FILED PURSUANT TO RULE 424(b)(2) REGISTRATION NO. 33-49387 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH 9, 1994) LOGO MCI COMMUNICATIONS CORPORATION $200,000,000 SENIOR FLOATING RATE NOTES DUE MARCH 16, 1999 ---------------- The Senior Floating Rate Notes due March 16, 1999 (the "Offered Securities") are being offered by MCI Communications Corporation (the "Company") in an aggregate principal amount equal to $200,000,000. The Offered Securities will mature on March 16, 1999 and are not subject to redemption prior to maturity. Interest on the Offered Securities will be payable in United States dollars quarterly in arrears on the third Wednesday of March, June, September and December, commencing on the third Wednesday of June, 1994, and at maturity. The interest rate for each Interest Period (as defined herein) will be subject to quarterly adjustment effective on the third Wednesday of each March, June, September and December and will be a per annum rate equal to LIBOR plus .19%. As more fully described herein, LIBOR will be the rate for deposits in U.S. dollars for a three-month period that appears on Telerate Page 3750 as of the second London Banking Day (as defined herein) preceding the first day of the applicable Interest Period. See "Description of Offered Securities--Principal and Interest". The Offered Securities will be represented by Offered Securities in book- entry form (each, a "Book-Entry Security") registered in the name of the nominee of The Depository Trust Company (the "Depositary"). Beneficial interests in each Book-Entry Security will be shown on, and transfers thereof will be effected only through, records maintained by the Depositary (with respect to beneficial interests of participants) or by participants or persons that hold interests through participants (with respect to beneficial interests of beneficial owners). Owners of beneficial interests in the Book-Entry Securities will be entitled to physical delivery of Offered Securities in certificated form equal in principal amount to their respective beneficial interests only under the limited circumstances described under "Description of Offered Securities--Book-Entry System". Settlement for the Offered Securities will be made in immediately available funds. The Offered Securities will trade in the Depositary's Same-Day Funds Settlement System until maturity and secondary market trading activity in the Offered Securities will therefore settle in immediately available funds, in each case, until the Offered Securities are issued in certificated form. All payments of principal and/or interest will be made by the Company in immediately available funds unless and until the Offered Securities are issued in certificated form. See "Description of Offered Securities--Same-Day Settlement and Payment". ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI- TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PRO- SPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNT(2) COMPANY(1)(3) - -------------------------------------------------------------------------------- Per Offered Security................... 100% .6% 99.4% - -------------------------------------------------------------------------------- Total.................................. $200,000,000 $1,200,000 $198,800,000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Plus accrued interest, if any, from March 16, 1994. (2) The Company has agreed to indemnify the Underwriter against or make contributions relating to certain liabilities, including liabilities under the Securities Act of 1933, as amended. (3) Before deduction of expenses payable by the Company. ---------------- The Offered Securities are offered by the Underwriter, subject to prior sale, when, as and if issued to and accepted by it, and subject to approval of certain legal matters by counsel for the Underwriter and certain other conditions. The Underwriter reserves the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Book-Entry Securities will be made in New York, New York on or about March 16, 1994. ---------------- MERRILL LYNCH & CO. ---------------- The date of this Prospectus Supplement is March 9, 1994. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. USE OF PROCEEDS The net proceeds to be received by MCI Communications Corporation (the "Company") from the sale of the Offered Securities offered hereby will be added to the general corporate funds of the Company and will be used for the repayment of short-term borrowings under the Company's Commercial Paper Program. As of February 28, 1994, the Company had outstanding $532.6 million under its Commercial Paper Program at a weighted average interest rate of 3.51% and a weighted average maturity of 13.9 days. RECENT DEVELOPMENTS In August 1993, the Company and British Telecommunications plc ("BT") entered into a definitive agreement providing for a total investment by BT in the Company of $4.3 billion in exchange for a new class of common stock giving BT a 20% voting interest in the Company. In June 1993, BT purchased $830 million of newly issued shares of convertible preferred stock of the Company which will be exchanged for shares of the new class of common stock upon the receipt of the remaining $3.5 billion from BT. In addition, as part of the BT transaction, MCI purchased in January 1994 substantially all of the assets of the U.S. operations of BT's data services subsidiary. Further, the Company and BT have agreed to form a joint venture, in which the Company will own a 24.9% equity interest, to provide global enhanced and value-added telecommunications services. The Company expects to invest approximately $250 million in the joint venture over the next five years. The receipt of the $3.5 billion from BT and the formation of the joint venture are subject to stockholder and various regulatory approvals, which approvals have not yet been obtained. In January 1994, the Company announced components of its long-term strategic plan. Initiatives relating to the plan include (i) networkMCI, which involves the expansion of the Company's network to create and deliver a wide variety of new branded services; and (ii) the creation of MCI Metro, a new subsidiary of the Company, which will construct fiber rings and local switching infrastructure in major United States markets to make local access facilities available to long-distance communications carriers at a lower cost than is now generally available and over time, subject to regulatory constraints, will compete in the local exchange telecommunications services market. The total investment in MCI Metro will be approximately $2 billion over the next several years, a portion of which is expected to be provided by alliances with other companies. In February 1994, the Company entered into a letter agreement with Nextel Communications, Inc. ("Nextel") and Comcast Corporation under which the parties have agreed, subject to the terms and conditions thereof, to use their reasonable best efforts to enter into definitive documentation providing for, among other things, the investment by the Company of approximately $1.3 billion in Nextel over the next three years to purchase approximately a 17% equity interest. In addition, the letter agreement contemplates that the Company will provide to Nextel marketing and other services to support Nextel's efforts to offer wireless telecommunications services and products. Additionally, the letter agreement contemplates that, subject to the terms and conditions thereof, the Company will (i) utilize Nextel as its principal wireless telecommunications service provider in the U.S. and (ii) seek to present to Nextel all business opportunities in the wireless telecommunications area that the Company might otherwise consider acting upon itself. The consummation of the transactions contemplated by the letter agreement are subject to the approval of Nextel's stockholders and various other conditions including the execution of definitive documentation and the receipt of regulatory approvals which have not yet been obtained. S-2 In addition, in January 1994, the Company announced, as part of its long-term international strategy, its intention to form a joint venture with Grupo Financiero Banamex-Accival to provide competitive domestic and international long-distance telecommunications services in Mexico. The Company will own a 45% equity interest in the joint venture and will invest up to $450 million in the joint venture over the next several years. The formation of the joint venture is dependent on the award of licenses in 1994 that will allow the joint venture to provide the services. Such licenses have yet to be awarded to the joint venture. DESCRIPTION OF OFFERED SECURITIES GENERAL The Senior Floating Rate Notes due March 16, 1999 (the "Offered Securities") constitute a separate series of Senior Securities (which are more fully described in the accompanying Prospectus) to be issued under an Indenture between the Company and Citibank, N.A., as trustee ("Citibank"), dated as of October 15, 1989, as amended by the Trust Indenture Reform Act of 1990 (the "Indenture"). The Indenture does not limit the aggregate principal amount of Senior Securities which may be issued thereunder. The following summaries of certain provisions of the Indenture do not purport to be complete and are subject to and qualified in their entirety by reference to all of the provisions of the Indenture, including the definitions therein of certain terms. All Senior Securities, including the Offered Securities, issued and to be issued will be unsecured and will rank pari passu (equally and ratably) with all other unsecured and unsubordinated indebtedness of the Company from time to time outstanding. The Indenture does not limit the amount of unsecured indebtedness of the Company or any subsidiary. Nothing in the Indenture or in the terms of the Offered Securities will limit the payment of dividends by the Company or the Company's acquisition of any of its equity securities. Nothing in the Indenture affords holders of the Offered Securities protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company. However, the Indenture does contain certain restrictive covenants with respect to the business of the Company and its subsidiaries, and liens on and the sale or lease of the Company's assets which may make more difficult or discourage any such transaction. The consummation of any highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company could cause a material decline in the credit quality of the outstanding Offered Securities. See "Description of Senior Securities--Covenants" in the accompanying Prospectus. The Company's assets consist principally of the stock in its subsidiaries. Therefore, its rights and the rights of its creditors, including the holders of Offered Securities, to participate in the assets of any subsidiary upon the latter's liquidation or recapitalization or otherwise will be subject to the prior claims of the subsidiary's creditors, except to the extent that claims of the Company itself as a creditor of the subsidiary may be recognized. Also, certain subsidiaries of the Company have guaranteed certain indebtedness of the Company, not including the Offered Securities. The Offered Securities will be issued only in fully registered, book-entry form without coupons, in denominations of $1,000 and integral multiples in excess thereof, except under the limited circumstances described under "Description of Offered Securities--Book Entry System." PRINCIPAL AND INTEREST The Offered Securities will mature on March 16, 1999 (the "Maturity Date"). The Offered Securities are not subject to redemption or entitled to the benefit of any sinking fund provisions. S-3 Interest on the Offered Securities will be payable in U.S. dollars quarterly in arrears on the third Wednesday of March, June, September and December of each year (each, an "Interest Payment Date"), commencing on the third Wednesday of June, 1994, and on the Maturity Date. The interest so payable will be paid to the person (the "Holder") in whose name the applicable Offered Security is registered at the close of business on the date (whether or not a Business Day, as defined below) fifteen calendar days preceding the applicable Interest Payment Date or the Maturity Date (each, a "Regular Record Date"). The principal of each Offered Security payable on the Maturity Date will be paid against presentation thereof at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public or private debts. Interest payable on an Interest Payment Date or the Maturity Date, as the case may be, will be the amount of interest accrued during the applicable Interest Period (as defined below). Accrued interest in respect of an Offered Security will be calculated by multiplying the principal amount thereof by an accrued interest factor. Such accrued interest factor is computed by adding the interest factor calculated for each day in the applicable Interest Period. The interest factor for each day will be computed by dividing the interest rate applicable to such day by 360. An "Interest Period" with respect to the Offered Securities is each successive period from and including the preceding Interest Payment Date (or March 16, 1994 in the case of the initial Interest Period) to but excluding the applicable Interest Payment Date or the Maturity Date, as the case may be). If an Interest Payment Date other than the Maturity Date would otherwise be a day that is not a Business Day, such Interest Payment Date will be postponed to the succeeding Business Day, unless such succeeding Business Day is in the succeeding calendar month, in which case such Interest Payment Date will be the preceding Business Day. If the Maturity Date falls on a day that is not a Business Day, the required payment will be made on the succeeding Business Day as if it were made on the date such payment was due, and no interest shall accrue on the amount so payable for the period from and after the Maturity Date. A "Business Day" is any day, other than a Saturday or Sunday, (i) on which banks in The City of New York are not required or authorized by law or executive order to close and (ii) which is also a London Banking Day (as defined below). A "London Banking Day" is any day on which dealings in United States dollars are transacted in the London interbank market. Interest on the Offered Securities will be payable at a floating rate that will be subject to quarterly adjustment effective as of the third Wednesday of March, June, September and December (each, a "Reset Date"); provided, however, that if a Reset Date would otherwise be a day that is not a Business Day, such Reset Date will be postponed to the succeeding Business Day, unless such succeeding Business Day is in the succeeding calendar month, in which case such Reset Date will be the preceding Business Day. The "Determination Date" pertaining to a Reset Date will be the second London Banking Day preceding such Reset Date. The interest rate on the Offered Securities in respect of an Interest Period will be a per annum rate equal to LIBOR (determined by the Calculation Agent (as defined below) as of the applicable Determination Date as described below), plus .19%; provided, however, that the interest rate on the Offered Securities in respect of an Interest Period may not be higher than the maximum rate permitted by New York law, as the same may be modified by United States law of general application. "LIBOR" means, with respect to any Reset Date, the rate (expressed as a percentage per annum) for deposits in U.S. dollars for a three-month period that appears on Telerate Page 3750 (as defined below) as of 11:00 a.m., London time, on the applicable Determination Date for such Reset Date. If such rate does not appear on Telerate Page 3750 as of 11:00 a.m., London time, on the applicable Determination Date, the Calculation Agent will request the principal London office of each of four major reference banks in the London interbank market selected by the Calculation S-4 Agent to provide such bank's offered quotation (expressed as a percentage per annum) to prime banks in the London interbank market for deposits in U.S. dollars for a three-month period as of 11:00 a.m., London time, on such Determination Date and in a Representative Amount (as defined below). If at least two such offered quotations are so provided, LIBOR will be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, the Calculation Agent will request each of three major banks in New York City selected by the Calculation Agent to provide such bank's rate (expressed as a percentage per annum) for loans in U.S. dollars to leading European banks for a three-month period as of approximately 11:00 a.m., New York City time, on the applicable Determination Date and in a Representative Amount. If at least two such rates are so provided, LIBOR will be the arithmetic mean of such rates. If fewer than two such rates are so provided, then LIBOR will be LIBOR in effect on the preceding Reset Date. "Representative Amount" means a principal amount of not less than U.S. $1,000,000 that is representative for a single transaction in the relevant market at the relevant time. "Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service (or such other page as may replace Page 3750 on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for U.S. dollars deposits). Unless the Company shall have otherwise provided 30 days' prior written notice to the Holders of the Offered Securities, the "Calculation Agent" will be Citibank, N.A. Upon the request of any Holder of an Offered Security, the Calculation Agent will disclose the interest rate then in effect and, if determined, the interest rate that will become effective as a result of a determination made for the succeeding Reset Date. All percentages resulting from any calculation in respect of an Offered Security will be rounded to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upwards (e.g., 9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting from such calculation in respect of an Offered Security will be rounded to the nearest cent (with one-half cent rounded upwards). BOOK-ENTRY SYSTEM The Offered Securities will be issued in the form of fully-registered book- entry Offered Securities which will be deposited with, or on behalf of, The Depository Trust Company (the "Depositary") and registered in the name of the Depositary's nominee (each, a "Book-Entry Security"). Except as set forth below, a Book-Entry Security may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor of the Depositary or a nominee of such successor. The Depositary has advised the Company and the Underwriter that it is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. The Depositary was created to hold securities of its participants and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book- entry changes in accounts of the participants, thereby eliminating the need for physical movement of securities certificates. The Depositary's participants include securities brokers and dealers (including the Underwriter), banks, trust companies, clearing corporations and certain other organizations, some of whom (and/or their representatives) own the Depositary. Access to the Depositary's book-entry system is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a S-5 participant, either directly or indirectly. Persons who are not participants may beneficially own securities held by the Depositary only through participants. Upon the issuance by the Company of the Book-Entry Securities, the Depositary will credit, on its book-entry registration and transfer system, the principal amount of the Offered Securities represented by such Book-Entry Securities to the accounts of participants. The accounts to be credited shall be designated by the Underwriter. Ownership of beneficial interests in a Book-Entry Security will be limited to participants or persons that may hold interests through participants. Beneficial interests in a Book-Entry Security will be shown on, and the transfer thereof will be effected only through, records maintained by the Depositary (with respect to beneficial interests of participants) or by participants or persons that may hold interests through participants (with respect to beneficial interests of beneficial owners). The laws of some states require that certain purchasers of securities take physical delivery of such securities in certificated form. Such limits and such laws may impair the ability to transfer beneficial interests in a Book-Entry Security. For a Book-Entry Security, so long as the Depositary or its nominee is the registered owner of a Book-Entry Security, the Depositary or its nominee, as the case may be, will be considered the sole owner or holder of the Offered Securities represented by such Book-Entry Security for all purposes under the Indenture. Except as provided below, owners of beneficial interests in a Book- Entry Security will not be entitled to have Offered Securities represented by such Book-Entry Security registered in their names, will not receive or be entitled to receive physical delivery of such Offered Securities in certificated form and will not be considered the owners or holders thereof under the Indenture. Principal and interest payments in respect of the Offered Securities which are represented by the Book-Entry Securities will be made by the Company to the Depositary or its nominee, as the case may be, as the registered owner of the related Book-Entry Securities. Neither the Company nor Citibank 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 Book-Entry Securities, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company expects that the Depositary, upon receipt of any payment of principal or interest in respect of the Book-Entry Securities, will credit immediately the accounts of the related participants with payment in amounts proportionate to their respective holdings in principal amount of beneficial interests in such Book-Entry Securities as shown on the records of the Depositary. The Company also expects that payments by participants to owners of beneficial interests in the Book-Entry Securities will be governed by standing customer instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name", and will be the responsibility of such participants. Payments to the Depositary in respect of the Offered Securities which are represented by Book-Entry Securities shall be the responsibility of the Company or Citibank, disbursement of such payments to direct participants shall be the responsibility of the Depositary and disbursement of such payments to beneficial owners shall be the responsibility of direct and indirect participants. Conveyance of notices and other communications by the Depositary to direct participants, by direct participants to indirect participants and by direct and indirect participants to beneficial owners are governed by arrangements among them, subject to statutory or regulatory requirements as may be in effect from time to time. If the Depositary is at any time unwilling or unable to continue as depositary and a successor depositary is not appointed by the Company within 90 days, the Company will issue Offered Securities in certificated form in exchange for each Book-Entry Security. In addition, the Company may at any time determine not to have Offered Securities represented by the Book-Entry Securities. In any such instance, owners of beneficial interests in such Book- Entry Securities will be entitled to physical delivery of Offered Securities in certificated form equal in principal amount to such S-6 beneficial interest and to have such Offered Securities registered in its name. Offered Securities so issued in certificated form will be issued in denominations of $1,000 or any larger amount that is an integral multiple thereof and will be issued in registered form only, without coupons. SAME-DAY SETTLEMENT AND PAYMENT Settlement for the Offered Securities will be made by the Underwriter in immediately available funds. All payments of principal and interest in respect of the Offered Securities will be made by the Company in immediately available funds unless and until the Offered Securities are issued in certificated form, in which event such payments will be made by the Company in next-day funds. Secondary trading in long-term notes and debentures of corporate issuers is generally settled in clearing house or next-day funds. In contrast, the Offered Securities will trade in the Depositary's Same-Day Funds Settlement System until maturity and secondary market trading activity in the Offered Securities will therefore be required by the Depositary to settle in immediately available funds, in each case, until the Offered Securities are issued in certificated form. No assurance can be given as to the effect, if any, of settlement in immediately available funds on trading activity in the Offered Securities. UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement Basic Provisions and the Terms Agreement dated March 9, 1994 (collectively, the "Underwriting Agreement"), the Company has agreed to sell to Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter"), and the Underwriter has agreed to purchase from the Company, the entire principal amount of the Offered Securities. In the Underwriting Agreement, the Underwriter has agreed, subject to the terms and conditions set forth therein, to purchase all the Offered Securities offered hereby if any of the Offered Securities are purchased. The Underwriter has advised the Company that it proposes initially to offer the Offered Securities to the public at the public 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 .35% of the principal amount of the Offered Securities. The Underwriter may allow, and such dealers may reallow, a discount not in excess of .25% of the principal amount of the Offered Securities to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed by the Underwriter. The Company has agreed to indemnify the Underwriter against or make contributions relating to certain liabilities, including liabilities under the Securities Act of 1933, as amended. S-7 PROSPECTUS $950,000,000 MCI COMMUNICATIONS CORPORATION SENIOR/SUBORDINATED/CONVERTIBLE DEBT SECURITIES ------------ MCI Communications Corporation (the "Company" or "MCI") from time to time may offer up to $950,000,000 aggregate principal amount (or its equivalent in any other currency or composite currency) of its senior unsecured debt securities (the "Senior Securities"), subordinated unsecured debt securities (the "Subordinated Securities") and/or subordinated unsecured debt securities (the "Convertible Subordinated Securities") convertible into the common stock, par value $.10 per share, of the Company (the "Common Stock"), in separate series in amounts, at prices and on terms to be determined at the time of sale (the Senior Securities, the Subordinated Securities and the Convertible Subordinated Securities being herein referred to collectively as the "Securities"). The Company may sell Securities to one or more underwriters for public offering and sale by them or may sell Securities to investors directly or through agents. See "Plan of Distribution." The terms of the Securities, including, where applicable, the specific designation, aggregate principal amount, denominations (which may be in United States dollars, in any other currency or in a composite currency), maturity, interest rate (which may be fixed or variable) and time of payment of interest, if any, terms for conversion, if any, terms for redemption, if any, at the option of the Company or repayment, if any, at the option of the holder, terms for sinking fund payments and other variable terms of the Securities, if any, the initial public offering price, the names of, and the principal amounts to be purchased by, dealers, if any, the compensation of such dealers and the other terms in connection with the offering and sale of the Securities in respect of which this Prospectus is being delivered, are set forth in one or more accompanying Prospectus Supplements (each, a "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 date of this Prospectus is March 9, 1994. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy statements and other information filed by the Company with the Commission pursuant to the informational requirements of the Exchange Act can be inspected and copied at the public reference facilities maintained by the Commission at its principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE MCI's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Quarterly Reports on Form 10-Q for the quarters ended March 31, 1993, June 30, 1993 and September 30, 1993, Current Reports on Form 8-K dated January 19, 1993, March 3, 1993, March 12, 1993, June 2, 1993, June 11, 1993 (as amended June 14, 1993) and March 9, 1994, and Notice of Special Meeting and Proxy Statement dated February 4, 1994, previously filed by MCI with the Commission, are incorporated by reference in this Prospectus and shall be deemed to be a part hereof. Each document filed by MCI with the Commission pursuant to Sections 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 any offering made by this Prospectus shall be deemed to be incorporated herein by reference and to be a part hereof from the date of filing such document. MCI undertakes to provide without charge to each person to whom a Prospectus is delivered, upon the written or oral request of any such person, a copy of any and all of the documents incorporated herein by reference other than exhibits to such documents. Request for such copies should be directed to the Secretary, MCI Communications Corporation, 1801 Pennsylvania Avenue, N.W., Washington, D.C. 20006 (telephone: (202) 872-1600). THE COMPANY MCI Communications Corporation, a Delaware corporation organized in 1968, has its principal executive offices at 1801 Pennsylvania Avenue, N.W., Washington, D.C. 20006 (202) 872-1600. Unless the context otherwise requires, the "Company" or "MCI" means MCI Communications Corporation and its subsidiaries. MCI provides a wide spectrum of domestic and international voice and data communications services to its customers. It is the second largest nationwide carrier of long distance telephone services. RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED)(a) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- 4.12 3.63 3.37 2.22 3.30 (a) For purposes of this ratio, earnings are calculated by adding fixed charges (excluding capitalized interest) to income before income taxes and extraordinary item. Fixed charges consist of interest on indebtedness (including amortization of debt discount and premium) and the portion of rental expense representative of an interest factor. 2 USE OF PROCEEDS Unless otherwise specified in the applicable Prospectus Supplement, the net proceeds to be received by the Company from the sale of the Securities will be added to its general corporate funds and will be used for general corporate purposes. Until so utilized, the net proceeds will be invested in income producing securities. THE SECURITIES EXPLANATORY STATEMENT (APPLICABLE TO SENIOR SECURITIES, SUBORDINATED SECURITIES AND CONVERTIBLE SUBORDINATED SECURITIES) The Senior Securities are to be issued under an Indenture dated as of October 15, 1989, as amended by the Trust Indenture Reform Act of 1990 (the "Senior Indenture"), between the Company and Citibank, N.A., as trustee ("Citibank"), the Subordinated Securities are to be issued under an Indenture dated as of October 15, 1989, as amended by the Trust Indenture Reform Act of 1990 (the "Subordinated Indenture"), between the Company and Bankers Trust Company, as trustee ("Bankers Trust"), and the Convertible Subordinated Securities are to be issued under an Indenture dated as of October 15, 1989, as amended by the Trust Indenture Reform Act of 1990 (the "Convertible Indenture"), between the Company and Bankers Trust, as trustee. The forms of the Senior Indenture, the Subordinated Indenture and the Convertible Indenture (being sometimes referred to herein collectively as the "Indentures" and, individually, as an "Indenture") are filed as exhibits to the Registration Statement relating to the Securities (the "Registration Statement"). The Indentures do not limit the aggregate principal amount of the Securities which may be issued thereunder and provide that the Securities may be issued in one or more series up to the aggregate principal amount which may be authorized from time to time by the Company. The Company may, from time to time, without the consent of the holders of the Securities, provide for the issuance of Securities under the Indentures in addition to the $950,000,000 principal amount of Securities available for issuance as of the date of this Prospectus. The Company's assets consist principally of the stock in its subsidiaries. Therefore, its rights and the rights of its creditors, including the holders of the Securities, to participate in the assets of any subsidiary upon the latter's liquidation or recapitalization or otherwise will be subject to the prior claims of the subsidiary's creditors, except to the extent that claims of the Company itself as a creditor of the subsidiary may be recognized. Also, certain subsidiaries of the Company have guaranteed certain indebtedness of the Company, not including the Securities. The Indentures do not limit the amount of unsecured indebtedness of the Company or any subsidiary, the payment of dividends by the Company or its acquisition of any of its equity securities. Nothing in the Indentures or in the terms of the Securities will prohibit the issuance of securities representing subordinated indebtedness that is senior or junior to the Subordinated Securities or the Convertible Subordinated Securities. Nothing in the Indentures affords holders of Securities protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company. However, the Senior Indenture does contain certain restrictive covenants with respect to the business of the Company and its subsidiaries, and liens on and the sale or lease of the Company's assets which may make more difficult or discourage any such transaction. The consummation of any highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company could cause a material decline in the credit quality of the outstanding Securities. See "Description of Senior Securities--Covenants." The particular terms of each series of Securities, as well as any modifications or additions to the general terms of the Senior Securities, the Subordinated Securities or the Convertible Subordinated Securities, as described herein, which may be applicable in the case of a particular series of 3 Securities, are described in a Prospectus Supplement relating to such series of Securities which will be filed with the Commission. Accordingly, for a description of the terms of a particular series of Securities, reference must be made to both the Prospectus Supplement relating thereto and to the description of Senior Securities, Subordinated Securities or Convertible Subordinated Securities, as appropriate, set forth in this Prospectus. BEARER SECURITIES The Company also may offer from time to time Securities in bearer form ("Bearer Securities") outside the United States at varying prices and terms. Such offerings of Bearer Securities may be separate from, or simultaneous with, offerings of registered Securities in the United States. The Bearer Securities are not offered by this Prospectus and may not be purchased by U.S. persons other than foreign branches of certain U.S. financial institutions. For purposes of this Prospectus, "U.S. person" means a citizen, national 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 which is subject to United States income taxation regardless of its source of income. CERTAIN DEFINITIONS "Contingent Obligation" means, with respect to any Person, any direct or indirect liability of that Person with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor, or (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor or (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the Company in good faith. "Coupon" means any interest coupon appertaining to any Bearer Security. "Discount Security" means any Security that is issued with "original issue discount" within the meaning of Section 1273(a) of the Internal Revenue Code of 1986 and the regulations thereunder and any other Security designated by the Company as issued with original issue discount for United States federal income tax purposes. "Indebtedness" means, with respect to any Person, (a) all obligations of such Person for borrowed money (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured); (b) all obligations evidenced by notes, bonds, debentures or similar instruments; (c) all obligations to pay for the deferred purchase price of property or services except trade accounts payable and accrued liabilities arising in the ordinary course of business; (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller under such agreement in the event of default are limited to repossession or sale of such property); (e) all obligations under leases which 4 have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases; and (f) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the Indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the credit of that Person. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, charge or segregated deposit arrangement, encumbrance, lien (statutory or other) or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever including, without limitation, those created by, arising under or evidenced by any conditional sale or other title retention agreement or the filing of any financing statement naming the owner of the asset to which such Lien shall relate as debtor (other than in connection with a transaction in which such asset shall have been leased by the named debtor) under the Uniform Commercial Code or comparable law of any jurisdiction. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Stated Maturity," when used with respect to any Security or any installment of principal (including any sinking fund payment) thereof or premium thereon or interest thereon, means the date specified in such Security or Coupon, if any, representing such installment of interest, as the date on which the principal of such Security or such installment of principal, premium or interest is due and payable. "Subsidiary," in connection with the covenants set forth below under "Description of Senior Securities--Covenants," means, with respect to any Person, (i) a corporation of which shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person and (ii) any partnership of which such Person or any Subsidiary is a general partner or any partnership more than 50% of the equity interests of which are owned, directly or indirectly, by such Person or by one or more other Subsidiaries, or by such Person and one or more other Subsidiaries. "Total Consolidated Assets" means all assets of the Company and its Subsidiaries which may properly be classified as assets in accordance with generally accepted accounting principles, after eliminating all intercompany items. EVENTS OF DEFAULT; RIGHTS UPON DEFAULT An "Event of Default" is defined in the Indentures to mean failure to pay interest when due for 30 days; failure to pay principal or premium, if any, when due; failure to make any sinking fund installment when due; failure on MCI's part to observe any of its other covenants under the Indentures (other than certain covenants solely for the benefit of holders of a different series of Securities) for a period of 90 days after notice (from the appropriate Trustee or holders of at least 25% in aggregate principal amount of the outstanding Securities of a series); and certain events of bankruptcy or reorganization of MCI. In addition, an "Event of Default" under the Senior Indenture occurs with respect to a series of Senior Securities when an event of default in respect of any Indebtedness or Contingent Obligation under which the Company or any of its subsidiaries has at the date of such event of default outstanding at least $25,000,000, or the equivalent in another currency or currencies, aggregate principal amount of indebtedness for borrowed money, shall happen and be continuing and such Indebtedness or Contingent Obligation shall, as a result thereof, have been accelerated so that the same shall be or become due and payable prior to the date on 5 which the same would otherwise have become due and payable, and such acceleration shall not be rescinded or annulled within 30 days after notice of such acceleration shall have been given to the Company by the Trustee under the Senior Indenture (if such event be known to it), or to the Company and the Trustee under the Senior Indenture by the holders of at least 25% in aggregate principal amount of the Outstanding Securities of such series; provided, however, that if such event of default in respect of any Indebtedness or Contingent Obligation shall be remedied or cured by the Company or waived by the holders of such Indebtedness or beneficiary or beneficiaries of such Contingent Obligation, then, unless the Securities of such series shall have been accelerated as provided in this provision, the Event of Default under this provision by reason of such provision shall be deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of either the Trustee under the Senior Indenture or any holders of the Securities of such series. If an Event of Default with respect to Securities of any series at the time outstanding occurs and is continuing, either the appropriate Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Securities of that series, by notice as provided in the appropriate Indenture, may declare the principal amount (or, if the Securities of that series are Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of and all accrued but unpaid interest on all the Securities of that series to be due and payable immediately. At any time after a declaration of acceleration with respect to Securities of any series has been made, but before a judgment or decree for payment of money has been obtained by the appropriate Trustee, the holders of a majority in aggregate principal amount of the outstanding Securities of that series may, under certain circumstances, rescind and annul such acceleration. The Indentures provide that the appropriate Trustee shall, within 90 days after the occurrence of a default, give to the holders of Securities notice of all uncured defaults known to it; provided that, except in the case of default in the payment of the principal of, premium, if any, or interest on any of the Securities or in the payment of any sinking fund installment, the appropriate Trustee shall be protected in withholding such notice if in good faith it determines that the withholding of such notice is in the interest of the holders of Securities. MCI is required, pursuant to the terms of the Indentures and applicable law, to furnish each Trustee within 120 days after the close of each fiscal year a written statement of certain of MCI's officers to the effect that they have reviewed MCI's activities and its performance under the Senior Indenture, the Subordinated Indenture or the Convertible Indenture, as the case may be, and that, to the best of their knowledge, MCI has fulfilled all its obligations under such Indenture (or, if it has not, specifying the nature and status of such default). In case an Event of Default shall occur (which shall not have been cured or waived), the appropriate Trustee will be required to exercise its rights and powers under the appropriate Indenture and use in such exercise the degree of care and skill of a prudent man under the circumstances in the conduct of his own affairs. Subject to such provisions, such Trustee will be under no obligation to exercise any of its rights or powers under such Indenture at the request of any of the holders of Securities, unless they shall have offered to the Trustee reasonable security or indemnity. Except as specifically provided in the Indentures, nothing therein relieves a Trustee thereunder from liability for its own negligent action, its own negligent failure to act or its own willful misconduct. MODIFICATION OF THE INDENTURES Modifications and amendments of each of the Indentures may be made by the Company and the appropriate Trustee with the consent of the holders of a majority in principal amount of the outstanding Securities of each series affected by such modification or amendment; provided, 6 however, that no such modification or amendment may, without the consent of the holder of each outstanding Security affected thereby, (a) change the Stated Maturity of the principal of, or any installment or principal of or interest on or sinking fund payment on any Security, (b) reduce the principal amount of, or premium or interest on any Security, or (c) reduce the percentage in principal amount of outstanding Securities of any series, the consent of whose holders is required for modification or amendment of an Indenture. In addition, no modification or amendment of the Convertible Indenture may, without the consent of the holder of each Convertible Subordinated Security affected thereby, adversely affect the terms of conversion of the Convertible Subordinated Securities and no modification or amendment of the Subordinated Indenture or the Convertible Indenture may, without the written consent of each holder of Senior Indebtedness (as defined in each such Indenture as set forth below), modify, directly or indirectly, the subordination provisions therein or the definition of Senior Indebtedness in any manner that might alter or impair the subordination of the Subordinated Securities (and any Coupons appertaining thereto) or the Convertible Subordinated Securities. No modification or amendment of the Senior Indenture or the Subordinated Indenture may, without the consent of the holder of each outstanding Security affected thereby, (a) change the Stated Maturity of or reduce the amount of any payment to be made with respect to a Coupon, (b) change any obligation of the Company to pay additional interest contemplated by the Indentures, (c) reduce the amount of principal of a Discount Security payable upon acceleration of the maturity thereof, (d) change the currency in which any Security or any premium or interest thereon is denominated or payable, (e) impair the right to institute suit for the enforcement of any payment on or with respect to any Security after the Stated Maturity or date of redemption, (f) reduce the percentage in principal amount of outstanding Securities of any series, the consent of whose holders is required for waiver of compliance with certain provisions of any such Indentures or for waiver of certain defaults, (g) limit any obligation of the Company to maintain a paying agency outside the United States for payment on Bearer Securities, (h) limit the obligation of the Company to redeem certain Bearer Securities or Coupons the beneficial owners of which are required by United States law to disclose their nationality, residence or identity, or (i) modify any of the provisions set forth in this paragraph or in the preceding paragraph and regarding the waiver of past defaults except to increase any such percentage. The holders of not less than a majority in principal amount of the outstanding Securities of each series may, on behalf of all holders of Securities of that series and any Coupons appertaining thereto, waive any past default under the appropriate Indenture with respect to Securities of that series, except a default (a) in the payment of principal of, any premium on or any interest on any Security of such series or in the payment of a related Coupon or (b) in respect of a covenant or provision of such Indenture which cannot be modified or amended without the consent of the holder of each outstanding Security of such series affected. The Indentures will provide that in determining whether the holders of the requisite principal amount of the outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver thereunder (i) the principal amount of any Discount Security deemed to be outstanding will be the amount of the principal thereof that would be due and payable as of the date of such determination upon acceleration of the maturity thereof, and (ii) the principal amount of a Security denominated in other than U.S. dollars will be the U.S. dollar equivalent, determined on the date of original issuance of such Security, of the principal amount of such Security. A meeting may be called at any time by the appropriate Trustee, or upon the request of the Company or the holders of at least 10% in principal amount of the outstanding Securities of a series, in any such case upon notice given in accordance with the appropriate Indenture. Except as limited by the proviso in the fourth preceding paragraph and by the third preceding paragraph, any 7 resolution presented at a meeting may be adopted by the affirmative vote of the holders of a majority in principal amount of the outstanding Securities of that series; provided, however, that, except as limited by the proviso in the fourth preceding paragraph and by the third preceding paragraph, any resolution with respect to any demand, consent, waiver or other action that may be made, given or taken by the holders of a specified percentage, which is more or less than a majority, in principal amount of outstanding Securities of a series may be adopted at a meeting by the affirmative vote of the holders of at least such specified percentage in principal amount of the outstanding Securities of that series. LIMITATIONS ON CONSOLIDATION, MERGER AND SALE OF ASSETS MCI may not consolidate with or merge into any other corporation, or convey, transfer or lease its properties and assets substantially as an entirety to, any Person, unless (a) the successor entity is a corporation organized and existing under the laws of the United States of America or any political subdivision or State thereof and expressly assumes MCI's obligations on all the Securities and Coupons relating thereto and under the Indentures; and (b) after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, would occur and be continuing. THE TRUSTEES UNDER THE INDENTURES Citibank participates with a group of banks in a Revolving Credit Agreement with the Company. As of December 31, 1993, Citibank had no loans outstanding to MCI under this facility. Citibank also serves as issuing and paying agent under MCI's Commercial Paper Program. In addition, MCI maintains depository accounts with Citibank. Bankers Trust has entered into various interest rate swap agreements with MCI involving an aggregate principal amount of approximately $10 million as of December 31, 1993 and has been a dealer in connection with certain short-term investments made by MCI. Both Citibank and Bankers Trust are customers of MCI. In addition, Citicorp, the parent of Citibank, is among MCI's largest customers by revenue. 8 DESCRIPTION OF SENIOR SECURITIES REFERENCE IS MADE TO THE EXPLANATORY STATEMENT ON PAGE 3 OF THIS PROSPECTUS The Senior Securities are to be issued under the Senior Indenture. The following description of the Senior Indenture and summaries of certain provisions thereof do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all provisions of the Senior Indenture, including the definitions therein of certain terms. Wherever particular sections of, or terms defined in, the Senior Indenture are referred to, such sections or defined terms are incorporated herein by reference. GENERAL The Senior Indenture provides that there may be more than one trustee under the Senior Indenture, each with respect to one or more different series of Senior Securities. In the event that there is more than one trustee under the Senior Indenture, the powers and trust obligations of each trustee as described herein shall extend only to the one or more series of Senior Securities for which it is trustee. The effect of the provisions contemplating that at a particular time there might be more than one trustee acting is that, in that event, those Senior Securities (whether of one or more than one series) for which each trustee is acting would be treated as if issued under a separate indenture. The Senior Securities will be unsecured and will rank on a parity with all other unsecured and unsubordinated indebtedness of the Company. Unless otherwise indicated in the Prospectus Supplement relating thereto, principal of and premium, if any, and interest, if any, for each series of Senior Securities will be payable, and the Senior Securities will be exchangeable and transfers thereof will be registrable, at the office of Citibank at 111 Wall Street, Fifth Floor, New York, New York 10043, provided that, unless other arrangements are made, payments of interest may be made by check mailed to the address of the person entitled thereto as it appears in the Security Register. COVENANTS Maintenance of Telecommunications Business. MCI shall maintain the business of providing telecommunications services as a principal business of the Company and its Subsidiaries. Limitation on Liens. From and after the date of the first issuance of Securities under the Senior Indenture, MCI may not, nor may it permit any of its Subsidiaries to, directly or indirectly, make, create, incur or assume any Lien upon or with respect to any part of its property or assets, whether owned as of such date or thereafter acquired, unless the Senior Securities then outstanding shall be equally and ratably secured with any other obligation or indebtedness so secured, except for any of the following: (a) any Lien existing on the date of the first issuance of Securities under the Senior Indenture securing Indebtedness outstanding on such date; (b) Liens for taxes, assessments or other governmental charges which are not delinquent or remain payable without material penalty, or the validity of which is contested in good faith by appropriate proceedings (to the extent that it would be appropriate to contest the levy or imposition of such tax as an alternative to payment) upon stay of execution or the enforcement thereof and for which adequate reserves or other appropriate provision has been made in accordance with generally accepted accounting principles; (c) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not material or, if material, are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings; (d) pledges or deposits in connection with workmen's 9 compensation, unemployment insurance and other social security legislation; (e) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (f) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and do not materially detract from the overall value to the Company and its Subsidiaries of all property and assets of the Company and its Subsidiaries subject to such Liens or interfere with the ordinary conduct of the business of the Company and its Subsidiaries; (g) Liens on assets which shall be acquired by MCI either directly or through the acquisition of the owner of such assets after the date of the first issuance of Securities under the Senior Indenture, if such Liens shall have existed at the time the assets or the owner of such assets were acquired and shall not have been created in anticipation thereof by or with the agreement of MCI; (h) Liens on assets acquired or constructed by MCI or a Subsidiary to secure the purchase price of such assets (or to secure indebtedness for money borrowed or incurred prior to or within 12 months after the acquisition or construction of any such assets to be subject to such Lien for the purpose of such acquisition or construction), and any conditional sales agreement or other title retention agreement with respect to any assets acquired after the date of the first issuance of Securities under the Senior Indenture; provided, however, that the aggregate principal amount of the Indebtedness secured by all such Liens on any particular asset shall not exceed the then fair market value of such asset, including the improvements thereon, and provided further, that any such Lien does not extend to other assets owned prior to such acquisition or construction or to assets thereafter acquired or constructed; (i) Liens on any assets (in addition to Liens otherwise permitted by this paragraph), securing Indebtedness in an aggregate principal amount at any time outstanding not exceeding 5% of Total Consolidated Assets as at the end of the immediately preceding fiscal quarter, minus the then outstanding aggregate principal amount of lease obligations incurred, created or assumed in accordance with the sale-lease backs permitted under clause (c) (i) of the next succeeding paragraph; (j) Liens on securities arising from repurchase or reverse repurchase agreements; (k) refundings, replacements or extensions of any permitted Liens not exceeding the principal amount of Indebtedness so refunded or extended at the time of such refunding or extension and covering the same property theretofore securing the same; and (l) other Liens (i) consisting of attachments or involuntary Liens or (ii) not pertaining to the telecommunication system of the Company and its Subsidiaries; provided, that the obligations secured by such Liens shall not exceed $20 million in any individual case or $100 million in the aggregate at any time. Limitation on Sales and Leases of Assets. From and after the date of the first issuance of Securities under the Senior Indenture, MCI may not, nor may it permit any of its Subsidiaries to, directly or indirectly, sell, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) all or a material part of the assets, business or property of MCI and its Subsidiaries taken as a whole, whether owned as of such date or thereafter acquired, or enter into any agreement to do any of the foregoing, except any of the following: (a) dispositions by MCI or any Subsidiary of obsolete or worn-out property or real property no longer used or useful in its business; (b) sales to local exchange carriers, with or without recourse, of customer receivables in the ordinary course of business; (c) the sale and leaseback by the Company or any of its Subsidiaries of any asset, after the date of the first issuance of Securities under the Senior Indenture (i) under arrangements providing for lease obligations in an aggregate principal amount at any time outstanding not exceeding 5% of Total Consolidated Assets as at the end of the immediately preceding fiscal quarter, minus the aggregate principal amount of Indebtedness secured by Liens under clause (i) in the immediately preceding paragraph, (ii) if the commitment by or on behalf of the purchaser with respect to such sale and leaseback is obtained not later than 180 days after the later of (A) the completion of the acquisition, substantial repair or alteration, construction, development or substantial improvement of such asset or (B) the placing in operation of such asset or of such asset 10 as so substantially repaired or altered, constructed, developed or substantially improved, or (iii) if MCI shall apply or cause to be applied, in the case of a sale or transfer for cash, an amount equal to the net proceeds thereof (but not in excess of the net book value of such property at the date of such sale or transfer) and, in the case of a sale or transfer otherwise than for cash, an amount equal to the fair value (as determined by the Board of Directors of MCI) of the property so leased, to the retirement, within 180 days after the effective date of such sale and leaseback transaction, of Senior Securities or other unsubordinated Indebtedness of MCI or a Subsidiary; (d) the leasing by a Subsidiary organized after the date of the Senior Indenture for the principal purpose of engaging in financing transactions (including leasing transactions) related to telecommunications equipment to third parties of equipment not comprising part of the communications system of the Company and its Subsidiaries; (e) dispositions of assets acquired, either directly or through the acquisition of the owner of such assets, after the date of the first issuance of Securities under the Senior Indenture, provided, that (i) in the case of any individual acquisition the assets disposed of shall not comprise more than 33% of the total assets acquired, and (ii) each such disposition shall be for fair and adequate consideration; (f) sales of accounts receivable without recourse; and (g) dispositions by any Subsidiary of all or a material part of its assets, business or property to the Company or any other Subsidiary, if immediately after giving effect thereto no Event of Default under the Senior Indenture would exist. DESCRIPTION OF SUBORDINATED SECURITIES REFERENCE IS MADE TO THE EXPLANATORY STATEMENT ON PAGE 3 OF THIS PROSPECTUS The Subordinated Securities are to be issued under the Subordinated Indenture. The following description of the Subordinated Indenture and summaries of certain provisions thereof do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all provisions of the Subordinated Indenture, including the definitions therein of certain terms. Wherever particular sections of, or terms defined in, the Subordinated Indenture are referred to, such sections or defined terms are incorporated herein by reference. GENERAL The Subordinated Indenture provides that there may be more than one trustee under the Subordinated Indenture, each with respect to one or more different series of Subordinated Securities. In the event that there is more than one trustee under the Subordinated Indenture, the powers and trust obligations of each trustee as described herein shall extend only to the one or more series of Subordinated Securities for which it is trustee. The effect of the provisions contemplating that at a particular time there might be more than one trustee acting is that, in that event, those Subordinated Securities (whether of one or more than one series) for which each trustee is acting would be treated as if issued under a separate indenture. Unless otherwise indicated in the Prospectus Supplement relating thereto, principal of, premium, if any, and interest, if any, for each series of Subordinated Securities will be payable, and the Subordinated Securities will be exchangeable and transfers thereof will be registrable, at the office of Bankers Trust at Four Albany Street, New York, New York 10015, provided that, unless other arrangements are made, payments of interest may be made by check mailed to the address of the person entitled thereto as it appears in the Security Register. SUBORDINATION The payment of the principal of, premium, if any, and interest on the Subordinated Securities will be subordinated in right of payment, as set forth in the Subordinated Indenture, to the prior 11 payment in full of all Senior Indebtedness of MCI, whether outstanding on the date of the Subordinated Indenture or thereafter incurred. Senior Indebtedness is defined in the Subordinated Indenture as any liability or obligation of MCI (whether incurred directly by MCI, by assumption or otherwise) (i) for money borrowed (except as indicated below), or (ii) arising under a lease of property, equipment or other assets which, pursuant to generally accepted accounting principles then in effect, is classified upon the balance sheet of MCI or any subsidiary of MCI as a liability of MCI or such subsidiary, or (iii) arising under an express written guaranty by MCI of the liability or obligation of another (including any subsidiary of MCI) of the type described in clauses (i) or (ii) above, or (iv) arising under an express written guaranty by MCI of the liability or obligation of another (including any subsidiary of MCI), where the liability or obligation of MCI is, by the express terms of the guaranty, superior in right to the payment of the Subordinated Securities, or (v) created, incurred or assumed by MCI in connection with the acquisition of any other business, where, but only if, the liability or obligation of MCI is, by the express terms of the agreement or instrument creating or evidencing such liability or obligation of MCI, superior in right of payment to the Subordinated Securities, unless, in each such case, it is provided in the agreement or instrument creating or evidencing such liability or obligation of MCI or pursuant to which such liability or obligation is outstanding, that such liability or obligation is not superior in right of payment to the Subordinated Securities. MCI's 10% Subordinated Debentures due April 1, 2011 and any Convertible Subordinated Securities issued under the Convertible Indenture do not constitute Senior Indebtedness with respect to the Subordinated Securities and will rank on a parity with the Subordinated Securities in right of payment. By reason of the subordination described above, in the event of insolvency, creditors of MCI who are not holders of Senior Indebtedness or of the Subordinated Securities may recover less, ratably, than holders of Senior Indebtedness, and may recover more, ratably, than the holders of the Subordinated Securities. As of December 31, 1993, the aggregate amount of Senior Indebtedness (as so defined) was approximately $2,581 million. Any amounts thereafter borrowed under MCI's revolving credit agreements or issued under the Senior Indenture would also constitute Senior Indebtedness. See also "The Securities-- Explanatory Statement". DESCRIPTION OF CONVERTIBLE SUBORDINATED SECURITIES REFERENCE IS MADE TO THE EXPLANATORY STATEMENT ON PAGE 3 OF THIS PROSPECTUS The Convertible Subordinated Securities are to be issued under the Convertible Indenture. The following description of the Convertible Indenture and summaries of certain provisions thereof do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all provisions of the Convertible Indenture, including the definitions therein of certain terms. Wherever particular sections of, or terms defined in, the Convertible Indenture are referred to, such sections or defined terms are incorporated herein by reference. GENERAL The Convertible Indenture provides that there may be more than one trustee under the Convertible Indenture, each with respect to one or more different series of Convertible Subordinated Securities. In the event that there is more than one trustee under the Convertible Indenture, the powers and trust obligations of each trustee as described herein shall extend only to the one or more series of Convertible Subordinated Securities for which it is trustee. The effect of 12 the provisions contemplating that at a particular time there might be more than one trustee acting is that, in that event, those Convertible Subordinated Securities (whether of one or more than one series) for which each trustee is acting would be treated as if issued under a separate indenture. Unless otherwise indicated in the Prospectus Supplement relating thereto, principal of, premium, if any, and interest, if any, for each series of Convertible Subordinated Securities will be payable, and the Convertible Subordinated Securities will be exchangeable, transfers thereof will be registrable and may be presented for conversion, at the office of Bankers Trust at Four Albany Street, New York, New York 10015, provided that, unless other arrangements are made, payments of interest may be made by check mailed to the address of the person entitled thereto as it appears in the Security Register. SUBORDINATION The payment of the principal of, premium, if any, and interest on the Convertible Subordinated Securities will be subordinated in right of payment, as set forth in the Convertible Indenture, to the prior payment in full of all Senior Indebtedness of MCI, whether outstanding on the date of the Subordinated Indenture or thereafter incurred. Senior Indebtedness is defined in the Convertible Indenture as any liability or obligation of MCI (whether incurred directly by MCI, by assumption or otherwise) (i) for money borrowed (except as indicated below), or (ii) arising under a lease of property, equipment or other assets which, pursuant to generally accepted accounting principles then in effect, is classified upon the balance sheet of MCI or any subsidiary of MCI as a liability of MCI or such subsidiary, or (iii) arising under an express written guaranty by MCI of the liability or obligation of another (including any subsidiary of MCI) of the type described in clauses (i) or (ii) above, or (iv) arising under an express written guaranty by MCI of the liability or obligation of another (including any subsidiary of MCI), where the liability or obligation of MCI is, by the express terms of the guaranty, superior in right to the payment of the Convertible Subordinated Securities, or (v) created, incurred or assumed by MCI in connection with the acquisition of any other business, where, but only if, the liability or obligation of MCI is, by the express terms of the agreement or instrument creating or evidencing such liability or obligation of MCI, superior in right of payment to the Convertible Subordinated Securities, unless, in each such case, it is provided in the agreement or instrument creating or evidencing such liability or obligation of MCI or pursuant to which such liability or obligation is outstanding, that such liability or obligation is not superior in right of payment to any Convertible Subordinated Securities. Any Subordinated Securities issued under the Subordinated Indenture do not constitute Senior Indebtedness with respect to the Convertible Subordinated Securities and will rank on a parity with the Convertible Subordinated Securities in right of payment. By reason of the subordination described above, in the event of insolvency, creditors of MCI who are not holders of Senior Indebtedness or of the Convertible Subordinated Securities may recover less, ratably, than holders of Senior Indebtedness, and may recover more, ratably, than the holders of the Convertible Subordinated Securities. As of December 31, 1993, the aggregate amount of Senior Indebtedness (as so defined) was approximately $2,581 million. Any amounts thereafter borrowed under MCI's revolving credit agreements or issued under the Senior Indenture would also constitute Senior Indebtedness. See "The Securities--Explanatory Statement". CONVERSION If any Convertible Subordinated Security is to be issued, certain terms and provisions with respect thereto will be set forth in a Convertible Subordinated Security Prospectus Supplement (a 13 "Convertible Prospectus Supplement"). To the extent that the description set forth herein is inconsistent with such terms and provisions, such terms and provisions shall govern with respect to any Convertible Subordinated Security. Except as set forth in the applicable Convertible Prospectus Supplement, the holders of Convertible Subordinated Securities will be entitled at any time on or prior to the close of business on the date set forth in the applicable Convertible Prospectus Supplement, subject to prior redemption, to convert such Convertible Subordinated Securities or portions thereof (which are $1,000 or integral multiples thereof) into Common Stock of the Company at the conversion price set forth on the cover page of such Convertible Prospectus Supplement. No adjustment will be made on conversion of any Debenture for interest accrued thereon or for dividends on any Common Stock issued. If any Convertible Subordinated Security is converted between a record date for the payment of interest and the next succeeding interest payment date, such Convertible Subordinated Security must be accompanied by funds equal to the interest payable to the registered holder on such interest payment date on the principal amount so converted. The Company is not required to issue fractional interests in Common Stock upon conversion of Convertible Subordinated Securities and, in lieu thereof, will pay a cash adjustment based upon the market price of the Common Stock on the last business day prior to the date of conversion. In the case of Convertible Subordinated Securities called for redemption, conversion rights will expire at the close of business on the redemption date. Also except as set forth in the applicable Convertible Prospectus Supplement, the conversion price is subject to adjustment as set forth in the Convertible Indenture in certain events, including the issuance of dividends on the Company's Common Stock payable in its Common Stock; subdivisions, combinations and certain reclassifications of the Common Stock; certain consolidations, mergers and sales of the property of the Company; the issuance to all holders of Common Stock of certain rights or warrants entitling them to subscribe for Common Stock at less than the then current market price (as defined) of the Common Stock; and the distribution to all holders of Common Stock of evidences of indebtedness or of securities of the Company or of assets (other than cash dividends or cash distributions payable out of consolidated net earnings or retained earnings). No adjustment in the conversion price will be required unless such adjustment would require a change of at least 1% in the price then in effect; provided however, that any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. Except as stated above, the conversion price will not be adjusted for the issuance of Common Stock or any securities convertible into or exchangeable for Common Stock, or carrying the right to purchase any of the foregoing, in exchange for cash, property or services. The Convertible Indenture will provide that in case of the reclassification or change in the outstanding shares of Common Stock, or the consolidation or merger of the Company with or into another corporation which is effected in such a way that holders of Common Stock are entitled to receive stock, securities or property (including cash) with respect to or in exchange for Common Stock, or the sale or conveyance of its property as an entirety or substantially as an entirety to another corporation, a supplemental indenture shall be executed providing that the holder of a Convertible Subordinated Security shall have the right to convert such Convertible Subordinated Security into the kind and amount of shares, of stock or other securities or property (including cash) receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which would have been issuable upon conversion of such Convertible Subordinated Security immediately prior thereto. Except as set forth in the applicable Convertible Prospectus Supplement, any Convertible Subordinated Securities called for redemption, unless surrendered for conversion on or before the close of business on the redemption date, are subject to being purchased from the holder of such Convertible Subordinated Securities at the redemption price by one or more broker-dealers or 14 other purchasers who may agree with the Company to purchase such Convertible Subordinated Securities and convert them into Common Stock of the Company. In the event of a taxable distribution to holders of Common Stock which results in an adjustment of the conversion price, the holders of the Convertible Subordinated Securities may, in certain circumstances, be deemed to have received a distribution subject to Federal income tax as a dividend. See the Prospectus Supplement or Supplements relating to such Securities. DESCRIPTION OF CAPITAL STOCK MCI has authority to issue 800 million shares of Common Stock and 20 million shares of Preferred Stock, par value $.10 per share ("Preferred Stock"). At December 31, 1993, there were 541 million shares of Common Stock outstanding (net of treasury shares), 65.2 million shares of Common Stock contingently issuable upon the exercise of options and approximately 14,000 shares of Preferred Stock outstanding. The Preferred Stock is convertible into approximately 27.4 million shares of a new class of common stock of MCI, which, upon the occurrence of certain events, is convertible into an equal number of shares of Common Stock. The board of directors of MCI has authority (without action by its stockholders) to issue the authorized and unissued Preferred Stock in one or more series and, within certain limitations, to determine the voting rights, preferences as to dividends and in liquidation, conversion and other rights of each such series. DIVIDEND RIGHTS. Dividends may be paid on the Common Stock out of funds legally available therefor when, as and if declared by MCI's board of directors. In May 1993, the board of directors authorized a two-for-one stock split in the form of a 100% stock dividend. Since May 1990, the board of directors has declared semi-annual cash dividends (adjusted for the effect of the two-for-one stock split) of $.025 per share of Common Stock. VOTING RIGHTS. On all propositions except the election of directors, each stockholder may cast one vote for each share of Common Stock entitled to vote except as described below. The board of directors of MCI is divided into three classes, each class as nearly equal in number to the other classes as the then total number of directors permits. On the date of this Prospectus, the board of directors consists of one class of three directors and two classes of four directors each. The members of each class of directors are elected for three-year terms by the holders of Common Stock. In voting upon the election of directors, voting is cumulative. Each stockholder has the right to cast as many votes in the aggregate as equals the number of votes to which that stockholder is entitled on other matters multiplied by the number of directors to be elected. Each stockholder may cast the whole number of votes for one candidate or may distribute votes among the candidates, as he or she chooses. The voting restrictions upon substantial stockholders described below also apply to the number of votes which may be cast in voting for directors. MCI's Certificate of Incorporation requires the written request of the holders of not less than two-thirds of the outstanding shares to call a special meeting of stockholders and the affirmative vote of not less than four-fifths of the outstanding shares (a) to make, alter or repeal by-laws by stockholder action; or (b) to effect any changes in the provisions of the Certificate of Incorporation relating to (i) cumulative voting; (ii) the making, altering or repealing of by-laws by stockholder action, and (iii) the calling of special meetings by stockholders. In addition, MCI's by-laws require that notice of any proposed nominations for election of directors (other than by the board itself) be given to MCI not less than 60 days prior to the anniversary of the last meeting at which directors were elected. MCI's Certificate of Incorporation also provides that (a) certain business combinations and other significant transactions involving MCI and any beneficial owner of more than 15% of the 15 outstanding voting shares of MCI must be approved by at least 80% of all votes entitled to be cast thereon, including a majority of all votes entitled to be cast in respect of shares not held by any such beneficial owner, unless approved by MCI's board of directors in the manner provided in the Certificate of Incorporation; and (b) if and so long as a beneficial owner of more than 10% of MCI's outstanding voting shares does not consummate a tender offer for any and all outstanding Common Stock conforming to certain requirements as to price and other terms, the holder(s) of voting shares of MCI beneficially owned by such beneficial owner in excess of 10% of the outstanding shares of any class or series of MCI capital stock shall only be entitled to one hundredth (1/100) of one vote for each share in excess of 10% of such class or series and that under such circumstances such holder(s) may not cast more than 15% of all votes entitled to be cast on any matter by all holders of shares of any class or series of stock. Certain of the voting rights described in this paragraph may change in the event certain proposed amendments to MCI's Certificate of Incorporation are approved at a special meeting of stockholders to be held March 11, 1994. For further information about these amendments, see MCI's Notice of Special Meeting and Proxy Statement dated February 4, 1994 incorporated herein by reference. LIQUIDATION RIGHTS AND OTHER PROVISIONS. After distribution in full of the preferential amount to be distributed to the holders of any outstanding Preferred Stock upon any voluntary or involuntary liquidation, dissolution or winding-up of MCI, the holders of Common Stock are entitled to receive pro rata, on a share-for-shares basis, the remaining assets of MCI available for distribution. The Common Stock is not redeemable and has no preemptive or conversion rights, and there are no sinking fund provisions therefor. All outstanding shares of Common Stock are, and the shares of Common Stock issuable upon conversion of the Convertible Subordinated Securities will be, when issued pursuant to the terms of the Convertible Indenture, fully paid and not liable for further calls or assessments. For a full description of the existing provisions of the Capital Stock, reference is made to the complete Certificate of Incorporation and by-laws of MCI which have been filed with the Commission as exhibits to the Registration Statement of which this Prospectus is a part. The foregoing brief description of the Capital Stock is qualified in its entirety by such reference. FEDERAL INCOME TAX CONSEQUENCES The following is a general discussion of certain United States federal income tax consequences of the ownership and disposition of the Securities. The discussion only addresses the tax consequences to persons who hold the Securities as capital assets and does not deal with special classes of holders, such as dealers in securities, financial institutions, insurance companies, tax-exempt organizations or persons holding Securities as a hedge against currency risks. In addition, the discussion does not address the tax consequences of the ownership and disposition of any specific series of Securities, which consequences may be affected by the particular terms of such series of Securities, and may require additional discussion in a prospectus supplement relating to such series of Securities. In particular, the discussion does not address the tax consequences of Securities that are denominated in, or indexed to, currencies other than the United States dollar or Securities that are convertible into Common Stock of the Company. In all cases, persons considering the purchase of Securities should consult their own tax advisors concerning the application of United States federal income tax laws to their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction. UNITED STATES HOLDERS A United States Holder is a holder that is a citizen or resident of the United States, a corporation or partnership created or organized in or under the laws of the United States or any political 16 subdivision thereof or an estate or trust the income of which is subject to United States federal income taxation regardless of its source. As used herein, the term "Non-United States Holder" means a holder that is not a United States Holder. Payments of Interest. Interest on a Security (other than interest included in the stated redemption price at maturity of a Discount Security, described below) will be taxable to a United States Holder as ordinary interest income at the time it is accrued or is paid in accordance with the United States Holder's method of accounting for tax purposes. Original Issue Discount Securities. The following summary is a general discussion of the United States federal income tax consequences to United States Holders of Securities issued at an original issue discount ("Discount Securities"). Final Treasury regulations dealing with original issue discount have been issued. The regulations are generally effective for debt instruments issued on or after April 4, 1994. However, taxpayers are generally permitted to rely on the final regulations for debt instruments issued after December 21, 1992. For United States federal income tax purposes, the excess of the stated redemption price at maturity of a Discount Security over its issue price (defined as the first price at which a substantial amount of the issue of Discount Securities is sold for money) will be original issue discount if such excess equals or exceeds 1/4 of 1 percent of the stated redemption price at maturity of such Discount Security multiplied by the number of complete years to its maturity. The stated redemption price at maturity of a Discount Security includes its principal amount and all payments provided by the Discount Security other than payments of "qualified stated interest". The term "qualified stated interest" generally means stated interest that is unconditionally payable in cash or property (other than debt instruments of the Company) at least annually at a single fixed rate or at current values of (i) one or more qualified floating rates, (ii) a single fixed rate and one or more qualified floating rates, (iii) a single objective rate, or (iv) a single fixed rate and a single objective rate that is a qualified inverse floating rate. A "qualified floating rate" is any floating rate where variations in such rate can reasonably be expected to measure contemporaneous variations in the cost of newly borrowed funds in the currency in which the debt instrument is denominated, as well as certain multiples of a qualified floating rate. An "objective rate" is a rate that is not itself a qualified floating rate but which is determined using a single fixed formula and which is based on one or more qualified floating rates, on one or more rates where each rate would be a qualified floating rate for a debt instrument denominated in a currency other than the currency in which the debt instrument is denominated, on the yield or changes in the price of actively traded personal property, or on a combination of such rates. A "qualified inverse floating rate" is an objective rate that is equal to a fixed rate minus a qualified floating rate, where variations in the rate can reasonably be expected to inversely reflect contemporaneous variations in the cost of newly borrowed funds. A Security which has an issue price not less than its principal amount may, nonetheless, be considered to have original issue discount. If interest is included in the stated redemption price at maturity, it will be accounted for under the original issue discount rules, rather than the holder's method of accounting. United States Holders of Discount Securities will have to include original issue discount in income before the receipt of cash attributable to such income. The amount of original issue discount includible in income by the initial holder of a Discount Security and, subject to an adjustment, by any subsequent holder is the sum of the daily portions of original issue discount with respect to the Discount Security for each day during the taxable year or portion of the taxable year on which such holder holds the Discount Security. The daily portion is determined by allocating to each day of the relevant "accrual period" a pro rata portion of an amount equal to the excess of (i) the product of (a) the "adjusted issue price" of the Discount Security at the beginning of that accrual period, and (b) the "yield to maturity" of the Discount Security (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), over 17 (ii) the sum of the qualified stated interest payments, if any, allocable to such accrual period. For these purposes, an "accrual period" is an interval of time with respect to which the accrual of original issue discount is measured. Accrual periods may be of any length and may vary in length over the term of the debt instrument, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs either on the final day of an accrual period or on the first day of an accrual period. The "adjusted issue price" of the Discount Security at the beginning of any accrual period is the issue price of such Discount Security plus the accrued original issue discount for each prior accrual period, reduced by any payments made on the Discount Security other than payments of qualified stated interest. Under these rules, United States Holders may have to include in income increasingly greater amounts of original issue discount in successive accrual periods. The computation of original issue discount on a Discount Security that is subject to repayment at the option of the Holder or redemption at the option of the Company may be affected by rules presuming the option to be exercised, with the result that the original issue discount may be accrued as income over a shorter period. United States Holders may, subject to certain limitations and exceptions, elect to include in income all interest (including stated interest, acquisition discount, original issue discount, de minimis original issue discount, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium) that accrues on a debt instrument acquired on or after April 4, 1994 by using the constant yield method applicable to original issue discount. Acquisition Premium. If a United States Holder purchases a Discount Security at an acquisition premium, i.e., at a price in excess of the adjusted issue price (but less than or equal to its stated redemption price at maturity), the amount includible in income in each taxable year as original issue discount is reduced by an amount equal to the original issue discount (as otherwise determined) multiplied by a fraction, the numerator of which is such excess and the denominator of which is the original issue discount for the period to maturity after the Holder's purchase. If a United States Holder purchases a Discount Security at a price in excess of its stated redemption price at maturity, such excess may be deductible as amortizable bond premium (discussed below). Short-Term Obligations. In general, an individual or other cash method United States Holder of any Discount Security that matures one year or less from the date of its issuance (a "Short-Term Obligation") is not required to accrue original issue discount for United States federal income tax purposes unless it elects to do so. United States Holders who report income for federal income tax purposes under the accrual method and certain other United States Holders, including banks and dealers in securities, are required to accrue the original issue discount on such Discount Securities on a straight-line basis, unless an election is made to accrue the original issue discount under the constant yield method based on daily compounding. In the case of a United States Holder not required and not electing to include the original issue discount in income currently, any gain realized on the sale or maturity of a Short-Term Obligation will be ordinary income to the extent of the original issue discount accrued on a straight-line basis through the date of sale or maturity. United States Holders who are not required and do not elect to accrue the original issue discount on a Short-Term Obligation will be required to defer deductions for interest on borrowings allocable to such a Short-Term Obligation in an amount not exceeding the accrued discount until such accrued discount is included in income. Amortizable Bond Premium. If a United States Holder of a Security purchases it at a cost which is in excess of its stated redemption price at maturity, the excess cost may be deductible by the purchaser as "amortizable bond premium" on a constant yield basis over the remaining term of the Security. The deduction is available only if an election is made by the purchaser or is in effect. The election applies to all debt instruments held or subsequently acquired by the electing 18 purchaser. Amortizable bond premium must be treated as an offset to interest income on the Security acquired, rather than as a separate deduction. An electing purchaser's tax basis in a Security is reduced by the amount of bond premium amortized with respect to the Security. Market Discount. If a United States Holder of a Security (including, in some instances, an initial holder) purchases it at a "market discount" and thereafter realizes gain upon a disposition or a retirement of the Security, the lesser of such gain or the portion of the market discount that accrues on a straight-line basis (or, if the holder so elects, on a constant interest rate basis) while the Security was held by such holder will be treated as ordinary interest income at the time of such disposition or retirement. In addition, a holder may be required to include in gross income, as ordinary interest income, accrued market discount to the extent of partial principal payments received with respect to the Security. In such case, the amount of accrued market discount to be recognized at the time of the disposition or retirement of the Security will be reduced accordingly. "Market discount" is the amount by which (i) the revised issue price of a Discount Security (i.e., the issue price increased by the sum of daily portions of original issue discount for each prior accrual period), or (ii) the principal amount (or the issue price, in the case of an initial holder) of a Security not issued at a discount, exceeds the holder's basis in such Security immediately after acquisition. The market discount will be deemed to be zero, however, if it is less than 1/4 of 1 percent of the revised issue price of a Discount Security, or of the principal amount of a Security not issued at a discount, multiplied by the number of complete years from acquisition to maturity. If a holder makes a gift of a Security or disposes of a Security in certain nonrecognition transactions, accrued market discount, if any, will be recognized as if such holder had sold such Security for a price equal to its fair market value. The market discount rules also provide that a holder who acquires a Security at a market discount may be required to defer a portion of any interest expense that may otherwise be deductible on any indebtedness incurred or continued to purchase or carry such Security until the holder disposes of the Security in a taxable transaction. A holder of a Security acquired at a market discount may elect to include market discount in gross income as the discount accrues, either on a straight- line basis or on a constant interest rate basis. This current inclusion election, once made, applies to all market discount debt instruments acquired on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the Internal Revenue Service. If a holder of a Security makes such an election, the foregoing rules with respect to the recognition of ordinary interest income on sales and other dispositions of, and on the receipt of partial principal payments on, the Securities and with respect to the deferral of interest deductions on indebtedness incurred or continued to purchase or carry such Securities would not apply. Purchase, Sale and Retirement. A United States Holder's tax basis for determining gain or loss on a sale or other disposition of a Security will generally be the United States Holder's cost increased by any original issue discount included in income (and market discount, if any, if the United States Holder elects to include the accrued market discount in income on an annual basis) and decreased by the amount of any payments, other than qualified stated interest payments, received and the amount of bond premium amortized with respect to such Security. Gain or loss on the sale or redemption of a Security will generally be long-term capital gain or loss if the Security has been held for more than one year (except to the extent that gain represents accrued interest or market discount not previously included in the United States Holder's income). Information Reporting. The amount of interest paid on the Securities and the amount of original issue discount accrued on Discount Securities held of record by United States persons (other than corporations and other exempt United States Holders) will be reported to the Internal Revenue Service. The amount of original issue discount required to be reported to the Internal Revenue Service may not be equal to the amount of original issue discount required to be reported as taxable income by a United States Holder of such Discount Securities who is not an original purchaser. 19 NON-UNITED STATES HOLDERS Under present United States federal income tax law, and subject to the discussion of backup withholding below, payments on the Securities by the Company or any of its Paying Agents to any non-United States Holder will not be subject to United States federal withholding tax, provided that (a) such Holder does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote, (b) such Holder is not a controlled foreign corporation that is related to the Company through stock ownership, (c) such Holder is not a bank with respect to which the holding of the Security is treated as the extension of credit in the ordinary course of its trade or business, (d) the payment is not treated as contingent interest, excluded from the definition of portfolio interest, and (e) either (1) the beneficial owner of the Security certifies to the Company or its agent, under penalties of perjury, that it is a non-United States Holder and provides its name and address, and U.S. taxpayer identification number, if any, or (2) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "financial institution") and that holds the Securities certifies to the Company or its agent under penalties of perjury that such statement has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes the payor with a copy thereof. The certificate may be made on a United States Internal Revenue Service Form W-8 or substantially similar form. A certificate described in this paragraph is effective only with respect to interest payments and payments representing accrued original issue discount made to the certifying non-United States Holder after the issuance of the certificate in the calendar year of its issuance and the two immediately succeeding calendar years. If a non-United States Holder is engaged in a trade or business in the United States and interest and original issue discount on the Security are effectively connected with the conduct of such trade or business, the non-United States Holder, although exempt from the withholding tax discussed above, may be subject to United States income tax on such interest and original issue discount in the same manner as if it were a United States Holder. In addition, if such a Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits for the taxable year, as adjusted for certain items; for this purpose, interest and original issue discount on a Security will be included in earnings and profits if the interest and original issue discount are effectively connected with the conduct of the United States trade or business of the Holder. Any gain or income realized by a non-United States Holder upon retirement or disposition of a Security (not including in such gain or income amounts representing stated interest or accrued original issue discount, the U.S. tax treatment of which is described above) will not be subject to United States federal income tax if (i) such gain or income is not effectively connected with a trade or business in the United States of the Holder of such Security and (ii) in the case of an individual Holder, the Holder is not present in the United States for a period or periods aggregating 183 days in the taxable year of the retirement or disposition. BACKUP WITHHOLDING AND INFORMATION REPORTING A 31% "backup" withholding tax and information reporting requirements apply to certain payments of interest and original issue discount on an obligation, and to proceeds of the sale of an obligation before maturity, to certain non- corporate United States Holders. The Company, and/or any paying and/or collection agent, including a broker, as the case may be, will be required to withhold from any payment that is subject to backup withholding a tax equal to 31% of such payment unless the Holder furnishes its taxpayer identification number (i.e., social security number in the case of an individual) in the manner prescribed in applicable Treasury Regulations, certifies that such number is correct, certifies (with respect to payments of interest and original issue 20 discount) as to no loss of exemption from backup withholding, and meets certain other conditions. Backup withholding, however, in any event, generally does not apply to payments to certain "exempt recipients" such as corporations. Its applicability to non-United States Holders is discussed more fully below. Under current Treasury Regulations, backup withholding and information reporting will not apply to payments made by the Company or any paying agency thereof (in its capacity as such) to a Holder of a Security with respect to which the Holder has provided to the Company (and/or any paying and/or collection agent, including a broker) required certification of its non-United States status under penalties of perjury or has otherwise established an exemption (provided that neither the Company nor such paying agency has actual knowledge that the Holder is a United States Holder or the conditions of any other exemption are not in fact satisfied). Such certificate may be made on a United States Internal Revenue Service Form W-8 or substantially similar form. If such payment is made to the beneficial owner of a Security by the non-United States office of a foreign custodian, foreign nominee or other foreign agent of such beneficial owner, or if the non-United States office of a foreign "broker" (as defined in applicable Treasury Regulations) pays the proceeds of the sale of a Security to the seller thereof, such nominee, custodian, agent or broker is not required to backup withhold or file an information report with respect to such payment (provided that such nominee, custodian, agent or broker derives less than 50% of its gross income for certain specified periods from the conduct of a trade or business in the United States and is not a controlled foreign corporation for United States tax purposes). Payments made to the beneficial owner by the non-United States office of other custodians, nominees or agents, or the payment by the foreign office of other brokers, will not be subject to backup withholding, but will be subject to information reporting unless the custodian, nominee, agent or broker has documentary evidence in its records that the beneficial owner or seller is not or was not, as the case may be, a United States Holder and certain conditions are met or the beneficial owner or seller otherwise establishes an exemption. Payments made to the beneficial owner by the United States office of a custodian, nominee or agent, or a broker are subject to both backup withholding and information reporting unless the beneficial owner or seller certifies its non-United States status under penalties of perjury or otherwise establishes an exemption. Any amounts withheld under the backup withholding rules from a payment to a Holder would be allowed as a refund or a credit against such Holder's United States federal income tax, provided that the required information is furnished to the United States Internal Revenue Service. PLAN OF DISTRIBUTION The Company may sell Securities to one or more underwriters for public offering and sale by them or may sell Securities to investors directly or through agents. The distribution of the Securities may be effected from time to time in one or more transactions at a fixed price or prices (which may be changed from time to time), at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Each Prospectus Supplement will describe the method of distribution of the Securities offered thereby. In connection with the sale of the Securities, dealers may receive compensation from the Company or from purchasers of Securities for whom they may act as agents, in the form of discounts, concessions or commissions. The dealers which participate in the distribution of Securities may be deemed to be underwriters under the Securities Act of 1933 (the "Act") and any discounts or commissions received by them and any profit on the resale of Securities by them may be deemed to be underwriting discounts and commissions under the Act. Any such dealer will be identified and any such compensation will be described in the appropriate Prospectus Supplement. 21 Under agreements which may be entered into by the Company, underwriters, agents and dealers which participate in the distribution of Securities may be entitled to indemnification or contribution by the Company against certain liabilities, including liabilities under the Act. If so indicated in the appropriate Prospectus Supplement, the Company will authorize underwriters, dealers or other persons acting as the Company's agents to solicit offers by certain institutions to purchase Securities from the Company pursuant to contracts providing for payment and delivery on a future date. Institutions with which such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and others, but in all cases such institutions must be approved by the Company. The obligations of any purchaser under any such contract will be subject to the conditions that (1) the purchase of the Securities shall not at the time of delivery be prohibited under the laws of the jurisdiction to which such purchaser is subject, and (2) if the Securities are also being sold to dealers acting as principals for their own account, such dealers shall have purchased such Securities not sold by them for delayed delivery. The underwriters, dealers and such other persons acting as the Company's agents will not have any responsibility in respect of the validity or performance of such contracts. LEGAL OPINIONS The legality of each issue of the Securities will be passed upon for the Company by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, New York, New York, and for the agents or underwriters by Brown & Wood, New York, New York. EXPERTS The consolidated financial statements of the Company incorporated in this Prospectus by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and to the Current Report on Form 8-K dated March 9, 1994 have been so incorporated in reliance on the reports of Price Waterhouse, independent accountants, given on the authority of said firm as experts in auditing and accounting. 22 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR- MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPO- RATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNEC- TION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. NEITHER THE DE- LIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OF- FER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SO- LICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO- LICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. --------------- TABLE OF CONTENTS PAGE ---- PROSPECTUS SUPPLEMENT Use of Proceeds............................................................. S-2 Recent Developments ........................................................ S-2 Description of Offered Securities........................................... S-3 Underwriting................................................................ S-7 PROSPECTUS Available Information....................................................... 2 Incorporation of Certain Documents by Reference............................. 2 The Company................................................................. 2 Ratio of Earnings to Fixed Charges.......................................... 2 Use of Proceeds............................................................. 3 The Securities.............................................................. 3 Description of Senior Securities............................................ 9 Description of Subordinated Securities...................................... 11 Description of Convertible Subordinated Securities.......................... 12 Federal Income Tax Consequences............................................. 16 Plan of Distribution........................................................ 21 Legal Opinions.............................................................. 22 Experts..................................................................... 22 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- $200,000,000 [LOGO OF MCI COMMUNICATIONS CORPORATION] MCI COMMUNICATIONS CORPORATION SENIOR FLOATING RATE NOTES DUE MARCH 16, 1999 --------------- PROSPECTUS SUPPLEMENT --------------- MERRILL LYNCH & CO. MARCH 9, 1994 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------