Pricing Supplement No. 56 Dated October 22, 1997
(To Prospectus Supplement dated February 20, 1996
and Prospectus dated January 31, 1996)
Pursuant to Rule 424(b)(3)
Registration Statement No. 33-64193
J.P. Morgan & Co. Incorporated
Medium-Term Notes, Series A
(Fixed Rate Notes)
Principal Amount: $20,000,000 Equity Linked Note ("ELN"). The
Return Amount or the Additional Coupon Amount, as applicable, is
linked to the common stock of Trimark Financial Corporation
("Trimark").
If principal amount is stated in other than
U.S. dollars, equivalent amount in U.S. dollars: N/A
CUSIP: 61687Y BV8
Trade Date: October 22, 1997
Settlement Date: October 29, 1997
Maturity Date: December 8, 2000
Price to Public (Issue Price): 100.00%
Net Proceeds to Issuer: 100.00%
Interest Rate (per annum): 0.25%. See "Additional Terms" below.
Interest Payment Date(s): December 8 and June 8 of each year
commencing December 8, 1997 following Business Day convention
with no adjustments to period end dates.
Record Date(s): ( ) March 1 and September 1 of each year
( X ) Other: The fifteenth day (whether or not a
Business Day (as defined below)) next preceding each Interest
Payment Date.
Day Count Basis: ( X ) 30/360
( ) Actual
Form: ( ) Book-Entry Note (DTC)
( X ) Certificated Note
Redemption:
( X ) The Notes may not be redeemed prior to stated maturity.
( ) The Notes may be redeemed prior to maturity.
Optional Redemption Date(s): N/A
Initial Redemption Date: N/A
Initial Redemption Percentage: N/A
Annual Redemption Percentage Reduction: N/A
Modified Payment Upon Acceleration: N/A
Sinking Fund: None
Calculation Agent(s): ( ) First Trust of New York, National Association
( X ) Morgan Guaranty Trust Company of New York
Right of Payment:
( ) Subordinated ( X ) Unsubordinated
Original Issue Discount: N/A
Amount of OID:
Yield to Maturity:
Interest Accrual Date:
Initial Accrual Period OID:
Amortization Schedule: N/A
Denominations: $20,000,000
THE NOTES ARE PAYABLE IN CASH AT MATURITY. THE NOTES DO NOT
REPRESENT ANY RIGHT TO RECEIVE ANY TRIMARK FINANCIAL CORPORATION
("TRIMARK") COMMON STOCK OR OTHER SECURITIES. THE PRICE OF THE
TRIMARK COMMON STOCK SERVES SOLELY AS AN INDEX USED TO DETERMINE
THE RETURN AMOUNT OR THE ADDITIONAL COUPON AMOUNT APPLICABLE TO
THE NOTES.
THE NOTES ARE NOT ISSUED, GUARANTEED OR IN ANY WAY BACKED BY
TRIMARK. TRIMARK HAS NOT APPROVED OR IN ANY WAY SANCTIONED OR
PARTICIPATED IN THE OFFERING OF THE NOTES. TRIMARK WILL NOT
RECEIVE ANY PROCEEDS OF THE NOTES OR ANY FEES OR ANY OTHER
REMUNERATION IN CONNECTION WITH THE ISSUANCE OF, OR DURING THE
LIFE OF, THE NOTES. TRIMARK HAS AND HAS ASSUMED NO DUTY OR
OBLIGATION OF ANY KIND TO A NOTE HOLDER AS SUCH, OR TO THE ISSUER
OR ITS AFFILIATES IN CONNECTION WITH THE NOTES. TRIMARK MAY AT
ANY TIME TAKE ACTION RELATING TO ITS BUSINESS OR OTHER INTEREST
THAT MAY BE ADVERSE TO HOLDERS OF THE NOTES.
ADDITIONAL TERMS:
DEFINITIONS
"Business Day" means any day on which commercial banks in New
York and Toronto are open for business (including dealing in foreign
exchange and foreign currency deposits).
"Calculation Agent" means Morgan Guaranty Trust Company of
New York ("Morgan Guaranty"), the determinations and calculations of
which shall be binding in the absence of manifest error.
"Currency Business Day" means any day on which commercial
banks are open for business (including dealings in foreign exchange and
foreign currency deposits) in the principal financial center for the
relevant currency.
"Early Exercise Date" means any Exchange Business Day on or
prior to November 28, 2000 (the "Final Early Notice Date") on which the
holder of the Note shall have provided written notice ("Early Notice")
to the Company that it is exercising its right to receive an Additional
Coupon Amount on the Additional Coupon Payment Date in lieu of the
Return Amount on the Maturity Date of the Note. Any such notice shall
be required to be delivered to the Company on or prior to 3 p.m. (New
York time). Any notice which is received after 3 p.m. (New York time)
shall be deemed to have been received on the immediately following
Exchange Business Day. Written notice received after 3:00 p.m. on
November 28, 2000 shall not constitute Early Notice and shall not
trigger an Early Exercise Date. Such Early Notice should be delivered
to the Equity Derivatives Group (648-2712) and the Capital Issue and
Product Development Group (648-2381) at J.P. Morgan & Co. Incorporated
60 Wall Street, New York, NY 10260.
"Early Exercise Price" means the average U.S. Dollar closing
price (converted into U.S. Dollars at the then prevailing exchange rate
as determined by the Calculation Agent) of the Underlying Shares on the
Exchange at the Valuation Time for each Valuation Date during the
Valuation Period.
"ELN Coupon" means 0.25% per annum on a 30/360 basis with no
adjustment for period end dates for calculation purposes.
"Exchange" means the Toronto Stock Exchange.
"Exchange Business Day" means a day that is (or, but for the
occurrence of a Market Disruption, would have been) a trading day on
the Exchange other than a day on which trading on any such exchange is
scheduled to close prior to its regular weekday closing.
"Initial Share Price" means US$55.275.
"Final Share Price" means the average U.S. Dollar closing
price (converted into U.S. Dollars at the then prevailing exchange rate
as determined by the Calculation Agent) of the Underlying Shares on the
Exchange at the Valuation Time for each Valuation Date during the
Valuation Period.
"Market Disruption" means, in the determination of the
Calculation Agent, the occurrence or existence on any Exchange Business
Day during the one-half hour period that ends at the Valuation Time on
the Valuation Date of the material suspension of or material limitation
imposed on trading on the Exchange in the Underlying Shares.
"Maturity Date" means December 8, 2000 unless there has been
a Market Disruption during the Valuation Period applicable thereto in
which case the Maturity Date will be extended for up to 5 Exchange
Business Days in order to allow for the determination of the Final
Share Price.
"Participation Rate" shall equal 95.00%.
"Underlying Shares" means the share of common stock (the
"Shares") of Trimark Financial Corporation ("Trimark").
"Valuation Period" means, (x) in the case of the Maturity
Date the period from and including the seventh Exchange Business Day to
and including the third Exchange Business Day immediately prior to the
Maturity Date and (y) in the case of an Early Exercise Date, the five
Exchange Business Days following such Early Exercise Date (each such
day in such period, a "Valuation Date"), unless there is a Market
Disruption on any such day. If there is a Market Disruption on that
day, then such Valuation Date shall be the first succeeding Exchange
Business Day on which there is no Market Disruption, unless there is a
Market Disruption on each of the five Exchange Business Days
immediately following the original date that, but for the Market
Disruption, would have been the Valuation Date. In that case, (i)
that fifth Exchange Business Day shall be deemed to be the Valuation
Date, notwithstanding the Market Disruption, and (ii) the Calculation
Agent shall determine the Final Share Price as of the Valuation Time on
that fifth Exchange Business Day in accordance the formula for a method
of calculation the level of the Underlying Shares last in effect prior
to the commencement of the Market Disruption using the Exchange traded
price (or, if trading in the relevant security has been suspended or
materially limited, its good faith estimate of the Exchange Traded
price that would have prevailed but for the suspension or material
limitation) as of the Valuation Time on that fifth Exchange Business
Day of the Underlying Share.
"Valuation Time" means the close of trading on the
Exchange.
RETURN AMOUNT AND ADDITIONAL COUPON AMOUNT
Payment of Return Amount or Additional Coupon Amount
On the Maturity Date, if an Early Exercise Date has occurred,
the Company will pay to the Holder an amount equal to the Principal
Amount plus accrued interest and the Holder will not be entitled to
receive any Return Amount.
On the Maturity Date, if no Early Exercise Date has occurred,
the Issuer shall pay to the Holder an amount equal to the Principal Amount
plus accrued interest and the Return Amount, if any. The Return Amount
is equal to the following:
Principal Amount * Participation Rate * Max(0, ((Initial Share
Price - Final Share Price) / Initial Share Price))
Additional Coupon Payment Date
In lieu of the Return Amount, the Holder may elect to receive
the Additional Coupon Amount by providing Early Notice to the Issuer no
later than 3:00 p.m. on any Exchange Business Day on or prior to
November 28, 2000 (the "Final Early Notice Date"). The Holder will be
entitled to receive the Additional Coupon Amount which shall be
calculated according to the following formula:
Principal Amount * Participation Rate * Max(0, (Initial Share
Price - Early Exercise Price)/Initial Share Price))
The payment date for the Additional Coupon Amount shall
be the second Business Day immediately following the last Valuation
Date of the Valuation Period (the "Early Exercise Payment Date").
All calculations hereunder, including currency conversions,
shall be performed by Morgan Guaranty Trust Company of New York, the
determinations and calculations of which shall be binding in the
absence of manifest error.
ADJUSTMENTS AND OTHER CORPORATE EVENTS
In the event of a change affecting the Underlying
Shares, including without limitation, a capitalization issue,
rights issue, share split, merger, consolidation, amalgamation,
sub-division, recapitalization, reclassification, dissolution,
liquidation, winding up or other similar event, which occurs
after the date hereof but before the Maturity Date, the
Calculation Agent shall (after consultation with the holder of
this Note) adjust the Initial Share Price, the Participation Rate
and/or the Principal Amount (only as it relates to the Return
Amount or the Additional Coupon Amount) with respect to payments,
if any, to be made as part of the Return Amount or the Additional
Coupon Amount to preserve as nearly as practicable, the economic
equivalent of the obligations of the parties hereunder prior to
such change.
DELISTING OF TRIMARK COMMON STOCK
The Notes will mature on the Business Day immediately
preceding any date on which the Underlying Shares are delisted from the
Exchange (a "Delisting Date"). The amount to which the holder of a Note
will be entitled if a Delisting Date occurs shall be calculated as
described under "Additional Terms - Redemption Amounts - Payments at
Maturity", above with the Delisting Date substituted for the Maturity
Date. Notice of any Delisting Date will be given by the Calculation
Agent. Any questions relating to the occurrence of a Delisting Date
will be resolved by the Calculation Agent in its sole discretion.
ANTI-DILUTION ADJUSTMENTS
The Closing Price of Trimark Common Stock on any of the
Trading Days (as defined below) used to calculate the Return Amount
or the Additional Coupon Amount shall be subject to adjustment by the
Calculation Agent as described below to the extent that any of the
events requiring such adjustment occur during the period commencing
on the date of this Pricing Supplement and ending on such Trading
Day. All determinations made by the Calculation Agent shall be at
the sole discretion of the Calculation Agent and, in the absence of
manifest error, shall be conclusive for all purposes and binding on
the Issuer and the holders of Notes, and the Calculation Agent shall
have no liability therefor.
"Trading Day" means, with respect to any security, a Business
Day on which the security (A) is not suspended from trading on any
securities exchange during the last half hour of scheduled trading on
such Business Day and (B) has traded at least once during the last half
hour of scheduled trading on such Business Day on the securities
exchange that is the primary market for the trading of such security.
Trimark Common Stock Dividends and Extraordinary Dividends and
Distribution
In the event that a dividend or other distribution is
declared (i) on any class of Trimark Capital Stock, payable in
shares of Trimark Common Stock, (ii) on Trimark Common Stock payable
in cash in an amount greater than 10% of the price at which Trimark
Common Stock closed on the Exchange (the "Closing Price") on the date
fixed for the determination of the shareholders of Trimark entitled
to receive such cash dividend (an "Extraordinary Cash Dividend"), or
(iii) on Trimark Common Stock of evidences of indebtedness or assets
(including securities, but excluding any dividend or distribution
covered by clause (i) or any Trimark Spin-Off described under
"Dissolution of Trimark; Mergers, Consolidations or Sales of Assets;
Spin-Offs" below (an "Extraordinary Distribution"), any Closing Price
of Trimark Common Stock used to calculate the Return Amount or the
Additional Coupon Amount on any Trading Day that follows the date
(the "Trimark Record Date") fixed for the determination of the
shareholders of Trimark entitled to receive such dividend or other
distribution shall be increased by multiplying such Closing Price by
a fraction for which the numerator shall be the number of shares of
Trimark Common Stock outstanding on the Trimark Record Date plus the
number of shares constituting such distribution or, in the case of an
Extraordinary Cash Dividend or an Extraordinary Distribution, plus
the number of shares of Trimark Common Stock that could be purchased
with the amount of such Extraordinary Cash Dividend or, the fair
market value (as determined by the Calculation Agent whose
determination shall be conclusive and binding) of the evidences of
indebtedness or assets constituting such Extraordinary Distribution
at the Closing Price on the Trading Day immediately subsequent to
such Trimark Record Date, and the denominator shall be the number of
shares of Trimark Common Stock outstanding on the Trimark Record
Date.
Subdivisions and Combinations of Trimark Common Stock
In the event that the outstanding shares of Trimark Common
Stock are subdivided into a greater number of shares, the Closing
Price of Trimark Common Stock used to calculate the Return Amount or
the Additional Coupon Amount on any Trading Day that follows the date
on which such subdivision becomes effective will be proportionately
increased, and, conversely, in the event that the outstanding shares
of Trimark Common Stock are combined into a smaller number of shares,
such Closing Price of Trimark Common Stock will be proportionately
reduced.
Reclassifications of Trimark Common Stock
In the event that Trimark Common Stock is changed into the
same or a different number of shares of any class or classes of
stock, whether by capital reorganization. reclassification or
otherwise (except to the extent otherwise provided under" -Trimark
Common Stock Dividends and Extraordinary Dividends and
Distributions" and "- Subdivisions and Combinations of Trimark
Common Stock" above or pursuant to a Reorganization Event described
under "-Dissolution of Trimark; Mergers, Consolidations or Sales of
Assets; Spin-offs" below), the Return Amount or the Additional
Coupon Amount will be calculated by using the aggregate Closing
Prices of the shares of stock into which a share of Trimark Common
Stock was changed on any Trading Day that follows the effectiveness
of such change.
As a result of the foregoing provisions, in the case of a
reorganization or reclassification of Trimark Common Stock, the
Closing Prices of one or more securities in addition to or in
substitution for Trimark Common Stock may be used to calculate the
Return Amount or the Additional Coupon Amount. For example, if
Trimark Common Stock was reclassified into one share of Trimark
Class A Common Stock and one share of Trimark Class B Common Stock,
the Return Amount or the Additional Coupon Amount would be
calculated by reference to the Closing Prices of Trimark Class A
Common Stock and Trimark Class B Common Stock.
Dissolution of Trimark; Mergers, Consolidations or Sales of Assets;
Spin-offs.
In the event of any (i) consolidation or merger of Trimark
with or into another entity (other than a consolidation or merger that
does not result in a reclassification, conversion, exchange or
cancellation of outstanding Trimark Common Stock), (ii) sale,
transfer, lease or conveyance of all or substantially all of the
assets of Trimark, (iii) liquidation, dissolution or winding up of
Trimark, or (iv) any declaration of a distribution on Trimark Common
Stock of the common stock of any subsidiary of Trimark (a "Trimark
Spin-Off") (any of the events described in (i), (ii), (iii) or (iv), a
"Reorganization Event"), for purposes of determining the Return Amount
or the Additional Coupon Amount, the Closing Price of Trimark Common
Stock on any Trading Day subsequent to, in the case of a
Reorganization Event other than an Trimark Spin-Off, the effective
date of such Reorganization Event or, in the case of a Trimark
Spin-Off, the record date for the determination of the shareholders of
Trimark entitled to receive the securities distributed in such Trimark
Spin-Off (the "Spin-Off Record Date") will be deemed to be the amount
equal to (1 ) the value of the cash and other property (including
securities) received by a holder of a share of Trimark Common Stock
(assuming such holder of Trimark Common Stock failed to exercise any
rights of election and received per share the kind and amount received
by a plurality of non-electing shares) in any such Reorganization
Event (plus, in the case of a Trimark Spin-off, the value of a share
of Trimark Common Stock), and (2) to the extent that such holder
obtains securities in any Reorganization Event, the value of the cash
and other property received by the holder of such securities in any
subsequent Reorganization Event. For purposes of determining any such
Closing Prices, the value of (i) any cash and other property (other
than securities) received in any such Reorganization Event will be an
amount equal to the value of such cash and other property at the
effective time of such Reorganization Event (as determined by the
Calculation Agent whose calculations shall be conclusive and binding),
and (ii) any property consisting of securities received in any such
Reorganization Event will be an amount equal to the Closing Prices of
such securities on any Trading Day following, in the case of a
Reorganization Event other than an Trimark Spin-Off, the effective
time of such Reorganization Event or, in the case of an Trimark
Spin-Off, the Spin-Off Record Date.
As a result of the foregoing provisions, in the case of
certain Reorganization Events, the Closing Prices of the securities of
a successor entity to Trimark or the Closing Prices of the securities
of another issuer, including, for example, in the case of a Trimark
Spin-Off, the Closing Prices of the distributed security, may
determine the Return Amount or the Additional Coupon Amount. For
example, in the case of a stock for stock merger in which Trimark does
not survive, the Return Amount payable on the Maturity Date or the
Additional Coupon Amount payable on the Early Exercise Payment Date
would be calculated by reference to the Closing Prices of a successor
entity to Trimark on the relevant Trading Days.
If any action would require adjustment of the Closing Price
pursuant to more than one of the foregoing provisions, only one
adjustment shall be made and such adjustment shall be the amount of
adjustment that has the highest absolute value to the holder of a
Note.
The Calculation Agent will promptly notify each Noteholder
of any event requiring an adjustment and of the method of calculation
to be used to make any dilution adjustment as described above.
RISK FACTORS
The Notes to which this Pricing Supplement relates are novel
and innovative securities, are "Indexed Notes" as defined in the
Offering Circular and are subject the following risks:
Hedging Activities; Effect of Trading in Trimark Common Stock
As described under "Hedging Activities", affiliates of the
Issuer may hedge the Issuer's obligations under the Notes prior to,
simultaneously with, or following the sale of the Notes, (i) acquiring
Trimark Common Stock or other securities of Trimark, (ii) taking
positions in listed or over-the-counter options on Trimark Common
Stock and/or (iii) taking positions in listed or over-the-counter
options or other instruments based on indices designed to track the
performance of the U.S. equity market or components thereof. Any of
these activities could adversely affect the value of the Notes, the
Return Amount and/or the Additional Coupon Amount. It is possible
that substantial returns could accrue as a result of such hedging
activities while the value of the Notes may decline.
Affiliates of the Issuer may engage in trading in Trimark
Common Stock for their proprietary accounts, for other accounts under
their management and to facilitate transactions (including block
transactions) on behalf of customers. J.P. Morgan Securities Inc. and
other affiliates of the Issuer may also issue or underwrite other
securities or financial instruments with returns indexed to changes in
the value of the Trimark Common Stock. Trading in the Trimark Common
Stock by J.P. Morgan Securities Inc. and other affiliates of the
Issuer and the issuance or underwriting of other securities or
financial instruments indexed to the value of Trimark Common Stock
could adversely affect the value of the Notes.
Potential Conflicts of Interest
The trading activities discussed above may present conflicts
of interest between the interests of holders of the Notes and the
interests of J.P. Morgan Securities Inc. or such other affiliates of
the Issuer engaged in such trading. These trading activities, if they
influence the price of Trimark Common Stock, could be adverse to the
interests of the holders of the Notes.
There may exist a conflict between the interests of an
affiliate of the Issuer as the counterparty to hedging transactions
and the interests of holders of the Notes. For example, the
affiliate, as counterparty to the transactions, may determine that it
is in its best interests to amend, or terminate a portion of, the
hedging transactions. While such an amendment or termination could
result in a profit for the affiliate, such an action could result in
the Issuer's affiliates effecting transactions in the Notes, in
Trimark Common Stock or in listed or over-the-counter options on
Trimark Common Stock that adversely affect the value of the Notes.
As discussed above under "Hedging Activities; Effect of
Trading in Trimark Common Stock", J.P. Morgan Securities Inc. and
other affiliates of the Issuer may also issue or underwrite securities
or derivative instruments which are linked to Trimark Common Stock or
other securities of Trimark as one or more Indexed Notes. Such an
introduction of competing products into the marketplace could
adversely affect the value of the Notes.
J.P. Morgan Securities Inc. and other affiliates of the
Issuer may engage in business with Trimark in the future, including
extending loans to, or making equity investments in Trimark or
providing advisory services to Trimark, including merger and
acquisition advisory services. Neither J.P. Morgan Securities Inc. nor
such other affiliates of the Issuer have any obligation to advise
holders of the Notes of any information with respect to Trimark that
may be acquired in the course of such business relationships. These
activities could present a conflict between the interests of J.P.
Morgan and the interests of holders of the Notes. Moreover, J.P.
Morgan Securities Inc. may in the future publish research reports with
respect to Trimark (although it has no obligation to do so). Any of
these activities by J.P. Morgan Securities Inc. or another affiliate
of the Issuer could affect the price of the Trimark Common Stock and,
therefore, reduce the Return Amount, Additional Coupon Amount and/or
the value of the Notes.
Payment upon Exchange
If Early Notice is given on an Early Exercise Date, the
Additional Coupon Amount will be based upon the Closing Price per
share of Trimark Common Stock on the Valuation Dates during the
Valuation Period which could be lower than the Closing Price on the
Early Exercise Date, as a result of which a holder of a Note will be
entitled to receive on the Early Exercise Payment Date an amount less
than the value of such Note on such Early Exercise Date.
Determinations of Morgan Guaranty Trust Company of New York as
Calculation Agent
The Calculation Agent has discretion in making certain
determinations in connection with certain anti-dilution adjustments.
The exercise of this discretion by Morgan Guaranty could adversely
affect the value of the Notes and may present conflicts of interest
between Morgan Guaranty's activities as Calculation Agent and J.P.
Morgan's activities for its proprietary accounts, in facilitating
transactions (including block transactions) for its customers and for
accounts under its management. See "Potential Conflicts of Interest"
above.
Relationship of Notes and Trimark Common Stock
The Notes are payable in cash at maturity. The Notes do not
represent any right to receive any Trimark shares or other securities.
The price of Trimark shares serves solely as an index used to
determine the Return Amount or the Additional Coupon Amount applicable
to the Notes.
The market price of the Notes is expected to be affected
primarily by changes in the price of Trimark Common Stock. As
indicated under "Historical Information" below, the price of Trimark
Common Stock has been volatile during certain recent periods. Since
the Return Amount and the Additional Coupon Amount are calculated by
reference to the Closing Prices of Trimark Common Stock during the
Valuation Period, the Return Amount and the Additional Coupon Amount
of the Notes may be adversely affected by volatility in the price of
Trimark Common Stock.
It is impossible to predict whether the price of Trimark
Common Stock will rise or fall. Trading prices of Trimark Common
Stock will be influenced by Trimark financial results and prospects
and by complex and interrelated political, economic, financial and
other factors that can affect capital markets generally, the market
segment of which Trimark Common Stock is a part and Trimark itself.
See "Historical Information" below.
Lack of Affiliation Between the Issuer and Trimark; No Responsibility
for Trimark Disclosure
The Notes are not issued, guaranteed or in any way backed by
Trimark. Trimark has not approved or in any way sanctioned or
participated in the offering of the Notes. Trimark will not receive
any proceeds of the Notes or any fees or any other remuneration in
connection with the issuance of, or during the life of, the Notes.
Trimark has assumed no duty or obligation of any kind to a holder of a
Note as such, to the Issuer or to its affiliates in connection with
the Notes. Trimark may at any time take action relating to its
business or other interests that may be adverse to holders of the
Notes.
The Issuer and the Calculation Agent assume no
responsibility for the adequacy or accuracy of the information
contained in this Pricing Supplement with respect to Trimark or in any
of Trimark current or future publicly available filings, reports to
shareholders or other information with respect to Trimark. Investors
in the Notes must make their own investigation into Trimark for
purposes of an investment in the Notes.
Trimark is not involved in the offering of the Notes and is
not responsible for, and has not participated in, the determination of
the timing of, prices for, or quantities of, the Notes offered hereby
or the determination or calculation of the amount to be paid to
holders of Notes upon redemption or at the Maturity Date. Trimark is
not involved with the administration, marketing or trading of the
Notes and has no obligations with respect to the amount to be paid to
holders of the Notes upon exchange or at the Maturity Date.
Dilution
The Closing Prices of Trimark Common Stock used to calculate
the Return Amount and the Additional Coupon Amount are subject to
adjustment for certain events arising from stock splits and
combinations, stock dividends, extraordinary cash dividends and
certain other events that affect Trimark capital structure. Such
Closing Prices will not be adjusted for other events, such as
offerings of Trimark Common Stock for cash or an issuer tender or
exchange offer at a premium to the then current market price, that may
adversely affect the price of Trimark Common Stock and, therefore,
adversely affect the trading price of the Notes. There can be no
assurance that Trimark will not make offerings of Trimark Common Stock
in the future or effect an issuer tender or exchange offer or take any
other action which adversely affects the value of the Notes but does
not result in an anti-dilution adjustment.
HISTORICAL INFORMATION
Trimark Financial Corporation ("Trimark") sponsors, manages
and distributes 14 mutual funds in Canada. Trimark's primary focus is
equity portfolios. Trimark has also established Trimark Pensions as a
separate division to attend to the interests of institutional clients,
as well as Trimark Trust which provides additional products and
services to retail and institutional investors. Trimark Common Stock
is listed and traded on the Toronto Stock Exchange (the "Exchange")
under the symbol "TMF". The following table sets forth the quarterly
high and low closing prices for Trimark Common Stock for the four
calendar quarters in 1995 and 1996, for the first three quarters of
1997 and for the fourth quarter of 1997 through October 27, adjusted
for stock dividends and stock splits, all as reported by the Exchange.
The Issuer assumes no responsibility for the accuracy or completeness
of this information and has relied upon this information without
independent verification. The historical prices of the Trimark Common
Stock should not be taken as an indication of future performance. No
assurance can be given that the prices of Trimark Common Stock may
reach a level which will result in the payment of any Return Amount or
Additional Coupon Amount.
High Low Dividends
1995
First Quarter $ 7.68 $ 6.98 $ 0.02
Second Quarter 11.21 7.91 0.01
Third Quarter 13.31 10.68 0.01
Fourth Quarter 16.07 12.56 0.01
1996
First Quarter $ 18.31 $ 15.80 $ 0.01
Second Quarter 19.29 16.30 0.02
Third Quarter 25.59 17.87 0.02
Fourth Quarter 33.77 25.42 0.02
1997
First Quarter $ 33.88 29.13 $ 0.02
Second Quarter 45.61 29.11 0.04
Third Quarter 60.36 43.28 0.04
Fourth Quarter
as of October 27 58.51 48.92
Prices have been adjusted to reflect 2 for 1 stock splits, effective as
of July 11, 1995 and July 9, 1996.
J.P. Morgan makes no representation as to the amount of
dividends, if any, that Trimark will pay in the future. In any event,
holders of the Notes will not be entitled to receive any dividends
that may be payable on Trimark Common Stock.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a summary of the material United States
Federal income tax consequences of the purchase, ownership and
disposition of the Note by U.S. Holders (as defined herein). Unless
otherwise stated, this summary deals only with the Note held as capital
assets by holders who purchase the Note 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
Note 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 Notes 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 the Note.
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 Note.
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. 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, or other entity taxable as
a corporation, 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 Notes
It is believed that the Note is properly treated as
contingent payment debt instruments subject to the Treasury regulations
promulgated in June 1996 governing such instruments (the "Contingent
Payment Regulations"). However, no ruling is being requested from the
Internal Revenue Service (the "IRS") and there is no direct authority
addressing the characterization of the Note. Other characterizations
might result in consequences different than those discussed below.
The following discussion assumes that the Note will be
treated as contingent payment debt instruments. If this assumption is
not correct, holders could be subject to different consequences than
those discussed below. The following discussion also assumes that the
Initial Holders purchased the Note at their principal amount.
Interest Income
Under the Contingent Payment Regulations, the original issue
discount ("OID") rules of the Code apply to a contingent payment debt
instrument. OID must be accrued each year at a rate equal to the
"comparable yield" for fixed debt issued by the issuer of the
instrument (or, if a hedge is available to the issuer, the fixed yield
on the combination of the contingent debt instrument and the hedge).
The comparable yield is determined at the time of issuance of the
obligations and cannot be less than the applicable federal rate ("AFR")
on the issue date, which is the rate on United States Treasury
obligations of comparable maturities. After the "comparable yield" is
determined, a projected payment schedule for the instrument must be
determined as of the issue date, which schedule remains fixed through
the term of the debt instrument. Such schedule includes all
noncontingent payments and projected contingent payments, and must
result in a yield to investors equal to the comparable yield. If the
actual amount of a contingent payment differs from the projected
amount, adjustments to income accruals to holders are made at that time
to account for the difference.
In the case of the Note, all payments except the final
payment are fixed. The "comparable yield" for the Note will be the AFR
applicable for the Issue Date, which is 6.24%. For tax purposes, the
projected payment at Maturity Date is $24,042,324.64, which excludes
the final stated interest payment. Moreover, the rate of stated
interest will be less than the AFR. As a result, for each period prior
to the Maturity Date, an Initial Holder will be required to accrue a
greater amount of OID into income than the actual cash payments
received during that period. Actual cash payments of interest are not
separately includible in income.
Sale or Other Disposition of Notes
Assuming that an Initial Holder purchased the Note for their
face amount, the Initial Holder's tax basis in the Note will initially
be their face amount. The Initial Holder's adjusted tax basis in the
Note will be the initial basis increased by the amount of OID accrued
as income and reduced by the amount of cash payments received. For an
Initial Holder who holds the Note until the Maturity Date, the adjusted
tax basis at maturity would be approximately $24,042,324.64.
On the sale of the Note or in the event of an Early Exercise
Date (a "Disposition"), the Initial Holder generally will recognize
gain or loss in an amount equal to the difference between the proceeds
of the Disposition and the adjusted tax basis of the Note. Any gain
will be ordinary income. Any loss will be an ordinary loss to the
extent of the aggregate OID previously accrued by the Initial Holder on
the Note, and any additional loss generally will be a capital loss
(long term capital loss if at the time of the Disposition the Note had
been held for more than one year).
Information Reporting to Holders
Holders of the Note that are not exempt from information
reporting requirements will receive annually, on IRS Form 1099,
information concerning OID determined for an Initial Holder and
attributable to such holder's Note.
Backup Withholding
Payments made on, and proceeds from the sale of, the Note 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 U.S. 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 NOTES,
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.
PLAN OF DISTRIBUTION
J.P. Morgan Securities Inc. has acted as Agent on
behalf of the Company.
The Company has agreed to indemnify the Agent against
certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
CAPITALIZED TERMS USED IN THIS PRICING SUPPLEMENT WHICH ARE
DEFINED IN THE PROSPECTUS SUPPLEMENT OR THE PROSPECTUS SHALL HAVE
THE MEANINGS ASSIGNED TO THEM IN THE PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS.
