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File No. 33-49647
Rule 424(b)(3)
PRICING SUPPLEMENT NO. 4 DATED MARCH 17, 1994
(To Prospectus and Prospectus Supplement
December 17, 1993)
$25,000,000
U S WEST COMMUNICATIONS, INC.
Medium-Term Notes
Due Nine Months or More From Date of Issue
Form of Note: Except as set forth herein, the
Notes offered hereby are "Floating
Rate Notes" and have such terms as
are described in the accompanying
Prospectus Supplement dated
December 17, 1993 relating to
Floating Rate Notes.
Settlement Date: March 25, 1994
Maturity Date: March 25, 1997
Issue Price: 100%
Initial Interest Rate: 4.249%
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Interest Payment Dates: Quarterly in arrears on each March
25, June 25, September 25 and
December 25, and on the Maturity
Date, commencing June 25, 1994.
Interest Reset Dates: Each March 25, June 25, September
25 and December 25 from June 25,
1994 to and including December 25,
1996.
Calculation Agent: Morgan Stanley & Co. Incorporated
Index Maturity: Three months
Interest Rate Basis: LIBOR Telerate
Minimum Interest Rate: The interest rate for any interest
period will not be less than the
interest rate applicable to the
immediately preceding interest
period.
Maximum Interest Rate: The interest rate for any interest
period will not be greater than the
interest rate applicable to the
immediately preceding interest
period plus 0.25%.
Spread Adjustment
Formula: LIBOR + .35%.
Terms used but not defined in this
Pricing Supplement shall have the
meanings specified in the above
-referenced Prospectus and
Prospectus Supplement.
TAXATION
The following discussion supplements the discussion
contained in the accompanying Prospectus Supplement under the
heading "Certain United States Federal Income Tax Considerations
- -- Original Issue Discount".
On January 27, 1994, the IRS issued final Treasury regulations
(the "OID Regulations") under the original issue discount
provisions of the Code. The OID Regulations, which replaced the
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Proposed OID Regulations, generally apply to debt instruments
issued on or after April 4, 1994; therefore by their terms they
would not apply to the Notes offered hereby. Nevertheless,
taxpayers may rely on the OID Regulations for debt instruments
issued after December 21, 1992.
Under the OID Regulations, Floating Rate Notes (such as the
Notes offered hereby) are subject to special rules whereby a
Floating Rate Note will qualify as a "variable rate debt
instrument" if (a) its issue price does not exceed the total
noncontingent principal payments due under the Floating Rate Note
by more than a specified de minimis amount and (b) it provides for
stated interest, paid or compounded at least annually, at current
values of (i) one or more qualified floating rates or (ii) a single
objective rate.
A "qualified floating rate" is any variable rate where
variations in the value of such rate can reasonably be expected to
measure contemporaneous variations in the cost of newly borrowed
funds in the currency in which the Floating Rate Note is
denominated. Notwithstanding the foregoing, a variable rate that
would otherwise constitute a qualified floating rate but which is
subject to a restriction or restrictions on the increase or
decrease in the stated interest (i.e., a governor) will fail to be
treated as a qualified floating rate under the OID Regulations
unless either (i) the governor is fixed throughout the term of the
Floating Rate Note or (ii) the governor is not reasonably expected,
as of the Floating Rate Note's issue date, to cause the yield on
the Floating Rate Note to be significantly more or significantly
less than the expected yield on the Floating Rate Note determined
without the governor. In general, an "objective rate" is a rate
that is not itself a qualified floating rate but which is
determined using a single fixed formula and which is based upon one
or more qualified floating rates. However, a variable rate of
interest on a Floating Rate Note will not constitute an objective
rate if it is reasonably expected that the average value of such
rate during the first half of the Floating Rate Note's term will be
either significantly less than or significantly greater than the
average value of the rate during the final half of the Floating
Rate Note's term. Based upon the foregoing, it is possible that
either the Minimum Interest Rate or the Maximum Interest Rate or
both could cause the Spread Adjustment Formula to fail to be
treated as a qualified floating rate. In such event, the Spread
Adjustment Formula would nonetheless constitute an objective rate
unless it is reasonably expected that the average value of the
Spread Adjustment Formula during the first half of the term of the
Notes offered hereby will be either significantly less than or
significantly more than the average value of the Spread Adjustment
Formula during the final half of the term of the Notes offered
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hereby. The OID Regulations also provide that if a Floating Rate
Note provides for stated interest at a fixed rate for an initial
period of less than one year followed by a variable rate that is
either a qualified floating rate or an objective rate and if the
variable rate on the Floating Rate Note's issue date is intended to
approximate the fixed rate (e.g., the value of the variable rate on
the issue date does not differ from the value of the fixed rate by
more than 25 basis points), then the fixed rate and the variable
rate together will constitute either a single qualified floating
rate or objective rate, as the case may be.
If a Floating Rate Note that provides for stated interest at
either a single qualified floating rate or a single objective rate
throughout the term thereof qualifies as a "variable rate debt
instrument" under the OID Regulations, then any stated interest on
such Note which is unconditionally payable in cash or property
(other than debt instruments of the issuer) at least annually will
constitute qualified stated interest and will be taxed accordingly.
Thus, a Floating Rate Note that provides for stated interest at
either a single qualified floating rate or a single objective rate
throughout the term thereof and that qualifies as a "variable rate
debt instrument" under the OID Regulations will generally not be
treated as having been issued with original issue discount unless
the Floating Rate Note is issued at a "true" discount (i.e., at a
price below the Note's stated principal amount) in excess of a
specified de minimis amount.
Based upon the foregoing, the Notes offered hereby should
qualify as "variable rate debt instruments" under the OID
Regulations. Furthermore, under the OID Regulations, if the Notes
offered hereby were to qualify as "variable rate debt instruments",
such Notes would not be treated as having been issued with original
issue discount and all payments of interest on the Notes would
constitute payments of "qualified stated interest" and would be
taxable to a U.S. Holder as ordinary interest income at the time
such payments are accrued or are received (in accordance with the
U.S. Holder's regular method of tax accounting).
If, however, the Notes offered hereby do not qualify as
"variable rate debt instruments", then the Notes would be treated
as contingent payment debt obligations. It is not entirely clear
under current law how the Notes offered hereby would be taxed if
they were treated as contingent payment debt obligations. Under
general principles of current United States Federal income tax law,
all payments of interest on the Notes offered hereby would be
treated as contingent interest and generally would be includible in
income by a U.S. Holder as ordinary interest on the respective
dates that such payments are accrued or are received (in accordance
with the U.S. Holder's regular method of tax accounting).
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However, in 1986, the Treasury Department issued proposed
regulations (the "1986 Proposed Regulations" and, together with the
OID Regulations, the "Treasury Regulations) under the original
issue discount provisions of the Code concerning contingent payment
debt obligations. The 1986 Proposed Regulations were not replaced
by the OID Regulations and contain a retroactive effective date of
July 1, 1982. Thus, if the Notes offered hereby were treated as
contingent payment debt obligations and if the 1986 Proposed
Regulations are ultimately adopted in their current form, such
regulations would apply to the Notes offered hereby and such
application of the 1986 Proposed Regulations to the Notes offered
hereby would cause the timing of income recognized on a Note to
differ from the timing of income recognized on a Note had the 1986
Proposed Regulations not applied to the Notes.
Under the 1986 Proposed Regulations, the amount payable with
respect to a Note at the Initial Interest Rate would be treated
entirely as original issue discount for United States Federal
income tax purposes and would be includible in income by a U.S.
Holder as ordinary interest as it accrues over the entire term of
the Note under a constant yield method, regardless of the U.S.
Holder's regular method of tax accounting. All other payments of
interest on the Notes would be treated as contingent interest under
the 1986 Proposed Regulations and a U.S. Holder would be required
to include the amount payable on any particular Interest Payment
Date (other than the initial Interest Payment Date) into income as
ordinary interest on the related Interest Determination Date (i.e.,
on the date that the amount of such interest becomes fixed)
regardless of the U.S. Holder's regular method of tax accounting.
There is no assurance that the 1986 Proposed Regulations will
be adopted or, if adopted, adopted in their current form. In
addition, on January 19, 1993, the Treasury Department issued
proposed regulations (the "1993 Proposed Regulations) concerning
contingent payment debt obligations, which would have replaced the
1986 Proposed Regulations and which would have provided for a set
of rules with respect to the timing and character of income
recognition on contingent payment debt obligations that differ from
the rules contained in the 1986 Proposed Regulations with respect
to the timing and character of income recognition on contingent
payment debt obligations. The 1993 Proposed Regulations, which
would have applied to debt instruments issued 60 days or more after
the date the 1993 Proposed Regulations became final, generally
provided for several alternative timing methods which would have
required annual interest accruals to reflect either a market yield
for the debt instrument, determined as of the issue date, or a
reasonable estimate of the performance of contingencies. The
amount of interest deemed to accrue in a taxable year pursuant to
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such methods would have been currently includible in income by a
U.S. Holder with subsequent adjustments to the extent that the
estimate of income was incorrect. In addition, under the 1993
Proposed Regulations, any gain recognized by a U.S. Holder on the
sale, exchange or retirement of a contingent payment debt
obligation would have been treated entirely as ordinary interest
income and any loss recognized on the sale, exchange or retirement
of a contingent payment debt obligation would have been treated
entirely as a capital loss. However, on January 22, 1993, the
United States Government's Office of Management and Budget
announced that certain proposed regulations which had not yet been
published in the Federal Register, including the 1993 Proposed
Regulations, had been withdrawn. It is unclear whether the 1993
Proposed Regulations will be re-proposed or, if re-proposed, what
effect, if any, such regulations would have on the Notes. Based
upon the foregoing, the continued viability of the 1986 Proposed
Regulations is uncertain. It should also be noted that proposed
Treasury regulations are not binding upon either the IRS or
taxpayers prior to becoming effective as temporary or final
regulations. Prospective investors in the Notes are urged to
consult their own tax advisors regarding the application of the
Treasury Regulations to their investment in the Notes, and the
effect of possible changes to the Treasury Regulations.
PURCHASE AS PRINCIPAL
This Pricing Supplement relates to $25,000,000 aggregate
principal amount of Notes that may be offered, as principal, by
Morgan Stanley & Co. Incorporated ("Morgan") from time to time to
one or more investors or other purchasers at varying prices related
to prevailing market conditions at the time or times of resale as
determined by Morgan. Net proceeds payable by Morgan to U S WEST
Communications, Inc. (the "Company") will be 99.65% of the
aggregate principal amount of the Notes, or $24,912,500, before
deduction of expenses payable by the Company. In connection with
the sale of the Notes, Morgan may be deemed to have received
compensation from the Company in the form of underwriting
discounts.
