<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 16, 1998
THIS PROSPECTUS SUPPLEMENT RELATES TO SECURITIES THAT ARE THE SUBJECT OF AN
EFFECTIVE REGISTRATION STATEMENT. THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND
MAY BE CHANGED.
<PAGE>
PROSPECTUS SUPPLEMENT Registration No. 333-65371
(TO PROSPECTUS DATED OCTOBER 15, 1998) Rule 424(b)(3)
[LOGO]
8,000,000 PREFERRED SECURITIES
MEDIAONE FINANCE TRUST III
% TRUST ORIGINATED PREFERRED SECURITIES-SM- ("TOPRS-SM-")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, BASED ON SEVERAL OBLIGATIONS, BY
MEDIAONE GROUP, INC.
------------
THE TRUST:
MediaOne Finance Trust III is a Delaware business trust. The trust will:
- sell preferred securities (representing undivided beneficial interests in
the trust) to the public.
- sell common securities (representing undivided beneficial interests in the
trust) to MediaOne Group.
- use the proceeds from these sales to buy an equal principal amount of %
Subordinated Deferrable Interest Notes due 2038 of MediaOne Group Funding,
Inc., a subsidiary of MediaOne Group.
- distribute the cash payments it receives on the subordinated notes it owns
to the holders of the preferred and common securities.
QUARTERLY DISTRIBUTIONS:
- For each preferred security that you own, you will receive cumulative cash
distributions at an annual rate of % of the liquidation amount of $25 per
preferred security, on March 31, June 30, September 30 and December 31 of
each year, beginning December 31, 1998.
- MediaOne Group Funding can defer interest payments on the subordinated notes
at any time for up to 20 consecutive quarterly periods. If MediaOne Group
Funding does defer interest payments, the trust will also defer payment of
distributions on the preferred and common securities. However, deferred
distributions will themselves accrue interest at an annual rate of % (to
the extent permitted by law).
MEDIAONE GROUP:
- MediaOne Group will fully and unconditionally guarantee the payment by the
trust of the preferred securities based on several obligations discussed in
the accompanying prospectus.
The trust will apply to have the preferred securities listed on the New York
Stock Exchange under the symbol " ." If approved for listing, trading is
expected to commence within 30 days after the preferred securities are first
issued.
INVESTING IN THE PREFERRED SECURITIES INVOLVES CERTAIN RISKS WHICH ARE
DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE S-7 OF THIS PROSPECTUS
SUPPLEMENT.
-----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the prospectus to which it relates is truthful or
complete. Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
PER PREFERRED
SECURITY TOTAL
--------------------- --------------
<S> <C> <C>
Public offering price....................................................... $ 25.00 $ 200,000,000
Underwriting commission to be paid by MediaOne Group Funding................ $ $
Proceeds to the trust....................................................... $ 25.00 $ 200,000,000
</TABLE>
For sales of 10,000 or more preferred securities to a single purchaser, the
underwriting commission will be $ per preferred security.
The underwriters may also purchase up to an additional 1,200,000 preferred
securities at the public offering price within 30 days from the date of this
prospectus supplement to cover over-allotments.
-------------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
INCORPORATED
SALOMON SMITH BARNEY
-------------------
The date of this prospectus supplement is , 1998.
- -------------------
"Trust Originated Preferred Securities" and "TOPrS" are service marks of Merrill
Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT RELATING TO PREFERRED SECURITIES OF MEDIAONE FINANCE
TRUST III
Summary Information--Q&A.................................................. S-3
Risk Factors.............................................................. S-7
Information About MediaOne Group, Inc..................................... S-12
Use of Proceeds........................................................... S-20
Capitalization............................................................ S-21
Summary Financial and Other Data.......................................... S-22
Accounting Treatment...................................................... S-23
Description of Securities................................................. S-24
Certain Terms of the Preferred Securities................................. S-24
Certain Terms of the Subordinated Notes and Note Guarantee................ S-30
United States Tax Consequences............................................ S-34
Underwriting.............................................................. S-39
PROSPECTUS
Where You Can Find More Information....................................... 2
MediaOne Group, Inc....................................................... 3
MediaOne Group Funding, Inc............................................... 4
The Trusts................................................................ 4
Use of Proceeds........................................................... 5
Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends............................................................... 5
Description of Securities................................................. 6
Description of the Preferred Securities................................... 6
Description of the Subordinated Notes and the Note Guarantees............. 12
Description of the Preferred Securities Guarantees........................ 17
Relationship Among the Preferred Securities, the Preferred Securities
Guarantee,
the Subordinated Notes and the Note Guarantee Held by Each Trust........ 19
Plan of Distribution...................................................... 20
Legal Opinions............................................................ 21
Experts................................................................... 21
</TABLE>
-------------------
FORWARD-LOOKING STATEMENTS
Some of the information presented in or incorporated by reference into this
prospectus supplement and the accompanying prospectus constitutes
"forward-looking statements." Although MediaOne Group believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, it is possible actual results may
differ materially from its expectations. Factors that could cause actual results
to differ from expectations include:
- greater than anticipated competition from entrants into the cable and
wireless communications markets;
- changes in demand for MediaOne Group's products and services;
- regulatory changes affecting the cable and telecommunications industries;
- changes in economic conditions in the various markets served by MediaOne
Group's operations, including international markets, that could adversely
affect the level of demand for cable, wireless or other services offered by
MediaOne Group;
- MediaOne Group lowering prices for its services because of greater than
expected competition;
- higher than anticipated start-up costs associated with business
opportunities;
- higher than anticipated employee levels, capital expenditures and operating
expenses (such as costs associated with the year 2000 remediation);
- consumer acceptance of broadband services, including telephone and data
services, and wireless services;
- increases in fraudulent activity with respect to broadband and wireless
services; and
- delays in the development of anticipated technologies, or the failure of
such technologies to perform according to expectations.
S-2
<PAGE>
SUMMARY INFORMATION--Q&A
The following information supplements, and should be read together with, the
information contained in other parts of this prospectus supplement and in the
accompanying prospectus. This summary highlights selected information from this
prospectus supplement and the accompanying prospectus to help you understand the
preferred securities. You should carefully read this prospectus supplement and
the accompanying prospectus to understand fully the terms of the preferred
securities, as well as the tax and other considerations that are important to
you in making a decision about whether to invest in the preferred securities.
You should pay special attention to the "Risk Factors" section beginning on page
S-7 of this prospectus supplement to determine whether an investment in the
preferred securities is appropriate for you.
For your convenience, we make reference to specific page numbers in this
prospectus supplement and the accompanying prospectus for more detailed
information on some of the terms and concepts used throughout this prospectus
supplement.
WHAT ARE THE PREFERRED SECURITIES?
Each preferred security represents an undivided beneficial interest in the
assets of the trust. Each preferred security will entitle the holder to receive
quarterly cash distributions as described in this prospectus supplement. The
trust is offering 8,000,000 preferred securities at a price of $25 for each
preferred security. The underwriters may also purchase up to an additional
1,200,000 preferred securities at the public offering price within 30 days of
the date of this prospectus supplement to cover over-allotments, if any. See
"Underwriting" on page S-39.
WHO IS THE TRUST?
MediaOne Finance Trust III (the "trust") is a recently created Delaware
business trust.
The trust will sell its preferred securities to the public and its common
securities to MediaOne Group. The trust will use the proceeds from these sales
to buy a series of % Subordinated Deferrable Interest Notes due 2038 (the
"subordinated notes") from MediaOne Group Funding with the same financial terms
as the preferred securities. MediaOne Group will, on a subordinated basis, fully
and unconditionally guarantee (the "note guarantee") the subordinated notes.
There are five trustees of the trust. Three of the trustees are officers of
MediaOne Group (the "regular trustees"). The First National Bank of Chicago will
act as the property trustee of the trust and one of its affiliates will act as
the Delaware trustee.
WHO IS MEDIAONE GROUP?
MediaOne Group is a diversified global media and broadband communications
company. MediaOne Group has operations and investments in two principal areas:
(1) domestic broadband communications and (2) international broadband and
wireless communications.
S-3
<PAGE>
WHO IS MEDIAONE GROUP FUNDING?
MediaOne Group Funding is a subsidiary of MediaOne Group. It has no
independent operations. MediaOne Group Funding's sole purpose is to provide
financing to MediaOne Group and its affiliates through the issuance of
indebtedness guaranteed by MediaOne Group.
WHEN WILL YOU RECEIVE QUARTERLY DISTRIBUTIONS?
If you purchase the preferred securities, you are entitled to receive
cumulative cash distributions at an annual rate of % of the liquidation
amount of $25 per preferred security. Distributions will accumulate from the
date the trust issues the preferred securities and will be paid quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year,
beginning December 31, 1998.
WHEN CAN PAYMENT OF YOUR DISTRIBUTIONS BE DEFERRED?
MediaOne Group Funding can, on one or more occasions, defer interest payments
on the subordinated notes for up to 20 consecutive quarterly periods unless an
event of default (see page 13) under the subordinated notes has occurred and is
continuing. A deferral of interest payments cannot extend, however, beyond the
maturity date of the subordinated notes (which is , 2038).
If MediaOne Group Funding defers interest payments on the subordinated notes,
the trust will also defer distributions on the preferred securities. During this
deferral period, distributions will continue to accrue on the preferred
securities at an annual rate of % of the liquidation amount of $25 per
preferred security. Also, the deferred distributions will themselves accrue
interest at an annual rate of % (to the extent permitted by law). Once
MediaOne Group Funding makes all interest payments on the subordinated notes,
with accrued interest, it can again postpone interest payments on the
subordinated notes if no event of default under the subordinated notes has
occurred and is continuing.
During any period in which MediaOne Group Funding defers interest payments on
the subordinated notes, MediaOne Group and MediaOne Group Funding will not be
permitted to (with limited exceptions described on page S-33):
- pay a dividend or make any other
payment or distribution on their capital stock;
- redeem, purchase or make a liquidation
payment on any of their capital stock; or
- make an interest, principal or premium
payment, or repurchase or redeem, any of their debt securities that rank
equal with or junior to the subordinated notes (in the case of MediaOne
Group Funding) or the note guarantee (in the case of MediaOne Group),
including any other series of subordinated notes and note guarantees issued
by them.
Because MediaOne Group Funding can defer payments of interest on the
subordinated notes, the preferred securities will be treated as being issued
with original issue discount for United States federal income tax purposes. This
means you will be required to recognize interest income with respect to
distributions (even if they are deferred) and include such amounts in your gross
income for United States federal income tax purposes before you receive any cash
distributions relating to such interest payments. See "United States Tax
Consequences" on page S-34.
S-4
<PAGE>
WHEN CAN THE TRUST REDEEM THE PREFERRED SECURITIES?
The trust will redeem all of the outstanding preferred securities when the
subordinated notes are paid at maturity on , 2038. In addition, if
MediaOne Group Funding redeems any subordinated notes before their maturity, the
trust will use the cash it receives on the redemption of the subordinated notes
to redeem, on a pro rata basis, preferred securities and common securities
having an aggregate liquidation amount equal to the aggregate principal amount
of the subordinated notes redeemed.
MediaOne Group Funding can redeem some or all of the subordinated notes before
their maturity at 100% of their principal amount:
- on one or more occasions any time on
or after , 2003; and
- before , 2003, if certain
changes in tax or investment company law occur (each of which is a "Special
Event" and each of which is more fully described on page S-26), and within
90 days of the occurrence of the Special Event,
plus, in either case, accrued interest to the date of redemption.
WHAT IS MEDIAONE GROUP'S GUARANTEE OF THE PREFERRED SECURITIES?
MediaOne Group will fully and unconditionally guarantee the preferred
securities based on:
- its guarantee of MediaOne Group
Funding's obligations to make payments on the subordinated notes;
- its obligations under its guarantee of
the preferred securities (the "preferred securities guarantee"); and
- its obligations under the declaration
and the indenture (see page 6).
If MediaOne Group Funding does not make a payment on the subordinated notes
and MediaOne Group does not make a payment on the note guarantee, the trust will
not have sufficient funds to make payments on the preferred securities. The
preferred securities guarantee does not cover payments when the trust does not
have sufficient funds to make payments on the preferred securities. MediaOne
Group's obligations under the preferred securities guarantee are subordinate to
its obligations to make payments on all of its other liabilities (except its
obligations under similar guarantees).
WHEN COULD THE SUBORDINATED NOTES AND NOTE GUARANTEE BE DISTRIBUTED TO YOU?
MediaOne Group has the right to terminate the trust at any time. If MediaOne
Group decides to exercise its right to terminate the trust, the trust will
redeem the preferred securities by distributing the subordinated notes and the
note guarantee to holders of the preferred securities and the common securities
on a pro rata basis.
WILL THE PREFERRED SECURITIES BE LISTED ON A STOCK EXCHANGE?
The trust will apply to have the preferred securities listed on the NYSE under
the symbol " ." If approved for listing, trading is expected to commence
within 30 days after the preferred securities are first issued. You should be
aware that the listing of the preferred securities will not necessarily ensure
that a liquid trading
S-5
<PAGE>
market will be available for the preferred securities.
WHAT HAPPENS IF THE TRUST IS TERMINATED AND THE SUBORDINATED NOTES AND NOTE
GUARANTEE ARE NOT DISTRIBUTED?
The trust may also terminate in circumstances where the subordinated notes and
the note guarantee will not be distributed. In those situations, the trust will
pay the liquidation amount of $25 for each preferred security plus unpaid
distributions to the date such payment is made. The trust will be able to make
this distribution of cash only if the subordinated notes are redeemed by
MediaOne Group Funding.
If the trust distributes the subordinated notes and the note guarantee,
MediaOne Group will use its best efforts to list them on the NYSE or any other
exchange or other organization on which the preferred securities are then
listed.
IN WHAT FORM WILL THE PREFERRED SECURITIES BE ISSUED?
The preferred securities will be represented by one or more global securities
that will be deposited with and registered in the name of The Depository Trust
Company, New York, New York ("DTC") or its nominee. This means that you will not
receive a certificate for your preferred securities. The trust expects that the
preferred securities will be ready for delivery through DTC on or about
, 1998.
S-6
<PAGE>
RISK FACTORS
Your investment in the preferred securities will involve certain risks. You
should carefully consider the following discussion of risks, and the other
information in this prospectus supplement and the accompanying prospectus,
before deciding whether an investment in the preferred securities is suitable
for you.
RISK FACTORS RELATING
TO MEDIAONE GROUP
OPERATING LOSSES
For the year ended December 31, 1997, MediaOne Group had, on a pro forma
basis, operating losses from continuing operations of approximately $320
million, including non-cash items totaling $1,074 million. Such losses for the
six months ended June 30, 1998 were approximately $146 million, including
non-cash items totaling $551 million. This information gives effect to the
following:
- the discontinuance of certain businesses
following the Separation of Old U S WEST into MediaOne Group and New U S
WEST in June 1998 (see page 3); and
- the April 1998 sale by MediaOne
Group of its domestic wireless business to AirTouch Communications, Inc.
(see page 4).
MediaOne Group cannot assure you that it will realize positive operating
income from continuing operations in the foreseeable future.
IMPACT OF GOVERNMENTAL REGULATION ON MEDIAONE GROUP'S OPERATIONS
MediaOne Group's businesses are subject to a high degree of federal, state and
local governmental regulation. Its overseas operations are also subject to
regulation in various foreign countries. These regulations can sometimes impose
significant limitations on operations. In addition, these regulations are
constantly evolving and may change significantly over time. Future regulatory
changes may have a material adverse effect on MediaOne Group. See "Information
About MediaOne Group, Inc.--Regulation" on page S-19.
COMPETITION MAY ADVERSELY EFFECT MEDIAONE GROUP'S PERFORMANCE
MediaOne Group's businesses operate in an increasingly competitive
environment. Increasing levels of competition may reduce MediaOne Group's market
shares or cause the prices it charges for its services to fall, either of which
could adversely affect its performance. Competition in MediaOne Group's markets
is based on many factors, including the following:
-NEW TECHNOLOGY. With each new
technological advance, consumers are provided with new products from which
to choose. For example, MediaOne Group's cable television systems now compete
with other providers of video programming, including:
(1) direct to home satellite systems;
(2) local multipoint and multipoint multichannel distributions services
systems; and
(3) satellite master antenna television systems.
The introduction of new technology may result in the entry of additional
competitors into MediaOne Group's markets, which could reduce MediaOne
Group's market share.
-ALTERNATIVE MEDIA. MediaOne Group's
cable television services face competition from other communications and
entertainment media, including broadcast television, video tape rentals and
live sporting events.
S-7
<PAGE>
-REGULATIONS. Recently enacted
telecommunications law has enabled additional competitors, including local
exchange carriers, some of which may have greater financial resources than
MediaOne Group, to enter MediaOne Group's markets.
-EXPANDED SERVICES. MediaOne Group is
constantly trying to improve and expand its services, including local
exchange and data services over its networks. As it does so, it will face
additional competition from other providers of such services, including:
(1) local exchange carriers;
(2) interexchange carriers; and
(3) internet service providers.
-INTERNATIONAL COMPETITION. MediaOne
Group's international businesses also typically face significant competition
in their markets.
RISKS ASSOCIATED WITH INTERNATIONAL INVESTMENT
MediaOne Group has made and intends to continue to consider making,
investments in companies located outside of the United States. Such investments
are subject to risks and uncertainties relating to international investments
which may include:
- local economic and financial market
conditions;
- political instability;
- taxation;
- nationalization;
- inflation;
- currency fluctuations;
- increased regulation and approval
requirements; and
- governmental regulation limiting returns
to foreign investors.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
MEDIAONE GROUP'S OBLIGATIONS UNDER THE PREFERRED SECURITIES GUARANTEE AND THE
NOTE GUARANTEE AND MEDIAONE GROUP FUNDING'S OBLIGATIONS UNDER THE SUBORDINATED
NOTES ARE SUBORDINATED.
MediaOne Group's obligations under the preferred securities guarantee are
unsecured and will rank in priority of payment:
- junior to all of MediaOne Group's
other liabilities (including MediaOne Group's obligations under the note
guarantee), except those liabilities made equal or junior to the preferred
securities guarantee by their terms;
- equal with all of MediaOne Group's
senior most preferred and preference stock now or hereafter issued by it,
and with any guarantee now or hereafter issued by it in respect of any
preferred or preference stock of any of its affiliates (including MediaOne's
guarantee of the outstanding preferred securities of MediaOne Financing A,
MediaOne Financing B, MediaOne Finance Trust I and MediaOne Finance Trust
II); and
- senior to MediaOne Group's common
stock.
This means that MediaOne Group cannot make any payments on the preferred
securities guarantee if it defaults on a payment of any of its other
liabilities, except those liabilities made equal or junior to the preferred
securities guarantee by their terms. In addition, in the event of the
bankruptcy, liquidation or dissolution of MediaOne Group, its assets would be
available to pay obligations under the preferred securities guarantee only after
all payments had been made on its other liabilities (except those liabilities
made equal or junior to the preferred securities guarantee by their terms).
S-8
<PAGE>
MediaOne Group Funding's obligations under the subordinated notes are
unsecured and will rank junior in priority of payment to MediaOne Group
Funding's Senior Indebtedness (see page S-30). This means that MediaOne Group
Funding cannot make any payments of principal (including redemption payments) or
interest on the subordinated notes if it defaults on a payment on its Senior
Indebtedness. In addition, in the event of the bankruptcy, liquidation or
dissolution of MediaOne Group Funding, its assets would be available to pay
obligations under the subordinated notes only after all payments had been made
on its Senior Indebtedness. All of MediaOne Group Funding's Senior Indebtedness
is and will be fully and unconditionally guaranteed by MediaOne Group.
MediaOne Group's obligations under the note guarantee are unsecured and will
rank junior in priority of payment of MediaOne Group's Senior Indebtedness (see
page S-30) and are effectively subordinated to all present and future
indebtedness of MediaOne Group's subsidiaries. This means that MediaOne Group
cannot make any payments on the note guarantee if it defaults on a payment on
any of its Senior Indebtedness. In addition, in the event of the bankruptcy,
liquidation or dissolution of MediaOne Group, its assets would be available to
pay obligations under the note guarantee only after all payments had been made
on its Senior Indebtedness. At June 30, 1998, on a pro forma basis, the total
amount of Senior Indebtedness of MediaOne Group and the total amount of
indebtedness of MediaOne Group's consolidated subsidiaries that would have
effectively ranked senior to the note guarantee would have been approximately
$5.1 billion. At such date, the total amount of indebtedness of MediaOne Group
and its consolidated subsidiaries that would have ranked equal with the note
guarantee would have been $561 million.
The preferred securities, the preferred securities guarantee, the subordinated
notes and the note guarantee do not limit the ability of MediaOne Group and its
subsidiaries to incur additional indebtedness, including indebtedness that ranks
senior in priority of payment to the subordinated notes, the note guarantee and
the preferred securities guarantee.
For more information please refer to "Certain Terms of the Subordinated Notes
and Note Guarantee--Subordination" on page S-30 and "Description of the
Preferred Securities Guarantees--Status of the Preferred Securities Guarantees"
on page 18.
PREFERRED SECURITIES GUARANTEE ONLY COVERS PAYMENTS IF THE TRUST HAS CASH
AVAILABLE
The ability of the trust to pay scheduled distributions on the preferred
securities, the redemption price of the preferred securities and the liquidation
amount of each preferred security is solely dependent upon MediaOne Group
Funding making the related payments on the subordinated notes when due, or if
MediaOne Group Funding does not make such payments, MediaOne Group making those
payments under the note guarantee.
If MediaOne Group Funding defaults on its obligation to pay principal or
interest on the subordinated notes and MediaOne Group defaults in its
obligations to make payments under the note guarantee, the trust will not have
sufficient funds to pay distributions, the redemption price or the liquidation
amount of each preferred security. In those circumstances, you will not be able
to rely upon the preferred securities guarantee for payment of these amounts.
S-9
<PAGE>
Instead, you:
- may directly sue MediaOne Group
Funding or MediaOne Group or seek other remedies to collect your pro rata
share of payments owed; or
- rely on the property trustee to enforce
the trust's rights under the subordinated notes and the note guarantee.
ABILITY TO DEFER DISTRIBUTIONS HAS TAX CONSEQUENCES FOR YOU AND MAY AFFECT THE
TRADING PRICE OF THE PREFERRED SECURITIES
If no event of default under the subordinated notes has occurred and is
continuing, MediaOne Group Funding can, on one or more occasions, defer interest
payments on the subordinated notes for up to 20 consecutive quarterly periods.
If MediaOne Group Funding defers interest payments on the subordinated notes,
the trust will defer distributions on the preferred securities during any
deferral period. However, distributions would still accumulate and such deferred
distributions will themselves accrue interest at the annual rate of % per
annum (to the extent permitted by law).
Because MediaOne Group Funding can defer payments of interest on the
subordinated notes, the preferred securities will be treated as being issued
with original issue discount for United States federal income tax purposes. This
means that you will be required to recognize interest income for United States
federal income tax purposes in respect of your pro rata share of the interest on
the subordinated notes held by the trust before you receive any cash
distributions relating to such interest payments. In addition, if you sell the
preferred securities before the end of any deferral period or before the record
date relating to distributions which are paid, you will not receive the cash
distributions relating to any accrued and unpaid interest even though you will
be required to recognize such interest in income for United States federal
income tax purposes.
MediaOne Group Funding has no current intention of deferring interest payments
on the subordinated notes. However, if MediaOne Group Funding exercises its
right in the future, the preferred securities may trade at a price that does not
fully reflect the value of accrued but unpaid interest on the subordinated
notes. If you sell the preferred securities during an interest deferral period,
you may not receive the same return on investment as someone else who continues
to hold the preferred securities. In addition, the existence of MediaOne Group
Funding's right to defer payments of interest on the subordinated notes may mean
that the market price for the preferred securities (which represent an undivided
beneficial interest in the subordinated notes) may be more volatile than other
securities that do not have these rights.
See "United States Tax Consequences" on page S-34 for more information
regarding the tax consequences of purchasing, holding and selling the preferred
securities.
PREFERRED SECURITIES MAY BE REDEEMED BEFORE , 2003 IF A SPECIAL
EVENT OCCURS
If a Special Event (see page S-26) occurs and is continuing, MediaOne Group
Funding has the right to redeem some or all of the subordinated notes. If such a
redemption happens, the trust will use the cash it receives on the redemption of
the subordinated notes to redeem an equivalent amount of the preferred and
common securities on a pro rata basis within 90 days of the event.
Please see "Certain Terms of the Preferred Securities--Special Event
Redemption" on page S-26 for more information.
S-10
<PAGE>
DISTRIBUTION OF SUBORDINATED NOTES AND NOTE GUARANTEE MAY HAVE A POSSIBLE
ADVERSE EFFECT ON TRADING PRICE
MediaOne Group has the right to terminate the trust at any time. If MediaOne
Group decides to exercise its right to terminate the trust, the trust will
redeem the preferred and common securities by distributing the subordinated
notes and the note guarantee to holders of the preferred securities and common
securities on a pro rata basis.
Under current United States federal income tax laws, a distribution of
subordinated notes and the note guarantee to you on the dissolution of the trust
should not be a taxable event to you. However, if the trust is characterized for
United States federal income tax purposes as an association taxable as a
corporation at the time it is dissolved, the distribution of subordinated notes
and the note guarantee to you may be a taxable event to you. If there is a
change in law, a distribution of subordinated notes and the note guarantee to
you on the dissolution of the trust could be a taxable event to you.
MediaOne Group has no current intention of causing the termination of the
trust and the distribution of the subordinated notes and the note guarantee.
However, there are no restrictions on its ability to do so at any time. MediaOne
Group anticipates that it would consider exercising this right in the event that
expenses associated with maintaining the trust were substantially greater than
currently expected, such as if a Special Event occurred. MediaOne Group cannot
predict the other circumstances under which this right would be exercised.
Although MediaOne Group will use its best efforts to list the subordinated
notes and the note guarantee on the NYSE (or any other exchange or organization
on which the preferred securities are then listed) if they are distributed, we
cannot assure you that the subordinated notes and the note guarantee will be
approved for listing or that a trading market will exist for those securities.
MediaOne Group cannot predict the market prices for the subordinated notes and
the note guarantee that may be distributed. Accordingly, the subordinated notes
and the note guarantee that you receive on a distribution, or the preferred
securities you hold pending such a distribution, may trade at a discount to the
price that you paid to purchase the preferred securities.
Because you may receive subordinated notes and the note guarantee, you should
make an investment decision with regard to the subordinated notes and the note
guarantee, in addition to the preferred securities. You should carefully review
all the information regarding the subordinated notes and the note guarantee
contained in this prospectus supplement and the accompanying prospectus.
LIMITED VOTING RIGHTS
You will have limited voting rights. In particular, only MediaOne Group can
elect or remove any of the trustees.
See "The Trusts" on page 4 and "Description of the Preferred Securities--
Voting Rights; Amendment of Declarations" on page 10 for more information.
S-11
<PAGE>
INFORMATION ABOUT MEDIAONE GROUP, INC.
GENERAL
MediaOne Group is a diversified global media and broadband communications
company and the third largest cable television system operator in the United
States. MediaOne Group has operations and investments in two principal areas:
(1) domestic broadband communications and (2) international broadband and
wireless communications. Among its investments, MediaOne Group owns an
approximately 25% interest in Time Warner Entertainment Company, L.P. ("TWE"),
which provides cable programming, filmed entertainment and broadband
communications services and is the second largest cable television system
operator in the United States.
STRATEGY
Cable and broadband services are at the core of MediaOne Group's strategy.
While other companies develop software, hardware and global applications for the
networked world, MediaOne Group will focus on the supply of easy-to-use local
connections to it. It will do so by providing highly clustered customer access
to hybrid fiber-coax ("HFC") broadband networks. MediaOne Group believes that
this type of access provides the best and most economical platform for delivery
of video, data, telephony and other broadband services. Management believes
that, relative to other network alternatives, HFC provides a more desirable
combination of speed, interactivity, signal quality and integration of services.
It is also a better platform for providing a combination of services on a
largely variable cost basis. MediaOne Group is currently upgrading its cable
systems. This upgrade enhances network quality and reliability and provides
capacity for added channels, pay-per-view offerings and targeted advertising.
The upgrade also permits the offering of new services to subscribers such as
high-speed Internet access, telephone and digital video. These new services
could be offered to subscribers on a highly variable cost basis. MediaOne Group
expects that it will have more than 90% of its network upgraded to offer
multiple two-way services by the year 2002.
BUSINESS
DOMESTIC BROADBAND COMMUNICATIONS
MEDIAONE GROUP NETWORKS. MediaOne Group is the third-largest cable television
system operator in the United States. As of June 30, 1998, MediaOne Group's
cable television systems passed approximately 8.4 million homes and provided
service to approximately 5.0 million basic cable subscribers. MediaOne Group's
systems are organized into six operating regions, including large clusters in
Atlanta, Eastern Massachusetts, Southern California, Southern Florida, Detroit
and Minneapolis/ St. Paul. As of December 31, 1997, approximately 90% of
MediaOne Group's total basic subscribers were located in clusters with a
population greater than 100,000 (after giving effect to announced swaps).
MediaOne Group believes that its operating scale in key markets generates
significant benefits, including operating efficiencies, and enhances its ability
to develop and deploy new broadband technologies and services.
MediaOne Group's cable services are marketed under the "MediaOne" brand.
MediaOne Group's cable systems offer customers various levels (or "tiers") of
cable programming services consisting of broadcast television signals available
off-the-air in any locality, television signals from so-called "super stations"
originating in distant cities (such as WGN), various satellite-
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delivered non-broadcast channels (such as CNN, MTV, USA Network, ESPN, the
Discovery Channel and Nickelodeon), displays of information featuring news,
weather, stock and financial market reports and programming originated locally
by the systems (such as public, governmental and educational access channels).
MediaOne Group's systems also provide premium programming services to their
customers for an extra monthly charge. These premium programming services
include HBO, Cinemax, Showtime, The Movie Channel, Encore and regional sports
networks. Customers generally pay initial connection charges and fixed monthly
fees for a tier of programming services and additional fixed monthly fees for
premium programming services. MediaOne Group also offers pay-per-view
programming of movies and special events for an additional per-program charge.
MediaOne Group's systems have channel capacity and addressability that are
among the highest in the cable industry. MediaOne Group's systems are located
primarily in suburban communities adjacent to major metropolitan markets and in
mid-sized cities that generally are densely populated and geographically
diverse. MediaOne Group believes that its technologically advanced broadband
networks and the demographic profile of its subscriber base, coupled with its
effective marketing, have been essential to its ability to sustain total monthly
revenue per cable subscriber. MediaOne Group believes that the geographic
diversity of its system clusters reduces its exposure to economic, competitive
or regulatory factors in any particular region.
MediaOne Group is upgrading its cable systems to create broadband HFC
networks. These HFC networks will provide increased channel capacity for the
delivery of additional cable programming and facilitate the delivery of
additional services, such as telephony services, enhanced video services,
Internet access services and high-speed data services. MediaOne Group has
already begun to offer additional services over its upgraded HFC networks in
certain markets. For example, MediaOne Group currently offers MediaOne Express,
an Internet access service, over its HFC networks in communities within
California, Massachusetts, Michigan, Georgia, Florida, Illinois, Minnesota, New
Hampshire and Ohio. In June 1998, MediaOne Group and Time Warner, Inc. ("TWX")
merged the operations of MediaOne Express and Road Runner, the Internet access
service offered by Time Warner Cable, to create the largest cable-based
high-speed Internet access business in the United States (the "HSD Joint
Venture"). The Internet access service will be marketed under the "Road Runner"
brand name. Ownership of the common equity of the HSD Joint Venture is as
follows: approximately 31.4% by MediaOne Group, 10.7% by TWX, 25.0% by TWE and
32.9% by Time Warner Entertainment-Advance Newhouse Partnership ("TWE-AN"). In
addition, Microsoft Corporation and Compaq Computer Corporation each own a 10%
preferred equity investment in the HSD Joint Venture, which is convertible into
a combined 20% common equity interest in the HSD Joint Venture. Assuming the
conversion of the preferred shares and taking into account MediaOne Group's
ownership in TWE, MediaOne Group would hold a proportionate diluted common
equity interest in the HSD Joint Venture of approximately 34.6%. In addition, in
1998 MediaOne Group began offering telephony services over its HFC networks in
Atlanta, Georgia, Jacksonville, Florida, Pompano Beach, Florida and Boston,
Massachusetts.
To further enhance the clustering of its cable systems, MediaOne Group entered
into a definitive agreement with Tele-Communications, Inc. ("TCI") to exchange
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(the "TCI Exchange") certain cable television systems serving approximately
500,000 subscribers in Illinois and Michigan for cable television systems in
South Florida and California. Consummation of the TCI Exchange is expected to
occur in mid-1999, subject to the receipt of certain franchise approvals. In
addition, MediaOne Group has reached a definitive agreement with TWX to acquire
TWX's cable systems in the cities of Dearborn and Wayne, Michigan. The systems
serve approximately 30,000 subscribers. The transaction is expected to close in
late 1998.
TIME WARNER CABLE. MediaOne Group owns a 25.51% priority capital and residual
equity interest in TWE. The remaining interests in TWE are owned by TWX. See
"--Time Warner Entertainment" below. TWE, through Time Warner Cable, its cable
division, is the second-largest cable television system operator in the United
States. Time Warner Cable owns or manages cable systems in 34 states. These
systems include 34 clusters of more than 100,000 subscribers, including Time
Warner Cable of New York City, the largest cluster in the United States. More
than 55% of Time Warner Cable's subscribers are located in Florida, New York,
North Carolina, Ohio and Texas. As of June 30, 1998, Time Warner Cable owned
cable television systems that passed approximately 15.8 million homes and
provided service to approximately 9.9 million basic cable subscribers. Of these
systems, systems passing approximately 8.6 million homes and providing service
to approximately 5.5 million subscribers are owned by TWE-AN, a partnership in
which TWE owns a 65.3% interest, the Advance/ Newhouse Partnership owns a 33.3%
interest and TWX owns a 1.4% interest. In addition, Time Warner Cable manages
cable television systems owned by TWX which, as of June 30, 1998, passed
approximately 3.4 million homes and provided service to approximately 2.0
million cable television subscribers. Time Warner Cable's cable services are
marketed under the "Time Warner Cable" brand. Time Warner Cable offers cable
programming services over its networks similar to those offered by MediaOne
Group. Like MediaOne Group, Time Warner Cable is upgrading its cable systems to
provide increased channel capacity and to facilitate the delivery of additional
services.
Through the TWE management committee, MediaOne Group and TWX jointly direct
the businesses and affairs of TWE and TWE-AN cable systems, subject in certain
cases to regulatory approval. The TWE management committee has full discretion
and final authority with respect to the businesses and affairs of such cable
systems. The TWE management committee consists of six voting members, of which
three members are designated by MediaOne Group and three members are designated
by TWX. Each voting member of the TWE management committee has one vote. Any
action required or permitted to be taken by the TWE management committee must be
approved by a majority of its members. Determinations of the TWE management
committee are binding upon TWE and the TWE board of representatives.
TWE is also a leading provider of filmed entertainment and cable programming.
For additional information with respect to MediaOne Group's interest in TWE, see
"--CABLE PROGRAMMING" and "--Time Warner Entertainment."
OTHER BROADBAND INTERESTS. MediaOne Group owns or holds interests in
competitive local exchange carriers, which provide business telephony services.
Such interests include:
- An 80% interest in Continental Fiber
Technologies, Inc., which provides
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business telephony services in Jacksonville, Florida;
- a 63% interest in Alternet of
Virginia, Inc., which provides business telephony services in Richmond,
Virginia; and
- a 100% interest in MediaOne Group
Business Services, Inc., which provides business telephony services in
Atlanta, Georgia. MediaOne Group leases fiber to these companies for use in
their fiber-optic networks.
In addition, MediaOne Group holds an 18.85% interest in Time Warner Telecom
LLC ("TW Telecom"), a competitive local exchange carrier that provides business
telephony services in many of the principal cities where Time Warner Cable's
systems are located. TWX and Advance/Newhouse own the remaining interest in TW
Telecom.
MediaOne Group owns an approximate 10% interest in Primestar, Inc., a
nationwide provider of direct to home satellite services. TWE also holds an
approximate 24% interest in PrimeStar.
INTERNATIONAL BROADBAND AND WIRELESS COMMUNICATIONS
BROADBAND COMMUNICATIONS. MediaOne Group owns interests in various providers
of broadband communications services in international markets in continental
Europe, the United Kingdom ("UK") and Asia. As of June 30, 1998, these providers
passed 5.8 million homes and provided service to approximately 1.8 million
subscribers, of which MediaOne Group's interests represented approximately 2.2
million proportionate homes passed and 900,000 proportionate subscribers.
Among its international broadband interests, MediaOne Group holds a 21.6%
interest in Telewest. Telewest delivers a comprehensive range of television,
telecommunications and Internet services to business and residential customers.
With its September 1998 acquisition of General Cable PLC, Telewest now serves
the largest number of residential cable customers in the UK and has access to a
total of 5.8 million homes, approximately one third of the homes under cable
franchise in the UK. In addition it provides 1,108,000 business telephony lines
to customers throughout the UK.
On September 10, 1998, a wholly-owned subsidiary of MediaOne Group agreed to
purchase up to an additional 180 million Telewest shares from Southwestern Bell
International Holdings (UK-1) Corporation at a price of $2.25 per share, or $405
million. Upon consummation of the sale, which is subject to a right of first
refusal in favor of an affiliate of TCI, MediaOne Group's ownership interest in
Telewest could increase to approximately 29.9%.
MediaOne Group holds interests in other providers of cable and broadband
communications services in international markets, including:
- 94% interest in Cable Plus, a provider
of cable and telephony services in the Czech Republic;
- 50% interest in A2000, a provider of
cable television services in the Netherlands;
- 25% interest in Telenet Flanders, a
provider of cable and telephony services over an HFC network in portions of
Belgium;
- 35% interest in Aria WEST, a provider
of telecommunications services in portions of Indonesia;
- 25% interest in Singapore Cablevision
Pte Ltd, a joint venture that is constructing a broadband network in
Singapore; and
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- 25% interest in Titus Communications
Corp. ("Titus") and a 19% interest in Chofu Cable Television ("Chofu"), each
of which is constructing cable television systems in Japan. TWX also holds a
25% interest in Titus and a 19% interest in Chofu.
WIRELESS COMMUNICATIONS. MediaOne Group owns interests in various providers
of wireless communications services in international markets in continental
Europe, the UK and Asia. As of June 30, 1998, these interests represented 72.8
million proportionate POPs and approximately 1,268,000 proportionate
subscribers.
Among its international wireless interests, MediaOne Group owns a 50% interest
in Mercury Personal Communications ("One 2 One"), which provides personal
communications services ("PCS") in the UK under the brand "One 2 One." The
remaining 50% of One 2 One is owned by Cable & Wireless plc. One 2 One, in 1993,
was the first PCS service in the world. As of June 30, 1998, One 2 One's
networks served approximately 1,358,000 subscribers and provided coverage to
approximately 95% of Great Britain's population. MediaOne Group holds interests
in various other providers of wireless communications services in international
markets, including:
- 49% interest in Westel 900 and a 49%
interest in Westel Radiotelefon, providers of cellular services in Hungary;
- 24.5% interests in Eurotel Praha and
Eurotel Bratislava, providers of wireless services in portions of the Czech
and Slovak Republics;
- 22.5% interest in Polska Telefonia
Cyfrowa, a provider of Global Systems for Mobile Communications ("GSM")
cellular services in Poland;
- 49% interest in MediaOne BPL
Cellular Telecommunications, a provider of GSM cellular services in certain
regions of India;
- 12.6% interest in Binariang, a provider
of wireless, wireline, satellite and international gateway services in
Malaysia; and
- 66.5% interest in the Russian
Telecommunications Development Corp., a provider of cellular services in
certain cities in Russia.
CABLE PROGRAMMING
MediaOne Group has made investments in cable programming networks to generate
additional interest among cable television consumers. MediaOne Group's
investments in cable programming providers include:
- 10.4% interest in E! Entertainment
Television, Inc.;
- 50% interest in New England Cable
News;
- 10.0% interest in PPVN Holding Co.,
which operates under the brand name "Viewer's Choice;"
- 7.5% interest in the Sunshine Network,
a provider of sports programming in Florida;
- 9.0% interest in Music Choice, a
distributor of audio programming over cable networks;
- 24.1% interest in the Outdoor Life
Network; and
- 20.7% interest in Speedvision and a
50% interest in Sports Channel of New England.
Internationally, MediaOne Group holds a 6.7% interest in Flextech plc, a
provider of cable programming in the UK.
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MediaOne Group, through its interest in TWE, holds extensive interests in
additional cable programming networks. See "--Time Warner Entertainment" below.
TIME WARNER ENTERTAINMENT
MediaOne Group owns a 25.51% pro rata priority capital and residual equity
interest in TWE. Subsidiaries of TWX own the remaining 74.49% pro rata priority
capital and residual equity interest in TWE as well as certain senior capital
interests in TWE. TWE is in the cable programming, filmed entertainment and
broadband communications businesses. The businesses and affairs of TWE are
primarily controlled by TWX. For a description of the broadband communications
and cable programming operations of TWE, see "--BUSINESS--DOMESTIC BROADBAND
COMMUNICATIONS--TIME WARNER CABLE" and "--CABLE PROGRAMMING."
TWE's filmed entertainment business consists of the production, financing and
distribution of feature motion pictures (including through Warner Bros.),
television series, made-for-television movies, miniseries for television,
first-run syndication programming and animated programming for theatrical and
television exhibition, and the distribution of prerecorded videocassettes and
videodiscs. TWE owns and operates The WB, a national broadcast television
network launched in 1995. TWE's filmed entertainment business also licenses
products and owns and operates retail stores, movie theaters and theme parks,
including Warner Bros. Studio Stores. On April 1, 1998, TWE sold its 49%
ownership interest in Six Flags theme parks to Premier Parks Inc.
TWE holds extensive interests in cable programming networks, including,
through its Home Box Office division, HBO and Cinemax. HBO's programming
includes commercial-free, uncut feature motion pictures, sporting events,
special entertainment events and motion pictures produced by or for HBO. Cinemax
offers a broad range of motion pictures, including classic, family,
action-adventure, foreign and recently-released films. Home Box Office has also
entered into a number of international joint ventures, including HBO Ole in
Latin America and a movie-based HBO service in Asia. Home Box Office also
produces television programming and operates TVKO, which produces boxing matches
and other pay-per-view programming. TWE also holds interests in various other
cable programming networks, including a 50% interest in Comedy Central and a
33.33% interest in Court TV. MediaOne Group does not have any rights with
respect to the management and operation of TWE's cable programming businesses.
MediaOne Group has an option to increase its equity interest in TWE from
25.51% to 31.84% depending upon cable operating performance. The option is
exercisable, in whole or in part, between January 1, 1999 and May 31, 2005 for
an aggregate cash exercise price ranging from $1.25 billion to $1.8 billion,
depending upon the year of exercise. Either MediaOne Group or TWE may elect that
the exercise price for the option be paid with partnership interests rather than
cash.
TWE's limited partnership agreement contains certain non-competition
restrictions, which prohibit each of the TWE partners, including MediaOne Group,
from competing with TWE in its three principal lines of business-cable, filmed
entertainment and programming. These non-competition restrictions do not
prohibit MediaOne Group from engaging in the cable business in an area where TWE
is not then engaged in the cable business, subject to TWE's right of first
refusal with respect to such cable
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business, or from engaging in the cable business outside of the United States.
In addition, the non-competition restrictions do not prevent MediaOne Group from
acquiring a foreign cable business that is also engaged in a programming
business if such programming business does not account for more than 20% of such
foreign cable business' revenues. Because of the non-competition restrictions,
Old U S WEST's acquisition of Continental and its cable systems in the Atlanta,
Georgia metropolitan area required the consent of TWX. The ability of MediaOne
Group to make acquisitions of additional cable systems may be limited by these
non-competition restrictions.
MediaOne Group also owns a 12.75% interest in Time Warner Entertainment Japan
Inc. ("TWE Japan"). The remaining interests in TWE Japan are owned by TWX,
Itochu Corporation and Toshiba Corporation. TWE Japan was organized to conduct
TWE's businesses in Japan, including video distribution, theatrical film and
television distribution and merchandising businesses, and to expand and develop
new business opportunities.
COMPETITION
MediaOne Group's cable television systems generally compete for viewer
attention with other providers of video programming, including:
- direct to home satellite systems;
- local multipoint and multipoint
multichannel distribution service systems;
- satellite master antenna television
systems; and
- other cable companies providing
services in areas where MediaOne Group operates.
In addition, certain local exchange carriers, including regional Bell
operating companies, are beginning to offer video programming which competes
with MediaOne Group's cable services, since federal cross-ownership restrictions
no longer limit local exchange carriers' entry into the cable television
business. The extent of such competition in any franchise area is dependent, in
part, upon the quality, variety and price of the programming provided by these
services. Many of these competitive services are also generally not subject to
the same local government regulation that affects cable television.
The cable television services offered by MediaOne Group also face competition
for viewers and advertising from other communications and entertainment media,
including:
- off-air television broadcasting services;
- movie theaters;
- video tape rentals; and
- live sporting events.
The competition faced by MediaOne Group's cable systems may increase in the
future with the development and growth of new technologies.
As MediaOne Group offers additional services over its HFC networks, it will
face additional competition. MediaOne Group's telephony services will face
competition from other providers of local exchange services, including regional
Bell operating companies, local exchange carriers,
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interexchange carriers and other providers of local exchange services. The
degree of competition will be dependent upon the state and federal regulations
concerning entry, interconnection requirements and degree of unbundling of the
local exchange carriers' networks. Competition will be based upon price, service
quality and breadth of services offered. The Internet access and high-speed data
services offered by MediaOne Group compete with other providers of such
services, including local exchange carriers, interexchange carriers, internet
service providers and other on-line service providers.
MediaOne Group's international broadband and wireless communications
businesses also face competition in their respective markets. Telewest's cable
television services compete with broadcast television stations, direct to home
satellite services, satellite master antenna television systems and certain
narrowband operators in the UK. Telewest's telecommunications services compete
with domestic telephone companies in the United Kingdom, such as British
Telecommunications plc. One 2 One competes with two cellular operators and one
PCS operator in the UK. Competition is based upon price, geographic coverage and
the quality of the services offered.
REGULATION
The products and services of MediaOne Group are subject to varying degrees of
regulation. Under the Telecommunications Act, the regulation of all but basic
tier cable rates will be discontinued effective March 31, 1999, or earlier if
competition exists. The Telecommunications Act also (i) eliminates certain
cross-ownership restrictions among cable operations, broadcasters and multipoint
multichannel distribution service operations, (ii) removes barriers to
competition with local exchange carriers and (iii) eliminates restrictions that
previously applied to MediaOne Group relating to long-distance services.
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") authorizes the Federal Communications Commission (the "FCC")
to set standards for governmental authorities to regulate the rates for certain
cable television services and equipment. Services offered on a per-channel or
per-program basis are not subject to these regulations. Although the FCC has
adopted rate regulations, it will also consider "social contracts" as an
alternative form of rate regulation for cable operations. Continental's social
contract with the FCC, adopted in 1995, is a six-year agreement covering most of
Continental's franchises, and also settled Continental's cost of service rate
cases and benchmark cable programming service tier rate cases. However,
Continental's benchmark basic service tier rate cases are still subject to
review by local franchise authorities. As part of the social contract,
Continental agreed to, among other things, invest at least $1.7 billion in
domestic system rebuilds and upgrades through the year 2000 to expand channel
capacity and improve system reliability and picture quality. The investment
commitment has already been substantially met. Under the social contract,
Continental also reduced its basic service tier rates for most of the
subscribers covered by the social contract. These reductions were offset by a
revenue neutral increase in cable programming service tier rates. The social
contract allows for the funding of system rebuilds and upgrades by increasing
cable programming service tier rates annually by one dollar per subscriber from
1997 and 1999 in most franchises, and from 1996 through 1999 for the systems
incorporated under a 1996 amendment to the social contract. Rate adjustments are
also allowed for inflation and external costs
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such as programming. The social contract also provides that, if the laws and
regulations applicable to services offered in any Continental franchise change
in a manner that would have a material favorable financial impact on
Continental, MediaOne Group may petition the FCC to terminate the social
contract.
Cable television systems are also subject to local regulation, typically
imposed through the franchising process. Local officials may be involved in the
initial franchise selection, system design and construction, safety, rate
regulation, customer service standards, billing practices, community-related
programming and services, franchise renewal and imposition of franchise fees.
In June, 1998, the FCC issued formal rules providing for the retail sale of
set-top television boxes designed to integrate digital programming. On January
1, 2005, cable companies will no longer be permitted to sell or lease new
integrated boxes to their subscribers. In addition, cable companies must provide
subscribers with related security modules that plug into set-top boxes that are
purchased from consumer electronics retailers by July 1, 2000.
MediaOne Group is also subject to various regulations in the foreign countries
in which it has operations. In the UK, the licensing, construction, operation,
sale and acquisition of cable and wireline and wireless communications systems
are regulated by various government entities, including the Department of Trade
and Industry and the Department of National Heritage.
EMPLOYEES
At June 30, 1998, the businesses of MediaOne Group had approximately 13,065
employees, none of whom were represented by unions. MediaOne Group believes that
its relations with its employees are good.
REAL PROPERTY
The properties of MediaOne Group do not lend themselves to description by
character and location of principal units. At June 30, 1998, the majority of
MediaOne Group's property was utilized in providing cable television services.
LEGAL PROCEEDINGS
MediaOne Group is currently subject to claims and proceedings that have arisen
in the ordinary course of business. While complete assurance cannot be given as
to the outcome of any contingent liabilities, in the opinion of MediaOne Group,
any financial impact to which MediaOne Group will be subject is not expected to
be material in amount to its financial position or results of operations. In
addition, the businesses in which MediaOne Group holds an investment, including
TWE, are also subject to claims and proceedings that may be material to such
businesses.
USE OF PROCEEDS
All of the proceeds of the sale of the preferred securities together with the
proceeds of the sale of the common securities to MediaOne Group will be invested
by the trust in subordinated notes of MediaOne Group Funding. MediaOne Group
Funding will loan the net proceeds from the issuance of the subordinated notes
to MediaOne Group and its affiliates to be used for general corporate purposes,
including working capital, acquisitions, the refinancing of short-term and
long-term borrowings and other business opportunities.
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CAPITALIZATION
The following table sets forth, at June 30, 1998:
(1) the unaudited consolidated historical capitalization of MediaOne
Group;
(2) the unaudited pro forma capitalization of MediaOne Group, after
giving effect to (a) the sale of the $1,686 million of exchangeable notes
discussed on page 4 of the accompanying prospectus and the application of
the net proceeds from such sale to reduce short-term debt and (b) the
repurchase of 3,568,600 shares of MediaOne Group common stock during the
third quarter of 1998 and the issuance of $155 million short-term debt to
fund such repurchasing; and
(3) the unaudited pro forma capitalization of MediaOne Group, as
adjusted to reflect the sale of the preferred securities offered by this
prospectus supplement and the application of the net proceeds thereof as
described under "Use of Proceeds."
The information in the following table assumes the underwriters do not
exercise their option to purchase additional preferred securities.
The unaudited pro forma capitalization is presented for informational purposes
only and is not necessarily indicative of the future capitalization of MediaOne
Group. The table should be read in conjunction with MediaOne Group's historical
financial statements and the notes thereto included in the documents
incorporated by reference to this prospectus, including MediaOne Group's Current
Report on Form 8-K dated June 18, 1998. See "Where You can Find More
Information" on page 2.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
(UNAUDITED)
----------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED(3)
----------- ----------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Short-term debt (1)................................... $ 2,075 $ 590 $ 390
Long-term debt
Notes, debentures and other......................... 3,040 3,040 3,040
Exchangeable notes (1).............................. -- 1,686 1,686
----------- ----------- -------
Total long-term debt.............................. 3,040 4,726 4,726
----------- ----------- -------
Mandatorily redeemable preferred securities........... 100 100 100
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
Company-guaranteed debentures....................... 561 561 761
Total equity (2)...................................... 13,004 12,849 12,849
----------- ----------- -------
Total capitalization.................................. $ 18,780 $ 18,826 $ 18,826
----------- ----------- -------
----------- ----------- -------
</TABLE>
- ------------------------
(1) Pro forma reflects the August 1998 sale of exchangeable notes and the
application of the net proceeds thereof to reduce short-term debt
outstanding.
(2) Pro forma reflects the repurchase of 3,568,600 shares of MediaOne Group
common stock during the third quarter of 1998 and the issuance of $155
million short-term debt to fund such repurchase.
(3) Pro forma as adjusted reflects (a) the August 1998 sale of exchangeable
notes and the application of the net proceeds thereof, (b) the repurchase of
3,568,600 shares of MediaOne Group common stock during the third quarter of
1998 and the issuance of $155 million short-term debt to fund such
repurchase and (c) the sale of the preferred securities offered by this
prospectus supplement and the application of the net proceeds thereof.
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SUMMARY FINANCIAL AND OTHER DATA
The summary historical financial information of MediaOne Group set forth below
should be read together with the restated consolidated financial statements of
MediaOne Group included in MediaOne Group's Current Report on Form 8-K dated
June 18, 1998. See "Where You Can Find More Information" on page 2. The summary
historical financial information is taken from the MediaOne Group's audited
restated consolidated financial statements. These statements were audited by
either Arthur Andersen LLP (for 1996 and 1997) or by PricewaterhouseCoopers LLP
(for all other years). The summary historical financial information of MediaOne
Group for the six months ended June 30, 1997 and 1998 contain all adjustments
required for a fair presentation of the financial position and results of
operations for these periods. The summary pro forma financial information of
MediaOne Group set forth below at and for the year ended December 31, 1997 and
the six months ended June 30, 1998 gives effect to the discontinuance of the
businesses of New U S WEST, the distribution of New U S WEST to Old U S WEST's
shareholders pursuant to the Separation, the refinancing by New U S WEST of $3.9
billion of indebtedness of Old U S WEST, transfers of certain assets and
liabilities to New U S WEST and allocations of certain costs and expenses in
connection with the Separation and the AirTouch Transaction (see pages 3 and 4),
as if such transactions had been consummated at the beginning of each of such
periods. The summary pro forma financial information should be read together
with MediaOne Group's pro forma financial statements included in MediaOne
Group's Form 10-Q for the fiscal quarter ended June 30, 1998, in Old U S WEST's
Current Report on Form 8-K dated May 15, 1998 and in Old U S WEST's Proxy
Statement on Schedule 14A filed with the Commission on April 20, 1998. See
"Where You Can Find More Information" on page 2.
<TABLE>
<CAPTION>
PRO FORMA (1)
-------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- -------------
(UNAUDITED) YEAR ENDED DECEMBER 31, (UNAUDITED)
-------------------- ----------------------------------------------------- -------------
1997 1998 1993 1994(2) 1995 1996 1997 1997
--------- --------- --------- --------- --------- --------- --------- -------------
(DOLLARS IN MILLIONS, EXCEPT SUBSCRIBER AND RELATED DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA
Sales and other revenues (3)..... $ 1,901 $ 1,613 $ 612 $ 925 $ 1,330 $ 1,837 $ 3,847 $ 2,419
Income (loss) from continuing
operations (4)................. (371) 1,952 (139) 23 (102) (357) (827) (630)
Income from discontinued
operations (5)................. 836 25,208 (2,667) 1,403 1,423 1,535 1,524 --
Net income (loss) (6)............ 468 26,827 (2,806) 1,426 1,317 1,178 697 (630)
BALANCE SHEET DATA
Total assets..................... $ 27,647 $ 25,389 $ 7,923 $ 10,331 $ 11,847 $ 27,727 $ 26,783 $ 24,314
Total debt (7)................... 9,742 5,115 1,471 1,791 2,073 8,806 8,963 4,039
Mandatorily redeemable preferred
stock and preferred securities
(8)............................ 1,180 661 -- 51 651 1,131 1,180 1,180
Shareowners' equity.............. 11,567 13,004 5,861 7,382 7,948 11,549 11,324 12,770
OTHER DATA
EBITDA (9)....................... $ 680 $ 553 $ 62 $ 115 $ 294 $ 430 $ 1,287 $ 754
Capital expenditures (7)......... 665 725 185 308 370 643 1,502 1,247
Homes passed (000's) (10)........ 8,395 8,430 -- 814 8,281 8,294 8,373 8,373
Basic subscribers (000's) (10)... 4,937 4,933 -- 494 4,807 4,866 4,910 4,910
Total monthly revenue/avg. cable
subscriber (10)(11)............ $ 39.38 $ 41.58 n/a n/a $ 36.15 $ 37.45 $ 39.97 $ 39.97
Percentage of debt to total
capital (7).................... 43.3% 27.2% 20.1% 19.4% 19.4% 41.0% 41.8% 22.5%
<CAPTION>
SIX MONTHS
ENDED JUNE
30,
-----------
1998
-----------
<S> <C>
FINANCIAL DATA
Sales and other revenues (3)..... $ 1,254
Income (loss) from continuing
operations (4)................. (213)
Income from discontinued
operations (5)................. --
Net income (loss) (6)............ (213)
BALANCE SHEET DATA
Total assets..................... $ 25,389
Total debt (7)................... 5,115
Mandatorily redeemable preferred
stock and preferred securities
(8)............................ 661
Shareowners' equity.............. 13,004
OTHER DATA
EBITDA (9)....................... $ 405
Capital expenditures (7)......... 657
Homes passed (000's) (10)........ 8,430
Basic subscribers (000's) (10)... 4,933
Total monthly revenue/avg. cable
subscriber (10)(11)............ $ 41.58
Percentage of debt to total
capital (7).................... 27.2%
</TABLE>
(SEE FOOTNOTES ON NEXT PAGE)
S-22
<PAGE>
(1) MediaOne Group has accounted for the Separation as a discontinuance of the
businesses comprising New U S WEST. See "MediaOne Group--The Separation" on
page 3 of the accompanying prospectus. The unaudited pro forma financial
information gives effect to the Separation and the AirTouch Transaction as
if the transactions occurred as of January 1, 1997 and 1998, respectively,
for the summary statement of operations information and as of December 31,
1997 for the summary balance sheet information.
(2) The Atlanta, Georgia cable system was acquired on December 6, 1994.
(3) 1996 and 1997 sales and other revenues include other revenue of $252 million
and $2,070 million, respectively, related to the acquisition by MediaOne
Group of Continental on November 15, 1996 (the "Continental Acquisition").
(4) 1993 income from continuing operations was reduced by a restructuring charge
of $45 million. 1994 income from continuing operations includes a gain of
$105 million on the partial sale of MediaOne Group's joint venture interest
in Telewest, and a gain of $41 million on the sale of MediaOne Group's
paging operations. 1995 income from continuing operations includes a gain of
$95 million from the merger of Telewest with SBC CableComms (UK), and costs
of $9 million associated with Old U S WEST's implementation of a targeted
stock capital structure. 1996 income from continuing operations includes net
losses of $71 million related to the Continental Acquisition and a charge of
$19 million related to the sale of MediaOne Group's cable television
interests in Norway, Sweden and Hungary. 1997 income from continuing
operations includes net gains of $249 million on the sales of domestic and
international investments, and net losses of $356 million related to the
Continental Acquisition. Income from continuing operations for the six month
period ended June 30, 1997 includes net gains of $56 million on the sale of
MediaOne Group's interest in a wireless venture in France and shares of TWX
acquired in the Continental Acquisition. Income from continuing operations
for the six month period ended June 30, 1998 includes a net gain of $2,257
million on the sale of MediaOne Group's domestic wireless businesses sold in
conjunction with the AirTouch Transaction, and net gains of $24 million on
the sale of various domestic investments.
(5) Income from discontinued operations for the six month period ended June 30,
1998, includes a gain of $24,461 million on the Separation.
(6) 1993 net income includes a charge of $120 million for MediaOne Group's
decision to discontinue the operations of its capital assets segment.
Discontinued operations of the capital assets segment also provided net
income of $38 million during 1993. 1995 net income was reduced by an
extraordinary item of $4 million for the early extinguishment of debt. Net
income for the six month period ended June 30, 1997 includes income of $3
million for the early extinguishment of debt. Net income for the six month
period ended June 30, 1998, was reduced by an extraordinary item of $333
million for the early extinguishment of debt related to the refinancing by
New U S WEST of $3,900 million of indebtedness of Old U S WEST.
(7) Debt at December 31, 1996 and 1997, and June 30, 1998, includes debt related
to the Continental Acquisition. Capital expenditures, debt and the
percentage of debt to total capital excludes the capital assets segment,
which has been discontinued and is held for sale, and the discontinued
operations of New U S WEST, which have been discontinued effective June 12,
1998. Percentage of debt to total capital includes the mandatorily
redeemable preferred stock and preferred securities as a component of total
capital.
(8) Includes preferred securities of $600 million at December 31, 1995; $1,080
million at December 31, 1996 and 1997 and June 30, 1997; and $561 million at
June 30, 1998. Also includes preferred stock subject to mandatory redemption
of $51 million at December 31, 1994, 1995 and 1996 and $100 million at
December 31, 1997 and June 30, 1997 and 1998.
(9) Earnings before interest, taxes, depreciation and amortization ("EBITDA").
MediaOne Group considers EBITDA an important indicator of the operational
strength and performance of its businesses. EBITDA, however, should not be
considered an alternative to operating or net income as an indicator of the
performance of MediaOne Group's businesses, or as an alternative to cash
flows from operating activities as a measure of liquidity, in each case
determined in accordance with generally accepted accounting principles.
Other companies may calculate EBITDA in a different manner to the MediaOne
Group.
(10) The Continental cable system was acquired on November 15, 1996. The
information presented for 1995 and 1996 is pro forma as if the Continental
Acquisition had occurred on January 1, 1995, and as if Continental's
acquisition of the Meredith/New Heritage and Colony cable systems had also
occurred on January 1, 1995.
(11) The calculation of total monthly revenue per average cable subscriber
includes total cable revenue and new products revenue divided by average
basic cable subscribers for the respective period.
ACCOUNTING TREATMENT
The financial statements of the trust will be consolidated with MediaOne
Group's financial statements, with the preferred securities shown as a separate
line item in MediaOne Group's balance sheet as company obligated mandatorily
redeemable preferred securities of subsidiary trust holding solely
company-guaranteed notes and disclosures concerning the preferred securities,
the preferred securities guarantee, the subordinated notes and the note
guarantee will be included in the notes to MediaOne's Group's financial
statements.
S-23
<PAGE>
DESCRIPTION OF SECURITIES
This prospectus supplement discloses the specific terms and provisions of the
preferred securities, the subordinated notes and the note guarantee and
supplements the general description of the terms and provisions of these
securities in the accompanying prospectus. These summaries are not meant to be a
complete description of each security. However, this prospectus supplement and
the accompanying prospectus contain the material terms and conditions for each
security. For more information, please refer to the declaration, the indenture,
the supplemental indenture and the preferred securities guarantee. Forms of
these documents are filed as exhibits to the registration statement of which
this prospectus supplement and the accompanying prospectus are a part. All terms
used in this prospectus supplement and not defined in this prospectus supplement
have the meanings given to them in these documents.
CERTAIN TERMS OF THE PREFERRED SECURITIES
DISTRIBUTIONS
The preferred securities represent undivided beneficial interests in the
assets of the trust. The only assets of the trust will be the subordinated notes
and the note guarantee. Distributions on the preferred securities are cumulative
and will accumulate from the date they are first issued at the annual rate of
% of the $25 liquidation amount of each preferred security. Distributions
will be payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, beginning December 31, 1998. Distributions not paid
when due will themselves accumulate additional distributions, at the annual rate
of % on the amount of unpaid distributions (to the extent permitted by law).
When we refer to any payment of distributions, distributions include any such
additional distributions. The amount of distributions payable for any period
will be computed on the basis of a 360-day year of twelve 30-day months.
If distributions are payable on a date that is not a business day (as defined
at the end of this paragraph), payment will be made on the next business day
(and without any interest or other payment in respect of such delay). However,
if the next business day is in the next calendar year, payment of distributions
will be made on the preceding business day. A "business day" means each day
except Saturday, Sunday and any day on which banking institutions in The City of
New York are authorized or required by law to close.
DEFERRAL OF DISTRIBUTIONS
If no event of default has occurred and is continuing under the subordinated
notes, MediaOne Group Funding can, on one or more occasions, defer interest
payments on the subordinated notes for up to 20 consecutive quarterly periods. A
deferral of interest payments cannot extend, however, beyond the maturity date
of the subordinated notes. If MediaOne Group Funding defers interest payments on
the subordinated notes, the trust will also defer quarterly distributions on the
preferred securities. During a deferral period, the amount of distributions due
to you would continue to accumulate and such deferred distributions will
themselves accrue interest at the rate stated above (to the extent permitted by
law).
Once MediaOne Group Funding makes all deferred interest payments on the
subordinated notes, with accrued interest, it
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<PAGE>
can again defer interest payments on the subordinated notes if no event of
default under the subordinated notes has occurred and is continuing.
MediaOne Group Funding has no current intention of deferring interest payments
on the subordinated notes. If MediaOne Group Funding defers interest payments on
the subordinated notes, MediaOne Group and MediaOne Group Funding would be
subject to certain restrictions relating to the payment of dividends on or
purchases of their capital stock and payments on their debt securities that rank
equal with or junior to the subordinated notes or the note guarantee, as the
case may be. See "Certain Terms of the Subordinated Notes and Note
Guarantee--Option to Extend Interest Payment Period" on page S-32.
Because MediaOne Group Funding can defer payments of interest on the
subordinated notes, the preferred securities will be treated as being issued
with original issue discount for United States federal income tax purposes. This
means you will be required to recognize and include interest income with respect
to the distributions (even if they are deferred) for United States federal
income tax purposes before you receive cash distributions relating to such
interest payments. This treatment will apply as long as you own preferred
securities. See "United States Tax Consequences" on page S-34.
PAYMENT OF DISTRIBUTIONS
Distributions on the preferred securities will be payable to holders named on
the securities register of the trust on the relevant record date. Payments on
the preferred securities represented by a global security will be made in
immediately available funds to DTC, the depositary for the preferred securities.
As long as the preferred securities are in book-entry only form, the record
date for the payment of distributions will be one business day before the
distribution date. If the preferred securities are ever issued in certificated
form, the record date for the payment of distributions will be the 15th day of
the last month of each quarterly distribution period, even if that day is not a
business day.
REDEMPTION
MediaOne Group Funding can redeem some or all of the subordinated notes before
their maturity:
- on one or more occasions any time on
or after , 2003; and
- before , 2003, if certain
changes in tax or investment company law occur (each of which is a "Special
Event" and is described more fully on the next page).
When MediaOne Group Funding pays off the subordinated notes, either at
maturity on , 2038 or upon early redemption (as we discussed
above), the trust will use the cash it receives upon the redemption of the
subordinated notes to redeem a like amount of the preferred and common
securities. The preferred and (unless there is a default under the subordinated
notes) common securities will be redeemed at a price equal to the redemption
price for each $25 principal amount of the subordinated notes redeemed. The
redemption price for the subordinated notes is 100% of their principal amount
plus accrued and unpaid interest to the date of redemption. See "Certain Terms
of the Subordinated Notes and Note Guarantee--Redemption" on page S-32.
If less than all the preferred and common securities are redeemed, then the
aggregate
S-25
<PAGE>
liquidation amount of preferred and common securities to be redeemed will be
allocated 3% to the common securities holders, subject to the exceptions
described under "--Subordination of Common Securities" on the next page, and 97%
to the preferred securities holders. The preferred securities to be redeemed
will be selected by DTC in accordance with its usual procedures if they are in
book-entry-only form.
SPECIAL EVENT REDEMPTION
If a Tax Event or an Investment Company Event, as we define them below (each a
"Special Event") has occurred and is continuing, MediaOne Group may redeem some
or all of the subordinated notes, within 90 days following the occurrence of the
Special Event.
"Tax Event" means that the Regular Trustees will have received an opinion of a
nationally recognized independent tax counsel experienced in such matters to the
effect that, as a result of any:
- amendment to, or change (including
any announced future change) in, the laws or regulations of the United
States or any political subdivision or taxing authority affecting taxation;
or
- amendment to, or change in, an
interpretation or application of such laws or regulations;
where such change or amendment becomes effective on or after the date of this
prospectus supplement, there is a substantial risk that:
- the trust would be subject to United
States federal income tax with respect to interest accrued or received on
the subordinated notes;
- interest payable to the trust on the
subordinated notes when paid would not be deductible by MediaOne Group
Funding for United States federal income tax purposes; or
- the trust would be subject to more than
a minimal amount of other taxes, duties, assessments or other governmental
charges.
It has been reported that the IRS recently challenged another company's
deduction for interest paid on a debt instrument similar in some respects to the
subordinated notes and issued to an entity similar to the trust. Based on
available information, MediaOne Group, MediaOne Group Funding and the trust do
not believe that this challenge will affect MediaOne Group Funding's ability to
deduct interest payments on the subordinated notes. However, you should be aware
that further developments favoring the IRS's challenge, or other unrelated
developments, could cause a Tax Event. See "United States Tax Consequences"
starting on page S-34. Laws and regulations have also been proposed in the past
which, if adopted retroactively, could also cause a Tax Event.
"Investment Company Event" means the regular trustees have received an opinion
of a nationally recognized independent counsel to the effect that, as a result
of the occurrence of a change in law or regulation or a written change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, the trust is or will be
considered an "investment company" under the Investment Company Act of 1940 that
is required to be registered under this law, which change becomes effective on
or after the date of this prospectus supplement.
REDEMPTION PROCEDURES
The trust will give you at least 30 days, but not more than 60 days, notice
before any redemption of preferred securities. To
S-26
<PAGE>
the extent funds are available for payment, the trust will irrevocably deposit
with the depositary sufficient funds to pay the redemption amount for the
preferred securities being redeemed. The trust will also give the depositary
irrevocable instructions and authority to pay the redemption amount to the
preferred securities holders. Distributions to be paid on or before the
redemption date for any preferred securities called for redemption will be
payable to the holders on the record dates for the related dates of
distribution.
Once notice of redemption is given and funds are irrevocably deposited,
distributions on the preferred securities will cease to accrue and all rights of
the holders of the preferred securities called for redemption will cease, except
for the right of holders to receive the redemption amount (but without interest
on such redemption amount).
If any redemption date is not a business day, then the redemption amount will
be payable on the next business day (and without any interest or other payment
in respect of any such delay). However, if the next business day is in the next
calendar year, the redemption amount will be payable on the preceding business
day.
If payment of the redemption amount for any preferred securities called for
redemption is improperly withheld or refused and not paid either by the trust or
by MediaOne Group pursuant to the preferred securities guarantee, distributions
on the preferred securities will continue to accumulate at the applicable rate
from the original redemption date scheduled to the actual date of payment. In
this case, the actual payment date will be the redemption date for purposes of
calculating the redemption amount.
In compliance with applicable law (including the United States federal
securities laws), MediaOne Group or its affiliates may, at any time, purchase
outstanding preferred securities by tender, in the open market, or by private
agreement.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the redemption amount of, the preferred and
common securities will be made pro rata based on the aggregate liquidation
amounts of the preferred and common securities. However, if an event of default
has occurred and is continuing with respect to the subordinated notes, no
payments may be made on the common securities unless all unpaid amounts on the
preferred securities have been provided for or paid in full.
If an event of default has occurred and is continuing with respect to the
subordinated notes, the common securities holder will be deemed to have waived
any right to take any action with respect to the event of default (or any
related Declaration Event of Default) until the event of default has been cured,
waived or eliminated. Until any event of default has been cured, waived or
eliminated, the property trustee will act solely on your behalf and only you, as
the holder of preferred securities, will have the right to direct the property
trustee to act on your behalf.
S-27
<PAGE>
BOOK-ENTRY-ONLY ISSUANCE--THE
DEPOSITORY TRUST COMPANY
The preferred securities will be represented by one or more global securities
that will be deposited with and registered in the name of DTC or its nominee.
This means that the trust will not issue certificates to you for the preferred
securities. Each global security will be issued to DTC which will keep a
computerized record of its participants (for example, a broker) whose clients
have purchased the preferred securities. Each participant will then keep a
record of its clients. Unless it is exchanged in whole or in part for a
certificated security, a global security may not be transferred. However, DTC,
its nominees and their successors may transfer a global security as a whole to
one another.
Beneficial interest in a global security will be shown on, and transfers of
the global security will be made only through, records maintained by DTC and its
participants. DTC has provided the trust, MediaOne Group and MediaOne Group
Funding with the following information: 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 United States Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered under the provisions
of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that
its participants ("direct participants") deposit with DTC. DTC also records the
settlement among direct participants of securities transactions, such as
transfers and pledges, in deposited securities through computerized records for
direct participant's accounts. This eliminates the need to exchange
certificates. Direct participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations.
DTC's book-entry system is also used by other organizations such as securities
brokers and dealers, banks and trust companies that work through a direct
participant. The rules that apply to DTC and its participants are on file with
the SEC.
DTC is owned by a number of its direct participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the National Association
of Securities Dealers, Inc.
When you purchase preferred securities through the DTC system, the purchases
must be made by or through a direct participant, who will receive credit for the
preferred securities on DTC's records. Since you actually own the preferred
security, you are the beneficial owner. Your ownership interest will only be
recorded on the direct (or indirect) participants' records. DTC has no knowledge
of your individual ownership of the preferred securities. DTC's records only
show the identity of the direct participants and the amount of the preferred
securities held by or through them. You will not receive a written confirmation
of your purchase or sale or any periodic account statement directly from DTC.
You will receive these from your direct (or indirect) participant. As a result,
the direct (or indirect) participants are responsible for keeping accurate
account of the holdings of their customers like you.
The property trustee will wire payments on the preferred securities to DTC's
nominee. MediaOne Group, MediaOne Group Funding, the trust and the property
trustee will treat DTC's nominee as the owner of each global security for all
purposes. Accordingly, MediaOne Group, MediaOne Group Funding, the trust, the
property trustee and any paying agent will
S-28
<PAGE>
have no direct responsibility or liability to pay amounts due on the global
security to you or any other beneficial owners in the global security.
Any redemption notices will be sent by MediaOne Group Funding and the trust
directly to DTC, who will in turn inform the direct participants, who will then
contact you as a beneficial holder. If less than all of the preferred securities
are being redeemed, DTC's practice is to choose by lot the amount of the
interest of each direct participant to be redeemed. The direct participant will
then use an appropriate method to allocate the redemption among its beneficial
holders, like you.
It is DTC's current practice, upon receipt of any payment of distributions or
liquidation amount, to credit direct participants' accounts on the payment date
based on their holdings of beneficial interests in the global securities as
shown on DTC's records. In addition, it is DTC's current practice to assign any
consenting or voting rights to direct participants whose accounts are credited
with preferred securities on a record date, by using an omnibus proxy. Payments
by participants to owners of beneficial interests in the global securities, and
voting by participants, will be based on the customary practices between the
participants and owners of beneficial interests, as is the case with preferred
securities held for the account of customers registered in "street name."
However, payments will be the responsibility of the participants and not of DTC,
the property trustee, MediaOne Group, MediaOne Group Funding or the trust.
Preferred securities represented by a global security will be exchangeable for
certificated securities with the same terms in authorized denominations only if:
- DTC is unwilling or unable to continue
as depositary or if DTC ceases to be a clearing agency registered under
applicable law and a successor depositary is not appointed by the trust
within 90 days; or
- the regular trustees decide (with the
agreement of MediaOne Group) to discontinue use of the system of book-entry
transfer through DTC (or any successor depositary).
If the book-entry-only system is discontinued, the property trustee will keep
the registration books for the preferred securities at its corporate office and
follow the practices and procedures discussed below.
CERTIFICATED SECURITIES--REGISTRATION, TRANSFER AND PAYMENT
If the trust issues certificated securities, they will be registered in the
name of the securityholder. The preferred securities may be transferred or
exchanged, based on administrative procedures in the declaration, without the
payment of any service charge (other than any tax or other governmental charge)
by contacting the property trustee, The First National Bank of Chicago at 14
Wall Street, 8th Floor, New York, NY 10005, attention: Corporate Trust
Administrator.
Distribution payments on certificated preferred securities will be made by
check. Payment of the redemption price or liquidation amount will be made in
immediately available funds when you surrender a preferred security.
S-29
<PAGE>
CERTAIN TERMS OF THE SUBORDINATED NOTES AND NOTE GUARANTEE
The subordinated notes will be issued as a series pursuant to a supplemental
indenture ("supplemental indenture") to the indenture.
MediaOne Group will fully and unconditionally guarantee the payment of
principal and interest on the subordinated notes under the note guarantee on a
subordinated basis. See below for an explanation of the subordination
provisions.
SUBORDINATION
The subordinated notes are unsecured and are junior in right of payment to all
Senior Indebtedness (as we define below) of MediaOne Group Funding. The note
guarantee is unsecured and junior in right of payment to all Senior Indebtedness
of MediaOne Group. This means that no payment on the subordinated notes and no
payment under the note guarantee may be made if:
- any Senior Indebtedness of MediaOne
Group Funding or MediaOne Group, as the case may be, is not paid when due,
any applicable grace period with respect to any such non-payment default has
ended and such default has not been cured or waived or ceased to exist; or
- if the maturity of any Senior
Indebtedness of MediaOne Group Funding or MediaOne Group, as the case may
be, has been accelerated because of a default.
On any distribution of assets of MediaOne Group Funding or MediaOne Group to
creditors upon any dissolution, winding-up, liquidation or reorganization,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all principal of, premium, if any, and interest due or to
become due on, all Senior Indebtedness of MediaOne Group Funding or MediaOne
Group, as the case may be, must be paid in full before the holders of the
subordinated notes or the note guarantee are entitled to receive or retain any
payment. In such event, the holders of the subordinated notes and the note
guarantee will assume the rights of the holders of Senior Indebtedness of
MediaOne Group Funding or MediaOne Group, as the case may be, to receive
payments or distributions applicable to Senior Indebtedness until all amounts
owing on the subordinated notes or the note guarantee, as the case may be, are
paid in full.
The subordinated notes and the note guarantee will rank at least equal with
all other subordinated notes and note guarantees initially issued to the other
trusts referred to in the accompanying prospectus or to other trusts,
partnerships or other entities affiliated with MediaOne Group in connection with
an issuance of securities similar to the preferred securities.
Senior Indebtedness means with respect to MediaOne Group or MediaOne Group
Funding, as applicable:
- principal, premium and interest
MediaOne Group or MediaOne Group Funding, as the case may be, owes on:
(1) indebtedness for money borrowed by MediaOne Group or MediaOne Group
Funding, as the case may be; or
(2) indebtedness evidenced by securities, debentures, bonds or similar
instruments issued by MediaOne Group or MediaOne Group Funding, as the
case may be;
S-30
<PAGE>
- all capital lease obligations of
MediaOne Group or MediaOne Group Funding, as the case may be;
- all obligations of MediaOne Group or
MediaOne Group Funding, as the case may be, issued or assumed as the
deferred purchase price of property;
- all conditional sale obligations of
MediaOne Group or MediaOne Group Funding, as the case may be;
- all obligations of MediaOne Group and
MediaOne Group Funding, as the case may be, under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business);
- all obligations of MediaOne Group or
MediaOne Group Funding, as the case may be, for the reimbursement on any
letter of credit, banker's acceptance, security purchase facility or similar
credit transaction;
- all obligations of the type referred to in
the first six bullet points above of other persons for the payment of which
MediaOne Group or MediaOne Group Funding, as the case may be, is responsible
or liable as obligor, guarantor or otherwise; and
- all obligations of the type referred to in
the first seven bullet points above of other persons secured by a lien on
any property or asset of MediaOne Group or MediaOne Group Funding, as the
case may be.
Senior Indebtedness does not include:
- any indebtedness that is by its terms
junior or equal with the subordinated notes or the note guarantee, as the
case may be; and
- any series of subordinated notes and
related note guarantees initially issued to the other MediaOne Group trusts
referred to in the accompanying prospectus or to other trusts, partnerships
or other entities affiliated with MediaOne Group in connection with an
issuance of securities similar to the preferred securities, including
MediaOne Financing A, MediaOne Financing B, MediaOne Finance Trust I and
MediaOne Finance Trust II.
The preferred securities, the preferred securities guarantee, the subordinated
notes and the note guarantee do not limit the ability of MediaOne Group and its
subsidiaries to incur additional indebtedness, including indebtedness that ranks
senior in priority of payment to the subordinated notes, the note guarantee and
the preferred securities guarantee. At June 30, 1998, on a pro forma basis, the
total amount of Senior Indebtedness of MediaOne Group and the total amount of
indebtedness of MediaOne Group's consolidated subsidiaries that would have
effectively ranked senior to the subordinated notes and the note guarantee would
have been approximately $5.1 billion. At such date, the total amount of
indebtedness of MediaOne Group and its consolidated subsidiaries that would have
ranked equal with the note guarantee would have been $561 million.
INTEREST RATE AND MATURITY
The subordinated notes will mature on , 2038 and will bear
interest at the annual rate of % of their principal amount thereof, payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, beginning December 31, 1998. Interest payments not paid when due will
themselves accrue additional interest at the annual rate of % on the amount
of unpaid interest (to the extent permitted by law). When we refer to any
payment of interest, interest includes such additional interest and any
Additional Interest as we define it in the next
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<PAGE>
paragraph. The amount of interest payable for any period will be computed based
on a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period will be computed on the basis of
the actual number of days elapsed per 30-day month. The interest payment
provisions for the subordinated notes correspond to the distribution provisions
of the preferred securities. The subordinated notes do not have a sinking fund.
This means that MediaOne Group Funding is not required to make any principal
payments prior to maturity.
ADDITIONAL INTEREST
If the trust is required to pay any taxes, duties, assessments or governmental
charges of whatever nature (other than withholding taxes) imposed by the United
States, or any other taxing authority (collectively, "Taxes"), then MediaOne
Group Funding will be required to pay additional interest ("Additional
Interest") on the subordinated notes. The amount of any Additional Interest will
be an amount sufficient so that after the trust pays any Taxes, the trust will
be in the same position it would have been if it did not have to pay such Taxes.
REDEMPTION
MediaOne Group Funding has the option to redeem some or all of the
subordinated notes before their maturity:
- on one or more occasions any time on
or after , 2003; or
- before , 2003, if a Special
Event occurs and is continuing and within 90 days of the Special Event.
In those circumstances, if MediaOne Group Funding decides to redeem some or
all of the subordinated notes, the redemption price of each subordinated note
redeemed will be equal to 100% of the principal amount of such subordinated note
plus accrued interest on such subordinated note to the date of redemption.
DISTRIBUTION OF SUBORDINATED NOTES
If the property trustee distributes the subordinated notes and note guarantee
to the preferred and common securities holders upon the dissolution and
liquidation of the trust, the subordinated notes and note guarantee will be
issued in denominations of $25 principal amount and integral multiples thereof.
MediaOne Group anticipates that the subordinated notes and note guarantee would
be distributed in the form of one or more global securities and DTC, or any
successor depository for the preferred securities, would act as depositary for
the subordinated notes and note guarantee. The depository arrangements for the
subordinated notes and note guarantee would be substantially similar to those in
effect for the preferred securities.
For a description of DTC and the terms of the depository arrangements relating
to payments, transfers, voting rights, redemption and other notices and other
matters, see "Certain Terms of the Preferred Securities-- Book-Entry-Only
Issuance-- The Depository Trust Company" on page S-28.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
MediaOne Group Funding can defer interest payments on the subordinated notes
for up to 20 consecutive quarterly periods, if no event of default has occurred
and is continuing with respect to the subordinated notes and note guarantee. A
deferral of interest payments cannot extend, however, beyond the maturity date
of the subordinated notes. No interest will be due and payable on the
subordinated notes until
S-32
<PAGE>
the end of the deferral period except upon a redemption of the subordinated
notes during a deferral period.
MediaOne Group Funding may pay at any time all or any portion of the interest
accrued to that point during a deferral period. At the end of the deferral
period or at a redemption date, MediaOne Group Funding will be obligated to pay
all accrued and unpaid interest.
Once MediaOne Group Funding makes all interest payments on the subordinated
notes, with accrued interest, it can again defer interest payments on the
subordinated notes if no event of default under the subordinated notes and the
note guarantee has occurred and is continuing.
During any deferral period, MediaOne Group and MediaOne Group Funding will not
be permitted to:
- declare or pay any dividend on, make
any distributions, or redeem, purchase, or make a liquidation payment on any
shares of its capital stock, other than stock dividends paid by MediaOne
Group where the dividend stock is the same stock as that on which the
dividend is paid; or
- make any payment of principal,
premium, if any, or interest, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by MediaOne Group or MediaOne Group
Funding which rank equal with or junior to the subordinated notes (including
the subordinated notes and related guarantees issued to MediaOne Financing
A, MediaOne Financing B, MediaOne Finance Trust I and MediaOne Finance Trust
II).
MediaOne Group does not currently pay dividends on its shares of common stock.
Since the subordinated notes and note guarantee to be issued to the trust will
rank equal to all other series of subordinated notes (or similar securities)
issued by MediaOne Group Funding and note guarantees (or similar securities)
issued by MediaOne Group, during an interest deferral period, MediaOne Group
Funding and MediaOne Group will not be permitted to make payments on such other
series of subordinated notes and related note guarantees. Likewise, if MediaOne
Funding defers interest payments on one of the other series of subordinated
notes, MediaOne Group Funding and MediaOne Group will not be permitted to make
payments on this series of subordinated notes and note guarantee. Currently,
each of MediaOne Financing A, MediaOne Financing B, MediaOne Finance Trust I,
MediaOne Finance Trust II hold a series of subordinated notes and a related note
guarantee.
The restrictions described in the two bullet points above will also apply if
there occurs and is continuing a default under the Indenture or if MediaOne
Group defaults on its obligations under the preferred securities guarantee.
If the property trustee is the sole holder of the subordinated notes, MediaOne
Group Funding will give the trust, the regular trustees and the property trustee
notice if it decides to defer interest payments on the subordinated notes.
MediaOne Group Funding will give that notice one business day before the earlier
of:
- the next date distributions on the
preferred securities are payable; or
S-33
<PAGE>
- the date the trust is required to give
notice to the NYSE (or any other applicable self-regulatory organization) or
to holders of the preferred securities of the record date or the date any
distribution is payable.
The regular trustees will give notice to the holders of preferred securities
if MediaOne Group Funding decides to defer interest payments on the subordinated
notes.
If the property trustee is not the sole holder of the subordinated notes,
MediaOne Group Funding will give the holders notice of its selection of any
deferral period ten business days prior to the earlier of:
- the next interest payment date; or
- the date upon which MediaOne Group
Funding is required to give notice to the NYSE (or any other applicable
self-regulatory organization) or to holders of the subordinated notes of the
record date or payment date of any related interest payment.
UNITED STATES TAX CONSEQUENCES
GENERAL
In this section, we summarize certain of the material United States federal
income tax consequences of purchasing, holding and selling the preferred
securities. This summary is based on (1) the Internal Revenue Code of 1986 (the
"Code"), (2) income tax regulations (proposed and final) issued under the Code,
and (3) associated administrative and judicial interpretations, all as they
currently exist as of the date of this prospectus supplement. These income tax
laws and regulations, however, may change at any time, and any change could be
retroactive to the issuance date of the preferred securities.
These income tax laws and regulations are also subject to various
interpretations, and the Internal Revenue Service (the "IRS") or the courts
could later disagree with the explanations or conclusions contained in this
summary. The IRS has not formally ruled (and we do not intend to seek a ruling)
on the tax consequences of purchasing, holding and selling the preferred
securities. Accordingly, the IRS could challenge the opinions expressed in this
prospectus supplement concerning such consequences, and a court could agree with
the IRS.
Except where we state otherwise, this summary deals only with preferred
securities held as capital assets (as defined in the Code) by a holder who (1)
purchases the preferred securities at their original offering price when the
trust originally issues them and (2) is a US Holder (as defined below).
We do not address all of the tax consequences that may be relevant to a US
Holder. We also do not address, except as stated below, any of the tax
consequences to holders that are not US Holders or to holders that may be
subject to special tax treatment such as banks, thrift institutions, real estate
investment trusts, regulated investment companies, insurance companies, brokers
and dealers in securities or currencies and financial institutions. Further, we
do not address:
- the United States federal income tax
consequences to shareholders in, or partners or beneficiaries of, a holder
of the preferred securities;
- the United States federal estate and gift
or alternative minimum tax consequences of the purchase, ownership or sale
of the preferred securities; or
S-34
<PAGE>
- any state, local or foreign tax
consequences of the purchase, ownership and sale of preferred securities.
A "US Holder" is a preferred securities holder who or which is:
- a United States citizen or resident
individual (or someone treated as a citizen or resident individual for
United States federal income tax purposes);
- a corporation or partnership created or
organized (or treated as created or organized for United States federal
income tax purposes) in or under the laws of the United States;
- an estate if its income is subject to
United States federal income taxation regardless of its source; or
- a trust if (1) a United States court can
exercise primary supervision over its administration and (2) one or more
United States persons have the authority to control all of its substantial
decisions.
A "Non-US Holder" is a preferred securities holder other than a US Holder.
CHARACTERIZATION OF THE TRUST
When the trust issues the preferred securities, Weil, Gotshal & Manges LLP,
special tax counsel to MediaOne Group and the trust, will render a legal opinion
stating that, under current law and based on the representations, facts and
assumptions described in the opinion, this prospectus supplement and the
accompanying prospectus, and assuming full compliance with the terms of the
declaration, the underwriting agreement and the indenture (and other relevant
documents), the trust will be characterized for United States federal income tax
purposes as a grantor trust and will not be taxable as a corporation.
Accordingly, for United States federal income tax purposes, you will be treated
as the beneficial owner of a pro rata undivided interest in the assets of the
trust, including the subordinated notes. You will include in your gross income
for United States federal income tax purposes all interest on and any gain
recognized with respect to your pro rata share of the assets of the trust,
including the subordinated notes.
CHARACTERIZATION OF THE SUBORDINATED NOTES
MediaOne Group and the trust will agree to treat the subordinated notes as
debt for United States federal income tax purposes. By accepting the preferred
securities, you agree to treat the subordinated notes as debt and to treat the
preferred securities as evidence of an indirect beneficial ownership interest in
the subordinated notes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
In general, a debt instrument will have original issue discount ("OID") equal
to the excess of its "stated redemption price at maturity" over its "issue
price." An instrument's "stated redemption price at maturity" is equal to the
sum of all amounts payable as interest and principal on the instrument,
excluding only "qualified stated interest." Under the applicable Treasury
Regulations, and, as a result of MediaOne Group Funding's ability to defer
payments of interest, none of the payments on the subordinated notes will be
considered "qualified stated interest." Accordingly, the subordinated notes will
be issued with OID, and all of the interest payments on the subordinated notes
will be treated as part of their stated redemption price at maturity. Holders of
debt instruments issued with OID must include the OID in income on an economic
accrual basis before the receipt of
S-35
<PAGE>
cash attributable to the OID, regardless of their regular method of tax
accounting. The amount of OID that accrues in any month will approximate the
amount of interest that accrues in that month at the stated interest rate.
CORPORATE US HOLDERS
Corporate US Holders of the preferred securities will not be entitled to a
dividends-received deduction for any income from the preferred securities.
SALES OF PREFERRED SECURITIES
If you sell your preferred securities, you will recognize gain or loss equal
to the difference between the amount realized from the sale of the preferred
securities (generally, your selling price) and your adjusted tax basis in the
preferred securities. Your adjusted tax basis in the preferred securities
generally will equal (1) the initial purchase price that you paid for the
preferred securities plus (2) any accrued and unpaid distributions that you were
required to treat as OID less any cash distributions received in respect of such
OID.
Gain or loss on the sale of preferred securities generally will be capital
gain or loss. The maximum regular United States federal income tax rate on
capital gains for individual taxpayers is currently 20% for sales and exchanges
of capital assets held for more than one year. All net capital gains of a
corporate taxpayer are subject to tax at ordinary corporate income tax rates of
up to 35%.
The preferred securities may trade at a price that does not accurately reflect
the value of accrued but unpaid interest relating to the subordinated notes. If
MediaOne Group Funding elects to defer payments of interest, and you sell your
preferred securities between record dates for payments of distributions on the
preferred securities, you will be required to continue to include in gross
income for United States federal income tax purposes accrued and unpaid interest
through the date of sale. This accrued and unpaid interest will be added to your
adjusted tax basis but may not be reflected in the sale price. To the extent the
sale price is less than your adjusted tax basis, you will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
RECEIPT OF SUBORDINATED NOTES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under "Description of the Preferred
Securities--Liquidation Distribution Upon Dissolution" on page 7, the Property
Trustee may distribute the subordinated notes to you in exchange for your
preferred securities. Except as discussed below, such a distribution would not
be a taxable event for United States federal income tax purposes, and you would
have an aggregate adjusted tax basis in the subordinated notes you received
equal to your aggregate adjusted tax basis in your preferred securities. For a
description of adjusted tax basis, see the discussion above under "--Sales of
Preferred Securities."
Further, the holding period of the subordinated notes you received would be
the same as the period during which you held your preferred securities. If,
however, the distribution were caused by a Tax Event and the trust were taxable
as a corporation, the distribution would be a taxable event for United States
federal income tax purposes. In that case, you could recognize gain or loss,
your adjusted tax basis in the subordinated notes could differ from your
adjusted tax basis in the preferred securities, and your holding period for the
subordinated notes would not include the
S-36
<PAGE>
period during which you held the preferred securities.
Under certain circumstances, as described under "Certain Terms of the
Preferred Securities--Redemption" on page S-25 and "Certain Terms of the
Preferred Securities-- Special Event Redemption" on page S-26, the subordinated
notes may be redeemed for cash. Such a redemption would be a taxable event for
United States federal income tax purposes, and you would recognize gain or loss
as if you had sold the preferred securities for cash. See "--Sales of Preferred
Securities" above.
NON-US HOLDERS
Payments to a Non-US Holder will generally not be subject to United States
federal withholding tax, provided the holder:
- does not own (directly or indirectly,
actually or constructively) 10% or more of the total combined voting power
of all classes of stock of MediaOne Group entitled to vote;
- is not a controlled foreign corporation
that is related to MediaOne Group through stock ownership; and
- is not a bank receiving interest
described in section 881(c)(3)(A) of the Code.
To qualify for this exemption from withholding, the last United States payer
in the chain of payment prior to payment to a Non-US Holder (the "withholding
agent") must have received in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a statement
that:
- is signed by the holder of the preferred
securities under penalties of perjury;
- certifies that such holder is not a US
Holder; and
- provides the name and address of the
holder.
The statement may be made on an IRS form W-8 or a substantially similar form,
and the holder must inform the withholding agent of any change in the
information on the statement within 30 days of such change. If the preferred
securities are held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide a signed
statement to the withholding agent along with a copy of the IRS form W-8 or the
substitute form provided by the holder.
A Non-US Holder will generally not be subject to United States federal
withholding or income tax on any gain realized upon the sale or other
disposition of the preferred securities. However, if a Non-US Holder holds the
preferred securities in connection with a trade or business conducted in the
United States, or is present in the United States in certain circumstances, it
may be subject to income tax on all income and gains recognized.
BACKUP WITHHOLDING
You may be subject to a "backup withholding" tax of 31% on distributions made
on the preferred securities and on the entire price received on the sale of the
preferred securities if you:
- fail to provide your social security or
taxpayer identification number to your broker;
- provide your broker with an incorrect
social security or tax identification number;
- fail to provide your broker with a
certified statement that your social security or tax identification number
is correct and that you are not subject to backup;
S-37
<PAGE>
- improperly report interest and
dividends on your tax return.
Backup withholding, however, does not apply to payments made to certain exempt
recipients such as corporations or tax exempt organizations. Any withheld
amounts will be allowed as a credit against your United States federal income
tax, provided the required information is provided to the IRS.
THE TAX INFORMATION ABOVE IS INTENDED ONLY AS A SUMMARY OF MATERIAL UNITED
STATES FEDERAL TAX CONSEQUENCES OF AN INVESTMENT IN THE TRUST. WE URGE YOU TO
CONSULT WITH YOUR TAX ADVISOR AS TO THE UNITED STATES FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES ASSOCIATED WITH PURCHASING, OWNING AND
SELLING THE PREFERRED SECURITIES. THE STATEMENTS OF UNITED STATES TAX LAWS
DESCRIBED ABOVE ARE BASED ON THE LAWS IN FORCE AS OF THE DATE OF THIS PROSPECTUS
SUPPLEMENT, AND ARE SUBJECT TO ANY CHANGES IN UNITED STATES LAW OCCURRING AFTER
THAT DATE POSSIBLY WITH RETROACTIVE EFFECT.
S-38
<PAGE>
UNDERWRITING
GENERAL
Based on the terms and conditions of a purchase agreement, the trust has
agreed to sell to each of the underwriters named below, and each of the
underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, A.G.
Edwards & Sons, Inc., PaineWebber Incorporated, Prudential Securities
Incorporated and Salomon Smith Barney Inc. are acting as the representatives,
has severally agreed to purchase from the trust, the number of preferred
securities set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITERS SECURITIES
------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
A.G. Edwards & Sons, Inc................................................
PaineWebber Incorporated................................................
Prudential Securities Incorporated......................................
Salomon Smith Barney Inc. ..............................................
----------
Total........................................................ 8,000,000
----------
----------
</TABLE>
The underwriters are obligated to purchase all of the preferred securities, if
any preferred securities are purchased.
MediaOne Group, MediaOne Group Funding and the trust will have agreements with
the underwriters to indemnify them against certain civil liabilities, including
liabilities under the Securities Act of 1933, or to contribute with respect to
payments which the underwriters may be required to make.
The underwriters have in the past and may in the future engage in transactions
with, or perform services for, MediaOne Group or its subsidiaries in the
ordinary course of their businesses.
MediaOne Group Funding will pay all expenses, estimated to be $ ,
associated with the offer and sale of the preferred securities.
COMMISSIONS AND DISCOUNTS
The underwriters will offer the preferred securities directly to the public at
$25 per preferred security. The underwriters may also offer the preferred
securities to certain securities dealers at the above mentioned offering price
less a concession of $ per
S-39
<PAGE>
preferred security. The underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per preferred security to certain brokers and
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
Since the proceeds from the sale of the preferred securities will be used to
purchase the subordinated notes, MediaOne Group Funding has agreed to pay to the
underwriters an underwriting commission of $ per preferred security (or a
total of $ million). However, the underwriting commission for sales of 10,000
or more preferred securities to a single purchaser will be $ per preferred
security. If any such sales occur, the total amount of the underwriting
commission will be less than $ million.
The representatives have advised MediaOne Group that they intend to make a
market in the preferred securities; however, they are not obligated to do so and
may discontinue market making at any time without notice. We can not give any
assurance about the liquidity of the trading market for the preferred
securities.
OVER-ALLOTMENT OPTION
The underwriters have an option to purchase up to 1,200,000 additional
preferred securities at the public offering price to cover over-allotments. The
underwriters can exercise this option for a period of 30 days after the date of
this prospectus supplement. If the underwriters exercise this option, each
underwriter will have a firm commitment, subject to some conditions, to purchase
approximately the same percentage of any additional preferred securities as the
percentage of the preferred securities initially offered that such underwriter
has agreed to purchase.
NEW YORK STOCK EXCHANGE LISTING
Before this offering, there has been no established public trading market for
the preferred securities. The trust will submit an application to list the
preferred securities on the NYSE. If approved for listing, trading of the
preferred securities is expected to begin within 30 days of the issuance of the
preferred securities. In order to meet all of the requirements for listing the
preferred securities on the NYSE, the underwriters have agreed to sell the
preferred securities to a minimum of 400 beneficial holders. The representatives
have advised MediaOne Group that they intend to make a market in the preferred
securities prior to the commencement of trading on the NYSE. However, the
representatives are not obligated to do so and may discontinue market making at
any time without notice. We can not give any assurance about the liquidity of
the trading market for the preferred securities.
NO SALES OF SIMILAR SECURITIES
MediaOne Group, MediaOne Group Funding and the trust have agreed that for
business days after the date of this prospectus supplement they will not
directly or indirectly offer, sell, offer to sell, grant any option for the sale
of or otherwise dispose of any preferred securities, any securities convertible
into or exchangeable for the preferred securities or any equity securities
substantially similar to the preferred securities (except for any series of
subordinated notes and the preferred securities) without the prior written
consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
S-40
<PAGE>
PRICE STABILIZATION AND SHORT POSITIONS
In connection with the sale of the preferred securities, SEC rules permit the
underwriters to engage in transactions that stabilize the price of the preferred
securities. These transactions may include purchases for the purpose of fixing
or maintaining the price of the preferred securities.
The underwriters may create a short position in the preferred securities in
connection with the offering. That means they may sell a larger number of the
preferred securities than is shown on the cover page of the prospectus
supplement. If they create a short position, the underwriters may purchase
preferred securities in the open market to reduce the short position.
If the underwriters purchase the preferred securities to stabilize the price
or to reduce their short position, the price of the preferred securities could
be higher than it might be if they had not made such purchases. The underwriters
make no representation or prediction about any effect that the purchases may
have on the price of the preferred securities.
The underwriters may suspend any of these activities at any time.
PENALTY BIDS
The representatives also may impose a penalty bid on certain underwriters and
selling group members. This means that, if the representatives purchase
preferred securities in the open market to reduce the underwriters' short
position or to stabilize the price of the preferred securities, they may reclaim
the amount of the selling concession from the underwriters and selling group
members who sold those preferred securities as part of this offering.
S-41
<PAGE>
PROSPECTUS
$700,000,000
<TABLE>
<S> <C>
MEDIAONE GROUP MEDIAONE FINANCE TRUST III
FUNDING, INC. MEDIAONE FINANCE TRUST IV
SUBORDINATED NOTES FULLY AND MEDIAONE FINANCE TRUST V
UNCONDITIONALLY GUARANTEED AS TO MEDIAONE FINANCE TRUST VI
PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, PREFERRED SECURITIES FULLY AND UNCONDITIONALLY
AND INTEREST BY MEDIAONE GROUP, INC. GUARANTEED, BASED ON SEVERAL OBLIGATIONS, BY
MEDIAONE GROUP, INC.
</TABLE>
- --------------------------------------------------------------------------------
THE TRUSTS
MediaOne Finance Trust III, MediaOne Finance Trust IV, MediaOne Finance Trust V
and MediaOne Finance Trust VI are Delaware business trusts. Each trust will
- - sell preferred securities (representing undivided beneficial interests in the
trust) to the public.
- - sell common securities (representing undivided beneficial interests in the
trust) to MediaOne Group.
- - use the proceeds from these sales to buy an equal amount of subordinated notes
of MediaOne Group Funding, Inc., a subsidiary of MediaOne Group.
- - distribute the cash payments it receives on the subordinated notes it owns to
the holders of the preferred and common securities.
MEDIAONE GROUP FUNDING
- - will pay principal, premium (if any) and interest on its subordinated notes,
subject to payment on its more senior debt.
- - may choose to distribute the subordinated notes pro rata to the preferred and
common security holders.
MEDIAONE GROUP
- - will fully and unconditionally guarantee the payment by each trust of the
preferred securities based on several obligations described in this
prospectus.
- - will fully and unconditionally guarantee the subordinated notes on a
subordinated basis.
WE URGE YOU TO READ THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT,
WHICH WILL DESCRIBE THE SPECIFIC TERMS OF THE PREFERRED SECURITIES, THE
SUBORDINATED NOTES AND THE NOTE GUARANTEE, CAREFULLY BEFORE YOU MAKE YOUR
INVESTMENT DECISION.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS OR THE ACCOMPANYING PROSPECTUS SUPPLEMENT IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
THIS PROSPECTUS MAY NOT BE USED TO SELL SECURITIES UNLESS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT.
The date of this prospectus is October 15, 1998
<PAGE>
WHERE YOU CAN FIND
MORE INFORMATION
MediaOne Group files reports, proxy statements, and other information with the
Securities and Exchange Commission ("SEC"). Such reports, proxy statements, and
other information concerning MediaOne Group can be read and copied at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the Public Reference
Room. The SEC maintains an internet site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC, including MediaOne Group.
MediaOne Group's Common Stock is listed and traded on the New York Stock
Exchange ("NYSE") and the Pacific Stock Exchange ("PSE"). These reports, proxy
statements and other information are also available for inspection at the
offices of the NYSE, 20 Broad Street, New York, New York 10005 and at the
offices of PSE, 115 Sansome Street, 2nd Floor, San Francisco, California 94104.
This prospectus is part of a registration statement filed with the SEC by
MediaOne Group, MediaOne Group Funding and the trusts. The full registration
statement can be obtained from the SEC as indicated above, or from MediaOne
Group.
The SEC allows MediaOne Group to "incorporate by reference" the information it
files with the SEC. This permits MediaOne Group to disclose important
information to you by referencing these filed documents. Any information
referenced this way is considered part of this prospectus, and any information
filed with the SEC subsequent to this prospectus will automatically be deemed to
update and supersede this information. MediaOne Group incorporates by reference
the following documents which have been filed with the SEC:
- - Annual Report on Form 10-K for the year ended December 31, 1997, as amended by
Form 10-K/A filed April 13, 1998;
- - Current Reports on Form 8-K dated January 29, 1998, February 17, 1998, March
25, 1998 (as amended by Form 8-K/A filed April 13, 1998), April 17, 1998, May
5, 1998, June 18, 1998, June 24, 1998, July 29, 1998 and July 30, 1998;
- - Proxy Statement on Schedule 14A filed with the Commission on April 20, 1998;
and
- - Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June
30, 1998.
All reports filed on or prior to June 12, 1998 were filed by MediaOne Group
under the name of U S WEST, Inc.
MediaOne Group incorporates by reference the documents listed above and any
future filings made with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act of 1934 (the "Exchange Act") until the trusts sell all of
the preferred securities.
MediaOne Group will provide without charge upon written or oral request, a copy
of any or all of the documents which are incorporated by reference to this
prospectus, other than exhibits which are specifically incorporated by reference
into such documents. Requests should be directed to Investor Relations, MediaOne
Group, Inc., 188 Inverness Drive West, Englewood, Colorado 80112 (telephone
number (303) 858-3677).
There are no separate financial statements of MediaOne Group Funding or the
trusts in this prospectus. MediaOne Group does
2
<PAGE>
not believe such financial statements would be helpful because:
- - MediaOne Group Funding and the trusts are direct or indirect wholly-owned
subsidiaries of MediaOne Group, which files consolidated financial information
under the Exchange Act.
- - MediaOne Group Funding does not have any independent operations other than
issuing debt securities guaranteed by MediaOne Group.
- - The trusts do not have any independent operations other than issuing the
preferred and common securities and purchasing the subordinated notes.
- - The obligations of MediaOne Group Funding under the subordinated notes are
fully and unconditionally guaranteed by MediaOne Group and the obligations of
MediaOne Group under the Preferred Securities Guarantees, the Declarations,
the note guarantees and the Indenture (each as defined herein) have the effect
of providing a full, irrevocable and unconditional guarantee of the trusts'
obligations under their preferred securities. See "Description of the
Subordinated Notes and the Note Guarantees," "Description of the Preferred
Securities Guarantees" and "Relationship Among the Preferred Securities, the
Preferred Securities Guarantee, the Subordinated Notes and the Note Guarantee
Held by Each Trust."
MEDIAONE GROUP, INC.
MediaOne Group is a diversified global media and broadband communications
company. MediaOne Group has operations and investments in two principal areas:
(1) domestic broadband communications and (2) international broadband and
wireless communications. MediaOne Group is the third largest cable television
system operator in the United States with large clusters in Atlanta, Georgia,
Eastern Massachusetts, Southern California, Southern Florida, Detroit, Michigan
and Minneapolis/St. Paul, Minnesota. As of June 30, 1998, MediaOne Group's
domestic cable television systems passed approximately 8.4 million homes and
provided services to approximately 5.0 million basic cable subscribers. MediaOne
Group also owns an approximately 25% capital interest in Time Warner
Entertainment Company, L.P., which provides cable programming, filmed
entertainment and broadband communications services and is the second largest
cable television system operator in the United States. Outside of the United
States, MediaOne Group owns interests in various providers of broadband and
wireless communications services in markets in continental Europe, the United
Kingdom and Asia, including an approximately 22% interest in Telewest
Communications plc, the second largest provider of combined cable and
telecommunications services in the United Kingdom, and a 50% interest in One 2
One, a provider of personal communications services in the United Kingdom.
THE SEPARATION
Prior to June 12, 1998, MediaOne Group was known as "U S WEST, Inc." ("Old U S
WEST"). On June 12, 1998, Old U S WEST separated its businesses into two
independent companies (the "Separation"). Until the Separation, Old U S WEST
conducted its businesses through two groups: the U S WEST Communications Group
(the "Communications Group") and the U S WEST Media Group (the "Media Group").
In the Separation, the Communications Group and the domestic directories
business of the Media Group were combined to form a new corporation ("New U S
WEST"). The shares of New
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U S WEST were issued to the shareholders of Old U S WEST. New U S WEST has
changed its name to "U S WEST, Inc." The rest of Old U S WEST, consisting of the
remainder of the Media Group, was re-named "MediaOne Group, Inc."
THE AIRTOUCH TRANSACTION
On April 6, 1998, MediaOne Group sold its domestic wireless business to AirTouch
Communications, Inc. (the "AirTouch Transaction"). In the AirTouch Transaction,
MediaOne Group received from AirTouch (after closing adjustments):
- - 59,313,621 shares of AirTouch common stock; and
- - two classes of AirTouch preferred stock having an aggregate liquidation
preference of $1.65 billion.
In addition, AirTouch assumed $1.35 billion of indebtedness of MediaOne Group's
domestic wireless business. Prior to the AirTouch Transaction, MediaOne Group
and AirTouch were parties to a joint venture pursuant to which the parties had
agreed to combine their domestic wireless businesses. The AirTouch Transaction
was consummated instead of such joint venture.
In August 1998, MediaOne Group issued approximately $1.7 billion principal
amount of 6 1/4% exchangeable notes due August 15, 2001. The exchangeable notes
are mandatorily exchangeable into a number of shares of AirTouch common stock
(or at MediaOne Group's option, the cash equivalent of such stock) according to
an exchange rate formula based on the then market price of AirTouch common
stock. Under the terms of the exchangeable notes, the holders of the
exchangeable notes could receive up to a maximum of 29,900,000 shares of
AirTouch common stock at maturity.
MEDIAONE GROUP FUNDING, INC.
MediaOne Group Funding is a wholly owned subsidiary of MediaOne Group. MediaOne
Group Funding has no independent operations. MediaOne Group Funding's sole
purpose is to provide financing to MediaOne Group and its affiliates through the
issuance of indebtedness guaranteed by MediaOne Group.
THE TRUSTS
MediaOne Group created four Delaware business trusts pursuant to four
Declarations of Trust executed by MediaOne Group as sponsor for each trust and
five appointed trustees for each trust. The trusts are named MediaOne Finance
Trust III, MediaOne Finance Trust IV, MediaOne Finance Trust V and MediaOne
Finance Trust VI. MediaOne Group will file an Amended and Restated Declaration
of Trust (a "Declaration") for each trust, which will state the terms and
conditions for each trust to issue and sell its preferred securities and common
securities. A form of Declaration is filed as an exhibit to the registration
statement of which this prospectus forms a part.
Each trust will exist solely to:
- - issue and sell its preferred and common securities;
- - use the proceeds from the sale of its preferred and common securities to
purchase a series of MediaOne Group Funding's subordinated notes;
- - maintain its status as a grantor trust for federal income tax purposes; and
- - engage in other activities that are necessary or incidental to these purposes.
MediaOne Group will purchase all of the common securities of each trust. The
common securities will represent an aggregate liquidation amount equal to at
least 3% of each trust's total capitalization. The preferred securities will
represent the remaining 97% of such trust's total
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capitalization. The common securities will have terms substantially identical
to, and will rank equal in priority of payment with, the preferred securities.
However, if MediaOne Group Funding defaults on the related subordinated notes,
then cash distributions and liquidation, redemption and other amounts payable on
the common securities will be subordinate to the preferred securities in
priority of payment.
The preferred securities will be guaranteed by MediaOne Group as described later
in this prospectus.
MediaOne Group has appointed five trustees to conduct each trust's business and
affairs:
- - The First National Bank of Chicago ("Property Trustee")
- - An affiliate of The First National Bank of Chicago ("Delaware Trustee")
- - Three MediaOne Group officers ("Regular Trustees")
Only MediaOne Group, as owner of the common securities, can remove or replace
the trustees. In addition, MediaOne Group can increase or decrease the number of
trustees. However, the majority of trustees will always be Regular Trustees.
MediaOne Group Funding will pay all fees and expenses related to each trust and
each offering of the related preferred securities and will pay all ongoing costs
and expenses of each trust, except such trust's obligations under the related
preferred and common securities. MediaOne Group will fully and unconditionally
guarantee the payment of such fees and expenses.
The trusts will not have separate financial statements. The statements would not
be material to holders of the preferred securities because no trust will have
any independent operations. Each trust exists solely for the reasons summarized
above.
USE OF PROCEEDS
The proceeds of the sale of the common and preferred securities issued by each
trust will be invested by such trust in the related series of subordinated notes
of MediaOne Group Funding. MediaOne Group Funding will loan the proceeds from
the issuance of the subordinated notes to MediaOne Group and its affiliates to
be used for general corporate purposes, including working capital, acquisitions,
the refinancing of short-term and long-term borrowings and other business
opportunities.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed charges
and preferred stock dividends for MediaOne Group based on the historical results
of MediaOne Group, which have been restated to reflect the Separation of Old U S
WEST into MediaOne Group and New U S WEST for the periods indicated. For the
purpose of calculating this ratio, earnings consist of income from continuing
operations before income taxes and fixed charges. Fixed charges include interest
on indebtedness and the portion of rentals representative of the interest
factor.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
-- 1.67 -- -- -- -- 9.45
</TABLE>
Earnings for the year ended December 31, 1993, 1995, 1996 and 1997 were
insufficient to cover fixed charges and preferred stock dividends by $217
million, $64 million, $421 million and $629 million, respectively, and for the
six months ended June 30, 1997 by $349 million. Earnings for the six months
ended June 30, 1998 include a $3,869 million gain from the sale of domestic
wireless operations. Without the gain, earnings were insufficient to cover fixed
charges and preferred stock dividends by $414 million.
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DESCRIPTION OF SECURITIES
This prospectus contains a summary of the preferred securities, the subordinated
notes, the note guarantee and the preferred securities guarantee relating to
each trust. Such securities will be identical with respect to each trust except
as otherwise described in the prospectus supplement for such securities. These
summaries are not meant to be a complete description of each security. However,
this prospectus and the accompanying prospectus supplement contain the material
terms and conditions for each security. For more information please refer to (1)
the Declaration for each trust, (2) the indenture (the "Indenture") among
MediaOne Group, MediaOne Group Funding and Norwest Bank Minnesota, N.A., as
trustee ("Debenture Trustee"), as supplemented by a supplemental indenture (a
"Supplemental Indenture") relating to issuance of each series of subordinated
notes and the related note guarantee, and (3) MediaOne Group's guarantee of the
preferred securities issued by each trust (the "Preferred Securities
Guarantees"). Forms of these documents are filed as exhibits to the registration
statement, which includes this prospectus. Capitalized terms used in this
prospectus that are not defined will have the meanings given them in these
documents.
DESCRIPTION OF THE
PREFERRED SECURITIES
GENERAL
Each Declaration authorizes the Regular Trustees to issue on behalf of each
trust one series of preferred securities which will have the terms described in
a prospectus supplement. The proceeds from the sale of a trust's preferred and
common securities will be used by such trust to purchase a series of
subordinated notes issued by MediaOne Group Funding and a note guarantee issued
by MediaOne Group. The subordinated notes and note guarantee will be held in
trust by the Property Trustee for the benefit of the holders of such preferred
and common securities.
Under each Preferred Securities Guarantee, MediaOne Group will agree to make
payments of distributions and payments on redemption or liquidation with respect
to a trust's preferred securities, but only to the extent such trust has funds
available to make those payments and has not made such payments. See
"Description of the Preferred Securities Guarantees."
The assets of a trust available for distribution to the holders of its preferred
securities will be limited to payments from MediaOne Group Funding under the
series of subordinated notes held by such trust and from MediaOne Group under
the related note guarantee. If MediaOne Group Funding fails to make a payment on
such subordinated notes and MediaOne Group fails to make a payment under such
note guarantee, such trust will not have sufficient funds to make related
payments, including distributions, on its preferred securities.
Each Preferred Securities Guarantee, when taken together with MediaOne Group
Funding's obligations under the related series of subordinated notes and the
Indenture and MediaOne Group's obligations under the related note guarantee, the
Indenture and the related Declaration, will provide a full and unconditional
guarantee of amounts due on the preferred securities issued by a trust.
Each Declaration will be qualified as an indenture under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). Each Property Trustee will act
as indenture trustee for the preferred securities to be issued by the applicable
trust, in order
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to comply with the provisions of the Trust Indenture Act.
Each series of preferred securities will have the terms, including
distributions, redemption, voting, liquidation rights and such other preferred,
deferred or other special rights or such restrictions as described in the
relevant Declaration or made part of such Declaration by the Trust Indenture Act
or the Delaware Business Trust Act. The terms of such preferred securities will
mirror the terms of the subordinated notes held by the trust.
The prospectus supplement relating to the preferred securities of a trust will
describe the specific terms of such preferred securities, including:
- - the name of such preferred securities;
- - the dollar amount and number of securities issued;
- - the annual distribution rate(s) (or method of determining such rate(s)), the
payment date(s) and the record dates used to determine the holders who are to
receive distributions;
- - the date from which distributions shall be cumulative;
- - the optional redemption provisions, if any, including the prices, time periods
and other terms and conditions for which such preferred securities shall be
purchased or redeemed, in whole or in part;
- - the terms and conditions, if any, upon which the applicable series of
subordinated notes and the related note guarantee may be distributed to
holders of such preferred securities;
- - any securities exchange on which such preferred securities will be listed;
- - whether such preferred securities are to be issued in book-entry form and
represented by one or more global certificates, and if so, the depository for
such global certificates and the specific terms of the depositary
arrangements; and
- - any other relevant rights, preferences, privileges, limitations or
restrictions of such preferred securities.
Each prospectus supplement will describe certain United States federal income
tax considerations applicable to the purchase, holding and disposition of the
series of preferred securities covered by such prospectus supplement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Each Declaration states that the related trust shall be dissolved:
- - on the expiration of the term of such trust;
- - upon the bankruptcy of MediaOne Group or MediaOne Group Funding;
- - upon the filing of a certificate of dissolution or its equivalent with respect
to MediaOne Group or MediaOne Group Funding;
- - upon the filing of a certificate of cancellation with respect to such trust
after obtaining the consent of at least a majority in liquidation amount of
the preferred and common securities of such trust, voting together as a single
class;
- - 90 days after the revocation of the charter of MediaOne Group or MediaOne
Group Funding (but only if the charter is not reinstated during that 90-day
period);
- - upon the distribution of the related subordinated notes and note guarantee
directly to the holders of the preferred and common securities of such trust;
- - upon the redemption of all of the common and preferred securities of such
trust; or
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- - upon entry of a court order for the dissolution of MediaOne Group, MediaOne
Group Funding or such trust.
In the event of a dissolution, after the trust pays all amounts owed to
creditors, the holders of the preferred and common securities will be entitled
to receive:
- - cash equal to the aggregate liquidation amount of each preferred and common
security specified in an accompanying prospectus supplement, plus accumulated
and unpaid distributions to the date of payment; unless
- - subordinated notes in an aggregate principal amount equal to the aggregate
liquidation amount of the preferred and common securities are distributed to
the holders of the preferred and common securities.
If such trust cannot pay the full amount due on its preferred and common
securities because insufficient assets are available for payment, then the
amounts payable by the trust on its preferred and common securities shall be
paid pro rata. However, if an event of default under the related Declaration has
occurred, the total amounts due on such preferred securities will be paid before
any distribution on such common securities.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture relating to a series of subordinated
notes and the related note guarantee is an event of default under the
Declaration of the trust that owns these subordinated notes and note guarantee
(a "Declaration Event of Default"). See "Description of the Subordinated Notes
and the Note Guarantees--Events of Default Under the Indenture."
MediaOne Group and the Regular Trustees of a trust must file annually with the
Property Trustee for such trust a certificate stating whether or not they are in
compliance with all the applicable conditions and covenants under the related
Declaration.
Upon the occurrence of a Declaration Event of Default, the Property Trustee of
the applicable trust, as the sole holder of the subordinated notes held by such
trust, will have the right under the Indenture to declare the principal of,
premium, if any, and interest on such subordinated notes to be immediately due
and payable.
If a Property Trustee fails to enforce its rights under the related Declaration
or the Indenture to the fullest extent permitted by law and subject to the terms
of such Declaration and the Indenture, any holder of the preferred securities
issued by the related trust may sue MediaOne Group or MediaOne Group Funding, or
seek other remedies, to enforce the Property Trustee's rights under the
Declaration or the Indenture without first instituting a legal proceeding
against such Property Trustee or any other person.
If MediaOne Group Funding fails to pay principal, premium, if any, or interest
on a series of subordinated notes and MediaOne Group fails to make payments on
the related note guarantee, in either case when payable, then a holder of such
preferred securities may directly sue MediaOne Group Funding or MediaOne Group
or seek other remedies, to collect its pro rata share of payments owned.
REMOVAL AND REPLACEMENT OF TRUSTEES
Only the holder of a trust's common securities has the right to remove or
replace the trustees of such trust. The resignation or removal of any trustee
and the appointment of a successor trustee shall be effective only on the
acceptance of appointment by the successor trustee in accordance with the
provisions of the Declaration for such trust.
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MERGERS, CONSOLIDATIONS OR AMALGAMATIONS OF THE TRUSTS
A trust 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 other corporation or other body ("Merger Event"), except as
described below. A trust may, with the consent of a majority of its Regular
Trustees and without the consent of the holders of its preferred and common
securities, consolidate, amalgamate, merge with or into, or be replaced by
another trust, provided that:
- - the successor entity either
(1) assumes all of the obligations of the trust relating to its preferred
and common securities or
(2) substitutes for such trust's preferred and common securities other
securities substantially similar to such preferred and common securities
("successor securities"), so long as the successor securities rank the
same as such preferred and common securities for distributions and
payments upon liquidation, redemption and otherwise;
- - MediaOne Group Funding acknowledges a trustee of such successor entity who has
the same powers and duties as the Property Trustee of such trust as the holder
of the particular series of subordinated notes and MediaOne Group expressly
acknowledges such trustee as the holder of the related note guarantee;
- - the preferred securities are listed, or any successor securities will be
listed upon notice of issuance, on the same national securities exchange or
other organization that the preferred securities are then listed;
- - the Merger Event does not cause its preferred securities or successor
securities to be downgraded by any national rating agency;
- - the Merger Event does not adversely affect the rights, preferences and
privileges of the holders of its preferred and common securities or successor
securities in any material way (other than with respect to any dilution of the
holders' interest in the new entity);
- - the successor entity has a purpose identical to that of the trust;
- - prior to the Merger Event, MediaOne Group has received an opinion of counsel
from a nationally recognized law firm stating that
(1) such Merger Event does not adversely affect the rights of the holders of
the trust's preferred securities or any successor securities in any
material way (other than with respect to any dilution of the holders'
interest in the new entity) and
(2) following the Merger Event, neither the trust nor the successor entity
will be required to register as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company
Act"); and
- - MediaOne Group guarantees the obligations of the successor entity under the
successor securities in the same manner as in the applicable Preferred
Securities Guarantee and the guarantee of the common securities for such
trust.
In addition, unless all of the holders of the preferred and common securities
approve otherwise, a trust shall not consolidate, amalgamate, merge with or
into, or be replaced by any other entity or permit any other entity to
consolidate, amalgamate,
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merge with or into, or replace it, if such transaction would cause the trust or
the successor entity to be classified other than as a grantor trust for United
States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF DECLARATIONS
The holders of preferred securities have no voting rights except as discussed
under "--Mergers, Consolidations, Amalgamations or Replacements of the Trust"
and "Description of the Preferred Securities Guarantees--Amendments and
Assignment," and as otherwise required by law and the Declaration for such
trust.
A Declaration may be amended if approved by a majority of the Regular Trustees
of the applicable trust. However, if any proposed amendment provides for, or
such Regular Trustees otherwise propose to effect,
(1) any action that would adversely affect the powers, preferences or special
rights of the trust's preferred and common securities, whether by way of
amendment to such Declaration or otherwise or
(2) the dissolution, winding-up or termination of such trust other than pursuant
to the terms of its Declaration,
then the holders of the trust's preferred and common securities as a single
class will be entitled to vote on such amendment or proposal. In that case, the
amendment or proposal will only be effective if approved by at least a majority
in liquidation amount of the preferred and common securities affected by such
amendment or proposal.
If any amendment or proposal referred to in clause (1) above would adversely
affect only the preferred securities or the common securities of a trust, then
only the affected class will be entitled to vote on such amendment or proposal
and such amendment or proposal will only be effective with the approval of at
least a majority in liquidation amount of such affected class.
No amendment may be made to a Declaration if such amendment would:
- - cause the related trust to be characterized as other than a grantor trust for
United States federal income tax purposes;
- - reduce or otherwise adversely affect the powers of the Property Trustee; or
- - cause the related trust to be deemed to be an "investment company" which is
required to be registered under the Investment Company Act.
The holders of a majority in aggregate liquidation amount of the preferred
securities of each trust have the right to:
- - direct the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee of the trust; or
- - direct the exercise of any trust or power conferred upon such Property Trustee
under that trust's Declaration, including the right to direct the Property
Trustee, as the holder of a series of subordinated notes and a note guarantee,
to
(1) exercise the remedies available under the Indenture with respect to such
subordinated notes and note guarantee,
(2) waive any event of default under the Indenture that is waivable or
(3) cancel an acceleration of the principal of the subordinated notes.
However, if the Indenture requires the consent of the holders of more than a
majority in aggregate principal amount of a series of subordinated notes (a
"super-
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majority"), then the Property Trustee for such series must get approval of the
holders of a super-majority in liquidation amount of such series of preferred
securities.
In addition, before taking any of the foregoing actions, the Property Trustee
must obtain an opinion of counsel stating that, as a result of such action, the
trust will continue to be classified as a grantor trust for United States
federal income tax purposes.
The Property Trustee of a trust will notify all preferred securities holders of
such trust of any notice received from the Debenture Trustee with respect to the
subordinated notes and note guarantee held by such trust.
As described in each Declaration, the Property Trustee may hold a meeting to
have preferred securities holders vote on a change or have them approve the
change by written consent.
If a vote of preferred securities holders is taken or a consent is obtained, any
preferred securities that are owned by MediaOne Group or any of its affiliates
will, for purposes of the vote or consent, be treated as if they were not
outstanding. This means
(1) MediaOne Group and any of its affiliates will not be able to vote on or
consent to matters requiring the vote or consent of holders of preferred
securities and
(2) any preferred securities owned by MediaOne Group or any of its affiliates
will not be counted in determining whether the required percentage of votes
or consents has been obtained.
INFORMATION CONCERNING THE PROPERTY TRUSTEES
For matters relating to compliance with the Trust Indenture Act, the Property
Trustee of each trust will have all of the duties and responsibilities of an
indenture trustee under the Trust Indenture Act. Each Property Trustee, other
than during the occurrence and continuance of a Declaration Event of Default
under the applicable trust, undertakes to perform only such duties as are
specifically set forth in the applicable Declaration and, upon a Declaration
Event of Default, must use the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, a Property Trustee is under no obligation to exercise any of the
powers given it by the applicable Declaration at the request of any holder of
preferred securities unless it is offered reasonable security or indemnity
against the costs, expenses and liabilities that it might incur. However, the
holders of the preferred securities will not be required to offer such an
indemnity where the holders, by exercising their voting rights, direct the
Property Trustee to take any action following a Declaration Event of Default.
MediaOne Group and certain of its affiliates maintain a deposit account and
banking relationship with The First National Bank of Chicago. The First National
Bank of Chicago serves as trustee under other indentures pursuant to which
unsecured debt securities of MediaOne Group and its affiliates are outstanding.
MISCELLANEOUS
The Regular Trustees of each trust are authorized and directed to conduct the
affairs of and to operate such trust in such a way that
- - it will not be deemed to be an "investment company" required to be registered
under the Investment Company Act;
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- - it will be classified as a grantor trust for United States federal income tax
purposes; and
- - the subordinated notes held by it will be treated as indebtedness of MediaOne
Group Funding for United States federal income tax purposes.
MediaOne Group Funding and the Regular Trustees of a trust are authorized to
take any action (so long as it is consistent with applicable law or the
applicable certificate of trust or Declaration) that MediaOne Group Funding and
the Regular Trustees of such trust determine to be necessary or desirable for
such purposes.
Holders of preferred securities have no preemptive or similar rights.
A trust may not borrow money, issue debt, execute mortgages or pledge any of its
assets.
GOVERNING LAW
Each Declaration and the related preferred securities will be governed by and
construed in accordance with the laws of the State of Delaware.
DESCRIPTION OF THE SUBORDINATED NOTES AND THE NOTE GUARANTEES
GENERAL
MediaOne Group Funding plans to sell one series of subordinated notes to each
trust pursuant to this prospectus. MediaOne Group will fully and unconditionally
guarantee each series of subordinated notes under a note guarantee.
Below is a description of certain general terms of the subordinated notes and
note guarantees. The particular terms of a series of subordinated notes and the
related note guarantee will be described in a prospectus supplement.
MediaOne Group Funding will issue the subordinated notes under a Supplemental
Indenture. The Indenture will be qualified under the Trust Indenture Act. The
Indenture and form of Supplemental Indenture is filed as an exhibit to the
registration statement to which this prospectus forms a part.
Each series of subordinated notes will be unsecured and will be subordinate and
junior in priority of payment to certain of MediaOne Group Funding's other
indebtedness to the extent described in a prospectus supplement. MediaOne Group
will fully and unconditionally guarantee the payment of principal, premium, if
any, and interest on each series of subordinated notes under the related note
guarantee. The note guarantees will be unsecured and will be subordinate and
junior in priority of payment to certain of MediaOne Group's other indebtedness
to the extent described in a prospectus supplement. The Indenture does not limit
the amount of subordinated notes which MediaOne Group Funding may issue, nor
does it limit MediaOne Group Funding from issuing any other secured or unsecured
debt.
Each prospectus supplement will describe the following terms relating to a
series of subordinated notes:
- - the title;
- - any limit on the amount that may be issued;
- - whether or not such series of subordinated notes will be issued in global
form, the terms and who the depository will be;
- - the maturity date(s);
- - the annual interest rate(s) (which may be fixed or variable) or the method for
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determining the rate(s) and the date(s) interest will begin to accrue, the
date(s) interest will be payable and the regular record dates for interest
payment dates or the method for determining such date(s);
- - the place(s) where payments shall be payable;
- - MediaOne Group Funding's right, if any, to defer payment of interest and the
maximum length of any such deferral period;
- - the date, if any, after which, and the price(s) at which, such series of
subordinated notes may, pursuant to any optional redemption provisions, be
redeemed at MediaOne Group Funding's option, and other related terms and
provisions;
- - the date(s), if any, on which, and the price(s) at which MediaOne Group
Funding is obligated, pursuant to any mandatory sinking fund provisions or
otherwise, to redeem, or at the Holder's option to purchase, such series of
subordinated notes and other related terms and provisions;
- - the denominations in which such series of subordinated notes will be issued,
if other than denominations of $25 and any integral multiple thereof; and
- - any other terms (which terms shall not be inconsistent with the Indenture).
CONSOLIDATION, MERGER OR SALE
The Indenture does not contain any covenant which restricts the ability of
MediaOne Group or MediaOne Group Funding to merge or consolidate, or sell,
convey, transfer or otherwise dispose of all or substantially all of their
assets. However, any successor or acquiror of such assets must assume all of the
obligations of MediaOne Group or MediaOne Group Funding under the Indenture, the
subordinated notes or the note guarantees, as appropriate.
EVENTS OF DEFAULT UNDER THE INDENTURE
The following are events of default under the Indenture with respect to any
series of subordinated notes issued:
- - failure to pay interest when due and such failure continues for 90 days and
the time for payment has not been extended or deferred;
- - failure to pay the principal (or premium, if any) when due;
- - failure to observe or perform any other covenant contained in the subordinated
notes or the Indenture (other than a covenant specifically relating to another
series of subordinated notes), and such failure continues for 90 days after
MediaOne Group Funding receives notice from the Debenture Trustee or holders
of at least 25% in aggregate principal amount of the outstanding subordinated
notes of that series;
- - certain events of bankruptcy, insolvency or reorganization of MediaOne Group
or MediaOne Group Funding; and
- - the voluntary or involuntary dissolution, winding up or termination of the
trust that owns the series of subordinated notes, except in connection with
(1) the distribution of such subordinated notes to holders of preferred and
common securities of such trust,
(2) the redemption of all of the preferred and common securities of such
trust or
(3) mergers, consolidations or amalgamations permitted by the Declaration of
such trust.
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If an event of default with respect to subordinated notes of any series occurs
and is continuing, the Debenture Trustee or the holders of at least 25% in
aggregate principal amount of the outstanding subordinated notes of that series,
by notice in writing to MediaOne Group Funding (and to the Debenture Trustee if
notice is given by such holders), may declare the unpaid principal of, premium,
if any, and accrued interest, if any, due and payable immediately.
The holders of a majority in principal amount of the outstanding subordinated
notes of an affected series (or if such subordinated notes are held by a trust,
the holders of at least a majority in aggregate liquidation amount of the
trust's preferred securities) may waive any default or event of default with
respect to such series and its consequences, except defaults or events of
default regarding:
- - payment of principal, premium, if any, or interest; or
- - certain covenants containing limitations on MediaOne Group's and MediaOne
Group Funding's ability to pay dividends and make payments on subordinated
debt securities in certain circumstances.
Any such waiver shall cure such default or event of default.
If the subordinated notes of any series are held by a trust, and a Declaration
Event of Default has occurred and is attributable to the failure of MediaOne
Group Funding or MediaOne Group to pay principal, premium, if any, or interest
on, such subordinated notes, then each holder of the preferred securities of
such trust may sue MediaOne Group or MediaOne Group Funding, or seek other
remedies, to force payment to such holder of the principal of, premium, if any,
or interest on, such subordinated notes having a principal amount equal to the
aggregate liquidation amount of the preferred securities held by such holder.
Subject to the terms of the Indenture, if an event of default under the
Indenture shall occur and be continuing, the Debenture Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the holders of the applicable series of
subordinated notes, unless such holders have offered the Debenture Trustee
reasonable indemnity. The holders of a majority in principal amount of the
outstanding subordinated notes of any series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Debenture Trustee, or exercising any trust or power conferred on the
Debenture Trustee, with respect to the subordinated notes of that series,
provided that:
- - it is not in conflict with any law or the Indenture;
- - the Debenture Trustee may take any other action deemed proper by it which is
not inconsistent with such direction; and
- - subject to its duties under the Trust Indenture Act, the Debenture Trustee
need not take any action that might involve it in personal liability or might
be unduly prejudicial to the holders not involved in the proceeding.
A holder of the subordinated notes of any series will only have the right to
institute a proceeding under the Indenture or to appoint a receiver or trustee,
or to seek other remedies if:
- - the holder has given written notice to the Debenture Trustee of a continuing
event of default with respect to that series;
- - the holders of at least 25% in aggregate principal amount of the outstanding
subordinated notes of that series have made written request, and such holders
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have offered reasonable indemnity to the Debenture Trustee to institute such
proceedings as trustee; and
- - the Debenture Trustee does not institute such proceeding, and does not receive
from the holders of a majority in aggregate principal amount of the
outstanding subordinated notes of that series other conflicting directions
within 60 days after such notice, request and offer.
These limitations do not apply to a suit instituted by a holder of subordinated
notes if MediaOne Group Funding defaults in the payment of the principal,
premium, if any, or interest on, the subordinated notes and MediaOne Group
defaults in its payment obligations on the note guarantee.
MediaOne Group Funding and MediaOne Group will periodically file statements with
the Debenture Trustee regarding its compliance with certain of the covenants in
the Indenture.
MODIFICATION OF INDENTURE; WAIVER
MediaOne Group, MediaOne Group Funding and the Debenture Trustee may change the
Indenture without the consent of any holders with respect to certain matters,
including:
- - to fix any ambiguity, defect or inconsistency in the Indenture; and
- - to change anything that does not materially adversely affect the interests of
any holder of subordinated notes of any series.
In addition, under the Indenture, the rights of holders of a series of
subordinated notes may be changed by MediaOne Group Funding, MediaOne Group and
the Debenture Trustee with the written consent of the holders of at least a
majority in aggregate principal amount of the outstanding subordinated notes of
each series that is affected. However, the following changes may only be made
with the consent of each holder of any outstanding subordinated notes affected:
- - extending the fixed maturity of such series of subordinated notes;
- - reducing the principal amount, reducing the rate of or extending the time of
payment of interest, or any premium payable upon the redemption of any such
subordinated notes; or
- - reducing the percentage of subordinated notes, the holders of which are
required to consent to any amendment.
If the consent of the Property Trustee of a trust as holder of subordinated
notes is required to consent to any amendment, modification or termination of
the Indenture, the Property Trustee will request directions from the holders of
the preferred securities of the applicable trust.
FORM, EXCHANGE, AND TRANSFER
The subordinated notes of each series will be issuable only in fully registered
form without coupons and, unless otherwise specified in the applicable
prospectus supplement, in denominations of $25 and any integral multiple
thereof.
At the option of the holder, subject to the terms of the Indenture and the
limitations applicable to global securities described in the applicable
prospectus supplement, subordinated notes of any series will be exchangeable for
other subordinated notes of the same series, in any authorized denomination and
of like tenor and aggregate principal amount.
Subject to the terms of the Indenture and the limitations applicable to global
securities set forth in the applicable prospectus supplement, subordinated notes
may be presented for exchange or for registration of transfer (duly endorsed or
with the form of
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transfer endorsed thereon duly executed if so required by MediaOne Group Funding
or the Debenture Trustee) at the office of the Security Registrar or at the
office of any transfer agent designated by MediaOne Group Funding for such
purpose. Unless otherwise provided in the subordinated notes to be transferred
or exchanged, no service charge will be made for any registration of transfer or
exchange, but MediaOne Group Funding may require payment of any taxes or other
governmental charges. MediaOne Group Funding has appointed the Debenture Trustee
as Security Registrar. Any transfer agent (in addition to the Security
Registrar) initially designated by MediaOne Group Funding for any subordinated
notes will be named in the applicable prospectus supplement. MediaOne Group
Funding may at any time designate additional transfer agents or rescind the
designation of any transfer agent or approve a change in the office through
which any transfer agent acts, except that MediaOne Group Funding will be
required to maintain a transfer agent in each place of payment for the
subordinated notes of each series.
If the subordinated notes of any series are to be redeemed, MediaOne Group
Funding will not be required to:
- - issue, register the transfer of, or exchange any subordinated notes of that
series during a period beginning at the opening of business 15 days before the
day of mailing of a notice of redemption of any such subordinated notes that
may be selected for redemption and ending at the close of business on the day
of such mailing; or
- - register the transfer of or exchange any subordinated notes so selected for
redemption, in whole or in part, except the unredeemed portion of any such
subordinated notes being redeemed in part.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of an
event of default under the Indenture, undertakes to perform only such duties as
are specifically set forth in the Indenture and, upon an event of default under
the Indenture, must use the same degree of care as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Debenture Trustee is under no obligation to exercise any of the
powers given it by the Indenture at the request of any holder of subordinated
notes unless it is offered reasonable security and indemnity against the costs,
expenses and liabilities that it might incur. The Debenture Trustee is not
required to spend or risk its own money or otherwise become financially liable
while performing its duties unless it reasonably believes that it will be repaid
or receive adequate indemnity.
MediaOne Group and its affiliates maintain a deposit account and banking
relationship with Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
serves as trustee under other indentures pursuant to which unsecured debt
securities of MediaOne Group and its affiliates are outstanding.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable prospectus supplement, payment of
the interest on any subordinated notes on any interest payment date will be made
to the person in whose name such subordinated notes (or one or more predecessor
securities) are registered at the close of business on the regular record date
for such interest.
Principal of and any premium and interest on the subordinated notes of a
particular series will be payable at the office of the
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paying agents designated by MediaOne Group Funding, except that unless otherwise
indicated in the applicable prospectus supplement, interest payments may be made
by check mailed to the holder. Unless otherwise indicated in such prospectus
supplement, the corporate trust office of the Debenture Trustee in The City of
New York will be designated as MediaOne Group Funding's sole paying agent for
payments with respect to subordinated notes of each series. Any other paying
agents initially designated by MediaOne Group Funding for the subordinated notes
of a particular series will be named in the applicable prospectus supplement.
MediaOne Group Funding will be required to maintain a paying agent in each place
of payment for the subordinated notes of a particular series.
All moneys paid by MediaOne Group Funding or MediaOne Group to a paying agent or
the Debenture Trustee for the payment of the principal of or any premium or
interest on any subordinated notes which remains unclaimed at the end of two
years after such principal, premium or interest has become due and payable will
be repaid to MediaOne Group Funding or MediaOne Group, as the case may be, and
the holder of the security thereafter may look only to MediaOne Group Funding or
MediaOne Group for payment thereof.
GOVERNING LAW
The Indenture, subordinated notes and note guarantees will be governed by and
construed in accordance with the laws of the State of New York except to the
extent that the Trust Indenture Act shall be applicable.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
GENERAL
MediaOne Group will execute a Preferred Securities Guarantee, which benefits the
holders of preferred securities, at the time that a trust issues those preferred
securities. Each Preferred Securities Guarantee will be qualified as an
indenture under the Trust Indenture Act. The First National Bank of Chicago will
act as indenture trustee ("Preferred Guarantee Trustee") under each Preferred
Securities Guarantee for the purposes of compliance with the Trust Indenture
Act. The Preferred Guarantee Trustee will hold each Preferred Securities
Guarantee for the benefit of the preferred securities holders of the applicable
trust.
MediaOne Group will irrevocably agree, as described in each Preferred Securities
Guarantee, to pay in full, to the holders of the preferred securities issued by
the applicable trust, the Preferred Securities Guarantee Payments (as defined
below) (except to the extent previously paid), when and as due, regardless of
any defense, right of set-off or counterclaim which such trust may have or
assert. The following payments, to the extent not paid by a trust ("Preferred
Securities Guarantee Payments"), will be covered by the applicable Preferred
Securities Guarantee:
- - any accrued and unpaid distributions required to be paid on the applicable
preferred securities, to the extent that the trust has funds available to make
the payment;
- - the redemption price, to the extent that the trust has funds available to make
the payment; and
- - upon a voluntary or involuntary dissolution and liquidation of the trust
(other than in connection with a distribution of subordinated notes and a note
guarantee to holders of such preferred securities or the redemption of all
such preferred securities), the lesser of
(1) the aggregate of the liquidation amount specified in the prospectus
supplement for each preferred
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security plus all accrued and unpaid distributions on the preferred
securities to the date of payment, to the extent the trust has funds
available to make the payment and
(2) the amount of assets of the trust remaining available for distribution
to holders of its preferred securities upon a dissolution and
liquidation of the trust ("Liquidation Payment").
MediaOne Group's obligation to make a Preferred Securities Guarantee Payment may
be satisfied by directly paying the required amounts to the holders of the
preferred securities or by causing the trust to pay the amounts to the holders.
No single document executed by MediaOne Group relating to the issuance of
preferred securities will provide for its full, irrevocable and unconditional
guarantee of the preferred securities. It is only the combined operation of
MediaOne Group's obligations under the Indenture and the applicable Preferred
Securities Guarantee, Declaration and note guarantee that has the effect of
providing a full, irrevocable and unconditional guarantee of a trust's
obligations under its preferred securities.
STATUS OF THE PREFERRED SECURITIES GUARANTEES
Each Preferred Securities Guarantee will constitute an unsecured obligation of
MediaOne Group and will rank:
- - subordinate and junior in right of payment to all of MediaOne Group's other
liabilities (except those obligations made equal or junior to its obligations
under a Preferred Securities Guarantee);
- - equal with the senior most preferred or preference stock now or hereafter
issued by MediaOne Group, and with any guarantee now or hereafter issued by it
in respect of any preferred or preference stock of any of its affiliates
(including MediaOne's guarantee of the outstanding preferred securities of
MediaOne Financing A, MediaOne Financing B, MediaOne Finance Trust I and
MediaOne Finance Trust II); and
- - senior to MediaOne Group's common stock.
Each Declaration will require that the holder of preferred securities accept the
subordination provisions and other terms of the Preferred Securities Guarantee.
Each Preferred Securities Guarantee will constitute a guarantee of payment and
not of collection (in other words the holder of the guaranteed security may sue
MediaOne Group, or seek other remedies, to enforce its rights under the
Preferred Securities Guarantee without first suing any other person or entity).
A Preferred Securities Guarantee will not be discharged except by payment of the
Preferred Securities Guarantee Payments in full to the extent not previously
paid or upon distribution to the applicable preferred securities holders of the
corresponding series of subordinated notes pursuant to the appropriate
Declaration.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights of
holders of a series of preferred securities in any material respect (in which
case no consent of such holders will be required), a Preferred Securities
Guarantee may only be amended with the prior approval of the holders of at least
a majority in aggregate liquidation amount of such preferred securities
(excluding any such preferred securities held by MediaOne Group or any of its
affiliates). A description of the way to obtain any approval is described under
"Description of the Preferred Securities--
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Voting Rights; Amendment of Trust Agreement." All guarantees and agreements
contained in a Preferred Securities Guarantee will be binding on MediaOne
Group's successors, assigns, receivers, trustees and representatives and are for
the benefit of the holders of the applicable preferred securities.
PREFERRED SECURITIES GUARANTEE EVENTS OF DEFAULT
An event of default under a Preferred Securities Guarantee occurs if MediaOne
Group fails to make any of its required payments or perform its obligations
under such Preferred Securities Guarantee.
The holders of at least a majority in aggregate liquidation amount of the
preferred securities relating to each Preferred Securities Guarantee (excluding
any preferred securities held by MediaOne Group or any of its affiliates) will
have the right to direct the time, method and place of conducing any proceeding
for any remedy available to the Preferred Guarantee Trustee relating to such
Preferred Securities Guarantee or to direct the exercise of any trust or power
given to the Preferred Guarantee Trustee under such Preferred Securities
Guarantee.
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEES
The Preferred Guarantee Trustee under a Preferred Securities Guarantee, other
than during the occurrence and continuance of a default under such Preferred
Securities Guarantee, will only perform the duties that are specifically
described in such Preferred Securities Guarantee. After such a default, the
Preferred Guarantee Trustee will exercise the same degree of care and skill as a
prudent person would exercise or use in the conduct of his or her own affairs.
Subject to this provision, a Preferred Guarantee Trustee is under no obligation
to exercise any of its powers as described in the applicable Preferred
Securities Guarantee at the request of any holder of covered preferred
securities unless it is offered reasonable indemnity against the costs, expenses
and liabilities that it might incur.
TERMINATION OF THE PREFERRED SECURITIES GUARANTEES
Each Preferred Securities Guarantee will terminate once the applicable preferred
securities are paid in full or upon distribution of the corresponding series of
subordinated notes to the holders of such preferred securities. Each Preferred
Securities Guarantee will continue to be effective or will be reinstated if at
any time any holder of preferred securities issued by the applicable trust must
restore payment of any sums paid under such preferred securities or such
Preferred Securities Guarantee.
GOVERNING LAW
The Preferred Securities Guarantees will be governed by and construed in
accordance with the laws of the State of New York.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE PREFERRED SECURITIES GUARANTEE,
THE SUBORDINATED NOTES AND THE NOTE GUARANTEE HELD BY EACH TRUST
Payments of distributions and redemption and liquidation payments due on each
series of preferred securities (to the extent the applicable trust has funds
available for the payments) will be guaranteed by MediaOne Group to the extent
described under "Description of the Preferred Securities Guarantees." No single
document executed by MediaOne Group in connection with the
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issuance of any series of preferred securities will provide for its full,
irrevocable and unconditional guarantee of such preferred securities. It is only
the combined operation of MediaOne Group's obligations under the applicable
Preferred Securities Guarantee, Declaration and note guarantee and the Indenture
that has the effect of providing a full, irrevocable and unconditional guarantee
of a trust's obligations under its preferred securities.
As long as MediaOne Group Funding makes payments of interest and other payments
when due on the subordinated notes held by a trust or, if MediaOne Group Funding
defaults in making such payments, MediaOne Group makes payments when due under
the related note guarantee, such payments will be sufficient to cover the
payment of distributions and redemption and liquidation payments due on the
preferred securities issued by that trust, primarily because:
- - the aggregate principal amount of the subordinated notes will be equal to the
sum of the aggregate liquidation amount of the preferred and common
securities;
- - the interest rate and interest and other payment dates on the subordinated
notes will match the distribution rate and distribution and other payment
dates for the preferred securities;
- - MediaOne Group Funding shall pay for any and all costs, expenses and
liabilities of each trust except such trust's obligations under its preferred
securities (and MediaOne Group has agreed to guarantee such payment); and
- - each Declaration provides that the related trust will not engage in any
activity that is not consistent with the limited purposes of the trust.
If and to the extent that MediaOne Group Funding does not make payments on such
subordinated notes and MediaOne Group does not make payments on the related note
guarantee, such trust will not have funds available to make payments of
distributions or other amounts due on its preferred securities. In those
circumstances, you will not be able to rely upon the Preferred Securities
Guarantee for payment of these amounts. Instead, you may directly sue MediaOne
Group Funding or MediaOne Group or seek other remedies to collect your pro rata
share of payments owed. If you sue MediaOne Group Funding or MediaOne Group to
collect payment, then MediaOne Group Funding or MediaOne Group will assume your
rights as a holder of preferred securities under such trust's Declaration to the
extent MediaOne Group Funding or MediaOne Group makes a payment to you in any
such legal action.
A holder of any preferred security may sue MediaOne Group, or seek other
remedies, to enforce its rights under the applicable Preferred Securities
Guarantee without first suing the applicable Preferred Guarantee Trustee, the
trust which issued the preferred security or any other person or entity.
PLAN OF DISTRIBUTION
MediaOne Group Funding may sell the subordinated notes and a trust may sell its
preferred securities being offered hereby in one or more of the following ways
from time to time:
- - to underwriters for resale to the public or to institutional investors;
- - directly to institutional investors; or
- - through agents to the public or to institutional investors.
The prospectus supplements will set forth the terms of the offering of each
series of preferred securities, including the name or names of any underwriters
or agents, the purchase price of such preferred securities and the proceeds to
MediaOne Group
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Funding or the applicable trust, as the case may be, from such sale, any
underwriting discounts or agency fees and other item's constituting
underwriters' or agents' compensation, any initial public offering price, any
discounts or concessions allowed or reallowed or paid to dealers and any
securities exchanges on which such preferred securities may be listed.
If underwriters are used in the sale, the preferred 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.
Unless otherwise set forth in a prospectus supplement, the obligations of the
underwriters to purchase any series of preferred securities will be subject to
certain conditions precedent and the underwriters will be obligated to purchase
all of such series of preferred securities, if any are purchased.
Underwriters and agents may be entitled under agreements entered into with
MediaOne Group, MediaOne Group Funding and/or a trust to indemnification by
MediaOne Group, MediaOne Group Funding and/or such trust against certain civil
liabilities, including liabilities under the Securities Act of 1933, or to
contribution with respect to payments which the underwriters or agents may be
required to make in respect thereof. Underwriters and agents may be customers
of, engage in transactions with, or perform services for MediaOne Group and its
affiliates in the ordinary course of business.
Each series of preferred securities will be a new issue of securities and will
have no established trading market. Any underwriters to whom preferred
securities are sold by MediaOne Group Funding or by the trusts for public
offering and sale may make a market in the preferred securities, but such
underwriters will not be obligated to do so and may discontinue any market
making at any time without notice. The preferred securities may or may not be
listed on a national securities exchange.
LEGAL OPINIONS
Certain matters of Delaware law relating to the validity of the preferred
securities will be passed on for each trust by Morris, Nichols, Arsht & Tunnell,
Wilmington, Delaware, special Delaware counsel to the trusts. The validity of
the subordinated notes, the Preferred Securities Guarantees, the note guarantees
and certain matters relating thereto will be passed on for MediaOne Group and
MediaOne Group Funding by Weil, Gotshal & Manges LLP, New York, New York and for
the underwriters by Skadden, Arps, Meagher & Flom LLP, New York, New York.
Certain matters will be passed upon for MediaOne Group and MediaOne Group
Funding by Stephen E. Brilz, Corporate Counsel and Assistant Secretary of
MediaOne Group.
EXPERTS
Arthur Andersen LLP, independent public accountants, audited Old U S WEST's and
MediaOne Group's financial statements and schedules for the years ended December
31, 1996 and 1997, as indicated in their reports. PricewaterhouseCoopers LLP,
independent public accountants, audited Old U S WEST's and MediaOne Group's
financial statements and related schedules for the year ended December 31, 1995,
as indicated in their reports. All such documents are incorporated by reference
in this prospectus and elsewhere in the registration statement in reliance on
the reports of Arthur Andersen LLP and PricewaterhouseCoopers LLP and upon the
authority of Arthur Andersen LLP and PricewaterhouseCoopers LLP as experts in
accounting and auditing.
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8,000,000 PREFERRED SECURITIES
[LOGO]
MEDIAONE FINANCE TRUST III
% TRUST ORIGINATED PREFERRED SECURITIES-SM- ("TOPRS-SM-")
FULLY AND UNCONDITIONALLY GUARANTEED,
BASED ON SEVERAL OBLIGATIONS, BY
MEDIAONE GROUP, INC.
-----------------
PROSPECTUS SUPPLEMENT
-----------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
OCTOBER , 1998
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