:
I(t)=I(t-1) + Change(t) + R(t)
Where "I(t)" is the value of the relevant Total Return Index on
the date of determination (such date being referred to as "(t)");
"I(t-1)" is the value of the relevant Total Return Index on the
Trading Day on which a Settlement Price is determined for the
relevant contract or contracts, as the case may be, immediately
preceding the date of determination (such date being referred to
as "(t-1)"); "Change(t)" is equal to the product of (i) I(t-1)
and (ii) the sum of the weighted percentage changes on the date
of determination of the U.S. dollar prices of the futures
contracts underlying the Applicable Index. Each such weighted
percentage change shall be equal to the product of (a) the U.S.
dollar percentage gain or loss on such underlying contracts to
the date of determination from the immediately preceding Trading
Day for which a Settlement Price exists for the relevant contract
or contracts, as the case may be, multiplied by (b) the
applicable futures contract's weight in the Applicable Index for
the date of determination. Also, "R(t)" is the return arising
for the period from (t-1) to (t) from interest payable on the nominal
value of the Applicable Index, which shall be based on the rate
determined with reference to the following formula:
R(t) = I(t-1) x Y(t)
Where "I(t-1)" has the meaning set forth in the preceding
paragraph and
Days/91
Y(t) = [1/(1-Q)] - 1
Where "Q" equals the most recently available noncompetitive
discount rate on 13-week U.S. Treasury Bills (updated on weekly
auction), as found in the H.15(519) report published by the Board
of Governors of the Federal Reserve System, multiplied by the
quotient of 91/360, and "Days" equals the number of calendar days
from Trading Day (t-1) to (t); and
This methodology for calculation of the Total Return Index takes into
account the change in value of the index for the purpose of computing
the collateral return for Trading Days on which no official Applicable
Index is calculated but on which a Settlement Price is determined.
For example, to calculate the value of a Total Return Index for any
Trading Day on which a Settlement Price is determined for the relevant
contract or contracts, as the case may be (regardless of whether or
not such Trading Day is subject to a Market Disruption Event), for
which I(t-1) equals 100, on which the only Benchmark Contract moves
<PAGE>
from $14.50 to $15.00, on which the Q (the applicable discount rate
(5.00%) multiplied by 91/360) equals 1.26388989% and for which "Days"
equals 1,
I(t) = 100 + (100 x 0.034482759) + 100 x [(1/(1-0.0126388989)]1/91-1)
I(t) = 100 + 3.4482759 + (100 x 0.0001397838)
I(t) = 100 + 3.4482759 + .01397838
I(t) = 103.46225428
Rebalance of JPM Indices
Because the JPM Indices are measures of a continuous investment in
commodity futures contracts, and because most futures contracts have
maturities (generally from one to three months) which are shorter than
the life of any ComPS, the futures contracts serving as bases from
which to calculate the change in value of the JPM Indices must be
replaced on a periodic basis during the applicable Rollover Period (as
defined below) for each. If the Applicable Index for any series of
ComPS is an Excess Return Index or Total Return Index, the futures
contracts on the commodity underlying the Applicable Index will
similarly be replaced during the Rollover Period. The "Rollover
Period" is the period of five consecutive Trading Days commencing on
the fifth Trading Day of the month in which such replacement occurs.
During each day of the Rollover Period, a portion of change in value
of the Applicable Index ceases as of the end of such day to be based
on the change in value of existing contracts (the "Old Contracts") and
begins as of the beginning of the next day to be based on the change
in value of the New Contracts. The "New Contracts" are those contracts
which are the nearest designated futures contract which (i) have a
termination of trading at least ten Trading Days into the month
following the Rollover Period and (ii) have a first "notice day" at
least ten Trading Days into the month following the Rollover Period.
The "notice day" is the first day on which persons holding a short
position on such futures contract must inform the exchange on which
such contract is traded that they will deliver under such contract.
In the case of energy products for which there exist designated
futures contracts for delivery in each month of the year, the New
Contracts will be different from the Old Contracts. As indicated in
the table below, which lists each of the designated contracts, the
rebalancing procedure will occur on a less frequent basis for precious
metals and base metals, and as a result the New Contracts and Old
Contracts for any Rollover Period may be the same.
<PAGE>
Table :Benchmark Contracts Underlying Excess Return and Total Return Indices
No Commodity Name/Units Applicable Exchange Units per Designated
Delivery Contract Contract
1 Aluminum $/MT LME LME 25 tonnes Third Wednesday
(Metric Tonne) Warehouses of every March,
(High Grade Primary Worldwide June, September,
Aluminum) December<F1>
2 Copper $/MT LME LME 25 tonnes Third Wednesday
(Copper Grade A) Warehouses of every March,
Worldwide June, September,
December
3 Nickel $/MT LME LME 6 tonnes Third Wednesday
(Primary Nickel) Warehouses of every March,
Worldwide June, September,
December
4 Zinc $/MT LME LME 25 tonnes Third Wednesday
(Special High Grade Warehouses of every March,
Zinc) Worldwide June,
September,
December
5 Heating Oil #2, New York NYMEX 42,000 Every month
Harbor gallons
6 Natural Gas $/MM BTU Henry Hub, NYMEX 10,000 MM Every month
Louisiana BTU
7 Unleaded Gasoline, New York NYMEX 42,000 Every month
Harbor gallons
8 Light "Sweet" Crude Cushing, NYMEX 1,000 bbl Every month
Oil $/BBL Oklahoma
9 Gold $/troy oz COMEX- COMEX 100 troy February,
(.995 fineness) approved oz April, June,
vaults December
10 Silver oz COMEX- COMEX 5,000 troy March, May,
(.999 fineness) approved oz July,
vaults September,
December
11 Platinum $/troy oz NYMEX- NYMEX 50 troy oz January,
approved April, July,
vaults October
- -----------
<F1>
The LME trades contracts on every business day for three months.
The most actively traded contracts are the 3-month forward, the cash,
and the contract maturing the third Wednesday of each month.
<PAGE>
Additional underlying futures contracts may from time to time be added
to the JPM Indices and may thereafter serve as Applicable Indices.
Information substantially similar to that disclosed in the preceding
table will be disclosed in any Prospectus Supplement relating to such
additional Applicable Indices.
As discussed above, for JPM Individual Indices and for the Applicable
Indices, the replacement of the contracts serving as the basis for the
calculation of index change will be effected on a proportionate basis
over the five day Rollover Period in order to avoid the risks of
effecting such replacement entirely on a single day (e.g., a day on
which the applicable market displays unusual volatility).
As a result of such process of replacement, the weighting of contracts
in the Applicable Indices shall be such that for the Trading Days in
any month up to and including the first day of the Rollover Period for
such month, the Change(t) (as described above) will be calculated as
100% of the daily change of the underlying Old Contracts. The
Change(t) for the second Trading Day of the Rollover Period (assuming
no Market Disruption Event) shall be calculated based 80% on the
change attributable to the Old Contracts plus 20% on the change
<PAGE>
for the New Contacts, with similar adjustments made for each day of
the Rollover Period. Accordingly, the relative weights of the Old
Contracts and the New Contacts during any given day of a calendar
month for calculation of the Change(t) on such day will be as follows:
Standard Rollover Period
Trading Day of Month Old Contract Weight % New Contract Weight %
1-4 100 0
5 100 0
Rollover 6 80 20
Period 7 60 40
8 40 60
9 20 80
10 0 100
11-month end 0 100
However, if a Market Disruption Event occurs during a Rollover Period
(i.e., on any day on which a replacement is otherwise scheduled to
take place), such replacement will be postponed until the next Trading
Day of the Rollover Period on which the Market Disruption Event ceases
to be in effect. On the Trading Day such Market Disruption Event
ceases to be in effect, the replacement for that day and for all
preceding days during which such Market Disruption Event was
continuing will be effected. The Change(t) for all Trading Days from
the day first subject to a Market Disruption Event to the first
Trading Day not subject to a Market Disruption Event shall use the
contract weights for the Trading Day on which the Market Disruption
Event began. If the Market Disruption Event remains in effect for the
remainder of the Rollover Period, the Old Contract will be replaced by
the New Contract to the full extent not previously replaced at the end
of the next succeeding Trading Day on which such Market Disruption
Event ceases to be in effect. The following chart illustrates the
replacement process for a Rollover Period including the occurrence of
a Market Disruption Event (indicated as an "MDE") on the seventh
Trading Day of the month:
Example of Rollover Period with Market Disruption Event
Trading Day of Month Old Contract Weight % New Contract Weight %
1-4 100 0
5 100 0
6 80 20
7 (MDE) 60 40
8 60 40
9 20 80
10 0 100
11-month end 0 100
For an Applicable Index which is an Excess Return Index, because of
the occurrence of the Market Disruption Event on Trading Day 7, the
Index would not be officially calculated and no roll would occur.
Since no Market Disruption Event occurs on Trading Day 8, an index
value is determined for Trading Day 8, and the Change(t) is calculated
using the relative contract weights applicable to the Trading Day
first subject to the Market Disruption Event (in this example, Trading
<PAGE>
Day 7) using the index level on Trading Day 6 (the immediately
preceding Trading Day not subject to a Market Disruption Event) as
I(t-1).
For an Applicable Index which is a Total Return Index, because of the
occurrence of the Market Disruption Event on Trading Day 7, no roll
would occur, and any index calculations on Trading Day 7 (if
Settlement Prices are determined for the relevant contracts for such
day) and on Trading Day 8 would use the relative contract weights
applicable to Trading Day 7.
The JPMCI Policy Committee
Morgan Guaranty has established the JPMCI Policy Committee to advise
and make recommendations with respect to the determination of the JPM
Indices and, to the extent appropriate, the Applicable Indices. The
JPMCI Policy Committee meets on an ad hoc basis at the request of
Morgan Guaranty in order to discuss policy matters relating to the
operation of the JPM Indices and, to the extent appropriate, the Applicable
Indices. The JPMCI Policy Committee will advise Morgan Guaranty with
respect to, among other things, the effectiveness of the JPMCI as an
appropriate commodity investment benchmark; the effectiveness of the
JPMCI as a measure of commodity market performance; the need for
changes in the weights, composition, price sources or calculation
methodology of the JPMCI or the Applicable Indices; the need for
creation or elimination of sub-indices of the JPMCI or other commodity
indices, drawing either from the existing components of the JPMCI or
new commodity components and the treatment of issues relating to
market disruptions issues. Morgan Guaranty may at any time act at its
discretion to make any modifications to the JPMCI based on
recommendations of the JPMCI Policy Committee. Membership of the JPMCI
Policy Committee will be subject to change from time to time, and no
member will be permitted to purchase or hold any ComPS during his or
her term on the Committee. At the time of this Prospectus, the JPMCI
Policy Committee consists of the following members:
JPMCI Policy Committee
Name Title Function
John Fullerton Managing Director, J.P. Head of Global
(Chairman) Morgan Commodities
Victor S. Filatov President, Smith Barney Chief Investment
Global Capital Management Officer
Inc.
Martin B. Greenberg Chairman of the Board and Former Chairman of the
President of Sterling Commodities Exchange,
Commodities Inc
Philip K. Verleger, Vice President, Charles Economic Consultant and
Jr. River Associates former Visiting Fellow,
Institute of
International Economics
Jeanne Feldhusen Managing Director, J.P. Head of Fixed Income
Morgan Research
<PAGE>
Each of the futures contracts included in the JPM Indices must satisfy
each of the following JPMCI Inclusion Criteria: the futures contracts
must (i) be priced in U.S. dollars, or if priced in a foreign
currency, the exchange on which the contract is traded must publish an
official exchange rate for conversion of the futures price into U.S.
dollars and such currency must be freely convertible into U.S.
dollars; (ii) be traded on a regulated futures exchange located in the
United States, Canada, the United Kingdom, Japan, Singapore or an
O.E.C.D. country and (iii) have a minimum annual trading volume of
300,000 contracts or $500,000,000 for all contract months. If a
contract included in the JPM Indices ceases to satisfy the JPMCI
Inclusion Criteria, the JPMCI Policy Committee shall meet to consider
the substitution of a replacement futures contract for such contract.
If no appropriate replacement contract can be found, the JPMCI Policy
Committee may recommend the removal of such contract from the JPM
Indices. Morgan Guaranty reserves the right to act at its discretion
to make any modifications to the JPM Indices based on the
recommendations of the JPMCI Policy Committee.
Changes in JPM Indices Designated Contracts
Before implementing a change in definition or price sources for a
designated contract in the JPM Indices, the JPMCI Policy Committee
shall consider the following: (i) the effectiveness of the JPMCI and
JPM Indices as appropriate commodity investment benchmarks, (ii) the
effectiveness of the JPMCI and JPM Indices as a measure of commodity
market performance and (iii) the respective contract volumes, U.S.
dollar volumes, open interest, liquidity and transaction costs of the
proposed replacement and existing benchmark contracts.
The JPMCI Policy Committee may recommend a change in one or more of
the benchmark contracts underlying the JPM Indices if, in the majority
opinion of the committee members, the proposed replacement benchmark
contract better meets the objectives set forth in clauses (i) and (ii)
above and has higher annual contract volumes or U.S. dollar volumes.
However, as noted above, Morgan Guaranty may cause a change in one or
more of such contracts if any increased cost or tax is imposed on holding
or trading such contracts if such contract meets the applicable inclusion
rules even though such contract does not have higher annual contract
volumes or U.S. dollar volumes.
After consideration of the above (and other) issues the JPMCI Policy
Committee may recommend to Morgan Guaranty a change in the composition
of the JPM Indices. Morgan Guaranty reserves the right to act at its
discretion to make any modifications to the JPMCI based on
recommendations of the policy committee. Such changes, including the
implementation date and details, shall be published and disseminated
by Morgan Guaranty through its usual research distribution network.
The Applicable Index
The Prospectus Supplement for any series of ComPS will specify and
provide details with respect to the Applicable Index and the commodity
underlying the Applicable Index. As discussed above, the Applicable
Index will be an Excess Return Index calculated in the same manner as
those of the Excess Return JPM Indices, a Total Return Index
calculated in the same manner as those of the Total Return JPM Indices
<PAGE>
or a Price Reference Index. Each such Prospectus Supplement will also
contain information with regard to the historical performance of the
Applicable Index.
Description Of The Related Notes
The Related Notes may be issued from time to time in respect of one or
more series of Preferred Securities. The following description sets
forth certain general terms and provisions of each Related Note to
which any series of Preferred Securities may relate. The particular
terms of the Related Note included in any Prospectus Supplement and
the extent, if any, to which such general provisions may apply to such
Related Note will be described in the Prospectus Supplement relating
to such Related Note. The following description does not purport to be
complete and is subject to, and is qualified in its entirety by
reference to, any Prospectus Supplement relating to any Related Note
and the other documents incorporated by reference herein. Certain
capitalized terms are used herein as defined in the relevant Related
Note.
General
Each Related Note will be an unsecured, unsubordinated obligation of
Morgan Guaranty. No Related Note will limit the principal amount of
Related Notes that may be issued by Morgan Guaranty. The financial
terms of the Related Notes, including, among other things, the
<PAGE>
principal of, interest and any premium on any Related Note (or the
method of calculating any of the foregoing), shall be set forth in the
Prospectus Supplement related thereto and will mirror the aggregate
financial terms of the related series of Preferred Securities,
including as to timing and amount of payments. References made herein
to the Related Note refer to each Related Note that may be issued from
time to time.
No Related Note will contain any provisions that would limit the
ability of Morgan Guaranty to incur indebtedness. Reference is made to
any Prospectus Supplement relating to the Related Note offered thereby
for information with respect to any deletions from, modifications of
or additions to the events of default or covenants of Morgan Guaranty
applicable to the Related Note that is referred to therein.
Under terms of each Related Note, Morgan Guaranty will have the
ability to issue Related Notes with terms different from those of
Related Notes previously issued without the consent of the holders of
previously issued Related Notes, in an aggregate principal amount
determined by Morgan Guaranty.
Subordination
The Related Notes will be subordinated and junior in right of payment
to certain other indebtedness of subsidiaries of Morgan Guaranty to
the extent set forth in each Prospectus Supplement that will accompany
this Prospectus.
Related Note Events of Default
If any Related Note Event of Default shall occur with respect to any
Related Note and be continuing, the Company will have the right to
declare the principal of and the interest on such Related Note and any
other amounts payable under the applicable Related Note to be
forthwith due and payable and to enforce its other rights as a
creditor with respect to such Related Note as applicable. A "Related
Note Event of Default" with respect to any Related Note is defined as:
(i) default for 30 days in the payment of interest on such Related
Note; (ii) default in payment of the principal amount at Stated Maturity or
any amount payable upon any redemption of such Related Note; (iii)
failure by Morgan Guaranty for 90 days after receipt of notice to it
by the Company to comply with any of its covenants or agreements
contained in the relevant Related Note; and (iv) certain events of
bankruptcy, insolvency, receivership or reorganization involving
Morgan Guaranty or certain affiliates. If any Related Note Event of
Default described in clause (i), (ii) or (iii) above occurs and is
continuing, the Company may declare the relevant Related Note to be
due and payable and, upon any such declaration, the relevant Related
Note shall become immediately due and payable along with any accrued
and unpaid interest. If any Related Note Event of Default described in
clause (iv) above occurs and is continuing, all Related Notes shall
become immediately due and payable along with any accrued and unpaid
interest. Under certain conditions the Company may waive certain past
defaults and their consequences with respect to such Related Note. The
holders of Preferred Securities in certain circumstances have the
right to direct the Company to exercise certain of its rights as the
holder of the relevant Related Note.
<PAGE>
Modification of any Related Note
Morgan Guaranty and the Company may, without the consent of the
holders of any Preferred Securities, enter into senior notes
supplemental to any Related Note for, among others, one or more of the
following purposes: (i) to evidence the succession of another person
to, and the assumption by such successor of, Morgan Guaranty's
obligations under such Related Note; (ii) to add covenants of Morgan
Guaranty, or surrender any rights of Morgan Guaranty, for the benefit
of the Company and (iii) to cure any ambiguity, or correct any
inconsistency in, such Related Note.
Each Related Note will contain provisions permitting Morgan Guaranty
and the Company, with the consent of the holders of the not less than
a majority in Principal Amount of the outstanding Preferred Securities
relating to such Related Note, to modify such Related Note; provided
that no such modification may, without the consent of the holders of
all outstanding Preferred Securities affected thereby, (i) reduce the
amount of Preferred Securities of such series the holders of which
must consent to any amendment, supplement or waiver of such Related
Note; (ii) reduce the rate of or extend the time for the payment of
interest on the Related Note; (iii) alter the method of calculation
of, or reduce, the amount paid at Stated Maturity or extend the Stated
Maturity of such Related Note (other than pursuant to the terms of
such Related Note) or (iv) make any Related Note payable in money or
property other than that stated in the Related Note.
Governing Law
Each Related Note will be construed in accordance with the laws of the
State of New York.
Miscellaneous
Related Notes will not be deposits or other obligations of a bank and
will not be insured by the Federal Deposit Insurance Corporation or
any other federal agency.
<PAGE>
Description Of The Guarantee
Set forth below is a summary of information concerning the Guarantee
that will be executed and delivered by J.P. Morgan for the benefit of
the holders, from time to time, of Preferred Securities. The terms of
the Guarantee will be those set forth in the Guarantee. The summary
set forth herein does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by
reference to, the form of Guarantee, which is filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.
General
Pursuant to the Guarantee, J.P. Morgan will irrevocably and
unconditionally agree, on a subordinated basis to the extent set forth
therein, to pay in full to the holders of the applicable Preferred
Securities the Guarantee Payments (as defined herein), without
duplication of amounts paid by the Company, as and when due,
regardless of any defense, right of set-off or counterclaim that the
Company may have or assert. The following payments with respect to
Preferred Securities (the "Guarantee Payments"), to the extent not
paid by the Company, will be subject to the Guarantee (without
duplication): (i)(A) any accrued and unpaid distributions that are
required to be paid on such Preferred Securities and (B) in the case
of ComPS, the ComPS Early Redemption Price or the ComPS Redemption
Price, as applicable, and in the case of all other Preferred
Securities, the Preferred Redemption Price, in each case including all
accrued and unpaid distributions, but if and only if to the extent
that, in each case, Morgan Guaranty has made payment to the Company of
interest or principal on the Related Note underlying such Preferred
Securities, and (ii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Company (other than in connection
with the redemption of all of the Preferred Securities upon maturity
or redemption of the applicable Related Note) the lesser of (A) the
Liquidation Distribution to the extent the Company has funds available
therefor and (B) the amount of assets of the Company remaining
available for distribution to holders of such Preferred Securities
upon such liquidation, dissolution, winding-up or termination of the
Company. J.P. Morgan's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by J.P. Morgan to
the holders of Preferred Securities or by causing the Company to pay
such amounts to such holders.
The Guarantee will be an unconditional guarantee with respect to each
series Preferred Securities issued by the Company from the time of
issuance of such Preferred Securities but will not apply to any
payment of distributions except to the extent Morgan Guaranty has made
the related payment on the Related Note underlying such Preferred
Securities. If Morgan Guaranty does not make interest payments on the
applicable Related Note, the Company will not pay distributions on the
related Preferred Securities and will not have funds available therefor.
See "Description of the Related Notes".
<PAGE>
Modification of the Guarantee; Assignment
Except with respect to any changes that do not adversely affect the
rights of holders of the applicable Preferred Securities (in which
case no vote will be required), the Guarantee may be amended only with
the prior approval of the holders of not less than a majority in
aggregate Principal Amount of the affected outstanding Preferred
Securities, voting as a single class. The manner of obtaining any such
approval of holders of such Preferred Securities will be set forth in
an accompanying Prospectus Supplement. All guarantees and agreements
contained in the Guarantee shall bind the successors, assignees,
receivers, trustees and representatives of J.P. Morgan and shall inure
to the benefit of the holders of the applicable Preferred Securities
then outstanding.
Remedies of Holders
Upon the failure of J.P. Morgan to perform any of its payments or
other obligations with respect to any Preferred Securities under the
Guarantee, any holder of such Preferred Securities may institute a
legal proceeding directly against J.P. Morgan without first
instituting a legal proceeding against the Company. Subject to the
award by a court of competent jurisdiction of legal fees in connection
with any such legal proceeding, each holder will be required to bear
its own costs in connection with instituting a legal proceeding
directly against J.P. Morgan, which cost may be significant.
Termination of the Guarantee
The Guarantee will terminate as to the applicable Preferred Securities
upon full payment of the ComPS Early Redemption Price, the ComPS
Redemption Price, Preferred Redemption Price of all such Preferred
Securities or upon full payment of the amounts payable upon
liquidation of the Company, as applicable. The Guarantee will continue
to be effective or will be reinstated as to any Preferred Securities,
as the case may be, if at any time any holder of the applicable
Preferred Securities must restore payment of any sums paid under such
Preferred Securities or the Guarantee (e.g., upon subsequent
bankruptcy of Morgan Guaranty or J.P. Morgan.
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of J.P. Morgan
and will rank (i) subordinate and junior in right of payment to all
other liabilities of J.P. Morgan, (ii) pari passu with the most senior
preferred or preference stock outstanding as of the date hereof of
J.P. Morgan and (iii) senior to J.P. Morgan's common stock. The terms
of the Preferred Securities provide that each holder of Preferred
Securities by acceptance thereof agrees to the subordination
provisions and other terms of the applicable Guarantee.
The Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under
the Guarantee without instituting a legal proceeding against any other
person or entity).
<PAGE>
Governing Law
The Guarantee will be governed by and construed and interpreted in
accordance with the laws of the State of New York.
Description Of The Related Note Guarantee
Set forth below is a summary of information concerning the Related
Note Guarantee that will be executed and delivered by J.P. Morgan in
respect of each Related Note for the benefit of the Company as the
holder of the Related Notes. The terms of the Related Note Guarantee
will be those set forth in the Related Note Guarantee. The summary set
forth herein does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by
reference to, the form of the Related Note Guarantee, which is filed
as an exhibit to the Registration Statement of which this Prospectus
forms a part. The Related Note Guarantee will be held by the Company.
General
Pursuant to the Related Note Guarantee, J.P. Morgan will irrevocably
and unconditionally agree, on a subordinated basis to the extent set
forth therein, to pay in full to the Company, as the holder of each
Related Note, the Related Note Guarantee Payments (as defined herein),
without duplication of amounts paid by Morgan Guaranty, as and when
due, regardless of any defense, right of set-off or counterclaim that
Morgan Guaranty may have or assert with respect to the obligation to
make such Related Note Guarantee Payments. The following payments with
respect to the applicable Related Note (the "Related Note Guarantee
Payments"), to the extent not paid by Morgan Guaranty, will be subject
to the Related Note Guarantee (without duplication): (i) any accrued
and unpaid distributions that are required to be paid on such Related
Note and (ii) any principal payable by Morgan Guaranty, as and when
payable by Morgan Guaranty. J.P. Morgan's obligation to make a Related
Note Guarantee Payment may be satisfied by direct payment of the
required amounts by J.P. Morgan to the Company or by causing Morgan
Guaranty to pay such amounts to the Company.
The Related Note Guarantee will be a full and unconditional guarantee
with respect to each Related Note issued by Morgan Guaranty from the
time of issuance of such Related Note.
Modification of the Related Note Guarantee; Assignment
The Related Note Guarantee may be amended only with the prior approval
of the Company. All guarantees and agreements contained in the Related
Note Guarantee shall bind the successors, assignees, receivers,
trustees and representatives of J.P. Morgan and shall inure to the
benefit of the Company as the holder of each Related Note then
outstanding.
Remedies of the Company
The Company has the sole right to direct the time, method and place of
conducting any proceeding providing for any remedy available to it in
respect of the Related Note Guarantees.
<PAGE>
Termination of the Related Note Guarantee
The Related Note Guarantee will terminate as to any Related Note upon
full payment of the Related Note Redemption Price (as defined below)
of such Related Note . The Related Note Guarantee will continue to be
effective or will be reinstated with respect to any Related Note, as
the case may be, if at any time the Company must restore payment of
any sums paid under the Related Note or under the Related Note
Guarantee with respect to such Related Note.
Status of the Related Note Guarantee
The Related Note Guarantee will constitute an unsecured obligation of
J.P. Morgan and will rank (i) subordinate and junior in right of
payment to all other liabilities of J.P. Morgan, (ii) pari passu with
the most senior preferred or preference stock outstanding as of the
date hereof of J.P. Morgan, and (iii) senior to J.P. Morgan's common
stock. The terms of the Preferred Securities provide that each holder
of Preferred Securities by acceptance thereof agrees to the
subordination provisions and other terms of the Related Note
Guarantee.
The Related Note Guarantee will constitute a guarantee of payment and
not of collection (that is, the Company may institute a legal
proceeding directly against J.P. Morgan to enforce its rights under a
Related Note Guarantee without instituting a legal proceeding against
Morgan Guaranty).
Governing Law
The Related Note Guarantee will be governed by and construed and
interpreted in accordance with the laws of the State of New York.
Plan Of Distribution
The Company may sell the Preferred Securities in one or more of the
following ways from time to time: (i) to or through underwriters or
dealers, (ii) directly to purchasers or (iii) through agents. The
Prospectus Supplement with respect to any Offered Securities will set
forth (a) the terms of the offering of the Offered Securities,
including the name or names of any underwriters, dealers or agents,
(b) the purchase price of the Offered Securities and the proceeds to
the Company from such sale, (c) any underwriting discounts and
commissions or agency fees and other items constituting underwriters'
or agents' compensation, (d) any initial public offering prices, (e)
any discounts or concessions allowed or paid to dealers and (f) any
securities exchange on which such Offered Securities may be listed.
Any initial public offering price, discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
<PAGE>
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The Offered Securities may be offered
to the public either through underwriting syndicates represented by
one or more managing underwriters or directly by one or more firms
acting as underwriters. The underwriter or underwriters with respect
to a particular underwritten offering of Offered Securities will be
named in the Prospectus Supplement relating to such offering and, if
an underwriting syndicate is used, the managing underwriter or
underwriters will be set forth on the cover of such Prospectus
Supplement. Unless otherwise set forth in the Prospectus Supplement
relating thereto, the obligations of the underwriters to purchase the
Offered Securities will be subject to certain conditions precedent,
and the underwriters will be obligated to purchase all the Offered
Securities if any are purchased.
If dealers are utilized in the sale of Offered Securities, the Company
will sell such Offered Securities to the dealers as principals. The
dealers may then resell such Offered Securities to the public at
varying prices to be determined by such dealers at the time of resale.
The names of the dealers and the terms of the transaction will be set
forth in the Prospectus Supplement relating thereto.
Any series of Preferred Securities may be sold from time to time
either directly by the Company or by agents of the Company designated
by the Company. Any agent involved in the offer or sale of the Offered
Securities with respect to which this Prospectus is delivered will be
named, and any commissions payable by the Company to such agent will
be set forth, in the applicable Prospectus Supplement relating
thereto. Unless otherwise indicated in the applicable Prospectus
Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment.
The Preferred Securities may be sold directly by the Company to
institutional investors or others who may be deemed to be underwriters
within the meaning of the Securities Act with respect to any resale
thereof. The terms of any such sales will be described in the
Prospectus Supplement relating thereto.
If so indicated in the Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers from
certain types of institutions to purchase Offered Securities from the
Company at the public offering price set forth in the Prospectus
Supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. Such contracts
will be subject only to those conditions set forth in the Prospectus
Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts.
Agents, dealers and underwriters may be entitled under agreements with
J.P. Morgan or the Company to indemnification by J.P Morgan or the
Company against certain civil liabilities, including liabilities under
the Securities Act, or to contribution with respect to payments that
such agents, dealers or underwriters may be required to make in
respect thereof. Agents, dealers and underwriters may be customers of,
engage in transactions with, or perform services for J.P Morgan or the
Company in the ordinary course of business.
<PAGE>
Each series of Offered Securities will be a new issue of securities
and will have no established trading market. Any underwriters to whom
Offered Securities are sold for public offering and sale may make a
market in such Offered Securities, but such underwriters will not be
obligated to do so and may discontinue any market making at any time
without notice. The Offered Securities may or may not be listed on a
national securities exchange. No assurance can be given that there
will be a market for the Offered Securities.
This Prospectus and the related Prospectus Supplement 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 ComPS. 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.
Legal Opinions
The validity of the Securities offered hereby will be passed upon by
Margaret M. Foran, Vice President, Assistant General Counsel and
Assistant Secretary of J.P. Morgan, and by Cravath, Swaine & Moore,
New York, New York, counsel for any underwriters, selling agents and
certain other purchasers. 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 audited financial statements contained in J.P. Morgan's Annual
Report on Form 10-K for the year ended December 31, 1994 (included in
J.P. Morgan's Annual Report to Stockholders), are incorporated by
reference in this Prospectus in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
ANNEX I
Glossary of Terms
The following are abbreviated definitions of certain capitalized terms
used in the Prospectus Supplement. The LLC Agreement, the Guarantee,
the Related Note Guarantee and any Related Note may contain more
complete definitions of certain of the terms defined herein, as well
as definitions of certain other terms not defined herein, and
reference should be made to the LLC Agreement, the Guarantee, the
Related Note Guarantee and the relevant Related Note, as applicable,
for complete definitions of such terms.
Benchmark Contracts ....... with respect to any Applicable
Index, the futures contracts on
the relevant commodity the
change in value of which serve
as the basis for calculating
the change in value of such
Applicable Index.
Bullion ComPS ............ ComPS for which the Applicable
Index is a Price Reference
<PAGE>
Index in which all
distributions and the Bullion
ComPS Principal Amount are
indexed to the value at such
time in U.S. dollars (the
"Dollar Equivalent Value") of
bullion (i.e., gold, silver,
platinum or palladium).
Bullion ComPS Principal the Dollar Equivalent Value of
Amount .................... the applicable portion of
the applicable fixing
price for the applicable
amount of the applicable
bullion commodity at such
time.
Business Day .............. any day other than a Saturday,
Sunday or any other day on
which banking institutions in
New York, New York, are
permitted or required by any
applicable law to close.
Code ...................... the Internal Revenue Code of
1986, as amended.
Commission ................ the Securities and Exchange
Commission.
Common Securities ......... the common securities of the
Company representing voting
limited liability company
interests in the Company, to
be directly or indirectly
owned by J.P. Morgan.
Distributions ............. if any, as specified in the
applicable Prospectus
Supplement.
DTC ....................... the Depository Trust Company.
Early Redemption Value .... The average for the 10 days of
the Early Determination Period
of the discounted present value
of the indexed Principal Amount
of the ComPS, as set forth
under "Description of
ComPS--Early Redemption Upon
the Occurrence of a Special
Event or at the Election of the
Holders of the ComPs".
ERISA ..................... the Employee Retirement Income
Security Act of 1974.
Exchange Act .............. the Securities Exchange Act of
1934, as amended.
<PAGE>
Face Amount ............... as set forth in the applicable
Prospectus Supplement.
Guarantee ................. the Guarantee Agreement
executed by J.P. Morgan on
behalf of the holders of each
series of Preferred
Securities.
Guarantee Payments ........ without duplication, (i)(A)
any accrued and unpaid
distributions that are
required to be paid on the
Preferred Securities and (B)
the Preferred Redemption
Price, but if and only to the
extent that, in each of case,
Morgan Guaranty has made a
payment of interest or
principal, as the case may be,
on the Related Note and (ii)
upon a Liquidation Event
(other than in connection with
the redemption of all the
Preferred Securities upon the
maturity or redemption of the
applicable Related Note), the
lesser of (A) the Liquidation
Distribution to the extent the
Company has funds available
therefor, and (B) the amount
of assets of the Company
remaining available for
distribution to holders of the
Preferred Securities upon such
Liquidation Event.
Initial Holders ........... holders who purchase any
Preferred Securities upon
original issuance.
Interest Payment Date ..... with respect to any Related
Note, as specified in the
applicable Prospectus
Supplement.
Investment Company Event .. the receipt by the Company of
an opinion of a nationally
recognized independent counsel
experienced in such matters to
the effect that, as a result
of the occurrence of a change
in law or regulation, a
written change in
interpretation or application
of law or regulation by any
legislative body, court,
governmental agency or
regulatory authority or the
expiration or revocation of
<PAGE>
any applicable exemption
obtained by the Company (a
"Change in 1940 Act Law"),
there is more than an
insubstantial risk that the
Company is or will be
considered an "investment
company" that is required to
be registered under the 1940
Act, which Change in 1940 Act
Law becomes effective on or
after the date of this
Prospectus.
IRS ....................... Internal Revenue Service.
Issue Date ................ as set forth in the applicable
Prospectus Supplement.
LLC Agreement ............. the limited liability company
agreement among J.P. Morgan,
JPM Ventures and holders of
Preferred Securities
subsequently becoming members
thereof dated February 16,
1996, and effective as of
November 21, 1995.
Liquidation Distribution .. in respect of any Liquidation
Event, the sum of (a) the
Early Redemption Value or
stated liquidation preference,
as applicable, plus (b) the
amount of accrued and unpaid
distributions on such
Preferred Security to but
excluding the date of payment.
Liquidation Event ......... any liquidation, dissolution,
winding-up or termination of
the Company, whether voluntary
or involuntary.
Nasdaq .................... The Nasdaq Stock Market.
1940 Act .................. the Investment Company Act of
1940, as amended.
Preferred Redemption Price. On any date of redemption, an
amount equal to (i) the
Principal Amount per Preferred
Security plus (ii) accrued and
unpaid distributions to but
excluding the date of
redemption.
Preferred Securities ...... Preferred Securities of J.P.
Morgan Index Funding Company,
LLC.
<PAGE>
Principal Amount .......... at any time, (i) in the case
of any Preferred Security, the
Bullion ComPS Principal
Amount, Redemption Value,
Early Redemption Value or
stated liquidation preference
thereof, as applicable, as if
determined as of such time,
and (ii) in the case of any
Related Note, the principal
amount thereof at such time
determined pursuant to the
terms thereof.
Redemption Date ........... either the Stated Maturity or
an Early Redemption Date, as
applicable.
Redemption Value .......... with respect to any series of
ComPS, the average for the
Determination Period of the
Principal Amount thereof, as
described under "Description of
ComPS--Calculation of
Redemption Value".
Related Note .............. an unsecured, unsubordinated
debt obligation of Morgan
Guaranty, as described in the
applicable Prospectus
Supplement.
Related Note Event of (i) default for 30 days in the
Default ................... payment of interest on
the applicable Related Note;
(ii) default in payment of
principal amount at the Stated
Maturity or any amount payable
upon any redemption of the
applicable Related Note; (iii)
failure by Morgan Guaranty for
90 days after receipt of
notice to it to comply with
any of its covenants or
agreements contained in the
applicable Related Note; and
(iv) certain events of
bankruptcy, insolvency,
receivership or reorganization
involving Morgan Guaranty or
certain affiliates.
Securities ................ the Common Securities and the
Preferred Securities.
Securities Act ............ the Securities Act of 1933.
Senior Indebtedness ....... with respect to Morgan
Guaranty, as specified in the
applicable Prospectus
Supplement.
<PAGE>
Special Event ............. either a Tax Event or an
Investment Company Event.
Special Redemption ....... if specified in the applicable
Prospectus Supplement, upon
the occurrence and during the
continuation of a Special
Event, Morgan Guaranty will
have the right to redeem the
applicable Related Note for
cash at the Related Note
Redemption Price, with the
result that the Company will
redeem Preferred Securities on
a Pro Rata Basis for cash at
the Preferred Redemption
Price.
Special Redemption Date ... any date in respect of which
upon the occurrence and
continuation of a Tax Event or
an Investment Company Event,
Morgan Guaranty shall have
called for redemption in whole
or in part the Related Notes,
and the Company shall have
called for redemption in whole
or in part the Preferred
Securities.
Stated Maturity ........... with respect to any series of
Preferred Securities, as set
forth in the applicable
Prospectus Supplement.
Tax Counsel ............... Cravath, Swaine & Moore,
special tax counsel to J.P.
Morgan and the Company.
Tax Event ................. the receipt by the Company of
an opinion of nationally
recognized independent tax
counsel experienced in such
matters (a "Tax Opinion") to
the effect that, as a result
of (a) any amendment to, or
change (including any
announced prospective change)
in, the laws (or any
regulations thereunder) of the
United States or any political
subdivision or taxing
authority thereof or therein,
(b) any amendment to, or
<PAGE>
change in, an interpretation
or application of such laws or
regulations by any legislative
body, court, governmental
agency or regulatory authority
(including the enactment of
any legislation and the
publication of any judicial
decision or regulatory
determination), (c) any
interpretation or
pronouncement that provides
for a position with respect to
such laws or regulations that
differs from the theretofore
generally accepted position or
(d) any action taken by any
governmental agency or
regulatory authority, which
amendment or change is
enacted, promulgated, issued
or announced or which
interpretation or
pronouncement is issued or
announced or which action is
taken, in each case on or
after the date of this
Prospectus Supplement, that
there is more than an
insubstantial risk that at
such time or within 90 days of
the date thereof (i) the
Company is or would be subject
to United States Federal
income tax with respect to
income accrued or received on
any Related Note, (ii) the
interest payable on any
Related Note is not or would
not be deductible by Morgan
Guaranty for United States
Federal income tax purposes,
(iii) the contingent principal
in excess of the Face Amount
of any series of Preferred
Securities (if any) payable on
any Related Note is not or
would not be deductible by
Morgan Guaranty for United
States Federal income tax
purposes or (iv) the Company
is or would be subject to more
than a de minimis amount of
other taxes, duties or other
governmental charges.
Trading Day............... Any day on which open-ontery trading
either on the NYMEX or the LME is
scheduled to occur or occurs.
<PAGE>
No dealer, salesperson or other individual
has been authorized to give any information
or to make any representations other than
those contained or incorporated by reference
in this Prospectus Supplement or the Series [A]
Prospectus in connection with the offer made Preferred Securities
by this Prospectus Supplement and the Indexed to the JPMCI
Prospectus and, if given or made, such Crude Oil Excess Return Index
information or representations must not be
relied upon as having been authorized by J.P. J.P. Morgan Index
Morgan, the Company or the Underwriters. Funding Company, LLC
Neither the delivery of this Prospectus
Supplement and the Prospectus nor any sale
made hereunder and thereunder shall under any Preferred Securities
circumstance create an implication that there guaranteed to the extent
has been no change in the affairs of J.P. set forth herein by
Morgan, or the Company since the date hereof.
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 J.P. Morgan & Co.
is not qualified to do so or to anyone to Incorporated
whom it is unlawful to make such offer or
solicitation.
---------------------------
TABLE OF CONTENTS
Prospectus Supplement ---------------------
PROSPECTUS SUPPLEMENT
Page ---------------------
Summary of the Offering................ S-4
Risk Factors........................... S-9
J.P. Morgan & Co. Incorporated......... S-16
J.P. Morgan Index Funding Company,LLC.. S-16
Use of Proceeds........................ S-16
Description of the ComPS............... S-17
Description of the Guarantee........... S-25
Description of the Related Note
Guarantee........................... S-27 [ ]
Description of the Related Note........ S-28
Effect of Obligations Under the
Guarantee, the Related Note
Guarantee and the Related Note...... S-30
United States Federal Income
Taxation............................ S-31
ERISA Considerations................... S-35
Underwriting........................... S-35
Legal Matters.......................... S-36
Experts................................ S-36
Prospectus , 1995
Available Information.................. 3
Incorporation of Certain Documents
by Reference ....................... 3
J.P. Morgan & Co. Incorporated......... 4
J.P. Morgan Index Funding Company, LLC.
Use of Proceeds........................ 6
<PAGE>
Consolidated Ratios of J.P. Morgan..... 6
Description of All Preferred
Securities.......................... 7
Description of the ComPS...............
Description of the Guarantees.......... 29
Description of the Related Note
Guarantees.......................... 30
Description of the Related Notes....... 32
Plan of Distribution................... 33
Legal Matters.......................... 34
Experts................................ 34
Annex I
Glossary of Terms...................... 36
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. Exhibits.
1(a)(1) -- Form of Underwriting Agreement for Preferred
Securities.*
3(a) -- Certificate of Formation of J.P. Morgan Index
Funding Company, LLC.*
3(b) -- Limited Liability Company Agreement of J.P. Morgan
Index Funding Company, LLC.*
3(c) -- Restated Certificate of Incorporation of J.P.
Morgan & Co. Incorporated, as amended.*
3(d) -- By-Laws of J.P. Morgan & Co. Incorporated as
amended through December 11, 1991.*
3(e) -- License Agreement between Morgan Guaranty and J.P.
Morgan Index Funding Company, LLC.
4(a)(1) -- Form of Certificate for Securities for Preferred
Securities (included in Exhibit 3(b))
5 -- Opinion of Margaret M. Foran.+
23(a) -- Consent of Price Waterhouse LLP.+
23(b) -- Consent of Margaret M. Foran (included in Exhibit 5).
24 -- Powers of Attorney.
- ---------------
* Previously filed.
+ To be filed by amendment.
Item 17. Undertaking.
The Registrants hereby undertake that, for purposes of determining any
liability under the Securities Act, each filing of J.P. Morgan's
Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and
where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) that, individually or in
the aggregate, represent a fundamental change in the information
set forth in the Registration Statement;
<PAGE>
(iii) to include any material information with respect to the
Plan of Distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that the undertakings set forth in paragraphs (i)
and (ii) above do not apply if the information required to be included
in a post-effective amendment by those paragraphs is contained in
periodic reports filed by J.P. Morgan pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference
in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The Registrants hereby undertake that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)-(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to
believe that it meets all the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in The City of New York
and State of New York, on this 15th day of April, 1996.
J.P. Morgan & Co. Incorporated
By
---------------------------------------
(Margaret M. Foran Vice President,
Assistant General Counsel and Assistant
Secretary)
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the
following persons in the capacities indicated.
Signature Title Date
/s/ Douglas A. Warner III
- ------------------------- Chairman of the Board, April 15, 1996
Douglas A. Warner III* President and Director,
(Principal Executive
Officer)
/s/ Riley P. Bechtel
- ------------------------- Director April 15, 1996
Riley P. Bechtel*
/s/ Martin Feldstein
- ------------------------- Director April 15, 1996
Martin Feldstein*
/s/ Hanna H. Gray
- ------------------------- Director April 15, 1996
Hanna H. Gray*
/s/ James R. Houghton
- ------------------------- Director April 15, 1996
James R. Houghton*
/s/ James L. Ketelsen
- ------------------------- Director April 15, 1996
James L. Ketelsen*
/s/ William S. Lee
- ------------------------- Director April 15, 1996
William S. Lee*
/s/ Roberto G. Mendoza
- ------------------------- Vice Chairman of the Board April 15, 1996
Roberto G. Mendoza* and Director
/s/ Michael E. Patterson
- ------------------------- Vice Chairman of the Board April 15, 1996
Michael E. Patterson* and Director
/s/ Lee R. Raymond
- ------------------------- Director April 15, 1996
Lee R. Raymond*
/s/ Richard D. Simmons
- ------------------------- Director April 15, 1996
Richard D. Simmons*
/s/ Kurt F. Viermetz
- ------------------------- Vice Chairman of the Board April 15, 1996
Kurt F. Viermetz* and Director
<PAGE>
/s/ Dennis Weatherstone
- ------------------------- Retired Chairman of the April 15, 1996
Dennis Weatherstone* Board and Director
/s/ Douglas C. Yearly Director April 15, 1996
- -------------------------
Douglas C. Yearly
/s/ John A. Mayer
- ------------------------- Chief Financial Officer April 15, 1996
John A. Mayer* (Principal Financial
Officer)
/s/ David H. Sidwell
- ------------------------- Managing Director and April 15, 1996
David H. Sidwell* Controller (Principal
Accounting, Officer)
*By: /s/ Margaret M. Foran
----------------------
(Margaret M. Foran,
Attorney-in-Fact)
Exhibt 10
[FORM OF] J.P. MORGAN COMMODITY INDEX LICENSE AGREEMENT
THIS AGREEMENT made of this ____ day of _________, 19 , by and
between Morgan Guaranty Trust Company of New York ("Morgan") and
J.P. Morgan Index Funding Company, LLC ("the Company"). Morgan
and the Company agree as follows:
WHEREAS, Morgan generates commodity indices and commodity
sub-indices relating to the commodities markets, such indices and
sub-indices collectively known as the J.P. Morgan Commodity Index
(such indices and all sub-indices relating thereto being
collectively referred to herein as the "Index");
WHEREAS, the Company may issue one or more series of "ComPS"
preferred securities, the redemption value of which shall be, and
the dividend rate on which may be, determined with reference to
the Index (the "Securities");
NOW, THEREFORE, the parties hereto agree as follows:
1. License. Morgan hereby grants to the Company, and the Company
hereby accepts, a non-exclusive, non-transferable license to use
and refer to the Index in connection with the registration,
listing, marketing and distribution of the Securities and all
activities reasonably incidental thereto. Morgan represents that
it has all such rights in, and licenses to, the Index as may be
required in order to permit it to grant to the Company the
license granted hereby.
2. Term. The term of this Agreement shall continue indefinitely.
Either party may terminate this Agreement, for any reason
whatsoever, upon providing to the other party at least 90 days'
prior written notice.
4. Confidentiality. Except for use of and reference to the Index
in accordance with the terms and conditions herein, the Company
recognizes that the Index is the sole and exclusive property of
Morgan and shall use utmost care in protecting the proprietary
and confidential nature of the Index.
5. Alternative Determination. In the event that Morgan shall fail
to provide the Index to the Company on a regular basis, Morgan
shall provide the Company or its authorized designee (which shall
be a major accounting firm appointed
<PAGE>
by the Company) with any and all information which may be
necessary in order to allow the Company or such designee to
calculate the redemption value and/or dividend rate of any series
of ComPS.
6. Warranty Disclaimer. Morgan makes no express or implied
warranties relating to the Index or any alternative information,
including but not limited to warranties of merchantability of
fitness for a particular purpose, or as to any results to be
obtained by the Company, any holder of Securities or others from
the use of the Index, such alternative information or information
derived from the Index.
7. Limitation of Liability. Morgan does not guarantee the
sequence, timeliness, accuracy or completeness of the Index or
any alternative information. Morgan shall not be liable in any
way to the Company, to any of its clients, to any holder of
Securities or to any person whosoever, for any delays,
inaccuracies, errors in, or omissions of, the Index, any
alternative information or any information contained therein or
in the transmission thereof, or for any damages arising therefrom
or occasioned thereby, whether or not resulting from negligence
on Morgan's part.
8. Indemnification. The Company shall indemnify Morgan for any
claim, liability, loss, injury, damage, cost or expense
(including attorney's fees) incurred by Morgan to any third party
arising from any use by the Company of the Index, any alternative
information or any information contained therein supplied
pursuant to this Agreement.
9. Taxes. The Company shall be liable for, and shall pay, any
taxes, however designated, based upon the use of or reference to
the Index or any alternative information by the Company (but not
including taxes on income earned by Morgan), including, but not
limited to, any sales, use, or other tax that may be imposed by
any governmental body.
10. General.
a) If any term or provision of this Agreement should be declared
invalid by a qualified legal counsel approved by both parties or
by a court of competent jurisdiction, (i) the remaining terms and
provisions of this Agreement shall be unimpaired and (ii) the
invalid term or provision shall be replaced by such valid term or
provision as comes
<PAGE>
closest to the intention underlying the invalid term or
provision.
b) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes
in all respects all prior proposals, negotiations, conversations,
discussions and agreements between the parties concerning the
subject matter hereof and no subsequent alterations, amendments,
changes or additions hereto shall be binding and valid unless
reduced to writing and signed by each party.
c) Neither this Agreement nor any rights or obligations under
this Agreement shall be assigned or otherwise transferred by
either party without the prior written consent of the other
party.
(d) This Agreement and any modification thereto shall be governed
and construed under the laws of the State of New York.
(e) Any notice to either party shall be deemed given when mailed
by either party to the other party's address herein. Any notice
to Morgan shall be deemed given when mailed by certified mail,
return receipt requested, by the Company to: Morgan Guaranty
Trust Company of New York, 60 Wall Street, New York, N.Y. 10260,
Attention: Commodity Derivatives Desk. Any notice to the Company
shall be deemed given when mailed by certified mail, return
receipt requested by Morgan to: J.P. Morgan Index Funding
Company, LLC, c/o J.P. Morgan & Co. Incorporated, 60 Wall Street,
New York, NY 10260, Attention: Commodity Derivatives Desk.
(f) In the event of a conflict between the provisions of any
exhibit hereto and the provisions set forth in the body of this
Agreement, the provisions of such exhibit shall govern.
(g) No amendment, modification, termination or waiver of any
provision of this Agreement, nor consent to any departure by
either party therefrom, shall in any event be effective unless
the same shall be in writing and signed by the other party, and
then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(h) Except to the extent contemplated by this Agreement, neither
party shall furnish the name of the other party or any affiliate
or subsidiary of the other party as a
<PAGE>
reference or utilize the name of the other party or any affiliate
of the other party in any advertising or promotional materials
without the prior written consent of the other party or the
affiliate whose name is desired to be furnished or used.
IN WITNESS WHEREOF, the partes hereto, through their duly
authorized officers, have executed this Agreement.
J.P. MORGAN INDEX FUNDING MORGAN GUARANTY TRUST COMPANY
COMPANY, LLC OF NEW YORK
- ------------------------------ -----------------------------
By: By:
Title: Title:
Date: Date:
