<PAGE>
Rule 424(b)(5)
File No. 33-53776
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 19, 1993)
5,000,000 WARRANTS
PAINE WEBBER GROUP INC.
U.S. Dollar Increase Warrants on the Japanese Yen
Expiring March 6, 1996
------------------------
Each Warrant will entitle the holder thereof to receive from Paine Webber
Group Inc. (the 'Company'), upon exercise (including automatic exercise), an
amount in U.S. dollars calculated by reference to decreases in the value of the
Japanese yen relative to the U.S. dollar. Such amount (the 'Cash Settlement
Value') will equal the greater of (i) zero and (ii) the amount (rounded down to
the nearest cent) computed by subtracting from U.S. $50 an amount equal to the
product of U.S. $50 times a fraction, the numerator of which is Yen 105.40 per
U.S. $1.00 (the 'Strike Rate') and the denominator of which is the spot
exchange rate of the Japanese yen for the U.S. dollar (expressed as a
number of Japanese yen per U.S. dollar and determined by the Spot Rate
Reference Agent (as hereinafter defined) as provided herein) on the
applicable valuation date (the 'Spot Rate'). If the Strike Rate is equal
to or exceeds the Spot Rate for such valuation date, the Cash Settlement
Value will be zero; in which case, the Warrantholder will be permitted,
subject to certain exceptions, to re-exercise such Warrant prior to the
Expiration Date (as hereinafter defined) or the Delisting Date (as
hereinafter defined). The Strike Rate is equal to the spot exchange rate
of the Japanese yen for the U.S. dollar quoted by the Spot Rate
Reference Agent at approximately 4:00 P.M., New York City time, on March
8, 1994, and, accordingly, the Cash Settlement Value of the Warrants as
of such time was zero.
The Warrants are unsecured contractual obligations of the Company and will
rank on a parity with the Company's other unsecured contractual obligations and
with the Company's unsecured and unsubordinated debt.
The Warrants will be exercisable immediately upon issuance and may be
exercised until 3:00 P.M., New York City time, on the New York Business Day (as
hereinafter defined) immediately preceding the expiration date for the Warrants,
which will be March 6, 1996 (the 'Expiration Date'), or until their earlier
expiration on the last New York Business Day prior to the effective date of
their delisting from, or permanent suspension from trading on, the American
Stock Exchange (the 'AMEX') and failure to list the Warrants on another national
securities exchange (the 'Delisting Date'). Any Warrant not exercised at or
before 3:00 P.M., New York City time, on such New York Business Day will be
automatically exercised on such date. See 'Description of the Warrants --
Exercise and Settlement of Warrants' herein.
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING FOREIGN EXCHANGE
RISKS AND THE RISK OF EXPIRING WORTHLESS IF THE U.S. DOLLAR DOES NOT APPRECIATE,
OR IF IT DEPRECIATES, AGAINST THE JAPANESE YEN. IN ADDITION, IN THE ABSENCE OF
COUNTERVAILING FACTORS, SUCH AS AN APPRECIATION OF THE U.S. DOLLAR AGAINST THE
JAPANESE YEN, THE TRADING VALUE OF THE WARRANTS IS EXPECTED TO DECREASE AS THE
TIME REMAINING TO THE EXPIRATION DATE DECREASES. SEE 'RISK FACTORS -- CERTAIN
FACTORS AFFECTING VALUE AND TRADING PRICE OF WARRANTS' IN THE PROSPECTUS.
PURCHASERS SHOULD BE PREPARED TO SUSTAIN A TOTAL LOSS OF THE PURCHASE PRICE OF
THEIR WARRANTS AND ARE ADVISED TO CONSIDER CAREFULLY THE INFORMATION UNDER
'CERTAIN IMPORTANT INFORMATION CONCERNING THE WARRANTS' AND 'EXCHANGE RATES'
HEREIN AND 'RISK FACTORS' IN THE PROSPECTUS, AS WELL AS THE OTHER INFORMATION
HEREIN AND IN THE PROSPECTUS.
The Warrants have been approved for listing on the AMEX, subject to
official notice of issuance. The AMEX symbol for the Warrants is PWY.WS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
<S> <C> <C> <C>
Per Warrant................................................ $3.25 $.16 $3.09
Total...................................................... $16,250,000 $800,000 $15,450,000
</TABLE>
(1) See 'Underwriting' herein.
(2) Before deducting expenses estimated at $220,000, which are payable by the
Company.
------------------------
The Warrants are offered by the Underwriters, subject to prior sale, when,
as and if delivered to and accepted by the Underwriters, and subject to their
right to reject orders in whole or in part. It is expected that delivery of the
Warrants will be made in New York City on or about March 16, 1994.
------------------------
PAINEWEBBER INCORPORATED KEMPER SECURITIES, INC.
------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MARCH 9, 1994.
<PAGE>
The valuation of and payment for any exercised Warrant may be postponed as
a result of the exercise of a number of Warrants exceeding the limits on
exercise described herein under 'Description of the Warrants -- Maximum Exercise
Amount', in which case the Warrantholder will receive a Cash Settlement Value
for such Warrant determined as of a later date. See 'Description of the Warrants
- -- Maximum Exercise Amount' herein.
A Warrantholder may exercise no fewer than 500 Warrants at any one time,
except in the event of automatic exercise. A Warrantholder tendering Warrants
for exercise will have the option of specifying that such Warrants are not to be
exercised if the Spot Rate for the applicable valuation date has declined by
five or more Japanese yen per U.S. dollar from the Spot Rate for the applicable
exercise date. All exercises of Warrants (other than on the Expiration Date for
the Warrants or on the Delisting Date) are subject, at the Company's option, to
the limitation that not more than 1,000,000 Warrants in total may be exercised
on any exercise date for the Warrants and not more than 250,000 Warrants may be
exercised by or on behalf of any person or entity, either individually or in
concert with any other person or entity, on any exercise date for the Warrants.
See 'Certain Important Information Concerning the Warrants' and 'Description of
the Warrants' herein and 'Description of Warrants' in the Prospectus.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE WARRANTS
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------
FOR NORTH CAROLINA INVESTORS ONLY: THE COMMISSIONER OF INSURANCE OF THE
STATE OF NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS
THE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.
------------------------
S-2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in the Prospectus and this Prospectus Supplement
and in the documents incorporated therein and herein by reference. Appendix A
hereto ('Index of Terms') contains a listing of defined terms and pages on which
they are defined in this Prospectus Supplement.
PAINE WEBBER GROUP INC.
Paine Webber Group Inc. (the 'Company') is a holding company which,
together with its operating subsidiaries, forms one of the largest full-service
securities firms in the industry. Founded in 1879, the Company has offices
located throughout the United States and in many major foreign cities. The
Company's principal line of business is to serve the investment and capital
needs of individual, corporate, institutional and public agency clients through
its broker-dealer subsidiary, PaineWebber Incorporated ('PaineWebber'), and
other specialized subsidiaries. The Company is comprised of four interrelated
core business groups -- Retail Sales and Marketing, Asset Management,
Institutional Sales and Trading, and Investment Banking.
See 'Selected Consolidated Financial Data' in the Prospectus and 'Paine
Webber Group Inc. Recent Developments' herein for information concerning the
Company's earnings and financial condition.
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED.................. U.S. Dollar Increase Warrants on the Japanese Yen Expiring March 6, 1996
(the 'Warrants').
DETERMINATION OF CASH SETTLEMENT
VALUE OF WARRANTS................. Each Warrant will entitle the holder thereof to receive from the Company,
upon exercise (including automatic exercise), an amount in U.S. dollars
calculated by reference to decreases in the value of the Japanese yen
relative to the U.S. dollar. Such amount (the 'Cash Settlement Value') will
equal the greater of (i) zero and (ii) the amount (rounded down to the
nearest cent) computed by subtracting from U.S. $50 an amount equal to the
product of U.S. $50 times a fraction, the numerator of which is Yen 105.40 per
U.S. dollar (the 'Strike Rate') and the denominator of which is the noon
buying rate per U.S. $1.00 in The City of New York on the applicable
valuation date for cable transfers in Japanese yen as certified for customs
purposes by the Federal Reserve Bank of New York (the 'Noon Buying Rate'),
as determined by the Spot Rate Reference Agent as described herein, or, if
such Noon Buying Rate is not available, such other rate as described herein
on such valuation date (the 'Spot Rate'). This amount is described by the
following formula:
CASH SETTLEMENT VALUE = THE GREATER OF
YEN 105.40/U.S. $1.00
---------------------
(I) $0 AND (II) $50 - ( $50 X ( SPOT RATE ))
If the Strike Rate is equal to or exceeds the Spot Rate for such valuation
date, the Cash Settlement Value will be zero; in which case, the
Warrantholder will be permitted, subject to certain exceptions, to re-
exercise such Warrant prior to the Expiration Date or the Delisting Date.
The Strike Rate is equal to the spot exchange rate of the Japanese yen for
the U.S. dollar quoted by the Spot Rate Reference Agent at approximately
4:00 P.M., New York City time, on March 8, 1994, and, accordingly, the Cash
Settlement Value of the Warrants as of such time was zero. See 'Description
of the Warrants -- Determination of Cash Settlement Value
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
of Warrants' herein for the method by which the Spot Rate and the Cash
Settlement Value will be calculated.
PRICE............................... $3.25 per Warrant.
EXERCISE OF WARRANTS................ The Warrants will be exercisable immediately upon issuance and may be
exercised until 3:00 P.M., New York City time, on the New York Business Day
(as hereinafter defined) immediately preceding the expiration date for the
Warrants, which will be March 6, 1996 (the 'Expiration Date'), or until
their earlier expiration on the last New York Business Day prior to the
effective date of their delisting from, or permanent suspension from
trading on, the American Stock Exchange (the 'AMEX') and failure to list
the Warrants on another national securities exchange (the 'Delisting
Date'). See 'Description of the Warrants -- Exercise and Settlement of
Warrants' herein.
EXERCISE AMOUNT..................... A Warrantholder may exercise no fewer than 500 Warrants at any one time,
except in the event of automatic exercise. See 'Description of the Warrants
-- Minimum Exercise Amount' herein. All exercises of Warrants (other than
on the Expiration Date or the Delisting Date) are subject, at the Company's
option, to the limitation that not more than 1,000,000 Warrants in total
may be exercised on any Exercise Date and not more than 250,000 Warrants
may be exercised by or on behalf of any person or entity, either
individually or in concert with any other person or entity, on any Exercise
Date. See 'Description of the Warrants -- Maximum Exercise Amount' herein.
CERTAIN RISK FACTORS................ The Warrants involve a high degree of risk, including foreign exchange
risks and the risk of expiring worthless if the U.S. dollar does not
appreciate, or if it depreciates, against the Japanese yen. In addition, in
the absence of countervailing factors, such as an appreciation of the U.S.
dollar against the Japanese yen, the trading value of the Warrants is
expected to decrease as the time remaining to the Expiration Date
decreases. See 'Risk Factors -- Certain Factors Affecting Value and Trading
Price of Warrants' in the Prospectus. If a Warrant is not exercised and if
at expiration one U.S. dollar is worth Yen 105.40 or less, the Warrant will
expire worthless. Investors therefore should be prepared to sustain a total
loss of the purchase price of their Warrants. Warrantholders will bear the
foreign exchange risks of the U.S. dollar as compared to the Japanese yen.
The Warrants are appropriate investments only for investors who are able to
understand and bear the risk of a speculative investment in the Warrants.
See 'Risk Factors' in the Prospectus and 'Certain Important Information
Concerning the Warrants', 'Description of the Warrants', 'Exchange Rates'
and 'Certain United States Federal Income Tax Considerations' herein.
Warrantholders will be subject to foreign exchange risk which may have
important economic and tax consequences to them. See 'Exchange Rates' and
'Certain United States Federal Income Tax Considerations' herein.
It is not possible to predict how the Warrants will trade in the secondary
market or whether such market will be liquid or illiquid.
The Warrants have been approved for listing on the AMEX, subject to
official notice of issuance. In the event the Warrants are delisted from,
or permanently suspended from trading (within the meaning of the Securities
Exchange Act of 1934 and the rules and regulations thereunder) on, the
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
AMEX, and not accepted at the same time for listing on another national
securities exchange, Warrants not previously exercised will be deemed
automatically exercised on the Delisting Date, and the Cash Settlement
Value, if any, shall be calculated and settled as provided below under
'Description of the Warrants -- Delisting of Warrants'. In the event of a
delisting or suspension of trading on the AMEX, the Company will use its
best efforts to list the Warrants on another United States national
securities exchange. To the extent Warrants are exercised, the number of
Warrants outstanding will decrease resulting in a lessening of the liquidity
of the Warrants.
Except in the event of automatic exercise, a Warrantholder must tender at
least 500 Warrants at any one time in order to exercise his Warrants. Thus,
except in such an event, Warrantholders with fewer than 500 Warrants will
need either to sell their Warrants or to purchase additional Warrants,
incurring transaction costs in each case, in order to realize upon their
investment.
A Warrantholder will not be able to determine, at the time of exercise of a
Warrant, the Spot Rate that will be used in calculating the Cash Settlement
Value of such Warrant (and will thus be unable to determine such Cash
Settlement Value). In addition, the Valuation Date (as hereinafter defined)
for exercised Warrants may be postponed as a result of the exercise of a
number of Warrants exceeding the limits on exercise described below under
'Description of the Warrants -- Maximum Exercise Amount'. Any downward
movement in the value of the U.S. dollar relative to the Japanese yen
between the time a Warrantholder submits an Exercise Notice and the time
the Spot Rate for such exercise is determined (which period will, at a
minimum, represent an entire New York Business Day (as hereinafter defined)
and, in the case of a postponement of a Valuation Date resulting from the
exercise of a number of Warrants exceeding limits on exercise described
below under 'Description of the Warrants -- Maximum Exercise Amount', may
be substantially longer) will result, subject to such Warrantholder's
previous election to use the Limit Option (as hereinafter defined; see
'Description of the Warrants -- Limit Option' herein), in such
Warrantholder receiving a Cash Settlement Value that is less than the Cash
Settlement Value anticipated by such Warrantholder (including a zero Cash
Settlement Value) based on the Spot Rate most recently reported prior to
exercise.
Investors are advised to consider carefully the foregoing risk factors and
the risks and other matters discussed under 'Risk Factors' in the
Prospectus and 'Certain Important Information Concerning the Warrants',
'Description of the Warrants', 'Exchange Rates' and 'Certain United States
Federal Income Tax Considerations' herein prior to purchasing the Warrants.
WHO SHOULD INVEST................... The AMEX recommends that the Warrants be sold only to investors whose
accounts have been approved for options trading, and further requires that
its members and member organizations and registered employees thereof make
certain suitability determinations before recommending transactions in
Warrants. As indicated above, investors should be prepared to sustain a
total loss of the purchase price of the Warrants.
Investment decisions relating to exchange rate currency warrants require an
investor to predict the direction of movements in the relevant currency
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
exchange rate as well as the amount and timing of those movements. Exchange
rate currency warrants may change substantially in value, or lose all of
their value, with relatively small movements in the relevant currency
exchange rate. Moreover, an exchange rate currency warrant is a 'wasting
asset' in that, in the absence of countervailing factors, such as an
offsetting movement in the level of the relevant currency exchange rate,
the market value of an exchange rate currency warrant will tend to decrease
over time and the warrant will have no market value after the time for
exercise has expired. Accordingly, exchange rate currency warrants involve
a high degree of risk and are not appropriate for every investor. Investors
who are considering purchasing the Warrants should be able to understand
and bear the risk of a speculative investment in the
Warrants, be experienced with respect to options and option transactions
and understand the risks of foreign exchange transactions. Such investors
should reach an investment decision only after careful consideration with
their advisers of the suitability of the Warrants in light of their
particular financial curcumstances and the information set forth in this
Prospectus Supplement and the Prospectus. See 'Certain Important
Information Concerning the Warrants' herein. As indicated above, investors
should be prepared to sustain a total loss of the purchase price of the
Warrants.
LISTING............................. American Stock Exchange.
WARRANT TRADING SYMBOL.............. PWY.WS.
WARRANT AGENT....................... Citibank, N.A.
SPOT RATE REFERENCE AGENT........... PaineWebber Incorporated.
</TABLE>
S-6
<PAGE>
CERTAIN IMPORTANT INFORMATION
CONCERNING THE WARRANTS
The securities being offered are 5,000,000 U.S. Dollar Increase Warrants on
the Japanese Yen Expiring March 6, 1996 (the 'Warrants')*. The beneficial owner
of a Warrant (a 'Warrantholder') will receive a cash payment from Paine Webber
Group Inc. (the 'Company'), upon exercise (including automatic exercise), only
if such Warrant has a Cash Settlement Value greater than zero at such time. The
'Cash Settlement Value' of a Warrant will equal the greater of (i) zero and (ii)
the amount (rounded down to the nearest cent) computed by subtracting from U.S.
$50 an amount equal to the product of U.S. $50 times a fraction, the numerator
of which is Yen 105.40 per U.S. dollar (the 'Strike Rate') and the denominator
of which is the noon buying rate per U.S. $1.00 in The City of New York on the
applicable valuation date for cable transfers in Japanese yen as certified for
customs purposes by the Federal Reserve Bank of New York (the 'Noon Buying
Rate'), as determined by the Spot Rate Reference Agent as described herein, or,
if such Noon Buying Rate is not available, such other rate as described herein
on such valuation date (the 'Spot Rate'). If the Strike Rate is equal to or
exceeds the Spot Rate for such valuation date, the Cash Settlement Value will be
zero; in which case, the Warrantholder will be permitted, subject to certain
exceptions, to re-exercise such Warrant prior to the Expiration Date or the
Delisting Date. The Strike Rate is equal to the spot exchange rate of the
Japanese yen for the U.S. dollar quoted by the Spot Rate Reference Agent at
approximately 4:00 P.M., New York City time, on March 8, 1994, and, accordingly,
the Cash Settlement Value of the Warrants as of such time was zero. See
'Description of the Warrants -- Determination of Cash Settlement Value of
Warrants' herein.
Warrantholders will be subject to foreign exchange risk which may have
important economic and tax consequences to them. See 'Exchange Rates' and
'Certain United States Federal Income Tax Considerations' herein.
Except under the circumstances described in the next paragraph, the
Valuation Date for an exercised Warrant will be the first New York Business Day
(as hereinafter defined) after the related Exercise Date. The Exercise Date for
an exercised Warrant, subject to certain exceptions described under 'Exercise
and Settlement of Warrants', 'Limit Option' and 'Automatic Exercise' under
'Description of the Warrants' herein, will be the New York Business Day on which
such Warrant and an Exercise Notice (as hereinafter defined) in proper form are
received by the Warrant Agent (as hereinafter defined) if received at or prior
to 3:00 P.M., New York City time, on such day; if such Warrant and Exercise
Notice are received after such time, the Exercise Date will be the next
succeeding New York Business Day. See 'Description of the Warrants -- Exercise
and Settlement of Warrants' herein.
The Valuation Date for an exercised Warrant will occur after the Exercise
Date (see 'Description of the Warrants -- Exercise and Settlement of Warrants'
herein). Therefore, a Warrantholder will not be able to determine, at the time
of exercise of a Warrant, the Spot Rate that will be used in calculating the
Cash Settlement Value of such Warrant (and will thus be unable to determine such
Cash Settlement Value). In addition, the Valuation Date for exercised Warrants
may be postponed as a result of the exercise of a number of Warrants exceeding
the limits on exercise described below under 'Description of the Warrants --
Maximum Exercise Amount'. Any downward movement in the value of the U.S. dollar
relative to the Japanese yen between the time a Warrantholder submits an
Exercise Notice and the time the Spot Rate for such exercise is determined
(which period will, at a minimum, represent an entire New York Business Day and,
in the case of a Valuation Date postponed as a result of there being exercised a
number of Warrants exceeding the maximum permissible amount, may be
substantially longer) will, subject to the Limit Option described below and
under 'Description of the Warrants -- Limit Option' herein, result in such
Warrantholder receiving a Cash Settlement Value that is less than the Cash
Settlement Value anticipated by such Warrantholder (including a zero Cash
Settlement Value) based on the Spot Rate most recently reported prior to
exercise.
The Warrants will originally be issued as certificates in registered form.
Warrantholders cannot, however, hold certificated positions through CEDEL or
Euroclear (as such terms are hereinafter defined). Accordingly, a beneficial
owner of Warrants holding such Warrants indirectly (for instance, through a
broker that holds such
- ------------------
* Refer to 'Index of Terms' attached hereto as Appendix A for a listing of
defined terms and pages on which they are defined in this Prospectus
Supplement.
S-7
<PAGE>
Warrants in 'street name') may exercise such Warrants only through such owner's
registered holder. In the case of a beneficial owner holding Warrants through
his broker in 'street name', such beneficial owner must direct his broker, who
may in turn need to direct another intermediary, to deliver an Exercise Notice
and the related Warrants to the Warrant Agent. To ensure that an Exercise Notice
and the related Warrants will be delivered to the Warrant Agent before 3:00
P.M., New York City time, on a given New York Business Day, a beneficial holder
of Warrants may have to give exercise instructions to his broker or other
intermediary substantially earlier than 3:00 P.M., New York City time, on such
day. Different brokerage firms may have different cut-off times for accepting
and implementing exercise instructions from their customers. Therefore,
Warrantholders should consult with their brokers or other intermediaries, if
applicable, as to applicable cut-off times and other exercise mechanics. See
'Description of the Warrants -- Exercise and Settlement of Warrants' and
'-- Limit Option' herein.
Forty-five calendar days after the closing of the offering (which closing
is expected to be March 16, 1994), each registered holder of a Warrant will have
the option to convert the form in which such Warrantholder holds his Warrants
from certificates to book-entry form (the 'Conversion Option') within a
forty-five calendar day period. Such conversion will occur only through the
facilities of The Depository Trust Company, New York, New York ('DTC', which
term, as used herein and in the Prospectus, includes any successor depository
selected by the Company). See 'Description of the Warrants -- Book-Entry
Conversion' herein and 'Description of the Warrants -- Book-Entry Procedures and
Settlement' in the Prospectus. To exercise Warrants, a registered holder of a
Warrant who has utilized the Conversion Option must direct a broker, who may, in
turn, need to direct a Participant (as defined in the Prospectus under
'Description of Warrants -- Book-Entry Procedures and Settlement'), to transfer
Warrants held by DTC on behalf of such Warrantholder and to submit an Exercise
Notice to the Warrant Agent. A Warrantholder may desire that the New York
Business Day on which his Warrants and an Exercise Notice are delivered on his
behalf to the Warrant Agent will constitute the Exercise Date for the Warrants
being exercised (for example, to utilize the Limit Option most effectively). To
achieve such objective, a Warrantholder holding Warrants in book-entry form must
cause such Warrants to be transferred free on the records of DTC to, and such
Exercise Notice to be received by, the Warrant Agent at or prior to 3:00 P.M.,
New York City time, on such New York Business Day, provided, however, that in
the case of Warrants in book-entry form held through CEDEL or Euroclear, the
Warrants must be transferred to the Warrant Agent prior to 3:00 P.M., New York
City time, on the relevant Valuation Date. To ensure that such Warrants and
Exercise Notice will be received by the Warrant Agent at or prior to such time,
such Warrantholder must give the appropriate direction to his broker before such
broker's (and, if such broker is not a Participant, the applicable
Participant's) cut-off time for accepting exercise instructions from customers
for that day. Different brokerage firms may have different cut-off times for
accepting and implementing exercise instructions from their customers.
Therefore, Warrantholders holding their Warrants in book-entry form should
consult with their brokers or other intermediaries, if applicable, as to
applicable cut-off times and other exercise mechanics. Under no circumstances
may Warrants in certificated form be exercised through the facilities of CEDEL
or Euroclear. The Company has been informed by CEDEL and Euroclear that such
clearing agencies will only clear, and facilitate exercises of, Warrants in
book-entry form. See 'Description of the Warrants -- Exercise and Settlement of
Warrants', '-- CEDEL and Euroclear' and '-- Limit Option' herein. FORMS OF
EXERCISE NOTICE FOR WARRANTS HELD IN BOOK-ENTRY FORM MAY BE OBTAINED AT THE
WARRANT AGENT'S OFFICE (AS HEREINAFTER DEFINED), DURING THE WARRANT AGENT'S
NORMAL BUSINESS HOURS. SEE 'DESCRIPTION OF THE WARRANTS -- GENERAL' HEREIN.
The Spot Rate on any given day will determine whether the Warrants have a
Cash Settlement Value greater than zero on such day. The Warrants will be
'at-the-money' (i.e., their Cash Settlement Value will be zero) when initially
offered and will be 'in-the-money' (i.e., their Cash Settlement Value will be
greater than zero) on any given day only if the Spot Rate exceeds the Strike
Rate. An increase in the positive difference, if any, between the Spot Rate and
the Strike Rate will result in a greater Cash Settlement Value, and a decrease
in such difference will result in a lesser or zero Cash Settlement Value.
Potential profit or loss upon exercise (including automatic exercise) of a
Warrant will be a function of the Cash Settlement Value of such Warrant upon
exercise, the purchase price of such Warrant and any related transaction costs.
If a Warrant is not exercised prior to 3:00 P.M., New York City time, on
(i) the New York Business Day preceding the Expiration Date or (ii) the
Delisting Date and if the Strike Rate equals or exceeds the Spot Rate on
S-8
<PAGE>
the appropriate Valuation Date, such Warrant will expire worthless and the
Warrantholder will have sustained a total loss of the purchase price of such
Warrant. See 'Risk Factors' in the Prospectus.
Investment decisions relating to exchange rate currency warrants require
the investor to predict the direction of movements in the relevant currency
exchange rate as well as the amount and timing of those movements. Exchange rate
currency warrants may change substantially in value, or lose all of their value,
with relatively small movements in the relevant currency exchange rate.
Moreover, an exchange rate currency warrant is a 'wasting asset' in that, in the
absence of countervailing factors, such as an offsetting movement in the
relevant currency exchange rate, the market value of an exchange rate currency
warrant will tend to decrease over time and the warrant will have no market
value after the time for exercise has expired. Accordingly, exchange rate
currency warrants involve a high degree of risk and are not appropriate for
every investor. Investors who are considering purchasing the Warrants must be
able to understand and bear the risk of a speculative investment in the Warrants
and be experienced with respect to options and option transactions and
understand the risks of foreign exchange transactions. Such investors should
reach an investment decision only after careful consideration, with their
advisers, of the suitability of the Warrants in light of their particular
financial circumstances and the information set forth in this Prospectus
Supplement and in the Prospectus. The AMEX recommends that the Warrants be sold
only to investors whose accounts have been approved for options trading. In
addition, the AMEX requires that its members and member organizations and
registered employees thereof make certain suitability determinations before
recommending transactions in Warrants. Before making any investment in the
Warrants, it is important that a prospective investor become informed about and
understand the nature of the Warrants in general, the specific terms of the
Warrants and the nature of the relevant currency exchange rate. An investor
should understand the consequences of liquidating his investment in an exchange
rate currency warrant by exercising it as opposed to selling it. It is
especially important for an investor to be familiar with the procedures
governing the exercise of exchange rate currency warrants, since a failure to
properly exercise a warrant prior to its expiration could result in the loss of
his entire investment. This includes knowing when warrants are exercisable and
how to exercise them.
Except in the event of automatic exercise, a Warrantholder may be able to
limit to some extent the risk associated with any downward movement in the value
of the U.S. dollar relative to the Japanese yen between an Exercise Date and the
applicable Valuation Date if such Warrantholder, in connection with an exercise
of Warrants, elects the Limit Option. Pursuant to the Limit Option, Warrants
tendered for exercise will not be exercised if the Spot Rate for the applicable
Valuation Date has declined by five or more Japanese yen per U.S. dollar from
the Spot Rate for the applicable Exercise Date. See 'Description of the Warrants
- -- Limit Option' herein.
A Warrantholder may exercise no fewer than 500 Warrants at any time, except
in the event of automatic exercise. Accordingly, except in the event of
automatic exercise of the Warrants, Warrantholders with fewer than 500 Warrants
will need either to sell their Warrants or to purchase additional Warrants,
thereby incurring transaction costs, in order to realize upon their investment.
The initial offering price of the Warrants is expected to be in excess of
the aggregate price that a commercial user of Japanese yen might pay in the
interbank market for a comparable option involving significantly larger amounts
of underlying currencies.
References herein to 'U.S. dollar', 'dollar', 'U.S. $' or '$' are to the
lawful currency of the United States of America. References to 'Japanese yen' or
'Yen' are to the lawful currency of Japan. As used herein, 'New York Business
Day' means any day other than a Saturday or Sunday or a day on which either
the AMEX or the New York Stock Exchange is not open for securities trading
or commercial banks in New York City are required or authorized by law or
executive order to remain closed.
S-9
<PAGE>
PAINE WEBBER GROUP INC. RECENT DEVELOPMENTS
The Company's net income for the fourth quarter of the fiscal year ended
December 31, 1993, totaled $56.9 million, an increase of 37% over net income of
$41.4 million for the corresponding 1992 period. Fully diluted earnings per
share, after giving retroactive effect to the three-for-two common stock split
in the form of a 50% stock dividend, effective March 10, 1994 to stockholders of
record on February 17, 1994, for the fourth quarter of 1993 rose 48% to $.72 up
from $.49 for the corresponding 1992 period. The increase reflects higher net
income and a reduction of 9.3 million in the number of fully diluted shares.
Revenues, including net interest, increased 24% to $754.0 million for the fourth
quarter of 1993, up from $607.9 million in 1992's fourth quarter.
The Company's net income for the fiscal year ended December 31, 1993, rose
15% to $246.2 million compared to net income of $213.2 million for the fiscal
year ended December 31, 1992. Fully diluted earnings per common share, after
giving retroactive effect to the three-for-two common stock split discussed
above, were $2.95 compared with $2.37 fully diluted in 1992. Revenues, including
net interest, rose 16% to $2.87 billion for the fiscal year ended December 31,
1993 from $2.48 billion for the fiscal year ended December 31, 1992.
USE OF PROCEEDS
A substantial portion of the proceeds to be received by the Company from
the sale of the Warrants will be used by the Company, or one or more of its
subsidiaries, in connection with hedging the Company's obligations under the
Warrants. Depending on future market conditions (including the prevailing
Japanese yen/U.S. dollar exchange rate from time to time) and the actual amount
of Warrants outstanding from time to time, among other things, the Company
expects that it or its subsidiaries may (i) take positions in listed and
over-the-counter Japanese yen or U.S. dollar currency option contracts, (ii)
take positions in Japanese yen or U.S. dollar currency forward contracts, (iii)
take positions in Japanese yen or U.S. dollar currency spot contracts and (iv)
enter into currency swap arrangements, in each case, other than exchange traded
options, in privately negotiated transactions with institutional counterparties.
The remainder of the proceeds, if any, will be used for general corporate
purposes.
DESCRIPTION OF THE WARRANTS
GENERAL
The Warrants will be issued pursuant to a Warrant Agreement (the 'Warrant
Agreement'), to be dated as of March 16, 1994, between the Company, Citibank,
N.A., as Warrant Agent (the 'Warrant Agent'), and PaineWebber Incorporated, as
Spot Rate Reference Agent. The following summaries of certain provisions of the
Warrants and the Warrant Agreement do not purport to be complete and references
are made to all the provisions of the Warrant Agreement (including the form of
Warrant Certificate and global Warrant certificate attached as exhibits
thereto). The Warrant Agreement will be available for inspection by any
Warrantholder at the office of the Warrant Agent (the 'Warrant Agent's Office')
which is currently located at 111 Wall Street, 5th Floor, New York, New York
10043, during the Warrant Agent's normal business hours. See 'Description of
Warrants' in the Prospectus.
The aggregate number of Warrants to be issued will be 5,000,000, subject to
the right of the Company to 'reopen' the issue of Warrants and issue additional
Warrants at a later time.
A Warrant will not require or entitle a Warrantholder to purchase U.S.
dollars from, or sell Japanese yen to, the Company. Upon exercise of a Warrant,
the Company will make only a U.S. dollar cash payment in the amount of the Cash
Settlement Value, if any, of such Warrant. The Company is under no obligation
to, nor will it, sell U.S. dollars to, or purchase Japanese yen from,
Warrantholders in connection with the exercise of any Warrants. Warrantholders
will not receive any interest on any Cash Settlement Value.
S-10
<PAGE>
DETERMINATION OF CASH SETTLEMENT VALUE OF WARRANTS
Each Warrant will entitle the Warrantholder to receive, upon exercise
(including automatic exercise), the Cash Settlement Value of such Warrant. The
'Cash Settlement Value' of a Warrant will equal an amount in U.S. dollars
(rounded down to the nearest cent) which is the greater of (i) zero and (ii) the
amount computed by subtracting from U.S. $50 an amount equal to the product of
U.S. $50 times a fraction, the numerator of which is Yen 105.40 per U.S. $1.00
(the 'Strike Rate') and the denominator of which is the Spot Rate. This amount
is described by the following formula:
<TABLE>
<S> <C> <C> <C> <C> <C>
Yen 105.40/U.S. $1.00
---------------------
CASH SETTLEMENT VALUE = THE GREATER OF (I) $0 AND (II) $50 - ( $50 X ( SPOT RATE ))
</TABLE>
The 'Spot Rate' on any Valuation Date will be determined by the Spot Rate
Reference Agent and will equal (i) the noon buying rate per U.S. $1.00 in The
City of New York on such Valuation Date for cable transfers in Japanese yen as
certified for customs purposes by the Federal Reserve Bank of New York (the
'Noon Buying Rate'), as reported on page 1FEE of The Reuter Monitor Money Rates
Service (or such page as may replace that page), or (ii) if the Noon Buying Rate
does not appear on such page by 1:00 P.M., New York City time, on such Valuation
Date, the Noon Buying Rate on such Valuation Date as otherwise announced by the
Federal Reserve Bank of New York, or (iii) if the Federal Reserve Bank of New
York has not quoted such Noon Buying Rate by 1:30 P.M., New York City time, on
such Valuation Date, the offered spot rate of Japanese yen per U.S. $1.00 on
such Valuation Date, which offered spot rate shall be calculated by the Spot
Rate Reference Agent by (a) obtaining at approximately 1:30 P.M., New York City
time, a quote for a transaction amount approximately equivalent to U.S. $50
times the aggregate number of Warrants which were properly exercised on the
related Exercise Date from each of five leading market makers (other than
PaineWebber) in the foreign exchange markets for Japanese yen selected by the
Spot Rate Reference Agent, (b) discarding the highest and lowest quotes obtained
and (c) averaging the three remaining quotes to determine such offered spot
rate. Because more favorable rates are generally obtained in large transactions,
the offered spot rate that will be calculated, if necessary, pursuant to clause
(iii) above in the event the Noon Buying Rate is not available in connection
with the exercise of a small aggregate number of Warrants, may be less favorable
than the rate that will be calculated if a greater number of Warrants were
exercised. No assurance can be given as to the aggregate number of Warrants
which may be exercised on any day.
The Spot Rate used to determine the Cash Settlement Value on any Valuation
Date will be rounded to the second decimal place (e.g., 112.26), rounding up if
the next succeeding decimal place, without regard to rounding, is five or
higher. Any such Cash Settlement Value will be rounded down, if necessary, to
the nearest cent.
HYPOTHETICAL WARRANT VALUES ON EXERCISE
Set forth below is an illustrative example demonstrating the Cash
Settlement Values of a Warrant based on various hypothetical Spot Rates. The
illustrative Cash Settlement Values in the table do not reflect any 'time value'
for a Warrant, which may be reflected in trading value, and are not necessarily
indicative of potential profit or loss, which are also affected by purchase
price and transaction costs.
<TABLE>
<CAPTION>
CASH SETTLEMENT VALUE
HYPOTHETICAL (ALSO KNOWN AS
SPOT RATE 'INTRINSIC
(YEN/U.S. $1.00) VALUE') OF A WARRANT
- ---------------------------------------------------- ------------------------
<S> <C>
135.00 ............................................. U.S. $ 10.96
130.00 ............................................. 9.46
125.00 ............................................. 7.84
120.00 ............................................. 6.08
115.00 ............................................. 4.17
110.00 ............................................. 2.09
105.40 (Strike Rate) or below ...................... 0.00
</TABLE>
WARRANT CERTIFICATES
The Warrants will be issued as certificates in registered form (each, a
'Warrant Certificate'). The Warrant Agent will from time to time register the
transfer of any outstanding Warrant Certificate upon surrender thereof at the
Warrant Agent's Office duly endorsed by, or accompanied by a written instrument
or instruments of transfer in form satisfactory to the Warrant Agent duly
executed by, the registered holder thereof, a duly appointed legal
S-11
<PAGE>
representative or a duly authorized attorney. Such signature must be guaranteed
by a bank or trust company having a correspondent office in New York City or by
a member of a national securities exchange. A new Warrant Certificate will be
issued to the transferee upon any such registration of transfer.
At the option of a registered holder of a Warrant, Warrant Certificates may
be exchanged for other Warrant Certificates representing a like number of
Warrants, upon surrender to the Warrant Agent at the Warrant Agent's Office of
the Warrant Certificates to be exchanged. The Company will thereupon execute,
and the Warrant Agent will countersign and deliver, one or more new Warrant
Certificates representing such like number of Warrants.
In the event that, after any exercise of Warrants evidenced by a Warrant
Certificate, the number of Warrants exercised is fewer than the total number of
Warrants evidenced by such Certificate, a new Warrant Certificate evidencing the
number of Warrants not exercised will be issued to the registered holder or his
assignee. See 'Minimum Exercise Amount' below.
If any Warrant Certificate is mutilated, lost, stolen or destroyed, the
Company may in its discretion execute, and the Warrant Agent may countersign and
deliver, in exchange and substitution for such mutilated Warrant Certificate or
in replacement for such lost, stolen or destroyed Warrant Certificate, a new
Warrant Certificate representing a like number of Warrants, but only (in the
case of loss, theft or destruction) upon receipt of evidence satisfactory to the
Company and the Warrant Agent of loss, theft or destruction of such Warrant
Certificate and security or indemnity, if requested, satisfactory to them.
Warrantholders requesting replacement Warrant Certificates must also comply with
such other reasonable regulations and pay such reasonable charges as the Company
or the Warrant Agent may prescribe. In the event that all the Warrants
represented by any such mutilated, lost, stolen or destroyed Warrant Certificate
have been or are about to be exercised (including upon automatic exercise), the
Company in its discretion may, instead of issuing a new Warrant Certificate,
direct the Warrant Agent to treat such Warrant Certificate as if the Warrant
Agent had received an Exercise Notice in proper form in respect thereof or as
being subject to automatic exercise, as the case may be.
No service charge will be made for any registration of transfer or exchange
of Warrant Certificates, but the Company may require the payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection therewith, other than exchanges not involving any transfer. In the
case of the replacement of mutilated, lost, stolen or destroyed Warrant
Certificates, the Company may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Warrant Agent)
connected therewith.
Warrantholders may not hold certificated positions through CEDEL or
Euroclear, but may hold Warrants in book-entry form through the facilities of
CEDEL or Euroclear after they have been converted from certificated form to
book-entry form. See '-- Book-Entry Conversion' and '-- CEDEL and Euroclear'
herein.
BOOK-ENTRY CONVERSION
Forty-five calendar days after the closing of the offering (which closing
date is expected to be March 16, 1994), each registered holder of a Warrant will
have the option to convert the form in which such holder holds his Warrants from
certificated to book-entry form by utilizing the Conversion Option. The
Conversion Option will be available for forty-five calendar days (the
'Conversion Option Period') and is expected to run from April 30, 1994, through
June 13, 1994.
In order to be exchanged for a Warrant in book-entry form, a Warrant
Certificate must be delivered to DTC, in proper form for deposit, by a
Participant. Accordingly, a registered holder of a Warrant who is not a
Participant must deliver his Warrant Certificate, in proper form for deposit, to
a Participant, either directly or through an indirect participant in DTC (such
as a bank, brokerage firm, dealer or trust company that clears through, or
maintains a custodial relationship with, a Participant) or brokerage firm which
maintains an account with a Participant, in order to have its Warrant
Certificate exchanged for a Warrant in book-entry form. Such Warrantholders who
desire to exchange their Warrant Certificates for Warrants in book-entry form
should contact their brokers or other Participants or indirect participants to
obtain information on procedures for submitting their Warrant Certificates to
DTC, including the proper form for submission and (during the Conversion Option
Period) the cut-off times for same day and next day exchange. Warrant
Certificates which are held by the Warrantholder in nominee or 'street name' may
be automatically exchanged into book-entry form by the broker or other entity in
whose name such Warrant Certificates are registered, without action of, or
consent by, the beneficial owner of the related Warrant. Under no circumstances
may Warrant Certificates be converted into Warrants in book-entry form through
the facilities of CEDEL or Euroclear.
S-12
<PAGE>
Warrant Certificates received by DTC for exchange during the Conversion
Option Period will be exchanged for Warrants in book-entry form by the close of
business on the New York Business Day such Certificates are received by DTC (if
received by DTC at its then applicable cut-off time for same day credit) or on
the following New York Business Day (if received by DTC at its then applicable
cut-off time for next day credit). After the last day of the Conversion Option
Period, DTC will not be required to accept delivery of Warrant Certificates for
exchange for book-entry Warrants, but may permit Warrant Certificates to be so
exchanged on a case-by-case basis. However, there can be no assurance that such
Warrant Certificates would be accepted for exchange.
Warrants surrendered at any time for exchange for book-entry Warrants may not be
exercised or delivered for settlement of transfer until such exchange has been
effected. Accordingly, if an increase in the Spot Rate were to occur after a
Warrant Certificate had been surrendered for exchange into book-entry form, a
Warrantholder would not be able to take advantage of the increase by exercising
his Warrant until such exchange had been effected. Because Warrant Certificates
are not required to be exchanged for Warrants in book-entry form, it is likely
that not all Warrant Certificates will be so exchanged. Accordingly, a
Warrantholder purchasing Warrants in secondary market trading after commencement
of the Conversion Option Period may wish to consult with his broker or another
Participant or indirect participant if he wishes to purchase Warrants only in
book-entry form and not Warrant Certificates.
The Company has been informed by CEDEL and Euroclear that such clearing
agencies will only clear Warrants in book-entry form.
Once a registered holder of a Warrant has elected the Conversion Option,
such holder may hold his Warrants only in book-entry form and will not be able
to change his election or withdraw from the book-entry system during the
Conversion Option Period or thereafter. Accordingly, except in certain limited
circumstances described in the Prospectus under 'Description of Warrants --
Book-Entry Procedures and Settlement', ownership of the Warrants in certificated
form will no longer be available to investors who have elected the Conversion
Option.
CEDEL AND EUROCLEAR
Warrantholders may hold their Warrants only in book-entry form through
CEDEL or Euroclear if they are participants of such systems, or indirectly
through organizations which are participants in such systems. The common
security registration number used by CEDEL and Euroclear for the Warrants is
4937031. Certificated ownership of Warrants will not be available through such
systems.
CEDEL and Euroclear will hold omnibus book-entry positions on behalf of
their participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the names of the
nominees of the depositaries on the books of DTC. Citibank, N.A., New York
Office ('Citibank'), will act as depositary for CEDEL and Morgan Guaranty Trust
Company of New York, New York Office ('Morgan'), will act as depositary for
Euroclear (in such capacities, the 'Depositaries'). All securities in CEDEL or
Euroclear are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts.
Exercises of book-entry Warrants by persons holding through CEDEL or
Euroclear participants will be effected through DTC, in accordance with DTC
rules, on behalf of the relevant European international clearing system by its
Depositary; however, such transactions will require delivery of exercise
instructions to the relevant European international clearing system by the
participant in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the exercise meets its requirements,
deliver instructions to its Depositary to take action to effect its exercise of
the Warrants on its behalf by delivering Warrants through DTC and receiving
payment in accordance with its normal procedures for next-day funds settlement.
Payments with respect to the Warrants held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL participants or Euroclear participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. See '-- Exercise and Settlement of the Warrants'
herein.
Centrale de Livraison de Valeurs Mobilieres S.A. ('CEDEL') is incorporated
under the laws of Luxembourg as a professional depository. CEDEL holds
securities for its participating organizations and facilitates the clearance and
settlement of securities transactions between CEDEL participants through
electronic book-entry changes in accounts of CEDEL participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including U.S. dollars. CEDEL
S-13
<PAGE>
provides to its participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets in
several countries. As a professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the Underwriters. Indirect access to CEDEL
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a CEDEL
participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants in the Euroclear System and to clear and settle transactions
between Euroclear participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 30 currencies, including U.S.
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. The Euroclear System is operated by Morgan's Brussels,
Belgium office (the 'Euroclear Operator' or 'Euroclear'), under contract with
Euroclear Clearance System S.C., a Belgian cooperative corporation (the
'Cooperative'). Morgan is a member bank of the United States Federal Reserve
System. All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear participants. Euroclear
participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
Underwriters. Indirect access to the Euroclear System is also available to other
firms that clear through or maintain a custodial relationship with a Euroclear
participant, either directly or indirectly.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the 'Terms and Conditions'). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipt of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear participants, and has no record
of or relationship with persons holding through Euroclear participants.
All information herein on CEDEL and Euroclear is derived from CEDEL or
Euroclear, as the case may be, and reflects the policies of such organizations;
such policies are subject to change without notice.
EXERCISE AND SETTLEMENT OF WARRANTS
The Warrants will be immediately exercisable upon issuance and will expire
on March 6, 1996 (the 'Expiration Date'). Warrants not exercised (including by
reason of any postponed exercise) at or before 3:00 P.M., New York City time, on
the earlier of (i) the New York Business Day immediately preceding the
Expiration Date and (ii) the Delisting Date will be automatically exercised as
described under 'Automatic Exercise' below.
A Warrantholder may exercise certificated Warrants on any New York Business
Day during the period from the date of issuance of such Warrants until 3:00
P.M., New York City time, on the earlier of (i) the New York Business Day
immediately preceding the Expiration Date and (ii) the Delisting Date, by
delivering or causing to be delivered to the Warrant Agent in New York City the
Warrant Certificate representing such Warrants with the irrevocable notice of
exercise on the reverse thereof (or a notice of exercise in substantially
identical form delivered therewith) (such notice, an 'Exercise Notice') duly
completed and executed. The Warrant Agent's telephone number and facsimile
transmission number for this purpose are (212) 657-7269 and (212) 825-3483,
respectively.
In the case of book-entry Warrants held through the facilities of DTC, a
Warrantholder may exercise such Warrants on any New York Business Day during the
period from the date of issuance of such Warrants until 3:00 P.M., New York City
time, on the earlier of (i) the New York Business Day immediately preceding the
Expiration Date and (ii) the Delisting Date, by causing (a) such Warrants to be
transferred free to the Warrant Agent on the records of DTC and (b) a duly
completed and executed Exercise Notice to be delivered on behalf of
S-14
<PAGE>
the Warrantholder by a Participant to the Warrant Agent. Forms of Exercise
Notice for Warrants held through the facilities of DTC may be obtained from
the Warrant Agent at the Warrant Agent's Office. The Warrant Agent's
telephone number and facsimile transmission number for this purpose are
(201) 262-5444 and (201) 262-7521, respectively.
In the case of book-entry Warrants held through the facilities of CEDEL or
Euroclear, a Warrantholder may exercise such Warrants on any New York Business
Day during the period from the date of issuance of such Warrants until 3:00
P.M., New York City time, on the earlier of (i) the New York Business Day
immediately preceding the Expiration Date and (ii) the Delisting Date by causing
(a) such Warrants to be transferred to the Warrant Agent, by giving appropriate
instructions to the participant holding such Warrants in either the CEDEL or
Euroclear system, as the case may be, and (b) a duly completed and executed
Exercise Notice to be delivered on behalf of the Warrantholder by CEDEL or
Euroclear, as the case may be, to the Warrant Agent. Forms of Exercise Notice
for Warrants held through the facilities of either CEDEL or Euroclear may be
obtained from the Warrant Agent at the Warrant Agent's Office or from CEDEL or
Euroclear.
Except for Warrants subject to automatic exercise or held in book-entry
form through the facilities of CEDEL or Euroclear, and subject to the Limit
Option, the 'Exercise Date' for a Warrant will be (i) the New York Business Day
on which the Warrant Agent receives the Warrant and Exercise Notice in proper
form with respect to such Warrant, if received at or prior to 3:00 P.M., New
York City time, on such day, or (ii) if the Warrant Agent receives such Warrant
and Exercise Notice after 3:00 P.M., New York City time, on a New York Business
Day, then the New York Business Day next succeeding such New York Business Day.
In the case of Warrants held in book-entry form through the facilities of
CEDEL or Euroclear, except for Warrants subject to automatic exercise, and
subject to the Limit Option, the 'Exercise Date' for a Warrant will be (i) the
New York Business Day on which the Warrant Agent receives the Exercise Notice in
proper form with respect to such Warrant if such Exercise Notice is received at
or prior to 3:00 P.M., New York City time, on such day, provided that the
Warrant is received by the Warrant Agent by 3:00 P.M., New York City time, on
the Valuation Date, or (ii) if the Warrant Agent receives such Exercise Notice
after 3:00 P.M., New York City time, on a New York Business Day, then the New
York Business Day succeeding such New York Business Day, provided that the
Warrant is received by 3:00 P.M., New York City time, on the Valuation Date
relating to exercises of Warrants on such succeeding New York Business Day. In
the event that the Warrant is received after 3:00 P.M., New York City time, on
the Valuation Date, then the Exercise Date for such Warrants will be the day on
which such Warrants are received or, if such day is not a New York Business Day,
the next succeeding New York Business Day. In the case of Warrants held in
book-entry form through the facilities of CEDEL or Euroclear, in order to ensure
proper exercise on a given New York Business Day, participants in CEDEL or
Euroclear must submit exercise instructions to CEDEL or Euroclear, as the case
may be, by 10:00 A.M., Luxembourg time, in the case of CEDEL and by 10:00 A.M.,
Brussels time (by telex), or 11:00 A.M., Brussels time (by EUCLID), in the case
of Euroclear. In addition, in the case of book-entry exercises by means of the
Euroclear System, (i) participants must also transmit, by facsimile (facsimile
number 201-262-7521), to the Warrant Agent a copy of the Exercise Notice
submitted to Euroclear by 3:00 P.M., New York City time, on the desired Exercise
Date and (ii) Euroclear must confirm by telex to the Warrant Agent by 9:00 A.M.,
New York City time, on the Valuation Date that the Warrants will be received by
the Warrant Agent on such date; provided, that if such telex communication is
received after 9:00 A.M., New York City time, on the Valuation Date, the Company
will be entitled to direct the Warrant Agent to reject the related Exercise
Notice or waive the requirement for timely delivery of such telex communication.
To ensure that an Exercise Notice and the related Warrants will be
delivered to the Warrant Agent before 3:00 P.M., New York City time, on a given
New York Business Day, a Warrantholder may have to give exercise instructions to
his broker or other intermediary substantially earlier than 3:00 P.M., New York
City time, on such day. Different brokerage firms may have different cut-off
times for accepting and implementing exercise instructions from their customers.
Therefore, Warrantholders should consult with their brokers or other
intermediaries, if applicable, as to applicable cut-off times and other exercise
mechanics. See 'Certain Important Information Concerning the Warrants' above.
Except in the case of Warrants subject to automatic exercise, if on any
Valuation Date the Cash Settlement Amount for any Warrants then exercised would
be zero, then in such case, the exercise of such Warrants will be ignored and,
in the case of certificated Warrants, the Warrant Certificate evidencing such
Warrants will be returned to the registered holder by first class mail at the
Company's expense or, in the case of Warrants held
S-15
<PAGE>
through the facilities of DTC, CEDEL or Euroclear, such Warrants will be
transferred back to the Participant that submitted them free on the records of
DTC, CEDEL or Euroclear, as the case may be, and, in any such case, such
Warrantholder will be permitted to re-exercise such Warrants prior to the
Expiration Date or the Delisting Date, as the case may be.
The 'Valuation Date' for a Warrant will be the first New York Business Day
following the Exercise Date, subject to postponement as a result of the exercise
of a number of Warrants exceeding the limits on exercise described below under
'Maximum Exercise Amount'. The following is an illustration of the timing of an
Exercise Date, the ensuing Valuation Date and the Limit Option Reference Rate
(as hereinafter defined), assuming (i) all relevant dates are New York Business
Days and (ii) the number of exercised Warrants does not exceed the maximum
permissible amount. If the Warrant Agent receives a Warrantholder's Warrants and
Exercise Notice in proper form at or prior to 3:00 P.M., New York City time, on
Tuesday, October 31, 1995, the Exercise Date for such Warrants will be Tuesday,
October 31, 1995, and the Valuation Date for such Warrants will be Wednesday,
November 1, 1995 (except that in the case of Warrants held through the
facilities of CEDEL or Euroclear, the Warrants must be received by 3:00 P.M.,
New York City time, on the Valuation Date; if such Warrants are received after
such time, then the Exercise Date for such Warrants will be the day on which
such Warrants are received or, if such day is not a New York Business Day, the
next succeeding New York Business Day, and the Valuation Date for such Warrants
will be the first New York Business Day following such Exercise Date and the
Limit Option Reference Rate will be the Spot Rate on such Exercise Date). The
Spot Rate used to determine the Cash Settlement Value of such Warrants will be
the Spot Rate on Wednesday, November 1, 1995.
If the Warrantholder elected the Limit Option in connection with the exercise of
such Warrants, the Limit Option Reference Rate would be the Spot Rate on
Tuesday, October 31, 1995. If the Warrant Agent were to receive such
Warrantholder's Warrants and Exercise Notice after 3:00 P.M., New York City
time, on Tuesday, October 31, 1995 (except that in the case of Warrants held
through the facilities of CEDEL or Euroclear, if the Warrants are received after
3:00 P.M., New York City time, on Wednesday, November 1, 1995), then the
Exercise Date for such Warrants would instead be Wednesday, November 1, 1995,
the Valuation Date would be Thursday, November 2, 1995, and the applicable Limit
Option Reference Rate would be the Spot Rate on Wednesday, November 1, 1995.
Following receipt of Warrants and the related Exercise Notice in proper
form, the Warrant Agent will, not later than 5:00 P.M., New York City time, on
the applicable Valuation Date (i) obtain from the Spot Rate Reference Agent the
Spot Rate, (ii) determine the Cash Settlement Value of such Warrants and (iii)
advise the Company of the aggregate Cash Settlement Value of the exercised
Warrants. Except in the case of Warrants held through the facilities of DTC,
CEDEL or Euroclear, if the Company has made adequate funds available to the
Warrant Agent in a timely manner as required by the Warrant Agreement, the
Warrant Agent will thereafter be responsible for making payment available to
each registered holder of a Warrant on the fifth New York Business Day following
the Valuation Date in the form of a cashier's check or official bank check, or
(in the case of payments of at least $100,000) by wire transfer to a U.S. dollar
bank account maintained by such holder in the United States (at such holder's
election as specified in the applicable Exercise Notice), in an amount equal to
the aggregate Cash Settlement Value of such holder's exercised Warrants. In the
case of Warrants held through the facilities of DTC, CEDEL or Euroclear, the
Company will be required to make available to the Warrant Agent, no later than
3:00 P.M., New York City time, on the sixth New York Business Day following the
Valuation Date, funds in an amount sufficient to pay such aggregate Cash
Settlement Value. If the Company has made such funds available by such time, the
Warrant Agent will thereafter be responsible for making funds available to each
appropriate Participant (including Citibank and Morgan, who, in turn, will
disburse payments to CEDEL and Euroclear, respectively, who will be responsible
for disbursing such payments to each of their respective participants, who, in
turn, will be responsible for disbursing payments to the Warrantholders it
represents), and such Participant will be responsible for disbursing such
payments to the Warrantholders it represents and to each brokerage firm for
which it acts as agent. Each such brokerage firm will be responsible for
disbursing funds to the Warrantholders that it represents.
'Spot Rate Reference Agent' means PaineWebber or, in lieu thereof, another
firm selected by the Company to perform the functions of the Spot Rate Reference
Agent in connection with the Warrants.
S-16
<PAGE>
MINIMUM EXERCISE AMOUNT
No fewer than 500 Warrants may be exercised by a Warrantholder at any one
time, except in the event of automatic exercise. Accordingly, except in the
event of automatic exercise of the Warrants, Warrantholders with fewer than 500
Warrants will need either to sell their Warrants or to purchase additional
Warrants, thereby incurring transaction costs, in order to realize upon their
investment. Warrantholders must satisfy the minimum exercise amount requirement
described above separately with respect to both certificated and book-entry
Warrants even if both kinds of Warrants are to be exercised at the same time.
Thus, a Warrantholder seeking to exercise both certificated and book-entry
Warrants at the same time must still exercise a minimum of 500 of each kind of
Warrant in order to satisfy such requirement. In addition, book-entry Warrants
held through one Participant (including participants in CEDEL or Euroclear) may
not be combined with book-entry Warrants held through another Participant in
order to satisfy the minimum exercise requirement.
MAXIMUM EXERCISE AMOUNT
All exercises of Warrants (other than on the Expiration Date or the
Delisting Date) are subject, at the Company's option, to the limitation that not
more than 1,000,000 Warrants in total may be exercised on any Exercise Date and
not more than 250,000 Warrants may be exercised by or on behalf of any person or
entity, either individually or in concert with any other person or entity, on
any Exercise Date. If any New York Business Day would otherwise, under the terms
of the Warrant Agreement, be the Exercise Date in respect of more than 1,000,000
Warrants, then at the Company's election 1,000,000 of such Warrants shall be
deemed exercised on such Exercise Date (selected by the Warrant Agent on a pro
rata basis, but if, as a result of such pro rata selection, any registered
holders of Warrants would be deemed to have exercised fewer than 500 Warrants,
then the Warrant Agent shall first select additional of such holders' Warrants
so that no such holder shall be deemed to have exercised fewer than 500
Warrants), and the remainder of such Warrants (the 'Remaining Warrants') shall
be deemed exercised on the following New York Business Day (subject to
successive applications of this provision); provided that any Remaining Warrant
for which an Exercise Notice was delivered on a given Exercise Date shall be
deemed exercised before any other Warrants for which an Exercise Notice was
delivered on a later Exercise Date. If any individual Warrantholder attempts to
exercise more than 250,000 Warrants on any New York Business Day, then at the
Company's election 250,000 of such Warrants shall be deemed exercised on such
New York Business Day and the remainder shall be deemed exercised on the
following New York Business Day (subject to successive applications of this
provision). As a result of any postponed exercise as described above,
Warrantholders will receive a Cash Settlement Value determined as of a date
later than the otherwise applicable Valuation Date. In any such case, as a
result of any such postponement and subject to the Limit Option, the Cash
Settlement Value actually received by Warrantholders may be lower than the
otherwise applicable Cash Settlement Value if the Valuation Date of the Warrants
had not been postponed.
LIMIT OPTION
Except for Warrants subject to automatic exercise, each Warrantholder, in
connection with any exercise of Warrants, will have the option (the 'Limit
Option') to specify that such Warrants are not to be exercised if the Spot Rate
that would otherwise be used to determine the Cash Settlement Value of such
Warrants has declined by five or more Japanese yen per U.S. dollar from the Spot
Rate for the day specified below (such Rate, the 'Limit Option Reference Rate').
A Warrantholder's election of the Limit Option must be specified in the
applicable Exercise Notice delivered to the Warrant Agent. If such Exercise
Notice in proper form, together with the related Warrants, is received by the
Warrant Agent by 3:00 P.M., New York City time, on a given day (which must be a
New York Business Day), the Limit Option Reference Rate will be the Spot Rate
for such day. If an Exercise Notice and the related Warrants are received after
3:00 P.M., New York City time, on a given day, the applicable Limit Option
Reference Rate will be the Spot Rate for the next day that is also a New York
Business Day.
To ensure that the Limit Option will have its intended effect of limiting
the risk of any downward movement in the value of the U.S. dollar relative to
the Japanese yen between the date on which a Warrantholder submits an Exercise
Notice and the related Valuation Date, such Exercise Notice and the related
Warrants must be received by the Warrant Agent not later than 3:00 P.M., New
York City time, on the New York Business Day on which they are submitted. See
the illustration under 'Exercise and Settlement of Warrants' above and 'Certain
Important Information Concerning the Warrants' herein.
S-17
<PAGE>
Following receipt of an Exercise Notice and the related Warrants subject to
the Limit Option, the Warrant Agent will obtain the applicable Limit Option
Reference Rate from the Spot Rate Reference Agent and will determine whether
such Warrants will not be exercised because of the Limit Option. Warrants that
are not exercised will be treated as not having been tendered for exercise, and
either the Warrant Certificate evidencing such Warrants will be returned to the
registered holder by first-class mail at the Company's expense or, in the case
of Warrants held through the facilities of DTC, CEDEL or Euroclear, such
Warrants will be transferred to the account at DTC, CEDEL or Euroclear, as the
case may be, from which they were transferred to the Warrant Agent. To exercise
such Warrants, a Warrantholder will be required to cause the Warrants and a
related Exercise Notice to be submitted again to the Warrant Agent.
Once elected by a Warrantholder in connection with an exercise of Warrants,
the Limit Option will continue to apply, on the basis of the Limit Option
Reference Rate as initially determined for such Warrants, even if the Valuation
Date for such Warrants is postponed. Pursuant to the Limit Option, such Warrants
will either (i) be exercised on a delayed basis if the applicable Spot Rate is
not less than the Limit Option Reference Rate by five or more Japanese yen per
U.S. dollar or (ii) be excluded from being exercised if, on any applicable
postponed Valuation Date, the applicable Spot Rate is less than the Limit Option
Reference Rate by five or more Japanese yen per U.S. dollar.
In connection with any exercise of 500 or more Warrants, a Warrantholder
may elect to subject the exercise of only a portion of such Warrants to the
Limit Option, provided that the number of Warrants subject to the Limit Option
and the number of Warrants not subject to the Limit Option shall in each case
not be less than 500. A Warrantholder may not combine certificated and
book-entry Warrants in order to meet the 500-Warrant minimum requirement. See
'Minimum Exercise Amount' above.
AUTOMATIC EXERCISE
All Warrants for which the Warrant Agent has not received a valid Exercise
Notice at or prior to 3:00 P.M., New York City time, on (i) the New York
Business Day immediately preceding the Expiration Date or (ii) the Delisting
Date, as the case may be, or for which the Warrant Agent has received a valid
Exercise Notice but with respect to which timely delivery of the Warrants has
not been made, will be automatically exercised on such Date. The Exercise Date
for such Warrants will be the Expiration Date or the Delisting Date, as the case
may be, or, if such Date is not a New York Business Day, the next succeeding New
York Business Day. The Warrant Agent will obtain from the Spot Rate Reference
Agent the Spot Rate (determined as of the first New York Business Day following
such Date, which will be the Valuation Date for such Warrants) and will
determine the Cash Settlement Value, if any, of such Warrants.
Except in the case of Warrants held through the facilities of DTC, CEDEL or
Euroclear, if the Company has made adequate funds available to the Warrant Agent
in a timely manner as required by the Warrant Agreement, the Warrant Agent will
thereafter be responsible for making a payment available to each registered
holder of a Warrant in the form of a cashier's check or official bank check, or
(in the case of payments of at least $100,000) by wire transfer to a U.S. dollar
account maintained by such holder in the United States (at such holder's
election) after 3:00 P.M., New York City time, on the fourth New York Business
Day after such Valuation Date against receipt by the Warrant Agent at the
Warrant Agent's Office of such holder's Warrant Certificates. Such payment will
be in an amount equal to the aggregate Cash Settlement Value of the Warrants
evidenced by such Warrant Certificates.
In the case of Warrants held through the facilities of DTC, CEDEL or
Euroclear, the Company will be required to make available to the Warrant Agent,
no later than 3:00 P.M., New York City time, on the fourth New York Business Day
after such Valuation Date, funds in an amount sufficient to pay such aggregate
Cash Settlement Value. If the Company has made such funds available by such
time, the Warrant Agent will thereafter be responsible for making funds
available to DTC in an amount sufficient to pay the aggregate Cash Settlement
Value of the Warrants. DTC will be responsible for disbursing such funds to each
appropriate Participant (including Citibank and Morgan, who, in turn, will
disburse payments to CEDEL and Euroclear, as the case may be, who will be
responsible for disbursing such payments to each of their respective
participants, who, in turn, will be responsible for disbursing payments to the
Warrantholders it represents) and such Participant will be responsible for
disbursing such payments to the Warrantholders it represents and to each
brokerage firm for which it acts as agent. Each such brokerage firm will be
responsible for disbursing funds to the Warrantholders it represents.
S-18
<PAGE>
LISTING
The Warrants have been approved for listing on the AMEX, subject to
official notice of issuance. The AMEX symbol for the Warrants is PWY.WS. The
AMEX expects to cease trading the Warrants on such Exchange as of the close of
business on the Expiration Date.
DELISTING OF WARRANTS
In the event the Warrants are delisted from, or permanently suspended from
trading (within the meaning of the Securities Exchange Act of 1934 and the rules
and regulations thereunder) on, the AMEX and not accepted at the same time for
listing on another United States national securities exchange, Warrants not
previously exercised will be deemed automatically exercised on the last New York
Business Day prior to the effective date of such delisting or trading suspension
(the 'Delisting Date'), and the Cash Settlement Value, if any, shall be
calculated and settled as provided above under 'Automatic Exercise'. The Company
will notify Warrantholders as soon as practicable of such delisting or trading
suspension. However, if the Company first receives notice of the delisting or
suspension on the same day on which the Warrants are delisted or suspended, such
day will be deemed the Delisting Date. The Company will covenant in the Warrant
Agreement that it will not seek delisting of the Warrants from, or suspension of
their trading on, the AMEX unless the Company has, at the same time, arranged
for listing of the Warrants on another United States national securities
exchange.
S-19
<PAGE>
EXCHANGE RATES
EXCHANGE RATES
The following table sets forth the average for the months (or partial
month) indicated, as calculated by the Spot Rate Reference Agent, of the daily
Noon Buying Rates per U.S. $1.00 for Japanese yen in New York City based on data
obtained from the Federal Reserve Bank of New York.
<TABLE>
<CAPTION>
Yen/U.S.$1
---------------
<S> <C> <C>
1989: January.................................................................... 127.36
February................................................................... 127.74
March...................................................................... 130.55
April...................................................................... 132.04
May........................................................................ 137.86
June....................................................................... 143.98
July....................................................................... 140.42
August..................................................................... 141.31
September.................................................................. 145.07
October.................................................................... 142.21
November................................................................... 143.53
December................................................................... 143.69
1990: January.................................................................... 144.98
February................................................................... 145.70
March...................................................................... 153.31
April...................................................................... 158.46
May........................................................................ 154.04
June....................................................................... 153.74
July....................................................................... 149.04
August..................................................................... 147.68
September.................................................................. 138.45
October.................................................................... 129.59
November................................................................... 129.22
December................................................................... 133.89
1991: January.................................................................... 133.70
February................................................................... 130.54
March...................................................................... 137.39
April...................................................................... 137.12
May........................................................................ 138.22
June....................................................................... 139.75
July....................................................................... 137.83
August..................................................................... 136.82
September.................................................................. 134.30
October.................................................................... 130.77
November................................................................... 129.63
December................................................................... 128.04
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
Yen/U.S.$1
---------------
<S> <C> <C>
1992: January.................................................................... 125.46
February................................................................... 127.70
March...................................................................... 132.86
April...................................................................... 133.49
May........................................................................ 130.77
June....................................................................... 126.84
July....................................................................... 125.88
August..................................................................... 126.23
September.................................................................. 122.60
October.................................................................... 121.17
November................................................................... 123.88
December................................................................... 124.04
1993: January.................................................................... 124.99
February................................................................... 120.76
March...................................................................... 117.02
April...................................................................... 112.41
May........................................................................ 110.34
June....................................................................... 107.41
July....................................................................... 107.69
August..................................................................... 103.77
September.................................................................. 105.57
October.................................................................... 107.02
November................................................................... 107.88
December................................................................... 109.87
1994: January.................................................................... 111.44
February................................................................... 106.30
March (through March 8).................................................... 104.81
</TABLE>
The following graph sets forth the movement in such monthly average Noon
Buying Rates for the months presented above:
JAPANESE YEN PER U.S. DOLLAR
MONTHLY AVERAGE NOON BUYING RATES
(ADD GRAPH)
The actual exchange rates for Japanese yen per U.S. $1.00 could materially
differ from those set forth above.
The information presented in this Prospectus Supplement relating to the
exchange rate of the Japanese yen as compared to the U.S. dollar is furnished as
a matter of information only. The fluctuations in the Japanese
S-21
<PAGE>
yen/U.S. dollar exchange rate that have occured in the past are not necessarily
indicative of fluctuations in that rate that may occur over the term of the
Warrants.
The spot exchange rates between the Japanese yen and U.S. dollar are at any
moment a result of the supply of and demand for the currencies being compared,
and changes in the rates result over time from the interaction
of many factors directly or indirectly affecting economic and political
conditions in Japan and the United States, including economic and political
developments in other countries. Of particular importance are rates of
inflation, interest rate levels, the balance of payments and the extent of
governmental surpluses or deficits in Japan and the United States, all of which
are in turn sensitive to the monetary, fiscal and trade policies pursued by the
governments of Japan, the United States and other countries important to
international trade and finance. See 'Risk Factors' in the Prospectus.
As discussed under 'Description of the Warrants', the spot exchange rate of
the Japanese yen as compared to the U.S. dollar will determine the Cash
Settlement Value of a Warrant upon exercise. Appreciation of the U.S. dollar
against the Japanese yen (i.e., depreciation of the Japanese yen against the
U.S. dollar) will result in a greater Cash Settlement Value. Conversely,
depreciation of the U.S. dollar against the Japanese yen (i.e., appreciation of
the Japanese yen against the U.S. dollar) will result in a lesser or zero Cash
Settlement Value. Warrantholders will thus bear the foreign exchange risks of
the U.S. dollar as compared to the Japanese yen. In addition, in the absence of
countervailing factors, such as an appreciation of the U.S. dollar against the
Japanese yen, the trading value of the Warrants is expected to decrease as the
time remaining to the Expiration Date decreases. See 'Risk Factors--Certain
Factors Affecting Value and Trading Price of Warrants' in the Prospectus.
EXCHANGE CONTROLS
The amended Foreign Exchange and Foreign Trade Control Law of Japan, which
came into effect in 1980, has deregulated external transactions in principle.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes material United States Federal income tax
consequences of the ownership and disposition of a Warrant as of the date hereof
and represents the opinion of Latham & Watkins, special tax counsel to the
Company. Such summary deals only with Warrants held as capital assets by United
States Holders (as defined below) and does not deal with those with special
situations, such as dealers in options or persons who hold a Warrant in the
ordinary course of business, financial institutions, life insurance companies or
purchasers holding Warrants as a part of a hedging transaction or a straddle.
Furthermore, the discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the 'Code'), and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in Federal income tax consequences
different from those discussed below. PERSONS CONSIDERING THE PURCHASE,
OWNERSHIP OR DISPOSITION OF WARRANTS SHOULD CONSULT WITH THEIR OWN TAX ADVISERS
CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR
SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER
TAXING JURISDICTION.
As used herein, a 'United States Holder' of a Warrant means a holder that
is a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, or an estate or trust the income of which is
subject to United States Federal income taxation regardless of its source or any
other person whose income or gain with respect to a Warrant is effectively
connected with the conduct of a trade or business in the United States.
TAXATION OF WARRANTS HELD AT THE CLOSE OF TAXABLE YEAR
Each Warrant will be treated as a 'section 1256 contract' which must be
'marked-to-market' (i.e., treated as sold at fair market value) on the last
business day of each taxable year. Under these mark-to-market rules, a United
States Holder of a Warrant will recognize gain or loss equal to the difference
between the fair market value of the Warrant on the last business day of each
taxable year (as determined by the Warrant's trading price) and the United
States Holder's tax basis for the Warrant. A United States Holder's tax basis in
a Warrant
S-22
<PAGE>
will equal the amount paid for the Warrant, plus or minus the net gain or loss
recognized under the marked-to-market rules by the United States Holder in
respect of the Warrant in prior taxable years. As a result of these mark-to-
market rules, a United States Holder might incur Federal income tax liability on
an annual basis in respect of an increase in the value of the Warrant without
the receipt of cash attributable thereto.
SALE, EXCHANGE AND EXERCISE OF WARRANTS
Upon sale, exchange or exercise (including automatic exercise) of a
Warrant, a United States Holder will recognize gain or loss equal to the
difference between the amount realized, if any, and the United States Holder's
tax basis in the Warrant.
In case of a foreign corporate holder whose income or gain with respect to
a Warrant is effectively connected with the conduct of a trade or business in
the United States, such holder may also be subject to an additional branch
profits tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty with respect to such income or gain.
CHARACTER OF GAIN OR LOSS
In the absence of a section 988 election as described below, any gain or
loss (described above) will be capital gain or loss and will be 60% long-term
capital gain or loss and 40% short-term capital gain or loss. With respect to a
corporate United States Holder, capital losses for a taxable year are allowed
only to the extent of the holder's capital gains for such year, but may be
carried back for three taxable years and carried foward for five taxable years.
With respect to individual United States Holders, in general, capital losses for
the taxable year are allowed only to the extent of the holder's capital gains
for the taxable year plus a maximum of $3,000, but may be carried forward
indefinitely against net capital gains. An individual may elect, however, to
carry net capital losses from section 1256 contracts for the taxable year back
against net capital gains from section 1256 contracts for the three preceding
taxable years. Net capital gains of individuals are generally taxed at lower
rates than items of ordinary income.
A United States Holder may elect under section 988 of the Code (a 'section
988 election') to treat any gain or loss described above as ordinary income or
loss. If made, this election will apply to certain other section 1256 contracts,
such as regulated futures contracts and other nonequity options, held by such
United States Holder during the taxable year for which the election is made or
any succeeding taxable year and may not be revoked without the consent of the
Internal Revenue Service. Such election for any taxable year should be made on
or before the first day of such year or, if later, on or before the first day
during such year on which the United States Holder holds a section 1256
contract. United States Holders should consult with their own tax advisers
concerning the procedures for, and consequences of, making this election.
BACKUP WITHHOLDING
The proceeds received from a sale, exchange or exercise (including
automatic exercise) of a Warrant will be subject to a 31 percent backup
withholding tax if the United States Holder thereof (other than certain exempt
recipients such as corporations which, when required, demonstrate this fact)
fails to supply an accurate taxpayer identification number or otherwise comply
with applicable information reporting or certification requirements. Any amount
of backup withholding tax will be creditable against the Holder's United States
Federal income tax liability.
S-23
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters named
below, and each of the Underwriters has severally agreed to purchase, the number
of Warrants set forth opposite its name.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS WARRANTS
- ----------------------------------------------------------------------------- ----------
<S> <C>
PaineWebber Incorporated..................................................... 2,500,000
Kemper Securities, Inc....................................................... 2,500,000
----------
Total.............................................................. 5,000,000
----------
----------
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Warrants to the public initially at the offering price set forth on the cover
page of this Prospectus Supplement, and to certain dealers at such price less a
concession not in excess of $.10 per Warrant. The Underwriters may allow and
such dealers may reallow a concession not in excess of $.05 per Warrant to
certain other dealers. After the initial public offering, the public offering
price and such concessions may be changed.
The Underwriters have taken certain actions to discourage short-term
trading of the Warrants during a period of time following the initial offering
date. Included in these actions is the withholding of the concession to dealers
in connection with the Warrants which were sold by such dealers and which are
repurchased for the account of the Underwriters during such period. In addition,
physical delivery of certificates representing the Warrants is required to
transfer ownership of such Warrants.
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all the Warrants if any are purchased.
The Company has agreed to indemnify the Underwriters against, and to
contribute to losses arising out of, certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
PaineWebber Incorporated is a wholly owned subsidiary of the Company. The
participation of PaineWebber Incorporated in the offer and sale of the Warrants
complies with the requirements of Schedule E of the By-Laws of the National
Association of Securities Dealers, Inc. (the 'NASD') regarding underwriting
securities of an affiliate. Under the provisions of Schedule E, when a NASD
member such as PaineWebber Incorporated distributes securities of an affiliate,
the price of the securities can be no higher than that recommended by a
'qualified independent underwriter', as such term is defined in Schedule E,
meeting certain standards. In accordance with such requirements, Kemper
Securities, Inc. has agreed to serve as 'qualified independent underwriter' and
has conducted due diligence and has recommended a price for the Warrants in
compliance with the requirements of Schedule E.
LEGAL OPINIONS
The validity of the Warrants will be passed upon for the Company by
Cravath, Swaine & Moore, New York, New York, and certain other matters will be
passed upon for the Underwriters by Latham & Watkins, New York, New York.
S-24
<PAGE>
APPENDIX A
INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM TERM IS DEFINED
- ------------------------------------------------------------------------------------- ---------------
<S> <C>
AMEX................................................................................. S-4
Cash Settlement Value................................................................ S-11
CEDEL................................................................................ S-13
Citibank............................................................................. S-13
Code................................................................................. S-22
Company.............................................................................. S-7
Conversion Option.................................................................... S-8
Conversion Option Period............................................................. S-12
Cooperative..........................................................................
S-14
Delisting Date....................................................................... S-19
Depositaries......................................................................... S-13
DTC.................................................................................. S-8
Euroclear............................................................................ S-14
Euroclear Operator................................................................... S-14
Exercise Date........................................................................ S-15
Exercise Notice...................................................................... S-14
Expiration Date...................................................................... S-14
Limit Option......................................................................... S-17
Limit Option Reference Rate.......................................................... S-17
Morgan............................................................................... S-13
NASD................................................................................. S-24
New York Business Day................................................................ S-9
Noon Buying Rate..................................................................... S-11
PaineWebber.......................................................................... S-3
Participant.......................................................................... S-8
Remaining Warrants................................................................... S-17
Spot Rate............................................................................ S-11
Spot Rate Reference Agent............................................................ S-16
Strike Rate.......................................................................... S-11
Valuation Date....................................................................... S-16
Warrant Agent........................................................................ S-10
Warrant Agent's Office............................................................... S-10
Warrant Agreement.................................................................... S-10
Warrant Certificate.................................................................. S-11
Warrantholder........................................................................ S-7
Warrants............................................................................. S-7
</TABLE>
A-1
<PAGE>
PROSPECTUS
PAINE WEBBER GROUP INC.
EXCHANGE RATE CURRENCY WARRANTS
------------------------
Paine Webber Group Inc. (the 'Company') intends to issue from time to time
up to $100,000,000 of its exchange rate currency warrants entitling the holders
thereof to receive from the Company, upon exercise, the cash settlement value,
if any, in U.S. dollars of the right to purchase ('Currency Call Warrants') or
to sell ('Currency Put Warrants') an amount of non-U.S. currency or currencies
for a specified amount of U.S. dollars, as determined by the Company at the time
of the offering. Such amount will be based on either (i) the rate of exchange of
the U.S. dollar as compared to a specified non-U.S. currency or units of two or
more specified non-U.S. currencies (the 'Reference Currency') or (ii) the rate
of exchange of the U.S. dollar determined by reference to an index of two or
more specified non-U.S. currencies or currency units (the 'Index Currencies')
(such an index of Index Currencies being referred to hereinafter as a 'Currency
Index'). In the case of a particular Currency Index, additions, deletions or
substitutions of Index Currencies included therein may occur if, in the view of
the publisher of such Currency Index, a particular Index Currency is no longer
appropriate for inclusion therein. See 'Risk Factors -- Potential Modifications
of Currency Indices' herein. The Currency Call Warrants and the Currency Put
Warrants are hereinafter collectively referred to as the 'Warrants'. The
Warrants will be offered on specific terms to be determined at the time of sale.
With regard to the Warrants in respect of which this Prospectus is being
delivered, the Prospectus Supplement sets forth (i) the aggregate amount and
offering price of such Warrants, (ii) the particular Reference Currency or
Currency Index (including each Index Currency included therein), as applicable,
to which the cash settlement value of such Warrants is related, (iii) whether
such Warrants are Currency Put Warrants or Currency Call Warrants, (iv) the date
on which the right to exercise such Warrants commences and the expiration date
of such Warrants, (v) the manner in which such Warrants may be exercised and any
restrictions on, or other special provisions relating to, the exercise of such
Warrants, (vi) whether and under what circumstances such Warrants may be
cancelled by the Company prior to their expiration date, (vii) the method of
determining the amount payable in connection with the exercise or cancellation
of such Warrants, including, if the Warrants relate to a particular Currency
Index, the predetermined amount to which the level of the Currency Index upon
exercise of such Warrants is compared and the method of translating movements in
the level of the Currency Index into a cash amount in U.S. dollars, (viii) the
amount payable on cancellation of such Warrants, if applicable (the
'Cancellation Amount'), and the predetermined sum or range of sums (the 'Minimum
Expiration Value'), if any, payable in certain circumstances upon expiration or
exercise of such Warrants, (ix) any national securities exchange on which such
Warrants will be listed, (x) certain U.S. Federal income tax consequences
relating to such Warrants and (xi) any other specific terms of, or information
regarding, such Warrants.
The Warrants are unsecured contractual obligations of the Company and will
rank on a parity with all other unsecured and unsubordinated indebtedness of the
Company.
The Warrants involve a high degree of risk, including foreign exchange
risks. Purchasers should recognize that their Warrants, other than Warrants
having a Minimum Expiration Value, may expire worthless. Purchasers should be
prepared to sustain a total loss of the purchase price of their Warrants, and
are advised to consider carefully the information under 'Risk Factors' herein
and the information regarding the warrants and, in the case of Warrants relating
to a particular Currency Index, the Currency Index set forth in the Prospectus
supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Warrants may be sold by the Company directly to purchasers, through
agents designated from time to time, through underwriting syndicates led by one
or more managing underwriters or through one or more underwriters. Any such
managing underwriters, underwriters or agents may include PaineWebber
Incorporated ('PaineWebber'). If underwriters or agents are involved in the
offering of any Warrants, the names of such underwriters or agents will be set
forth in the Prospectus Supplement. If an underwriter, agent or dealer is
involved in the offering of any Warrants, the underwriter's discount, agent's
commission or dealer's purchase price will be set forth in, or may be calculated
from the information set forth in, the Prospectus Supplement, and the net
proceeds to the Company from such offering will be the public offering price of
the Warrants less such discount in the case of an offering through an agent, and
less, in each case, the other expenses of the Company associated with the
issuance and distribution of the Warrants.
PaineWebber expects to offer and sell issued Warrants from time to time in
the course of its business as a broker-dealer. PaineWebber may act as principal
or agent in such transactions. This Prospectus and the related Prospectus
Supplement may be used by PaineWebber in connection with such transactions. See
'Plan of Distribution' herein.
------------------------
PAINEWEBBER INCORPORATED
------------------------
The date of this Prospectus is January 19, 1993.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the 'Commission'). Reports, proxy statements
and other information concerning the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at 75 Park Place, Room 1400, New York, New York 10007, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained upon written
request addressed to the Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, reports, proxy
statements and other information concerning the Company may be inspected at the
offices of The New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005, and The Pacific Stock Exchange, 115 Sansome Street, Suite 1004, San
Francisco, California 94104.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
'Registration Statement') under the Securities Act of 1933, as amended (the
'Securities Act'), relating to the Warrants. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to Section 13 of the Exchange Act are incorporated herein by reference: (i) the
Annual Report on Form 10-K (including the portions of the Company's annual
report to stockholders incorporated by reference therein) for the year ended
December 31, 1991 (the '1991 Form 10-K'); (ii) the Quarterly Reports on Form
10-Q for the quarters ended March 31, 1992, June 30, 1992, and September 30,
1992; and (iii) the Current Report on Form 8-K dated September 15, 1992.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Warrants shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, on the written
or oral request of any such person, a copy of any or all of the documents
incorporated herein by reference, except the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to Assistant Secretary, Paine Webber
Group Inc., 1285 Avenue of the Americas, New York, New York 10019; telephone
(212) 731-2722.
------------------------
References herein to 'U.S. dollar', 'dollar', 'U.S.$' or '$' are to the
lawful currency of the United States of America.
2
<PAGE>
RISK FACTORS
The Warrants involve a high degree of risk, including foreign exchange
risks. Prospective purchasers of the Warrants should recognize that their
Warrants, other than any Warrants having a Minimum Expiration Value, may expire
worthless. Purchasers should be prepared to sustain a total loss of the purchase
price of their Warrants. Prospective purchasers of the Warrants should be
experienced with respect to options and options transactions, should understand
the risks of foreign currency transactions and should reach an investment
decision only after careful consideration, with their advisers, of the
suitability of the Warrants in light of their particular financial
circumstances, the information set forth below and under 'Description of
Warrants' herein and the information regarding the Warrants and, in the case of
Warrants relating to a particular Currency Index, the Currency Index set forth
in the Prospectus Supplement.
POSSIBLE ILLIQUIDITY OF SECONDARY MARKET
It is not possible to predict the price at which the Warrants will trade in
the secondary market or whether such market will be liquid or illiquid. If
additional warrants or options relating to particular non-U.S. currencies or
particular currency indices are subsequently offered to the public, the supply
of warrants and options relating to such non-U.S. currencies or currency
indices, as applicable, in the market will increase, which could cause the price
at which the Warrants and such other warrants and options trade in the secondary
market to decline significantly. The Company intends to list the Warrants of
each issue on a national securities exchange. In the event of a delisting or
suspension of trading on such exchange, the Company will use its best efforts to
list the Warrants on another national securities exchange. If the Warrants are
not listed or traded on any securities exchange, pricing information for the
Warrants may be more difficult to obtain and the liquidity of the Warrants may
be adversely affected. To the extent Warrants are exercised, the number of
Warrants outstanding will decrease, resulting in a lessening of the liquidity of
the Warrants. A lessening of the liquidity of the Warrants may cause, in turn,
an increase in volatility associated with the price of the Warrants.
RELATIONSHIP BETWEEN CASH SETTLEMENT VALUE
AND FOREIGN EXCHANGE RATE OR CURRENCY INDEX LEVEL
Each Warrant will entitle the beneficial owner thereof (the
'Warrantholder') to receive from the Company upon exercise thereof a cash value
(the 'Cash Settlement Value') that (i) in the case of a Currency Put Warrant,
will be determined by reference to the amount, if any, by which a predetermined
exchange rate of a Reference Currency as compared to the U.S. dollar or a
predetermined level or range of levels of a Currency Index, as applicable (the
'Strike Rate'), exceeds the then-current spot exchange rate of such Reference
Currency as compared to the U.S. dollar or the then-current level or range of
levels of such Currency Index, as applicable (the 'Spot Rate'), and (ii) in the
case of a Currency Call Warrant, will be determined by reference to the amount,
if any, by which the Spot Rate at the time of exercise of such Warrant exceeds
the Strike Rate. However, a Warrantholder will receive a cash payment upon
exercise only if the Warrants are 'in-the-money' -- that is, having a Cash
Settlement Value greater than zero at the time -- except that, in the case of
any Warrants having a Minimum Expiration Value, in certain circumstances the
Warrantholder will receive upon expiration or exercise a cash payment in an
amount equal to the greater of the applicable Cash Settlement Value and such
Minimum Expiration Value. The Cash Settlement Value of a Currency Put Warrant
will be greater than zero only if the Spot Rate on the applicable valuation date
following exercise is less than the Strike Rate for such Warrant (that is, if
the Reference Currency or the Index Currencies (on average), as applicable,
appreciates against the U.S. dollar). The Cash Settlement Value of a Currency
Call Warrant will be greater than zero only if the Spot Rate for such Warrant is
greater than the Strike Rate on the applicable valuation date following exercise
(that is, if the Reference Currency or the Index Currencies (on average), as
applicable, depreciates against the U.S. dollar).
EXTRAORDINARY EVENTS; EXERCISE LIMITATION EVENTS;
CANCELLATION OF WARRANTS; DELAYED EXERCISE
If so specified in the Prospectus Supplement, the Warrants of an issue may
be cancelled by the Company upon the occurrence of one or more events
('Extraordinary Events') described in the Prospectus Supplement. In such event,
Warrantholders will have the right to receive only the Cancellation Amount,
which may be a
3
<PAGE>
predetermined amount, or an amount to be determined in accordance with a
predetermined formula, specified in such Prospectus Supplement. Certain events
that may constitute Extraordinary Events and therefore lead to cancellation of
the Warrants of an issue may be events that would tend to increase the Cash
Settlement Value otherwise applicable to the Warrants of such issue. In
addition, if so specified in the Prospectus Supplement, any exercise of the
Warrants may be suspended by the Company, and the valuation of and payment for
such Warrants may be postponed and/or the determination of the Cash Settlement
Amount thereof may be made on a different basis, upon the occurrence of an
Extraordinary Event or certain other events ('Exercise Limitation Events')
specified in the Prospectus Supplement.
CERTAIN FACTORS AFFECTING VALUE AND TRADING PRICE OF WARRANTS
Unless otherwise specified in the Prospectus Supplement, the Warrants of
each issue will have a Cash Settlement Value of zero at the time of the initial
public offering of such Warrants. The Cash Settlement Value of the Warrants at
any time prior to expiration is expected typically to be less than the trading
price of the Warrants at that time. The difference between the trading price and
the Cash Settlement Value will reflect, among other things, a 'time value' for
the Warrants. The 'time value' of the Warrants will depend partly upon the
length of the period remaining to expiration and expectations concerning the
value of the Reference Currency or Index Currencies, as applicable, as compared
to the U.S. dollar during such period. Unless otherwise specified in the
applicable Prospectus Supplement, the expiration date of the Warrants of a
particular issue will be accelerated should such Warrants be delisted from, or
should there be a permanent suspension of their trading on, any national
securities exchange on which such Warrants are traded, unless such Warrants
simultaneously are accepted for listing on another national securities exchange.
Any such acceleration would result in the total loss of any otherwise remaining
'time value', and could occur when such Warrants are out-of-the-money, thus
resulting in the total loss of the purchase price of such Warrants.
Warrantholders should be aware that PaineWebber and its affiliates take
positions in various non-U.S. currencies, including, from time to time, a
Reference Currency or one or more Index Currencies, as applicable, to facilitate
client transactions and as principal positions for PaineWebber's or such
affiliates' own accounts. Through such activities, PaineWebber and its
affiliates may take positions in a Reference Currency or one or more Index
Currencies, as applicable, that are inconsistent with an investment in the
Warrants.
Before exercising or selling Warrants, Warrantholders should carefully
consider, among other things, (i) the trading price of the Warrants, (ii) the
exchange rate or rates of the Reference Currency or Index Currencies, as
applicable, as compared to the U.S. dollar at such time, (iii) the time
remaining to expiration, (iv) the probable range of Cash Settlement Values, (v)
any Minimum Expiration Value and (vi) any related transaction costs.
The trading price of a Warrant at any time is expected to be dependent on
(i) the relationship between the Strike Rate and the Spot Rate at such time,
(ii) any Minimum Expiration Value and (iii) a number of other interrelated
factors, including those listed below. The relationship among these factors is
complex. However, the expected effect on the trading price of a Warrant of each
of the factors listed below, assuming in each case that all other factors are
held constant, is as follows:
(1) The prevailing Spot Rate of the Reference Currency or any Index
Currency. If the value of the Reference Currency or any Index Currency, as
applicable, falls in relation to the U.S. dollar, the trading price of a
Currency Call Warrant is expected to increase and the trading price of a
Currency Put Warrant is expected to decrease; if the value of the Reference
Currency or any Index Currency, as applicable, rises in relation to the
U.S. dollar, the trading price of a Currency Call Warrant is expected to
decrease and the trading price of a Currency Put Warrant is expected to
increase.
(2) The volatility of the exchange rate of the Reference Currency or
any Index Currency. If the volatility of the exchange rate of the Reference
Currency or any Index Currency, as applicable, as compared to the U.S.
dollar, increases, the trading price of both Currency Put and Call Warrants
is expected to increase; if such volatility decreases, the trading price of
both Currency Put and Call Warrants is expected to decrease.
4
<PAGE>
(3) The time remaining to the expiration date of the Warrants. As the
time remaining to the expiration date of the Warrants decreases, the
trading price of the Warrants is expected to decrease.
(4) The interest rate differential between U.S. dollar and Reference
Currency or Index Currency fixed income instruments. If interest rates
applicable to fixed income instruments denominated in a Reference Currency
or any Index Currency, as applicable, increase relative to interest rates
applicable to fixed income instruments denominated in U.S. dollars, the
value of the Reference Currency or Index Currency, as applicable, in
relation to the U.S. dollar is expected to increase and, as a result, the
trading price of Currency Put Warrants is expected to increase and the
trading price of Currency Call Warrants is expected to decrease. If
interest rates applicable to fixed income instruments denominated in U.S.
dollars increase relative to interest rates applicable to fixed income
instruments denominated in a Reference Currency or any Index Currency, as
applicable, the trading price of Currency Put Warrants is expected to
decrease and the trading price of Currency Call Warrants is expected to
increase.
As noted above, these hypothetical scenarios are based on the assumption that
all other factors are held constant. In reality, it is unlikely that only one
factor would change in isolation, because changes in one factor usually cause,
or result from, changes in others. Some of the factors referred to above are in
turn influenced by various political, economic and other factors referred to
herein and in the Prospectus Supplement.
TIME LAG AFTER EXERCISE AND POTENTIAL INTERIM CHANGES IN SPOT RATE
Unless otherwise specified in the Prospectus Supplement, in the case of
any exercise of Warrants, there will be a time lag between the time a
Warrantholder gives instructions to exercise and the time the Spot Rate relating
to such exercise, and thus the Cash Settlement Value, is determined. Unless
otherwise specified in the Prospectus Supplement, the delay will, at a minimum,
amount to an entire day and could be significantly longer, particularly in the
case of a delay in exercise of Warrants arising from any daily maximum exercise
limitation, as described in the immediately following paragraph, or following
the occurrence of an Extraordinary Event or an Exercise Limitation Event, as
described under 'Extraordinary Events; Exercise Limitation Events; Cancellation
of Warrants; Delayed Exercise' above. The Spot Rate may change significantly
during any such period, and such movement or movements could decrease the Cash
Settlement Value of the Warrants being exercised and may result in such Cash
Settlement Value being zero.
LIMITATIONS ON EXERCISE
If so indicated in the Prospectus Supplement, the Company will have the
option to limit the number of Warrants exercisable on any date to the maximum
number specified in the Prospectus Supplement and, in conjunction with such
limitation, to limit the number of Warrants exercisable by any person or entity
on such date. In the event that the total number of Warrants being exercised on
any date exceeds such maximum number and the Company elects to limit the number
of Warrants exercisable on such date, a Warrantholder may not be able to
exercise on such date all Warrants that such holder desires to exercise.
Warrants to be exercised on such date will be selected on a pro rata basis or in
any other manner specified in the Prospectus Supplement. Unless otherwise
specified in the Prospectus Supplement, the Warrants tendered for exercise but
not exercised on such date will be automatically exercised on the next date on
which Warrants may be exercised, subject to the same daily maximum limitation
and delayed exercise provisions described in this paragraph. Unless otherwise
specified in the Prospectus Supplement, any such limitation will not apply in
the event of automatic exercise, including at expiration.
MINIMUM EXERCISE AMOUNT
If so indicated in the Prospectus Supplement, a Warrantholder must tender a
specified minimum number of Warrants at any one time in order to exercise
(except in the event of automatic exercise, including at expiration). Thus,
except in such an event, Warrantholders with fewer than the specified minimum
number of Warrants will either have to sell their Warrants or purchase
additional Warrants, incurring transaction costs in each case, in
5
<PAGE>
order to realize upon their investment. Furthermore, such Warrantholders incur
the risk that there may be differences between the trading price of the Warrants
and the Cash Settlement Value of such Warrants.
OFFERING PRICE OF WARRANTS
The initial offering price of Warrants may be in excess of the price that a
commercial user of a Reference Currency or Index Currencies, as applicable,
might pay in the interbank market for a comparable option involving
significantly larger amounts of underlying non-U.S. currencies.
CERTAIN RISK CONDITIONS
The purchaser of a Warrant may lose his entire investment except, if so
indicated in the Prospectus Supplement, to the extent of any Minimum Expiration
Value attributable to such Warrant. This risk reflects the nature of a Warrant
as an asset which, other factors held constant, tends to decline in value over
time and which may, depending on the prevailing Spot Rate as compared to the
Strike Rate, become worthless when it expires (except to the extent of any
Minimum Expiration Value). Assuming all other factors are held constant, the
more a Warrant is 'out-of-the-money' and the shorter its remaining term to
expiration, the greater the risk that a purchaser of the Warrant will lose all
or part of his investment. This means that if (a) in the case of a Currency Put
Warrant, the Spot Rate at expiration is greater than or equal to the Strike Rate
or (b) in the case of a Currency Call Warrant, the Spot Rate at expiration is
less than or equal to the Strike Rate, then a Warrantholder who has not sold his
Warrant in the secondary market prior to expiration will necessarily lose his
entire investment in the Warrant upon expiration (except to the extent of any
Minimum Expiration Value).
The risk of the loss of some or all of the purchase price of a Warrant upon
expiration means that, in order to recover and realize a return upon his
investment, a purchaser of a Warrant must generally be correct about both the
direction, timing and magnitude of an anticipated change in the value of the
relevant Reference Currency or Index Currencies, as applicable, in relation to
the U.S. dollar. If the Spot Rate as compared to the Strike Rate does not
decline, in the case of a Currency Put Warrant, or does not rise, in the case of
a Currency Call Warrant, before the Warrant expires to an extent sufficient to
cover a purchaser's cost of the Warrant (i.e., the purchase price plus
transaction costs, if any), the purchaser will lose all or part of his
investment in such Warrant upon expiration. Warrantholders will thus bear the
foreign exchange risks of the U.S. dollar in relation to the relevant Reference
Currency or Index Currencies, as applicable.
CERTAIN FACTORS AFFECTING CURRENCY INDICES
With regard to a Warrant relating to a particular Currency Index, the Cash
Settlement Value of such Warrant at any time will depend primarily on the level
of such Currency Index at such time in relation to the Strike Rate, which level
in turn will be based primarily on the rates of exchange of the relevant Index
Currencies as compared to the U.S. dollar. Prospective purchasers of Warrants
should familiarize themselves with the basic features of the relevant Currency
Index, including the Index Currencies included therein and the general method of
calculation of such Currency Index. The general method of calculation of a
Currency Index can influence significantly the relationship between movements in
the rates of exchange of the Index Currencies included in such Currency Index as
compared to the U.S. dollar and changes in the level of such Currency Index. For
example, the weight accorded to a particular Index Currency within a Currency
Index can alter such relationship. To illustrate this point, assuming that a
particular Currency Index included within it the Australian dollar and the Swiss
franc as its Index Currencies, if the Australian dollar was more heavily
weighted than the Swiss franc within such Currency Index, movements in the rate
of exchange of the Australian dollar as compared to the U.S. dollar would have a
greater influence on the level of such Currency Index than would corresponding
movements in the rate of exchange of the Swiss franc as compared to the U.S.
dollar. Alternatively, in the foregoing illustration, if the Australian dollar
and the Swiss franc were equally weighted in such Currency Index, movements in
the rates of exchange of the Australian dollar and the Swiss franc as compared
to the U.S. dollar would influence the level of such Currency Index equally.
Consequently, prospective purchasers are advised to consider carefully the
6
<PAGE>
information set forth in the Prospectus Supplement regarding the Currency Index,
the Index Currencies and the method of calculation of the Currency Index.
The rates of exchange of the Index Currencies as compared to the U.S.
dollar primarily will determine the level of the related Currency Index.
Prospective purchasers of Warrants relating to a particular Currency Index
should recognize that it is impossible to predict whether the level of such
Index will rise or fall. As noted below under 'Certain Foreign Currency Exchange
Risks', the rates of exchange of the Index Currencies as compared to the U.S.
dollar will be influenced by the complex and interrelated political, economic,
financial and other factors that can affect the interbank market in currencies
generally.
EFFECT OF CREDIT RATING REDUCTION
The value of the Warrants is expected to be affected, in part, by
investors' general appraisal of the Company's creditworthiness. Such perceptions
are generally influenced by the ratings accorded to the Company's outstanding
securities by the standard statistical rating services, such as Moody's
Investors Service, Inc. and Standard & Poor's Corporation. A reduction in the
rating, if any, accorded to outstanding debt securities of the Company by one of
these rating agencies could result in a reduction in the trading value of the
Warrants.
WARRANTS ARE UNSECURED OBLIGATIONS
The Warrants are unsecured contractual obligations of the Company and will
rank on a parity with the Company's other unsecured contractual obligations and
with the Company's unsecured and unsubordinated debt. The Company may issue
several issues of Warrants relating to various Reference Currencies or Currency
Indices. However, no assurance can be given that the Company will issue any
Warrants other than the Warrants to which a particular Prospectus Supplement
relates. At any given time the number of Warrants outstanding may be
substantial. Options and warrants provide opportunities for investment and pose
risks to investors as a result of fluctuations in the value of the underlying
investment. In general, certain of the risks associated with the Warrants are
similar to those generally applicable to other options or warrants of private
corporate issuers. However, unlike options or warrants on equities or debt
securities, which are priced primarily on the basis of the value of a single
underlying security, the trading value of a Warrant is likely to reflect
primarily present and expected rates of exchange of the Reference Currency or
Index Currencies, as applicable, as compared to the U.S. dollar.
The Warrants are not standardized foreign currency options of the type
issued by the Options Clearing Corporation (the 'OCC'), a clearing agency
regulated by the Commission. For example, unlike purchasers of OCC standardized
options who have the credit benefits of guarantees and margin and collateral
deposits by OCC clearing members to protect the OCC from a clearing member's
failure, purchasers of Warrants must look solely to the Company for performance
of its obligations to pay the Cash Settlement Value or, if applicable, the
Minimum Expiration Value upon the exercise or expiration of the Warrants. In
addition, OCC standardized options provide for physical delivery of the
underlying foreign currency (rather than cash settlement in U.S. dollars), and
permit immediate determination of value upon exercise. Further, the market for
the Warrants is not expected to be generally as liquid as the market for some
OCC standardized options.
POTENTIAL MODIFICATIONS OF CURRENCY INDICES
With regard to Warrants relating to a particular Currency Index, such Index
may be compiled and published by either a third party or the Company or an
affiliate of the Company. If such Index is compiled and published by the Company
or any such affiliate, such Index will be based on a group of Index Currencies
selected by the Company or such affiliate solely in connection with the issuance
of such Warrants. The policies of the publisher of the Currency Index concerning
additions, deletions and substitutions of Index Currencies and the manner in
which Currency Index calculations take account of certain changes affecting the
Index Currencies can significantly affect the performance of such Currency
Index. Additions, deletions or substitutions of Index Currencies may be
occasioned by the publisher's view that a particular Index Currency is no longer
appropriate
7
<PAGE>
for inclusion in the applicable Currency Index due to, for example, the
absorption of such Index Currency into a currency or monetary unit comprising
one or more other non-U.S. currencies. Although in the Company's view the
absorption of any Index Currency is unlikely to occur, the European Economic
Community has been seeking the approval of each of its member nations to issue a
new currency -- the European Currency Unit or ECU -- that would absorb and
replace the individual currencies issued by such member nations. To the extent a
particular Currency Index includes an Index Currency issued by any such member
nation at the time, if at all, such Index Currency is absorbed into and replaced
by the ECU, the publisher of such Currency Index could choose to replace such
absorbed Index Currency with another Index Currency and assign either the weight
previously accorded to the replaced Index Currency to the replacement Index
Currency or a greater or lesser weight, or it could choose not to replace such
absorbed Index Currency and re-weight the remaining Index Currencies within such
Currency Index equally or otherwise, depending on its policies. Although a
Currency Index is normally calculated in a manner intended to ensure that such
additions, deletions, substitutions and changes do not, by themselves,
instantaneously change the level of the Currency Index, the level of the
Currency Index over time may be influenced by changes in the composition and
characteristics of the Index Currencies. Whether to add, delete or substitute
Index Currencies, and the method of adjusting the Currency Index in respect of
changes affecting the Index Currencies, are typically solely within the
discretion of the publisher of the Currency Index. In contrast to standardized
stock index options of the type issued by the OCC, the terms of which may be
adjusted if the publisher of the related stock index changes the composition or
method of calculation of such stock index in a manner that causes a significant
discontinuity in the index level, the terms of the Warrants will not be adjusted
as a result of changes in the related Currency Index.
The publisher of a Currency Index may replace such Currency Index with a
successor index or may cease publishing such Index entirely. The Prospectus
Supplement specifies how the Cash Settlement Value of the related Warrants will
be determined in such circumstances. Although the method used will generally be
intended to enable Cash Settlement Values to be determined on as consistent a
basis as practicable, discontinuities may arise in such circumstances. Moreover,
information regarding the current level of certain substitute indices may not be
readily available to Warrantholders, which may adversely affect the trading
market for their Warrants.
CERTAIN CONSIDERATIONS REGARDING HEDGING
Prospective purchasers intending to purchase Warrants to hedge against the
market risk associated with investing in a Reference Currency or Index
Currencies, as applicable, should recognize the complexities of utilizing
Warrants in this manner. For example, the value of the Warrants may not exactly
correlate with the value of the Reference Currency or Index Currencies, as
applicable. Due to fluctuating supply and demand for the Warrants, there is no
assurance that their value will correlate with movements of the Reference
Currency or Index Currencies, as applicable, until their expiration.
CERTAIN FOREIGN CURRENCY EXCHANGE RISKS
The value of any currency, including the U.S. dollar and any Reference
Currency or Index Currency designated in the applicable Prospectus Supplement,
may be affected by complex political and economic factors. The spot exchange
rate of any Reference Currency or Index Currency as compared to the U.S. dollar
is at any moment a result of the supply of and demand for such Currency, and
changes in such rate result over time from the interaction of many factors
directly or indirectly affecting economic and political conditions in the
foreign country which has such Currency as its currency and in the United
States, including economic and political developments in other countries. Of
particular importance are the relative rates of inflation, interest rate levels,
the balance of payments and the extent of governmental surpluses or deficits in
the relevant foreign country and in the United States, all of which are in turn
sensitive to the monetary, fiscal and trade policies pursued by the governments
of the relevant foreign country, the United States and other countries important
to international trade and finance.
Such information relating to any relevant foreign country may not be as
well known or as rapidly or thoroughly reported in the United States as
comparable United States developments. Prospective purchasers of
8
<PAGE>
Warrants should be aware of the possible lack of availability of important
information that can affect the value of any Reference Currency or Index
Currency in relation to the U.S. dollar and must be prepared to make special
efforts to obtain such information on a timely basis.
Foreign exchange rates can either be fixed by sovereign governments or
float. Exchange rates of most economically developed nations, including each
foreign country which has a Reference Currency or an Index Currency as its
currency, are permitted to fluctuate in value relative to the U.S. dollar.
Governments, however, sometimes do not allow their currencies to float freely in
response to economic forces. Sovereign governments in fact use a variety of
techniques, such as intervention by a country's central bank or imposition of
regulatory controls or taxes, to affect the exchange rates of their currencies.
Governments may also issue a new currency to replace an existing currency or
alter the exchange rate or relative exchange characteristics by devaluation or
revaluation of a currency. Thus, a special risk in purchasing Warrants is that
their liquidity, trading value and Cash Settlement Value could be affected by
governmental actions which could change or interfere with theretofore freely
determined currency valuation, fluctuations in response to other market forces
and the movement of currencies across borders. There will be no adjustment or
change in the terms of the Warrants in the event that exchange rates should
become fixed, or in the event of any devaluation or revaluation or imposition of
exchange or other regulatory controls or taxes, or in the event of other
developments affecting any Reference Currency or Index Currency, the U.S. dollar
or any other currency. In contrast, the OCC has reserved the authority to adjust
the terms of its standardized options for certain governmental actions and to
impose special exercise settlement procedures.
The interbank market in foreign currencies is a global, around-the-clock
market. Therefore, the hours of trading for the Warrants will not conform to the
hours during which any Reference Currency or Index Currency and the U.S. dollar
are traded. To the extent that any national securities exchange on which the
Warrants are traded is closed while the market for a particular Reference
Currency or Index Currency remains open, significant price and rate movements
may take place in the underlying foreign exchange markets that will not be
reflected immediately in the price of a Warrant on such exchange. The
possibility of such movements should be taken into account in relating closing
prices for the Warrants on such exchange to prices and rates in the underlying
foreign exchange markets.
There is no systematic reporting of last-sale information for foreign
currencies. Reasonably current bid and offer information is available on the
floor of any exchange where foreign currency is traded, in certain brokers'
offices, in bank foreign currency trading offices, and to others who wish to
subscribe for this information, but such information will not necessarily
reflect the particular quoted rate, which is designated in the applicable
Prospectus Supplement, used to calculate the Spot Rate. There is no regulatory
requirement that available bid and offer information be firm or revised on a
timely basis. The absence of last-sale information and the limited availability
of quotations to individual investors may make it difficult for many investors
to obtain timely, accurate data about the state of the underlying foreign
exchange market. In addition, the quotation information that is available is
representative of very large round lot or 'wholesale' transactions in the
interbank market and does not reflect exchange rates for smaller odd lot or
'retail' transactions. Because more favorable rates are generally obtained in
large transactions, the rate that will be obtained at any given time in
connection with the exercise of a small aggregate number of Warrants is likely
to be less favorable than the rates reported in quotation information generally
available to investors at such time.
In general, a wholesale, round lot quote would be obtained in a transaction
valued at approximately $5 million or more and a retail, odd lot quote would be
obtained in a transaction valued at less than approximately $5 million.
Furthermore, the difference between a wholesale, round lot quote and a retail,
odd lot quote generally would not be expected to exceed approximately one
percent. However, on any given day and in the context of any particular
transaction, the distinction between, and the size of, a wholesale, round lot
transaction and a retail, odd lot transaction and the variation of the
difference between the related quotes can vary, in some cases materially,
because of the many factors that influence the foreign exchange market, as more
fully discussed above. Accordingly, no assurance can be given as to whether the
aggregate number of Warrants exercised on any day will constitute a wholesale,
round lot transaction or a retail, odd lot transaction or as to the quotes to be
obtained in connection therewith.
9
<PAGE>
PAINE WEBBER GROUP INC.
Paine Webber Group Inc. is a holding company which, together with its
operating subsidiaries, forms one of the largest full-service securities firms
in the industry. Founded in 1879, the Company currently employs approximately
13,500 people in 274 offices worldwide. The Company's principal line of business
is to serve the investment and capital needs of individual, corporate,
institutional and public agency clients through its broker-dealer subsidiary,
PaineWebber Incorporated, and other specialized subsidiaries.
The Company is comprised of four interrelated core business groups --
Retail Sales and Marketing, Asset Management, Institutional Sales and Trading,
and Investment Banking. These groups utilize common operational and
administrative personnel and facilities, resulting in an efficient use of the
Company's resources.
RETAIL SALES AND MARKETING consists primarily of a domestic branch office
system and consumer product groups through which PaineWebber and certain other
subsidiaries provide clients with financial services and products, including the
purchase and sale of securities, option contracts, commodity and financial
futures contracts, direct investments, selected insurance products, fixed income
instruments and mutual funds. PaineWebber may act as principal or agent in
providing these services. Fees charged vary according to the size and complexity
of a transaction, and the activity level of the client's account.
THE ASSET MANAGEMENT group is comprised of Mitchell Hutchins Asset
Management Inc. ('MHAM'), Mitchell Hutchins Institutional Investors Inc.
('MHII') and Mitchell Hutchins Investment Advisory division ('MHIA'). MHAM and
MHII provide investment advisory and portfolio management services to pension
and endowment funds. MHAM also provides investment advisory and portfolio
management services to individuals and mutual funds. MHIA provides portfolio
management services to individuals, trusts and institutions.
INSTITUTIONAL SALES AND TRADING is comprised of five businesses which
provide similar services for different products: Fixed Income, U.S. Equity,
International, Derivatives and Research. The Company places securities with, and
executes trades on behalf of, institutional clients both domestically and
internationally. In addition, the Company takes positions in both listed and
unlisted equity and fixed income securities and foreign currencies to facilitate
client transactions or for the Company's own account.
Through the INVESTMENT BANKING group, the Company provides financial advice
to, and raises capital for, a broad range of domestic and international
corporate clients. The investment banking division manages and underwrites
public offerings, participates as an underwriter in syndicates of public
offerings managed by others, and provides advice in connection with mergers and
acquisitions, lease financings and debt restructurings. The municipal securities
group originates, underwrites, sells and trades taxable and tax-exempt issues
for municipal and public agency clients.
The Company holds memberships in all major securities and commodities
exchanges in the United States, and makes a market in many securities traded on
the Automated Quotation System of the National Association of Securities
Dealers, Inc. ('NASD') or in other over-the-counter markets. Additionally,
PaineWebber is a primary dealer in U.S. government securities.
The securities business is one of the nation's most highly regulated
industries. Violations of applicable regulations can result in the revocation of
broker-dealer licenses, the imposition of censures or fines, and the suspension
or expulsion of a firm, its officers or employees. The Company's securities and
commodities business is regulated by various agencies, including the Commission,
the New York Stock Exchange, the Commodity Futures Trading Commission and the
NASD.
The Company's principal executive offices are located at 1285 Avenue of the
Americas, New York, New York 10019 (Telephone (212) 713-2000).
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company have been derived from the Company's audited consolidated financial
statements for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1991 1990(2) 1989 1988 1987(3)
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operations
Revenues............................. $ 3,165,895 $ 2,978,505 $ 2,925,809 $ 2,512,261 $ 2,436,963
Net revenues (including net
interest).......................... 2,109,771 1,736,354 1,727,169 1,754,814 1,761,425
Earnings (loss) before income taxes
and extraordinary charge........... 226,247 (102,633) 82,568 63,223 110,324
Net earnings (loss).................. $ 150,716 $ (57,351) $ 51,960 $ 42,360 $ 72,020
Earnings (loss) per common share(1)
Primary.............................. $ 3.15 $ (2.16) $ 0.70 $ 0.39 $ 1.45
Fully diluted........................ 2.50 (2.16) 0.70 0.39 1.45
Financial condition
Total assets......................... $22,621,763 $18,150,539 $22,075,292 $17,933,905 $12,956,238
Term debt............................ $ 815,728 $ 656,993 $ 521,929 $ 412,683 $ 345,047
Stockholders' equity................. $ 1,050,478 $ 895,916 $ 1,001,202 $ 1,051,245 $ 1,092,608
Total capitalization................. $ 1,866,206 $ 1,552,909 $ 1,523,131 $ 1,463,928 $ 1,437,655
Book value per common share(1)....... $ 18.34 $ 15.05 $ 17.37 $ 16.55 $ 15.91
</TABLE>
- ------------------
(1) Per share data have been retroactively adjusted to give effect to a
three-for-two common stock split effective on December 10, 1991.
(2) 1990 results reflect an after-tax charge of $95,452 ($149,128 before income
taxes) relating to increases in reserves for merchant banking investments
and restructuring.
(3) 1987 results reflect an extraordinary charge of $2,557 (after income taxes)
relating to the loss on extinguishment of debt.
USE OF PROCEEDS
As may be described in further detail in the Prospectus Supplement, a
substantial portion of the proceeds to be received by the Company from the sale
of each issue of Warrants may be used by the Company or one or more of its
subsidiaries to hedge currency risks with respect to such Warrants. The
remainder of such proceeds, if any, will be used by the Company or its
subsidiaries for general corporate purposes.
DESCRIPTION OF WARRANTS
The following description of the terms of the Warrants sets forth certain
general terms and provisions of the Warrants to which any Prospectus Supplement
may relate. The particular terms of the Warrants offered by any Prospectus
Supplement and the extent, if any, to which such general provisions do not apply
to the Warrants so offered will be described in such Prospectus Supplement.
Each issue of Warrants will be issued under a separate warrant agreement
(each, a 'Warrant Agreement') to be entered into between the Company and a bank
or trust company, as warrant agent (the 'Warrant Agent'), all as described in
the Prospectus Supplement relating to such Warrants. A single bank or trust
company may act as Warrant Agent for more than one issue of Warrants. The
Warrant Agent will act solely as the agent of the Company under the applicable
Warrant Agreement and will not assume any obligation or relationship of agency
or trust for or with any holders of such Warrants. An example of a Warrant
Agreement, including warrant certificates, is filed as an exhibit to the
Registration Statement. The following summaries of certain provisions of the
Warrants and the Warrant Agreements do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of each issue of Warrants and the related Warrant Agreement.
11
<PAGE>
The Company will have the right to 'reopen' a previous issue of Warrants
and to issue additional Warrants of such issue.
GENERAL
Each Warrant will entitle the Warrantholder to receive from the Company
upon exercise the Cash Settlement Value of such Warrant, which will be a cash
amount in U.S. dollars (i) in the case of a Currency Put Warrant, determined by
reference to the amount, if any, by which the Spot Rate is less than the Strike
Rate on the applicable valuation date following exercise and (ii) in the case of
a Currency Call Warrant, determined by reference to the amount, if any, by which
the Spot Rate on the applicable valuation date following exercise exceeds the
Strike Rate. The Prospectus Supplement for an issue of Warrants will set forth
the formula pursuant to which the Cash Settlement Value of such Warrants will be
determined. The Strike Rate may either be a fixed amount or an amount that
varies during the term of such Warrants in accordance with a schedule or
formula. Certain Warrants will, if specified in the Prospectus Supplement,
entitle the Warrantholder to receive from the Company, upon automatic exercise
at expiration and under any other circumstances specified in the Prospectus
Supplement, an amount equal to the greater of the applicable Cash Settlement
Value and the Minimum Expiration Value of such Warrants. In addition, if so
specified in the Prospectus Supplement, following the occurrence of an
Extraordinary Event or an Exercise Limitation Event, the Cash Settlement Value
of a Warrant may, at the option of the Company, be determined on a different
basis, including in connection with automatic exercise at expiration.
A Warrant will be settled only in U.S. dollars and, accordingly, will not
require or entitle a Warrantholder to sell, deliver, purchase or take delivery
of any non-U.S. currency to or from the Company, and the Company will be under
no obligation to, nor will it, purchase or take delivery of or sell or deliver
any non-U.S. currency from or to Warrantholders pursuant to the Warrants.
Unless otherwise specified in the Prospectus Supplement, the Warrants will
be deemed to be automatically exercised upon expiration. Upon such automatic
exercise, Warrantholders will be entitled to receive the Cash Settlement Value
of the Warrants, if any, except that holders of any Warrants having a Minimum
Expiration Value will be entitled to receive an amount equal to the greater of
such Cash Settlement Value and the applicable Minimum Expiration Value. The
Minimum Expiration Value may be either a fixed amount or an amount that varies
during the term of the Warrants in accordance with a schedule or formula. Any
Minimum Expiration Value applicable to an issue of Warrants, as well as any
additional circumstances resulting in the automatic exercise of such Warrants,
will be specified in the related Prospectus Supplement.
If so specified in the Prospectus Supplement, the Warrants may be cancelled
by the Company upon the occurrence of an Extraordinary Event. Any Extraordinary
Events or Exercise Limitation Events relating to an issue of Warrants will be
set forth in the related Prospectus Supplement. Upon such cancellation, the
related Warrantholders will be entitled to receive only the applicable
Cancellation Amount specified in such Prospectus Supplement. The Cancellation
Amount may be either a fixed amount or an amount that varies during the term of
the Warrants in accordance with a schedule or formula.
Reference is hereby made to the Prospectus Supplement relating to the
particular issue of Warrants offered thereby for the terms of such Warrants,
including, where applicable: (i) the aggregate amount of such Warrants; (ii) the
offering price of such Warrants; (iii) either (a) the Reference Currency, which
may be a non-U.S. currency or units of two or more non-U.S. currencies, or (b)
the Currency Index (including each Index Currency included therein), which may
be compiled and published by a third party or by the Company or an affiliate of
the Company, in either case relating to such Warrants; (iv) whether such
Warrants are Currency Put Warrants or Currency Call Warrants; (v) the date on
which the right to exercise such Warrants may be exercised; (vi) the manner in
which such Warrants may be exercised; (vii) the minimum number, if any, of such
Warrants that are exercisable by a Warrantholder at any one time; (viii) the
maximum number, if any, of such Warrants that may, subject to the Company's
election, be exercised by all Warrantholders (or by any person or entity) on any
day; (ix) any provisions permitting a Warrantholder to condition an exercise
notice on the absence of certain specified changes in the Spot Rate after the
exercise date, any provisions permitting the Company to suspend exercise of such
Warrants or to redeem such Warrants based on market conditions or other
circumstances and any special provisions relating to the exercise of such
Warrants; (x) any provisions for the automatic exercise of such
12
<PAGE>
Warrants other than at expiration; (xi) any provisions permitting the Company to
cancel such Warrants upon the occurrence of certain events; (xii) the method of
determining the amount payable in connection with the exercise or cancellation
of such Warrants, including (a) the Strike Rate, (b) the method of determining
the Spot Rate, (c) the method of expressing movements in either (1) the exchange
rate of the applicable Reference Currency in relation to U.S. dollars as a cash
amount in U.S. dollars or (2) the level of the applicable Currency Index as a
cash amount in U.S. dollars, and (d) any Cancellation Amount or Minimum
Expiration Value applicable to such Warrants; (xiii) the time or times at which
amounts will be payable in respect of such Warrants following exercise or
automatic exercise; (xiv) any national securities exchange on which such
Warrants will be listed; (xv) any provisions for issuing such Warrants in
certificated form from the perspective of Warrantholders; (xvi) if such Warrants
are not issued in book-entry form, the place or places at which payment of the
Cash Settlement Value, Cancellation Amount, if any, and Minimum Expiration
Value, if any, of such Warrants is to be made by the Company; and (xvii) any
other material terms of such Warrants.
Prospective purchasers of Warrants should be aware of special United States
Federal income tax considerations applicable to instruments such as the
Warrants. The Prospectus Supplement relating to each issue of Warrants will
describe such tax considerations. The summary of United States Federal income
tax considerations contained in the Prospectus Supplement will be presented for
informational purposes only, however, and will not be intended as legal or tax
advice to prospective purchasers. Prospective purchasers of Warrants are urged
to consult their own tax advisors prior to any acquisition of Warrants.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Unless otherwise specified in the Prospectus Supplement, the Warrants
offered thereby will be issued in book-entry form from the perspective of
Warrantholders. Such Warrants will be issued in the form of a single global
certificate representing all the Warrants (the 'global certificate') registered
in the name of the nominee of the depository, The Depository Trust Company
('DTC', which term, as used herein, includes any successor depository selected
by the Company).
DTC is a limited-purpose trust company which was created to hold securities
for its participating organizations (the 'Participants') and to facilitate the
clearance and settlement of securities transactions between Participants in such
securities through electronic book-entry changes in accounts of its
Participants. Participants include securities brokers and dealers, banks and
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ('indirect participants'). Persons
who are not Participants may beneficially own securities held by DTC only
through Participants or indirect participants.
DTC's nominee for all purposes will be considered the sole owner or holder
of the Warrants under the related Warrant Agreement. Owners of beneficial
interests in the global certificate will not be entitled to have Warrants
registered in their names, will not receive or be entitled to receive physical
delivery of Warrants in definitive form and will not be considered the holders
thereof under the related Warrant Agreement, except in certain limited
circumstances discussed below.
Neither the Company nor the Warrant Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global certificate, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
A Warrantholder's ownership of a Warrant will be recorded on or through the
records of the brokerage firm or other entity that maintains such
Warrantholder's account. In turn, the total number of Warrants held by an
individual brokerage firm for its clients will be maintained on the records of
DTC in the name of such brokerage firm (or in the name of a Participant or
indirect participant that acts as agent for the Warrantholder's brokerage firm
if such firm is not a Participant or indirect participant). Therefore, a
Warrantholder must rely upon the foregoing procedures to evidence such
Warrantholder's ownership of a Warrant. Transfer of ownership of any Warrant may
be effected only through the selling Warrantholder's brokerage firm.
The Cash Settlement Value and, if applicable, the Cancellation Amount or
Minimum Expiration Value payable in respect of the Warrants will be paid by the
Warrant Agent to DTC. DTC will be responsible for
13
<PAGE>
crediting the amount of such payments to the accounts of the Participants or
indirect participants in accordance with its standard procedures, which
currently provide for payments in next-day funds settled through the New York
Clearing House. Each Participant or indirect participant will be responsible for
disbursing such payments to the beneficial owners of the Warrants that it
represents and to each brokerage firm for which it acts as agent. Each such
brokerage firm will be responsible for disbursing funds to the owners of the
Warrants that it represents. It is suggested that any purchaser of Warrants with
accounts at more than one brokerage firm only effect transactions in the
Warrants, including exercises, through the brokerage firm or firms that hold
such purchaser's Warrants.
If DTC is at any time unwilling or unable to continue as depository and a
successor depository is not appointed by the Company within 90 days, the Company
will issue Warrants in definitive form in exchange for the global certificate.
In addition, the Company may at any time determine not to have the Warrants
represented by a global certificate and, in such event, will issue Warrants in
definitive form in exchange for such global certificate. In either instance, an
owner of a beneficial interest in the global certificate will be entitled to
have Warrants equal in aggregate amount to such beneficial interest registered
in its name and will be entitled to physical delivery of such Warrants in
definitive form.
LISTING
Unless otherwise indicated in the Prospectus Supplement, the Warrants will
be listed on a national securities exchange as specified in the Prospectus
Supplement. It is expected that such exchange will cease trading an issue of
Warrants as of the close of business on the related expiration date of such
Warrants.
MODIFICATION
The Warrant Agreement and the terms of the related Warrants may be amended
by the Company and the Warrant Agent, without the consent of the holders of any
Warrants, for the purpose of curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision contained therein,
maintaining the listing of such Warrants on any national securities exchange or
registration of such Warrants under the Exchange Act, permitting the issuance of
individual Warrant certificates to Warrantholders, reflecting the issuance by
the Company of additional Warrants of the same issue or reflecting the
appointment of a successor depository, or in any other manner which the Company
may deem necessary or desirable and which, as determined by the Company in its
sole discretion, will not materially and adversely affect the interests of the
Warrantholders.
The Company and the Warrant Agent also may modify or amend the Warrant
Agreement and the terms of the related Warrants, with the consent of the holders
of not less than a majority in number of the then outstanding Warrants affected
by such modification or amendment, for any purpose, provided that no such
modification or amendment that (i) in the case of Currency Put Warrants,
decreases the Strike Rate or, in the case of Currency Call Warrants, increases
the Strike Rate, (ii) otherwise changes the determination of the Cash Settlement
Value or Cancellation Amount, if any, or Minimum Expiration Value, if any, of
the Warrants (or any aspects of such determination) so as to reduce the amount
receivable upon exercise, cancellation or expiration, (iii) shortens the period
of time during which the Warrants may be exercised, (iv) decreases the Minimum
Expiration Value, if any, or (v) otherwise materially and adversely affects the
exercise rights of the Warrantholders or reduces the percentage of the number of
outstanding Warrants the consent of whose holders is required for modification
or amendment of the Warrant Agreement or the terms of the related Warrants, may
be made without the consent of each Warrantholder affected thereby.
MERGER, CONSOLIDATION, SALE OR OTHER DISPOSITIONS
If at any time there is a merger or consolidation involving the Company or
a sale, transfer, conveyance or other disposition of all or substantially all of
the assets of the Company, then the successor or assuming corporation will
succeed to and be substituted for the Company under the Warrant Agreement and
the related Warrants, with the same effect as if it had been named in such
Warrant Agreement and Warrants as the Company. The Company will thereupon be
relieved of any further obligation under such Warrant Agreement and Warrants
and, in the event of any such sale, transfer, conveyance (other than by way of
lease) or other
14
<PAGE>
disposition, the Company as the predecessor corporation may thereupon or at any
time thereafter be dissolved, wound up or liquidated.
ENFORCEABILITY OF RIGHTS BY WARRANTHOLDERS
Any Warrantholder may, without the consent of the Warrant Agent or any
other Warrantholder, enforce by appropriate legal action on his own behalf his
right to exercise, and to receive payment for, his Warrants.
PLAN OF DISTRIBUTION
The Company may sell the Warrants in any of three ways: (i) through
underwriters; (ii) directly to one or more purchasers; or (iii) through agents.
The Prospectus Supplement with respect to the Warrants being offered thereby
sets forth the terms of the offering of such Warrants, including the names of
any underwriters, the purchase price of such Warrants and the proceeds to the
Company from such sale, any underwriting discounts and other items constituting
underwriters' compensation, any initial public offering price, any discounts or
concessions allowed or reallowed or paid to dealers and any national securities
exchange on which such Warrants will be listed. Only underwriters so named in
the Prospectus Supplement are deemed to be underwriters in connection with the
Warrants offered thereby.
If underwriters are used in the sale, the Warrants will be acquired by the
underwriters for their own account and may be resold from time to time in one or
more transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. The Warrants may be
offered to the public either through underwriting syndicates represented by
managing underwriters or by underwriters without a syndicate. Such managing
underwriters or underwriters may include PaineWebber. Unless otherwise set forth
in the Prospectus Supplement, the obligations of the underwriters to purchase
such Warrants will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all the Warrants offered by the
Prospectus Supplement if any of such Warrants are purchased. Any initial public
offering price and any discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time.
Warrants may also be sold directly by the Company or through agents
designated by the Company from time to time. Any agents involved in the offer or
sale of the Warrants will be named, and any commissions payable by the Company
to such agents will be set forth, in the Prospectus Supplement. Such agents may
include PaineWebber. Unless otherwise indicated in the Prospectus Supplement,
any such agent is acting on a best-efforts basis for the period of its
appointment.
The Warrants, including additional Warrants of a previous issue, may be
sold on any national securities exchange on which the Warrants are listed.
Agents and underwriters may be entitled under agreements entered into with
the Company to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which the agents or underwriters may be required to make in respect
thereof. Agents and underwriters may be customers of, engage in transactions
with, or perform services for, the Company or its affiliates in the ordinary
course of business.
PaineWebber expects to offer and sell previously issued Warrants from time
to time in the course of its business as a broker-dealer. PaineWebber may act as
principal or agent in such transactions. The Warrants may be offered or sold in
such transactions on any national securities exchange on which the Warrants are
listed. Sales will be made at prices related to prevailing prices at the time of
sale.
PaineWebber is a wholly owned subsidiary of the Company. The participation
of PaineWebber in the offer and sale of the Warrants will comply with the
requirements of Schedule E of the By-Laws of the NASD regarding underwriting
securities of an affiliate. Under the provisions of Schedule E, when a NASD
member such as PaineWebber distributes securities of an affiliate, the price of
the securities can be no higher than that recommended by a 'qualified
independent underwriter', as such term is defined in Schedule E, meeting certain
standards. In accordance with such requirement, PaineWebber will select a
'qualified independent underwriter' in connection with each issue of Warrants to
conduct due diligence and recommend a price for such Warrants in compliance with
the requirements of Schedule E.
15
<PAGE>
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
imposes certain restrictions on employee benefit plans ('Plans') which are
subject to ERISA, and on those persons who are fiduciaries with respect to such
Plans. In accordance with ERISA's general fiduciary requirements, a fiduciary
with respect to any such Plan who is considering the purchase of Warrants on
behalf of such Plan should determine whether such purchase is permitted under
the governing Plan documents, is prudent and is appropriate for the Plan in view
of its overall investment policy and the composition and diversification of its
portfolio. See 'Risk Factors' herein. Other provisions of ERISA and section 4975
of the Internal Revenue Code of 1986, as amended (the 'Code'), prohibit certain
transactions involving the assets of a Plan and persons who have certain
specified relationships to the Plan ('parties in interest' within the meaning of
ERISA or 'disqualified persons' within the meaning of section 4975 of the Code).
Thus, a Plan fiduciary considering the purchase of Warrants should consider
whether such a purchase might constitute or result in a prohibited transaction
under ERISA or section 4975 of the Code.
The Company and PaineWebber may each be considered a 'party in interest' or
a 'disqualified person' with respect to many Plans. The purchase of Warrants by
a Plan that is subject to the fiduciary responsibility provisions of ERISA or
the prohibited transaction provisions of section 4975 of the Code (including
individual retirement arrangements and other plans described in section
4975(e)(1) of the Code) and with respect to which the Company or PaineWebber is
a service provider (or otherwise is a 'party in interest' or 'disqualified
person') may constitute or result in a nonexempt prohibited transaction under
ERISA or section 4975 of the Code, unless such Warrants are acquired pursuant to
and in accordance with an applicable exemption, such as Prohibited Transaction
Class Exemption ('PTCE') 90-1 (an exemption for certain transactions involving
insurance company pooled separate accounts), PTCE 84-14 (an exemption for
certain transactions determined by an independent qualified professional asset
manager) or PTCE 91-38 (an exemption for certain transactions involving bank
collective investment funds). Any pension or other employee benefit plan
proposing to acquire any Warrants should consult with its counsel.
EXPERTS
The consolidated financial statements of the Company for the year ended
December 31, 1991, incorporated by reference in the Company's Annual Report
(Form 10-K) have been audited by Ernst & Young, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
LEGAL OPINIONS
The validity of the Warrants will be passed upon for the Company by
Cravath, Swaine & Moore, New York, New York.
16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus Supplement and the Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Underwriters. Neither the delivery of this Prospectus
Supplement and the Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the dates as of which information is given in this
Prospectus Supplement and the Prospectus or that the information contained in
this Prospectus Supplement and the Prospectus is correct as of any time
subsequent to the dates as of which information is given in this Prospectus
Supplement and the Prospectus. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy such
securities in any circumstances in which such an offer or solicitation is
unlawful.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Summary................................... S-3
Certain Important Information Concerning the
Warrants........................................... S-7
Paine Webber Group Inc. Recent Developments.......... S-10
Use of Proceeds...................................... S-10
Description of the Warrants.......................... S-10
Exchange Rates....................................... S-20
Certain United States Federal Income Tax
Considerations..................................... S-22
Underwriting......................................... S-24
Legal Opinions....................................... S-24
Appendix A: Index of Terms........................... A-1
<CAPTION>
PROSPECTUS
<S> <C>
Available Information................................ 2
Documents Incorporated by Reference.................. 2
Risk Factors......................................... 3
Paine Webber Group Inc............................... 10
Selected Consolidated Financial Data................. 11
Use of Proceeds...................................... 11
Description of Warrants.............................. 11
Plan of Distribution................................. 15
ERISA Considerations................................. 16
Experts.............................................. 16
Legal Opinions....................................... 16
</TABLE>
------------------------
PAINEWEBBER TM
5,000,000 WARRANTS
PAINE WEBBER GROUP INC.
U.S. DOLLAR INCREASE WARRANTS
ON THE JAPANESE YEN
EXPIRING MARCH 6, 1996
---------------------
PROSPECTUS SUPPLEMENT
---------------------
PAINEWEBBER INCORPORATED
KEMPER SECURITIES, INC.
---------------------
March 9, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission File due to ASCII-incompatibility and cross-
references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
---------------------- -------------------
In the paper format version of this Appears on page S-21
Prospectus Supplement there appears
a graph depicting the average movement
of the daily Noon Buying Rates per U.S.
$1.00 for Japanese yen in New York City
for each month from January 1989 through
February 1994 and for the partial month
beginning March 1, 1994 and ending
March 8, 1994. The information conveyed
by such graphic information is described in
tabular form in the Prospectus Supplement
on pages S-20 through S-21 under the heading
"Exchange Rates".
