FILED PURSUANT TO RULE 424(b)(2)
                                                     REGISTRATION NO. 333-38625
 
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 12, 1997)
 
                                 $350,000,000

                            [LOGO OF MATTEL, INC.(R)]
 
                          SERIES C MEDIUM-TERM NOTES
 
                                ---------------
 
                 Due More Than Nine Months From Date of Issue
 
                                ---------------
 
  Mattel, Inc. (the "Company"), may offer from time to time its Series C
Medium-Term Notes, which are issuable in one or more series and may be offered
and sold in the United States. The Series C Medium-Term Notes offered by this
Prospectus Supplement are offered in the United States at an aggregate initial
public offering price of up to U.S. $350,000,000, or the equivalent thereof in
other currencies, including composite currencies such as the European Currency
Unit (the "Specified Currency"). See "Important Currency Exchange
Information." Such aggregate offering price is subject to reduction as a
result of the sale by the Company of certain other Debt Securities. See "Plan
of Distribution." The interest rate on each Note will be either a fixed rate
established by the Company at the date of issue of such Note, which may be
zero in the case of certain Discount Notes, or a floating rate as set forth
therein and specified in the applicable Pricing Supplement. A Fixed Rate Note
may pay a level amount in respect of both interest and principal amortized
over the life of the Note (an "Amortizing Note").
 
  Unless otherwise specified in the applicable Pricing Supplement, interest on
each Fixed Rate Note is payable each November 15 and May 15 and at maturity or
upon earlier redemption or repayment. Interest on each Floating Rate Note is
payable on the date set forth herein and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, Amortizing
Notes will pay principal and interest semiannually each November 15 and May
15, or quarterly each February 15, May 15, August 15 and November 15, and at
maturity or upon earlier redemption or repayment. Each Note will mature on any
day more than nine months from the date of issue, as set forth in the
applicable Pricing Supplement. See "Description of Notes." Unless otherwise
specified in the applicable Pricing Supplement, the Notes may not be redeemed
by the Company or the holder prior to maturity and will be issued in fully
registered form in denominations of $1,000 (or, in the case of Notes not
denominated inU.S. dollars, the equivalent thereof in the Specified Currency,
rounded to the nearest 1,000 units of the Specified Currency) or any amount in
excess thereof which is an integral multiple of $1,000 (or, in the case of
Notes not denominated in U.S. dollars, 1,000 units of the Specified Currency).
Any terms relating to Notes being denominated in foreign currencies or
composite currencies will be as set forth in the applicable Pricing
Supplement. Each Note will be represented by either a Global Security
registered in the name ofThe Depository Trust Company, as Depository (a "Book-
Entry Note"), or by a certificate issued in definitive form (a "Certificated
Note"), as set forth in the applicable Pricing Supplement. Interests in Global
Securities representing Book-Entry Notes will be shown on, and transfer
thereof will be affected only through records maintained by the Depository
(with respect to participant's interests) and its participants. Book-Entry
Notes will not be issuable as Certificated Notes except under the
circumstances described in the Prospectus.
 
                                ---------------
 
 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
      EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
           SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES 
             COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS 
               PROSPECTUS SUPPLEMENT, ANY SUPPLEMENT HERETO OR THE 
                PROSPECTUS.  ANY  REPRESENTATION TO THE CONTRARY 
                              IS A CRIMINAL OFFENSE.
 
                                ---------------
 


                                      PRICE TO            AGENTS'                   PROCEEDS TO
                                     PUBLIC(1)         COMMISSIONS(2)              COMPANY(2)(3)
                                     ---------         --------------              -------------
                                                                  
Per Note.........................     100.000%         .125% - .750%             99.875% - 99.250%
Total(4).........................   $350,000,000   $437,500 - $2,625,000    $349,562,500 - $347,375,000

- -------
  (1) Unless otherwise specified in the applicable Pricing Supplement, Notes
      will be sold at 100% of their principal amount. If the Company issues
      any Note at a discount from or at a premium over its principal amount,
      the Price to Public of any Note issued at a discount or premium will be
      set forth in the applicable Pricing Supplement.
  (2) The commission payable to an Agent for each Note sold through such
      Agent shall range from .125% to .750% of the principal amount of such
      Note, provided, however, that commissions with respect to Notes
      maturing in thirty years or greater will be negotiated. The Company may
      also sell Notes to an Agent, as principal, at negotiated discounts, for
      resale to investors and other purchasers.
  (3)Before deducting expenses payable by the Company estimated at $350,000.
  (4) Or the equivalent thereof in other currencies including composite
      currencies.
 
                                ---------------
 
  Offers to purchase the Notes are being solicited from time to time by Morgan
Stanley & Co. Incorporated and Credit Suisse First Boston Corporation
(individually, an "Agent" and collectively, the "Agents"), on behalf of the
Company. The Agents have agreed to use reasonable efforts to solicit purchases
of such Notes. The Company may also sell Notes to an Agent acting as principal
for its own account for resale to one or more investors and other purchasers
at varying prices related to prevailing market prices at the time of resale or
otherwise, to be determined by such Agent. No termination date for the
offering of the Notes has been established. The Company or an Agent may reject
any order in whole or in part. The Notes will not be listed on any securities
exchange, and there can be no assurance that the Notes offered hereby will be
sold or that there will be a secondary market for the Notes. See "Plan of
Distribution."
 
                                ---------------
 
MORGAN STANLEY DEAN WITTER___________________________CREDIT SUISSE FIRST BOSTON
 
November 12, 1997

 
  NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT, ANY
PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE AGENTS. THIS PROSPECTUS SUPPLEMENT, ANY
PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
 
  CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE AGENTS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND
MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. IN ADDITION, THE
AGENTS MAY ENGAGE IN PASSIVE MARKET MAKING. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
 
                    IMPORTANT CURRENCY EXCHANGE INFORMATION
 
  Purchasers are required to pay for the Notes in U.S. dollars and payments of
principal, premium, if any, and interest on the Notes will also be made in
U.S. dollars, unless the applicable Pricing Supplement provides that
purchasers are instead required to pay for the Notes in a Specified Currency,
and/or that payments of principal, premium, if any, and interest on such Notes
will be made in a Specified Currency. Currently, there are limited facilities
in the United States for the conversion of U.S. dollars into foreign
currencies and vice versa. In addition, most banks do not currently offer non-
U.S. dollar denominated checking or savings account facilities in the United
States. Accordingly, unless otherwise specified in a Pricing Supplement or
unless alternative arrangements are made, payment of principal, premium, if
any, and interest on Notes in a Specified Currency other than U.S. dollars
will be made to an account at a bank outside the United States. See
"Description of Notes" and "Foreign Currency Risks."
 
  If the applicable Pricing Supplement provides for payments of principal,
premium, if any, and interest on a non-U.S. dollar denominated Note to be made
in U.S. dollars or for payments of principal of and interest on a U.S. dollar
denominated Note to be made in a Specified Currency other than U.S. dollars,
the conversion of the Specified Currency into U.S. dollars or U.S. dollars
into the Specified Currency, as the case may be, will be handled by the
Exchange Rate Agent identified in the Pricing Supplement (as defined below).
Any Agent may act, from time to time, as Exchange Rate Agent. The costs of
such conversion will be borne by the holder of a Note through deductions from
such payments.
 
  Reference herein to "U.S. dollars," "U.S. $" or "$" are to the currency of
the United States of America.
 
                               ----------------
 
                             DESCRIPTION OF NOTES
 
  The following description of the particular terms of the Notes offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Debt Securities set
forth in the Prospectus, to which reference is hereby made. The particular
terms of the Notes sold pursuant to any pricing supplement (a "Pricing
Supplement") will be described therein. The terms and conditions set forth in
"Description of Notes" will apply to each Note unless otherwise specified in
the applicable Pricing Supplement and in such Note.
 
  If any Note is not to be denominated in U.S. dollars, the applicable Pricing
Supplement will specify the currency or currencies, including composite
currencies such as the European Currency Unit ("ECU"), in which the principal,
premium, if any, and interest, if any, with respect to such Note are to be
paid, along with any other terms relating to the non-U.S. dollar denomination,
and any exchange controls affecting such Specified Currency. See "Foreign
Currency Risks."
 
 
                                      S-2

 
GENERAL
 
  The Notes will be issued under the Indenture dated as of February 15, 1996
(the "Indenture") between the Company and Chase Trust Company of California
(formerly Chemical Trust Company of California), as trustee (the "Trustee").
The Notes issued under the Indenture will constitute a series under such
Indenture. The Notes will rank pari passu with all other unsecured and
unsubordinated indebtedness of the Company. The Notes may be issued from time
to time in an aggregate principal amount of up to $350,000,000 or the
equivalent thereof in one or more foreign or composite currencies, subject to
reduction as a result of the sale by the Company of other Debt Securities
referred to in the accompanying Prospectus. For the purpose of this Prospectus
Supplement, (i) the principal amount of any Discount Note (as defined below)
means the Issue Price (as defined below) of such Note and (ii) the principal
amount of any Note issued in a foreign currency or composite currency means
the U.S. dollar equivalent on the date of issue of the Issue Price of such
Note.
 
  The Notes will mature on any day more than nine months from the date of
issue, as set forth in the applicable Pricing Supplement. Except as may be
provided in the applicable Pricing Supplement, the Notes will be issued only
in fully registered form. Unless otherwise provided in the applicable Pricing
Supplement, Notes will be denominated in Authorized Denominations (as defined
below).
 
  The Notes will be offered on a continuing basis, and each Note will be
issued initially as either a Book-Entry Note or a Certificated Note. Except as
set forth in the Prospectus under "Description of Debt Securities--Payment of
Interest and Exchange--Global Debt Securities and Book-Entry System," Book-
Entry Notes will not be issuable as Certificated Notes. The laws of some
states may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to own, transfer or pledge beneficial interests in Global
Securities. See "--Book-Entry System" below.
 
  The Notes may be presented for payment of principal and interest, transfer
of the Notes will be registrable and the Notes will be exchangeable at the
agency in The City of New York, maintained by the Company for such purpose;
provided that Book-Entry Notes will be exchangeable only in the manner and to
the extent set forth in the Prospectus under "Description of Debt Securities--
Payment of Interest and Exchange--Global Debt Securities and Book-Entry
System." On the date hereof, the agent for the payment, transfer and exchange
of the Notes (the "Paying Agent") is Chase Trust Company of California, acting
through its corporate trust office at 50 California Street, San Francisco,
California 94111, attention: Paula Oswald, Assistant Vice President, and the
agency maintained by the Trustee in The City of New York for such purposes is
the office of the Paying Agent at the following address: Chase Trust Company
of California, c/o The Chase Manhattan Bank, 55 Water Street, North Building,
Securities Window 2nd Floor, New York, New York 10041.
 
  The applicable Pricing Supplement will specify the price (the "Issue Price")
of each Note to be sold pursuant thereto (unless such Note is to be sold at
100% of its principal amount), the interest rate or interest rate formula,
maturity, currency or composite currency and principal amount and any other
terms on which each Note will be issued.
 
  As used herein, the following terms shall have the meanings set forth below:
 
  "Authorized Denominations" means, unless otherwise provided in the
applicable Pricing Supplement, (i) with respect to Notes denominated in U.S.
dollars, U.S. $1,000 or any amount in excess thereof which is an integral
multiple of U.S. $1,000 and (ii) with respect to Notes denominated in foreign
or composite currencies, the equivalent of $1,000 (rounded to an integral
multiple of 1,000 units of such Specified Currency), or any amount in excess
thereof which is an integral multiple of 1,000 units of such Specified
Currency, as determined by reference to the noon dollar buying rate in New
York City for cable transfers of such Specified Currency as published by the
Federal Reserve Bank of New York (the "Market Exchange Rate") on the Business
Day (as defined below) immediately preceding the date of issuance; provided,
however, that in the case of the ECU's, the Market Exchange Rate shall be the
rate of exchange determined by the Commission of the European Union (or any
successor thereto) as published in the Official Journal of the European Union,
or any successor publication, on the Business Day immediately preceding the
date of issuance.
 
                                      S-3

 
  "Business Day" means (1) any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions are authorized
or required by law or regulation to close in The City of New York, New York,
or San Francisco, California, and (2)(i) with respect to LIBOR Notes (as
defined below), is also a London Banking Day, (ii) with respect to Notes
denominated in a Specified Currency other than U.S. dollars, Australian
dollars, or ECUs, in the principal financial center of the country of the
Specified Currency, (iii) with respect to Notes denominated in Australian
dollars, in Sydney, and (iv) with respect to Notes denominated in ECUs, in
Luxemburg and that is not a non-ECU clearing day, as determined by the ECU
Banking Association in Paris.
 
  "Discount Note" means any Note that provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof pursuant to the Indenture.
 
  An "Interest Payment Date" with respect to any Note shall be a date on
which, under the terms of such Note, regularly scheduled interest shall be
payable.
 
  "London Banking Day" means any day on which dealings in deposits in the
Index Currency are transacted in the London interbank market.
 
  The "Record Date" with respect to any Interest Payment Date shall be the
date 15 calendar days prior to such Interest Payment Date, whether or not such
date shall be a Business Day.
 
PAYMENT CURRENCY
 
  If the applicable Pricing Supplement provides for payments of principal,
premium, if any, or interest on a non-U.S. dollar denominated Note to be made,
at the option of the holder of such Note, in U.S. dollars, conversion of the
Specified Currency into U.S. dollars will be based on the highest bid
quotation in The City of New York received by the Exchange Rate Agent at
approximately 11:00 A.M., New York City time, on the second Business Day
preceding the applicable payment date from three recognized foreign exchange
dealers (one of which may be the Exchange Rate Agent) for the purchase by the
quoting dealer of the Specified Currency for U.S. dollars for settlement on
such payment date in the aggregate amount of the Specified Currency payable to
the holders of Notes and at which the applicable dealer commits to execute a
contract. If such bid quotations are not available, payments will be made in
the Specified Currency. All currency exchange costs will be borne by the
holders of Notes by deductions from such payments.
 
  Except as set forth below, if the principal of, premium, if any, or interest
on, any Note is payable in a Specified Currency other than U.S. dollars and
such Specified Currency is not available to the Company for making payments
thereof due to the imposition of exchange controls or other circumstances
beyond the control of the Company or is no longer used by the government of
the country issuing such currency or for the settlement of transactions by
public institutions within the international banking community, then the
Company will be entitled to satisfy its obligations to holders of the Notes by
making such payments in U.S. dollars on the basis of the Market Exchange Rate
on the date of such payment or, if the Market Exchange Rate is not available
on such date, as of the most recent practicable date. Any payment made under
such circumstances in U.S. dollars where the required payment is in a
Specified Currency other than U.S. dollars will not constitute an Event of
Default.
 
  If payment in respect of a Note is required to be made in ECUs and ECUs are
unavailable due to the imposition of exchange controls or other circumstances
beyond the Company's control or are no longer used in the European Monetary
System, then all payments in respect of such Note shall be made in U.S.
dollars until ECUs are again available or so used. The amount of each payment
in U.S. dollars shall be computed on the basis of the equivalent of the ECU in
U.S. dollars, determined as described below, as of the second Business Day
prior to the date on which such payment is due.
 
  The equivalent of the ECU in U.S. dollars as of any date shall be determined
by the Company or the Exchange Rate Agent on the following basis. The
component currencies of the ECU for this purpose (the
 
                                      S-4

 
"Components") shall be the currency amounts that were components of the ECU as
of the last date on which the ECU was used in the European Monetary System.
The equivalent of the ECU in U.S. dollars shall be calculated by aggregating
the U.S. dollar equivalents of the Components. The U.S. dollar equivalent of
each of the Components shall be determined by the Company or the Exchange Rate
Agent on the basis of the most recently available Market Exchange Rates for
such Components.
 
  If the official unit of any Component is altered by way of combination or
subdivision, the number of units of that currency as a Component shall be
combined or subdivided in the same proportion. If two or more Components are
consolidated into a single currency, the amounts of those currencies as
Components shall be replaced by an amount in such single currency equal to the
sum of the appropriate amounts of the consolidated component currencies
expressed in such single currency. If any Component is divided into two or
more currencies, the amount of the original component currency shall be
replaced by the appropriate amounts of such two or more currencies, the sum of
which shall be equal to the amount of the original component currency.
 
  All determinations referred to above made by the Company or its agent shall
be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on holders of Notes.
 
INTEREST AND PRINCIPAL PAYMENTS
 
  Interest will be payable to the person in whose name the Note is registered
at the close of business on the applicable Record Date; provided that the
interest payable upon maturity, redemption or repayment (whether or not the
date of maturity, redemption or repayment is an Interest Payment Date) will be
payable to the person to whom principal is payable. The initial interest
payment on a Note will be made on the first Interest Payment Date falling
after the date the Note is issued; provided, however, that payments of
interest (or, in the case of an Amortizing Note, principal and interest) on a
Note issued less than 15 calendar days before an Interest Payment Date will be
paid on the next succeeding Interest Payment Date to the holder of record on
the Record Date with respect to such succeeding Interest Payment Date, unless
otherwise specified in the applicable Pricing Supplement.
 
  U.S. dollar payments of interest, other than interest payable at maturity
(or on the date of redemption or repayment, if a Note is redeemed or repaid by
the Company prior to maturity), will be made by check mailed to the address of
the person entitled thereto as shown on the Note register. U.S. dollar
payments of principal, premium, if any, and interest upon maturity, redemption
or repayment will be made in immediately available funds against presentation
and surrender of the Note. Notwithstanding the foregoing, (a) the Depository,
as holder of Book-Entry Notes, shall be entitled to receive payments of
interest by wire transfer of immediately available funds and (b) a holder of
U.S. $10,000,000 (or the equivalent) or more in aggregate principal amount of
Certificated Notes having the same Interest Payment Date shall be entitled to
receive payments of interest by wire transfer of immediately available funds
upon written request to the Paying Agent, provided such request is received
not later than 15 calendar days prior to the applicable Interest Payment Date.
If a Note is denominated in a Specified Currency other than U.S. dollars,
payments of interest thereon will be made by wire transfer of immediately
available funds to an account maintained by the holder thereof with a bank
located outside the United States if appropriate wire transfer instructions
have been received by the Paying Agent in writing not less than 15 calendar
days prior to the applicable Interest Payment Date. If such wire transfer
instructions are not so received, such interest payments will be made by check
payable in such Specified Currency mailed to the address of the person
entitled thereto as such address shall appear in the Note register.
 
  Unless otherwise specified in the applicable Pricing Supplement, a
beneficial owner of Book-Entry Notes denominated in a Specified Currency
electing to receive payments of principal, premium, if any, or interest in a
currency other than U.S. dollars must notify the participant through which its
interest is held on or prior to the applicable Record Date, in the case of a
payment of interest, and on or prior to the sixteenth day prior to maturity,
in the case of principal or premium of such beneficial owner's election to
receive all or a portion of such payment in a Specified Currency. Such
participant must notify the Depository (as defined below) of such election on
or prior to the third Business Day after such Record Date. The Depository will
notify the Paying Agent of such
 
                                      S-5

 
election on or prior to the fifth Business Day after such Record Date. If
complete instructions are received by the participant and forwarded by the
participant to the Depository, and by the Depository to the Paying Agent, on
or prior to such dates, the beneficial owner will receive payments in the
Specified Currency by wire transfer of immediately available funds to an
account maintained by the payee with a bank located outside the United States;
otherwise the beneficial owner will receive payments in U.S. dollars.
 
  Certain Notes, including Discount Notes, may be considered to be issued with
original issue discount, which must be included in income for United States
federal income tax purposes at a constant rate. See "United States Income Tax
Consequences to Holders--Original Issue Discount" below. Unless otherwise
specified in the applicable Pricing Supplement, if the principal of any
Discount Note is declared to be due and payable immediately as described under
"Description of Debt Securities--Events of Default" in the Prospectus, the
amount of principal due and payable with respect to such Note shall be limited
to the sum of (a) the aggregate principal amount of such Note multiplied by
the sum of its Issue Price (expressed as a percentage of the aggregate
principal amount) plus (b) the original issue discount amortized from the date
of issue to the date of declaration, which amortization shall be calculated
using the "interest method" (computed in accordance with generally accepted
accounting principles in effect on the date of declaration). Special
considerations applicable to any such Notes will be set forth in the
applicable Pricing Supplement.
 
FIXED RATE NOTES
 
  Each Fixed Rate Note will bear interest from the date of issuance at the
annual rate stated on the face thereof, except as described below under "--
Extension of Maturity," until the principal thereof is paid or made available
for payment. Unless otherwise specified in the applicable Pricing Supplement,
such interest will be computed on the basis of a 360-day year of twelve 30-day
months. Unless otherwise specified in the applicable Pricing Supplement,
payments of interest on Fixed Rate Notes other than Amortizing Notes will be
made semiannually on each November 15 and May 15 and at maturity or upon any
earlier redemption or repayment. Unless otherwise specified in the applicable
Pricing Supplement, payments of principal of and interest on Amortizing Notes,
which are securities on which payments of principal and interest are made in
equal installments over the life of the security, will be made either
quarterly on each February 15, May 15, August 15 and November 15 or
semiannually on each November 15 and May 15, as set forth in the applicable
Pricing Supplement, and at maturity or upon any earlier redemption or
repayment. Payments with respect to Amortizing Notes will be applied first to
interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. A table setting forth repayment information in
respect of each Amortizing Note will be provided to the original purchaser and
will be available, upon request, to subsequent holders.
 
  If any Interest Payment Date for any Fixed Rate Note falls on a day that is
not a Business Day, the interest payment shall be made on the next day that is
a Business Day, and no interest on such payment shall accrue for the period
from and after the Interest Payment Date. If the maturity (or date of
redemption or repayment) of any Fixed Rate Note falls on a day that is not a
Business Day, the payment of interest and principal (and premium, if any) will
be made on the next succeeding Business Day, and no interest on such payment
shall accrue for the period from and after the maturity date (or date of
redemption or repayment).
 
  Interest payments for Fixed Rate Notes will include accrued interest from
and including the date of issue or from and including the last date in respect
of which interest has been paid, as the case may be, to, but excluding, the
Interest Payment Date or the date of maturity or earlier redemption or
repayment, as the case may be. The interest rates the Company will agree to
pay on newly issued Fixed Rate Notes are subject to change without notice by
the Company from time to time, but no such change will affect any Fixed Rate
Notes theretofore issued or that the Company has agreed to issue.
 
                                      S-6

 
FLOATING RATE NOTES
 
  Each Floating Rate Note will bear interest from the date of issuance until
the principal thereof is paid or made available for payment at a rate
determined by reference to an interest rate basis or formula (the "Base
Rate"), which may be adjusted by a Spread and/or Spread Multiplier (each as
defined below). The applicable Pricing Supplement will designate one or more
of the following Base Rates as applicable to each Floating Rate Note: (a) the
CD Rate (a "CD Rate Note"), (b) the Commercial Paper Rate (a "Commercial Paper
Rate Note"), (c) the Federal Funds Rate (a "Federal Funds Rate Note"), (d)
LIBOR (a "LIBOR Note"), (e) the Prime Rate (a "Prime Rate Note"), (f) the
Treasury Rate (a "Treasury Rate Note"), (g) the CMT Rate (a "CMT Rate Note")
or (h) such other Base Rate or interest rate formula as is set forth in such
Pricing Supplement and in such Floating Rate Note. The "Index Maturity" for
any Floating Rate Note is the period of maturity of the instrument or
obligation from which the Base Rate is calculated and will be specified in the
applicable Pricing Supplement.
 
  Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Floating Rate Note will be calculated by reference to
the specified Base Rate (i) plus or minus the Spread, if any, and/or (ii)
multiplied by the Spread Multiplier, if any. The "Spread" is the number of
basis points (one one-hundredth of a percentage point) specified in the
applicable Pricing Supplement to be added to or subtracted from the Base Rate
for such Floating Rate Note, and the "Spread Multiplier" is the percentage
specified in the applicable Pricing Supplement to be applied to the Base Rate
for such Floating Rate Note.
 
  As specified in the applicable Pricing Supplement, a Floating Rate Note may
also have either or both of the following: (i) a maximum limitation, or
ceiling, on the rate of interest which may accrue during any interest period
("Maximum Interest Rate"); and (ii) a minimum limitation, or floor, on the
rate of interest which may accrue during any interest period ("Minimum
Interest Rate"). In addition to any Maximum Interest Rate that may be
applicable to any Floating Rate Note pursuant to the above provisions, the
interest rate on a Floating Rate Note will in no event be higher than the
maximum rate permitted by California law, as the same may be modified by
United States law of general application.
 
  Unless otherwise specified in the applicable Pricing Supplement, the rate of
interest on each Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually (such period being the "Interest Reset
Period" for such Note, and the first day of each Interest Reset Period being
an "Interest Reset Date"), as specified in the applicable Pricing Supplement.
Unless otherwise specified in the Pricing Supplement, the Interest Reset Date
will be, in the case of Floating Rate Notes which reset daily, each Business
Day; in the case of Floating Rate Notes (other than Treasury Rate Notes) which
reset weekly, the Wednesday of each week; in the case of Treasury Rate Notes
which reset weekly, the Tuesday of each week, except as provided below; in the
case of Floating Rate Notes which reset monthly, the third Wednesday of each
month; in the case of Floating Rate Notes which reset quarterly, the third
Wednesday of March, June, September and December; in the case of Floating Rate
Notes which reset semiannually, the third Wednesday of two months of each
year, as specified in the applicable Pricing Supplement; and in the case of
Floating Rate Notes which reset annually, the third Wednesday of one month of
each year, as specified in the applicable Pricing Supplement; provided,
however, that (a) the interest rate in effect from the date of issue to the
first Interest Reset Date with respect to a Floating Rate Note will be the
initial interest rate set forth in the applicable Pricing Supplement (the
"Initial Interest Rate") and (b) unless otherwise specified in the applicable
Pricing Supplement, the interest rate in effect for the ten calendar days
immediately prior to maturity, redemption or repayment will be that in effect
on the tenth calendar day preceding such maturity, redemption or repayment
date. If any Interest Reset Date for any Floating Rate Note would otherwise be
a day that is not a Business Day, such Interest Reset Date shall be postponed
to the next succeeding Business Day, except that in the case of a LIBOR Note,
if such Business Day is in the next succeeding calendar month, such Interest
Reset Date shall be the immediately preceding Business Day.
 
  Except as provided below, unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable: (i) in
the case of Floating Rate Notes with a daily, weekly or monthly Interest Reset
Date, on the third Wednesday of each month or on the third Wednesday of March,
June, September
 
                                      S-7

 
and December, as specified in the applicable Pricing Supplement; (ii) in the
case of Floating Rate Notes with a quarterly Interest Reset Date, on the third
Wednesday of March, June, September and December; (iii) in the case of
Floating Rate Notes with a semiannual Interest Reset Date, on the third
Wednesday of the two months specified in the applicable Pricing Supplement;
and (iv) in the case of Floating Rate Notes with an annual Interest Reset
Date, on the third Wednesday of the month specified in the applicable Pricing
Supplement. If any Interest Payment Date for any Floating Rate Note would fall
on a day that is not a Business Day with respect to such Floating Rate Note,
such Interest Payment Date will be postponed to the following day that is a
Business Day with respect to such Floating Rate Note, except that, in the case
of a LIBOR Note, if such Business Day is in the next succeeding calendar
month, such Interest Payment Date shall be the immediately preceding day that
is a Business Day with respect to such LIBOR Note, and no interest on such
payment shall accrue for the period from and after the Interest Payment Date.
If the maturity date or any earlier redemption or repayment date of a Floating
Rate Note would fall on a day that is not a Business Day, the payment of
principal, premium, if any, and interest will be made on the next succeeding
Business Day, and no interest on such payment shall accrue for the period from
and after such maturity, redemption or repayment date, as the case may be.
 
  Unless otherwise specified in the applicable Pricing Supplement, interest
payments for Floating Rate Notes shall be the amount of interest accrued from
and including the date of issue or from and including the last date to which
interest has been paid to, but excluding, the Interest Payment Date or
maturity date or date of redemption or repayment.
 
  With respect to a Floating Rate Note, accrued interest shall be calculated
by multiplying the principal amount of such Floating Rate Note by an accrued
interest factor. Such accrued interest factor will be computed by adding the
interest factors calculated for each day in the period for which interest is
being paid. Unless otherwise specified in the applicable Pricing Supplement,
the interest factor for each such day is computed by dividing the interest
rate applicable to such day by 360, in the case of CD Rate Notes, Commercial
Paper Rate Notes, Federal Funds Rate Notes, LIBOR Notes and Prime Rate Notes
or by the actual number of days in the year, in the case of Treasury Rate
Notes and CMT Rate Notes. All percentages used in or resulting from any
calculation of the rate of interest on a Floating Rate Note will be rounded,
if necessary, to the nearest one hundred-thousandth of a percentage point,
with five one-millionths of a percentage point rounded upward, and all dollar
amounts used in or resulting from such calculation on Floating Rate Notes will
be rounded to the nearest cent, with one-half cent rounded upward. The
interest rate in effect on any Interest Reset Date will be the applicable rate
as reset on such date. The interest rate applicable to any other day is the
interest rate from the immediately preceding Interest Reset Date (or, if none,
the Initial Interest Rate).
 
  Unless otherwise stated in the applicable Pricing Supplement, the
calculation agent (the "Calculation Agent") with respect to any issue of
Floating Rate Notes shall be Chase Trust Company of California. Upon the
request of the holder of any Floating Rate Note, the Calculation Agent will
provide the interest rate then in effect and, if determined, the interest rate
that will become effective on the next Interest Reset Date with respect to
such Floating Rate Note.
 
  The "Interest Determination Date" pertaining to an Interest Reset Date for
CD Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes, CMT Rate
Notes and Prime Rate Notes will be the second Business Day next preceding such
Interest Reset Date. The Interest Determination Date pertaining to an Interest
Reset Date for LIBOR Notes will be the second London Banking Day preceding
such Interest Reset Date. The Interest Determination Date pertaining to an
Interest Reset Date for Treasury Rate Notes will be the day of the week in
which such Interest Reset Date falls on which Treasury bills would normally be
auctioned. Treasury bills are normally sold at auction on Monday of each week,
unless that day is a legal holiday, in which case the auction is normally held
on the following Tuesday, but such auction may be held on the preceding
Friday. If, as the result of a legal holiday, an auction is so held on the
preceding Friday, such Friday will be the Interest Determination Date
pertaining to the Interest Reset Date occurring in the next succeeding week.
If an auction falls on a day that is an Interest Reset Date, such Interest
Reset Date will be the next following Business Day.
 
                                      S-8

 
  Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date," where applicable, pertaining to an Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date or, if such day is not a Business Day, the next succeeding
Business Day, or (ii) the Business Day preceding the applicable Interest
Payment Date or Maturity Date, as the case may be.
 
  Interest rates will be determined by the Calculation Agent as follows:
 
 CD Rate Notes
 
  CD Rate Notes will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CD Rate Notes and in the applicable Pricing Supplement.
 
  Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Determination Date, the rate on such date
for negotiable certificates of deposit having the Index Maturity designated in
the applicable Pricing Supplement as published by the Board of Governors of
the Federal Reserve System in "Statistical Release H.15(519), Selected
Interest Rates," or any successor publication of the Board of Governors of the
Federal Reserve System ("H.15(519)"), under the heading "CDs (Secondary
Market)," or, if not so published by 9:00 A.M., New York City time, on the
Calculation Date pertaining to such Interest Determination Date, the CD Rate
will be the rate on such Interest Determination Date for negotiable
certificates of deposit of the Index Maturity designated in the applicable
Pricing Supplement as published by the Federal Reserve Bank of New York in its
daily statistical release "Composite 3:30 P.M. Quotations for U.S. Government
Securities" (the "Composite Quotations") under the heading "Certificates of
Deposit." If such rate is not yet published in either H.15(519) or the
Composite Quotations by 3:00 P.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the CD Rate on such Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the secondary market offered rates as of 10:00 A.M., New
York City time, on such Interest Determination Date for certificates of
deposit in the denomination of $5,000,000 with a remaining maturity closest to
the Index Maturity designated in the Pricing Supplement of three leading
nonbank dealers in negotiable U.S. dollar certificates of deposit in The City
of New York selected by the Calculation Agent for negotiable certificates of
deposit of major United States money center banks; provided, however, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting as
set forth above, the CD Rate in effect for the applicable period will be the
same as the CD Rate for the immediately preceding Interest Reset Period (or,
if there was no such Interest Reset Period, the rate of interest payable on
the CD Rate Notes for which such CD Rate is being determined shall be the
Initial Interest Rate).
 
 Commercial Paper Rate Notes
 
  Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Commercial Paper Rate Notes
and in the applicable Pricing Supplement.
 
  Unless otherwise specified in the applicable Pricing Supplement, "Commercial
Paper Rate" means, with respect to any Interest Determination Date, the Money
Market Yield (as defined below) of the rate on such date for commercial paper
having the Index Maturity specified in the applicable Pricing Supplement, as
such rate shall be published in H.15(519), under the heading "Commercial
Paper--Nonfinancial." In the event that such rate is not published by 9:00
A.M., New York City time, on the Calculation Date pertaining to such Interest
Determination Date, then the Commercial Paper Rate shall be the Money Market
Yield of the rate on such Interest Determination Date for commercial paper of
the specified Index Maturity as published in Composite Quotations under the
heading "Commercial Paper." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not yet available in either H.15(519) or
Composite Quotations, then the Commercial Paper Rate shall be the Money Market
Yield of the arithmetic mean of the offered rates as of 11:00 A.M., New York
City time, on such Interest Determination Date of three leading dealers of
commercial paper in The City of New York
 
                                      S-9

 
selected by the Calculation Agent for commercial paper of the specified Index
Maturity, placed for an industrial issuer whose bond rating is "AA," or the
equivalent, from a nationally recognized statistical rating agency; provided,
however, that if the dealers selected as aforesaid by the Calculation Agent
are not quoting offered rates as mentioned in this sentence, the Commercial
Paper Rate in effect for the applicable period will be the same as the
Commercial Paper Rate for the immediately preceding Interest Reset Period (or,
if there was no such Interest Reset Period, the rate of interest payable on
the Commercial Paper Rate Notes for which such Commercial Paper Rate is being
determined shall be the Initial Interest Rate).
 
  "Money Market Yield" shall be a yield calculated in accordance with the
following formula:
 
                         Money Market Yield =   D X 360
                                              -----------  X 100
                                              360-(D X M)
 
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the period for which interest is being calculated.
 
 Federal Funds Rate Notes
 
  Federal Funds Rate Notes will bear interest at the interest rate (calculated
with reference to the Federal Funds Rate and the Spread and/or Spread
Multiplier, if any, and subject to the Minimum Interest Rate and the Maximum
Interest Rate, if any) specified in the Federal Funds Rate Notes and in the
applicable Pricing Supplement.
 
  Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" means, with respect to any Interest Determination Date,
the rate on such date for Federal funds as published in H.15(519) under the
heading "Federal Funds (Effective)," or, if not so published by 9:00 A.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the Federal Funds Rate will be the rate on such Interest
Determination Date as published in the Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not yet published in either
H.15(519) or the Composite Quotations by3:00 P.M., New York City time, on the
Calculation Date pertaining to such Interest Determination Date, the Federal
Funds Rate for such Interest Determination Date will be calculated by the
Calculation Agent and will be the arithmetic mean of the rates for the last
transaction in overnight Federal funds, as of 9:00 A.M., New York City time,
on such Interest Determination Date, arranged by three leading brokers of
Federal funds transactions in The City of New York selected by the Calculation
Agent; provided, however, that if the brokers selected as aforesaid by the
Calculation Agent are not quoting as set forth above, the Federal Funds Rate
in effect for the applicable period will be the same as the Federal Funds Rate
for the immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the rate of interest payable on the Federal Funds Rate
Notes for which such Federal Funds Rate is being determined shall be the
Initial Interest Rate).
 
 LIBOR Notes
 
  LIBOR Notes will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the LIBOR Notes and in the applicable Pricing Supplement.
 
  Unless otherwise specified in the applicable Pricing Supplement, "LIBOR" for
each Interest Determination Date will be determined by the Calculation Agent
as follows:
 
    (i) As of the Interest Determination Date, LIBOR will be either: (a) if
  "LIBOR Reuters" is specified in the applicable Pricing Supplement, the
  arithmetic mean of the offered rates (unless the specified Designated LIBOR
  Page (as defined below) by its terms provides only for a single rate, in
  which case such single rate shall be used) for deposits in the Index
  Currency having the Index Maturity designed in the applicable Pricing
  Supplement, commencing on such Interest Determination Date, that appear on
  the Designated LIBOR Page as of 11:00 A.M., London time, on that Interest
  Determination Date, if at least
 
                                     S-10

 
  two such offered rates appear (unless, as aforesaid, only a single rate is
  required) on such Designated LIBOR Page, or (b) if "LIBOR Telerate" is
  specified in the applicable Pricing Supplement, the rate for deposits in
  the Index Currency having the Index Maturity designated in the applicable
  Pricing Supplement, commencing on such Interest Determination Date, that
  appears on the Designated LIBOR Page as of 11:00 A.M., London time, on that
  Interest Determination Date. If fewer than two offered rates appear (if
  "LIBOR Reuters" is specified in the applicable Pricing Supplement), or no
  rate appears (if "LIBOR Telerate" is specified in the applicable Pricing
  Supplements), LIBOR in respect of the related Interest Determination Date
  will be determined as if the parties had specified the rate described in
  clause (ii) below.
 
    (ii) With respect to an Interest Determination Date on which fewer than
  two offered rates appear (if "LIBOR Reuters" is specified in the applicable
  Pricing Supplement) or no rate appears (if "LIBOR Telerate" is specified in
  the applicable Pricing Supplement), the Calculation Agent will request the
  principal London offices of each of four major reference banks in the
  London interbank market, as selected by the Calculation Agent, to provide
  the Calculation Agent with its offered quotation for deposits in the Index
  Currency for the period of the Index Maturity designated in the applicable
  Pricing Supplement, commencing on the second London Banking Day immediately
  following such Interest Determination Date, to prime banks in the London
  interbank market at approximately 11:00 A.M., London time, on such Interest
  Determination Date and in a principal amount of not less than $1,000,000
  (or the equivalent in the Index Currency, if the Index Currency is not the
  U.S. dollar) that is representative for a single transaction in such Index
  Currency in such market at such time. If at least two such quotations are
  provided, LIBOR determined on such Interest Determination Date will be the
  arithmetic mean of such quotations. If fewer than two quotations are
  provided, LIBOR determined on such Interest Determination Date will be the
  arithmetic mean of the rates quoted at approximately 11:00 A.M. (or such
  other time specified in the applicable Pricing Supplement), in the
  applicable principal financial center for the country of the Index Currency
  on such Interest Determination Date, by three major banks in such principal
  financial center selected by the Calculation Agent for loans in the Index
  Currency to leading European banks, having the Index Maturity designated in
  the applicable Pricing Supplement and in a principal amount of not less
  than $1,000,000 commencing on the second London Banking Day immediately
  following such Interest Determination Date (or the equivalent in the Index
  Currency, if the Index Currency is not the U.S. dollar) that is
  representative for a single transaction in such Index Currency in such
  market at such time; provided, however, that if the banks so selected by
  the Calculation Agent are not quoting as mentioned in this sentence, LIBOR
  in effect for the applicable period will be the same as LIBOR for the
  immediately preceding Interest Reset Period (or, if there was no such
  Interest Reset Period, the rate of interest payable on the LIBOR Notes for
  which such LIBOR is being determined shall be the Initial Interest Rate).
 
  "Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable
Pricing Supplement, the Index Currency shall be U.S. dollars.
 
  "Designated LIBOR Page" means either (a) if "LIBOR Reuters" is designated in
the applicable Pricing Supplement, the display on the Reuters Monitor Money
Rates Service for the purpose of displaying the London interbank rates of
major banks for the applicable Index Currency, or (b) if "LIBOR Telerate" is
designated in the applicable Pricing Supplement, the display on the Dow Jones
Telerate Service for the purpose of displaying the London interbank rates of
major banks for the applicable Index Currency. If neither LIBOR Reuters nor
LIBOR Telerate is specified in the applicable Pricing Supplement, LIBOR for
the applicable Index Currency will be determined as if LIBOR Telerate (and, if
the U.S. dollar is the Index Currency, Page 3750) had been specified.
 
                                     S-11

 
 Prime Rate Notes
 
  Prime Rate Notes will bear interest at the interest rate (calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any,
and subject to the Minimum Interest Rate and the Maximum Interest Rate, if
any) specified in the Prime Rate Notes and in the applicable Pricing
Supplement.
 
  Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date, the rate set
forth in H.15(519) for such date opposite the caption "Bank Prime Loan." If
such rate is not yet published by 9:00 A.M., New York City time, on the
Calculation Date pertaining to such Interest Determination Date, the Prime
Rate for such Interest Determination Date will be the arithmetic mean of the
rates of interest publicly announced by each bank named on the Reuters Screen
USPrime 1 Page (as defined below) as such bank's prime rate or base lending
rate as in effect for such Interest Determination Date as quoted on the
Reuters Screen USPrime 1 Page on such Interest Determination Date, or, if
fewer than four such rates appear on the Reuters Screen USPrime 1 Page for
such Interest Determination Date, the rate shall be the arithmetic mean of the
prime rates quoted on the basis of the actual number of days in the year
divided by 360 as of the close of business on such Interest Determination Date
by at least two of the three major money center banks in The City of New York
selected by the Calculation Agent from which quotations are requested. If
fewer than two quotations are provided, the Prime Rate shall be calculated by
the Calculation Agent and shall be determined as the arithmetic mean on the
basis of the prime rates in The City of New York by the appropriate number of
substitute banks or trust companies organized and doing business under the
laws of the United States, or any State thereof, in each case having total
equity capital of at least U.S. $500 million and being subject to supervision
or examination by federal or state authority, selected by the Calculation
Agent to quote such rate or rates; provided, however, that if the banks or
trust companies selected as aforesaid by the Calculation Agent are not quoting
as set forth above, the "Prime Rate" in effect for the applicable period will
be the same as the Prime Rate for the immediately preceding Interest Reset
Period (or, if there was no such Interest Reset Period, the rate of interest
payable on the Prime Rate Notes for which such Prime Rate is being determined
shall be the Initial Interest Rate). "Reuters Screen USPrime 1 Page" means the
display designated as Page "USPrime 1" on the Reuters Monitor Money Rates
Services (or such other page as may replace the USPrime 1 Page on that service
for the purpose of displaying prime rates or base lending rates of major
United States banks) .
 
 Treasury Rate Notes
 
  Treasury Rate Notes will bear interest at the interest rate (calculated with
reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any, and subject to the Minimum Interest Rate and the Maximum Interest Rate,
if any) specified in the Treasury Rate Notes and in the applicable Pricing
Supplement.
 
  Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the
rate for the auction held on such date of direct obligations of the United
States ("Treasury Bills") having the Index Maturity designated in the
applicable Pricing Supplement, as published in H.15(519) under the heading
"Treasury Bills--auction average (investment)" or, if not so published by 9:00
A.M., New York City time, on the Calculation Date pertaining to such Interest
Determination Date, the auction average rate on such Interest Determination
Date (expressed as a bond equivalent, on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) as otherwise announced by
the United States Department of the Treasury. In the event that the results of
the auction of Treasury Bills having the Index Maturity designated in the
applicable Pricing Supplement are not published or reported as provided above
by 3:00 P.M., New York City time, on such Calculation Date or if no such
auction is held on such Interest Determination Date, then the Treasury Rate
shall be calculated by the Calculation Agent and shall be a yield to maturity
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) calculated using the arithmetic mean
of the secondary market bid rates, as of approximately 3:30 P.M., New York
City time, on such Interest Determination Date, of three leading primary
United States government securities dealers selected by the Calculation Agent
for the issue of Treasury Bills with a remaining maturity closest to the Index
Maturity designated in the applicable Pricing Supplement; provided, however,
that if the dealers selected as aforesaid by the Calculation Agent are not
quoting bid rates as mentioned in this
 
                                     S-12

 
sentence, the Treasury Rate for such Interest Reset Date will be the same as
the Treasury Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the
Treasury Rate Notes for which the Treasury Rate is being determined shall be
the Initial Interest Rate).
 
 CMT Rate Notes
 
  CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CMT Rate Notes and in the applicable Pricing Supplement.
 
  Unless otherwise indicated in an applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Determination Date, the rate displayed on
the Designated CMT Telerate Page (as defined below) under the caption
"...Treasury Constant Maturities...Federal Reserve Board Release
H.15...Mondays Approximately 3:45 p.m.," under the column for the Designated
CMT Maturity Index (as defined below) for (i) if the Designated CMT Telerate
Page is 7055, the rate on such Interest Determination Date and (ii) if the
Designated CMT Telerate Page is 7052, the week or the month, as applicable,
ended immediately preceding the week in which the related Interest
Determination Date occurs. If such rate is no longer displayed on the relevant
page, or if not displayed by 3:00 p.m., New York City time, on the related
Calculation Date, then the CMT Rate for such Interest Determination Date will
be such Treasury Constant Maturity rate for the Designated CMT Maturity Index
as published in the relevant H.15(519). If such rate is no longer published,
or, if not published by 3:00 p.m., New York City time, on the related
Calculation Date, then the CMT Rate for such Interest Determination Date will
be such Treasury Constant Maturity rate for the Designated CMT Maturity Index
(or other United States Treasury rate for the Designated CMT Maturity Index)
for the Interest Determination Date with respect to such Interest Reset Date
as may then be published by either the Board of Governors of the Federal
Reserve System or the United States Department of the Treasury that the
Calculation Agent determines to be comparable to the rate formerly displayed
on the Designated CMT Telerate Page and published in the relevant H.15(519).
If such information is not provided by 3:00 p.m., New York City time, on the
related Calculation Date, then the CMT Rate for the Interest Determination
Date will be calculated by the Calculation Agent and will be a yield to
maturity, based on the arithmetic mean of the secondary market closing offer
side prices as of approximately 3:30 p.m., New York City time on the Interest
Determination Date reported, according to their written records, by three
leading primary United States government securities dealers (each, a
"Reference Dealer") in The City of New York (which may include the Agents or
their affiliates) selected by the Calculation Agent (from five such Reference
Dealers selected by the Calculation Agent, after consultation with the
Company, and eliminating the highest quotation (or, in the event of equality,
one of the highest) and the lowest quotation (or, in the event of equality,
one of the lowest)), for the most recently issued direct noncallable fixed
rate obligations of the United States ("Treasury notes") with an original
maturity of approximately the Designated CMT Maturity Index and remaining term
to maturity of not less than such Designated CMT Maturity Index minus one
year. If the Calculation Agent cannot obtain three such Treasury notes
quotations, the CMT Rate for such Interest Determination Date will be
calculated by the Calculation Agent and will be a yield to maturity based on
the arithmetic mean of the secondary market offer side prices as of
approximately 3:30 p.m., New York City time, on the Interest Determination
Date of three Reference Dealers in The City of New York (from five such
Reference Dealers selected by the Calculation Agent and eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for
Treasury notes with an original maturity of the number of years that is the
next highest to the Designated CMT Maturity Index and a remaining term to
maturity closest to the Designated CMT Maturity Index and in an amount of at
least $100,000,000. If three or four (and not five) of such Reference Dealers
are quoting as described above, then the CMT Rate will be based on the
arithmetic mean of the offer prices obtained and neither the highest nor the
lowest of such quotes will be eliminated; provided however, that if fewer than
three Reference Dealers selected by the Calculation Agent are quoting as
described herein, the CMT Rate for such Interest Reset Date will be the same
as the CMT Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the
CMT Rate Notes for which the CMT Rate is being
 
                                     S-13

 
determined shall be the Initial Interest Rate). If two Treasury notes with an
original maturity as described in the second preceding sentence have remaining
terms to maturity equally close to the Designated CMT Maturity Index, the
quotes for the Treasury note with the shorter remaining term to maturity will
be used.
 
  "Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in an applicable Pricing Supplement (or any
other page as may replace such page on that service for
the purpose of displaying Treasury Constant Maturities as reported in
H.15(519)), for the purpose of displaying Treasury Constant Maturities as
reported in H.15(519). If no such page is specified in the applicable Pricing
Supplement, the Designated CMT Telerate Page shall be 7052, for the most
recent week.
 
  "Designated CMT Maturity Index" shall be the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in an applicable Pricing Supplement with respect to which the CMT
Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be two years.
 
RENEWABLE NOTES
 
  The Company may also issue from time to time variable rate renewable notes
(the "Renewable Notes") that will bear interest at the interest rate
(calculated with reference to a Base Rate and the Spread and/or Spread
Multiplier, if any, and subject to the Minimum Interest Rate and the Maximum
Interest Rate, if any) specified in the Renewable Notes and in the applicable
Pricing Supplement.
 
  The Renewable Notes will mature on an Interest Payment Date as specified in
the applicable Pricing Supplement (the "Initial Maturity Date"), unless the
maturity of all or any portion of the principal amount thereof is extended in
accordance with the procedures described below. On the Interest Payment Dates
in November 15 and May 15 in each year (unless different Interest Payment
Dates are specified in the applicable Pricing Supplement) (each such Interest
Payment Date, an "Election Date"), the maturity of the Renewable Notes will be
extended to the Interest Payment Date occurring twelve months after such
Election Date, unless the holder thereof elects to terminate the automatic
extension of the maturity of the Renewable Notes or of any portion thereof
having a principal amount of $1,000 or any multiple of $1,000 in excess
thereof by delivering a notice of such effect to the Paying Agent not less
than nor more than a number of days to be specified in the applicable Pricing
Supplement prior to such Election Date. Such option may be exercised with
respect to less than the entire principal amount of the Renewable Notes;
provided that the principal amount for which such option is not exercised is
at least $1,000 or any larger amount that is an integral multiple of $1,000.
Notwithstanding the foregoing, the maturity of the Renewable Notes may not be
extended beyond the Final Maturity Date, as specified in the applicable
Pricing Supplement (the "Final Maturity Date"). If the holder elects to
terminate the automatic extension of the maturity of any portion of the
principal amount of the Renewable Notes and such election is not revoked as
described below, such portion will become due and payable on the Interest
Payment Date falling six months (unless another period is specified in the
applicable Pricing Supplement) after the Election Date prior to which the
holder made such election.
 
  An election to terminate the automatic extension of maturity may be revoked
as to any portion of the Renewable Notes having a principal amount of $1,000
or any multiple of $1,000 in excess thereof by delivering a notice to such
effect to the Paying Agent on any day following the effective date of the
election to terminate the automatic extension of maturity and prior to the
date 15 days before the date on which such portion would otherwise mature.
Such a revocation may be made for less than the entire principal amount of the
Renewable Notes for which the automatic extension of maturity has been
terminated; provided that the principal amount of the Renewable Notes for
which the automatic extension of maturity has been terminated and for which
such a revocation has not been made is at least $1,000 or any larger amount
that is an integral multiple of $1,000. Notwithstanding the foregoing, a
revocation may not be made during the period from and including a Record Date
to but excluding the immediately succeeding Interest Payment Date.
 
  An election to terminate the automatic extension of the maturity of the
Renewable Notes, if not revoked as described above by the holder making the
election or any subsequent holder, will be binding upon such subsequent
holder.
 
                                     S-14

 
  The Renewable Notes may be redeemed in whole or in part at the option of the
Company on the Interest Payment Dates in each year specified in the applicable
Pricing Supplement, commencing with the Interest Payment Date specified in the
applicable Pricing Supplement, at a redemption price as stated in the
applicable Pricing Supplement, together with accrued and unpaid interest to
the date of redemption. Notwithstanding anything to the contrary in this
Prospectus Supplement, notice of redemption will be provided by mailing a
notice of such redemption to each holder by first class mail, postage prepaid,
at least 180 days prior to the date fixed for redemption.
 
EXTENSION OF MATURITY
 
  The Pricing Supplement relating to each Note (other than an Amortizing Note)
will indicate whether the Company has the option to extend the maturity of
such Note for one or more periods of one or more whole years (each an
"Extension Period") up to but not beyond the date (the "Final Maturity Date")
set forth in such Pricing Supplement. If the Company has such option with
respect to any such Note (an "Extendible Note"), the following procedures will
apply, unless modified as set forth in the applicable Pricing Supplement.
 
  The Company may exercise such option with respect to an Extendible Note by
notifying the Paying Agent of such exercise at least 45 but not more than 60
days prior to the maturity date originally in effect with respect to such Note
(the "Original Maturity Date") or, if the maturity date of such Note has
already been extended, prior to the maturity date then in effect (an "Extended
Maturity Date"). No later than 38 days prior to the Original Maturity Date or
an Extended Maturity Date, as the case may be (each, a "Maturity Date"), the
Paying Agent will mail to the holder of such Note a notice (the "Extension
Notice") relating to such Extension Period, by first class mail, postage
prepaid, setting forth (a) the election of the Company to extend the maturity
of such Note; (b) the new Extended Maturity Date; (c) the interest rate
applicable to the Extension Period (which, in the case of a Floating Rate
Note, will be calculated with reference to a Base Rate and the Spread and/or
Spread Multiplier, if any); and (d) the provisions, if any, for redemption
during the Extension Period, including the date or dates on which, the period
or periods during which and the price or prices at which such redemption may
occur during the Extension Period. Upon the mailing by the Paying Agent of an
Extension Notice to the holder of an Extendible Note, the maturity of such
Note shall be extended automatically, and, except as modified by the Extension
Notice and as described in the next paragraph, such Note will have the same
terms it had prior to the mailing of such Extension Notice.
 
  Notwithstanding the foregoing, not later than 10:00 A.M., New York City
time, on the twentieth calendar day prior to the Maturity Date then in effect
for an Extendible Note (or, if such day is not a Business Day, not later than
10:00 A.M., New York City time, on the immediately succeeding Business Day),
the Company may, at its option, revoke the interest rate provided for in the
Extension Notice and establish a higher interest rate (or, in the case of a
Floating Rate Note, a higher Spread and/or Spread Multiplier, if any) for the
Extension Period by causing the Paying Agent to send notice of such higher
interest rate (or, in the case of a Floating Rate Note, a higher Spread and/or
Spread Multiplier, if any) to the holder of such Note by first class mail,
postage prepaid, or by such other means as shall be agreed between the Company
and the Paying Agent. Such notice shall be irrevocable. All Extendible Notes
with respect to which the Maturity Date is extended in accordance with an
Extension Notice will bear such higher interest rate (or, in the case of a
Floating Rate Note, a higher Spread and/or Spread Multiplier, if any) for the
Extension Period, whether or not tendered for repayment.
 
  If the Company elects to extend the maturity of an Extendible Note, the
holder of such Note will have the option to require the Company to repay such
Note on the Maturity Date then in effect at a price equal to the principal
amount thereof plus any accrued and unpaid interest to such date. In order for
an Extendible Note to be repaid on such Maturity Date, the holder thereof must
follow the procedures set forth below under "--Repayment at the Noteholders'
Option; Repurchase" for optional repayment, except that the period for
delivery of such Note or notification to the Paying Agent shall be at least 25
but not more than 35 days prior to the Maturity Date then in effect and except
that a holder who has tendered an Extendible Note for repayment pursuant to an
Extension Notice may, by written notice to the Paying Agent, revoke any such
tender for repayment until 3:00 P.M., New York City time, on the twentieth
calendar day prior to the Maturity Date then in effect (or, if such day is not
a Business Day, until 3:00 P.M., New York City time, on the immediately
succeeding Business Day).
 
                                     S-15

 
INDEXED NOTES
 
  The Notes may be issued, from time to time, as Notes of which the principal
amount payable on a date more than nine months from the date of original issue
(the "Stated Maturity") and/or on which the amount of interest payable on an
Interest Payment Date will be determined by reference to currencies, currency
units, commodity prices, financial or non-financial indices or other factors
(the "Indexed Notes"), as indicated in the applicable Pricing Supplement.
Holders of Indexed Notes may receive a principal amount at maturity that is
greater than or less than the face amount of such Notes depending upon the
fluctuation of the relative value, rate or price of the specified index.
Specific information pertaining to the method for determining the principal
amount payable at maturity, a historical comparison of the relative value,
rate or price of the specified index and the face amount of the Indexed Note
and certain additional United States federal tax considerations will be
described in the applicable Pricing Supplement.
 
BOOK-ENTRY SYSTEM
 
  Upon issuance, all Fixed Rate Book-Entry Notes having the same Issue Date,
interest rate, if any, amortization schedule, if any, maturity date and other
terms, if any, will be represented by one or more Global Securities, and all
Floating Rate Book-Entry Notes having the same Issue Date, Initial Interest
Rate, Base Rate, Interest Reset Period, Interest Payment Dates, Index
Maturity, Spread and/or Spread Multiplier, if any, Minimum Interest Rate, if
any, Maximum Interest Rate, if any, maturity date and other terms, if any,
will be represented by one or more Global Securities. Each Global Security
representing Book-Entry Notes will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York (the "Depository"), and
registered in the name of a nominee of the Depository. Book-Entry Notes will
not be exchangeable for Certificated Notes, except under the circumstances
described in the Prospectus under "Description of Debt Securities--Payment of
Interest and Exchange--Global Debt Securities and Book-Entry System."
Certificated Notes will not be exchangeable for Book-Entry Notes and will not
otherwise be issuable as Book-Entry Notes.
 
  A further description of the Depository's procedures with respect to Global
Securities representing Book-Entry Notes is set forth in the Prospectus under
"Description of Debt Securities--Payment of Interest and Exchange--Global Debt
Securities and Book-Entry System." The Depository has confirmed to the
Company, each Agent and the Trustee that it intends to follow such procedures.
 
PAYMENTS ON AMORTIZING NOTES
 
  Amortizing Notes are securities for which payments of principal and interest
are made in installments over the life of the security. Interest on each
Amortizing Note will be computed on the basis of a 360-day year of twelve 30-
day months. Payments with respect to Amortizing Notes will be applied first to
interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. A table setting forth repayment information in
respect of each Amortizing Note will be provided to the original purchaser and
will be available, upon request, to subsequent Holders.
 
OPTIONAL REDEMPTIONS
 
  The Pricing Supplement will indicate that the Notes cannot be redeemed prior
to maturity or will indicate the terms on which the Notes will be redeemable
at the option of the Company. Notice of redemption will be provided by mailing
a notice of such redemption to each holder by first class mail, postage
prepaid, at least 30 days and not more than 60 days prior to the date fixed
for redemption to the respective address of each holder as that address
appears upon the books maintained by the Paying Agent. Unless otherwise
provided in the applicable Pricing Supplement, the Notes, except for
Amortizing Notes, will not be subject to any sinking fund.
 
                                     S-16

 
REPAYMENT AT THE NOTEHOLDERS' OPTION; REPURCHASE
 
  If applicable, the Pricing Supplement relating to each Note will indicate
that the Note will be repayable at the option of the holder on a date or dates
specified prior to its maturity date and, unless otherwise specified in such
Pricing Supplement, at a price equal to 100% of the principal amount thereof,
together with accrued interest to the date of repayment, unless such Note was
issued with original issue discount, in which case the Pricing Supplement will
specify the amount payable upon such repayment.
 
  In order for such a Note to be repaid, the Paying Agent must receive at
least 30 days but not more than 60 days prior to the repayment date (i) the
Note with the form entitled "Option to Elect Repayment" on the reverse of the
Note duly completed or (ii) a telegram, telex, facsimile transmission or a
letter from a member of a national securities exchange, or the National
Association of Securities Dealers, Inc. (the "NASD") or a commercial bank or
trust company in the United States setting forth the name of the holder of the
Note, the principal amount of the Note, the principal amount of the Note to be
repaid, the certificate number or a description of the tenor and terms of the
Note, a statement that the option to elect repayment is being exercised
thereby and a guarantee that the Note to be repaid, together with the duly
completed form entitled "Option to Elect Repayment" on the reverse of the
Note, will be received by the Paying Agent not later than the third Business
Day after the date of such telegram, telex, facsimile transmission or letter,
provided, however, that such telegram, telex, facsimile transmission or letter
shall only be effective if such Note and such form duly completed are received
by the Paying Agent by such third Business Day. Except in the case of
Renewable Notes or Extendible Notes, and unless otherwise specified in the
applicable Pricing Supplement, exercise of the repayment option by the holder
of a Note will be irrevocable. The repayment option may be exercised by the
holder of a Note for less than the entire principal amount of the Note but, in
that event, the principal amount of the Note remaining outstanding after
repayment must be an Authorized Denomination.
 
  If a Note is represented by a Global Security, the Depository's nominee will
be the holder of such Note and therefore will be the only entity that can
exercise a right to repayment. In order to ensure that the Depository's
nominee will timely exercise a right to repayment with respect to a particular
Note, the beneficial owner of such Note must instruct the broker or other
direct or indirect participant through which it holds an interest in such Note
to notify the Depository of its desire to exercise a right to repayment.
Different firms have different deadlines for accepting instructions from their
customers and, accordingly, each beneficial owner should consult the broker or
other direct or indirect participant through which it holds an interest in a
Note in order to ascertain the deadline by which such an instruction must be
given in order for timely notice to be delivered to the Depository.
 
  The Company may purchase Notes at any price in the open market or otherwise.
Notes so purchased by the Company may, at the discretion of the Company, be
held or resold or surrendered to the relevant Trustee for cancellation.
 
                            FOREIGN CURRENCY RISKS
 
EXCHANGE RATES AND EXCHANGE CONTROLS
 
  Any investment in Notes that are denominated in, or the payment of which is
related to the value of, a Specified Currency other than U.S. dollars entails
significant risks that are not associated with a similar investment in a
security denominated in U.S. dollars. Such risks include, without limitation,
the possibility of significant changes in rates of exchange between the U.S.
dollar and the various foreign currencies (or composite currencies) and the
possibility of the imposition or modification of exchange controls by either
the U.S. or a foreign government. Such risks generally depend on economic and
political events over which the Company has no control. In recent years, rates
of exchange between U.S. dollars and certain foreign currencies have been
highly volatile and such volatility may be expected to continue in the future.
Fluctuations in any particular exchange rate that have occurred in the past
are not necessarily indicative, however, of fluctuations in such rate that may
occur during the term of any Note. Depreciation against the U.S. dollar of the
currency in which a Note is payable would result in a decrease in the
effective yield of such Note below its coupon rate and, in certain
 
                                     S-17

 
circumstances, could result in a loss to the investor on a U.S. dollar basis.
In addition, depending on the specific terms of a currency linked Note,
changes in exchange rates relating to any of the currencies involved may
result in a decrease in its effective yield and, in certain circumstances,
could result in a loss of all or a substantial portion of the principal of a
Note to the investor.
 
  THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND ANY PRICING
SUPPLEMENT DO NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED
IN, OR THE PAYMENT OF WHICH IS RELATED TO THE VALUE OF, A FOREIGN CURRENCY OR
A COMPOSITE CURRENCY AND THE COMPANY DISCLAIMS ANY RESPONSIBILITY TO ADVISE
PROSPECTIVE PURCHASERS OF SUCH RISKS AS THEY EXIST AT THE DATE OF THIS
PROSPECTUS SUPPLEMENT OR AS SUCH RISKS MAY CHANGE FROM TIME TO TIME.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS
TO THE RISKS ENTAILED BY AN INVESTMENT IN NOTES DENOMINATED IN, OR THE PAYMENT
OF WHICH IS RELATED TO THE VALUE OF, SPECIFIED CURRENCIES OTHER THAN U.S.
DOLLARS. SUCH NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE
UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
 
  The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and the Company
disclaims any responsibility to advise prospective purchasers who are
residents of countries other than the United States with respect to any
matters that may affect the purchase, holding or receipt of payments of
principal of, premium, if any, and interest on the Notes. Such persons should
consult their own counsel with regard to such matters.
 
  Governments have imposed from time to time, and may in the future impose,
exchange controls which could affect exchange rates as well as the
availability of a specified foreign currency at the time of payment of
principal of, premium, if any, or interest on a Note. Even if there are no
actual exchange controls, it is possible that the Specified Currency for any
particular Note not denominated in U.S. dollars would not be available when
payments on such Note are due. In that event, the Company would make required
payments in U.S. dollars on the basis of the Market Exchange Rate on the date
of such payment, or if such rate of exchange is not then available, on the
basis of the Market Exchange Rate as of the most recent practicable date. See
"Description of Notes--Payment Currency."
 
  With respect to any Note denominated in, or the payment of which is related
to the value of, a foreign currency or currency unit, the applicable Pricing
Supplement will include information with respect to applicable current
exchange controls, if any, and historic exchange rate information on such
currency or currency unit. The information contained therein shall constitute
a part of this Prospectus Supplement and is furnished as a matter of
information only and should not be regarded as indicative of the range of or
trends in fluctuations in currency exchange rates that may occur in the
future.
 
GOVERNING LAW AND JUDGMENTS
 
  The Notes will be governed by and construed in accordance with the laws of
the State of California. In the event an action based on Notes denominated in
a Specified Currency other than U.S. dollars were commenced in a court of the
United States, it is likely that such court would grant judgment relating to
the Notes only in U.S. dollars.
 
                                     S-18

 
               UNITED STATES INCOME TAX CONSEQUENCES TO HOLDERS
 
  In the opinion of Irell & Manella LLP, Los Angeles, California, counsel to
the Company, the following summary accurately describes the principal United
States federal income tax consequences of ownership and disposition of the
Notes to initial holders purchasing Notes at the "issue price" (as defined
below). This summary is based on the Internal Revenue Code of 1986, as amended
to the date hereof (the "Code"), administrative pronouncements, judicial
decisions and existing and proposed Treasury Regulations, including
regulations concerning the treatment of debt instruments issued with original
issue discount ("OID" and the "OID Regulations"), changes to any of which
subsequent to the date of this Prospectus Supplement may affect the tax
consequences described herein. This summary discusses only Notes held as
capital assets, within the meaning of Section 1221 of the Code. It does not
discuss all of the tax consequences that may be relevant to a holder in light
of his particular circumstances or to holders subject to special rules, such
as certain financial institutions, insurance companies, dealers in securities
or foreign currencies, persons holding Notes as a hedge against, or which are
hedged against, currency risks, or Holders whose functional currency (as
defined in Code Section 985) is not the United States dollar. Finally, this
summary does not discuss Discount Notes (as defined below) which qualify as
"applicable high-yield discount obligations" under Section 163(i) of the Code.
Holders of Discount Notes which are "applicable high-yield discount
obligations" may be subject to special rules. Persons considering the purchase
of Notes should consult their tax advisors with regard to the application of
the United States federal income tax laws to their particular situations as
well as any tax consequences arising under the laws of any state, local or
foreign taxing jurisdiction.
 
  As used herein, the term "Holder" means an owner of a Note that is (i) for
United States federal income tax purposes a citizen or resident of the United
States, (ii) a corporation, partnership, or other entity created or organized
in or under the laws of the United States or of any political subdivision
thereof, (iii) an estate or trust the income of which is subject to United
States federal income taxation regardless of its source, or (iv) any other
holder whose ownership of a Note is effectively connected with the conduct of
a trade or business in the United States.
 
 Payments of Interest
 
  Interest paid on a Note will generally be taxable to a Holder as ordinary
interest income at the time it accrues or is received in accordance with the
Holder's method of accounting for federal income tax purposes. Under the OID
Regulations, for accrual basis and other electing taxpayers, all payments of
interest on a Note that matures one year or less from its date of issuance
will be included in the stated redemption price at maturity of the Notes and
will be taxed in the manner described below under "--Original Issue Discount."
Special rules governing the treatment of interest paid with respect to
Discount Notes, including certain Floating Rate Notes, Foreign Currency Notes,
Currency Indexed Notes, Notes providing for payments of principal or interest
linked to commodity prices, equity indices or other factors, are discussed
below.
 
 Original Issue Discount
 
  In General. A Note which is issued for an amount less than its stated
redemption price at maturity will generally be considered to have been issued
at an original issue discount for federal income tax purposes (a "Discount
Note"). The "issue price" of a Note will equal the first price to the public
(not including bond houses, brokers or similar persons or organizations acting
in the capacity of underwriters, placement agents or wholesalers) at which a
substantial amount of the Notes is sold. The stated redemption price at
maturity of a Note will equal the sum of all payments required under the Note
other than payments of "qualified stated interest." "Qualified stated
interest" is stated interest unconditionally payable as a series of payments
in cash or property (other than debt instruments of the issuer) at least
annually during the entire term of the Note and equal to the outstanding
principal balance of the Note multiplied by a single fixed rate or certain
variable rates of interest, or certain combinations thereof. If the difference
between a Note's stated redemption price at maturity and its issue price is
less than a de minimis amount, i.e., 1/4 of 1 percent of the stated redemption
price at
 
                                     S-19

 
maturity multiplied by the number of complete years to maturity, then the Note
will not be considered to have OID. Holders of Notes with a de minimis amount
of OID will generally include such OID in income, as capital gain, on a pro
rata basis as principal payments are made on the Note. If a Note has certain
interest payment characteristics (e.g. interest holidays, interest payable in
additional Notes or stepped interest rates), then the Note may also be treated
as having OID for federal income tax purposes even if such Note was issued at
an issue price which does not otherwise result in OID.
 
  A Holder of Notes issued with OID will be required to include any qualified
stated interest payments in income in accordance with the Holder's method of
accounting for federal income tax purposes. Holders of Notes that mature more
than one year from their date of issuance will be required to include OID in
income for federal income tax purposes as it accrues, regardless of such
Holder's method of accounting, in accordance with a constant yield method
based on a compounding of interest, which may precede the receipt of cash
payments attributable to such income. The amount of OID which accrues in an
accrual period is an amount equal to the excess (if any) of (a) the product of
the Note's adjusted issue price at the beginning of such accrual period and
its yield to maturity (determined on the basis of compounding at the end of
each accrual period and appropriately adjusted to take into account the length
of the particular accrual period), over (b) the sum of the qualified stated
interest payments, if any, allocable to the accrual period. Under this method,
Holders of Discount Notes generally will be required to include in income
increasingly greater amounts of OID in successive accrual periods.
 
  Under the OID Regulations, a Note that matures one year or less from its
date of issuance will be treated as a "short-term Discount Note." In general,
a cash method Holder of a short-term Discount Note is not required to accrue
OID for United States federal income tax purposes unless it elects to do so.
Holders who make such an election, Holders who report income for federal
income tax purposes on the accrual method and certain other Holders, including
banks and dealers in securities, are required to include OID in income on such
short-term Discount Notes as it accrues on a straight-line basis, unless an
election is made to accrue the OID according to a constant yield method based
on daily compounding. In the case of a Holder who is not required and who does
not elect to include OID in income currently, any gain realized on the sale,
exchange or retirement of the short-term Discount Notes will be ordinary
income to the extent of the OID accrued on a straight-line basis (or, if
elected, according to a constant yield method based on daily compounding)
through the date of sale, exchange or retirement. In addition, such Holders
will be required to defer deductions for any interest paid on indebtedness
incurred to purchase or carry short-term Discount Notes in an amount not
exceeding the deferred interest income, until such deferred interest income is
recognized.
 
  Notes issued with OID permitting redemption prior to maturity may be subject
to rules that differ from the general rules discussed above. Purchasers of
such Discount Notes should carefully examine the applicable Pricing Supplement
and should consult their tax advisors with respect to such a feature since the
tax consequences with respect to OID will depend, in part, on the particular
terms and the particular features of the purchased Note.
 
  The OID Regulations contain aggregation rules stating that in certain
circumstances if more than one type of Note is issued as part of the same
issuance of securities to a single holder, some or all of such Notes may be
treated together as a single debt instrument with a single issue price,
maturity date, yield to maturity and stated redemption price at maturity for
purposes of calculating and accruing any OID. Unless otherwise provided in the
related Pricing Statement, the Company does not expect to treat any of the
Notes as being subject to the aggregation rules for purposes of computing OID.
 
  Floating Rate Notes. Under the OID Regulations, Floating Rate Notes are
subject to special rules whereby a Floating Rate Note will qualify as a
"variable rate debt instrument" if (a) its issue price does not exceed the
total noncontingent principal payments due under the Floating Rate Note by
more than a specified de minimis amount, (b) it provides for stated interest,
paid or compounded at least annually, 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
 
                                     S-20

 
rate, or (iv) a single fixed rate and a single objective rate that is a
qualified inverse floating rate, (c) it provides that a qualified floating
rate or objective rate in effect at any time is set at the current value of
that rate, and (d) except as provided under (a) above, it does not provide for
any contingent principal payments.
 
  A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Floating Rate Note is denominated. Although a multiple of a qualified floating
rate will generally not itself constitute a qualified floating rate, a
variable rate equal to the product of a qualified floating rate and a fixed
multiple that is greater than .65 but not more than 1.35 will constitute a
qualified floating rate. A variable rate equal to the product of a qualified
floating rate and a fixed multiple that is greater than .65 but not more than
1.35, increased or decreased by a fixed rate, will also constitute a qualified
floating rate. In addition, under the OID Regulations, two or more qualified
floating rates that can reasonably be expected to have approximately the same
values throughout the term of the Floating Rate Note (e.g., two or more
qualified floating rates with values within 25 basis points of each other as
determined on the Floating Rate Note's issue date) will be treated as a single
qualified floating rate. Notwithstanding the foregoing, a variable rate that
would otherwise constitute a qualified floating rate but which is subject to
one or more restrictions such as a maximum numerical limitation (i.e., a cap)
or a minimum numerical limitation (i.e., a floor) may, under certain
circumstances, fail to be treated as a qualified floating rate under the OID
Regulations unless such cap or floor is fixed throughout the term of the Note,
and is not reasonably expected as of the Issue Date to cause the yield on the
Floating Rate Note to differ significantly from the expected yield determined
without the restriction. An "objective rate" is a rate that is not itself a
qualified floating rate but which is determined using a single fixed formula
and which is based upon objective financial or economic information. For
example, an objective rate generally includes a rate that is based on one or
more qualified floating rates or on the yield of actively traded personal
property (within the meaning of Section 1092(d)(1)). However, an objective
rate does not include a rate based on information that is within the control
of the issuer or a related party, or that is unique to the circumstances of
the issuer or a related party. The OID Regulations also provide that other
variable interest rates may be treated as objective rates if so designated by
the IRS in the future. Despite the foregoing, a variable rate of interest on a
Floating Rate Note will not constitute an objective rate if it is reasonably
expected that the average value of such rate during the first half of the
Floating Rate Note's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of the Floating Rate Note's term. A "qualified inverse floating rate" is any
objective rate where such rate is equal to a fixed rate minus a qualified
floating rate as long as variations in the rate can reasonably be expected to
inversely reflect contemporaneous variations in the cost of newly borrowed
funds. The OID Regulations also provide that if a Floating Rate Note provides
for stated interest at a fixed rate for an initial period of less than one
year followed by a variable rate that is either a qualified floating rate or
an objective rate and if the variable rate on the Floating Rate Note's issue
date is intended to approximate the fixed rate (e.g. the value of the variable
rate on the issue date does not differ from the value of the fixed rate by
more than 25 basis points), then the fixed rate and the variable rate together
will constitute either a single qualified floating rate or objective rate, as
the case may be.
 
  If a Floating Rate Note that provides for stated interest as either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, then
any stated interest on such Note which is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually will
constitute qualified stated interest and will be taxed accordingly. Thus, a
Floating Rate Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
and that qualifies as a "variable rate debt instrument" under the OID
Regulations will generally not be treated as having been issued with OID
unless the Floating Rate Note is issued at a "true" discount (i.e., at a price
below the Note's stated principal amount) in excess of a specified de minimis
amount. OID on such a Floating Rate Note arising from "true" discount is
allocated to an accrual period using the constant yield method described above
by assuming that the variable rate is a fixed rate equal to (i) in the case of
a qualified floating rate or qualified inverse floating rate, the value as of
the issue date, of the qualified floating rate or qualified inverse floating
rate, or (ii) in the case of an objective rate (other than a qualified inverse
floating rate), a fixed rate that reflects the yield that is reasonably
expected for the Floating
 
                                     S-21

 
Rate Note. Moreover, the amount of qualified stated interest allocable to an
accrual period will be increased (or decreased) if the interest actually paid
during an accrual period exceeds (or is less than) the interest assumed to be
paid during the accrual period as determined under the rules described under
this paragraph.
 
  In general, any other Floating Rate Note that qualifies as a "variable rate
debt instrument" (i.e., one that provides for interest other than qualified
stated interest) will be converted into an "equivalent" fixed rate debt
instrument for purposes of determining the amount and accrual of OID and
qualified stated interest on the Floating Rate Note. The OID Regulations
generally require that such a Floating Rate Note be converted into an
"equivalent" fixed rate debt instrument by substituting any qualified floating
rate or qualified inverse floating rate provided for under the terms of the
Floating Rate Note with a fixed rate equal to the value of the qualified
floating rate or qualified inverse floating rate, as the case may be, as of
the Floating Rate Note's issue date. Any objective rate (other than a
qualified inverse floating rate) provided for under the terms of the Floating
Rate Note is converted into a fixed rate that reflects the yield that is
reasonably expected for the Floating Rate Note. In the case of a Floating Rate
Note that qualifies as a "variable rate debt instrument" and provides for
stated interest at a fixed rate in addition to either one or more qualified
floating rates or a qualified inverse floating rate, the fixed rate is
initially converted into a qualified floating rate (or a qualified inverse
floating rate, if the Floating Rate Note provides for a qualified inverse
floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Floating Rate Note as of the Floating Rate Note's
issue date is approximately the same as the fair market value of an otherwise
identical debt instrument that provides for either the qualified floating rate
or qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Floating Rate Note is then converted into an
"equivalent" fixed rate debt instrument in the manner described above.
 
  Once the Floating Rate Note is converted into an "equivalent" fixed rate
debt instrument pursuant to the foregoing rules, the amount of OID and
qualified stated interest, if any, are determined for the "equivalent" fixed
rate debt instrument by applying the general OID rules to the "equivalent"
fixed rate debt instrument, and a Holder of the Floating Rate Note will
account for such OID and qualified stated interest as if the Holder held the
"equivalent" fixed rate debt instrument. For each accrual period appropriate
adjustments will be made to the amount of qualified stated interest or OID
assumed to have been accrued or paid with respect to the "equivalent" fixed
rate debt instrument in the event that such amounts differ from the actual
amount of interest accrued or paid on the Floating Rate Note during the
accrual period.
 
  If a Floating Rate Note does not qualify as a "variable rate debt
instrument" under the OID Regulations, then the Floating Rate Note will be
treated as a contingent payment debt instrument. Generally, if a Floating Rate
Note is treated as a contingent payment debt instrument, interest payments
thereon will be treated as "contingent interest" payments. Under the OID
Regulations, any contingent interest on a Floating Rate Note is includible in
income in a taxable year whether or not the amount of any payment is fixed or
determinable in that year. The amount of interest included in income in any
particular accrual period is determined by estimating a projected payment
schedule for the Floating Rate Note and applying daily accrual rules similar
to those for accruing OID on Notes issued with OID (as discussed above). If
the actual amount of contingent interest payments is not equal to the
projected amount, an adjustment to income at the time of the payment must be
made to reflect the difference.
 
 Sale, Exchange or Retirement of the Notes
 
  Upon the sale, exchange or retirement of a Note, a Holder will recognize
taxable gain or loss equal to the difference between the amount realized on
the sale, exchange or retirement and such Holder's adjusted tax basis in the
Note. For these purposes, the amount realized does not include any amount
attributable to accrued interest on the Note. Amounts attributable to accrued
interest are treated as interest as described under "--Payments of Interest"
above, in accordance with the Holder's method of accounting for federal income
tax purposes as described therein. A Holder's adjusted tax basis in a Note
will equal the cost of the Note to such Holder,
 
                                     S-22

 
increased by the amount of any OID previously included in income by the Holder
with respect to such Note and reduced by any amortized premium and any
principal payments received by the Holder and, in the case of a Discount Note,
by the amounts of any other payments that do not constitute qualified stated
interest (as defined above).
 
  Subject to the discussion under "--Foreign Currency Notes" below, gain or
loss realized on the sale, exchange or retirement of a Note will be capital
gain or loss except to the extent that gain represents accrued market or
acquisition discount not previously included in the Holder's taxable income
(see "--Original Issue Discount" above), and will generally be taxable as
short-term, mid-term or long-term capital gain or loss depending on the
holding period of the Note. Capital gain or loss on a Note held by a Holder
for (i) 12 months or less will be taxable at the short-term capital gains tax
rate; (ii) more than 12 months but not more than 18 months will be taxable at
the mid-term capital gains tax rate; and (iii) more than 18 months will be
taxable at the long-term capital gains tax rate. While the marginal tax rates
for ordinary income and capital gains are currently the same for corporate
Holders, the current maximum U.S. federal marginal income tax rate on ordinary
income and short-term capital gains of individuals (39.6%) exceeds the maximum
tax rate on mid-term capital gains (28%) and on long-term capital gains (20%).
In addition, capital gain can generally be offset by any capital loss that an
individual Holder may have incurred, whereas capital loss of a corporation may
not offset ordinary income, and capital loss of an individual can only offset
ordinary income to the extent of $3,000 per year (subject to carryover).
 
 Amortizable Bond Premium
 
  If a Holder purchases a Note for an amount that is greater than the amount
payable at maturity, such Holder will be considered to have purchased such
Note with "amortizable bond premium" equal in amount to such excess, and may
elect (in accordance with applicable Code provisions) to amortize such
premium, using a constant yield method, over the term of the Note (where such
Note is not optionally redeemable prior to its maturity date). If such Note
may be optionally redeemed prior to maturity, the amount of amortizable bond
premium is determined with reference to the amount payable on maturity or, if
it results in a smaller premium attributable to the period of earlier
redemption date, with reference to the amount payable on the earlier
redemption date. A Holder who elects to amortize bond premium must reduce his
tax basis in the Note by the amount of the premium amortized in any year. An
election to amortize bond premium applies to all taxable debt obligations then
owned and thereafter acquired by the taxpayer and may be revoked only with the
consent of the Internal Revenue Service with respect to debt instruments
acquired after revocation.
 
 Foreign Currency Notes
 
  The following summary relates to Notes that are denominated in a currency or
currency unit other than the U.S. dollar ("Foreign Currency Notes").
 
  A Holder who uses the cash method of accounting for tax purposes and who
receives a payment of qualified stated interest (including any portion of
sales proceeds received with respect to accrued interest) in a foreign
currency with respect to a Foreign Currency Note will be required to include
in income the U.S. dollar value of the foreign currency payment (determined on
the date such payment is received) regardless of whether the payment is in
fact converted to U.S. dollars at that time, and such U.S. dollar value will
be the Holder's tax basis in the foreign currency. For IRS reporting purposes
the Company generally will determine such U.S. dollar value as of the date
such payment is made. A cash method Holder who receives such a payment in U.S.
dollars pursuant to an option available under such Note will be required to
include the amount of such payment in income upon receipt.
 
  In the case of accrual method Holders and Holders of Discount Notes, a
Holder will be required to include in income the U.S. dollar value of the
amount of interest income (including OID) that has accrued and is otherwise
required to be taken into account with respect to a Foreign Currency Note
during an accrual period. The U.S. dollar value of such accrued income will be
determined by translating such income at the average rate of exchange for the
accrual period or, with respect to an accrual period that spans two taxable
years, at the
 
                                     S-23

 
average rate for the partial period within the taxable year. Such Holder will
recognize ordinary income or loss, if any, with respect to the foreign
currency payment of such accrued interest (including any portion of sales
proceeds received with respect to accrued interest) on the date such income is
actually received. The amount of ordinary income or loss recognized will equal
the difference between the U.S. dollar value of the foreign currency payment
when received (or, where a Holder receives U.S. dollars, the amount of such
payment received) and the U.S. dollar value of interest income that has
accrued during the accrual period for which the payment is received (as
determined above). A Holder may elect to translate interest income (including
OID) into U.S. dollars at the spot rate on the last day of the interest
accrual period (or, in the case of an accrual period spanning two taxable
years, the spot rate on the last date of the taxable year) or, if the date of
receipt is within five business days of the last day of the interest accrual
period, the spot rate on the date of receipt. A Holder that makes such an
election must apply it consistently to all debt instruments from year to year
and cannot change the election without the consent of the Internal Revenue
Service.
 
  OID and amortizable bond premium on a Foreign Currency Note are to be
determined in the relevant foreign currency.
 
  If a Note was issued with amortizable bond premium and a Holder has made an
election to amortize such premium under Section 171 of the Code, amortizable
bond premium taken into account on a current basis shall reduce interest
income in units of the relevant foreign currency. Exchange gain or loss is
realized on such amortized bond premium with respect to any period by treating
the bond premium amortized in such period as a return of principal. Any amount
not taken into account upon a redemption prior to maturity may be deducted as
an ordinary loss. Any loss realized on the sale, redemption, exchange,
retirement or other taxable disposition of a Foreign Currency Note with
amortizable bond premium by a Holder who has not elected to amortize such
premium under Section 171 of the Code will be a capital loss to the extent of
such bond premium.
 
  A Holder's tax basis in a Foreign Currency Note will be the U.S. dollar
value of the foreign currency amount paid for such Foreign Currency Note
determined on the date of purchase. In the event of any subsequent adjustment
to such Holder's basis, the amount of the adjustment will be the U.S. dollar
value of the foreign currency amount of the adjustment determined on the date
of the adjustment. A Holder who purchases a Foreign Currency Note with
previously owned foreign currency will recognize ordinary income or loss in an
amount equal to the difference, if any, between such Holder's tax basis in the
foreign currency and the U.S. dollar fair market value of the Foreign Currency
Note on date of purchase.
 
  Gain or loss realized upon the sale, redemption, exchange, retirement or
other taxable disposition of a Foreign Currency Note that is attributable to
fluctuations in currency exchange rates will be ordinary income or loss which
will not be treated as interest income or expense, except to the extent
provided in Internal Revenue Service administrative pronouncements. Gain or
loss attributable to fluctuations in exchange rates will equal the difference
between (i) the U.S. dollar value of the foreign currency principal amount of
such Note, and any payment with respect to accrued interest, determined on the
date such payment is received or such Note is disposed of, and (ii) the U.S.
dollar amount value of the foreign currency principal amount of such Note,
determined on the date such Holder acquired such Note, and the U.S. dollar
value of the accrued interest, determined by translating such interest at the
average exchange rate for the accrual period. Such foreign currency gain or
loss will be recognized only to the extent of the total gain or loss realized
by a Holder on the sale, exchange or retirement of the Foreign Currency Note.
The source of such foreign currency gain or loss will be determined by
reference to the residence of the Holder or the "qualified business unit" of
the Holder on whose books the Note is properly reflected. Any gain or loss
realized by such a Holder in excess of such foreign currency gain or loss will
generally be capital gain or loss except, in the case of gain on a a short-
term Discount Note, to the extent of any OID not previously included in the
Holder's income.
 
  A Holder will have a tax basis in any foreign currency received on the sale,
redemption, exchange, retirement or other taxable disposition of a Foreign
Currency Note equal to the U.S. dollar value of such foreign currency,
determined at the time of such sale, redemption, exchange, retirement or other
taxable disposition. Any gain or loss realized by a Holder on a sale or other
disposition of foreign currency (including its exchange for U.S. dollars or
its use to purchase Foreign Currency Notes) will be ordinary income or loss.
 
                                     S-24

 
 Extension of Maturity
 
  The extension of the maturity of a Note pursuant to its original terms may
be viewed as a taxable exchange if the extension of the final maturity date is
considered a significant modification as defined under Section 1.1001-3 of the
Regulations.
 
 Notes Linked to Commodity Prices, Equity Indices or Other Factors
 
  The United States federal income tax consequences to a holder of the
ownership and disposition of Indexed Notes and Notes that are exchangeable
into the stock or a debt instrument of another issuer may vary depending on
the exact terms of the Notes. Such Notes will generally be treated as
contingent payment debt instruments. See the discussion of contingent payment
debt instruments in "--Floating Rate Notes," above. Holders intending to
purchase such Notes should refer to the discussion relating to taxation in the
applicable Pricing Supplement.
 
 Backup Withholding
 
  Certain noncorporate Holders may be subject to backup withholding at a rate
of 31% on payments of principal, premium and interest (including the accrual
of OID, if any) on, and the proceeds of disposition of, a Note. Backup
withholding will apply only if (i) the Holder fails to furnish its Taxpayer
Identification Number ("TIN") which, for an individual, would be his Social
Security number, (ii) the Company is notified by the Internal Revenue Service
("IRS") that the Holder furnished an incorrect TIN, (iii) the Company is
notified by IRS that the Holder has failed to properly report payments of
interest and dividends or (iv) the Holder fails to certify, under penalty of
perjury, that it has furnished a correct TIN and has not been notified by the
Internal Revenue Service that it is subject to backup withholding for failure
to report interest and dividend payments. Holders should consult their tax
advisors regarding their qualification for exemption from backup withholding
and the procedure for obtaining such an exemption if applicable.
 
  The amount of any backup withholding from a payment to a Holder will be
allowed as a credit against such Holder's United States federal income tax
liability and may entitle such Holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
 
                             PLAN OF DISTRIBUTION
 
  The Notes are being offered on a continuing basis by the Company through the
Agents, who have agreed to use reasonable efforts to solicit offers to
purchase Notes. The Company will have the sole right to accept offers to
purchase Notes and may reject any offer to purchase Notes in whole or in part.
An Agent will have the right to reject any offer to purchase Notes solicited
by it in whole or in part. Payment of the purchase price of the Notes will be
required to be made in immediately available funds. The Company will pay an
Agent, in connection with sales of Notes resulting from a solicitation made or
an offer to purchase received by such Agent, a commission ranging from .125%
to .750% of the principal amount of Notes to be sold; provided, however, that
commissions with respect to Notes maturing in thirty years or greater will be
negotiated.
 
  The Company may also sell Notes to an Agent as principal for its own account
at discounts to be agreed upon at the time of sale. Such Notes may be resold
to investors and other purchasers at prevailing market prices, or prices
related thereto at the time of such resale, as determined by the Agent, or, if
so agreed, at a fixed public offering price. In addition, the Agents may offer
the Notes they have purchased as principal to other dealers. The Agents may
sell Notes to any dealer at a discount and, unless otherwise specified in the
applicable Pricing Supplement, such discount allowed to any dealer will not be
in excess of the discount to be received by such Agent from the Company. After
the initial public offering of Notes to be resold to investors and other
purchasers, the public offering price (in the case of Notes to be resold at a
fixed public offering price), concession and discount may be changed. Unless
otherwise specified in the applicable Pricing Supplement, the discount to be
received by the Agents from the Company will be within the range of
commissions set forth on the cover page of this Prospectus Supplement.
 
                                     S-25

 
  In order to facilitate the offering of the Notes, the Agents may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Agents may overallot in connection with the offering,
creating a short position in the Notes for their own account. In addition, to
cover overallotments or to stabilize the price of the Notes, the Agents may
bid for, and purchase, the Notes, in the open market. Finally, the Agents may
reclaim selling concessions allowed to any agent or a dealer for distributing
the Notes in the offering, if the Agents repurchase previously distributed
Notes in transactions to cover syndicate short positions, in stabilization.
 
  The Company has reserved the right to sell the Notes directly to investors,
and may solicit and accept offers to purchase Notes directly from investors
from time to time on its own behalf. The Company may accept offers to purchase
Notes through additional agents and may appoint additional agents for the
purpose of soliciting offers to purchase Notes, in either case on terms
substantially identical to the terms contained in the Distribution Agreement.
Such other agents, if any, will be named in the applicable Pricing Supplement.
 
  An Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933 (the "Securities Act"). The Company and the Agents have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments made in
respect thereof. The Company has also agreed to reimburse the Agents for
certain expenses.
 
  The Company does not intend to apply for listing of the Notes on a national
securities exchange. The Company has been advised by the Agents that the
Agents intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Agents are not obligated to do so, however, and the
Agents may discontinue making a market at any time without notice. No
assurance can be given as to the liquidity of any trading market for the
Notes.
 
  Concurrently with the offering of Notes through the Agents as described
herein, the Company may issue other Debt Securities pursuant to the Indenture
referred to herein.
 
  The Agents and/or certain of their affiliates may engage in transactions
with and perform services for the Company and certain of its affiliates in the
ordinary course of business.
 
                               VALIDITY OF NOTES
 
  The validity of the Notes will be passed upon for the Company by Irell &
Manella LLP, Los Angeles, California, counsel for the Company, or such other
attorney of the Company as the Company may designate, and for the Agents by
O'Melveny & Myers LLP, Los Angeles, California. Ronald M. Loeb, of counsel to
the law firm of Irell & Manella LLP, is a Director of the Company and is the
beneficial owner of 98,795 shares of the Company's common stock, including
15,000 shares of Common Stock which may be acquired immediately upon the
exercise of options.
 
 
                                     S-26

 
                            [LOGO OF MATTEL, INC.(R)]
 
                                 COMMON STOCK
                                PREFERRED STOCK
                               DEPOSITARY SHARES
                                DEBT SECURITIES
                              WARRANTS OR RIGHTS
                              UNITS OF SECURITIES
 
                                ---------------
 
  Mattel, Inc. ("Mattel" or the "Company") may offer from time to time under
this Prospectus in one or more series (i) shares of its common stock, $1.00
par value per share ("Common Stock"), (ii) shares of its preferred stock,
$1.00 par value per share ("Preferred Stock"), which may be convertible into
shares of Common Stock, (iii) depositary shares ("Depositary Shares")
representing a fractional interest in a share of Preferred Stock, (iv) debt
securities of the Company ("Debt Securities"), which may be convertible into
shares of Common Stock, Preferred Stock and/or Depositary Shares, (v) warrants
or rights ("Warrants") to acquire Common Stock, Preferred Stock, Depositary
Shares and/or Debt Securities, and (vi) units ("Units") consisting of two or
more of the foregoing securities, with an aggregate initial public offering
price of up to $376,700,000 or the equivalent thereof in one or more foreign
currencies or composite currencies. The Common Stock, Preferred Stock, Debt
Securities, Depositary Shares, Warrants and Units (collectively, the
"Securities") may be offered separately or together, in separate series, in
amounts, at prices and on terms to be determined at the time of each offering
hereunder and to be set forth in one or more supplements to this Prospectus
(each, a "Prospectus Supplement").
 
  The specific terms of the Securities for which this Prospectus is being
delivered will be set forth in the applicable Prospectus Supplement and will
include, where applicable, (i) in the case of Common Stock, the aggregate
number of shares offered and the offering price; (ii) in the case of Preferred
Stock and Depositary Shares, the specific designation and stated value per
share, the aggregate number of shares offered, any dividend (including the
method of calculating payment of dividends), liquidation, redemption, voting
and other rights, any terms for conversion or exchange into shares of Common
Stock, the offering price and, if Depositary Shares are offered, the fraction
of a share of Preferred Stock represented by each Depositary Share; (iii) in
the case of Debt Securities, the specific designation, aggregate principal
amount, ranking, priority, currency, denominations, maturity (which may be
fixed or extendible), any security, any premium or discount, interest rate (or
manner of calculation thereof) and time of payment of interest, terms for
redemption at the option of the Company or repayment at the option of the
holder, terms for sinking fund payments, terms for conversion or exchange into
Preferred Stock, Depositary Shares or Common Stock, form (which may be bearer
or registered, certificated or global), covenants and the offering price; (iv)
in the case of Warrants, the number and terms thereof, the designation of the
number and type of securities issuable upon their exercise, the exercise
price, the duration and detachability thereof, and the offering price; and (v)
in the case of Units, a description of the securities comprising such Units
and the offering price thereof.
 
  The applicable Prospectus Supplement will also contain information, where
appropriate, about certain United States federal income tax considerations
relating to the Securities covered thereby, any listing on a securities
exchange of the Securities covered thereby, in the case of Debt Securities or
Warrants for Debt Securities, any relationships between the Company and the
applicable trustee or any other terms, as applicable.
 
                                ---------------
 
 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 Securities may be offered directly by the Company or to or through
agents, underwriters or dealers designated from time to time by the Company,
as set forth in an accompanying Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of a Prospectus
Supplement describing the method and terms of the offering of such Securities.
 
                                ---------------
 
November 12, 1997

 
  NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND ANY ACCOMPANYING PROSPECTUS
SUPPLEMENT IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN AND THEREIN, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER, DEALER OR
AGENT. NEITHER THIS PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT SHALL CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFERING
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY
THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR IN ANY
PROSPECTUS SUPPLEMENT IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF
OR OF SUCH PROSPECTUS SUPPLEMENT.
 
                               ----------------
 
                               TABLE OF CONTENTS
 


                                                                            PAGE
                                                                            ----
                                                                         
Available Information.....................................................    3
Incorporation of Certain Documents by Reference...........................    3
The Company...............................................................    4
Use of Proceeds...........................................................    4
Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges
 and Preferred Stock Dividends............................................    5
Description of Debt Securities............................................    5
Description of Capital Stock..............................................   14
Description of Depositary Shares..........................................   18
Description of Securities Warrants........................................   21
Description of Units of Securities........................................   23
Plan of Distribution......................................................   24
Legal Matters.............................................................   25
Experts...................................................................   25

 
                                       2

 
                             AVAILABLE INFORMATION
 
  The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") relating to the
Securities offered hereby. This Prospectus and any Prospectus Supplement does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Securities, reference is hereby made to the Registration
Statement and the Exhibits and Schedules thereto. Statements contained herein
concerning the provisions of certain documents are not necessarily complete,
and in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such
reference.
 
  Mattel is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, (the "Exchange Act") and the rules and
regulations thereunder, and in accordance therewith files reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information filed by Mattel can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional Offices of the Commission: Suite 1400, Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661-2511; and 13th Floor, 7 World
Trade Center, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Such reports, proxy statements and other information concerning the Company
are also available for inspection at the offices of the New York Stock
Exchange, Inc. (the "NYSE"), at 20 Broad Street, New York, New York 10005 and
The Pacific Exchange, Inc. at 301 Pine Street, San Francisco, California
94104, on which exchanges certain securities of Mattel are listed. The
Commission also maintains a website that contains reports, proxy, registration
and information statements and other information filed electronically with the
Commission at http://www.sec.gov.
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
  The following documents, which Mattel has filed with the Commission pursuant
to the Exchange Act, are hereby incorporated by reference in, and shall be
deemed to be a part of, this Prospectus:
 
    (i) Mattel's Annual Report on Form 10-K for the year ended December 31,
  1996;
 
    (ii) Mattel's Quarterly Report on Form 10-Q for the quarter ended March
  31, 1997;
 
    (iii) Mattel's Quarterly Report on Form 10-Q for the quarter ended June
  30, 1997;
 
    (iv) Mattel's Quarterly Report on Form 10-Q for the quarter ended
  September 30, 1997;
 
    (v) Current Reports on Form 8-K filed by Mattel with the Commission dated
  February 5, 1997; February 14, 1997; March 5, 1997; March 19, 1997; March
  20, 1997; March 27, 1997; April 17, 1997; April 25, 1997; May 15, 1997;
  July 25, 1997; July 30, 1997; October 9, 1997 and October 21, 1997;
 
    (vi) The description of the Company's Series B Voting Convertible
  Exchangeable Preferred Stock, par value $1.00 per share (the "Series B
  Preferred Stock") and Series C Mandatorily Convertible Redeemable Preferred
  Stock, par value $1.00 per share (the "Series C Preferred Stock") and
  Series C Depositary Shares set forth in Mattel's and Tyco Toys, Inc.'s
  ("Tyco") joint proxy statement and prospectus filed with the Commission on
  Form S-4 dated February 14, 1997; and
 
    (vii) The description of the Company's Common Stock contained in the
  Company's Current Report on Form 8-K filed with the Commission on July 22,
  1996.
 
  All documents filed by Mattel 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 the offering made hereby shall be deemed to be
 
                                       3

 
incorporated by reference into this Prospectus and to be a part thereof from
the respective dates of filing of such documents. Any statement contained in
this Prospectus or in any Prospectus Supplement or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus and any Prospectus
Supplement to the extent that a statement contained herein or in any
Prospectus Supplement (or in any other subsequently filed document which also
is incorporated or deemed to be incorporated by reference in this Prospectus)
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed to constitute a part of this Prospectus or any
Prospectus Supplement except as so modified or superseded.
 
  The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the foregoing
documents which have been incorporated by reference herein (other than
exhibits to such documents unless such exhibits are specifically incorporated
by reference therein). Requests for such copies should be directed to:
Secretary, Mattel, Inc., 333 Continental Boulevard, El Segundo, California
90245-5012, telephone (310) 252-2000.
 
                                  THE COMPANY
 
  Mattel, Inc. designs, manufactures, markets and distributes a broad variety
of toy products on a worldwide basis. The Company's business is dependent in
great part on its ability each year to redesign, restyle and extend existing
core products and product lines and to design and develop innovative new toys
and product lines. New products have limited lives, ranging from one to three
years, and generally must be updated and refreshed each year.
 
  Core brands have historically provided the Company with relatively stable
growth. Among the Company's major core brands are BARBIE fashion dolls and
doll clothing and accessories; the Company's Disney-licensed toys; FISHER-
PRICE toys and juvenile products; SESAME STREET characters; HOT WHEELS
vehicles and playsets; MATCHBOX; CABBAGE PATCH KIDS; Tyco Electric Racing and
Tyco Radio Control; the UNO and SKIP-BO card games; and the SCRABBLE game,
which the Company markets outside of the United States and Canada.
 
  Mattel was incorporated in California in 1948 and reincorporated in Delaware
in 1968. Its executive offices are located at 333 Continental Boulevard, El
Segundo, California 90245-5012, telephone (310) 252-2000.
 
                                USE OF PROCEEDS
 
  Except as otherwise set forth in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
general corporate purposes, which may include additions to working capital,
reduction of indebtedness of the Company, financing of capital expenditures,
potential acquisitions and the repurchase by the Company of its Common Stock.
Funds not required immediately for such purposes may be invested temporarily
in short-term marketable securities.
 
 
                                       4

 
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND
                           PREFERRED STOCK DIVIDENDS
 
  The following table sets forth the Company's unaudited ratios of earnings to
fixed charges and earnings to combined fixed charges and preferred stock
dividends for the periods indicated.
 


                                         FOR THE NINE       FOR THE YEARS
                                         MONTHS ENDED      ENDED DECEMBER
                                        SEPTEMBER 30,         31,(A)(B)
                                        -------------- ------------------------
                                         1997    1996  1996 1995 1994 1993 1992
                                        ------ ------- ---- ---- ---- ---- ----
                                                      
Ratio of earnings to fixed charges(c)..   3.02   5.51  5.40 5.09 4.49 2.50 4.21
Ratio of earnings to combined fixed
 charges and preferred stock
 dividends(c)..........................   2.72   5.23  5.09 4.84 4.21 2.39 4.01

- --------
(a) The consolidated ratios of earnings to fixed charges and earnings to
    combined fixed charges and preferred stock dividends for all periods
    presented have been restated for the effects of the March 1997 merger of
    Tyco into the Company, accounted for as a pooling of interests.
 
(b) The consolidated ratios of earnings to fixed charges and earnings to
    combined fixed charges and preferred stock dividends for 1993 and 1992
    have been restated for the effects of the November 1993 merger of Fisher-
    Price, Inc. into a wholly-owned subsidiary of the Company, accounted for
    as a pooling of interests.
 
(c) The ratio of earnings to fixed charges is computed by dividing income
    before taxes, extraordinary items, cumulative effect of changes in
    accounting principles, fixed charges, minority interest and undistributed
    income of less-than-majority-owned affiliates (as used in this footnote
    (c), "earnings") by fixed charges. Fixed charges are the sum of interest
    costs (whether expensed or capitalized) and the portion of aggregate
    rental expense (one-third) which is estimated to represent the interest
    factor in such rentals. The ratio of earnings to combined fixed charges
    and preferred stock dividends is computed by dividing earnings by the sum
    of fixed charges plus dividends on the Company's outstanding shares of
    preferred stock during the indicated period.
 
                        DESCRIPTION OF DEBT SECURITIES
 
  The Debt Securities offered hereby are to be issued under an indenture,
dated as of February 15, 1996 (the "Indenture"), between the Company and Chase
Trust Company of California (formerly Chemical Trust Company of California),
as Trustee (the "Trustee"), which Indenture may be supplemented from time to
time by supplemental indentures. The following summary of certain provisions
of the Indenture, a copy of which was filed as an exhibit to the Registration
Statement, does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all provisions of the Indenture, including
the definition therein of certain terms. Wherever particular sections or
defined terms of the Indenture are referred to, it is intended that such
sections or defined terms shall be incorporated herein by reference.
 
GENERAL
 
  The Debt Securities will either rank equally with all other unsecured and
unsubordinated indebtedness of the Company or, if so provided in the
Prospectus Supplement, be subordinated to other obligations of the Company.
 
  The Debt Securities that may be offered under the Indenture are not limited
in amount. The Debt Securities may be issued in one or more series with the
same or various maturities, at par, at a premium, or with an original issue
discount. The Prospectus Supplement will set forth the initial offering price,
the aggregate principal amount and the following terms of the Debt Securities
in respect of which this Prospectus is delivered: (1) the title of such Debt
Securities; (2) any limit on the aggregate principal amount of such Debt
Securities; (3) the date or
 
 
                                       5

 
dates on which principal on such Debt Securities will be payable; (4) the rate
or rates and, if applicable, the method used to determine the rate including
any commodity, commodity index, stock exchange index or financial index, at
which such Debt Securities will bear interest, if any, the date or dates from
which such interest will accrue, the dates on which such interest shall be
payable and the record date for the interest payable on any interest payment
date; (5) the place or places where principal of, premium, if any, and
interest on such Debt Securities will be payable, or the method of such
payment; (6) the period or periods within which, the price or prices at which
and the terms and conditions upon which the Debt Securities may be redeemed in
whole or in part at the option of the Company; (7) the obligation, if any, of
the Company to redeem or purchase the Debt Securities pursuant to any sinking
fund or analogous provisions or at the option of a holder thereof; (8) the
denominations of such Debt Securities, if other than denominations of $1,000
and any integral multiple thereof; (9) the portion of principal amount of such
Debt Securities that shall be payable upon acceleration, if other than the
principal amount thereof; (10) the currency of denomination of such Debt
Securities; (11) the designation of the currency or currencies in which
payment of principal of and interest on such Debt Securities will be made;
(12) if payments of principal of, premium, if any, or interest on the Debt
Securities are to be made in currency other than the denominated currency, the
manner in which the exchange rate with respect to such payments will be
determined; (13) the manner in which the amounts of payment of principal of,
premium, if any, or interest on such Debt Securities will be determined, if
such amounts may be determined by reference to an index based on a currency or
currencies other than that in which the Debt Securities are denominated or
designated to be payable or by reference to a commodity, commodity index,
stock exchange index or financial index; (14) the subordination provisions, if
any, relating to such Debt Securities; (15) any provision for the conversion
or exchange of such Debt Securities; (16) if such Debt Securities are to be
issued upon the exercise of Warrants, the authentication and delivery
provisions relating to such Debt Securities; (17) the provisions, if any,
relating to any security provided for such Debt Securities; (18) any addition
to or change in the Events of Default described herein or in the Indenture
with respect to such Debt Securities and any change in the acceleration
provisions described herein or in the Indenture with respect to such Debt
Securities; (19) any addition to or change in the covenants described herein
or in the Indenture with respect to such Debt Securities; (20) any other terms
of such Debt Securities, which other terms will not be inconsistent with the
provisions of the Indenture; and (21) any depositaries, interest rate
calculation agents, exchange rate calculation agents or other agents with
respect to the Debt Securities other than those originally appointed.
(Indenture (S) 2.2) The Prospectus Supplement will also set forth any federal
income tax, accounting or special considerations applicable to the Debt
Securities.
 
PAYMENT OF INTEREST AND EXCHANGE
 
  Each Debt Security will be represented by either a global security (a
"Global Debt Security") registered in the name of The Depository Trust
Company, as Depository ("DTC" or the "Depository") or a nominee of the
Depository (each such Debt Security represented by a Global Debt Security
being herein referred to as a "Book-Entry Debt Security") or a certificate
issued in definitive registered form (a "Certificated Debt Security"), as set
forth in the applicable Prospectus Supplement. Except as set forth under
"Global Debt Securities and Book-Entry System" below, Book-Entry Debt
Securities will not be issuable in certificated form.
 
  Certificated Debt Securities. Certificated Debt Securities may be
transferred or exchanged at the Trustee's office or paying agencies in
accordance with the terms of the Indenture. No service charge will be made for
any transfer or exchange of Certificated Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. Certificated Debt Securities will not
be exchangeable for Book-Entry Debt Securities, except under the circumstances
described below under "Global Debt Securities and Book-Entry System."
(Indenture (S)(S) 2.4 and 2.7)
 
  The transfer of Certificated Debt Securities and the right to the principal
of, premium, if any, and interest on such Certificated Debt Securities may be
effected only by surrender of the old certificate representing such
Certificated Debt Securities and either reissuance by the Company or the
Trustee of the old certificate to the new Holder or the issuance by the
Company or the Trustee of a new certificate to the new Holder.
 
 
                                       6

 
  Global Debt Securities and Book-Entry System. Each Global Debt Security
representing Book-Entry Debt Securities will be deposited with, or on behalf
of, the Depository, and registered in the name of the Depository or a nominee
of the Depository. Except as set forth below, Book-Entry Debt Securities will
not be exchangeable for Certificated Debt Securities and will not otherwise be
issuable as Certificated Debt Securities.
 
  The procedures that the Depository has indicated it intends to follow with
respect to Book-Entry Debt Securities are set forth below.
 
  Ownership of beneficial interests in Book-Entry Debt Securities will be
limited to persons that have accounts with the Depository for the related
Global Debt Security ("participants") or persons that may hold interests
through participants. Upon the issuance of a Global Debt Security, the
Depository will credit, on its book-entry registration and transfer system,
the participants' accounts with the respective principal amounts of the Book-
Entry Debt Securities represented by such Global Debt Security beneficially
owned by such participants. The accounts to be credited shall be designated by
any dealers, underwriters or agents participating in the distribution of such
Book-Entry Debt Securities. Ownership of Book-Entry Debt Securities will be
shown on, and the transfer of such ownership interests will be effected only
through, records maintained by the Depository for the related Global Debt
Security (with respect to interests of participants) and on the records of
participants (with respect to interests of persons holding through
participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in Book-Entry Debt Securities.
 
  So long as the Depository for a Global Debt Security, or its nominee, is the
registered owner of such Global Debt Security, such Depository or such
nominee, as the case may be, will be considered the sole owner or holder of
the Book-Entry Debt Securities represented by such Global Debt Security for
all purposes under the Indenture. Except as set forth below, owners of Book-
Entry Debt Securities will not be entitled to have such securities registered
in their names, will not receive or be entitled to receive physical delivery
of a certificate in definitive form representing such securities and will not
be considered the owners or holders thereof under the Indenture. Accordingly,
each person owning Book-Entry Debt Securities must rely on the procedures of
the Depository for the related Global Debt Security and, if such person is not
a participant, on the procedures of the participant through which such person
owns its interest, to exercise any rights of a holder under the Indenture.
 
  The Company understands, however, that under existing industry practice, the
Depository will authorize the persons on whose behalf it holds a Global Debt
Security to exercise certain rights of holders of Debt Securities, and the
Indenture provides that the Company, the Trustee and their respective agents
will treat as the holder of a Debt Security the persons specified in a written
statement of the Depository with respect to such Global Debt Security for
purposes of obtaining any consents or directions required to be given by
holders of the Debt Securities pursuant to the Indenture. (Indenture
(S) 2.14.6)
 
  Payments of principal, premium, if any, and interest on Book-Entry Debt
Securities will be made to the Depository or its nominee, as the case may be,
as the registered holder of the related Global Debt Security. (Indenture
(S) 2.14.5) None of the Company, the Trustee or any other agent of the Company
or agent of the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in such Global Debt Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
 
  The Company expects that the Depository, upon receipt of any payment of
principal, premium, if any, or interest on a Global Debt Security, will
immediately credit participants' accounts with payments in amounts
proportionate to the respective amounts of Book-Entry Debt Securities held by
each such participant as shown on the records of such Depository. The Company
also expects that payments by participants to owners of beneficial interests
in Book-Entry Debt Securities held through such participants will be governed
by standing customer instructions and customary practices, as is now the case
with the securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants.
 
                                       7

 
  If (i) the Depository is at any time unwilling or unable to continue as
Depository or ceases to be a clearing agency registered under the Exchange
Act, and a successor Depository registered as a clearing agency under the
Exchange Act is not appointed by the Company within 90 days, (ii) the Company
determines, at any time and in its sole discretion, not to have any of the
Book-Entry Debt Securities represented by one or more Global Debt Securities
or (iii) an event shall have happened and be continuing which is or after
notice or lapse of time or both, would be an Event of Default (as defined),
the Company will issue Certificated Debt Securities in exchange for such
Global Debt Security or Securities. Any Certificated Debt Securities issued in
exchange for a Global Debt Security will be registered in such name or names
as the Depository shall instruct the Trustee. It is expected that such
instructions will be based upon directions received by the Depository from
participants with respect to ownership of Book-Entry Debt Securities relating
to such Global Debt Security.
 
  DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the United States Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered under the provisions of Section 17A of the Exchange Act.
DTC holds securities that its participants ("Direct Participants") deposit
with DTC. DTC also facilitates the settlement among Direct Participants of
securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in such Direct
Participant's accounts, eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations.
 
  DTC is owned by a number of its Direct Participants and by the NYSE, The
American Stock Exchange, Inc. and The National Association of Securities
Dealers, Inc. Access to DTC's Book-Entry System is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Direct and Indirect Participants are on file with the Commission.
 
  The foregoing information in this section concerning the Depository and the
Depository's Book-Entry System has been obtained from sources the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
 
NO PROTECTION IN THE EVENT OF A CHANGE OF CONTROL
 
  Unless otherwise set forth in the Prospectus Supplement, the Debt Securities
will not contain any provisions which may afford holders of the Debt
Securities protection in the event of a change in control of the Company or in
the event of a highly leveraged transaction (whether or not such transaction
results in a change in control of the Company).
 
CERTAIN COVENANTS OF THE COMPANY
 
  Limitation on Liens. The Company shall not and shall not permit any
Subsidiary to create, assume or suffer to exist any Lien (as defined) upon any
of the their respective assets, except for: (i) Liens existing on the date of
the Indenture or arising under the Indenture; (ii) any extension, renewal or
replacement (or successive extensions, renewals or replacements) of any Lien
existing on the date of the Indenture if limited to the same property subject
to, and securing not more than the amount secured by, the Lien extended,
renewed or replaced; (iii) Liens on Current Assets (as defined) (or on any
promissory notes received in satisfaction of any of the accounts receivable of
the Company or any of its Subsidiaries) securing Indebtedness (as defined)
incurred to finance working capital requirements, provided, however, that the
Indebtedness secured by such Lien does not mature later than 36 months from
the date incurred; (iv) certain Liens incurred in the ordinary course of
business; (v) Liens on property that are in existence at the time the Company
or its Subsidiaries acquire such property, provided that such Liens (A) are
not incurred in connection with, or in contemplation of, the acquisition of
the property acquired and (B) do not extend to or cover any property or assets
of the Company or any Subsidiary other than
 
                                       8

 
the property so acquired; (vi) purchase money Liens upon or in any real or
personal property (including fixtures and other equipment) acquired or held by
the Company or any Subsidiary in the ordinary course of business to secure the
purchase price of such property or to secure Indebtedness incurred solely for
the purpose of financing or refinancing the acquisition or improvement of or
construction costs related to such property, provided that no such Lien shall
extend to or cover any property other than the property being acquired or
improved; (vii) any interest or title of a lessor in the property subject to
any Capitalized Lease or Sale/Leaseback Transaction that is permitted under
the restrictions described below under "--Limitation on Sale/Leaseback
Transactions;" or (viii) other Liens securing Indebtedness in an aggregate
principal amount which, together with the aggregate outstanding principal
amount of all other Indebtedness of the Company and its Subsidiaries secured
by Liens permitted under the terms of this subsection (viii) and the aggregate
amount of the Sale/Leaseback Transactions which would otherwise be permitted
under the restrictions described below in clause (i) under the caption "--
Limitation on Sale/Leaseback Transactions," does not at the time any such Lien
is incurred exceed ten percent of the Consolidated Net Tangible Assets (as
defined) as shown in the latest audited consolidated balance sheet of the
Company and its Subsidiaries.
 
  Limitation on Sale/Leaseback Transactions. The Company shall not, and shall
not permit any Subsidiary, to enter into any Sale/Leaseback Transaction,
unless either (i) the Company or such Subsidiary would be entitled, pursuant
to subsection (viii) under "--Limitation on Liens," to incur Indebtedness in a
principal amount equal to or exceeding the amount of such Sale/Leaseback
Transaction, secured by a Lien on the property to be leased; or (ii) the
Company or such Subsidiary, within 90 days after the effective date of such
transaction, applies or unconditionally agrees to apply to the retirement of
Indebtedness an amount equal to the greater of the net proceeds of the
Sale/Leaseback Transaction or the fair value, in the opinion of the Board of
Directors, of such property at the time of such transaction (in either case
adjusted to reflect the remaining term of the lease).
 
  Merger, Consolidation, or Sale of Assets. The Company may not consolidate or
merge with or into, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets to, another corporation, person or entity
unless (i) the Company is the surviving person or the successor or transferee
is a corporation organized under the laws of the United States, any state
thereof or the District of Columbia, (ii) the successor assumes all the
obligations of the Company under the Debt Securities and the Indenture, and
(iii) immediately after such transaction no Event of Default (as defined)
exists.
 
CERTAIN DEFINITIONS
 
  Set forth below are certain significant terms which are defined in Section
1.1 of the Indenture:
 
  "Capitalized Lease" means any lease of property where the obligations of the
lease are required to be classified and accounted for as a capitalized lease
on a balance sheet of such lessee under generally accepted accounting
principles.
 
  "Consolidated Net Tangible Assets" means the total amount of assets of the
Company and its Subsidiaries on a consolidated basis (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups occurring after January 1, 1988 of capital assets
(excluding in any case write-ups in connection with accounting for
acquisitions in conformity with generally accepted accounting principles),
after deducting therefrom (i) all current liabilities of the Company and its
Subsidiaries, (ii) all investments in unconsolidated Subsidiaries of the
Company and in persons which are not Subsidiaries of the Company (except, in
each case, investments in marketable securities) and (iii) all goodwill, trade
names, trademarks, patents, unamortized debt discount and expense and other
intangible items, all as set forth on the most recently available consolidated
balance sheet of the Company and its Subsidiaries, prepared in conformity with
generally accepted accounting principles.
 
  "Current Assets" means any asset of the Company or any of its Subsidiaries
that would be classified as a current asset on an audited consolidated balance
sheet of the Company prepared, in accordance with generally accepted
accounting principles, on the date any Lien on such asset is incurred.
 
                                       9

 
  "Discount Security" means any Debt Security that provides for an amount less
than the stated principal amount thereof to be due and payable upon
declaration of acceleration of the maturity thereof pursuant to the terms of
the Indenture.
 
  "Indebtedness" means, with respect to any person, and without duplication:
 
    (1) any liability of such person (A) for borrowed money, or (B) for any
  letter of credit for the account of such person supporting obligations of
  such person or other persons, or (C) evidenced by a bond, note, debenture
  or similar instrument (including a purchase money obligation) given in
  connection with the acquisition of any businesses, properties or assets of
  any kind (other than a trade payable or a current liability arising in the
  ordinary course of business), or (D) for the payment of money relating to a
  Capitalized Lease;
 
    (2) any liability of others described in the preceding clause (1) that
  the person has guaranteed or that is otherwise its legal liability; and
 
    (3) any amendment, supplement, modification, deferral, renewal, extension
  or refunding of any liability of the types referred to in clauses (1) and
  (2) above.
 
  "Lien" means any lien, security interest, charge, mortgage, pledge or other
encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to
give any security interest).
 
  "Sale/Leaseback Transaction" means any arrangement with any person (other
than the Company or any of its Subsidiaries) providing for the leasing by the
Company or any of its Subsidiaries of any property which has been or is to be
sold or transferred by the Company or such Subsidiary to such person or to any
person (other than the Company or any of its Subsidiaries) to which funds have
been or are to be advanced by such person on the security of the leased
property.
 
  "Subsidiary" of any specified person means (i) a corporation a majority of
whose capital stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such person or by
such person and a subsidiary or subsidiaries of such person or by a subsidiary
or subsidiaries of such person or (ii) any other person (other than a
corporation) in which such person or such person and a subsidiary or
subsidiaries of such person or a subsidiary or subsidiaries of such person
directly or indirectly, at the date of determination thereof has at least
majority ownership interest.
 
EVENTS OF DEFAULT
 
  The following will be Events of Default under the Indenture with respect to
Debt Securities of any series: (a) default in the payment of any interest upon
any Debt Security of that series when it becomes due and payable, and
continuance of such default for a period of 30 days; (b) default in the
payment of principal of or premium, if any, on any Debt Security of that
series when due; (c) default in the deposit of any sinking fund payment, when
and as due in respect of any Debt Security of that series; (d) default in the
performance or breach of any other covenant or warranty of the Company in the
Indenture (other than a covenant or warranty that has been included in the
Indenture solely for the benefit of a series of Debt Securities other than
that series), which default continues uncured for a period of 60 days after
written notice to the Company by the Trustee or to the Company and the Trustee
by the holders of at least 25% in principal amount of the outstanding Debt
Securities of that series as provided in the Indenture; (e) unless the terms
of such series otherwise provide, an event of default under any Indebtedness
for money borrowed by the Company (including a default with respect to Debt
Securities of any series other than that series) or any Subsidiary (or the
payment of which is guaranteed by the Company or a Subsidiary), whether such
Indebtedness or guarantee now exists or shall hereafter be created, if (A)
such default either (1) results from the failure to pay any such Indebtedness
at its stated final maturity or (2) relates to an obligation other than the
obligation to pay such Indebtedness at its stated final maturity and results
in the holder or holders of such Indebtedness causing such Indebtedness to
become due prior to its stated maturity and (B) the
 
                                      10

 
principal amount of such Indebtedness, together with the principal amount of
any other such Indebtedness in default for failure to pay principal at stated
final maturity or the maturity of which has been so accelerated, aggregates
$25 million or more at any one time outstanding; (f) certain events of
bankruptcy, insolvency or reorganization; and (g) any other Event of Default
provided with respect to Debt Securities of that series that is described in
the Prospectus Supplement accompanying this Prospectus. The occurrence of an
Event of Default would constitute an event of default under certain of the
Company's existing bank lines. In addition, the occurrence of certain Events
of Default or an acceleration under the Indenture would constitute an event of
default under certain other indebtedness of the Company.
 
  If an Event of Default with respect to Debt Securities of any series at the
time outstanding occurs and is continuing, then in every such case the Trustee
or the holders of not less than 25% in principal amount of the outstanding
Debt Securities of that series may, by a notice in writing to the Company (and
to the Trustee if given by the holders), declare to be due and payable
immediately the principal (or, if the Debt Securities of that series are
Discount Securities, such portion of the principal amount as may be specified
in the terms of that series) and premium, if any, of all Debt Securities of
that series. In the case of an Event of Default resulting from certain events
of bankruptcy, insolvency or reorganization, the principal (or such specified
amount) and premium, if any, of all outstanding Debt Securities shall ipso
facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holder of outstanding Debt
Securities. At any time after a declaration of acceleration with respect to
Debt Securities of any series has been made, but before a judgment or decree
for payment of the money due has been obtained by the Trustee, the holders of
a majority in principal amount of the outstanding Debt Securities of that
series may, subject to the Company having paid or deposited with the Trustee a
sum sufficient to pay overdue interest and principal which has become due
other than by acceleration and certain other conditions, rescind and annul
such acceleration if all Events of Default, other than the non-payment of
accelerated principal and premium, if any, with respect to Debt Securities of
that series, have been cured or waived as provided in the Indenture.
(Indenture (S) 6.2) For information as to waiver of defaults see the
discussion set forth below under "--Modification and Waiver." Reference is
made to the Prospectus Supplement relating to any series of Debt Securities
that are Discount Securities for the particular provisions relating to
acceleration of a portion of the principal amount of such Discount Securities
upon the occurrence of an Event of Default and the continuation thereof.
 
  The Indenture provides that the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of outstanding Debt Securities, unless the Trustee receives indemnity
satisfactory to it against any loss, liability or expense. (Indenture (S) 7.1
(e)) Subject to certain rights of the Trustee, the holders of a majority in
principal amount of the outstanding Debt Securities of any series shall have
the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee with respect to the Debt Securities of that series.
(Indenture (S) 6.12)
 
  No holder of any Debt Security of any series will have any right to
institute any proceeding, judicial or otherwise, with respect to the Indenture
or for the appointment of a receiver or trustee, or for any remedy under the
Indenture, unless such holder shall have previously given to the Trustee
written notice of a continuing Event of Default with respect to Debt
Securities of that series and unless also the holders of at least 25% in
principal amount of the outstanding Debt Securities of that series shall have
made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as trustee, and the Trustee shall not have received
from the holders of a majority in principal amount of the outstanding Debt
Securities of that series a direction inconsistent with such request and shall
have failed to institute such proceeding within 60 days. (Indenture (S) 6.7)
Notwithstanding the foregoing, the holder of any Debt Security will have an
absolute and unconditional right to receive payment of the principal of,
premium, if any, and any interest on such Debt Security on or after the due
dates expressed in such Debt Security and to institute suit for the
enforcement of any such payment. (Indenture (S) 6.8)
 
  The Indenture requires the Company, within 90 days after the end of each of
its fiscal years, to furnish to the Trustee a statement as to compliance with
the Indenture. (Indenture (S) 4.3) The Indenture provides that the
 
                                      11

 
Trustee may withhold notice to the holders of Debt Securities of any series of
any Default or Event of Default (except in payment on any Debt Securities of
such series) with respect to Debt Securities of such series if it in good
faith determines that withholding such notice is in the interest of the
holders of Debt Securities. (Indenture (S) 7.5)
 
MODIFICATION AND WAIVER
 
  Modifications to, and amendments of, the Indenture may be made by the
Company and the Trustee with the consent of the holders of at least a majority
in principal amount of the outstanding Debt Securities of each series affected
by such modifications or amendments, provided, however, that no such
modification or amendment may, without the consent of the holder of each
outstanding Debt Security affected thereby: (a) change the amount of Debt
Securities whose holders must consent to an amendment or waiver; (b) reduce
the rate of or extend the time for payment of interest (including default
interest) on any Debt Security; (c) reduce the principal or premium, if any,
or change the fixed maturity of any Debt Security or reduce the amount of, or
postpone the date fixed for, the payment of any sinking fund or analogous
obligation with respect to any series of Debt Securities; (d) waive a default
in the payment of the principal of, premium, if any, or interest on any Debt
Security (except a rescission of acceleration of the Debt Securities of any
series by the holders of at least a majority in aggregate principal amount of
the then outstanding Debt Securities of such series and a waiver of the
payment default that resulted from such acceleration); (e) make the Debt
Security payable in currency other than that stated in the Debt Security; (f)
make any change to certain provisions of the Indenture relating to, among
other things, the right of holders of Debt Securities to receive payment of
the principal, premium, if any, and interest on such Debt Securities and to
institute suit for the enforcement of any such payment and to waivers or
amendments; or (g) waive a redemption payment with respect to any Debt
Security or change any of the provisions with respect to the redemption of any
Debt Securities. (Indenture (S) 9.3)
 
  The holders of at least a majority in principal amount of the outstanding
Debt Securities of any series may on behalf of the holders of all Debt
Securities of that series waive, insofar as that series is concerned,
compliance by Mattel with provisions of the Indenture other than certain
specified provisions. (Indenture (S) 9.2) The holders of a majority in
principal amount of the outstanding Debt Securities of any series may on
behalf of the holders of all the Debt Securities of such series waive any past
default under the Indenture with respect to such series and its consequences,
except a default in the payment of the principal of, premium, if any, or any
interest on any Debt Security of that series or in respect of a provision
which under the Indenture cannot be modified or amended without the consent of
the holder of each outstanding Debt Security of that series affected.
(Indenture (S) 6.13)
 
DEFEASANCE OF DEBT SECURITIES OR CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES
 
  Defeasance and Discharge. The Indenture provides that the Company may be
discharged from any and all obligations in respect of the Debt Securities of
any series (except for certain obligations to register the transfer or
exchange of Debt Securities of such series, to replace stolen, lost or
mutilated Debt Securities of such series, to maintain paying agencies and the
treatment of funds held by paying agents) upon the deposit with the Trustee,
in trust, of money and/or government obligations in the same currency as such
series that, through the payment of interest and principal in respect thereof
in accordance with their terms, will provide money in an amount sufficient in
the opinion of a nationally recognized firm of independent public accountants
to pay and discharge each installment of principal (and premium, if any) and
interest on and any mandatory sinking fund payments in respect of the Debt
Securities of such series on the stated maturity of such payments in
accordance with the terms of the Indenture and such Debt Securities. Such
discharge may occur only if, among other things, (a) the Company has received
from, or there has been published by, the United States Internal Revenue
Service a ruling, or, since the date of execution of the Indenture, there has
been a change in the applicable United States federal income tax law, in
either case to the effect that holders of the Debt Securities of such series
will not recognize income, gain or loss for United States federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to United States federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred;
 
                                      12

 
and (b) such discharge will not be applicable to any Debt Securities of such
series then listed on the New York Stock Exchange or any other securities
exchange if such discharge would cause said Debt Securities to be de-listed as
a result thereof. (Indenture (S) 8.3)
 
  Defeasance of Certain Covenants. The Indenture provides that unless
otherwise provided by the terms of the applicable series of Debt Securities,
upon compliance with certain conditions, (i) the Company may omit to comply
with certain covenants, including the restrictive covenants described above
under the caption "Certain Covenants of the Company"; and (ii) the Events of
Default described in clause (e) of the first paragraph under "Events of
Default" shall be inapplicable to such series. The conditions include: the
deposit with the Trustee of money and/or government obligations in the same
currency as such series that, through the payment of interest and principal in
respect thereof in accordance with their terms, will provide money in an
amount sufficient in the opinion of a nationally recognized firm of
independent public accountants to pay principal, premium, if any, and interest
on and any mandatory sinking fund payments in respect of the Debt Securities
of such series on the stated maturity of such payments in accordance with the
terms of the Indenture and such Debt Securities; and the delivery to the
Trustee of an opinion of counsel to the effect that the holders of the Debt
Securities of such series will not recognize income, gain or loss for United
States federal income tax purposes as a result of such deposit and related
covenant defeasance and will be subject to United States federal income tax in
the same amount and in the same manner and at the same times as would have
been the case if such deposit and related covenant defeasance had not
occurred. (Indenture (S) 8.4)
 
  Defeasance and Events of Default. In the event the Company exercises its
option to omit compliance with certain covenants of the Indenture with respect
to any series of Debt Securities and the Debt Securities of such series are
declared due and payable because of the occurrence of any Event of Default,
the amount of money and government obligations on deposit with the Trustee
will be sufficient to pay amounts due on the Debt Securities of such series at
the time of their stated maturity but may not be sufficient to pay amounts due
on the Debt Securities of such series at the time of the acceleration
resulting from such Event of Default. However, the Company shall remain liable
for such payments.
 
CONVERSION INTO CAPITAL STOCK OF THE COMPANY
 
  If and to the extent set forth in the Indenture and described in the
applicable Prospectus Supplement, any portion of the principal amount of any
Debt Securities of any series that is $1,000 or an integral multiple thereof
may be converted into shares of Common Stock and/or Preferred Stock of the
Company at any time prior to redemption (if applicable) or maturity, following
the date set forth in the applicable Prospectus Supplement. The specific class
of capital stock of the Company into which Debt Securities are convertible and
the other terms pertaining to such conversion right will be set forth in the
applicable Prospectus Supplement.
 
CONCERNING THE TRUSTEE
 
  The Company maintains banking relationships in the ordinary course of
business with one or more affiliates of the Trustee. The trustee also serves
as trustee under the Company's indenture dated as of August 1, 1994.
 
                                      13

 
                         DESCRIPTION OF CAPITAL STOCK
 
  The following statements with respect to the Company's capital stock are
subject to the detailed provisions of the Company's Restated Certificate of
Incorporation (as amended, the "Certificate of Incorporation") and Bylaws, as
amended (the "Bylaws"), the Rights Agreement (as defined below) and the
Deposit Agreement (as defined below). These statements do not purport to be
complete and are qualified in their entirety by reference to the terms of the
Certificate of Incorporation, the Bylaws, the Rights Agreement and the Deposit
Agreement, which are incorporated by reference as exhibits to the Registration
Statement.
 
GENERAL
 
  Mattel's authorized capital stock as of the date of this Prospectus consists
of 600,000,000 shares of Common Stock, $1.00 par value per share, 3,000,000
shares of Preferred Stock, $1.00 par value per share, and 20,000,000 shares of
Preference Stock, $.01 par value per share. Mattel does not presently have
outstanding, and Mattel's Certificate of Incorporation does not authorize, any
other classes of capital stock. The issued and outstanding shares of Common
Stock and Preferred Stock are duly authorized, validly issued, fully paid and
nonassessable.
 
COMMON STOCK
 
  Holders of shares of Common Stock have no preemptive, redemption or
conversion rights. The holders of Common Stock are entitled to receive
dividends when and as declared by the Mattel Board of Directors out of funds
legally available therefor. Upon liquidation, dissolution or winding up of
Mattel, the holders of Common Stock may share ratably in the net assets of
Mattel and liquidating distributions to holders of Preferred Stock or
Preference Stock, if any. Each holder of Common Stock is entitled to one vote
per share of Common Stock held of record by such holder and may cumulate its
votes in the election of directors. Each outstanding share of Common Stock is
accompanied by a right to purchase one one-hundredth (128/37,500ths as
adjusted to reflect a series of stock splits) of a share of Mattel Series E
Junior Participating Preference Stock, $.01 par value per share (the "Series E
Preference Shares"). There are 1,500,000 shares of Series E Preference Shares
authorized for issuance. There are currently no Series E Preference Shares
outstanding. See "--Description of Preference Share Purchase Rights."
 
  The registrar and transfer agent for the Common Stock is The First National
Bank of Boston.
 
DESCRIPTION OF PREFERENCE SHARE PURCHASE RIGHTS
 
  On February 7, 1992, the Mattel Board of Directors declared a dividend of
one preference share purchase right (a "Right") for each outstanding share of
Common Stock. The dividend was paid on February 17, 1992 (the "Record Date")
to the stockholders of record on that date. At the date the dividend was
declared and paid, each Right entitled the registered holder to purchase from
the Company one one-hundredth of a Series E Preference Share at a price per
share of $150 (the "Purchase Price"), subject to adjustment. Subsequent to the
Record Date, and pursuant to the terms of the Rights, the number of one one-
hundredths of a share of Series E Preference Shares purchasable from the
Company upon exercise of a Right was adjusted to 128/37,500ths of a share of
Series E Preference Shares, reflecting a series of stock splits in the
underlying Common Stock paid in the form of a series of dividends on the
Common Stock. The description and terms of the Rights are set forth in a
Rights Agreement dated as of February 7, 1992 (the "Rights Agreement") between
the Company and The First National Bank of Boston, as Rights Agent (the
"Rights Agent").
 
  Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 20% or more of the outstanding
Common Stock or (ii) 10 business days (or such later date as may be determined
by action of the Board of Directors prior to such time as any person or group
of affiliated persons becomes an Acquiring Person) following the commencement
of, or announcement of an intention to make, a tender offer or exchange offer
the consummation of which would result in the beneficial ownership by a person
or group of 20% or more of the
 
                                      14

 
outstanding Common Stock (the earlier of such dates being called the
"Distribution Date"), the Rights are evidenced, with respect to any Common
Stock certificate outstanding as of the Record Date, by such Common Stock
certificate with a copy of the Summary of Rights pertaining to such Rights
(the "Summary of Rights") attached thereto.
 
  The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with
and only with the Common Stock. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Stock certificates issued
after the Record Date upon transfer or new issuance of Common Stock will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Stock outstanding as of
the Record Date, even without such notation or a copy of the Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Stock as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
 
  The Rights are not exercisable until the Distribution Date. The Rights will
expire on February 17, 2002 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case as described below.
 
  The Purchase Price payable, and the number of Series E Preference Shares or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a
stock dividend on, or a subdivision, combination or reclassification of, the
Series E Preference Shares, (ii) upon the grant to holders of the Series E
Preference Shares of certain rights or warrants to subscribe for or purchase
Series E Preference Shares at a price, or securities convertible into Series E
Preference Shares with a conversion price, less than the then-current market
price of the Series E Preference Shares or (iii) upon the distribution to
holders of the Series E Preference Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Series E Preference Shares) or of
subscription rights or warrants (other than those referred to above).
 
  The number of outstanding Rights and the number of one one-hundredths of a
Preference Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Stock or a stock
dividend on the Common Stock payable in Common Stock or subdivision,
consolidation or combinations of the Common Stock occurring, in any such case,
prior to the Distribution Date.
 
  Series E Preference Shares purchasable upon exercise of the Rights will not
be redeemable. Each Preference Share will be entitled to a minimum
preferential quarterly dividend payment of $1 per share but will be entitled
to an aggregate dividend of 292.969 (as adjusted) times the dividend declared
per share of Common Stock. In the event of liquidation, the holders of the
Series E Preference Shares will be entitled to a minimum preferential
liquidation payment of $100 per share but will be entitled to an aggregate
payment of 292.969 (as adjusted) times the payment made per share of Common
Stock. Each Series E Preference Share will have 292.969 (as adjusted) votes,
voting together with the Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Common Stock are
exchanged, each Series E Preference Share will be entitled to receive 292.969
(as adjusted) times the amount received per share of Common Stock. These
rights are protected by customary antidilution provisions.
 
  Because of the nature of the Series E Preference Shares' dividend,
liquidation and voting rights, the value of the fractional interest 
(128/37,500ths as adjusted) in a Preference Share purchasable upon exercise of
each Right should approximate the value of one share of Common Stock.
 
  In the event that, after a person or group has become an Acquiring Person,
the Company is acquired in a merger or other business combination transaction
or 50% or more of its consolidated assets or earning power are
 
                                      15

 
sold, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the Right. In the event that any
person or group of affiliated or associated persons becomes an Acquiring
Person, proper provisions shall be made so that each holder of a Right, other
than Rights beneficially owned by the Acquiring Person (which will thereafter
be void), will thereafter have the right to receive upon exercise that number
of shares of Common Stock having a market value of two times the exercise
price of the Right.
 
  At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of Common Stock, the Board of Directors of the Company may exchange the
Rights (other than Rights owned by such person or group which will have become
void), in whole or in part, at an exchange ratio of one share of Common Stock,
or one one-hundredth (128/37,500ths as adjusted) of a Series E Preference
Share (or of a share of a class or series of the Company's preference stock
having equivalent rights, preferences and privileges), per Right (subject to
adjustment).
 
  With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Series E Preference Shares will be issued
(other than fractions which are integral multiples of one one-hundredth of a
Series E Preference Share, which may, at the election of the Company, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Series E Preference Shares on
the last trading date prior to the date of exercise.
 
  At any time prior to the time an Acquiring Person becomes such, the Board of
Directors of the Company may redeem the Rights in whole, but not in part, at a
price of $.0034133 per Right (as adjusted) (the "Redemption Price"). The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
 
  The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an
amendment to lower certain thresholds described above to not less than the
greater of (i) the sum of .001% and the largest percentage of the outstanding
shares of Common Stock then known to the Company to be beneficially owned by
any person or group of affiliated or associated persons (other than (a) the
Company, (b) any subsidiary of the Company, (c) any employee benefit plan of
the Company or any subsidiary of the Company, (d) any entity holding Common
Stock for or pursuant to the terms of any such plan or (e) E.M. Warburg,
Pincus & Co., Inc., a Delaware corporation, and its affiliates and associates)
and (ii) 10%, except that from and after such time as any person or group of
affiliated or associated persons becomes an Acquiring Person, no such
amendment may adversely affect the interests of the holders of the Rights.
 
  For the purpose of calculating the various percentage ownership thresholds
contained in the Rights Agreement, shares issued in connection with the
capital investment approved by the Company's shareholders at the 1984 Annual
Meeting and still owned by the original owner, or owned by certain qualified
transferees, are excluded from the amount deemed to be beneficially owned by
such persons. However, if such original owner or qualified transferee becomes
a member of a group with certain other persons, such shares will be included
in the amount attributable to, and will be deemed to be beneficially owned by,
such other persons.
 
  Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.
 
  The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Mattel on
terms not approved by Mattel's Board of Directors, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Mattel Board of Directors since the Rights may be
 
                                      16

 
redeemed by Mattel at the Redemption Price prior to the time that a person or
group has acquired beneficial ownership of 20% or more of the Common Stock.
 
PREFERRED STOCK
 
  The Mattel Board of Directors has the power, without further vote of
shareholders, to authorize the issuance of up to 3,000,000 shares of Preferred
Stock and 20,000,000 shares of Preference Stock and to fix and determine the
terms, limitations and relative rights and preferences of any shares of
Preferred Stock or Preference Stock that it causes to be issued. This power
includes the authority to establish voting, dividend, redemption, conversion,
liquidation and other rights of any such shares. No shares of Preference Stock
are now outstanding.
 
SERIES B VOTING CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
 
  Mattel is authorized to and has issued 53,631 shares of Series B Preferred
Stock.
 
  Holders of Series B Preferred Stock are entitled to receive, when and as
dividends on the Series B Preferred Stock are declared by the Board of
Directors out of funds legally available therefor, cash dividends, accruing at
the rate per share of 6% of the liquidation preference per annum. The Series B
Preferred Stock has a liquidation preference of $1,050 per share and will be
convertible, at the option of the holder, into shares of Common Stock at a
conversion price per share of approximately $20.46 subject to certain
adjustments set forth in the Certificate of Designations for the Series B
Preferred Stock. Commencing in April 1999, the shares of Series B Preferred
Stock will be convertible into Common Stock for designated periods at the then
market price, but not less than a price per share of approximately $10.23.
Holders of Series B Preferred Stock are entitled to vote (on an as-converted
basis) with the holders of Common Stock and Series C Preferred Stock as a
single class on all matters on which the holders of Common Stock may vote. The
Company has the option, at any time, to exchange Series B Preferred Stock for
6% convertible subordinated notes due 2004 of Mattel. The Company may redeem
Series B Preferred Stock, in whole or in part, at any time for an amount equal
to 105.25% of its liquidation value if the average closing price (as defined
in the Certificate of Designations relating to the Series B Preferred Stock)
of Common Stock exceeds 175% of the then current conversion price of the
Series B Preferred Stock. The 175% threshold is reduced to 150% for
redemptions after April 15, 1998 and eliminated for redemptions commencing
April 15, 1999. In addition, the redemption price is reduced over time from
105.25% of the liquidation value to 100% in 2004. On April 15, 2004, the
Company is required to redeem all outstanding shares of Series B Preferred
Stock and the redemption price shall be paid, at the Company's option, in cash
or in shares of Common Stock.
 
  Pursuant to the terms of a registration rights agreement among the Company
and the holders of the Series B Preferred Stock, the Company has granted the
holders thereof certain demand and incidental registration rights with respect
to the Series B Preferred Stock, any Common Stock issued upon conversion of
such preferred stock or any notes issued in exchange for such preferred stock.
The shares issued upon conversion of the Series B Preferred Stock will be duly
issued, fully paid and nonassessable.
 
SERIES C MANDATORILY CONVERTIBLE REDEEMABLE PREFERRED STOCK; SERIES C
DEPOSITARY SHARES
 
  The Company is authorized to and has issued 772,800 shares of Series C
Preferred Stock. In addition, the Company has outstanding 19,320,000 Series C
Depositary Shares. The shares of Series C Preferred Stock are represented by
Series C Depositary Shares, each such share representing one twenty-fifth of a
share of Mattel Series C Preferred Stock. Subject to the terms of such deposit
agreement, each owner of a Series C Depositary Share is entitled to all the
rights and preferences of the Series C Preferred Stock represented thereby,
and subject, proportionately, to all of the limitations of the Series C
Preferred Stock represented thereby, contained in the Certificate of
Designation related to the Series C Preferred Stock summarized below.
 
  Holders of Series C Preferred Stock are entitled to receive, when and as
dividends on the Series C Preferred Stock are declared by the Board of
Directors out of funds legally available therefor, cash dividends from the
 
                                      17

 
issue date, accruing at the rate per share of 8.25% per annum. The Series C
Preferred Stock has a liquidation preference of $125 per share. On July 1,
2000 (the "Mandatory Conversion Date"), each outstanding share of Series C
Preferred Stock will automatically convert into (i) 13.5753 shares of Common
Stock (the "Mandatory Conversion Rate"), and (ii) the right to receive cash in
an amount equal to all accrued and unpaid dividends on such Series C Preferred
Stock (other than previously declared dividends payable to a holder of record
as of a prior date) to the Mandatory Conversion Date, whether or not declared,
out of funds legally available for the payment of dividends, subject to (1)
the right of the Company to redeem the Series C Preferred Stock on or after
July 1, 1999 (the "First Call Date") and before the Mandatory Conversion Date
and (2) the conversion of the Series C Preferred Stock to Common Stock at the
option of the holder at any time before the Mandatory Conversion Date. The
Mandatory Conversion Rate is subject to adjustment in certain circumstances.
The shares of Series C Preferred Stock are not redeemable prior to the First
Call Date. At any time and from time to time on or after that date until
immediately before the Mandatory Conversion Date, the Company may redeem, in
whole or in part, the outstanding Series C Preferred Stock. Shares of Series C
Preferred Stock are convertible in whole or in part, at the option of the
holder thereof at any time before the Mandatory Conversion Date, unless
previously redeemed, into shares of Common Stock at the rate of 10.0159 (which
rate is subject to adjustment) shares of Common Stock per share of Series C
Preferred Stock. The holders of Series C Preferred Stock have the right with
the holders of Common Stock to vote in the election of directors and upon each
other matter coming before any meeting of the holders of Common Stock. Each
share of Series C Preferred Stock is entitled to 12.219 votes. The holders of
Series C Preferred Stock, Common Stock and Series B Preferred Stock vote
together as one class on such matters except as otherwise provided by law or
by the Certificate of Incorporation of the Company.
 
                       DESCRIPTION OF DEPOSITARY SHARES
 
  The description set forth below and in any Prospectus Supplement of certain
provisions of the Deposit Agreement (as defined below) and of the Depositary
Shares and the Depositary Receipts does not purport to be complete and is
subject to and qualified in its entirety by reference to the Deposit Agreement
and Depositary Receipts relating to each series of the Preferred Stock which
will be filed with the Commission and incorporated by reference as an exhibit
to the Registration Statement of which this Prospectus is a part at or prior
to the time of the issuance of such series of the Preferred Stock. The forms
of Deposit Agreement and Depositary Receipt are filed as exhibits to, or
incorporated by reference in, the Registration Statement of which this
Prospectus is a part.
 
GENERAL
 
  The Company may, at its option, elect to offer fractional shares of
Preferred Stock rather than full shares of Preferred Stock. In the event such
option is exercised, the Company will issue to the public receipts for
Depositary Shares, each of which will represent a fraction (to be set forth in
the Prospectus Supplement relating to a particular series of the Preferred
Stock) of a share of a particular series of the Preferred Stock as described
below.
 
  The shares of any series of the Preferred Stock represented by Depositary
Shares will be deposited under a separate deposit agreement (the "Deposit
Agreement") among the Company, a bank or trust company selected by the Company
(the "Depositary") and the holders from time to time of the Depositary
Receipts. Subject to the terms of the Deposit Agreement, each owner of a
Depositary Share will in general be entitled, in proportion to the applicable
fraction of a share of Preferred Stock represented by such Depositary Share,
to all the rights and preferences of the Preferred Stock represented thereby
(including dividend, voting, redemption and liquidation rights).
 
                                      18

 
  The Depositary Shares relating to any series of the Preferred Stock will be
evidenced by Depositary Receipts issued pursuant to the related Deposit
Agreement. Depositary Receipts will be distributed to those persons purchasing
such Depositary Shares in accordance with the terms of the offering made by
the related Prospectus Supplement.
 
  Upon surrender of Depositary Receipts at the office of the Depositary and
upon payment of the charges provided in the Deposit Agreement and subject to
the terms thereof, a holder of Depositary Receipts is entitled to have the
Depositary deliver to such holder the whole shares of Preferred Stock
underlying the Depositary Shares evidenced by the surrendered Depositary
Receipts. However, there may be no market for the underlying Preferred Stock
and once the underlying Preferred Stock is withdrawn from the Depositary, it
may not be redeposited.
 
DIVIDENDS AND OTHER DISTRIBUTIONS
 
  The Depositary will distribute all cash dividends or other cash
distributions received in respect of the Preferred Stock to the record holders
of Depositary Receipts relating to such Preferred Stock in proportion, insofar
as practicable, to the respective numbers of Depositary Shares evidenced by
such Depositary Receipts held by such holders on the relevant record date. The
Depositary will distribute only such amount, however, as can be distributed
without attributing to any holder of Depositary Receipts a fraction of one
cent, and any balance not so distributed will be added to and treated as part
of the next sum received by the Depositary for distribution to record holders
of Depositary Receipts then outstanding.
 
  In the event of a distribution other than in cash, the Depositary will
distribute such amounts of the securities or property received by it as are,
as nearly as practicable, in proportion to the respective numbers of
Depositary Shares evidenced by the Depositary Receipts held by such holders on
the relevant record date, unless the Depositary determines that it is not
feasible to make such distribution, in which case the Depositary may, with the
approval of the Company, adopt such method as it deems equitable and
practicable for the purpose of effecting such distribution, including the sale
of such securities or property.
 
  The Deposit Agreement will also contain provisions relating to the manner in
which any subscription or similar rights offered by the Company to holders of
the Preferred Stock will be made available to holders of Depositary Receipts.
 
  The amount distributed in all of the foregoing cases will be reduced by any
amounts required to be withheld by the Company or the Depositary on account of
taxes and governmental charges.
 
REDEMPTION OF DEPOSITARY SHARES
 
  If a series of the Preferred Stock represented by Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the
proceeds received by the Depositary resulting from the redemption, in whole or
in part, of such series of the Preferred Stock held by the Depositary. The
Depositary will mail notice of redemption not less than 30 and not more than
60 days prior to the date fixed for redemption to the record holders of the
Depositary Receipts evidencing the Depositary Shares to be so redeemed at
their respective addresses appearing in the Depositary's books. The redemption
price per Depositary Share will be equal to the applicable fraction of the
redemption price per share payable with respect to such series of the
Preferred Stock plus all money and other property, if any, payable with
respect to such Depositary Share, including all amounts payable by the Company
in respect of any accumulated but unpaid dividends. Whenever the Company
redeems shares of Preferred Stock held by the Depositary, the Depositary will
redeem as of the same redemption date the number of Depositary Shares
representing shares of Preferred Stock so redeemed. If less than all the
Depositary Shares are to be redeemed, the Depositary Shares to be redeemed
will be selected by lot or pro rata (subject to rounding to avoid fractions of
Depositary Shares) as may be determined by the Depositary.
 
 
                                      19

 
  After the date fixed for redemption, the Depositary Shares so called for
redemption will not longer be deemed to be outstanding and all rights of the
holders of Depositary Receipts evidencing such Depositary Shares will cease,
except the right to receive the moneys payable upon such redemption and any
moneys or other property to which such holders were entitled upon such
redemption upon surrender to the Depositary of the Depositary Receipts
evidencing such Depositary Shares.
 
VOTING THE PREFERRED STOCK
 
  Upon receipt of notice of any meeting or action to be taken by written
consent at or as to which the holders of the Preferred Stock are entitled to
vote or consent, the Depositary will mail the information contained in such
notice of meeting or action to the record holders of the Depositary Receipts
evidencing the Depositary Shares relating to such Preferred Stock. Each record
holder of such Depositary Receipts on the record date (which will be the same
date as the record date for the Preferred Stock) will be entitled to instruct
the Depositary as to the exercise of the voting rights or the giving or
refusal of consent, as the case may be, pertaining to the number of shares of
the Preferred Stock represented by the Depositary Shares evidenced by such
holder's Depositary Receipts. The Depositary will endeavor, insofar as
practicable, to vote, or give or withhold consent with respect to, the maximum
number of whole shares of the Preferred Stock represented by all Depositary
Shares as to which any particular voting or consent instructions are received,
and the Company will agree to take all action which may be deemed necessary by
the Depositary in order to enable the Depositary to do so. The Depositary will
abstain from voting, or giving consents with respect to, shares of the
Preferred Stock to the extent it does not receive specific instructions from
the holders of Depositary Receipts evidencing Depositary Shares representing
such Preferred Stock.
 
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
 
  The form of Depositary Receipt evidencing the Depositary Shares relating to
any series of Preferred Stock and any provision of the related Deposit
Agreement may at any time and from time to time be amended by agreement
between the Company and the Depositary in any respect which they may deem
necessary or desirable. However, any amendment which imposes or increases any
fees, taxes or charges upon holders of Depositary Shares or Depositary
Receipts relating to any series of Preferred Stock or which materially and
adversely alters the existing rights of such holders will not be effective
unless such amendment has been approved by the record holders of Depositary
Receipts evidencing at least a majority of such Depositary Shares then
outstanding. Notwithstanding the foregoing, no such amendment may impair the
right of any holder of Depositary Shares or Depositary Receipts to receive any
moneys or other property to which such holder may be entitled under the terms
of such Depositary Receipts or the Deposit Agreement at the times and in the
manner and amount provided for therein. A Deposit Agreement may be terminated
by the Company or the Depositary only after (a) all outstanding Depositary
Shares relating thereto have been redeemed and any accumulated and unpaid
dividends on the Preferred Stock represented by the Depositary Shares,
together with all other moneys and property, if any, to which holders of the
related Depositary Receipts are entitled under the terms of such Depositary
Receipts or the related Deposit Agreement, have been paid or distributed as
provided in the Deposit Agreement or provision therefor has been duly made,
(b) there has been a final distribution in respect of the Preferred Stock of
the relevant series in connection with any liquidation, dissolution or winding
up of the Company and such distribution has been distributed to the holders of
the related Depositary Receipts, or (c) in the event the Depositary Shares
relate to a series of Preferred Stock which is convertible into shares of
Common Stock or another series of Preferred Stock, all outstanding Depositary
Shares have been converted into shares of Common Stock or another series of
Preferred Stock.
 
MISCELLANEOUS
 
  The Depositary will forward to record holders of Depositary Receipts, at
their respective addresses appearing in the Depositary's books, all reports
and communications from the Company which are delivered to the Depositary and
which the Company is required to furnish to the holders of the Preferred Stock
or Depositary Receipts.
 
                                      20

 
  The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the Depositary in connection with the initial deposit of
the Preferred Stock and the initial issuance of the Depositary Receipts
evidencing the Depositary Shares, any redemption of the Preferred Stock and
any withdrawals of Preferred Stock by the holders of Depositary Shares.
Holders of Depositary Shares will pay other transfer and other taxes and
governmental charges and such other charges as are expressly provided in the
Deposit Agreement to be for their accounts.
 
  The Deposit Agreement will contain provisions relating to adjustments in the
fraction of a share of Preferred Stock represented by a Depositary Share in
the event of a change in par value, split-up, combination or other
reclassification of the Preferred Stock or upon any recapitalization, merger
or sale of substantially all of the assets of the Company as an entirety.
 
  Neither the Depositary nor any of its agents nor any registrar nor the
Company will be (a) liable if it is prevented or delayed by law or any
circumstance beyond its control in performing its obligations under the
Deposit Agreement, (b) subject to any liability under the Deposit Agreement to
holders of Depositary Receipts other than for the relevant party's gross
negligence or willful misconduct, or (c) obligated to prosecute or defend any
legal proceeding in respect of any Depositary Receipts, Depositary Shares or
the Preferred Stock unless satisfactory indemnity is furnished. They may rely
upon written advice of counsel or accountants, or information provided by
holders of Depositary Receipts or other persons in good faith believed to be
competent and on documents reasonably believed to be genuine.
 
RESIGNATION OR REMOVAL OF DEPOSITARY
 
  The Depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove the Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 60 days after delivery of the notice of
resignation or removal.
 
                      DESCRIPTION OF SECURITIES WARRANTS
 
  The Company may issue Warrants for the purchase of Debt Securities ("Debt
Warrants"), Preferred Stock ("Preferred Stock Warrants"), Depositary Shares
("Depositary Share Warrants"), or Common Stock ("Common Stock Warrants"). Each
series of Warrants will be issued under a separate warrant agreement (a
"Warrant Agreement") to be entered into between the Company and a bank or
trust company, as Warrant Agent, all as set forth in the applicable Prospectus
Supplement relating to the particular issue of Warrants. The Warrant Agent
will act solely as an agent of the Company in connection with the Warrant
Agreement or any certificates evidencing the Warrants ("Warrant Certificates")
and will not assume any obligation or relationship of agency or trust for or
with any holders of Warrant Certificates or beneficial owners of Warrants.
Copies of the forms of Warrant Agreements and the forms of Warrant
Certificates representing the Warrants will be filed by a post-effective
amendment to the Registration Statement or incorporated by reference in
connection with the offering of any Warrants. The following summaries of
certain provisions of the forms of Warrant Agreements and Warrant Certificates
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all the provisions of the Warrant Agreements and the
Warrant Certificates.
 
GENERAL
 
  If Warrants are offered, the applicable Prospectus Supplement will describe
the terms of such Warrants, including, in the case of Warrants for the
purchase of Debt Securities (the "Underlying Debt Securities"), the following,
where applicable: (i) the title and aggregate number of such Debt Warrants;
(ii) the title, rank, aggregate principal amount, denominations, and terms of
the Underlying Debt Securities; (iii) the currencies in which such Debt
Warrants are being offered; (iv) the principal amount of the series of Debt
Securities purchasable upon exercise of each such Debt Warrant and the
exercise price, or the manner of determining such price, at which and
currencies in which such Debt Securities may be purchased; (v) the time or
times, or period
 
                                      21

 
or periods, in which such Debt Warrants may be exercised and the date (the
"Expiration Date") on which such exercise right shall expire; (vi) United
States federal income tax consequences; (vii) the terms of any right of the
Company to redeem or accelerate the exercisability of such Debt Warrants;
(viii) the offering price of such Debt Warrants; and (ix) any other terms of
such Debt Warrants.
 
  In the case of Warrants for the purchase of Preferred Stock (the "Underlying
Preferred Stock") or Depositary Shares (the "Underlying Depositary Shares"),
the Prospectus Supplement will describe the terms of such Warrants, including
the following, where applicable: (i) the title and aggregate number of such
Preferred Stock Warrants or Depositary Share Warrants; (ii) the specific
designation and stated value per share and any dividend (including the method
of calculating payment of dividends), liquidation, redemption, voting and
other rights of the Underlying Preferred Stock or Underlying Depositary
Shares; (iii) the number of shares of Preferred Stock or Depositary Shares
that may be purchased on exercise of each Preferred Stock Warrant or
Depositary Share Warrant; (iv) the exercise price or manner of determining
such price and, if other than cash, the property and manner in which the
exercise price may be paid and any minimum number of Preferred Stock Warrants
or Depositary Share Warrants exercisable at one time; (v) the terms of any
right of the Company to redeem or accelerate the exercisability of such
Preferred Stock Warrants or Depositary Share Warrants; (vi) the time or times,
or period or periods, in which the Preferred Stock Warrants or Depositary
Share Warrants may be exercised and the Expiration Date; (vii) United States
federal income tax consequences; and (viii) any other terms of such Preferred
Stock Warrants or Depositary Share Warrants.
 
  In the case of Common Stock Warrants, the Prospectus Supplement will
describe the terms of such Warrants, including the following, where
applicable: (i) the title and aggregate number of such Common Stock Warrants;
(ii) the number of shares of Common Stock that may be purchased on exercise of
each Common Stock Warrant; (iii) the exercise price or manner of determining
such price and, if other than cash, the property and manner in which the
exercise price may be paid and any minimum number of Common Stock Warrants
exercisable at one time; (iv) the terms of any right of the Company to redeem
or accelerate the exercisability of such Common Stock Warrants; (v) the time
or times, or period or periods, in which the Common Stock Warrants may be
exercised and the Expiration Date; (vi) United States federal income tax
consequences; and (vii) any other terms of such Common Stock Warrants.
 
  Warrants may be exchanged for new Warrants of different denominations, may
(if in registered form) be presented for registration of transfer and may be
exercised at the corporate trust office of the Warrant Agent or any other
office indicated in the applicable Prospectus Supplement. No service charge
will be made for any permitted transfer or exchange of Warrant Certificates,
but the Company may require payment of any tax or other governmental charge
payable in connection therewith. Prior to the exercise of any Debt Warrants,
Preferred Stock Warrants, Depositary Share Warrants or Common Stock Warrants,
holders of such Warrants, as such, will not have any of the rights of holders
of the Debt Securities, Preferred Stock, Depositary Shares or Common Stock,
respectively, purchasable upon such exercise, including (i) in the case of
Debt Warrants, the right to receive payments of principal of (or premium, if
any) or interest, if any, on the Debt Securities purchasable upon such
exercise or to enforce covenants in the applicable indenture, or (ii) in the
case of Preferred Stock, Depositary Shares and Common Stock Warrants, the
right to receive payments of dividends, if any, on the Preferred Stock,
Depositary Shares or Common Stock, as the case may be, purchasable upon such
exercise or to exercise any applicable right to vote.
 
EXERCISE OF WARRANTS
 
  Each Warrant will entitle the holder thereof to purchase such principal
amount of Debt Securities or number of shares of Preferred Stock, Depositary
Shares or Common Stock, as the case may be, at such exercise price as shall in
each case be set forth in, or calculable from, the Prospectus Supplement
relating to the offered Warrants. After the close of business on the
Expiration Date (or such later date to which such Expiration Date may be
extended by the Company), unexercised Warrants will become void.
 
  Warrants may be exercised by delivering to the Warrant Agent payment as
provided in the applicable Prospectus Supplement of the amount required to
purchase the underlying Debt Securities, Preferred Stock,
 
                                      22

 
Depositary Shares or Common Stock, as the case may be, together with certain
information set forth on the reverse side of the Warrant. Warrants will be
deemed to have been exercised upon receipt of payment of the exercise price,
subject to the receipt, within five business days, of the Warrant Certificate
evidencing such Warrants. Upon receipt of such payment and such Warrant
Certificate properly completed and duly executed at the corporate trust office
of the Warrant Agent or any other office indicated in the applicable
Prospectus Supplement, the Company will, as soon as practicable, issue and
deliver the underlying Debt Securities, Preferred Stock, Depositary Shares or
Common Stock, as the case may be. If fewer than all of the Warrants
represented by such Warrant Certificate are exercised, a new Warrant
Certificate will be issued for the remaining amount of Warrants. The holder of
a Warrant will be required to pay any tax or other governmental charge that
may be imposed in connection with any transfer involved in the issuance of the
underlying Debt Securities, Preferred Stock, Depositary Shares or Common
Stock, as the case may be.
 
MODIFICATIONS
 
  The Warrant Agreements and the terms of the Warrants may be modified or
amended by the Company and the Warrant Agent, without the consent of any
holder, for the purpose of curing any ambiguity, or of curing, correcting or
supplementing any defective or inconsistent provision contained therein, or in
any other manner that the Company deems necessary or desirable and that will
not materially adversely affect the interests of the holders of the Warrants.
 
  The Company and the Warrant Agent may also modify or amend the Warrant
Agreement and the terms of the Warrants with the consent of the holders of not
less than a majority in number of the then outstanding unexercised Warrants
affected thereby; provided that no such modification or amendment that
accelerates the Expiration Date, increases the exercise price, reduces the
number of outstanding Warrants the consent of the holders of which is required
for any such modification or amendment, or otherwise materially adversely
affects the rights of the holders of the Warrants, may be made without the
consent of each holder affected thereby.
 
PREFERRED STOCK, DEPOSITARY SHARES AND COMMON STOCK WARRANT ADJUSTMENT
 
  The terms and conditions on which the exercise price of and/or the number of
shares of Preferred Stock, Depositary Shares or Common Stock covered by a
Preferred Stock Warrant, Depositary Share Warrant or Common Stock Warrant,
respectively, are subject to adjustment will be set forth in the Preferred
Stock Warrant Certificate, Depositary Share Warrant Certificate or Common
Stock Warrant Certificate, as the case may be, and the applicable Prospectus
Supplement. Such terms will include provisions for adjusting the exercise
price of and/or the number of shares of Preferred Stock, Depositary Shares or
Common Stock covered by such Preferred Stock Warrant, Depositary Share Warrant
or Common Stock Warrant, as the case may be; the events requiring such
adjustment; the events upon which the Company may, in lieu of making such
adjustment, make proper provisions so that the holder of such Preferred Stock
Warrant, Depositary Share Warrant or Common Stock Warrant, as the case may be,
upon exercise thereof, would be treated as if such holder had exercised such
Preferred Stock Warrant, Depositary Share Warrant or Common Stock Warrant, as
the case may be, prior to the occurrence of such events; and provisions
affecting exercise in the event of certain events affecting the Preferred
Stock, Depositary Shares or Common Stock, as the case may be.
 
                      DESCRIPTION OF UNITS OF SECURITIES
 
  The Company may issue Units consisting of two or more other constituent
Securities, which Units may be issuable as, and for the period of time
specified therein may be transferable as, a single Security only, as
distinguished from the separate constituent Securities comprising such Units.
Any such Units will be offered pursuant to a Prospectus Supplement which will
(i) identify and designate the title of any series of Units; (ii) identify and
describe the separate constituent Securities comprising such Units; (iii) set
forth the price or prices at which such Units will be issued; (iv) describe, if
applicable, the date on and after which the constituent Securities comprising
the Units will become separately transferable; (v) provide information with
respect to book-entry procedures, if any; (vi) discuss applicable United States
federal income tax considerations relating to the Units; and (vii) set forth any
other terms of the Units and their constituent Securities.
 
                                      23

 
                             PLAN OF DISTRIBUTION
 
GENERAL
 
  Mattel may sell the Securities being offered hereby: (i) directly to
purchasers; (ii) through agents; (iii) through dealers; (iv) through
underwriters; or (v) through a combination of any such methods of sale.
 
  The distribution of the Securities may be effected from time to time in one
or more transactions either: (i) at a fixed price or prices, which may be
changed; (ii) at market prices prevailing at the time of sale; (iii) at prices
related to such prevailing market prices; or (iv) at negotiated prices.
 
  Offers to purchase Securities may be solicited directly by Mattel. Offers to
purchase Securities may also be solicited by agents designated by Mattel from
time to time. Any such agent, who may be deemed to be an "underwriter" as that
term is defined in the Securities Act, involved in the offer or sale of the
Securities in respect of which this Prospectus is delivered will be named, and
any commissions payable by Mattel to such agent will be set forth, in the
Prospectus Supplement.
 
  If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, Mattel will sell such Securities to the dealer,
as principal. The dealer, who may be deemed to be an "underwriter" as that
term is defined in the Securities Act, may then resell such Securities to the
public at varying prices to be determined by such dealer at the time of
resale.
 
  If an underwriter is, or underwriters are, utilized in the sale, Mattel will
execute an underwriting agreement with such underwriters at the time of sale
to them and the names of the underwriters will be set forth in the Prospectus
Supplement, which will be used by the underwriters to make resales of the
Securities in respect of which this Prospectus is delivered to the public. In
connection with the sale of Securities, such underwriters may be deemed to
have received compensation from the Company in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
Securities for whom they may act as agents. Underwriters may also sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agents. Any
underwriting compensation paid by the Company to underwriters in connection
with the offering of Securities, and any discounts, concessions or commissions
allowed by underwriters to participating dealers, will be set forth in the
Prospectus Supplement.
 
  Underwriters, dealers, agents and other persons may be entitled, under
agreements that may be entered into with Mattel, to indemnification by Mattel
against certain civil liabilities, including liabilities under the Securities
Act. Underwriters and agents may engage in transactions with, or perform
services for, the Company in the ordinary course of business.
 
DELAYED DELIVERY ARRANGEMENTS
 
  If so indicated in the Prospectus Supplement, Mattel will authorize
underwriters, dealers or other persons to solicit offers by certain
institutions to purchase Securities pursuant to contracts providing for
payment and delivery on a future date or dates. 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. The obligations of any purchaser under any such
contract will not be subject to any conditions except that (a) 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 (b) if the
Securities are also being sold to underwriters, Mattel shall have sold to such
underwriters the Securities not sold for delayed delivery. The underwriters,
dealers and such other persons will not have any responsibility in respect of
the validity or performance of such contracts. The Prospectus Supplement
relating to such contracts will set forth the price to be paid for Securities
pursuant to such contracts, the commissions payable for solicitation of such
contracts and the date or dates in the future for delivery of Securities
pursuant to such contracts.
 
                                      24

 
                                 LEGAL MATTERS
 
  The validity of the Securities will be passed upon for the Company by Irell
& Manella LLP, Los Angeles, California. Ronald M. Loeb, of counsel to the law
firm of Irell & Manella LLP, is a Director of the Company and is the
beneficial owner of 98,795 shares of Common Stock, including 15,000 shares of
Common Stock which may be acquired immediately upon the exercise of options.
Certain legal matters will be passed upon for any underwriters or agents by
O'Melveny & Myers LLP, Los Angeles, California.
 
                                    EXPERTS
 
  The historical financial statements of the Company as of December 31, 1996
and 1995 and for each of the three years in the period ended December 31, 1996
incorporated by reference in this Prospectus to the Company's Annual Report on
Form 10-K and the audited financial statements, restated to give effect to the
merger with Tyco accounted for as a pooling of interests, for the
aforementioned periods incorporated by reference in this Prospectus to the
Company's Current Report on Form 8-K dated July 30, 1997 have been so
incorporated in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting and, with respect to the historical financial statements of Tyco
for the aforementioned periods, in reliance on the report of Deloitte & Touche
LLP, independent auditors, given upon their authority as experts in accounting
and auditing.
 
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