KB Home, et al. – ‘424B4’ on 7/2/98

As of:  Thursday, 7/2/98   ·   Accession #:  950123-98-6410   ·   File #s:  333-51825, -01

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Prospectus   —   Rule 424(b)(4)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Kaufman & Broad Home Corp                            110    596K 

Document Table of Contents

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                  Filed pursuant to Rule 424(b)(4)
                                 Registration Numbers 333-51825 and 333-51825-01

PROSPECTUS                                                                      

16,500,000 FELINE PRIDES(SM)
(CONSISTING OF 15,500,000 INCOME PRIDES(SM) AND 1,000,000 GROWTH PRIDES(SM))

[KAUFMAN BROAD LOGO]

1,000,000 CAPITAL SECURITIES
KBHC FINANCING I
(LIQUIDATION AMOUNT $10 PER CAPITAL SECURITY) 
FULLY AND UNCONDITIONALLY GUARANTEED TO 
THE EXTENT SET FORTH HEREIN BY
KAUFMAN AND BROAD HOME CORPORATION
------------------------

The securities offered hereby are 16,500,000 FELINE PRIDES(SM) ("FELINE 
PRIDES") of Kaufman and Broad Home Corporation, a Delaware corporation (the     
"Company"), consisting of separately offered and separately traded units        
referred to as "Income PRIDES" and "Growth PRIDES" and 1,000,000 separately     
offered and separately traded 8% Capital Securities (the "Capital Securities"   
and, together with the FELINE PRIDES, the "Securities") of KBHC Financing I, a  
statutory business trust created under the laws of the State of Delaware (the   
"Trust"), having a stated liquidation amount per Capital Security equal to $10. 
In addition to the separately offered and separately traded Capital Securities, 
15,500,000 Capital Securities will be issued and will initially be held as a    
component of the Income PRIDES and will not be offered or traded separately from
the Income PRIDES, unless and until substitution is made as described in        
"Description of the FELINE PRIDES -- Creating Growth PRIDES."                   

                                                        (continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 25 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION RELEVANT TO AN INVESTMENT IN THE SECURITIES.                        

  Prior to the offering made hereby, there has been no public market for the
Securities. The Income PRIDES and the Growth PRIDES have been approved for      
listing on the New York Stock Exchange ("NYSE") under the symbols "KBHPrI" and  
"KBHPrG," respectively, subject to official notice of issuance. Unless and until
substitution is made as described in "Description of the FELINE                 
PRIDES -- Creating Growth PRIDES" or "-- Creating Income PRIDES," neither the   
Capital Security component of an Income PRIDES nor the Treasury Security        
component of a Growth PRIDES will trade separately from such Income PRIDES or   
Growth PRIDES, and such Capital Security component will trade as a unit with the
Purchase Contract component of the Income PRIDES and such Treasury Security     
component will trade as a unit with the Purchase Contract component of the      
Growth PRIDES. If Capital Securities are separately traded to a sufficient      
extent that applicable exchange listing requirements are met, the Company will  
endeavor to cause such securities to be listed on the exchange on which the     
Income PRIDES and Growth PRIDES are then listed, including, if applicable, the  
NYSE. On June 30, 1998, the last reported sale price of the Common Stock of the 
Company on the NYSE was $31 3/4 per share.                                      
------------------------
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. 

PRICE TO PUBLIC(1)
       $10.000 per Income PRIDES
       $ 8.446 per Growth PRIDES
          $ 9.931 per Capital Security

                                                        [Enlarge/Download Table]
                                                                                                                        
========================================================================================================================
                                                         UNDERWRITING                           PROCEEDS TO             
                                                         COMMISSION(2)                          COMPANY(3)              
------------------------------------------------------------------------------------------------------------------------
Total(4)...................................               $4,950,000                           $160,050,000             
========================================================================================================================

(1) Plus, as applicable, accrued distributions, interest and Contract Adjustment
Payments, if any, from July 7, 1998.                                    

(2) The Company and the Trust have agreed to indemnify the Underwriters against 
certain liabilities under the Securities Act of 1933, as amended. See   
"Underwriting."                                                         

(3) Before deducting expenses payable by the Company estimated at $950,000; such
   amount does not include $8,445,900 used to purchase the Treasury Securities
component of the 1,000,000 Growth PRIDES.                               

(4) The Company and the Trust have granted to the Underwriters a 30-day option  
to purchase up to an additional 2,475,000 Income PRIDES to cover        
over-allotments, if any. If such option is exercised in full, the total 
Underwriting Commission and Proceeds to Company will be $5,692,500 and  
$184,057,500, respectively. See "Underwriting."                         

    The Securities are offered by the Underwriters, subject to prior sale, when,
as and if issued to and accepted by them and subject to approval of certain     
legal matters by counsel for the Underwriters and certain other conditions. The 
Underwriters reserve the right to withdraw, cancel or modify such offer and to  
reject orders in whole or in part. It is expected that delivery of the          
Securities offered hereby will be made in New York, New York on or about July 7,
1998.                                                                           

------------------------

MERRILL LYNCH & CO.                                 DONALDSON, LUFKIN & JENRETTE
                                       S E C U R I T I E S
C O R P O R A T I O N         

------------------------
The date of this Prospectus is June 30, 1998. 
---------------                                                                 
(SM)Service mark of Merrill Lynch & Co., Inc.                                   

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The FELINE PRIDES offered hereby will initially consist of (A) 15,500,000 units 
(referred to as "Income PRIDES") with a stated amount per Income PRIDES equal to
$10 (the "Stated Amount") and (B) 1,000,000 units (referred to as "Growth       
PRIDES") with a Stated Amount per Growth PRIDES equal to $10. Each Income PRIDES
will initially consist of a unit comprised of (a) a stock purchase contract (a  
"Purchase Contract") under which (i) the holder will purchase from the Company  
not later than August 16, 2001 (the "Purchase Contract Settlement Date"), for   
$10, a number of newly issued shares of common stock, $1 par value per share    
(the "Common Stock"), of the Company equal to the Settlement Rate described     
herein, and (ii) the Company will pay to the holder unsecured contract          
adjustment payments ("Contract Adjustment Payments") at the rate of .25% of the 
Stated Amount per annum and (b) either beneficial ownership of a Capital        
Security or, upon the occurrence of a Tax Event Redemption (as defined herein)  
prior to the Purchase Contract Settlement Date, the Applicable Ownership        
Interest (as defined herein) in the Treasury Portfolio (as defined herein). Each
Growth PRIDES will consist of a unit comprised of (a) a Purchase Contract under 
which (i) the holder will purchase from the Company not later than the Purchase 
Contract Settlement Date, for $10, a number of newly issued shares of Common    
Stock of the Company, equal to the Settlement Rate, and (ii) the Company will   
pay the holder Contract Adjustment Payments at the rate of .75% of the Stated   
Amount per annum, and (b) a 1/100 undivided beneficial interest in a zero-coupon
U.S. Treasury Security (CUSIP No. 912820 BB 2) with a principal amount at       
maturity equal to $1,000 and maturing on August 15, 2001 (each such security a  
"Treasury Security" and, collectively, the "Treasury Securities"). The Company  
will, directly or indirectly, own all the common securities (the "Common        
Securities" and, together with the Capital Securities, the "Trust Securities"), 
representing undivided beneficial ownership interests in the assets of the      
Trust. The Trust exists for the sole purpose of issuing the Trust Securities and
investing the proceeds thereof in an equivalent amount of Debentures of the     
Company, due August 16, 2003 and initially bearing interest at 8% per annum (the
"Debentures"). As long as the FELINE PRIDES are in the form of Income PRIDES or 
Growth PRIDES, the related Capital Securities or the Treasury Portfolio or the  
Treasury Securities, as applicable, will be pledged to the Collateral Agent (as 
defined herein), to secure the holder's obligation to purchase Common Stock     
under the related Purchase Contracts.                                           

The number of shares of Common Stock issuable upon settlement of each 
Purchase Contract on the Purchase Contract Settlement Date (the "Settlement     
Rate") will be calculated as follows (subject to adjustment under certain       
circumstances): (a) if the Applicable Market Value (as defined herein) is equal 
to or greater than $38.10 (the "Threshold Appreciation Price," which is         
approximately 20% above the last reported sale price of the Common Stock set    
forth on the cover page of this Prospectus (the "Reference Price")), the        
Settlement Rate will be .2625; (b) if the Applicable Market Value is less than  
the Threshold Appreciation Price but greater than the Reference Price, the      
Settlement Rate will be equal to the Stated Amount divided by the Applicable    
Market Value; and (c) if the Applicable Market Value is less than or equal to   
the Reference Price, the Settlement Rate will be .3150.                         

    Aggregate payments of 8.25% of the Stated Amount per annum will be made or
accrue on each Income PRIDES quarterly in arrears on February 16, May 16, August
16 and November 16 of each year, commencing August 16, 1998, until the Purchase 
Contract Settlement Date. These payments will consist of cumulative cash        
distributions on the related Capital Securities or Treasury Portfolio, as       
applicable, payable at the rate of 8% of the stated liquidation amount per      
annum, and Contract Adjustment Payments payable by the Company at the rate of   
.25% of the Stated Amount per annum, subject in the case of Capital Securities
and Contract Adjustment Payments to the Company's right to defer payment of such
amounts. Contract Adjustment Payments payable by the Company at the rate of .75%
of the Stated Amount per annum will be made or accrue on each Growth PRIDES     
quarterly in arrears on February 16, May 16, August 16 and November 16 of each  
year, commencing August 16, 1998, until the Purchase Contract Settlement Date,  
subject to the Company's right to defer such payments. In addition, original    
issue discount ("OID") will accrue on the related Treasury Security. Holders of 
each Capital Security will receive cumulative cash distributions, payable       
quarterly in arrears, on February 16, May 16, August 16 and November 16 of each 
year, commencing August 16, 1998 at the rate of 8% of the stated liquidation    
amount per annum. Such quarterly distributions on                               

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the Capital Securities will constitute a portion of the quarterly distributions 
on the related Income PRIDES. The ability of the Trust to make the quarterly    
distributions on the Capital Securities will be solely dependent upon the       
receipt of corresponding interest payments from the Company on the Debentures.  
The Company will have the right at any time, and from time to time, limited to a
period not extending beyond the maturity date of the Debentures, to defer the   
interest payments due on the Debentures. As a consequence of such deferral,     
quarterly distributions on the Capital Securities and a portion of the quarterly
distributions on the Income PRIDES (to the extent that such portion of the      
quarterly distributions on the Income PRIDES are comprised of the quarterly     
distributions on the Capital Securities) would be deferred, but would continue  
to accrue with interest at the rate of 8% of the stated liquidation amount per  
annum compounded quarterly. The Company will have the right at any time, and    
from time to time, limited to a period not extending beyond the Purchase        
Contract Settlement Date, to defer Contract Adjustment Payments. As a           
consequence of such deferral, such portion of the cumulative quarterly          
distributions on the Income PRIDES that is comprised of the Contract Adjustment 
Payments and the quarterly cash distributions on the Growth PRIDES would be     
deferred; however, such deferred Contract Adjustment Payments will bear         
additional Contract Adjustment Payments at the rate of 8.75% per annum until    
paid, compounded quarterly (such deferred Contract Adjustment Payments together 
with such additional Contract Adjustment Payments shall be referred to as       
"Deferred Contract Adjustment Payments").                                       

  The distribution rate on the Capital Securities and the interest rate on
the related Debentures outstanding on and after the Purchase Contract Settlement
Date will be reset on the third Business Day (as defined herein) immediately    
preceding the Purchase Contract Settlement Date to a rate per annum (the "Reset 
Rate") to be determined by the Reset Agent (as defined herein) equal to the sum 
of (x) a spread amount (the "Reset Spread") and (y) the rate of interest on the 
Two-Year Benchmark Treasury (as defined herein), provided that the Company may  
limit the Reset Rate or the Reset Rate may be limited by applicable law as      
described herein.                                                               

    The payment of distributions and certain redemptions out of monies held by
the Trust and payments on liquidation of the Trust will be guaranteed by the    
Company (the "Guarantee") to the extent described herein and under "Description 
of the Guarantee."                                                              

  The Company's obligations in respect of the Debentures and the Guarantee
will be senior unsecured obligations of the Company. The Contract Adjustment    
Payments will be subordinated and junior in right of payment only to the        
Company's obligations under the Senior Indebtedness. "Senior Indebtedness" means
indebtedness of any kind of the Company unless the instrument under which such  
indebtedness is incurred expressly provides that it is on a parity in right of  
payment with or subordinate in right of payment to the Contract Adjustment      
Payments.                                                                       

  If the holder of an Income PRIDES has not notified the Purchase Contract
Agent (as defined herein), in the manner described herein, of its intention to  
settle the related Purchase Contract with separate cash, the Remarketing Agent  
(as defined herein), pursuant to the terms of the Remarketing Agreement (as     
defined herein), will use its reasonable efforts to remarket the related Capital
Security (bearing the Reset Rate) on the third Business Day immediately         
preceding the Purchase Contract Settlement Date for settlement on the Purchase  
Contract Settlement Date at a price of approximately 100.75% of such Capital    
Security's stated liquidation amount plus accrued and unpaid distributions      
(including deferred distributions, if any) thereon. The portion of proceeds from
such remarketing, in an amount equal to the aggregate stated liquidation amount 
of such Capital Securities, will automatically be applied to satisfy in full    
such holder's obligation to purchase Common Stock under the related Purchase    
Contract. In addition, after deducting as a remarketing fee (the "Remarketing   
Fee") an amount not exceeding 50 basis points (.50%) of the aggregate stated    
liquidation amount of the remarketed Capital Securities from any amount received
in connection with such remarketing in excess of the aggregate stated           
liquidation amount of such Capital Securities plus any accrued and unpaid       
distributions (including deferred distributions, if any), the Remarketing Agent 
will remit the remaining portion of the proceeds, if any, to the Purchase       
Contract Agent for the benefit of such holder. If, despite using its reasonable 
efforts, the Remarketing Agent fails to remarket the Capital Securities (other  
than to the Company) at a price not less than 100% of their aggregate stated    
liquidation amount plus accrued and unpaid distributions (including deferred    
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condition precedent to the remarketing shall not have been fulfilled, the       
remarketing will be deemed to have failed (a "Failed Remarketing") and the      
Company will exercise its rights as a secured party to dispose of the Capital   
Securities in accordance with applicable law and satisfy in full, from the      
proceeds of such disposition, such holder's obligation to purchase Common Stock 
under the related Purchase Contracts; provided that, if the Company exercises   
such rights as a secured party with respect to such Capital Securities, any     
accrued and unpaid distributions (including deferred distributions, if any) on  
such Capital Securities will be paid in cash by the Company to the holder of    
record of such Capital Securities. Holders of Capital Securities which are not  
components of Income PRIDES may elect, in the manner described herein, to have  
their Capital Securities remarketed by the Remarketing Agent.                   

  On or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date, each holder of Income PRIDES may substitute for the   
related Capital Securities or the Applicable Ownership Interest of the Treasury 
Portfolio, as the case may be, Treasury Securities in an amount payable at the  
stated maturity thereof per Income PRIDES equal to the Stated Amount, thereby   
creating Growth PRIDES. Such Treasury Securities will be pledged with the       
Collateral Agent to secure the holder's obligation to purchase Common Stock     
under the related Purchase Contracts. In the event that Contract Adjustment     
Payments are at a higher rate for Growth PRIDES than for Income PRIDES, holders 
of Income PRIDES wishing to create Growth PRIDES will also be required to       
deliver cash in an amount equal to the excess of the Contract Adjustment        
Payments that would have accrued since the last Payment Date (as defined herein)
on which cash distributions have been paid through the date of substitution on  
the Growth PRIDES being created by such holders, over the Contract Adjustment   
Payments that have accrued over the same time period on the related Income      
PRIDES. Upon the substitution of Treasury Securities for the related Capital    
Securities as collateral, such Capital Securities will be released to the holder
as described herein.                                                            

  On or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date, each holder of Growth PRIDES may substitute for the   
related Treasury Securities, Capital Securities, thereby creating Income PRIDES.
Such Capital Securities will be pledged with the Collateral Agent to secure the 
holder's obligation to purchase Common Stock under the related Purchase         
Contracts. Upon the substitution of Capital Securities for the related Treasury 
Securities as collateral, such Treasury Securities will be released to the      
holder as described herein.                                                     

    If a Failed Remarketing has occurred, each holder of Trust Securities (or,
following the distribution of the Debentures upon a dissolution of the Trust as 
described herein, the holders of such Debentures) holding such Trust Securities 
(or Debentures, as the case may be) following the Purchase Contract Settlement  
Date will have the right, in the case of the Trust Securities, to require the   
Trust to distribute their pro rata share of the Debentures to The First National
Bank of Chicago, as exchange agent (the "Exchange Agent"), and the Exchange     
Agent will put such Debentures to the Company on behalf of such holders (or, in 
the case of the persons who hold the Debentures directly, such persons will have
the right to put their Debentures directly to the Company) on September 1, 2001,
upon at least three Business Days' prior notice, at a price equal to the        
principal amount thereof, plus accrued and unpaid interest (including deferred  
interest), if any, thereon.                                                     

    On the Business Day immediately preceding the Purchase Contract Settlement
Date, unless a holder of Income PRIDES or Growth PRIDES (i) has settled the     
related Purchase Contracts through the early delivery of cash to the Purchase   
Contract Agent in the manner described herein, (ii) in the case of Income       
PRIDES, has settled the related Purchase Contracts with separate cash on the    
Business Day immediately preceding the Purchase Contract Settlement Date        
pursuant to prior notification to the Purchase Contract Agent, (iii) in the case
of Income PRIDES, has had the Capital Securities related to such holder's       
Purchase Contracts remarketed in the manner described herein in connection with 
settling such Purchase Contracts, or (iv) an event described under "Description 
of the Purchase Contracts -- Termination" has occurred, then (A) in the case of 
Income PRIDES (unless a Tax Event Redemption has occurred) the Company will     
exercise its rights as a secured party to dispose of the Capital Securities in  
accordance with applicable law and (B) in the case of Growth PRIDES or Income   
PRIDES (in the event that a Tax Event Redemption has occurred), the principal   
amount of the related Treasury Securities or the appropriate Applicable         
Ownership Interest of the Treasury Portfolio, as applicable, when paid at       
maturity, will automatically be applied to satisfy in full such holder's        
obligation to purchase Common Stock under the related Purchase Contracts.       

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     In the event that a holder of either Income PRIDES or Growth PRIDES effects
the early settlement of the related Purchase Contracts through the delivery of  
cash or settles (in the case of Income PRIDES) such Purchase Contracts with cash
on the Business Day immediately preceding the Purchase Contract Settlement Date,
the related Capital Securities, the appropriate Applicable Ownership Interest of
the Treasury Portfolio or Treasury Securities, as the case may be, will be      
released to the holder as described herein.                                     

The Company will have the right at any time to dissolve the Trust and,
after satisfaction of liabilities to creditors, cause the Debentures to be      
distributed to the holders of the Trust Securities. If the Debentures are       
distributed to the holders of the Capital Securities, the Company will use its  
best efforts to cause the Debentures to be listed on such exchange on which the 
Capital Securities are then listed, if any, including, if applicable, the NYSE. 

The Debentures (and, thus, the Trust Securities) are redeemable at the
option of the Company, in whole but not in part, upon the occurrence and        
continuation of a Tax Event (as defined herein) under the circumstances         
described herein (a "Tax Event Redemption"). If the Company so redeems all of   
the Debentures, the Trust must redeem all of the Trust Securities at a          
redemption price (the "Redemption Price") per Trust Security equal to the       
Redemption Amount (as defined herein) plus accrued and unpaid distributions     
including deferred distributions, if any, thereon to the date fixed for         
redemption and pay in cash such Redemption Price to the holders of such Trust   
Securities. If such Tax Event Redemption occurs prior to the Purchase Contract  
Settlement Date, the Redemption Price payable in liquidation of the Income      
PRIDES holders' interests in the Trust or in the Debentures will be distributed 
to the Collateral Agent, who in turn will apply an amount equal to the          
Redemption Amount of such Redemption Price to purchase, on behalf of the holders
of Income PRIDES, the Treasury Portfolio and remit the remaining portion, if    
any, of such Redemption Price to the Purchase Contract Agent for payment to the 
holder of such Income PRIDES. See "Description of the Debentures -- Tax Event   
Redemption." Such Treasury Portfolio will be substituted for the Capital        
Securities and will be pledged to the Collateral Agent to secure such Income    
PRIDES holders' obligations to purchase the Common Stock under their Purchase   
Contracts.                                                                      

   CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES AND   
THE COMMON STOCK OF THE COMPANY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING      
TRANSACTIONS, THE PURCHASE OF SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND 
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE      
"UNDERWRITING."                                                                 

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FORWARD-LOOKING STATEMENTS

   Investors are cautioned that certain statements contained or incorporated
by reference in this Prospectus are "forward-looking statements" within the     
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act").    
Statements which are predictive in nature, which depend upon or refer to future 
events or conditions, or which include words such as "expects", "anticipates",  
"intends", "plans", "believes", "estimates", "hopes", and similar expressions   
constitute forward-looking statements. In addition, any statements concerning   
future financial performance (including future revenues, earnings or growth     
rates), ongoing business strategies or prospects, and possible future Company   
actions, are also forward-looking statements as defined by the Act.             
Forward-looking statements are based on current expectations and projections    
about future events and are subject to risks, uncertainties, and assumptions    
about the Company, economic and market factors and the homebuilding industry,   
among other things. These statements are not guaranties of future performance,  
and the Company has no specific intention to update these statements.           

 Actual events and results may differ materially from those expressed or
forecasted in the forward-looking statements made by the Company due to a number
of factors. The principal important risk factors that could cause the Company's 
actual performance and future events and actions to differ materially from such 
forward-looking statements include, but are not limited to, changes in general  
economic conditions either nationally or in regions where the Company operates  
or may commence operations, employment growth or unemployment rates, lumber or  
other homebuilding material prices, labor costs, home mortgage interest rates,  
currency exchange rates as they affect the Company's operations in France and   
Mexico, consumer confidence, government regulation or restrictions on real      
estate development, costs and effects of unanticipated legal or administrative  
proceedings and capital or credit market conditions affecting the Company's cost
of capital; the availability and cost of land in desirable areas, and conditions
in the overall homebuilding market in the Company's geographic markets          
(including the historic cyclicality of the industry); as well as seasonality,   
competition, population growth, property taxes, and unanticipated delays in the 
Company's operations. See the Company's Annual Report on Form 10-K for the year 
ended November 30, 1997, its Quarterly Report on Form 10-Q for the quarterly    
period ended February 28, 1998 and other Company filings with the Securities and
Exchange Commission, copies of which may be obtained as described under         
"Available Information," for a further discussion of risks and uncertainties    
applicable to the Company's business.                                           

AVAILABLE INFORMATION 

    The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance       
therewith, files reports, proxy statements and other information with the       
Securities and Exchange Commission (the "Commission"). Such reports, proxy      
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities of the Commission at    
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional   
offices of the Commission located at 7 World Trade Center, 13th Floor, Suite    
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500 
West Madison Street, Chicago, Illinois 60661. Copies of such material can also  
be obtained at prescribed rates by writing to the Public Reference Section of   
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
also maintains a site on the world wide web at http:www.sec.gov that contains   
reports, proxy and information statements and other information filed           
electronically by the Company. In addition, such reports, proxy statements and  
other information may be inspected at the offices of the New York Stock         
Exchange, 20 Broad Street, New York, New York 10005, upon which the Common Stock
is traded.                                                                      

    This Prospectus constitutes a part of a registration statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration           
Statement") filed by the Company and the Trust with the Commission under the    
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does 
not contain all of the information set forth in the Registration Statement,     
certain parts of which are omitted in accordance with the rules and regulations 
of the Commission. For further information with respect to the Company, the     
Trust and the Securities offered hereby, reference is made to the Registration  
Statement and the exhibits and the financial statements, notes and schedules    
filed as a part thereof or incorporated by reference therein, which             

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may be inspected at the public reference facilities of the Commission at the    
addresses set forth above. Statements made in this Prospectus concerning the    
contents of any documents referred to herein are not necessarily complete, and  
in each instance reference is hereby made to the copy of such document filed as 
an exhibit to the Registration Statement or otherwise filed with the Commission 
for a more complete description of the matter involved. Each such statement is  
qualified in its entirety by such reference.                                    

  No separate financial statements of the Trust have been included herein.
The Company and the Trust do not consider that such financial statements would  
be material to holders of the Capital Securities because the Trust is a newly   
formed special purpose entity, has no operating history or independent          
operations and is not engaged in and does not propose to engage in any activity 
other than its holding as trust assets the Debentures and the issuance of the   
Trust Securities. See "The Trust," "Description of FELINE PRIDES," "Description 
of the Debentures," "Description of the Capital Securities" and "Description of 
the Guarantee." The Trust is not currently subject to the information reporting 
requirements of the Exchange Act. The Trust will become subject to such         
requirements upon the effectiveness of the Registration Statement, although the 
Trust intends to seek and expects to receive an exemption therefrom.            

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 

 The following documents, which have been filed with the Commission, are
hereby incorporated by reference:                                               

    1.  Annual Report on Form 10-K of the Company for the year ended
November 30, 1997;                                                    

          2.  Quarterly Report on Form 10-Q of the Company for the quarter ended
February 28, 1998; and                                                

      3.  Current Report of the Company on Form 8-K dated June 23, 1998.

All documents filed by the Company after the date of this Prospectus  
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the
termination of the offering of the securities offered hereby and the remarketing
of the Capital Securities shall be deemed to be incorporated herein by reference
and to be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference  
herein shall be deemed to be modified or superceded for purposes of this        
Prospectus to the extent that a statement contained herein (or in any other     
subsequently filed document which also is or is deemed to be incorporated by    
reference herein) modifies or supersedes such statement. Any statements so      
modified or superseded shall be deemed to constitute a part of this Prospectus, 
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 written  
or oral request of such person, a copy of any or all of the documents referred  
to in this section which have been or may be incorporated by reference in this  
Prospectus (other than certain exhibits to such documents). Telephone requests  
for such documents may be made by dialing 1-888-KBH-NYSE (1-888-524-6973). Mail 
requests for such documents should be directed to Kaufman and Broad Home        
Corporation, 10990 Wilshire Boulevard, Los Angeles, California 90024, Attention:
Investor Relations.                                                             

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PROSPECTUS SUMMARY

    The following summary information is qualified in its entirety by the more
detailed information and consolidated financial statements of the Company       
appearing elsewhere in this Prospectus and in the documents incorporated herein 
by reference. Except as otherwise noted, all information in this Prospectus     
assumes no exercise of the Underwriters' over-allotment options. For purposes of
the discussions set forth herein under "The Company" and "Management's          
Discussion and Analysis of Financial Condition and Results of Operations,"      
references to results of operations or financial condition as of or for a       
particular year or quarter refer to the Company's fiscal year ending November 30
and its fiscal quarters ending February 28, May 31, August 31 and November 30,  
as the case may be, of each year.                                               

  A listing of the pages on which certain definitions of capitalized terms
used in this Prospectus Summary and elsewhere in this Prospectus are defined is 
set forth in the "Index of Certain Terms for Prospectus" herein.                

THE COMPANY 

GENERAL                                                                         

     The Company is a builder of single-family homes with domestic operations in
seven western states and international operations in France and Mexico.         
Domestically, the Company is the largest home builder west of the Mississippi   
River, delivering more single-family homes than any other builder in the region.
Founded in 1957, the Company builds innovatively designed homes that cater      
primarily to first-time home buyers, generally in medium-sized developments     
close to major metropolitan areas. Internationally, the Company is among the    
largest builders in greater metropolitan Paris, France, based on the number of  
homes delivered. In France, the Company also builds high-density residential    
properties, such as condominium and apartment complexes. The Company provides   
mortgage banking services to domestic home buyers through its wholly owned      
subsidiary, Kaufman and Broad Mortgage Company.                                 

As used herein, the term "Company" refers to Kaufman and Broad Home   
Corporation and its subsidiaries, unless otherwise expressly stated or the      
context indicates otherwise.                                                    

RECENT DEVELOPMENTS                                                             

 During the second quarter of 1998, the Company acquired three privately
held home builders with regional operations in certain key markets. On March 19,
1998, the Company acquired all of the issued and outstanding capital stock of   
Houston-based Hallmark Residential Group, Inc. ("Hallmark") for approximately   
$54 million, including the assumption of debt. Hallmark builds single-family    
homes in Houston, San Antonio and Austin, Texas under the trade names of Dover  
Homes and Ideal Builders. The Company acquired substantially all of the assets  
of Denver-based PrideMark Homebuilding Group ("PrideMark") on March 23, 1998 for
approximately $65 million, including the assumption of trade liabilities and    
debt. PrideMark builds single-family homes in Denver, Colorado. On April 9,     
1998, the Company acquired all of the issued and outstanding capital stock of   
Estes Homebuilding Co. ("Estes") for approximately $48 million, including the   
assumption of debt. Estes builds single-family homes in Phoenix and Tucson,     
Arizona. See "The Company -- Recent Developments." The Company currently        
estimates that the acquisitions in aggregate will produce incremental unit      
deliveries and revenues in fiscal 1998 of approximately 1,500 and $175 million, 
respectively, and will be accretive to 1998 earnings per share, subject to the  
assumptions and other considerations set forth in "The Company -- Recent        
Developments."                                                                  

     Company-wide net orders for the second quarter ended May 31, 1998 increased
43.1% from the same period a year ago. Domestic net orders were up 36.1% from   
the prior year's quarter, including a 5.8% decrease in California net orders due
to a 17.1% decline in active communities in the state which was partially offset
by faster sales rates. The impact of El Nino rains on the Company's deliveries  
in the first two quarters of 1998 was only modest, with approximately 10 to 20  
unit deliveries in each quarter delayed to each subsequent quarter. The Company 
believes a similar number of deliveries may be postponed in the third quarter   
due to land development delays caused by the El Nino rains during the first half
of 1998. Nonetheless, the Company anticipates that, assuming a return to more   
normal weather patterns in California, all such delayed deliveries              
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will be recorded before the end of the 1998 fiscal year, and, accordingly,      
expects that El Nino conditions will have no material effect on year-end        
revenues. Net orders from non-California domestic operations (Arizona, Colorado,
Nevada, New Mexico, Texas and Utah) (collectively, "Other U.S.") for the second 
quarter of 1998 increased 72.9% from the second quarter of 1997. Excluding 539  
aggregate net orders attributable to recently completed acquisitions, the       
percentage increases in net orders for the 1998 second quarter versus the prior 
year for Other U.S., total U.S., and the Company were 40.9%, 19.1% and 27.3%,   
respectively. In France, net orders were up 137.4% for the second quarter of    
1998 compared to the prior year quarter, attributable in part to the Company's  
acquisition of SMCI in the third quarter of 1997.                               

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THE TRUST 

     The Trust is a statutory business trust created under Delaware law pursuant
to (i) a declaration of trust executed by the Company, as Sponsor (the          
"Sponsor"), and the trustees of the Trust (the "KBHC Trustees") and (ii) the    
filing of a certificate of trust with the Secretary of State of the State of    
Delaware. Such declaration of trust will be amended and restated in its entirety
(as so amended and restated, the "Declaration") substantially in the form filed 
as an exhibit to the Registration Statement of which this Prospectus forms a    
part. The Declaration will be qualified as an indenture under the Trust         
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Trust exists 
for the exclusive purposes of (i) issuing the Trust Securities, which represent 
undivided beneficial ownership interests in the assets of the Trust, (ii)       
investing the gross proceeds of the Trust Securities in the Debentures and (iii)
engaging in only those other activities necessary or incidental thereto. See    
"The Trust."                                                                    

THE OFFERING

Securities Offered.........  16,500,000 FELINE PRIDES, consisting of 15,500,000 
                        Income PRIDES and 1,000,000 Growth PRIDES, and
                           1,000,000 separate Capital Securities. 15,500,000
                         Capital Securities will be initially issued and
                   held as a component of the Income PRIDES.

Issuers....................  Kaufman and Broad Home Corporation and KBHC        
Financing I.          

Listing of the Income                                                           
PRIDES                                                                          
and Growth PRIDES........  The Income PRIDES and the Growth PRIDES have been
                      approved for listing on the NYSE, subject to
                       official notice of issuance. Unless and until
                    substitution has been made as described in
                       "Description of the FELINE PRIDES -- Creating
                        Growth PRIDES" or "-- Creating Income PRIDES,"
                             neither the Capital Security component of an Income
                         PRIDES nor the Treasury Security component of a
                       Growth PRIDES will trade separately from such
                          Income PRIDES or Growth PRIDES, and such Capital
                          Security component will trade as a unit with the
                          Purchase Contract component of the Income PRIDES
                            and such Treasury Security component will trade as
                            a unit with the Purchase Contract component of the
                      Growth PRIDES. If the Capital Securities are
                           separately traded to a sufficient extent that the
                           applicable exchange listing requirements are met,
                            the Company will endeavor to cause such securities
                          to be listed on the exchange on which the Income
                       PRIDES and the Growth PRIDES are then listed,
                 including, if applicable, the NYSE. See
"Underwriting."       

NYSE Symbol of                                                                  
Common Stock.............  "KBH"                                            

Use of Proceeds............  All of the proceeds from the sale of the Income    
                     PRIDES, the Capital Securities that are not
                        components of the Income PRIDES and the Common
                     Securities will be invested by the Trust in
                          Debentures of the Company. The Company currently
                             anticipates using the net proceeds from the sale of
                             the Debentures (net of amounts paid to purchase the
                           Common Securities), estimated to be approximately
                         $159,100,000 (approximately $183,107,500 if the
                            Underwriters' over-allotment options are exercised
                    in full) (in each case after deducting the
                        underwriting commission and estimated expenses
                        payable by the Company), for general corporate
                            purposes, including potential future acquisitions.
                            Pending application for such purposes, the Company
                   intends to use such net proceeds to repay
                      outstanding indebtedness under the Company's
                          unsecured revolving credit facility (the "Credit
                          Facility"). All of the proceeds from the sale of
                        the Growth PRIDES will be used to purchase the
                             underlying Treasury Securities to be transferred to
holders of the        

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                          Growth PRIDES pursuant to the terms thereof, and
                            the Company will receive no proceeds from the sale
of the Growth PRIDES. 

Components of                                                                   
FELINE PRIDES............  The 16,500,000 FELINE PRIDES offered hereby will 
                            initially consist of (A) 15,500,000 units referred
                     to as Income PRIDES and (B) 1,000,000 units
                          referred to as Growth PRIDES. Each Income PRIDES
                        will initially consist of a unit with a Stated
                            Amount of $10 comprised of (a) a Purchase Contract
                           under which (i) the holder will purchase from the
                      Company not later than the Purchase Contract
                             Settlement Date, for an amount of cash equal to the
                           Stated Amount, a number of newly issued shares of
                             Common Stock equal to the Settlement Rate, and (ii)
                     the Company will pay to the holder Contract
                        Adjustment Payments at the rate of .25% of the
                       Stated Amount per annum, and (b) a beneficial
                           ownership interest in a Capital Security having a
                             stated liquidation amount equal to $10 representing
                           an undivided beneficial ownership interest in the
assets of the Trust.  

                             The Company may at any time dissolve the Trust and,
                           after satisfaction of liabilities to creditors of
                       the Trust, if any, cause the Debentures to be
                   distributed to the holders of the Capital
                  Securities. References herein to Capital
                            Securities, unless the context otherwise requires,
                     mean (i) the Capital Securities or (ii) the
                             Debentures which have been delivered to the holders
                           of the Capital Securities upon dissolution of the
Trust.                

                   In addition, as described below, upon the
                             occurrence of a Tax Event (as defined herein) prior
                       to the Purchase Contract Settlement Date, the
                        Company may at its option cause the Debentures
                            (and, thus, the Capital Securities) to be redeemed
                            at the Redemption Price and the Treasury Portfolio
                      will be substituted for the redeemed Capital
                             Securities in the manner described herein to secure
                            the Income PRIDES holders' obligations under their
                           related Purchase Contracts. The distribution rate
                          and the payment dates for the Capital Securities
                       will be the same as the interest rate and the
                             payment dates for the Debentures, which will be the
   sole assets of the Trust.

                         As long as a FELINE PRIDES is in the form of an
                          Income PRIDES, the related Capital Securities or
                        the Treasury Portfolio, as applicable, will be
                             pledged pursuant to a pledge agreement (the "Pledge
                           Agreement"), between the Company, The Bank of New
                             York, as collateral agent for the Company (together
                          with any successor thereto in such capacity, the
                             "Collateral Agent") and the Purchase Contract Agent
                     (as defined herein), to secure the holder's
                       obligation to purchase Common Stock under the
    related Purchase Contract.

                          Each Growth PRIDES will consist of a unit with a
                          Stated Amount of $10 comprised of (a) a Purchase
                           Contract under which (i) the holder will purchase
                      from the Company not later than the Purchase
                         Contract Settlement Date, for an amount of cash
                             equal to the Stated Amount of such Growth PRIDES, a
                             number of newly issued shares of Common Stock equal
                          to the Settlement Rate and (ii) the Company will
                           pay to the holder Contract Adjustment Payments at
                          the rate of .75% of the Stated Amount per annum,
                        and (b) a 1/100 undivided beneficial ownership
                          interest in a zero-coupon U.S. Treasury Security
                             with a principal amount at maturity equal to $1,000
                           and which matures on the Business Day immediately
                          preceding the Purchase Contract Settlement Date.

                           The FELINE PRIDES will be issued under a Purchase
                    Contract Agreement (the "Purchase Contract
       Agreement"), between the Com-

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                         pany and The First National Bank of Chicago, as
                    agent for the holders of the FELINE PRIDES
                      (together with any successor thereto in such
                   capacity, the "Purchase Contract Agent").

Stated Amount..............  $10 per Income PRIDES and Growth PRIDES.           

Creating Growth PRIDES.....  Each holder of Income PRIDES may substitute for the
                      related Capital Securities or the Applicable
                          Ownership Interest of the Treasury Portfolio, as
                       the case may be, held by the Collateral Agent
                    zero-coupon U.S. Treasury Securities in an
                             aggregate principal amount at maturity equal to the
                             aggregate stated liquidation amount of such Capital
                          Securities, thereby creating Growth PRIDES. Such
                             substitution may be made at any time on or prior to
                          the fifth Business Day immediately preceding the
                       Purchase Contract Settlement Date but only in
                            integral multiples of 100 Income PRIDES; provided,
                         however, if the Treasury Portfolio has become a
                           component of the Income PRIDES, holders of Income
                             PRIDES may make such substitutions only in integral
                             multiples of 40,000 Income PRIDES at any time on or
                      prior to the second Business Day immediately
                          preceding the Purchase Contract Settlement Date.
                             Holders wishing to make such substitution must hold
                          at least 40,000 Income PRIDES. In the event that
                           Contract Adjustment Payments are at a higher rate
                           for Growth PRIDES than for Income PRIDES, holders
                          of Income PRIDES wishing to create Growth PRIDES
                            also will be required to deliver cash in an amount
                        equal to the excess of the Contract Adjustment
                         Payments that would have accrued since the last
                            Payment Date to which Contract Adjustment Payments
                           have been paid to the date of substitution on the
                           Growth PRIDES being created by such holders, over
                            the Contract Adjustment Payments that have accrued
                         over the same time period on the related Income
PRIDES.               

Creating Income PRIDES.....  At any time on or prior to the fifth Business Day  
                     immediately preceding the Purchase Contract
                         Settlement Date, a holder of Growth PRIDES will
                   have the right to create Income PRIDES by
                      delivering 100 Growth PRIDES to the Purchase
                           Contract Agent plus 100 Capital Securities (which
                             Capital Securities must be purchased by such holder
                             in the open market at such holder's expense) to the
                            Collateral Agent in exchange for 100 Income PRIDES
                             and the release of the related Treasury Security to
                        such holder; provided, however, if a Tax Event
                       Redemption has occurred prior to the Purchase
                             Contract Settlement Date and the Treasury Portfolio
                      has become a component of the Income PRIDES,
                             holders of Growth PRIDES may make such substitution
                             (but using the Applicable Ownership Interest of the
                            Treasury Portfolio rather than Capital Securities)
                            only in integral multiples of 40,000 Growth PRIDES
                            at any time on or prior to the second Business Day
                     immediately preceding the Purchase Contract
                       Settlement Date. Holders wishing to make such
                       substitution must hold at least 40,000 Growth
                            PRIDES. Such Capital Securities or the appropriate
                       Applicable Ownership Interest of the Treasury
                             Portfolio, as the case may be, will be pledged with
                     the Collateral Agent to secure the holder's
                       obligation to purchase Common Stock under the
     related Purchase Contracts.

Current Payments...........  Holders of Income PRIDES will be entitled to       
                           receive aggregate cash distributions at a rate of
                       8.25% of the Stated Amount per annum, payable
                             quarterly in arrears, consisting of cumulative cash
                            distributions on the related Capital Securities or
                           on the Treasury Portfolio, as applicable, payable
                           at the rate of 8% of the Stated Amount per annum,
                         and Contract Adjustment Payments payable by the
            Company at the rate of .25% of the

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                          Stated Amount per annum, subject (in the case of
                          both the distributions on the Capital Securities
                         and of the Contract Adjustment Payments) to the
                      Company's right to defer the payment of such
                       amounts. The ability of the Trust to make the
                        quarterly distributions on the related Capital
                      Securities will be solely dependent upon the
                             receipt of corresponding interest payments from the
                  Company on the Debentures. The Company's
                            obligations with respect to the Debentures will be
                           senior and unsecured and will rank on a parity in
                          right of payment with all other senior unsecured
                    obligations of the Company. If a Tax Event
                             Redemption has occurred, quarterly distributions to
                            the holders of Income PRIDES will not be deferred.

                      Holders of Growth PRIDES will be entitled to
                          receive quarterly cash distributions of Contract
                           Adjustment Payments payable by the Company at the
                      rate of .75% of the Stated Amount per annum,
                     subject to the Company's rights of deferral
                           described herein. In addition, OID will accrue on
          the related Treasury Securities.

Contract Adjustment                                                             
Payments.................  Contract Adjustment Payments will be fixed at a  
                         rate per annum of .25% of the Stated Amount per
                             Purchase Contract in the case of Income PRIDES, and
                            .75% of the Stated Amount per Purchase Contract in
                            the case of Growth PRIDES. The Contract Adjustment
                           Payments will be subordinated and junior in right
                    of payment to the Senior Indebtedness. See
                            "Description of the Purchase Contracts -- Contract
Adjustment Payments." 

Option to Defer                                                                 
Current Payments.........  The Company has the right at any time, and from  
                         time to time, limited to a period not extending
                        beyond the maturity date of the Debentures, to
                           defer the interest payments due on the Debentures
                            (each, an "Extension Period"). As a consequence of
                    such deferral, the corresponding quarterly
                            distributions to holders of Capital Securities and
                           Income PRIDES would be deferred (but despite such
                        deferral, would continue to accrue, compounded
                            quarterly, at the rate of 8% per annum through and
                          including August 15, 2001, and at the Reset Rate
                        thereafter). The Company also has the right to
                           defer the payment of Contract Adjustment Payments
                          on the related Purchase Contracts until no later
                     than the Purchase Contract Settlement Date;
                             however, such Deferred Contract Adjustment Payments
                           would continue to accrue at the rate of 8.75% per
                            annum until paid. See "Description of the Purchase
                        Contracts -- Contract Adjustment Payments." If
                             interest payments on the Debentures or the Contract
                           Adjustment Payments are deferred, the Company has
                           agreed, among other things, not to declare or pay
                         any dividend on or repurchase its capital stock
                           (subject to certain exceptions) during the period
                         of such deferral. If a Tax Event Redemption has
                            occurred prior to the Purchase Contract Settlement
                      Date and the Treasury Portfolio has become a
                   component of the Income PRIDES, quarterly
                     distributions on the appropriate Applicable
                           Ownership Interest of the Treasury Portfolio as a
                           portion of the cumulative quarterly distributions
                     to the holders of Income PRIDES will not be
                       deferred. See "Risk Factors -- Right to Defer
Current Payments."    

                           In the event that the Company elects to defer the
                        payment of Contract Adjustment Payments on the
                       related Purchase Contracts until the Purchase
                      Contract Settlement Date, each holder of the
                             related Income PRIDES or Growth PRIDES will receive
                             on the Purchase Contract Settlement Date in respect
                           of such Deferred Contract Adjustment Payments, in
lieu of a cash        

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                           payment, a number of shares of Common Stock equal
                          to (x) the aggregate amount of Deferred Contract
                            Adjustment Payments payable to such holder divided
                        by (y) the Applicable Market Value (as defined
                   herein). See "Description of the Purchase
                          Contracts -- Option to Defer Contract Adjustment
Payments."            

Payment Dates..............  Subject to the deferral provisions described       
                         herein, the current payments described above in
                             respect of the Income PRIDES and Growth PRIDES will
                             be payable quarterly in arrears on February 16, May
                     16, August 16 and November 16 of each year,
                           commencing August 16, 1998, through and including
                    (i) in the case of the Contract Adjustment
                        Payments, the earlier of the Purchase Contract
                           Settlement Date or the most recent such quarterly
                         date on or prior to any early settlement of the
                            related Purchase Contracts and (ii) in the case of
                          Capital Securities that are components of Income
                           PRIDES, the most recent such quarterly date on or
                       prior to the earlier of the Purchase Contract
                             Settlement Date and the date the liquidation amount
                     of such Capital Security, together with all
                             accumulated and unpaid distributions thereon (each,
            a "Payment Date") is paid in full.

Remarketing................  Unless a Tax Event Redemption has occurred,        
                  pursuant to a remarketing agreement (the
                         "Remarketing Agreement") among the Company, the
                             Trust, the Purchase Contract Agent and a nationally
                          recognized investment banking firm chosen by the
                           Company (the "Remarketing Agent"), and subject to
                           the terms of a Supplemental Remarketing Agreement
                  to be dated as of the third Business Day
                     immediately preceding the Purchase Contract
                 Settlement Date among such parties (the
                            "Supplemental Remarketing Agreement"), the Capital
                           Securities of such Income PRIDES holders who have
                            failed to notify the Purchase Contract Agent on or
                     prior to the fifth Business Day immediately
                            preceding the Purchase Contract Settlement Date of
                        their intention to settle the related Purchase
                            Contracts with separate cash will be remarketed on
                          the third Business Day immediately preceding the
                            Purchase Contract Settlement Date. The Remarketing
                           Agent will use its reasonable efforts to remarket
                             such Capital Securities (bearing the Reset Rate) on
                           such date for settlement on the Purchase Contract
                             Settlement Date at a price of approximately 100.75%
                            of the aggregate stated liquidation amount of such
                   Capital Security, plus accrued and unpaid
               distributions (including any deferred
                             distributions), if any, thereon. The portion of the
                     proceeds from such remarketing equal to the
                             aggregate stated liquidation amount of such Capital
                             Securities will be automatically applied to satisfy
                            in full such Income PRIDES holders' obligations to
                          purchase Common Stock under the related Purchase
                        Contracts. In addition, after deducting as the
                          Remarketing Fee an amount not exceeding 50 basis
                           points (.50%) of the aggregate stated liquidation
                          amount of the remarketed Capital Securities from
                      any amount of such proceeds in excess of the
                    aggregate stated liquidation amount of the
                            remarketed Capital Securities plus any accrued and
                      unpaid distributions (including any deferred
                          distributions), the Remarketing Agent will remit
                            the remaining portion of the proceeds, if any, for
                           the benefit of such holder. Income PRIDES holders
                             whose Capital Securities are so remarketed will not
                             otherwise be responsible for any Remarketing Fee in
                     connection therewith. If, despite using its
                          reasonable efforts, the Remarketing Agent cannot
                             remarket the related Capital Securities (other than
                             to the Company) of such holders of Income PRIDES at
                            a price not less than 100% of the aggregate stated
                    liquidation amount of such Capital Securi-

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                     ties plus accrued and unpaid distributions,
                             including deferred distributions, if any, or if the
                       remarketing shall not have occurred because a
                          condition precedent to the remarketing shall not
                           have been fulfilled thereby resulting in a Failed
                           Remarketing, the Company will exercise its rights
                      as a secured party to dispose of the Capital
                             Securities in accordance with applicable law and to
                    satisfy in full, from the proceeds of such
                           disposition, such holder's obligation to purchase
                            Common Stock under the related Purchase Contracts;
                             provided, that if the Company exercises such rights
                         as a secured party with respect to such Capital
                          Securities, any accrued and unpaid distributions
                        (including any deferred distributions) on such
                        Capital Securities will be paid in cash by the
                         Company to the holder of record of such Capital
                             Securities. The Company will cause a notice of such
                          Failed Remarketing to be published on the second
                         Business Day immediately preceding the Purchase
                      Contract Settlement Date. Holders of Capital
                             Securities that are not components of Income PRIDES
                            may elect, in the manner described herein, to have
                    their Capital Securities remarketed by the
                             Remarketing Agent. It is currently anticipated that
                            Merrill Lynch, Pierce, Fenner & Smith Incorporated
                            will be the Remarketing Agent. See "Description of
                 the Purchase Contracts -- Remarketing."

Settlement of Purchase                                                          
  Contracts................  The Purchase Contract Settlement Date is August 16,
                             2001. On the Business Day immediately preceding the
                            Purchase Contract Settlement Date, unless a holder
                           of Income PRIDES or Growth PRIDES (i) has settled
                          the related Purchase Contracts through the early
                            delivery of cash to the Purchase Contract Agent in
                          the manner described herein, (ii) in the case of
                         Income PRIDES, has settled the related Purchase
                          Contracts with separate cash on the Business Day
                        prior to the Purchase Contract Settlement Date
                        pursuant to prior notification to the Purchase
                             Contract Agent, (iii) in the case of Income PRIDES,
                        has had the Capital Securities related to such
                       holder's Purchase Contracts remarketed in the
                             manner described herein in connection with settling
                           such Purchase Contracts (and such remarketing has
                         not "failed" (as described herein)), or (iv) an
                            event described under "Description of the Purchase
                             Contracts -- Termination" has occurred, then (A) in
                       the case of Income PRIDES (unless a Tax Event
                             Redemption has occurred), the Company will exercise
                         its rights as a secured party to dispose of the
                       related Capital Securities in accordance with
                          applicable law and will satisfy in full from the
                     proceeds of such disposition, such holder's
                       obligation to purchase Common Stock under the
                            related Purchase Contracts, and (B) in the case of
                        Growth PRIDES or Income PRIDES (if a Tax Event
                          Redemption has occurred) the principal amount of
                            the related Treasury Securities or the appropriate
                       Applicable Ownership Interest of the Treasury
                          Portfolio, as applicable, when paid at maturity,
                       will automatically be applied pursuant to the
                           exercise of such rights by the Company to satisfy
                             in full such holder's obligation to purchase Common
                     Stock under the related Purchase Contracts.

                            In the event that a holder of either Income PRIDES
                          or Growth PRIDES effects the early settlement of
                             the related Purchase Contracts through the delivery
                      of cash or, in the case of an Income PRIDES,
                          settles such Purchase Contracts with cash on the
                         Business Day immediately preceding the Purchase
                       Contract Settlement Date, the related Capital
                          Securities, the appropriate Applicable Ownership
Interest of the       

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                           Treasury Portfolio or the Treasury Securities, as
                             the case may be, will be released to such holder as
described herein.     

Settlement Rate............  The number of newly issued shares of Common Stock  
                            issuable upon settlement of each Purchase Contract
                       on the Purchase Contract Settlement Date (the
                          "Settlement Rate") will be calculated as follows
              (subject to adjustment under certain
                            circumstances): (a) if the Applicable Market Value
                   is equal to or greater than the Threshold
                             Appreciation Price of $38.10 which is approximately
                            20% above the Reference Price, the Settlement Rate
                           (which will be equal to the Stated Amount divided
                             by the Threshold Appreciation Price) will be .2625;
                             (b) if the Applicable Market Value is less than the
                           Threshold Appreciation Price but greater than the
                            Reference Price, the Settlement Rate will be equal
                        to the Stated Amount divided by the Applicable
                        Market Value; and (c) if the Applicable Market
                             Value is less than or equal to the Reference Price,
                         the Settlement Rate (which will be equal to the
                            Stated Amount divided by the Reference Price) will
                       be .3150. "Applicable Market Value" means the
                          average of the Closing Price (as defined herein)
                         per share of Common Stock on each of the twenty
                             consecutive Trading Days (as defined herein) ending
                            on the third Trading Day immediately preceding the
                             Purchase Contract Settlement Date. See "Description
                of the Purchase Contracts -- General."

Early Settlement...........  A holder of Income PRIDES may settle the related   
                           Purchase Contracts at any time on or prior to the
                      fifth Business Day immediately preceding the
                         Purchase Contract Settlement Date in the manner
                             described herein, but only in integral multiples of
                        100 Income PRIDES; provided, however, if a Tax
                             Event Redemption has occurred prior to the Purchase
                             Contract Settlement Date and the Treasury Portfolio
                      has become a component of the Income PRIDES,
                           holders of Income PRIDES may settle early only in
                            integral multiples of 40,000 Income PRIDES, at any
                     time on or prior to the second Business Day
                     immediately preceding the Purchase Contract
                        Settlement Date. A holder of Growth PRIDES may
                           settle the related Purchase Contracts at any time
                            on or prior to the second Business Day immediately
                            preceding the Purchase Contract Settlement Date in
                         the manner described herein (in either case, an
                             "Early Settlement"). Upon Early Settlement, (i) the
                      holder's rights to receive Deferred Contract
                      Adjustment Payments, if any, on the Purchase
                             Contracts being settled will be forfeited, (ii) the
                   holder's right to receive future Contract
                         Adjustment Payments in respect of such Purchase
                          Contracts will terminate and (iii) no adjustment
                         will be made to or for the holder on account of
                           Deferred Contract Adjustment Payments, if any, or
                   any amount accrued in respect of Contract
                      Adjustment Payments. See "Description of the
                  Purchase Contracts -- Early Settlement."

Termination................  The Purchase Contracts, and the rights and         
                           obligations of the Company and the holders of the
                       FELINE PRIDES thereunder (including the right
                            thereunder to receive accrued or Deferred Contract
                        Adjustment Payments, if any, and the right and
                    obligation to purchase Common Stock), will
                        automatically terminate upon the occurrence of
                     certain events of bankruptcy, insolvency or
                          reorganization with respect to the Company. Upon
                             such termination, the Collateral Agent will release
                         the related Capital Securities, the appropriate
                       Applicable Ownership Interest of the Treasury
                           Portfolio or the Treasury Securities, as the case
                           may be, held by it to the Purchase Contract Agent
                         for distribution to the holders, subject in the
                        case of the Treasury Portfolio to the Purchase
                     Contract Agent's disposition of the subject
      securities for cash, and the

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                            payment of such cash to the holders, to the extent
                            that the holder would otherwise have been entitled
                         to receive less than $1,000 principal amount at
                  maturity of any such security. Upon such
                       termination, there may be a delay before such
                         release and distribution. In the event that the
                         Company becomes the subject of a case under the
                           United States Bankruptcy Code of 1978, as amended
                            (the "Bankruptcy Code"), such delay may occur as a
                           result of the automatic stay under the Bankruptcy
                         Code and continue until such automatic stay has
                       been lifted. See "Description of the Purchase
    Contracts -- Termination."

Voting and Certain                                                              
 Other Rights.............  Holders of Capital Securities will not be entitled
                      to vote to appoint, remove or replace, or to
                             increase or decrease the number of Regular Trustees
                        (as defined herein) and will generally have no
                           voting rights except in the limited circumstances
                 described under "Description of Capital
                           Securities -- Voting Rights." Holders of Purchase
                        Contracts forming part of the Income PRIDES or
                             Growth PRIDES, in their capacities as such holders,
                           will have no voting or other rights in respect of
the Common Stock.     

CAPITAL SECURITIES                                                              

Amount and Designation.....  8% Capital Securities (liquidation amount $10 per  
                   Capital Security), representing undivided
                             beneficial ownership interests in the assets of the
Trust.                

Distributions..............  Distributions on the Capital Securities that are   
                       components of Income PRIDES will constitute a
                            portion of the distributions on the Income PRIDES,
                           will be cumulative and will accrue from the first
                          date of issuance of the Capital Securities. Such
                        distributions will be payable initially at the
                            annual rate of 8% of the liquidation amount of $10
                     per Capital Security to, but excluding, the
                            Purchase Contract Settlement Date, and in the case
                          of Capital Securities that remain outstanding on
                          and after the Purchase Contract Settlement Date,
                            from the Purchase Contract Settlement Date to, but
                           excluding, August 16, 2003, at the Reset Rate, in
                            each case, when, as and if funds are available for
                       payment. Subject to the distribution deferral
                             provisions, distributions will be payable quarterly
                           in arrears on each February 16, May 16, August 16
                      and November 16, commencing August 16, 1998.

Market Rate Reset..........  Unless a Tax Event Redemption has occurred, the    
                            interest rate on the Debentures (and therefore the
                             distribution rate on the Capital Securities) on and
                             after the Purchase Contract Settlement Date will be
                     reset on the third Business Day immediately
                            preceding the Purchase Contract Settlement Date to
                             the Reset Rate determined by the Reset Agent as the
                          rate the Capital Securities should bear in order
                       for a Capital Security to have an approximate
                             market value of 100.75% of the Stated Amount on the
                      third Business Day immediately preceding the
                           Purchase Contract Settlement Date, provided, that
                        the Company may limit such Reset Rate to be no
                        higher than the rate on the Two-Year Benchmark
                            Treasury plus 300 basis points (3%) and, provided,
                        further that the Reset Rate may not exceed the
                         maximum rate permitted by applicable law. It is
                          possible that such market value may be less than
                         100.75%, particularly where the Reset Spread is
                           limited to the maximum of 3% or if the Reset Rate
                         were to be limited by applicable law. The Reset
                           Rate will be determined by Merrill Lynch, Pierce,
                             Fenner & Smith Incorporated as the Reset Agent. See
                          "Description of the Capital Securities -- Market
Rate Reset."          

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Optional Remarketing.......  Pursuant to the Remarketing Agreement and subject  
                    to the terms of a Supplemental Remarketing
                          Agreement, on or prior to the fifth Business Day
                     immediately preceding the Purchase Contract
                          Settlement Date, but no earlier than the Payment
                          Date immediately preceding the Purchase Contract
                      Settlement Date, holders of separate Capital
                             Securities that are not components of Income PRIDES
                    may elect to have their Capital Securities
                           remarketed by delivering their Capital Securities
                             along with a notice of such election to The Bank of
                      New York, as custodial agent (the "Custodial
                            Agent"). Holders of Capital Securities electing to
                            have their Capital Securities remarketed will also
                        have the right to withdraw such election on or
                     prior to the fifth Business Day immediately
                          preceding the Purchase Contract Settlement Date.

Distribution Deferral                                                           
Provisions.................  The ability of the Trust to pay distributions on   
                            the Capital Securities will be solely dependent on
                           the receipt of interest payments from the Company
                            on the Debentures. The Company will have the right
                          at any time, and from time to time, to defer the
                     interest payments due on the Debentures for
                      successive extension periods (the "Extension
                          Periods") limited, in the aggregate, to a period
                       not extending beyond the maturity date of the
                 Debentures. The corresponding quarterly
                          distributions on the Capital Securities would be
                      deferred by the Trust (but would continue to
                             accrue, compounded quarterly, at the rate of 8% per
                             annum through and including August 15, 2001, and at
                         the Reset Rate thereafter) until the end of any
                             such Extension Period. If a deferral of an interest
                    payment occurs, the holders of the Capital
                       Securities will be required to accrue OID for
                      United States federal income tax purposes in
                          advance of the receipt of any corresponding cash
                             distribution with respect to such deferred interest
                      payment. See "Risk Factors -- Right to Defer
                        Current Payments," "Description of the Capital
                          Securities -- Distributions" and "Federal Income
                            Tax Consequences -- Capital Securities -- Interest
              Income and Original Issue Discount."

Rights Upon Deferral of                                                         
  Distribution.............  During any period in which interest payments on the
                          Debentures are deferred, interest will accrue on
                       the Debentures (compounded quarterly) and the
                      corresponding quarterly distributions on the
                     Capital Securities will continue to accrue,
                           compounded quarterly, at the rate of 8% per annum
                           through and including August 15, 2001, and at the
Reset Rate thereafter.

Liquidation Amount.........  In the event of any liquidation of the Trust, and  
                           after satisfaction of liabilities to creditors of
                        the Trust, if any, holders will be entitled to
                             receive Debentures in an aggregate principal amount
                             equal to the aggregate stated liquidation amount of
 the Capital Securities.

Put Option Upon a Failed                                                        
Remarketing..............  If a Failed Remarketing has occurred, each holder
                  of Capital Securities (or, following the
                           distribution of the Debentures upon a dissolution
                          of the Trust as described herein, each holder of
                           such Debentures), holding such Capital Securities
                            (or Debentures, as the case may be), following the
                         Purchase Contract Settlement Date will have the
                      right, in the case of Capital Securities, to
                        require the Trust to distribute their pro rata
                           share of the Debentures to the Exchange Agent who
                           will put such Debentures to the Company on behalf
                         of such holders (or, in the case of persons who
                          hold the Debentures directly, such persons shall
                           have the right to put such Debentures directly to
                          the Company) on September 1, 2001, upon at least
                             three Business Days' prior notice, at a price equal
to the principal      

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                             amount, plus accrued and unpaid interest (including
              deferred interest), if any, thereon.

Distribution of                                                                 
Debentures.................  In certain circumstances involving an Investment   
                            Company Event (as defined herein), the Trust would
                   be dissolved, with the result that, after
                         satisfaction of liabilities to creditors of the
                     Trust, if any, Debentures with an aggregate
                        principal amount equal to the aggregate stated
                            liquidation amount of the Capital Securities would
                      be distributed to the holders of the Capital
                          Securities, including the Collateral Agent, on a
                         pro rata basis. In such event, an Income PRIDES
                             would thereafter consist of beneficial ownership of
                          a Debenture with a principal amount equal to $10
                     and the related Purchase Contract, and such
                            Debenture would otherwise be treated as if it were
                             a Capital Security. See "Description of the Capital
                      Securities--Distribution of the Debentures."

Tax Event Redemption.......  The Debentures (and, thus, the Trust Securities)   
                          are redeemable, at the option of the Company, on
                          not less than 30 days or more than 60 days prior
                            written notice, in whole but not in part, upon the
                          occurrence and continuation of a Tax Event under
                            the circumstances described herein at a Redemption
                            Price equal to, for each Debenture, the Redemption
                          Amount together with accrued and unpaid interest
                            (including deferred interest). See "Description of
                         the Debentures -- Tax Event Redemption." If the
                             Company so redeems all of the Debentures, the Trust
                            must redeem all of the Trust Securities and pay in
                           cash such Redemption Price to the holders of such
                        Trust Securities. If such Tax Event Redemption
                          occurs prior to the Purchase Contract Settlement
                           Date, the Redemption Price payable in liquidation
                             of any Income PRIDES holders' interest in the Trust
                             will be distributed to the Collateral Agent, who in
                           turn will apply an amount equal to the Redemption
                         Amount of such Redemption Price to purchase the
                        Treasury Portfolio on behalf of the holders of
                           Income PRIDES and remit the remaining portion, if
                       any, of such Redemption Price to the Purchase
                       Contract Agent for payment to holders of such
                       Income PRIDES. The Treasury Portfolio will be
                            substituted for the Capital Securities and will be
                          pledged with the Collateral Agent to secure such
                            Income PRIDES holders' obligations to purchase the
                      Common Stock under their Purchase Contracts.

                            Other than in the event of a Tax Event Redemption,
                             the Company will not have the ability to redeem the
                             Debentures prior to their stated maturity date. See
                     "Description of the Debentures -- Tax Event
Redemption."          

Guarantee..................  The Company will irrevocably and unconditionally   
                          guarantee pursuant to the Guarantee, on a senior
                     unsecured basis, the payment in full of (i)
                             distributions on the Trust Securities to the extent
                          the Trust has funds available therefor, (ii) the
                            redemption price of Trust Securities in respect of
                            which the related Debentures have been repurchased
                            by the Company on the Purchase Contract Settlement
                           Date, to the extent the Trust has funds available
                        therefor, and (iii) generally, the liquidation
                          amount of the Trust Securities or the Redemption
                          Price upon a Tax Event Redemption, to the extent
                            the Trust has assets available for distribution to
                       holders of Trust Securities in the event of a
                             dissolution of the Trust. The Company's obligations
                        under the Guarantee will be a senior unsecured
                             obligation of the Company and will rank on a parity
                          with all of the Company's other senior unsecured
                          obligations. See "Description of the Guarantee."

Debentures.................  Unless a Tax Event Redemption has occurred, the    
                             Debentures will mature on August 16, 2003, and will
                       bear interest initially at the rate of 8% per
                     annum, payable quarterly in arrears on each
February 16,          

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                       May 16, August 16 and November 16, commencing
                   August 16, 1998. The interest rate on the
                      Debentures, and the distribution rate on the
                          Capital Securities that remain outstanding after
                        the Purchase Contract Settlement Date, will be
                     reset on the third Business Day immediately
                            preceding the Purchase Contract Settlement Date to
                           the Reset Rate determined by the Reset Agent. See
                           "Description of Debentures -- Interest." Interest
                         payments on the Debentures may be deferred from
                    time to time by the Company for successive
                            Extension Periods not extending, in the aggregate,
                            beyond the stated maturity date of the Debentures.
                           During any Extension Period, interest at the rate
                          of 8% per annum through and including August 15,
                      2001, and at the Reset Rate thereafter would
                             continue to accrue and compound quarterly. Upon the
                             termination of any Extension Period and the payment
                             of all amounts then due, the Company may commence a
                           new Extension Period, provided such new Extension
                           Period does not extend beyond the stated maturity
                          date of the Debentures. No interest shall be due
                          during an Extension Period until the end of such
                       period. An Extension Period may only end on a
                       Payment Date. During an Extension Period, the
                        Company will be prohibited (subject to certain
                            exceptions) from paying dividends on or purchasing
                           any of its capital stock and making certain other
                      restricted payments until quarterly interest
                          payments are resumed and all amounts then due on
                         the Debentures are paid. The Debentures will be
                         senior unsecured obligations of the Company and
                         will rank on a parity with all of the Company's
                 other senior unsecured obligations. See
          "Description of the Debentures."

Federal Income Tax                                                              
Consequences Related to                                                     
the Income PRIDES, Growth                                                   
PRIDES and Capital                                                          
  Securities...............  Provided the Company does not exercise its right to
                        defer interest on the Debentures, a beneficial
                            owner of Income PRIDES and Capital Securities will
                           include in gross income its pro rata share of the
                     stated interest on the Debentures when such
                          interest income is paid or accrued in accordance
                        with its regular method of tax accounting. The
                           Company intends to report the Contract Adjustment
                            Payments as income to holders of Income PRIDES and
                             Growth PRIDES, but holders should consult their tax
                      advisors concerning the possibility that the
                        Contract Adjustment Payments may be treated as
                       loans, purchase price adjustments, rebates or
                         option premiums rather than being includible in
                          income on a current basis. A beneficial owner of
                            Growth PRIDES will be required to include in gross
                     income any OID with respect to the Treasury
                         Securities as it accrues on a constant yield to
                       maturity basis. If a Tax Event Redemption has
                            occurred, a beneficial owner of Income PRIDES will
                    be required to include in gross income its
                             allocable share of OID on the Treasury Portfolio as
                           it accrues on a constant yield to maturity basis.
                See "Federal Income Tax Consequences."

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EXPLANATORY DIAGRAMS

    For illustrative purposes only, the following diagrams demonstrate some of
the key features of Purchase Contracts, Income PRIDES, Growth PRIDES and Capital
Securities and the transformation of Income PRIDES into Growth PRIDES and       
Capital Securities.                                                             

   The following diagrams and the related text are not complete, are general
in nature and are qualified in their entirety by more detailed information      
appearing elsewhere in this Prospectus and in documents which are on file with  
the Commission.                                                                 

FELINE PRIDES PURCHASE CONTRACT                                                 

  - Income PRIDES and Growth PRIDES both include a Purchase Contract under
 which the investor agrees to purchase shares of Common Stock of the
     Company at the end of three years. In addition, such Purchase Contracts
     include specified Contract Adjustment Payments shown in the diagrams on
the following pages.                                              

PURCHASE CONTRACT 

[PURCHASE CONTRACT DIAGRAM] 
---------------                                                                 

*    For each of the percentage categories shown, the percentage of shares to be
   delivered at maturity to an investor in Income PRIDES or Growth PRIDES is
 determined by dividing the related number of shares to be delivered, as
     indicated in the footnote for each such category, by an amount equal to the
Stated Amount divided by the Reference Price.                         

**   The number of shares to be delivered will be calculated by dividing the    
Stated Amount by the Reference Price.                                 

***  The number of shares to be delivered will be calculated by dividing the    
Stated Amount by the Applicable Market Value.                         

**** The number of shares to be delivered will be calculated by dividing the    
Stated Amount by the Threshold Appreciation Price.                    

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INCOME PRIDES                                                                   

- Income PRIDES consist of two components as described below:         

[INCOME PRIDES DIAGRAM] 

    - The investor owns the Capital Security but will pledge it to the Company
to secure its obligations under the Purchase Contract.            

GROWTH PRIDES                                                                   

- Growth PRIDES consist of two components as described below:         

[GROWTH PRIDES DIAGRAM] 

     - The investor owns the zero-coupon Treasury Security but will pledge it to
the Company to secure its obligations under the Purchase Contract.

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CAPITAL SECURITIES                                                              

- Capital Securities have the terms described below:                  

[Capital Securities Diagram]

  - The holder of Capital Securities that are a component of Income PRIDES
has an option at the end of year 3 to either:                     

- Cash settle the Purchase Contract for $10 and receive Capital 
 Securities whose rate has been reset at the end of year 3, or

      - Cash settle the Purchase Contract by allowing the Capital Securities
to be included in the remarketing process.                  

     - The holder of Capital Securities that are separate and not a component of
Income PRIDES has the option at the end of year 3 to either:      

      - Continue to hold the Capital Securities whose rate has been reset at
the end of year 3, or                                       

      - Deliver the Capital Securities to the Custodial Agent to be included
in the remarketing process.                                 

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TRANSFORMING INCOME PRIDES INTO GROWTH PRIDES AND CAPITAL SECURITIES            

   - To create a Growth PRIDES, the investor separates an Income PRIDES into
     its components -- the Purchase Contract and the Capital Security -- and
      then combines the Purchase Contract with a specific zero-coupon Treasury
  Security that matures concurrently with the maturity of the Purchase
Contract.                                                         

     - The investor owns the zero-coupon Treasury Security but will pledge it to
the Company to secure its obligations under the Purchase Contract.

 - The zero-coupon Treasury Security together with the Purchase Contract
       constitute a Growth PRIDES. The Capital Securities, which are no longer a
   component of the Income PRIDES, are tradeable as separate securities.

[TRANSFORMING DIAGRAMS] 

     - The investor can also transform Growth PRIDES and Capital Securities into
Income PRIDES.                                                    

- The transformation of Income PRIDES into Growth PRIDES and Capital  
Securities, and the transformation of Growth PRIDES and Capital   
Securities into Income PRIDES, require certain minimum amounts of 
securities, as more fully provided herein.                        

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RISK FACTORS

   Potential purchasers of the FELINE PRIDES offered hereby should carefully
consider the risk factors set forth herein under "Risk Factors" as well as other
information contained in this Prospectus, including, without limitation, those  
factors set forth under the caption "Forward Looking Statements," and in the    
documents incorporated by reference herein.                                     

INVESTMENT IN FELINE PRIDES REQUIRES HOLDERS TO PURCHASE COMMON STOCK; RISK OF  
DECLINE IN EQUITY VALUE                                                         

    Although holders of the FELINE PRIDES will be the beneficial owners of the
related Capital Securities, Treasury Portfolio or Treasury Securities, as the   
case may be, prior to the Purchase Contract Settlement Date, unless a holder of 
FELINE PRIDES settles the related Purchase Contracts through the delivery of    
cash to the Purchase Contract Agent in the manner described below or the        
Purchase Contracts are terminated (upon the occurrence of certain events of     
bankruptcy, insolvency or reorganization with respect to the Company), the      
proceeds derived from the remarketing of the Capital Securities or the principal
of the related Treasury Securities, or the applicable Appropriate Ownership     
Interest of the Treasury Portfolio, when paid at maturity, as the case may be,  
will automatically be applied to the purchase of a specified number of shares of
Common Stock on behalf of such holder. Thus, unless a holder of Income PRIDES   
has cash settled, following the Purchase Contract Settlement Date, the holder   
will own shares of Common Stock rather than a beneficial interest in Capital    
Securities, Treasury Securities or the Treasury Portfolio, as the case may be.  
See "Description of the Purchase Contracts -- General." There can be no         
assurance that the market value of the Common Stock received by the holder on   
the Purchase Contract Settlement Date will be equal to or greater than the      
Stated Amount of the FELINE PRIDES held by such holder. If the Applicable Market
Value of the Common Stock is less than the Reference Price, the aggregate market
value of the Common Stock issued to the holder in settlement of each Purchase   
Contract on the Purchase Contract Settlement Date (assuming that such market    
value is the same as the Applicable Market Value of such Common Stock) will be  
less than the Stated Amount paid for the FELINE PRIDES and the market value per 
share of such Common Stock will be less than the effective price per share paid 
by each holder for such Common Stock on the date hereof, in which case an       
investment in the Securities will result in an economic loss as of the Purchase 
Contract Settlement Date. Accordingly, a holder of the FELINE PRIDES assumes the
risk that the market value of the Common Stock may decline, and that such       
decline could be substantial.                                                   

LIMITATIONS ON OPPORTUNITY FOR EQUITY APPRECIATION                              

  The opportunity for equity appreciation afforded by an investment in the
FELINE PRIDES is less than the opportunity for equity appreciation afforded by a
direct investment in the Common Stock because the market value of the Common    
Stock to be received by a holder of Purchase Contracts on the Purchase Contract 
Settlement Date (assuming that such market value is the same as the Applicable  
Market Value of such Common Stock) will only exceed the Stated Amount if the    
Applicable Market Value of the Common Stock exceeds the Threshold Appreciation  
Price (which represents an appreciation of approximately 20% over the Reference 
Price). Moreover, in such event, holders of FELINE PRIDES would receive on the  
Purchase Contract Settlement Date only approximately 83.3% (the percentage equal
to the Reference Price divided by the Threshold Appreciation Price) of the      
shares of Common Stock that such holders would have received if they had made a 
direct investment in the Common Stock on the date hereof, and therefore would   
receive on the Purchase Contract Settlement Date only approximately 83.3% of the
appreciation in the value of the Common Stock in excess of the Threshold        
Appreciation Price. See "Prospectus Summary -- Explanatory Diagrams -- FELINE   
PRIDES Purchase Contract."                                                      

FACTORS AFFECTING TRADING PRICES                                                

The trading prices of Income PRIDES and Growth PRIDES in the secondary
market will be directly affected by the trading prices of the Common Stock, the 
general level of interest rates and the credit quality of the Company. It is    
impossible to predict whether the price of the Common Stock or interest rates   
will rise or fall. Trading prices of the Common Stock will be influenced by the 
Company's operating results and prospects and by economic, financial and other  
factors and market conditions that can affect the capital markets               

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generally, including the level of, and fluctuations in, the trading prices of   
stocks generally and sales of substantial amounts of Common Stock in the market 
subsequent to the offering of the Securities or the perception that such sales  
could occur. Fluctuations in interest rates may give rise to opportunities of   
arbitrage based upon changes in the relative value of the Common Stock          
underlying the Purchase Contracts and of the other components of the FELINE     
PRIDES. Any such arbitrage could, in turn, affect the trading prices of the     
Income PRIDES, Growth PRIDES, Capital Securities and Common Stock.              

VOTING AND CERTAIN OTHER RIGHTS                                                 

Holders of Capital Securities will not be entitled to vote to appoint,
remove or replace or to increase or decrease the number of KBHC Trustees, and   
generally will have no voting rights except in the limited circumstances        
described under "Description of the Capital Securities -- Voting Rights."       
Holders of FELINE PRIDES will not be entitled to any rights with respect to the 
Common Stock (including, without limitation, voting rights and rights to receive
any dividends or other distributions in respect thereof) unless and until such  
time as the Company shall have delivered shares of Common Stock for FELINE      
PRIDES on the Purchase Contract Settlement Date or as a result of Early         
Settlement, as the case may be, and unless the applicable record date, if any,  
for the exercise of such rights occurs after such date. For example, in the     
event that an amendment is proposed to the Articles of Incorporation or By-Laws 
of the Company and the record date for determining the stockholders of record   
entitled to vote on such amendment occurs prior to such delivery, holders of    
FELINE PRIDES will not be entitled to vote on such amendment.                   

DILUTION OF COMMON STOCK                                                        

    The number of shares of Common Stock that holders of the FELINE PRIDES are
entitled to receive on the Purchase Contract Settlement Date or as a result of  
Early Settlement is subject to adjustment for certain events arising from stock 
splits and combinations, stock dividends and certain other actions of the       
Company that modify its capital structure. See "Description of the Purchase     
Contracts -- Anti-Dilution Adjustments." Such number of shares of Common Stock  
to be received by such holders on the Purchase Contract Settlement Date or as a 
result of Early Settlement will not be adjusted for other events, such as       
offerings of Common Stock for cash or in connection with acquisitions. The      
Company is not restricted from issuing additional Common Stock during the term  
of the Purchase Contracts and has no obligation to consider the interests of the
holders of FELINE PRIDES for any reason. Additional issuances may materially and
adversely affect the price of the Common Stock and, because of the relationship 
of the number of shares to be received on the Purchase Contract Settlement Date 
to the price of the Common Stock, such other events may adversely affect the    
trading price of Income PRIDES or Growth PRIDES.                                

POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET                                    

   It is not possible to predict how Income PRIDES, Growth PRIDES or Capital
Securities will trade in the secondary market or whether such market will be    
liquid or illiquid. Income PRIDES and Growth PRIDES are novel securities and    
there is currently no secondary market for either Income PRIDES or Growth       
PRIDES. The Income PRIDES and the Growth PRIDES have been approved for listing  
on the NYSE, subject to official notice of issuance. If Capital Securities are  
separately traded to a sufficient extent that applicable exchange listing       
requirements are met, the Company will endeavor to cause such securities to be  
listed on such exchange on which the Income PRIDES and Growth PRIDES are then   
listed, including, if applicable, the NYSE. There can be no assurance as to the 
liquidity of any market that may develop for the Income PRIDES, the Growth      
PRIDES or the Capital Securities, the ability of holders to sell such securities
or whether a trading market, if it develops, will continue. In addition, in the 
event that holders of Income PRIDES or Growth PRIDES were to substitute Treasury
Securities for Capital Securities or Capital Securities for Treasury Securities,
thereby converting their Income PRIDES to Growth PRIDES or their Growth PRIDES  
to Income PRIDES, as the case may be, the liquidity of Income PRIDES or Growth  
PRIDES could be adversely affected. There can be no assurance that the Income   
PRIDES or Growth PRIDES will not be delisted from the NYSE or that trading in   
the Income PRIDES or Growth PRIDES and Capital Securities will not be suspended 
as a result of the election by holders to create Income PRIDES or Growth PRIDES 
through the substitution of collateral, which could cause the number of Income  
PRIDES or Growth PRIDES to fall below the requirement for listing securities on 
the NYSE that at least 1,000,000 Income PRIDES or Growth PRIDES be outstanding  
at any time.                                                                    
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PLEDGED SECURITIES ENCUMBERED                                                   

Although the beneficial owners of FELINE PRIDES will be the beneficial
owners of the related Capital Securities, Treasury Portfolio or Treasury        
Securities (together, the "Pledged Securities"), as applicable, those Pledged   
Securities will be pledged with the Collateral Agent to secure the obligations  
of the holders under the related Purchase Contracts. Thus, rights of the holders
to their Pledged Securities will be subject to the Company's security interest. 
Additionally, notwithstanding the automatic termination of the Purchase         
Contracts, in the event that the Company becomes the subject of a case under the
Bankruptcy Code, the delivery of the Pledged Securities to holders of the FELINE
PRIDES may be delayed by the imposition of the automatic stay of Section 362 of 
the Bankruptcy Code.                                                            

INVESTMENT COMPANY EVENT DISTRIBUTION                                           

Upon the occurrence of an Investment Company Event, the Trust will be 
dissolved (except in the limited circumstances described in the following       
sentence) with the result that Debentures with an aggregate principal amount    
equal to the aggregate stated liquidation amount of the Capital Securities would
be distributed to the holders of the Capital Securities on a pro rata basis.    
Such dissolution and distribution shall be conditioned on the Company being     
unable to avoid such Investment Company Event within a 90-day period by taking  
some ministerial action or pursuing some other reasonable measure that will have
no adverse effect on the Trust, the Company or the holders of the Capital       
Securities, and will involve no material cost. In addition, the Company will    
have the right at any time to dissolve the Trust. See "Description of the       
Capital Securities -- Distribution of the Debentures."                          

    There can be no assurance as to the impact on the market prices for Income
PRIDES of a distribution of the Debentures in exchange for Capital Securities   
upon a dissolution of the Trust. Because Income PRIDES will consist of          
Debentures and related Purchase Contracts upon the occurrence of the dissolution
of the Trust as a result of an Investment Company Event or otherwise,           
prospective purchasers of Income PRIDES are also making an investment decision  
with regard to the Debentures and should carefully review all the information   
regarding the Debentures contained herein. See "Description of the Capital      
Securities -- Distribution of the Debentures" and "Description of the           
Debentures -- General."                                                         

TAX EVENT REDEMPTION                                                            

 The Debentures (and, thus, the Trust Securities) are redeemable, at the
option of the Company, on not less than 30 days or more than 60 days prior      
written notice, in whole but not in part, at any time prior to the Purchase     
Contract Settlement Date upon the occurrence and continuation of a Tax Event    
under the circumstances described herein at a Redemption Price equal to, for    
each Debenture, the Redemption Amount plus accrued and unpaid interest          
(including deferred interest, if any). See "Description of the Debentures -- Tax
Event Redemption." If the Company so redeems all of the Debentures, the Trust   
must redeem all of the Trust Securities and pay in cash such Redemption Price to
the holders of such Trust Securities. If the Tax Event Redemption has occurred  
prior the Purchase Contract Settlement Date, the Redemption Price payable in    
liquidation of the Income PRIDES holders' interest in the Trust will be         
distributed to the Collateral Agent, who in turn will apply an amount equal to  
the Redemption Amount of such Redemption Price to purchase the Treasury         
Portfolio on behalf of the holders of Income PRIDES. Holders of Capital         
Securities not held in the form of Income PRIDES will receive redemption        
payments directly. The Treasury Portfolio will be substituted for the Capital   
Securities and will be pledged with the Collateral Agent to secure such Income  
PRIDES holders' obligations to purchase the Company's Common Stock under their  
Purchase Contracts. There can be no assurance as to the impact on the market    
prices for the Income PRIDES of the substitution of the Treasury Portfolio as   
collateral in replacement of any Capital Securities so redeemed. See            
"Description of the Capital Securities -- Optional Redemption." A Tax Event     
Redemption will be a taxable event to the beneficial owners of the Capital      
Securities. See "Federal Income Tax Consequences -- Tax Event Redemption of     
Capital Securities."                                                            

RIGHT TO DEFER CURRENT PAYMENTS                                                 

  The Company may, at its option, defer the payment of Contract Adjustment
Payments on the Purchase Contracts until the Purchase Contract Settlement Date. 
However, deferred installments of Contract                                      

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Adjustment Payments will bear additional Contract Adjustment Payments at the    
rate of 8.75% per annum (compounding on each succeeding Payment Date) until     
paid. If the Purchase Contracts are settled early or terminated (upon the       
occurrence of certain events of bankruptcy, insolvency or reorganization with   
respect to the Company), the right to receive Contract Adjustment Payments and  
Deferred Contract Adjustment Payments, if any, will also terminate.             

In the event that the Company elects to defer the payment of Contract 
Adjustment Payments on the Purchase Contracts until the Purchase Contract       
Settlement Date, each holder of Purchase Contracts will receive on the Purchase 
Contract Settlement Date in respect of the Deferred Contract Adjustment         
Payments, in lieu of a cash payment, a number of shares of Common Stock equal to
(x) the aggregate amount of Deferred Contract Adjustment Payments payable to    
such holder divided by (y) the Applicable Market Value. See "Description of the 
Purchase Contracts -- Contract Adjustment Payments."                            

    The Company will also have the right under the Indenture to defer payments
of interest on the Debentures by extending the interest payment period at any   
time, and from time to time, on the Debentures. As a consequence of such an     
extension, quarterly distributions on the Capital Securities, held either as a  
component of the Income PRIDES or held separately, would be deferred (but       
despite such deferrals would continue to accrue at a rate of 8% per annum       
through and including August 15, 2001, and at the Reset Rate thereafter,        
compounded on a quarterly basis) by the Trust during any such Extension Period. 
Such right to extend the interest payment period for the Debentures will be     
limited such that an Extension Period may not extend beyond the stated maturity 
of the Debentures or end on other than a Payment Date. During any such Extension
Period, (a) the Company shall not declare or pay dividends on, make             
distributions with respect to, or redeem, purchase or acquire, or make a        
liquidation payment with respect to, any of its capital stock (other than (i)   
purchases or acquisitions of capital stock of the Company in connection with the
satisfaction by the Company of its obligations under any employee benefit plans 
or the satisfaction by the Company of its obligations pursuant to any contract  
or security outstanding on the date of such event requiring the Company to      
purchase capital stock of the Company, (ii) as a result of a reclassification of
the Company's capital stock or the exchange or conversion of one class or series
of the Company's capital stock for another class or series of the Company's     
capital stock, (iii) the purchase of fractional interests in shares of the      
Company's capital stock pursuant to the conversion or exchange provisions of    
such capital stock or the security being converted or exchanged, (iv) dividends 
or distributions in capital stock of the Company (or rights to acquire capital  
stock) or repurchases or redemptions of capital stock solely from the issuance  
or exchange of capital stock or (v) redemptions or repurchases of any rights    
outstanding under a shareholder rights plan or the declaration thereunder of a  
dividend of rights in the future) and (b) the Company shall not make any        
guarantee payments with respect to the foregoing (other than payments pursuant  
to the Guarantee). Prior to the termination of any such Extension Period, the   
Company may further extend the interest payment period; provided, that such     
Extension Period may not extend beyond the stated maturity of the Debentures or 
end on other than a Payment Date. Upon the termination of any Extension Period  
and the payment of all amounts then due, the Company may commence a new         
Extension Period, subject to the above requirements. See "Description of the    
Capital Securities -- Distributions" and "Description of the                    
Debentures -- Option to Extend Interest Payment Period."                        

The Company believes, and intends to take the position, that as of the
issue date of the Debentures, the likelihood that it will exercise its right to 
defer payments of stated interest on the Debentures is remote and that,         
therefore, the Debentures should not be considered to have been issued with OID 
as a result of the Company's right to defer payments of stated interest on the  
Debentures until such time that the Company actually exercises such deferral    
right. There is no assurance that the Internal Revenue Service (the "IRS") will 
agree with such position. See "Federal Income Tax Consequences -- Capital       
Securities -- Interest Income and Original Issue Discount."                     

Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each U.S. Holder (as defined herein) of  
Capital Securities held either as a component of the Income PRIDES or held      
separately would be required to include such U.S. Holder's share of the stated  
interest on the Debentures in gross income, as OID, on a daily economic accrual 
basis, regardless of such U.S. Holder's method of tax accounting. As a result,  
each U.S. Holder of Capital Securities would recognize income for               

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United States federal income tax purposes in advance of the receipt of cash     
attributable to such income, and would not receive the cash from the Trust      
related to such income if such holder disposes of its Capital Securities prior  
to the record date for the date on which distributions of such amounts are made.
See "Federal Income Tax Consequences -- Capital Securities -- Interest Income   
and Original Issue Discount." In addition, as a result of the existence of the  
Company's right to defer interest payments, the market price of the Capital     
Securities (which represent undivided beneficial ownership interests in the     
assets of the Trust) may be more volatile than the market price of other        
securities that are not subject to such deferral. Should the Company exercise   
such right in the future, the market price of the Capital Securities is likely  
to be adversely affected. A holder that disposes of its Capital Securities      
during an Extension Period, therefore, might not receive the same return on its 
investment as a holder that continues to hold its Capital Securities.           

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES                                   

   No statutory, judicial or administrative authority directly addresses the
treatment of the FELINE PRIDES or instruments similar to the FELINE PRIDES for  
United States federal income tax purposes. As a result, certain United States   
federal income tax consequences of the purchase, ownership and disposition of   
FELINE PRIDES are not entirely clear. See "Federal Income Tax Consequences."    

PURCHASE CONTRACT AGREEMENT NOT QUALIFIED UNDER TRUST INDENTURE ACT;            
LIMITED OBLIGATIONS OF PURCHASE CONTRACT AGENT                                  

  Although the Capital Securities constituting a part of the Income PRIDES
will be issued pursuant to the Declaration, which will be qualified under the   
Trust Indenture Act, the Purchase Contract Agreement will not be qualified as an
indenture under the Trust Indenture Act and the Purchase Contract Agent will not
be required to qualify as a trustee thereunder. Accordingly, holders of FELINE  
PRIDES will not have the benefit of the protections of the Trust Indenture Act. 
The protections generally afforded the holder of the security issued under an   
indenture that has been qualified under the Trust Indenture Act include         
disqualification of the indenture trustee for "conflicting interests" as defined
under the Trust Indenture Act, provisions preventing a trustee that is also a   
creditor of the issuer from improving its own credit position at the expense of 
the security holders immediately prior to or after a default under such         
indenture and the requirement that the indenture trustee deliver reports at     
least annually with respect to certain matters concerning the indenture trustee 
and the securities. Under the terms of the Purchase Contract Agreement, the     
Purchase Contract Agent will have only limited obligations to the holders of    
FELINE PRIDES. See "Certain Provisions of the Purchase Contract Agreement and   
the Pledge Agreement -- Information Concerning the Purchase Contract Agent."    

RIGHTS UNDER THE GUARANTEE                                                      

   The Guarantee will be qualified as an indenture under the Trust Indenture
Act. The Guarantee Trustee will act as indenture trustee under the Guarantee for
the purposes of compliance with the provisions of the Trust Indenture Act. The  
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the 
Trust Securities. The Guarantee guarantees to the holders of the Trust          
Securities, generally on a senior unsecured basis, the payment of (i) any       
accrued and unpaid distributions that are required to be paid on the Trust      
Securities, to the extent the Trust has funds available therefor, (ii) the      
redemption price, including all accumulated and unpaid distributions to the date
of redemption, of Trust Securities in respect of which the related Debentures   
have been redeemed by the Company upon the occurrence of a Tax Event Redemption,
to the extent the Trust has funds available therefor, and (iii) upon a voluntary
or involuntary dissolution of the Trust (other than in connection with the      
distribution of Debentures to the holders of Trust Securities), the lesser of   
(a) the aggregate of the liquidation amount and all accrued and unpaid          
distributions on the Trust Securities to the date of payment to the extent the  
Trust has funds available therefor or (b) the amount of assets of the Trust     
remaining available for distribution to holders of the Trust Securities in      
liquidation of the Trust. The holders of a majority in liquidation amount of the
Trust Securities will have the right to direct the time, method and place of    
conducting any proceeding for any remedy available to the Guarantee Trustee or  
to direct the exercise of any trust or power conferred upon the Guarantee       
Trustee under the Guarantee. Notwithstanding the foregoing, but only under the  
limited circumstances described under "-- Enforcement of Certain Rights by      
Holders of Capital Securities," any holder of the Trust Securities may institute
a legal proceeding directly against the Company to                              
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enforce such holder's rights under the Guarantee without first instituting a    
legal proceeding against the Trust, the Guarantee Trustee or any other person or
entity. If the Company were to default on its obligation to pay amounts payable 
on the Debentures or otherwise, the Trust would lack funds for the payment of   
distributions or amounts payable on redemption of the Trust Securities or       
otherwise, and, in such event, holders of the Trust Securities would not be able
to rely upon the Guarantee for payment of such amounts. Instead, holders of the 
Trust Securities would rely on the enforcement (1) by the Institutional Trustee 
of its rights as registered holder of the Debentures against the Company        
pursuant to the terms of the Indenture and the Debentures or (2) by such holder 
of the Institutional Trustee's or such holder's own rights against the Company  
to enforce payments on the Debentures. See "-- Enforcement of Certain Rights by 
Holders of Capital Securities," "Description of the Debentures" and "Description
of the Guarantee." The Declaration provides that each holder of Trust           
Securities, by acceptance thereof, agrees to the provisions of the Guarantee and
the Indenture.                                                                  

ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES                  

If a Declaration Event of Default (as defined herein) occurs and is   
continuing, the holders of Capital Securities would rely on the enforcement by  
the Institutional Trustee of its rights as registered holder of the Debentures  
against the Company. In addition, the holders of a majority in liquidation      
amount of the Capital Securities will have the right to direct the time, method,
and place of conducting any proceeding for any remedy available to the          
Institutional Trustee or to direct the exercise of any trust or power conferred 
upon the Institutional Trustee under the Declaration, including the right to    
direct the Institutional Trustee to exercise the remedies available to it as the
holder of the Debentures. The Indenture provides that the Debt Trustee (as      
defined herein) shall give holders of Debentures notice of all defaults or      
events of default within 30 days after occurrence. However, except in the cases 
of a default or an event of default in payment on the Debentures, the Debt      
Trustee will be protected in withholding such notice if its responsible officers
in good faith determine that withholding of such notice is in the interest of   
such holders.                                                                   

If the Institutional Trustee fails to enforce its rights under the    
Debentures in respect of an Indenture Event of Default (as defined herein) after
a holder of record of Capital Securities has made a written request, such holder
of record of Capital Securities may, to the extent permitted by applicable law, 
institute a legal proceeding against the Company to enforce the Institutional   
Trustee's rights under the Debentures. In addition, if the Company fails to pay 
interest or principal on the Debentures on the date such interest or principal  
is otherwise payable, and such failure to pay is continuing, a holder of Capital
Securities may directly institute a proceeding for enforcement of payment to    
such holder of the principal of or interest on the Debentures having a principal
amount equal to the aggregate stated liquidation amount of the Capital          
Securities of such holder (a "Direct Action") after the respective due date     
specified in the Debentures. In connection with such a Direct Action, the       
Company shall have the right under the Indenture to set off any payment made to 
such holder by the Company. The holders of Capital Securities will not be able  
to exercise directly any other remedy available to the holders of the           
Debentures. See "Description of the Capital Securities -- Declaration Events of 
Default."                                                                       

LIMITED RIGHTS OF ACCELERATION                                                  

The Institutional Trustee, as holder of the Debentures, may accelerate
payment of the principal and accrued and unpaid interest on the Debentures only 
upon the occurrence and continuation of an Indenture Event of Default, which    
generally is limited to payment defaults, breach of certain covenants and       
certain events of bankruptcy, insolvency and reorganization of the Company. See 
"Description of the Debentures -- Indenture Events of Default." Accordingly,    
there is no right to acceleration upon default by the Company of its payment    
obligations under the Guarantee.                                                

HOLDING COMPANY STRUCTURE                                                       

The Company is a holding company that conducts its operations through 
subsidiaries. As a result, the ability of the Company to pay the principal of   
and interest on its indebtedness (including the Debentures) and to pay amounts  
due in respect of its other obligations (including the Guarantee and the        
Contract Adjustment Payments), and therefore the ability of the Trust to make   
distributions and other payments on the Capital Securities, will depend on the  
results of operations of the Company's subsidiaries and the distribution of     
funds                                                                           

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by such subsidiaries to the Company. The ability of such subsidiaries to provide
funds to the Company may be subject to contractual and other limitations, is    
contingent upon results of operations and financial condition of such           
subsidiaries, and is subject to various other business considerations. See      
"Forward-Looking Statements."                                                   

   All of the operating assets of the Company are owned by its subsidiaries.
As a result, the obligations of the Company under the Debentures, the Contract  
Adjustment Payments and the Guarantee are effectively subordinated to all       
existing and future indebtedness and other liabilities, including trade         
payables, of the Company's subsidiaries. At February 28, 1998, the indebtedness 
and other liabilities of such subsidiaries on a consolidated basis aggregated   
approximately $981.8 million.                                                   

TRADING PRICE OF THE CAPITAL SECURITIES                                         

     The Capital Securities may trade at a price that does not fully reflect the
value of accrued but unpaid interest with respect to the underlying Debentures. 
A holder who disposes of his Capital Securities between record dates for        
payments of distributions thereon will be required to include accrued but unpaid
interest on the Debentures through the date of disposition in income as ordinary
income (i.e., interest or, possibly, OID), and to add such amount to his        
adjusted tax basis in his pro rata share of the underlying Debentures deemed    
disposed of. To the extent the selling price is less than the holder's adjusted 
tax basis, a holder will recognize a loss. See "Federal Income Tax              
Consequences -- Capital Securities -- Interest Income and Original Issue        
Discount" and "-- Sales, Exchanges or Other Taxable Dispositions of Capital     
Securities."                                                                    

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THE COMPANY 

GENERAL                                                                         

     The Company is a builder of single-family homes with domestic operations in
seven western states, and international operations in France and Mexico.        
Domestically, the Company is the largest home builder west of the Mississippi   
River, delivering more single-family homes than any other builder in the region.
Founded in 1957, the Company builds innovatively designed homes that cater      
primarily to first-time home buyers, generally in medium-sized developments     
close to major metropolitan areas. Internationally, the Company is among the    
largest builders in greater metropolitan Paris, France, based on the number of  
homes delivered. In France, the Company also builds high-density residential    
properties, such as condominium and apartment complexes. The Company provides   
mortgage banking services to domestic home buyers through its wholly owned      
subsidiary, Kaufman and Broad Mortgage Company.                                 

     The Company is a Delaware corporation and maintains its principal executive
offices at 10990 Wilshire Boulevard, Los Angeles, California 90024. Its         
telephone number is (310) 231-4000.                                             

RECENT DEVELOPMENTS                                                             

 During the second quarter of 1998, the Company acquired three privately
held home builders with regional operations in certain key markets. On March 19,
1998, the Company acquired all of the issued and outstanding capital stock of   
Houston-based Hallmark for approximately $54 million, including the assumption  
of debt. Hallmark builds single family homes in Houston, San Antonio and Austin,
Texas under the trade names of Dover Homes and Ideal Builders. The acquisition  
of Hallmark marks the Company's entry into the Houston market and will form the 
core of those operations, while strengthening the Company's position in San     
Antonio and Austin. The Company acquired substantially all of the assets of     
PrideMark on March 23, 1998 for approximately $65 million, including the        
assumption of trade liabilities and debt. PrideMark builds single family homes  
in Denver, Colorado, and its acquisition will significantly increase the        
Company's already substantial market presence in Denver. On April 9, 1998, the  
Company acquired all of the issued and outstanding capital stock of Estes for   
approximately $48 million, including the assumption of debt. Estes builds single
family homes in Phoenix and Tucson, Arizona. Estes provides the Company's entry 
into Tucson and will significantly increase the Company's already substantial   
market presence in Phoenix. The acquisitions of Hallmark, PrideMark and Estes   
will be accounted for under the purchase method and the results of their        
operations will be included in the Company's consolidated financial statements  
from the respective dates of acquisition. All three acquisitions described above
were consistent with the Company's acquisition strategy and support the         
Company's overall growth strategy and unit growth goals (see "-- Strategy"). The
Company currently estimates that the acquisitions in aggregate will produce     
incremental unit deliveries and revenues in fiscal 1998 of approximately 1,500  
and $175 million, respectively, and will be accretive to 1998 earnings per share
subject to the assumptions and other considerations set forth in the following  
paragraph.                                                                      

     Company-wide net orders for the second quarter ended May 31, 1998 increased
43.1% from the same period a year ago. Domestic net orders were up 36.1% from   
the prior year's quarter, including a 5.8% decrease in California net orders due
to a 17.1% decline in active communities in the state which was partially offset
by faster sales rates. The impact of El Nino rains on the Company's deliveries  
in the first two quarters of 1998 was only modest, with approximately 10 to 20  
unit deliveries in each quarter delayed to each subsequent quarter. The Company 
believes a similar number of deliveries may be postponed in the third quarter   
due to land development delays caused by the El Nino rains during the first half
of 1998. Nonetheless, the Company anticipates that, assuming a return to more   
normal weather patterns in California, all such delayed deliveries will be      
recorded before the end of the 1998 fiscal year, and, accordingly, expects that 
the El Nino conditions will have no material effect on year-end revenues and    
earnings. Net orders from non-California domestic operations (Arizona, Colorado,
Nevada, New Mexico, Texas and Utah) (collectively, "Other U.S.") for the second 
quarter of 1998 increased 72.9% from the second quarter of 1997. Excluding 539  
aggregate net orders attributable to recently completed acquisitions, the       
percentage increases in net orders for the 1998 second quarter versus the prior 
year quarter for Other U.S., total U.S., and the total Company were 40.9%, 19.1%
and 27.3%, respectively. In France, net orders were up 137.4% for the second    
quarter of 1998 compared to the prior year quarter, attributable in part to the 
Company's acquisition of SMCI in the third quarter of 1997.                     

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Assuming stable or improving business conditions, employment levels, interest   
rates, weather conditions and consumer confidence in its major markets, among   
other risk factors, the Company continues to believe that ongoing progress on   
its primary strategic initiatives and the acquisitions of Hallmark, PrideMark   
and Estes should result in higher delivery volumes from a higher average number 
of active communities, and improved operating income in 1998 compared to 1997.  
In the aggregate, the Company has established goals of achieving Company-wide   
deliveries in excess of 15,000 units in 1998 and 18,000 units for 1999,         
inclusive of the deliveries by recently acquired homebuilders. Both of these    
unit delivery goals could be materially affected by various risk factors such as
changes in general economic conditions either nationally or in the regions in   
which the Company operates or may commence operations, job growth and employment
levels, home mortgage interest rates or consumer confidence, among other things.
The Company believes that the benefits of the continued implementation of its   
strategic initiatives will provide long-term sustainable improvement throughout 
the Company's operations, boosting earnings per share and return on investment  
in 1998 and beyond. In that regard, a number of statements set forth under this 
caption, the caption "Prospectus Summary -- The Company -- Recent Developments" 
and the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" constitute forward-looking statements within the meaning 
of the Act. See "Forward-Looking Statements."                                   

STRATEGY                                                                        

     In the remainder of 1998, the Company plans to continue to focus on the two
primary strategic initiatives it established for 1997: further implementation of
its KB2000 operational business model and acceleration of the Company's growth. 
In addition, the Company also intends to concentrate on two complementary       
strategies in 1998 consisting of establishing optimum local market dominance and
increasing its focus on acquisitions.                                           

     The Company is continuing to concentrate on its KB2000 operational business
model in 1998 and intends to further the Company-wide implementation of KB2000  
during the remainder of the year. KB2000 integrates many of the basic operating 
principles that were historically used in the Company's recently acquired San   
Antonio operations. These include: achieving a deep understanding of customer   
desires and preferences through detailed market surveys; emphasizing pre-sales  
as opposed to building speculative inventory; maintaining lower levels of       
inventory in-process and standing inventory; establishing even flow production; 
providing a wide spectrum of choice to customers in terms of location, design   
and options; offering low base prices; and reducing the use of sales incentives.
Through its intense focus on the KB2000 strategy, the Company seeks to achieve a
leading market presence in each of its key markets. As expected, implementation 
of the KB2000 principles, such as emphasizing pre-selling of homes over         
speculative starts, resulted in higher backlog levels at the end of the first   
quarter of 1998 compared to February 28, 1997 levels, as well as an increase in 
the percentage of sold inventory in production at February 28, 1998 to 75%      
compared to 55% at February 28, 1997. In addition, the Company's backlog ratio  
rose to 160.3% at the end of the 1998 first quarter from 134.7% at the end of   
the year ago quarter (backlog ratio is defined as the ratio of beginning backlog
to actual deliveries in the succeeding quarter).                                

     In order to leverage the benefits of the KB2000 operational business model,
the Company is implementing a strategy designed to achieve a dominant market    
position in its major markets. The Company believes that "dominant" does not    
require that it become the largest builder in a market in terms of unit         
deliveries or revenues or that the Company control the pricing of new homes in  
any market; rather, the Company's goal is to achieve the optimum market position
that will enable its local business unit to maximize the benefits of its KB2000 
operational business model, including lower land acquisition costs, improved    
terms with suppliers and subcontractors, the offering of maximum choice and the 
best value to customers, and retention of the best management talent. The       
Company believes that by operating at large, optimal volume levels, it can      
better execute its KB2000 operational business model and use economies of scale 
to increase profits in fewer but larger markets. The Company's strategy involves
entering new markets at high volume levels, principally through acquisitions, as
well as rapidly growing existing operations to optimal market dominant volume   
levels through both organic growth and acquisitions.                            

 The Company intends to increase the overall growth of its deliveries in
1998, 1999 and future years through growth in its existing markets as well as de
novo entry into new markets. In the aggregate, growth in existing markets will  
be driven by the Company's ability to increase the number of active communities 
in its major markets by the successful implementation of its KB2000 operational 
business model. In addition, as                                                 

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discussed below, the Company has an ongoing acquisition strategy which will     
supplement growth in both existing and new markets. The Company's current goals 
are to achieve 15,000 deliveries in fiscal 1998 and 18,000 deliveries in fiscal 
1999.                                                                           

    The Company intends to actively consider additional strategic acquisitions
in 1998 to enter new markets and/or rapidly increase volume in existing markets.
Consideration for such acquisitions may be paid in cash, notes or Common Stock  
of the Company or any combination thereof. The acquisitions of Hallmark,        
PrideMark and Estes were executed in accordance with the Company's acquisition  
strategy. Under its strategy, the Company seeks to acquire home builders which  
have a business model close to KB2000, have access to land to support growth,   
possess a strong management team and will be accretive to earnings in the first 
full year following acquisition. The Company believes its acquisition strategy  
will enable it to identify and pursue appropriate targets for expanding its     
operations in 1998 and beyond in a focused and disciplined manner; however, this
strategy can be impacted by several factors, including, among other things, the 
general availability of applicable acquisition candidates, pricing for such     
transactions, competition among other national or regional builders for such    
target companies, changes in general and economic conditions nationally and in  
target markets and capital or credit market conditions.                         

THE TRUST 

     The Trust is a statutory business trust created under Delaware law pursuant
to (i) the Declaration, executed by the Sponsor and the KBHC Trustees and (ii)  
the filing of a certificate of trust with the Secretary of State of the State of
Delaware. Such Declaration of trust will be amended and restated in its entirety
substantially in the form filed as an exhibit to the Registration Statement of  
which this Prospectus forms a part. The Declaration will be qualified as an     
indenture under the Trust Indenture Act. Although upon issuance of the Capital  
Securities, the holders of Income PRIDES will be the beneficial owners of the   
related Capital Securities, such Capital Securities will be pledged with the    
Collateral Agent to secure the obligations of the holders under the related     
Purchase Contracts. See "Description of the Purchase Contracts -- Pledged       
Securities and Pledge Agreement" and "Description of the Capital                
Securities -- Book-Entry Only Issuance -- The Depository Trust Company." The    
Company will directly or indirectly acquire Common Securities in an aggregate   
liquidation amount equal to at least 3% of the total capital of the Trust. The  
Trust exists for the exclusive purposes of (i) issuing the Trust Securities     
representing undivided beneficial ownership interests in the assets of the      
Trust, (ii) investing the gross proceeds of the Trust Securities in the         
Debentures and (iii) engaging in only those other activities necessary or       
incidental thereto. The Trust has a term of approximately seven years, but may  
dissolve earlier as provided in the Declaration.                                

 The number of KBHC Trustees is initially four. Two of the KBHC Trustees
(the "Regular Trustees") are persons who are employees or officers of, or who   
are affiliated with, the Company. Pursuant to the Declaration, the third trustee
is The First National Bank of Chicago, a financial institution that is          
unaffiliated with the Company, which trustee serves as institutional trustee    
under the Declaration and as indenture trustee for the purposes of compliance   
with the provisions of the Trust Indenture Act (the "Institutional Trustee").   
The fourth trustee, First Chicago Delaware Inc., an entity that is unaffiliated 
with the Company, will serve as the Delaware Trustee, until removed or replaced 
by the holder of the Common Securities. For purposes of compliance with the     
provisions of the Trust Indenture Act, The First National Bank of Chicago will  
also act as the guarantee trustee (the "Guarantee Trustee") under the Guarantee.
See "Description of the Guarantee" and "Description of the Capital              
Securities -- Voting Rights."                                                   

     The Institutional Trustee will hold title to the Debentures for the benefit
of the holders of the Trust Securities and will have the power to exercise all  
rights, powers and privileges under the Indenture as the holder of the          
Debentures. In addition, the Institutional Trustee will maintain exclusive      
control of a segregated noninterest bearing bank account (the "Property         
Account") to hold all payments made in respect of the Debentures for the benefit
of the holders of the Trust Securities. The Institutional Trustee will make     
payments of distributions and payments on liquidation, redemption and otherwise 
to the holders of the Trust Securities out of funds from the Property Account.  
The Guarantee Trustee will hold the Guarantee for the benefit of the holders of 
the Capital Securities. The Company, as the direct or indirect holder of all the
Common Securities, will have the right to appoint, remove or replace any KBHC   
Trustee and to increase or decrease the number of KBHC Trustees; provided,      
however, that the number of KBHC Trustees shall be no fewer than two, at least  

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one of which shall be a Regular Trustee. The Company, in its capacity as        
borrower, will pay all fees and expenses related to the Trust and the offering  
of the Trust Securities. See "Description of the Debentures -- Miscellaneous."  

 The rights of the holders of the Capital Securities, including economic
rights, rights to information and voting rights, are set forth in the           
Declaration, the Business Trust Act of the State of Delaware (the "Trust Act")  
and the Trust Indenture Act. See "Description of the Capital Securities."       

    The principal place of business of the Trust is c/o Kaufman and Broad Home
Corporation, 10990 Wilshire Boulevard, Los Angeles, California 90024 and its    
telephone number is (310) 231-4000.                                             

USE OF PROCEEDS 

All of the proceeds from the sale of the Income PRIDES, the Capital   
Securities that are not components of the Income PRIDES and the Common          
Securities will be invested by the Trust in Debentures of the Company. The      
Company currently anticipates using the net proceeds from the sale of the       
Debentures (net of amounts paid to purchase the Common Securities), estimated to
be approximately $159,100,000 (approximately $183,107,500 if the Underwriters'  
over-allotment option is exercised in full) (in each case after deducting the   
underwriting commission and estimated expenses payable by the Company), for     
general corporate purposes, including potential future acquisitions. Pending    
application for such purposes, the Company intends to use such net proceeds to  
repay outstanding indebtedness under the Credit Facility. All of the proceeds   
from the sale of the Growth PRIDES will be used to purchase the underlying      
Treasury Securities to be transferred to holders of the Growth PRIDES pursuant  
to the terms thereof, and the Company will receive no proceeds from the sale of 
the Growth PRIDES. As of June 30, 1998 the weighted average interest rate on    
borrowings outstanding under the Credit Facility was approximately 6.7% per     
annum.                                                                          

PRICE RANGE OF COMMON STOCK AND DIVIDENDS 

  The Company's Common Stock is listed on the NYSE and is traded under the
symbol KBH. The following table sets forth, for the fiscal quarters shown, the  
quarterly high and low sale prices per share of Common Stock as reported on the 
New York Stock Exchange Composite Tape, and the regular quarterly dividends per 
share of the Common Stock.                                                      

                                                        [Enlarge/Download Table]

                                                               MARKET PRICE                       
                                                             ----------------        CASH DIVIDEND
                                                             HIGH         LOW          PER SHARE  
                                                             ----         ---        -------------
                                                                                                  
1996                                                                                              
First Quarter............................................... $16 7/8      $12 3/4        $.075    
Second Quarter..............................................  16 3/8       13 3/8         .075    
Third Quarter...............................................  15           11 1/4         .075    
Fourth Quarter..............................................  13 5/8       11 3/4         .075    
1997                                                                                              
First Quarter............................................... $14 5/8      $11 3/4        $.075    
Second Quarter..............................................  15 1/4       12 7/8         .075    
Third Quarter...............................................  22 1/8       14 3/4         .075    
Fourth Quarter..............................................  23 1/8       18 15/16       .075    
1998                                                                                              
First Quarter............................................... $26 13/16    $20 5/16       $.075    
Second Quarter..............................................  34 1/2       22 5/16        .075    
Third Quarter (through June 30, 1998).......................  34 1/4       24 11/16         --    

   A recent last reported sale price for the Common Stock on the NYSE is set
forth on the cover page of this Prospectus.                                     

DIVIDEND POLICY 

 The Company has a policy of paying quarterly dividends. The Company is,
however, subject to covenants under its bank revolving credit agreement which   
limit its ability to pay dividends. The actual amount of dividends paid is      
subject to the discretion of the Board of Directors and will depend on the      
Company's operating results, business requirements, financial covenants and     
other factors.                                                                  

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CAPITALIZATION

    The following table summarizes the unaudited capitalization of the Company
and its consolidated subsidiaries at February 28, 1998, and as adjusted to give 
effect to: (i) the sale of FELINE PRIDES and Capital Securities offered hereby, 
and (ii) the concurrent purchase by the Trust from the Company of the           
Debentures.                                                                     

                                                        [Enlarge/Download Table]

                                                                   FEBRUARY 28, 1998                
                                                   -------------------------------------------------
                                                                ADJUSTMENTS FOR THE                 
                                                                    ISSUANCE OF                     
                                                    ACTUAL         FELINE PRIDES        AS ADJUSTED 
                                                   ---------    --------------------    ------------
                                                    (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 
                                                                                                    
Construction:                                                                                       
  Credit Facility................................  $     --            $   --(1)          $     --  
  Mortgages and notes payable....................      39.7                                   39.7  
  7 3/4% Senior Notes............................     175.0                                  175.0  
  9 3/8% Senior Subordinated Notes...............     174.1                                  174.1  
  9 5/8% Senior Subordinated Notes...............     124.5                                  124.5  
Mortgage banking:                                                                                   
  Notes payable..................................     148.4                                  148.4  
  Collateralized mortgage obligations secured by                                                    
     mortgage-backed securities..................      58.5                                   58.5  
                                                   --------            ------             --------  
     Total debt..................................     720.2                --                720.2  
                                                   --------            ------             --------  
Minority interest in consolidated joint                                                             
  ventures.......................................       2.0                                    2.0  
Company obligated mandatorily redeemable                                                            
  preferred securities of subsidiary trust                                                          
  holding solely debentures of the Company.......                       165.0(2)             165.0  
Stockholders' equity:                                                                               
  Preferred Stock -- $1.00 par value; authorized,                                                   
     10,000,000 shares; none outstanding                                                            
  Common Stock -- $1.00 par value, authorized,                                                      
     100,000,000 shares; 39,228,777; shares                                                         
     outstanding(3)..............................      39.2                                   39.2  
  Special Common Stock -- $1.00 par value;                                                          
     authorized, 25,000,000 shares; none                                                            
     outstanding                                                                                    
  Paid-in capital................................     187.7              (7.1)(4)            180.6  
  Retained earnings..............................     165.1                                  165.1  
  Cumulative foreign currency translation                                                           
     adjustments.................................      (3.7)                                  (3.7) 
                                                   --------            ------             --------  
     Total stockholders' equity..................     388.3              (7.1)               381.2  
                                                   --------            ------             --------  
Total capitalization.............................  $1,110.5            $157.9             $1,268.4  
                                                   ========            ======             ========  

---------------                                                                 
(1) No borrowings were outstanding under the Credit Facility at February 28,    
   1998. Borrowings of approximately $229.1 million were outstanding under the
 Credit Facility on June 30, 1998. The Company currently anticipates using
the net proceeds from the sale of the FELINE PRIDES and of the Capital  
Securities for general corporate purposes, including potential future   
   acquisitions. Pending application for such purposes, the Company intends to
   use such net proceeds to repay outstanding indebtedness under the Company's
Credit Facility (see "Use of Proceeds").                                

(2) Subsequent to the completion of the offering, the assets of the Trust will  
    consist solely of approximately $170.1 million in aggregate principal amount
   of Debentures with an interest rate of 8% and a maturity date of August 16,
2003.                                                                   

(3) Does not include 3,334,277 shares of Common Stock issuable upon exercise of 
 outstanding stock options issued pursuant to employee stock option plans.

(4) Reflects certain issuance costs of the FELINE PRIDES and the present value  
of the Contract Adjustment Payments.                                    

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CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
AND OF EARNINGS TO COMBINED FIXED CHARGES 
AND PREFERRED STOCK DIVIDENDS 

     The following table sets forth the consolidated ratios of earnings to fixed
charges and earnings to combined fixed charges and preferred stock dividends of 
the Company for each of the periods indicated.                                  

                                                        [Enlarge/Download Table]

                                             THREE MONTHS                                           
                                                 ENDED                                              
                                             FEBRUARY 28,           YEAR ENDED NOVEMBER 30,         
                                             -------------  ----------------------------------------
                                             1998    1997   1997    1996       1995    1994    1993 
                                             -----   -----  -----   ----       -----   -----   -----
                                                                                                    
Ratio of Earnings to Fixed Charges(1)....... 1.91x   1.51x  2.44x    --(2)(3)  1.35x   2.09x   2.07x
Ratio of Earnings to Combined Fixed Charges                                                         
  and Preferred Stock Dividends(1).......... 1.91x   1.51x  2.44x    --(2)(3)  1.12x   1.64x   1.80x

---------------                                                                 

(1) For purposes of calculating the ratio of earnings to fixed charges and the  
  ratio of earnings to combined fixed charges and preferred stock dividends,
  earnings are computed by adding fixed charges (except capitalized interest
   and the effect of preferred stock dividends) and amortization of previously
    capitalized interest to pretax earnings (excluding undistributed earnings of
 unconsolidated joint ventures). Fixed charges consist of interest expense
    plus capitalized interest and the portion of rental expense considered to be
interest and, for the ratio of earnings to combined fixed charges and   
preferred stock dividends prior to April 1, 1996, include the effect of 
preferred stock dividends on the Company's Series B Mandatory Conversion
Premium Dividend Preferred Stock. On April 1, 1996, all shares of the   
    Company's only outstanding series of preferred stock, the Series B Mandatory
  Conversion Premium Dividend Preferred Stock, were mandatorily converted to
   shares of Common Stock and no future preferred stock dividends will be paid
or are payable with respect to such preferred stock.                    

In computing the ratio of earnings to fixed charges and the ratio of  
    earnings to combined fixed charges and preferred stock dividends, interest
  expense excludes interest incurred by the Company's wholly owned limited
purpose financing subsidiaries with respect to their outstanding      
 collateralized mortgage obligations. If interest on such collateralized
mortgage obligations were included, (i) earnings for the year ended   
November 30, 1996 would have been inadequate to cover fixed charges by
   $97.8 million, while the ratio of earnings to fixed charges for the three
  months ended February 28, 1998 and 1997 and the years ended November 30,
     1997, 1995, 1994 and 1993 would have been 1.82x, 1.45x, 2.29x, 1.31x, 1.88x
    and 1.77x, respectively, and (ii) earnings for the year ended November 30,
1996 would have been inadequate to cover combined fixed charges and   
     preferred stock dividends by $105.5 million, while the ratio of earnings to
   combined fixed charges and preferred stock dividends for the three months
 ended February 28, 1998 and 1997 and the years ended November 30, 1997,
   1995, 1994 and 1993 would have been 1.82x, 1.45x, 2.29x, 1.11x, 1.54x and
1.60x, respectively.                                                  

(2) The amount of earnings used in the calculation of the ratio of earnings to  
fixed charges and the ratio of earnings to combined fixed charges and   
   preferred stock dividends for the year ended November 30, 1996 includes the
 $170.8 million pretax non-cash charge for impairment of long-lived assets
recorded by the Company in the second quarter of 1996. If the non-cash  
charge for impairment of long-lived assets were excluded, the ratio of  
earnings to fixed charges and the ratio of earnings to combined fixed   
  charges and preferred stock dividends for the year ended November 30, 1996
would have been 1.96x and 1.78x, respectively.                          

(3) Earnings for the year ended November 30, 1996 were inadequate to cover fixed
    charges by $97.8 million. Earnings for the year ended November 30, 1996 were
   inadequate to cover combined fixed charges and preferred stock dividends by
$105.5 million.                                                         

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SELECTED CONSOLIDATED FINANCIAL DATA

  The following table presents selected consolidated financial data of the
Company. The data (other than housing, commercial and land revenues and unit    
deliveries) for the fiscal years ended November 30, 1997, 1996, 1995, 1994 and  
1993 are derived from the financial statements for those years which have been  
audited by Ernst & Young LLP, independent auditors. Data related to housing,    
commercial and land revenues and unit deliveries are derived from unaudited     
financial statements. Selected unaudited financial data at February 28, 1998 and
1997 and for each of the three month periods ended February 28, 1998 and 1997   
reflect, in the opinion of the Company, all adjustments (consisting only of     
normal recurring adjustments) necessary for a fair presentation of the results  
of operations for these periods. The results of operations for the three months 
ended February 28, 1998 are not necessarily indicative of results to be expected
for the full year. The following data should be read in conjunction with the    
financial statements and the related notes thereto incorporated by reference in 
this Prospectus. For information regarding the Company's ratios of earnings to  
fixed charges and of earnings to combined fixed charges and preferred stock     
dividends, see "Consolidated Ratios of Earnings to Fixed Charges and of Earnings
to Combined Fixed Charges and Preferred Stock Dividends."                       

                                                        [Enlarge/Download Table]

                                                 THREE MONTHS                                                                  
                                                     ENDED                                                                     
                                                 FEBRUARY 28,                         YEAR ENDED NOVEMBER 30,                  
                                             ---------------------   --------------------------------------------------------- 
                                               1998        1997        1997        1996        1995        1994        1993    
                                             ---------   ---------   ---------   ---------   ---------   ---------   --------- 
                                                  (UNAUDITED)             (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)      
                                                                                                                               

STATEMENT OF OPERATION DATA:                                                                                                   
Revenues:                                                                                                                      
  Housing................................... $   414.2   $   333.8   $ 1,827.3   $ 1,673.7   $ 1,328.1   $ 1,263.0   $ 1,097.6 
  Commercial................................        --          --         2.7        12.2        20.5        17.4        94.2 
  Land......................................       3.1         5.8        13.6        68.2        18.3        27.2         8.0 
  Mortgage banking..........................       8.9         7.6        32.7        31.8        29.7        28.7        38.1 
                                             ---------   ---------   ---------   ---------   ---------   ---------   --------- 
    Total revenues.......................... $   426.2   $   347.2   $ 1,876.3   $ 1,785.9   $ 1,396.6   $ 1,336.3   $ 1,237.9 
                                             =========   =========   =========   =========   =========   =========   ========= 
Construction:                                                                                                                  
  Revenues.................................. $   417.3   $   339.6   $ 1,843.6   $ 1,754.1   $ 1,366.9   $ 1,307.6   $ 1,199.8 
  Costs and expenses........................    (402.1)     (327.9)   (1,741.8)   (1,655.4)   (1,301.4)   (1,219.3)   (1,113.2)
  Non-cash charge for impairment of                                                                                            
    long-lived assets.......................        --          --          --      (170.8)         --          --          -- 
                                             ---------   ---------   ---------   ---------   ---------   ---------   --------- 
  Operating income (loss)...................      15.2        11.7       101.8       (72.1)       65.5        88.3        86.6 
  Interest income...........................       1.5         1.1         5.1         2.7         2.1         2.0         3.5 
  Interest expense, net of amounts                                                                                             
    capitalized.............................      (7.1)       (8.4)      (29.9)      (36.7)      (27.5)      (17.8)      (16.8)
  Minority interests in pretax income of                                                                                       
    consolidated joint ventures.............      (0.2)       (0.1)       (0.4)       (0.2)       (0.6)       (0.9)      (10.2)
  Equity in pretax income (loss) of                                                                                            
    unconsolidated joint ventures...........       0.2         0.1        (0.1)       (2.1)       (3.4)       (3.7)       (6.3)
                                             ---------   ---------   ---------   ---------   ---------   ---------   --------- 
  Construction pretax income (loss).........       9.6         4.4        76.5      (108.4)       36.1        67.9        56.8 
                                             ---------   ---------   ---------   ---------   ---------   ---------   --------- 
Mortgage banking:                                                                                                              
  Revenues..................................       8.9         7.6        32.7        31.8        29.7        28.7        38.1 
  Expenses..................................      (5.8)       (5.1)      (18.2)      (19.1)      (20.3)      (22.7)      (30.6)
                                             ---------   ---------   ---------   ---------   ---------   ---------   --------- 
  Mortgage banking pretax income............       3.1         2.5        14.5        12.7         9.4         6.0         7.5 
                                             ---------   ---------   ---------   ---------   ---------   ---------   --------- 
Total pretax income (loss)..................      12.7         6.9        91.0       (95.7)       45.5        73.9        64.3 
Income taxes................................      (4.6)       (2.5)      (32.8)       34.5       (16.4)      (27.3)      (24.4)
                                             ---------   ---------   ---------   ---------   ---------   ---------   --------- 
Net income (loss)........................... $     8.1   $     4.4   $    58.2   $   (61.2)  $    29.1   $    46.6   $    39.9 
                                             =========   =========   =========   =========   =========   =========   ========= 
Basic earnings per share.................... $     .21   $     .11   $    1.50   $   (1.80)  $     .59   $    1.13   $    1.01 
                                             =========   =========   =========   =========   =========   =========   ========= 
Diluted earnings per share.................. $     .20   $     .11   $    1.45   $   (1.80)  $     .58   $    1.09   $     .94 
                                             =========   =========   =========   =========   =========   =========   ========= 
OTHER OPERATING DATA:                                                                                                          
California unit deliveries..................     1,022         914       4,731       5,171       5,430       6,238       5,745 
Other U.S. unit deliveries..................     1,341       1,102       5,642       4,294       1,800         834         207 
France unit deliveries......................       260          83       1,032         749         574         685         657 
Other unit deliveries.......................         6           9          38          35          53          67         155 
                                             ---------   ---------   ---------   ---------   ---------   ---------   --------- 
  Total unit deliveries.....................     2,629       2,108      11,443      10,249       7,857       7,824       6,764 
                                             =========   =========   =========   =========   =========   =========   ========= 

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                                                        [Enlarge/Download Table]

                                                 THREE MONTHS                                                                
                                                     ENDED                                                                   
                                                 FEBRUARY 28,                        YEAR ENDED NOVEMBER 30,                 
                                             ---------------------  ---------------------------------------------------------
                                               1998        1997       1997        1996        1995        1994        1993   
                                             ---------   ---------  ---------   ---------   ---------   ---------   ---------
                                                  (UNAUDITED)            (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)     
                                                                                                                             
BALANCE SHEET DATA (END OF PERIOD):                                                                                          
Assets:                                                                                                                      
Construction assets......................... $ 1,139.0   $   989.3  $ 1,133.9   $ 1,000.2   $ 1,269.2   $ 1,167.2   $   983.5
Mortgage banking assets.....................     233.2       184.0      285.1       243.3       305.0       287.3       355.9
                                             ---------   ---------  ---------   ---------   ---------   ---------   ---------
  Total assets.............................. $ 1,372.2   $ 1,173.3  $ 1,419.0   $ 1,243.5   $ 1,574.2   $ 1,454.5   $ 1,339.4
                                             =========   =========  =========   =========   =========   =========   =========
Liabilities and Stockholders' Equity:                                                                                        
Construction liabilities:                                                                                                    
  Accounts payable, accrued expenses and                                                                                     
    other liabilities....................... $   256.1   $   192.5  $   269.0   $   248.8   $   246.3   $   219.0   $   233.5
  Mortgages and notes payable...............     513.3       477.3      496.9       442.6       639.6       565.0       313.4
                                             ---------   ---------  ---------   ---------   ---------   ---------   ---------
                                                 769.4       669.8      765.9       691.4       885.9       784.0       546.9
Mortgage banking liabilities................     212.4       165.0      268.2       210.8       245.4       232.0       304.8
Deferred income taxes.......................        --          --         --          --        24.5        31.4        26.9
Minority interests in consolidated joint                                                                                     
  ventures..................................       2.0         0.8        1.9         0.9         2.9         2.3        16.5
Stockholders' equity........................     388.4       337.7      383.0       340.4       415.5       404.8       444.3
                                             ---------   ---------  ---------   ---------   ---------   ---------   ---------
  Total liabilities and stockholders'                                                                                        
    equity.................................. $ 1,372.2   $ 1,173.3  $ 1,419.0   $ 1,243.5   $ 1,574.2   $ 1,454.5   $ 1,339.4
                                             =========   =========  =========   =========   =========   =========   =========

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

    Revenues are primarily generated from the Company's (i) housing operations
in the western United States and France and (ii) its domestic mortgage banking  
operations.                                                                     

FIRST QUARTERS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997                    

RESULTS OF OPERATIONS                                                           

OVERVIEW.  Total revenues for the three months ended February 28, 1998
increased 22.8% to $426.2 million from $347.2 million for the quarter ended     
February 28, 1997 due to higher housing and mortgage banking revenues, partially
offset by lower land revenues. Net income for the first quarter of 1998         
increased to $8.1 million or $.20 per share from $4.4 million or $.11 per share 
for the same period a year ago. The increase in net income was principally      
driven by significantly higher unit deliveries, an improved operating income    
margin and lower interest expense, as well as an increase in mortgage banking   
pretax income. Despite a modest adverse impact on first quarter California      
deliveries related to severe rains, Company-wide housing revenues for the first 
quarter of 1998 increased 24.1% from the year-earlier period reflecting a 24.7% 
increase in unit deliveries, partially offset by a .5% decline in average       
selling price. Mortgage banking pretax income increased 24.4% in the first three
months of 1998 compared to the first three months of 1997 primarily due to a    
higher volume of loan closings.                                                 

CONSTRUCTION                                                                    

     REVENUES.  Revenues increased by $77.7 million, or 22.9%, to $417.3 million
in the first quarter of 1998 from $339.6 million in the first quarter of 1997   
due to an increase in housing revenues, partially offset by lower land revenues.
Housing revenues for the period increased by $80.3 million to $414.2 million    
from $333.9 million in the year-earlier period as a result of a 24.7% increase  
in unit deliveries, partly offset by a .5% decline in average selling price.    
Housing revenues in the United States rose to $379.6 million on 2,363 unit      
deliveries in the first three months of 1998, compared to $313.8 million on     
2,016 units in the first three months of 1997, reflecting increased housing     
revenues from both California and Other U.S. operations. California housing     
revenues for the first quarter of 1998 rose 18.9% to $218.6 million on 1,022    
unit deliveries from $183.8 million on 914 unit deliveries in the year-earlier  
period. California unit deliveries increased 11.8% in the first quarter of 1998 
from the first quarter of 1997 despite a 16.9% decrease in the average number of
active communities and severe El Nino rains during the quarter. The Company     
believes a similar number of deliveries may be postponed in the third quarter   
due to land development delays caused by the El Nino rains during the first half
of 1998. Nonetheless, the Company anticipates that, assuming a return to more   
normal weather patterns in California, all such delayed deliveries will be      
recorded before the end of the 1998 fiscal year, and, accordingly, expects that 
El Nino conditions will have no material effect on year-end revenues. Housing   
revenues from Other U.S. operations rose 23.8% to $161.0 million in the first   
quarter of 1998 from $130.0 million in the first quarter of 1997. Other U.S.    
deliveries increased 21.7% to 1,341 units in the first quarter of 1998 from     
1,102 units in the first quarter of 1997 as a result of a 38.5% increase in the 
average number of active communities. Revenues from French housing operations   
during the first quarter of 1998 increased to $32.8 million on 260 unit         
deliveries from $17.4 million on 83 units in the prior year's quarter primarily 
due to the inclusion of operations of Paris-based SMCI, acquired in the third   
quarter of 1997.                                                                

 During the first quarter of 1998, the Company's overall average selling
price decreased .5% to $157,600 from $158,400 in the prior year's period. This  
slight decrease primarily resulted from a lower average selling price in France.
The domestic average selling price rose 3.2% to $160,600 in the first quarter of
1998, reflecting a 6.4% increase in the Company's California average selling    
price to $213,900 from $201,100 and a 1.8% increase in the average selling price
in Other U.S. operations to $120,100 from $118,000. These increases occurred as 
a result of selected increases in sales prices in certain markets, as well as a 
change in product mix favoring a greater number of higher priced urban in-fill  
locations and first time move up sales. In France, the average selling price in 
the first quarter of 1998 fell 39.9% to $126,300 from $210,000 in the           
year-earlier quarter primarily due to the lower priced unit deliveries from the 
SMCI developments.                                                              

    Revenues from land sales totaled $3.1 million in the first quarter of 1998
compared to $5.8 million in the first quarter of 1997.                          

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OPERATING INCOME. Operating income increased by $3.4 million to $15.2 
million in the first quarter of 1998 from $11.8 million in the first quarter of 
1997. As a percentage of construction revenues, operating income increased by .1
percentage point to 3.6% in the first quarter of 1998 compared to 3.5% in the   
first quarter of 1997. Gross profits increased by $12.4 million, or 20.6%, to   
$72.4 million in the first quarter of 1998 from $60.0 million in the prior      
year's period. During this same period, housing gross profits increased by $13.8
million to $72.1 million from $58.3 million. Gross profits as a percentage of   
construction revenues decreased to 17.4% in the first quarter of 1998 from 17.7%
in the year-earlier quarter primarily due to a decrease in the Company's housing
gross margin to 17.4% from 17.5%. The decrease in the Company's housing gross   
margin resulted from a lower housing gross margin in California due to the      
continued sell-through of older, non KB2000 communities, partially offset by an 
improved gross margin on new KB2000 deliveries. Company-wide land sales         
generated gross profits of $.3 million and $1.8 million in the first quarter of 
1998 and 1997, respectively.                                                    

    Selling, general and administrative expenses increased by $8.9 million, or
18.5%, to $57.2 million in the three months ended February 28, 1998 from $48.3  
million in the corresponding 1997 period. As a percentage of housing revenues,  
selling, general and administrative expenses improved .7 percentage points to   
13.8% in the first quarter of 1998 from 14.5% for the year-earlier period. This 
improvement was due to the higher volume of deliveries, as well as lower        
advertising and sales incentives, partially offset by higher sales commissions. 

  INTEREST INCOME AND EXPENSE. Interest income totaled $1.5 million in the
first quarter of 1998 compared to $1.1 million in the first quarter of 1997,    
reflecting increases in the interest bearing average balances of short-term     
investments and mortgages receivable compared to the same period a year ago.    

    Interest expense (net of amounts capitalized) decreased by $1.3 million to
$7.1 million in the first quarter of 1998 from $8.4 million in the first quarter
of 1997. Gross interest incurred in the three months ended February 28, 1998 was
$.8 million lower than the year ago period, reflecting a lower average interest 
rate as a result of more favorable financing terms obtained by the Company due  
to the redemption of its $100 million 10 3/8% senior notes and the issuance of  
$175 million of 7 3/4% senior notes in the fourth quarter of 1997. The          
percentage of interest capitalized during the three months ended February 28,   
1998 and 1997 was 42.2% and 36.3%, respectively. These capitalization rates     
reflect the timing and proportion of land in production during the periods.     

MINORITY INTERESTS IN PRETAX INCOME OF CONSOLIDATED JOINT VENTURES.   
Minority interests in pretax income of consolidated joint ventures totaled $.3  
million in the first quarter of 1998 and $.1 million in the first quarter of    
1997. Minority interests relate to residential and commercial activities in     
France. In the first quarters of 1998 and 1997, minority interests related only 
to residential activities. Minority interests are expected to remain at         
relatively low levels reflecting the limited opportunities currently available  
and reasonably expected to be available in the French commercial market as well 
as the Company's strategy to focus on its French residential development        
business.                                                                       

    EQUITY IN PRETAX INCOME OF UNCONSOLIDATED JOINT VENTURES. Equity in pretax
income of unconsolidated joint ventures totaled $.2 million in the first quarter
of 1998 compared to the essentially break-even results recorded in the first    
quarter of 1997. The Company's joint ventures recorded combined revenues of $4.6
million in the first three months of 1998 compared to $2.5 million in the       
corresponding period of 1997. All of the joint venture revenues in the first    
quarter of 1998 and 1997 were generated from residential properties.            

MORTGAGE BANKING                                                                

     INTEREST INCOME AND EXPENSE. Interest income and interest expense increased
by $.1 million and $.3 million, respectively, in the first quarter of 1998      
compared to the same quarter a year ago. Interest income increased as a result  
of the higher balance of first mortgages held under commitment of sale and other
receivables outstanding during the first quarter of 1998 compared to the prior  
year's first quarter, while interest expense rose due to the higher balance of  
notes payable outstanding during the period.                                    

    OTHER MORTGAGE BANKING REVENUES. Other mortgage banking revenues increased
by $1.3 million to $5.3 million in the first three months of 1998 from $4.0     
million in the first three months of 1997. This increase                        

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was primarily the result of higher gains on the sale of servicing rights due to 
an increased level of mortgage originations resulting from higher unit volume in
the United States.                                                              

  GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $.4 million to $2.2 million for the quarter ended February 28, 1998
from $1.8 million for the same period a year ago. The increase in general and   
administrative expenses was primarily due to increased mortgage production      
volume.                                                                         

INCOME TAXES                                                                    

  Income tax expense totaled $4.6 million in the first quarter of 1998 and
$2.5 million in the prior year's first quarter. These amounts represented an    
effective income tax rate of approximately 36% in both 1998 and 1997.           

FISCAL YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995                             

RESULTS OF OPERATIONS                                                           

     OVERVIEW.  During fiscal 1997, the Company focused on two primary strategic
initiatives -- acceleration of the Company's growth and the implementation of   
its KB2000 operational business model. The excellent progress made by the       
Company on these initiatives in 1997 was a key factor in the improvement in     
Company-wide revenues and earnings compared to 1996.                            

 Total Company revenues increased to $1.88 billion in 1997, up 5.1% from
$1.79 billion in 1996, which had increased 28.0% from revenues of $1.40 billion 
in 1995. The 1997 increase primarily resulted from higher housing revenues,     
partially offset by lower land sale revenues. In addition, 1997 results included
a full year's contribution from the Company's San Antonio homebuilding          
operations (formerly Rayco, Ltd.); in contrast, 1996 results included only a    
nine-month contribution as the Company's acquisition of these operations        
occurred on March 1, 1996. The increase in revenues in 1996 compared to 1995    
results was largely due to the acquisition of the San Antonio operations, as    
well as the continued maturation of the Company's Other U.S. businesses and     
higher land sale revenues. Included in total Company revenues were mortgage     
banking revenues of $32.7 million in 1997, $31.8 million in 1996 and $29.7      
million in 1995.                                                                

    Net income increased approximately $10.2 million or 21.3% to $58.2 million
or $1.45 per share in 1997, up from $48.0 million or $1.20 per share in 1996,   
excluding the after-tax non-cash charge of $109.3 million for impairment of     
long-lived assets recorded in 1996. Including the non-cash charge, the Company  
recorded a net loss of $61.2 million or $1.54 per share in 1996. Excluding the  
charge, 1996 net income of $48.0 million was 65.2% higher than the $29.1 million
or $.73 per share recorded in 1995. Net income increased in 1997 due to higher  
unit deliveries, lower net interest expense and higher pretax earnings from the 
mortgage banking operations. In addition, earnings for 1997 included a full year
of operating results from the San Antonio operations while 1996 included only   
three quarters of results. In 1996, net income, excluding the non-cash charge,  
rose due to improved unit deliveries (including three quarters of San Antonio   
operations), continued progress in implementing the Company's key 1996          
initiatives to improve gross margins and contain costs, and an increase in      
pretax income from mortgage banking operations. Mortgage banking pretax income  
rose in 1996 primarily due to increased loan volume and higher income from sales
of mortgages and servicing rights stemming from an improved mix of fixed-rate   
and variable loans.                                                             

     As a result of continued domestic expansion outside of California, 54.4% of
the Company's domestic deliveries were generated from Other U.S. operations in  
1997, compared to 45.4% in 1996. In response to persistently weak conditions for
new housing and general recessionary trends in California during the first half 
of the 1990's, the Company has diversified its business through aggressive      
expansion into other western states. Although market conditions appear to have  
improved in many markets within California (particularly in Northern            
California), the Company remains selective in its land investments in the state 
while focusing on improving gross margins, reducing overhead expenses and       
improving rates of return. The Company is cautiously optimistic that improving  
economic trends statewide will soon lead to stronger housing markets in other   
areas of the state and hopes to expand its overall level of business in         
California in 1998, 1999 and in subsequent years through increases in the number
of active communities or the acquisition of existing businesses.                

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The Company's domestic operations outside of California experienced   
continued growth in 1997, with the Company delivering its first homes in Austin,
Texas. This new source of deliveries combined with the first full year of San   
Antonio operations and the continued maturation of non-California operations    
resulted in a 31.4% increase in Other U.S. deliveries in 1997 compared to the   
prior year. The Company expects to continue to actively seek additional         
opportunities for non-California domestic expansion in future years, in both    
existing and new markets, through either de novo entry or the acquisition of    
existing businesses.                                                            

  The French housing market improved modestly in 1997 from the prior year,
which was marked by lingering high unemployment and other recessionary factors. 
The Company anticipates significant increases in deliveries from its French     
housing operations in 1998 in line with the nation's improving economy and as a 
result of its mid-1997 acquisition of SMCI developments. The Company's French   
commercial activities are likely to remain at or below 1997 levels, reflecting  
persistently poor conditions in the French commercial market and the Company's  
strategy to focus on its residential development business.                      

CONSTRUCTION                                                                    

 REVENUES. Construction revenues increased in 1997 to $1.84 billion from
$1.75 billion in 1996, which had increased from $1.37 billion in 1995. The      
improvement in 1997 was primarily the result of increased housing revenues,     
which included a full year's operating results from the Company's San Antonio   
division, partially offset by a decline in revenues from land sales. In 1996,   
the increase in revenues primarily reflected the inclusion of $189.2 million in 
revenues from nine months of San Antonio operations, continued growth within the
Company's Other U.S. operations and increased land sale revenues.               

   Housing revenues totaled $1.83 billion in 1997, $1.67 billion in 1996 and
$1.33 billion in 1995. The increase in 1997 reflected an 11.7% increase in unit 
volume, partially offset by a 2.2% decline in average selling price. Housing    
revenues in 1997 included four quarters of results from the Company's San       
Antonio operations versus three quarters in 1996. These operations recorded     
revenues of $57.6 million on 611 deliveries in the first quarter of 1997. In    
1996, excluding revenues from the San Antonio operations, housing revenues      
totaled $1.48 billion, up 11.8% from 1995 as a result of a 4.6% increase in unit
volume and a 6.9% higher average selling price. California housing operations   
generated 54.0% of Company-wide housing revenues in 1997, down from 59.6% in    
1996 and 72.3% in 1995, reflecting the March 1, 1996 acquisition of the         
Company's San Antonio operations and continued diversification beyond           
California. Housing revenues from California operations were $986.6 million in  
1997, down 1.1% from $997.3 million in 1996. The Company's Other U.S. housing   
revenues totaled $669.4 million in 1997, up 30.3% from $513.9 million in 1996.  
The 1996 results, which included three quarters of revenues from San Antonio    
operations, had more than doubled from $245.4 million in 1995; excluding the San
Antonio results, Other U.S. housing revenues in 1996 totaled $324.7 million, up 
32.3% from 1995. The Company's operations in France and Mexico generated housing
revenues of $160.5 million and $10.8 million, respectively, in 1997 and $154.7  
million and $6.4 million, respectively, in 1996, reflecting an increase in      
international housing deliveries. Housing revenues from French operations       
totaled $116.9 million in 1995.                                                 

RESIDENTIAL QUARTERLY UNIT AND BACKLOG DATA                                 

                                                        [Enlarge/Download Table]

                                                             OTHER                             
                                                CALIFORNIA    U.S.    FRANCE   OTHER    TOTAL  
                                                ----------  --------  -------  ------  --------
                                                                                               
UNIT DELIVERIES                                                                                
1997                                                                                           
First..........................................       914      1,102       83       9     2,108
Second.........................................     1,095      1,211      151       8     2,465
Third..........................................     1,204      1,513      295       4     3,016
Fourth.........................................     1,518      1,816      503      17     3,854
                                                 --------   --------  -------  ------  --------
Total..........................................     4,731      5,642    1,032      38    11,443
                                                 ========   ========  =======  ======  ========

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                                                        [Enlarge/Download Table]

                                                             OTHER                             
                                                CALIFORNIA    U.S.    FRANCE   OTHER    TOTAL  
                                                ----------  --------  -------  ------  --------
                                                                                               
1996                                                                                           
First..........................................     1,095        487       96       5     1,683
Second.........................................     1,453      1,265      160       5     2,883
Third..........................................     1,259      1,307      180       3     2,749
Fourth.........................................     1,364      1,235      313      22     2,934
                                                 --------   --------  -------  ------  --------
Total..........................................     5,171      4,294      749      35    10,249
                                                 ========   ========  =======  ======  ========
NET ORDERS                                                                                     
1997                                                                                           
First..........................................     1,077      1,528      140      10     2,755
Second.........................................     1,476      1,681      230       9     3,396
Third..........................................     1,506      1,599      191      14     3,310
Fourth.........................................     1,134      1,368      513      13     3,028
                                                 --------   --------  -------  ------  --------
Total..........................................     5,193      6,176    1,074      46    12,489
                                                 ========   ========  =======  ======  ========
1996                                                                                           
First..........................................     1,292        540      123      21     1,976
Second.........................................     1,577      1,399      241      21     3,238
Third..........................................     1,395      1,144      104       7     2,650
Fourth.........................................     1,135        968      267       5     2,375
                                                 --------   --------  -------  ------  --------
Total..........................................     5,399      4,051      735      54    10,239
                                                 ========   ========  =======  ======  ========
ENDING BACKLOG-UNITS                                                                           
1997                                                                                           
First..........................................     1,017      2,182      272      15     3,486
Second.........................................     1,398      2,652      351      16     4,417
Third..........................................     1,700      2,738      576      26     5,040
Fourth.........................................     1,316      2,290      586      22     4,214
                                                 --------   --------  -------  ------  --------
1996                                                                                           
First..........................................       823        599      256      27     1,705
Second.........................................       947      2,186      337      27     3,497
Third..........................................     1,083      2,023      261      31     3,398
Fourth.........................................       854      1,756      215      14     2,839
                                                 --------   --------  -------  ------  --------
ENDING BACKLOG-VALUE (IN THOUSANDS)                                                            
1997                                                                                           
First..........................................  $219,908   $248,835  $56,783  $4,290  $529,816
Second.........................................   288,719    307,977   66,582   4,224   667,502
Third..........................................   377,332    321,007   71,041   8,320   777,700
Fourth.........................................   303,050    274,591   82,750   6,270   666,661
                                                 --------   --------  -------  ------  --------
1996                                                                                           
First..........................................  $153,074    $86,880  $51,820  $4,948  $296,722
Second.........................................   182,718    236,970   72,215   5,265   497,168
Third..........................................   225,486    229,348   55,236   7,595   517,665
Fourth.........................................   180,513    196,195   47,603   3,584   427,895
                                                 --------   --------  -------  ------  --------

Housing deliveries rose 11.7% to 11,443 units in 1997, exceeding the  
previous Company-wide record of 10,249 units in 1996. This improvement reflected
increases in U.S. and French operations of 9.6% and 37.8%, respectively. Growth 
in domestic deliveries was driven by a 31.4% increase in Other U.S. deliveries  
to 5,642 units in 1997 from 4,294 units in 1996, partially offset by a decline  
in California deliveries. Unit deliveries in Other U.S. operations increased in 
1997 for several reasons: a higher number of average active                     

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communities, reflecting the Company's growth strategy; the inclusion of twelve  
months of operating results from the San Antonio division; and start-up         
operations in Austin. In California, deliveries decreased 8.5% in 1997, to 4,731
units from 5,171 units in 1996, reflecting a decline in the average number of   
active communities in the state. In France, deliveries in 1997 increased        
primarily as a result of the acquisition of certain active developments of      
French homebuilder SMCI. These developments, which consist of condominiums in   
Paris and other cities in France, were acquired in the third quarter of 1997 for
$2.2 million in cash and the assumption of approximately $8.1 million of debt.  

  Housing deliveries increased to 10,249 units in 1996 from 7,857 units in
1995. Excluding 2,027 San Antonio deliveries, Company-wide deliveries in 1996   
increased 4.6% from the prior year, reflecting increases in U.S. and French     
operations of 2.9% and 30.5%, respectively. The modest increase in domestic     
deliveries was driven by a 25.9% rise in Other U.S. deliveries, reflecting the  
Company's accelerated expansion into domestic markets beyond California. Other  
U.S. deliveries in 1996 increased to 2,267 units from 1,800 units in 1995, while
California deliveries decreased 4.8% to 5,171 units in 1996 from 5,430 units in 
1995.                                                                           

     The Company-wide average new home price decreased 2.2% in 1997, to $159,700
from $163,300 in 1996. The 1996 average had decreased 3.3% from $168,900 in     
1995. The decrease in 1997 was primarily due to a lower average selling price in
France resulting from SMCI deliveries, as well as a greater proportion of       
lower-priced homes sold in the Company's Other U.S. business. The decrease in   
1996 reflected a lower average selling price in the United States, resulting    
primarily from the inclusion of the San Antonio operations acquired that year.  

 In California, the Company's average selling price rose 8.1% in 1997 to
$208,500 from $192,900 in 1996, which had increased 9.1% from $176,800 in 1995. 
The increases in both years reflected a shift in mix toward higher-priced homes 
in the state. The Company's average selling price in Other U.S. markets was     
$118,700 in 1997, down from $119,700 in 1996 and $136,300 in 1995. Both         
decreases reflected the impact of the San Antonio operations. These operations  
had average selling prices of $94,700 and $93,400 in 1997 and 1996,             
respectively, substantially below the Company's average. The Company's average  
selling price in France decreased to $155,500 in 1997 from $206,600 in 1996,    
which was up modestly from $203,700 in 1995. The average selling price in France
declined in 1997 because of lower-priced deliveries generated from the newly    
acquired SMCI developments. In 1996, the French average price rose slightly due 
to a change in product mix.                                                     

Revenues from the development of commercial buildings, all located in 
metropolitan Paris, totaled $2.7 million in 1997, $12.2 million in 1996 and     
$20.5 million in 1995. These significant revenue declines reflected reduced     
opportunities in French commercial markets due to the lingering effects of the  
country's recession, as well as the Company's strategy to focus primarily on its
residential development business.                                               

     Land sale revenues totaled $13.6 million in 1997, $68.2 million in 1996 and
$18.2 million in 1995. The results for 1997 and 1995 are more representative of 
typical Company land sales activity levels when viewed historically. The 1996   
results were abnormally high due to an aggressive asset sale program undertaken 
as part of the Company's debt reduction strategy. Land sold in 1996 was         
primarily property previously held for long-term development, which the Company 
disposed of in order to redeploy the invested capital at potentially higher     
returns. Generally, land sale revenues fluctuate based on the Company's decision
to maintain or decrease its land ownership position in certain markets, the     
strength and number of competing developers entering particular markets at given
points in time, the availability of land in markets served by the Company's     
housing divisions, and prevailing market conditions.                            

 OPERATING INCOME.  Operating income increased to $101.8 million in 1997
from $98.7 million (excluding the $170.8 million non-cash charge for impairment 
of long-lived assets) in 1996. The increase was primarily due to higher housing 
gross profits, resulting from higher unit volume, partially offset by lower     
gross profits from commercial activities and losses from land sales. Gross      
profits in 1997 (excluding losses from land sales) increased by $15.7 million to
$332.2 million from $316.5 million in 1996. As a percentage of related revenues,
the Company's gross profit margin (excluding losses from land sales) was 18.2%  
in 1997, down from 18.8% in the prior year. The Company's housing gross margin  
dropped to 18.2% in 1997 from 18.7% in 1996, primarily due to the accelerated   
sell-through of older, lower margin non-KB2000 communities, particularly in     
California, and lower margins associated with the Company's entry into new      
markets in Austin and Dallas, Texas, partially offset by an improved gross      
margin from new KB2000 communities.                                             

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   Company-wide land sales produced a loss of $1.4 million in 1997, compared
to profits of $2.6 million in 1996.                                             

   Selling, general and administrative expenses increased by $8.7 million in
1997 to $229.1 million. This increase was primarily due to the inclusion of a   
full year of results from the San Antonio operations in 1997 (including         
amortization of goodwill) compared to nine months of results in 1996, and higher
sales commissions, partially offset by cost-containment efforts that reduced    
sales incentives and advertising expenses. As a percentage of housing revenues, 
to which these expenses are most closely correlated, selling, general and       
administrative expenses decreased .7 percentage points to 12.5% in 1997 from    
13.2% in 1996. This improvement reflected higher unit volume as well as more    
favorable ratios for sales incentives, advertising expenses and general and     
administrative expenses. These improvements were partially offset by increased  
sales commissions associated with a higher proportion of the Company's domestic 
sales being generated from third party brokers; increased use of third party    
brokers is a component of the KB2000 business model. The Company remains focused
on improving efficiency and will seek to reduce selling, general and            
administrative expenses to the extent possible in 1998.                         

   Excluding the $170.8 million non-cash charge for impairment of long-lived
assets recorded in the second quarter of 1996, operating income in 1996         
increased by $33.2 million or 50.6% to $98.7 million from $65.5 million in 1995.
This increase was primarily due to higher gross profits on housing sales,       
resulting from both higher unit volume and improved margins, mainly due to the  
inclusion of three quarters of San Antonio operations. Including the non-cash   
charge, the Company reported an operating loss of $72.1 million in 1996. Gross  
profits in 1996 (excluding profits from land sales) increased by $74.3 million  
to $316.5 million from $242.2 million in 1995. As a percentage of related       
revenues, the Company's gross profit margin (excluding profits from land sales) 
was 18.8% in 1996, up from 18.0% in the prior year. The Company's housing gross 
margin increased to 18.7% in 1996 from 17.9% in 1995, primarily reflecting the  
addition of the San Antonio operations and continued growth in the Company's    
higher margin operations in its Other U.S. markets.                             

 Despite an increase in land sale revenues in 1996, Company-wide profits
from these sales decreased by $2.7 million to $2.6 million from $5.3 million in 
1995. The decrease reflected the Company's accelerated disposition of certain   
real estate assets, many of which were written down to fair value in 1996 in    
order to reduce financial leverage and redeploy capital to improve overall      
return on investment.                                                           

    Selling, general and administrative expenses increased by $38.5 million in
1996. This increase was primarily due to the inclusion of three quarters of San 
Antonio operations which added $25.9 million of selling, general and            
administrative expenses (including the amortization of goodwill), as well as    
higher marketing expenses generated by increased unit volume from the Company's 
remaining operations. As a percentage of housing revenues, selling, general and 
administrative expenses declined .5 percentage points to 13.2% in 1996 from     
13.7% in 1995. This improvement reflected higher unit volume, primarily as a    
result of the 1996 acquisition of the San Antonio operations, and more favorable
ratios for sales incentives, advertising expenses and general and administrative
expenses, partially offset by increased sales commissions associated with a     
higher proportion of third party broker commissions.                            

In the second quarter of 1996, the Company decided to accelerate the  
disposition of certain real estate assets in order to help effectuate the       
Company's strategies to improve overall return on investment, restore financial 
leverage to targeted levels, and position the Company for continued geographic  
expansion. In addition, in 1996, the Company substantially eliminated its prior 
practice of investing in long term development projects in order to reduce the  
operating risk associated with such projects. The accelerated disposition of    
long term development assets caused certain assets, primarily inventories and   
investments in unconsolidated joint ventures in California and France, to be    
identified as being impaired and to be written down. Certain of the Company's   
California properties were impacted by the charge, while none of its            
non-California domestic properties were affected. The Company's non-California  
domestic properties were not affected since they were not held for long term    
development and were expected to be economically successful such that they were 
determined not to be impaired.                                                  

     Based on the Company's evaluation of impaired assets, a non-cash write-down
of $170.8 million ($109.3 million, net of income taxes) was recorded in the     
second quarter of 1996 to state the impaired assets at their fair values. The   
fair values established were based on various methods, including discounted cash
flow                                                                            

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projections, appraisals and evaluations of comparable market prices, as         
appropriate. The inventories affected by the charge primarily consisted of land 
which was not under active development and the charge did not have a material   
effect on gross margins in the balance of 1996 or in 1997.                      

The write-down for impairment of long-lived assets was calculated in  
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("SFAS No. 121"), which the Company decided to adopt in the second quarter  
of 1996; however, the write-down was not necessitated by implementation of this 
standard. Had the Company not adopted SFAS No. 121, a substantial write-down    
would have nonetheless been recorded. SFAS No. 121 requires that long-lived     
assets be reviewed for impairment whenever events or changes in circumstances   
indicate that the carrying amount of the asset may not be recoverable, and      
requires impairment losses to be recorded on long-lived assets when indicators  
of impairment are present and the undiscounted cash flows estimated to be       
generated by those assets are less than the assets' carrying amount.            

    Under the standard, when an impairment write-down is required, the related
assets are adjusted to their estimated fair value. Fair value for purposes of   
SFAS No. 121 is deemed to be the amount a willing buyer would pay a willing     
seller for such property in a current transaction, that is, other than in a     
forced or liquidation sale. This is a change from the previous accounting       
standard which required home builders to carry real estate assets at the lower  
of cost or net realizable value.                                                

INTEREST INCOME AND EXPENSE.  Interest income, which is generated from
mortgages receivable, principally from land sales, and from short-term          
investments, amounted to $5.1 million in 1997, $2.7 million in 1996 and $2.1    
million in 1995. The higher interest income in 1997 reflected an increase in the
average balances of interest bearing mortgages receivable compared to a year    
ago. Interest income in 1996 reflected little change from the 1995 average      
balances of interest bearing short-term investments and mortgages receivable.   

Interest expense results principally from borrowings to finance land  
purchases, housing inventory, and other operating and capital needs. In 1997,   
interest expense, net of amounts capitalized, decreased to $29.8 million from   
$36.7 million in 1996. Gross interest incurred in 1997 was lower than that      
incurred in 1996 by $11.2 million, reflecting a decrease in average indebtedness
in 1997. The Company's average debt level for 1997 decreased primarily as a     
result of the Company's 1996 debt reduction strategy. The percentages of        
interest capitalized during 1997 and 1996 were 43.1% and 42.3%, respectively.   
These rates reflect the timing and proportion of land in production during each 
period. In 1996, interest expense, net of amounts capitalized, increased to     
$36.7 million from $27.5 million in the prior year, largely due to a decline in 
the percentage of interest capitalized (42.3% versus 57.4% capitalized in 1995).
The lower capitalization rate during 1996 reflected a higher proportion of land 
in production that year compared to 1995 and the non-capitalization of interest 
on borrowings associated with the San Antonio acquisition.                      

  MINORITY INTERESTS IN PRETAX INCOME OF CONSOLIDATED JOINT VENTURES.  The
Company conducts a portion of both its residential and commercial development   
activities through majority-owned partnerships, primarily in France, which are  
fully consolidated in the accompanying financial statements. As a result,       
operating income has been reduced by minority interests in the pretax income of 
these partnerships of $.4 million in 1997, $.2 million in 1996 and $.6 million  
in 1995.                                                                        

EQUITY IN PRETAX INCOME (LOSS) OF UNCONSOLIDATED JOINT VENTURES.  The 
Company's unconsolidated joint-venture activities, located in California, New   
Mexico and France, posted combined revenues of $98.2 million in 1997, $6.7      
million in 1996 and $33.9 million in 1995. Of these amounts, French commercial  
activities accounted for $87.7 million in 1997, $.1 million in 1996 and $5.9    
million in 1995. Combined revenues recorded by the Company's joint ventures     
increased in 1997 primarily as a result of the sale of a commercial project in  
France. The Company's unconsolidated joint ventures generated combined pretax   
losses of $2.9 million in 1997, $14.8 million in 1996 and $20.5 million in 1995.
Losses in 1996 and 1995 primarily consisted of selling, general, administrative 
and interest expenses associated with a single French multi-family residential  
project, as well as reserves taken on a French commercial development project.  
The Company's share of pretax losses from these joint ventures totaled $.1      
million in 1997, $2.1 million in 1996, and $3.5 million in 1995. Overall, the   
Company's share of pretax losses from unconsolidated joint ventures declined in 
1997 and 1996 due to a lower level of activity from these ventures and the      
effects of charges taken in previous years. As a result of the non-cash charge  
taken in 1996 to reflect the impairment in unconsolidated                       

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joint ventures, the Company does not anticipate incurring significant additional
losses from these joint ventures in the foreseeable future.                     

MORTGAGE BANKING                                                                

 INTEREST INCOME AND EXPENSE.  The Company's mortgage banking operations
provide financing to purchasers of homes sold by the Company's domestic housing 
operations through the origination of residential mortgages. Revenues are also  
realized from the sale of such mortgages and related servicing rights to outside
financial institutions. Prior to 1989, substantially all such mortgages were    
pledged for collateralized mortgage obligations. Accordingly, interest income is
earned primarily from mortgage-backed securities held for long-term investment  
as collateral, while interest expense results mainly from the associated        
collateralized mortgage obligations.                                            

  Interest income decreased to $13.3 million in 1997 from $14.6 million in
1996, and $15.6 million in 1995, while interest expense also declined to $12.7  
million in 1997 from $13.5 million in 1996, and $14.8 million in 1995. These    
amounts decreased primarily due to the declining balances of outstanding        
mortgage-backed securities and related collateralized mortgage obligations,     
stemming from both regularly scheduled, monthly principal amortization and      
prepayment of mortgage collateral. These balances, and the related interest     
income and expense, will continue to decline as the Company's practice of       
participating in collateralized mortgage financings was discontinued in 1988 due
to market conditions and tax law changes. Combined interest income and expense  
resulted in net interest income of $.6 million in 1997, $1.1 million in 1996 and
$.8 million in 1995. These differences reflect variations in mortgage production
mix; movements in short-term versus long-term interest rates; and the amount,   
timing and rates of return on interim reinvestments of monthly principal        
amortization and prepayments.                                                   

 OTHER MORTGAGE BANKING REVENUES. Other mortgage banking revenues, which
principally consist of gains on sales of mortgages and servicing rights and, to 
a lesser extent, mortgage servicing fees, totaled $19.4 million in 1997, $17.2  
million in 1996 and $14.1 million in 1995. The increases in 1997 and 1996       
reflected higher gains on the sales of mortgages and servicing rights due to a  
higher volume of mortgage originations associated with increases in housing unit
volume in the United States. In 1996, a more favorable mix of fixed to variable 
rate loans also contributed to the increased revenues.                          

  GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for mortgage banking operations have remained relatively constant at $5.5       
million in 1997, $5.6 million in 1996 and $5.5 million in 1995, despite         
increases in the volume of loans closed.                                        

INCOME TAXES                                                                    

    The Company recorded income tax expense of $32.8 million in 1997 and $16.4
million in 1995 and an income tax benefit of $34.5 million in 1996. These       
amounts represented effective income tax rates of approximately 36.0% in all    
three years. The tax benefit in 1996 reflected the pretax loss reported by the  
Company as a result of the non-cash charge for impairment of long-lived assets  
recorded in the second quarter of that year. The pretax income/loss for         
financial reporting purposes and taxable income/loss for income tax purposes    
historically have differed primarily due to the impact of state income taxes,   
foreign tax rate differences, intercompany dividends and the use of affordable  
housing credits.                                                                

LIQUIDITY AND CAPITAL RESOURCES                                                 

     The Company assesses its liquidity in terms of its ability to generate cash
to fund its operating and investing activities. Historically, the Company has   
funded its construction and mortgage banking activities with internally         
generated cash flows and external sources of debt and equity financing. In the  
first quarter of 1998, net cash used by operating, investing and financing      
activities totaled $27.0 million compared to $1.3 million provided in the prior 
year's first quarter.                                                           

    Operating activities provided $18.7 million of cash during the first three
months of 1998 compared to $11.8 million provided during the same period of     
1997. The Company's sources of operating cash in the first quarter of 1998      
included a reduction in receivables of $70.9 million and first quarter earnings 
of $8.1 million. Uses of cash during the first three months of 1998 included net
investments of $43.3 million in inventories                                     

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(excluding $4.7 million of inventories acquired through seller financing) and a 
$14.7 million decrease in accounts payable, accrued expenses and other          
liabilities. Inventories increased, primarily in California and Other U.S.      
operations, as the Company continued its accelerated growth strategy in certain 
markets. The reduction in receivables related primarily to a lower balance of   
mortgages held under commitment of sale due to lower mortgage origination volume
in the first quarter of 1998 compared to the fourth quarter of 1997.            

   Operating activities for the first quarter of 1997 provided $49.6 million
of cash from a reduction in receivables, $20.4 million from a reduction in      
inventories and $4.4 million from first quarter earnings. The cash provided was 
partially offset by cash used to pay down $57.7 million in accounts payable,    
accrued expenses and other liabilities. The reduction in receivables related    
primarily to a decrease in mortgage origination volume in the first quarter of  
1997 compared to the fourth quarter of 1996. Inventories decreased, primarily in
California, where the Company benefitted by remaining selective with regard to  
new investment in its home state.                                               

 Cash provided by investing activities was essentially zero in the first
quarter of 1998 compared to $2.7 million provided in the year-earlier period. In
the first quarter of 1998, cash was provided from $2.1 million in proceeds      
received from mortgage-backed securities, which were principally used to pay    
down the collateralized mortgage obligations for which the mortgage-backed      
securities have served as collateral, $1.0 million in distributions related to  
investments in unconsolidated joint ventures and $.5 million from net sales of  
mortgages held for long-term investment. The cash provided was offset by $3.6   
million used for other investing activities. In the first quarter of 1997, cash 
was provided from $2.1 million in proceeds received from mortgage-backed        
securities and $.6 million in distributions related to investments in           
unconsolidated joint ventures.                                                  

   Financing activities in the first three months of 1998 used $45.7 million
of cash, while first quarter 1997 financing activities used $13.1 million. In   
the first quarter of 1998, cash was used for net payments on borrowings of $40.7
million, payments on collateralized mortgage obligations of $2.0 million and    
cash dividend payments of $2.9 million. Financing activities in 1997's first    
quarter resulted in net cash outflows due mainly to net payments on borrowings  
of $8.3 million, payments on collateralized mortgage obligations of $1.8 million
and cash dividend payments of $2.9 million.                                     

 External sources of financing for the Company's construction activities
include the Credit Facility, other domestic and foreign bank lines, third-party 
secured financings, and the public debt and equity markets. Substantial unused  
lines of credit remain available for the Company's future use, if required,     
principally through the Credit Facility. The Credit Facility is comprised of a  
$400 million revolving credit facility scheduled to expire on April 30, 2001 and
a $100 million 364-day revolving credit facility.                               

The principal sources of liquidity for the Company's mortgage banking 
operations are internally generated funds from the sales of mortgages and       
related servicing rights. Mortgages originated by the mortgage banking          
operations are generally sold in the secondary market within 60 days of         
origination. External sources of financing for these operations include a       
secured $250 million revolving mortgage warehouse facility.                     

  As of February 28, 1998, no borrowings were outstanding under the Credit
Facility. The Company's French unsecured financing agreements totaling $52.1    
million had in the aggregate $23.6 million available at February 28, 1998. In   
addition, the Company's mortgage banking operation had $101.6 million available 
under its secured $250 million revolving mortgage warehouse facility at         
quarter-end. The Company's financial leverage, as measured by the ratio of debt 
to total capital, was 56.9% at the end of the 1998 first quarter compared to    
58.6% at the end of the 1997 first quarter. Adjusted to reflect the $31.6       
million of invested cash at February 28, 1998, the Company's ratio of debt to   
total capital at the end of the 1998 first quarter was 55.4%. Subsequent to the 
end of the first quarter of 1998, the Company acquired three homebuilding       
companies for purchase prices aggregating to approximately $167 million,        
including the assumption of debt. These acquisitions were financed by the Credit
Facility.                                                                       

On December 5, 1997, the Company filed a universal shelf registration 
statement with the Securities and Exchange Commission for up to $500 million of 
the Company's debt and equity securities. The universal shelf registration      
provides that securities may be offered from time to time in one or more series 
and in the form of senior, senior subordinated or subordinated debt, preferred  
stock, common stock, and/or warrants to purchase                                

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such securities. The registration was declared effective on December 16, 1997,  
and no securities have been issued thereunder.                                  

   The Company believes it has adequate resources and sufficient credit line
facilities to satisfy its current and reasonably anticipated future requirements
for funds to acquire capital assets and land, to construct homes, to fund its   
mortgage banking operations and to meet other anticipated needs of its business,
both on a short and long-term basis. However, the Company may be required to    
obtain additional external financing to repay its indebtedness as it becomes    
due.                                                                            

IMPACT OF THE YEAR 2000 ISSUE                                                   

The "year 2000 issue" refers to complications that may be caused by   
existing computer hardware and software that were designed without consideration
for the upcoming change in the century. If not corrected, such programs may     
cause computer systems to fail or to miscalculate data. To prevent any          
complications related to the year 2000 issue, the Company has undertaken a      
project to modify or replace portions of its existing hardware and software so  
that its computer systems will function properly with respect to dates in the   
year 2000 and thereafter. Management currently anticipates that the project will
be completed by the end of fiscal 1998, and that the year 2000 issue will not   
have a materially adverse effect upon the Company's financial position or       
results of operations.                                                          

OUTLOOK                                                                         

The Company's residential backlog as of February 28, 1998 consisted of
5,301 units, representing aggregate future revenues of approximately $799.1     
million, up 52.1% and 50.8%, respectively, from 3,486 units, representing       
aggregate future revenues of approximately $529.8 million as of February 28,    
1997. The backlog units and value at February 28, 1998 were the highest of any  
quarter-end backlog in the Company's history. Company-wide net orders for the   
first three months of 1998 totaled 3,716, up 34.9% compared to the 2,755 net    
orders in the first three months of 1997.                                       

The Company's domestic operations accounted for approximately $700.8  
million of backlog value on 4,574 units at February 28, 1998, up from           
approximately $468.7 million on 3,199 units at February 28, 1997, reflecting    
higher backlogs from both California and Other U.S. operations. Backlog in      
California increased to approximately $337.4 million on 1,563 units at February 
28, 1998 from $219.9 million on 1,017 units at February 28, 1997 as net orders  
increased 17.8% to 1,269 in the first quarter from 1,077 for the same quarter a 
year ago. The Company's Other U.S. operations also demonstrated year-over-year  
growth in backlog levels with approximately $363.3 million in backlog, based on 
3,011 units at February 28, 1998, up from $248.8 million on 2,182 units at      
February 28, 1997, reflecting a 34.9% increase in Other U.S. net orders to 2,062
in the first quarter of 1998 from 1,528 in the year-earlier quarter. The        
year-over-year growth in total domestic backlog units and value resulted        
primarily from improved absorption rates and the Company's emphasis on          
pre-sales. Improved market conditions in California and the success of the      
Company's communities designed under its KB2000 operational business model also 
contributed to the increase in backlog levels in the United States. The average 
number of active communities in the Company's domestic operations for the first 
quarter of 1998 was up 5.4% from the same quarter a year ago, as a decrease of  
16.9% in California was more than offset by an increase of 38.5% in Other U.S.  
operations.                                                                     

In France, the value of residential backlog at February 28, 1998 was  
approximately $89.3 million on 696 units, up from $56.8 million on 272 units a  
year earlier. The Company's net orders in France increased by 164.3% to 370 in  
the first quarter of 1998 from 140 net orders in the first quarter of 1997      
primarily due to the acquisition of Paris-based SMCI in the third quarter of    
1997. The value of backlog associated with the Company's French commercial      
development activities declined to approximately $4.1 million at February 28,   
1998 from $10.6 million at February 28, 1997, reflecting a reduced level of     
activity.                                                                       

In Mexico, the value of residential backlog at February 28, 1998 was  
approximately $9.1 million on 31 units compared to $4.3 million on 15 units at  
February 28, 1997. Operations in Mexico generated 15 net orders in the first    
quarter of 1998, an increase from the 10 net orders generated in the same period
a year ago. Mexico's economy has shown signs of recovering from the country's   
recent deep recession brought about by                                          

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the devaluation of the peso. Consequently, the Company is considering additional
investment opportunities in Mexico.                                             

    Substantially all of the homes included in residential backlog at February
28, 1998 are expected to be delivered in 1998; however, cancellations could     
occur, particularly if market conditions deteriorate or mortgage interest rates 
increase, thereby decreasing backlog and related future revenues.               

     The Company continues to benefit in all of its operations from the strength
of its capital position, which has allowed it to finance expansion, re-engineer 
product lines and diversify into new homebuilding markets during the 1990's.    
Access to capital at competitive rates should enable the Company to continue to 
grow and expand in 1998. The Company's capital position has helped enable it to 
maintain overall profitability during troubled economic times in California and 
France, its two primary markets at the outset of the decade. As a result of its 
geographic diversification, the disciplines of the KB2000 business model and a  
strong capital position, the Company believes it has established strategies to  
help maximize future performance under both robust and difficult market         
conditions.                                                                     

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ACCOUNTING TREATMENT

 Under generally accepted accounting principles, alternatives exist with
respect to the accounting treatment and presentation of the Capital Securities  
in the Company's consolidated financial statements. This Prospectus assumes the 
following treatment: The financial statements of the Trust will be reflected in 
the Company's consolidated financial statements, with the Capital Securities    
shown on the Company's balance sheet under the caption "Company obligated       
mandatorily redeemable preferred securities of subsidiary trust holding solely  
debentures of the Company." The financial statement footnotes to the Company's  
consolidated financial statements will reflect that the sole asset of the Trust 
will be the Debentures. Distributions on the Capital Securities will be         
reflected as a charge to the Company's consolidated income, identified as       
Minority Interest in Net Income of Consolidated Subsidiaries, whether paid or   
accrued.                                                                        

   The Company may elect an alternative accounting treatment for the Capital
Securities. Such treatment would involve the following: The financial statements
of the Trust would be reflected in the Company's consolidated financial         
statements, with the Capital Securities shown as debt on the Company's balance  
sheet. The financial statement footnotes to the Company's consolidated financial
statements would reflect that the sole asset of the Trust would be the          
Debentures. Distributions on the Capital Securities would be reflected as a     
charge to the Company's consolidated income, identified as Interest Expense,    
whether paid or accrued.                                                        

 The Purchase Contracts are forward transactions in the Company's Common
Stock. Under generally accepted accounting principles, the Purchase Contracts   
(which include Contract Adjustment Payments) will be valued at fair value at the
date of issuance. Upon settlement of a Purchase Contract, the Company will      
receive the Stated Amount on such Purchase Contract and will issue the requisite
number of shares of Common Stock. The Stated Amount thus received will be       
credited to stockholders' equity allocated between common stock and paid-in     
capital accounts.                                                               

Prior to the issuance of shares of Common Stock upon settlement of the
Purchase Contracts, it is anticipated that the FELINE PRIDES will be reflected  
in the Company's earnings per share calculations using the treasury stock       
method. Under this method, the number of shares of Common Stock used in         
calculating earnings per share is deemed to be increased by the excess, if any, 
of the number of shares issuable upon settlement of the Purchase Contracts over 
the number of shares that could be purchased by the Company in the market (at   
the average market price during the period) using the proceeds receivable upon  
settlement. Consequently, it is anticipated there will be no dilutive effect on 
the Company's earnings per share except during periods when the average market  
price of Common Stock is above the Threshold Appreciation Price.                

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DESCRIPTION OF THE FELINE PRIDES

 The summaries of certain provisions of documents described below do not
purport to be complete, and in each instance reference is hereby made to the    
copies of the forms of such documents (including the definitions therein of     
certain terms) which are on file with the Commission and copies of which may be 
obtained as described under "Available Information". Wherever particular        
sections of, or terms defined in, such documents are referred to herein, such   
sections or defined terms are incorporated by reference herein. As used under   
this caption, references to the Company mean Kaufman and Broad Home Corporation 
excluding, unless otherwise expressly stated or the context otherwise requires, 
its subsidiaries.                                                               

 Each FELINE PRIDES will be issued under the Purchase Contract Agreement
between the Company and the Purchase Contract Agent. The FELINE PRIDES offered  
hereby initially will consist of (A) 15,500,000 units referred to as Income     
PRIDES with a Stated Amount per Income PRIDES equal to $10 and (B) 1,000,000    
units referred to as Growth PRIDES with a Stated Amount per Growth PRIDES equal 
to $10. Each Income PRIDES will initially consist of a unit comprised of (a) a  
Purchase Contract under which (i) the holder (including, initially, an          
Underwriter) will purchase from the Company not later than the Purchase Contract
Settlement Date, for an amount of cash equal to the Stated Amount, a number of  
newly issued shares of Common Stock equal to the Settlement Rate described below
under "Description of the Purchase Contracts -- General," and (ii) the Company  
will pay Contract Adjustment Payments to the holder at the rate of .25% of the  
Stated Amount per annum, and (b) (i) a beneficial ownership interest in a       
related Capital Security, having a stated liquidation amount per Capital        
Security equal to the Stated Amount, representing an undivided beneficial       
ownership interest in the assets of the Trust, which will consist solely of the 
Debentures, (ii) in the case of a distribution of the Debentures upon the       
dissolution of the Trust as a result of an Investment Company Event, as         
described below, or otherwise, Debentures having a principal amount equal to the
stated liquidation amount of the Capital Securities or (iii) upon the occurrence
of a Tax Event Redemption prior to the Purchase Contract Settlement Date, the   
appropriate Applicable Ownership Interest in the Treasury Portfolio. "Applicable
Ownership Interest" means, with respect to an Income PRIDES and the U.S.        
Treasury Securities in the Treasury Portfolio, (A) a 1/100, or 1%, undivided    
beneficial ownership interest in a $1,000 principal or interest amount of a     
principal or interest strip in a U.S. Treasury Security included in such        
Treasury Portfolio which matures on or prior to August 15, 2001 and (B) for each
scheduled interest payment date on the Debentures that occurs after the Tax     
Event Redemption Date, a .02% undivided beneficial ownership interest in a      
$1,000 face amount of such U.S. Treasury Security which is a principal or       
interest strip maturing on such date.                                           

Each Growth PRIDES will consist of a unit comprised of (a) a Purchase 
Contract under which (i) the holder will purchase from the Company not later    
than the Purchase Contract Settlement Date, for an amount in cash equal to the  
Stated Amount, a number of newly issued shares of Common Stock of the Company   
equal to the Settlement Rate, and (ii) the Company will pay to the holder       
Contract Adjustment Payments at the rate of .75% of the Stated Amount per annum,
and (b) a 1/100 undivided beneficial ownership interest in a zero-coupon U.S.   
Treasury Security.                                                              

The purchase price of each FELINE PRIDES will be allocated between the
related Purchase Contract and the related Capital Security or interest in a     
Treasury Security in proportion to their respective fair market values at the   
time of purchase. The Company expects that the entire purchase price of a FELINE
PRIDES will be allocated to the related Capital Security or interest in a       
Treasury Security and that no amount will be allocated to the related Purchase  
Contract. Such position generally will be binding on each beneficial owner of   
each Income PRIDES (but not on the IRS). See "Federal Income Tax                
Consequences -- FELINE PRIDES -- Allocation of Purchase Price." As long as a    
FELINE PRIDES is in the form of an Income PRIDES or Growth PRIDES, the related  
Capital Securities or the appropriate Applicable Ownership Interest of the      
Treasury Portfolio or the Treasury Securities, as applicable, will be pledged to
the Collateral Agent to secure the holder's obligation to purchase Common Stock 
under the related Purchase Contracts.                                           

CREATING GROWTH PRIDES                                                          

   Each holder of Income PRIDES (unless a Tax Event Redemption has occurred)
will have the right, at any time on or prior to the fifth Business Day          
immediately preceding the Purchase Contract Settlement Date,                    

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to substitute for the related Capital Securities held by the Collateral Agent   
Treasury Securities in an aggregate principal amount at maturity equal to the   
aggregate stated liquidation amount of such Capital Securities, thereby creating
Growth PRIDES. Because Treasury Securities are issued in integral multiples of  
$1,000, holders of Income PRIDES may make such substitution only in integral    
multiples of 100 Income PRIDES; provided, however, if a Tax Event Redemption has
occurred prior to the Purchase Contract Settlement Date and the Treasury        
Portfolio has become a component of the Income PRIDES, holders of such Income   
PRIDES may make such substitutions only in integral multiples of 40,000 Income  
PRIDES (but obtaining the release of the appropriate Applicable Ownership       
Interest in the Treasury Portfolio rather than the Capital Securities), at any  
time on or prior to the second Business Day immediately preceding the Purchase  
Contract Settlement Date. Holders wishing to make such substitution must hold at
least 40,000 Income PRIDES. To create 100 Growth PRIDES (unless a Tax Event     
Redemption has occurred), the Income PRIDES holder will (a) deposit with the    
Collateral Agent a Treasury Security having a principal amount at maturity of   
$1,000 and (b) transfer 100 Income PRIDES to the Purchase Contract Agent        
accompanied by a notice stating that such Income PRIDES holder has deposited a  
Treasury Security with the Collateral Agent and requesting that the Purchase    
Contract Agent instruct the Collateral Agent to release to such holder the 100  
Capital Securities relating to such 100 Income PRIDES. In the event that        
Contract Adjustment Payments are at a higher rate for Growth PRIDES than for    
Income PRIDES, holders of Income PRIDES wishing to create Growth PRIDES will    
also be required to deliver cash in an amount equal to the excess of the        
Contract Adjustment Payments that would have accrued since the last Payment Date
on which Contract Adjustment Payments have been paid to the date of substitution
on the Growth PRIDES being created by such holders, over the Contract Adjustment
Payments that have accrued over the same time period on the related Income      
PRIDES. Upon such deposit and receipt of an instruction from the Purchase       
Contract Agent, the Collateral Agent will effect the release of the related 100 
Capital Securities from the pledge under the Pledge Agreement free and clear of 
the Company's security interest therein to the Purchase Contract Agent, which   
will (i) cancel the 100 Income PRIDES, (ii) transfer the 100 related Capital    
Securities to such holder and (iii) deliver 100 Growth PRIDES to the holder. The
Treasury Security will be substituted for the Capital Securities and will be    
pledged with the Collateral Agent to secure the holder's obligation to purchase 
Common Stock under the related Purchase Contracts. The related Capital          
Securities released to the holder thereafter will trade separately from the     
resulting Growth PRIDES. Contract Adjustment Payments will be payable by the    
Company on such Growth PRIDES on each Payment Date from the later of July 7,    
1998 (the "Original Issue Date") and the last Payment Date on which Contract    
Adjustment Payments were paid. In addition, OID will accrue on the related      
Treasury Securities.                                                            

CREATING INCOME PRIDES                                                          

     Each holder of a Growth PRIDES (unless a Tax Event Redemption has occurred)
will have the right, at any time on or prior to the fifth Business Day          
immediately preceding the Purchase Contract Settlement Date, to substitute for  
the related Treasury Securities held by the Collateral Agent Capital Securities 
in an aggregate stated liquidation amount equal to the aggregate principal      
amount at stated maturity of such Treasury Securities, thereby creating Income  
PRIDES. Because Treasury Securities are issued in integral multiples of $1,000, 
holders of Growth PRIDES may make such substitutions only in integral multiples 
of 100 Growth PRIDES; provided, however, if a Tax Event Redemption has occurred 
and the Treasury Portfolio has become a component of the Income PRIDES, holders 
of the Growth PRIDES may make such substitution only in integral multiples of   
40,000 Growth PRIDES at any time on or prior to the second Business Day         
immediately preceding the Purchase Contract Settlement Date. Holders wishing to 
make such substitution must hold at least 40,000 Growth PRIDES. To create 100   
Income PRIDES (unless a Tax Event Redemption has occurred), the Growth PRIDES   
holder will (a) deposit with the Collateral Agent 100 Capital Securities (which 
Capital Securities must be purchased by such holder in the open market at such  
holder's expense) and (b) transfer 100 Growth PRIDES certificates to the        
Purchase Contract Agent accompanied by a notice stating that such Growth PRIDES 
holder has deposited 100 Capital Securities with the Collateral Agent and       
requesting that the Purchase Contract Agent instruct the Collateral Agent to    
release to such Growth PRIDES holder the Treasury Security relating to such     
Growth PRIDES. Upon such deposit and receipt of an instruction from the Purchase
Contract Agent, the Collateral Agent will effect the release of the related     
Treasury Security from the pledge under the Pledge Agreement free and clear of  
the Company's security                                                          
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interest therein to the Purchase Contract Agent, which will (i) cancel the 100  
Growth PRIDES, (ii) transfer the related Treasury Security to such holder of    
Growth PRIDES and (iii) deliver 100 Income PRIDES to such holder of Growth      
PRIDES. The substituted Capital Securities will be pledged with the Collateral  
Agent to secure such Income PRIDES holder's obligation to purchase Common Stock 
under the related Purchase Contracts. Cumulative cash distributions, payable    
quarterly at a rate of 8.25% of the Stated Amount per annum (subject to the     
Company's deferral rights) on such Income PRIDES, will be payable on such Income
PRIDES by the Company on each Payment Date from the later of the Original Issue 
Date and the last Payment Date on which such cumulative cash distributions, if  
any, were paid.                                                                 

     Holders who elect to substitute Pledged Securities, thereby creating Growth
PRIDES or Income PRIDES or recreating Income PRIDES or Growth PRIDES (as        
discussed below), shall be responsible for any fees or expenses payable in      
connection with such substitution. See "Certain Provisions of the Purchase      
Contract Agreement and the Pledge Agreement -- Miscellaneous."                  

CURRENT PAYMENTS                                                                

Holders of Income PRIDES are entitled to receive aggregate cash       
distributions at a rate of 8.25% of the Stated Amount per annum from and after  
the Original Issue Date payable quarterly in arrears. The quarterly payments on 
the Income PRIDES will consist of (i) cumulative cash distributions on the      
related Capital Securities or the Treasury Portfolio, as applicable, payable at 
the rate of 8% of the Stated Amount per annum and (ii) Contract Adjustment      
Payments payable by the Company at the rate of .25% of the Stated Amount per    
annum, subject (in the case of both the distributions on the Capital Securities 
and the Contract Adjustment Payments) to the Company's right of deferral as     
described herein.                                                               

     Each holder of Growth PRIDES will be entitled to receive quarterly Contract
Adjustment Payments payable by the Company at the rate of .75% of the Stated    
Amount per annum, subject to the Company's rights of deferral as described      
herein. In addition, OID will accrue on the related Treasury Securities.        

     The ability of the Trust to make the quarterly distributions on the Capital
Securities is solely dependent upon the receipt of corresponding interest       
payments from the Company on the Debentures. The Company has the right at any   
time, and from time to time, limited to a period not extending beyond the       
maturity of the Debentures, to defer the interest payments on the Debentures. As
a consequence of such deferral, the corresponding quarterly distributions       
(unless a Tax Event Redemption has occurred) to holders of Income PRIDES (or any
Capital Securities outstanding after the Purchase Contract Settlement Date or   
after a substitution of collateral resulting in the creation of Growth PRIDES)  
would be deferred (but despite such deferral, would continue to accrue,         
compounded quarterly, at the rate of 8% per annum through and including August  
15, 2001 and at the Reset Rate thereafter). The Company also has the right to   
defer the payment of Contract Adjustment Payments on the related Purchase       
Contracts until no later than the Purchase Contract Settlement Date; however,   
such deferred Contract Adjustment Payments will bear additional Contract        
Adjustment Payments at the rate of 8.75% per annum until paid. See "Description 
of the Purchase Contracts -- Contract Adjustment Payments" and "Description of  
the Capital Securities -- Distributions." If a Tax Event Redemption has occurred
and the Treasury Portfolio has become a component of the Income PRIDES,         
quarterly distributions on the Treasury Portfolio, as a portion of the          
cumulative quarterly distributions to the holders of Income PRIDES, will not be 
deferred.                                                                       

     The Company's obligations with respect to the Debentures will be senior and
unsecured and will rank on a parity in right of payment with all other senior   
unsecured obligations of the Company. The Company's obligations with respect to 
the Contract Adjustment Payments will be subordinated and junior in right of    
payment to the Company's Senior Indebtedness.                                   

VOTING AND CERTAIN OTHER RIGHTS                                                 

  Holders of Capital Securities, in their capacities as such holders, will
not be entitled to vote to appoint, remove or replace, or to increase or        
decrease the number of Regular Trustees and will generally have no voting rights
except in the limited circumstances described under "Description of the Capital 
Securities -- Voting Rights." Holders of Purchase Contracts forming part of the 
Income PRIDES or Growth PRIDES, in their capacities as such holders, will have  
no voting or other rights in respect of the Common Stock.                       

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LISTING OF THE SECURITIES                                                       

   The Income PRIDES and the Growth PRIDES have been approved for listing on
the NYSE, subject to official notice of issuance. Unless and until substitution 
has been made as described in "Description of the FELINE PRIDES -- Creating     
Growth PRIDES" or "-- Creating Income PRIDES," neither the Capital Security     
component of an Income PRIDES nor the Treasury Security component of a Growth   
PRIDES will trade separately from such Income PRIDES or Growth PRIDES, and such 
Capital Security component will trade as a unit with the Purchase Contract      
component of the Income PRIDES and such Treasury Security component will trade  
as a unit with the Purchase Contract component of the Growth PRIDES. If Capital 
Securities are separately traded to a sufficient extent that the applicable     
exchange listing requirements are met, the Company will endeavor to cause such  
securities to be listed on the exchange on which the Income PRIDES and the      
Growth PRIDES are then listed, including, if applicable, the NYSE. See          
"Underwriting."                                                                 

NYSE SYMBOL OF COMMON STOCK                                                     

The Common Stock is listed on the NYSE under the symbol "KBH."        

MISCELLANEOUS                                                                   

 The Company or its affiliates may from time to time purchase any of the
Securities offered hereby which are then outstanding by tender, in the open     
market or by private agreement.                                                 

DESCRIPTION OF THE PURCHASE CONTRACTS 

 The summaries of certain provisions of documents described below do not
purport to be complete, and in each instance reference is hereby made to the    
copies of the forms of such documents (including the definitions therein of     
certain terms) which are on file with the Commission and copies of which may be 
obtained as described under "Available Information". Wherever particular        
sections of, or terms defined in, such documents are referred to herein, such   
sections or defined terms are incorporated by reference herein. As used under   
this caption, references to the Company mean Kaufman and Broad Home Corporation 
excluding, unless otherwise expressly stated or the context otherwise requires, 
its subsidiaries.                                                               

GENERAL                                                                         

Each Purchase Contract underlying a FELINE PRIDES (unless earlier     
terminated, or earlier settled at the holder's option) will obligate the holder 
of such Purchase Contract to purchase, and the Company to sell, on the Purchase 
Contract Settlement Date, for an amount in cash equal to the Stated Amount of   
such FELINE PRIDES, a number of newly issued shares of Common Stock equal to the
Settlement Rate. The Settlement Rate will be calculated as follows (subject to  
adjustment under certain circumstances): (a) if the Applicable Market Value is  
equal to or greater than the Threshold Appreciation Price of $38.10, which is   
approximately 20% above the Reference Price, the Settlement Rate will be .2625  
(which is equal to the Stated Amount divided by the Threshold Appreciation      
Price); accordingly, if, between the date of this Prospectus and the period     
during which the Applicable Market Value is measured, the market price for the  
Common Stock increases to an amount that is higher than the Threshold           
Appreciation Price, the aggregate market value of the shares of Common Stock    
issued upon settlement of each Purchase Contract (assuming that such market     
value is the same as the Applicable Market Value of such Common Stock) will be  
higher than the Stated Amount, and if such market price is the same as the      
Threshold Appreciation Price, the aggregate market value of such shares         
(assuming that such market value is the same as the Applicable Market Value of  
such Common Stock) will be equal to the Stated Amount; (b) if the Applicable    
Market Value is less than the Threshold Appreciation price but greater than the 
Reference Price, the Settlement Rate will be equal to the Stated Amount divided 
by the Applicable Market Value; accordingly, if the market price for the Common 
Stock increases between the date of this Prospectus and the period during which 
the Applicable Market Value is measured but such market price is less than the  
Threshold Appreciation Price, the aggregate market value of the shares of Common
Stock issued upon settlement of each Purchase Contract (assuming that such      
market value is the same as the Applicable Market Value of such Common Stock)   
will be equal to the Stated Amount; and (c) if the Applicable Market Value is   
less than or equal to the Reference Price, the Settlement Rate (which is equal  
to the Stated Amount divided by the Reference Price) will be .3150; accordingly,
if the                                                                          

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market price for the Common Stock decreases between the date of this Prospectus 
and the period during which the Applicable Market Value is measured, the        
aggregate market value of the shares of Common Stock issued upon settlement of  
each Purchase Contract (assuming that such market value is the same as the      
Applicable Market Value of such Common Stock) will be less than the Stated      
Amount, and if such market price stays the same, the aggregate market value of  
such shares (assuming that such market value is the same as the Applicable      
Market Value of such Common Stock) will be equal to the Stated Amount. "Closing 
Price" of the Common Stock on any date of determination means the closing sale  
price (or, if no closing price is reported, the last reported sale price) of the
Common Stock on the NYSE on such date or, if the Common Stock is not listed for 
trading on the NYSE on any such date, as reported in the composite transactions 
for the principal United States securities exchange on which the Common Stock is
so listed, or if the Common Stock is not so listed on a United States national  
or regional securities exchange, as reported by the Nasdaq Stock Market, or, if 
the Common Stock is not so reported, the last quoted bid price for the Common   
Stock in the over-the-counter market as reported by the National Quotation      
Bureau or similar organization, or, if such bid price is not available, the     
market value of the Common Stock on such date as determined by a nationally     
recognized independent investment banking firm retained for this purpose by the 
Company. A "Trading Day" means a day on which the Common Stock (A) is not       
suspended from trading on any national or regional securities exchange or       
association or over-the-counter market at the close of business and (B) has     
traded at least once on the national or regional securities exchange or         
association or over-the-counter market that is the primary market for the       
trading of the Common Stock.                                                    

     No fractional shares of Common Stock will be issued by the Company pursuant
to the Purchase Contracts. In lieu of fractional shares otherwise issuable      
(calculated on an aggregate basis) in respect of Purchase Contracts being       
settled by a holder of Income PRIDES or Growth PRIDES, the holder will be       
entitled to receive an amount of cash equal to such fraction of a share times   
the Applicable Market Value.                                                    

    On the Business Day immediately preceding the Purchase Contract Settlement
Date, unless a holder of Income PRIDES or Growth PRIDES (i) has settled the     
related Purchase Contracts prior to the Purchase Contract Settlement Date       
through the early delivery of cash to the Purchase Contract Agent in the manner 
described under "-- Early Settlement," (ii) in the case of Income PRIDES, has   
settled the related Purchase Contracts with separate cash on the Business Day   
immediately preceding the Purchase Contract Settlement Date pursuant to prior   
notice in the manner described under "-- Notice to Settle with Cash", (iii) has 
had the Capital Securities related to such holder's Purchase Contracts          
remarketed in the manner described herein in connection with settling such      
Purchase Contracts, or (iv) an event described under "-- Termination" below has 
occurred, then (A) in the case of Income PRIDES (unless a Tax Event Redemption  
has occurred) the Company will exercise its rights as a secured party to dispose
of the Capital Securities in accordance with applicable law and (B) in the case 
of Growth PRIDES or Income PRIDES (in the event that a Tax Event Redemption has 
occurred), the principal amount of the related Treasury Securities or the       
appropriate Applicable Ownership Interest of the Treasury Portfolio, as         
applicable, when paid at maturity, will automatically be applied to satisfy in  
full the holder's obligation to purchase Common Stock under the related Purchase
Contracts. Such Common Stock will then be issued and delivered to such holder or
such holder's designee, upon presentation and surrender of the certificate      
evidencing such FELINE PRIDES (a "FELINE PRIDES Certificate") and payment by the
holder of any transfer or similar taxes payable in connection with the issuance 
of the Common Stock to any person other than such holder.                       

    Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the related Purchase     
Contracts be deemed to have (a) irrevocably agreed to be bound by the terms and 
provisions of the related Purchase Contracts and the Pledge Agreement and to    
have covenanted and agreed to perform its obligations thereunder for so long as 
such holder remains a holder of such FELINE PRIDES, and (b) duly appointed the  
Purchase Contract Agent as such holder's attorney-in-fact to enter into and     
perform the related Purchase Contracts and Pledge Agreement on behalf of and in 
the name of such holder. In addition, each beneficial owner of Income PRIDES or 
Growth PRIDES, by acceptance of such interest, will be deemed to have agreed to 
treat (i) itself as the owner of the related Capital Securities, the appropriate
Applicable Ownership Interest of the Treasury Portfolio or the Treasury         
Securities, as the case may be, and (ii) the Debentures as indebtedness of the  
Company for all United States federal tax purposes.                             
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REMARKETING                                                                     

Pursuant to the Remarketing Agreement and subject to the terms of the 
Supplemental Remarketing Agreement between the Remarketing Agent, the Purchase  
Contract Agent, the Company and the Trust, unless a Tax Event Redemption has    
occurred, the Capital Securities of Income PRIDES holders who have failed to    
notify the Purchase Contract Agent on or prior to the fifth Business Day        
immediately preceding the Purchase Contract Settlement Date in the manner       
described under "-- Notice to Settle with Cash" of their intention to settle the
related Purchase Contracts with separate cash on the Business Day immediately   
preceding the Purchase Contract Settlement Date will be remarketed on the third 
Business Day immediately preceding the Purchase Contract Settlement Date. The   
Remarketing Agent will use its reasonable efforts to remarket such Capital      
Securities on such date at a price of approximately 100.75% of the aggregate    
stated liquidation amount of such Capital Securities, plus any accrued and      
unpaid distributions (including deferred distributions, if any), thereon. The   
portion of the proceeds from such remarketing equal to the aggregate stated     
liquidation amount of such Capital Securities will be automatically applied to  
satisfy in full such Income PRIDES holders' obligations to purchase Common Stock
under the related Purchase Contracts. In addition, after deducting as the       
Remarketing Fee an amount not exceeding 50 basis points (.50%) of the aggregate 
stated liquidation amount of the remarketed Capital Securities from any amount  
of such proceeds in excess of the aggregate stated liquidation amount of the    
remarketed Capital Securities plus any accrued and unpaid distributions         
(including deferred distributions, if any), the Remarketing Agent will remit the
remaining portion of the proceeds, if any, for the benefit of such holder.      
Income PRIDES holders whose Capital Securities are so remarketed will not       
otherwise be responsible for the payment of any Remarketing Fee in connection   
therewith. If, despite using its reasonable efforts, the Remarketing Agent      
cannot remarket the related Capital Securities (other than to the Company) of   
such holders of Income PRIDES at a price not less than 100% of the aggregate    
stated liquidation amount of such Capital Securities plus any accrued and unpaid
distributions (including deferred distributions, if any) or if the remarketing  
shall not have occurred because a condition precedent to the remarketing shall  
not have been fulfilled, resulting in a Failed Remarketing, the Company will    
exercise its rights as a secured party to dispose of the Capital Securities in  
accordance with the applicable law and satisfy in full, from the proceeds of    
such disposition, such holder's obligation to purchase Common Stock under the   
related Purchase Contracts; provided, that if the Company exercises such rights 
as a secured creditor, any accrued and unpaid distributions (including deferred 
distributions, if any) on such Capital Securities will be paid in cash by the   
Company to the holders of record of such Capital Securities. The Company will   
cause a notice of such Failed Remarketing to be published on the second Business
Day immediately preceding the Purchase Contract Settlement Date by publication  
in a daily newspaper in the English language of general circulation in The City 
of New York, which is expected to be The Wall Street Journal. In addition, the  
Company will request, not later than seven nor more than 15 calendar days prior 
to the remarketing date, that the Depository notify its participants holding    
Capital Securities, Income PRIDES and Growth PRIDES of such remarketing,        
including, in the case of a Failed Remarketing, the procedures that must be     
followed if a Capital Security holder wishes to exercise its right to put its   
Capital Security to the Company as described herein. If required, the Company   
will endeavor to ensure that a registration statement with regard to the full   
amount of the Capital Securities to be remarketed shall be effective in such    
form as will enable the Remarketing Agent to rely on it in connection with the  
remarketing process. It is currently anticipated that Merrill Lynch, Pierce,    
Fenner & Smith Incorporated will be the Remarketing Agent.                      

EARLY SETTLEMENT                                                                

    A holder of Income PRIDES may settle the related Purchase Contracts at any
time on or prior to the fifth Business Day immediately preceding the Purchase   
Contract Settlement Date by presenting and surrendering the FELINE PRIDES       
Certificate evidencing such Income PRIDES at the offices of the Purchase        
Contract Agent with the form of "Election to Settle Early" on the reverse side  
of such certificate completed and executed as indicated, accompanied by payment 
(payable to the Company in immediately available funds) of an amount equal to   
the Stated Amount times the number of Purchase Contracts being settled, but only
in integral multiples of 100 Income PRIDES; provided, however, if a Tax Event   
Redemption has occurred prior to the Purchase Contract Settlement Date and the  
Treasury Portfolio has become a component of the Income PRIDES, holders of such 
Income PRIDES may settle early only in integral                                 
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multiples of 40,000 Income PRIDES at any time on or prior to the second Business
Day immediately preceding the Purchase Contract Settlement Date, and, in such   
case, a holder must hold at least 40,000 Income PRIDES to settle early. A holder
of Growth PRIDES may settle the related Purchase Contracts at any time on or    
prior to the second Business Day immediately preceding the Purchase Contract    
Settlement Date by presenting and surrendering the FELINE PRIDES Certificate    
evidencing such Growth PRIDES at the offices of the Purchase Contract Agent with
the form of "Election to Settle Early" on the reverse side of such certificate  
completed and executed as indicated, accompanied by payment in immediately      
available funds of an amount equal to (i) the Stated Amount times the number of 
Purchase Contracts being settled plus (ii) if such delivery is made with respect
to any Purchase Contract during the period from the close of business on any    
Record Date next preceding any Payment Date to the opening of business on such  
Payment Date, an amount equal to the Contract Adjustment Payments payable on    
such Payment Date with respect to such Purchase Contract; provided that no      
payment shall be required if the Company shall have elected to defer the        
Contract Adjustment Payments which would otherwise be payable on such Payment   
Date. So long as the FELINE PRIDES are evidenced by one or more global security 
certificates deposited with the Depositary (as defined herein), procedures for  
early settlement will also be governed by standing arrangements between the     
Depositary and the Purchase Contract Agent.                                     

Upon Early Settlement of the Purchase Contracts related to any Income 
PRIDES or Growth PRIDES, (a) the holder will receive .2625 newly issued shares  
of Common Stock per Income PRIDES or Growth PRIDES having a Stated Amount of $10
(regardless of the market price of the Common Stock on the date of such Early   
Settlement), subject to adjustment under the circumstances described in         
"-- Anti-Dilution Adjustments" below, accompanied by this Prospectus, as amended
or stickered, (b) the Capital Securities, the appropriate Applicable Ownership  
Interest of the Treasury Portfolio or the Treasury Securities, as the case may  
be, related to such Income PRIDES or Growth PRIDES will thereupon be transferred
to the holder free and clear of the Company's security interest therein, (c) the
holder's right to receive Deferred Contract Adjustment Payments, if any, on the 
Purchase Contracts being settled will be forfeited, (d) the holder's right to   
receive future Contract Adjustment Payments will terminate and (e) no adjustment
will be made to or for the holder on account of Deferred Contract Adjustment    
Payments, if any, or any amounts accrued in respect of Contract Adjustment      
Payments.                                                                       

If the Purchase Contract Agent receives a FELINE PRIDES Certificate,  
accompanied by the completed "Election to Settle Early" and requisite           
immediately available funds, from a holder of FELINE PRIDES by 5:00 p.m., New   
York City time, on a Business Day, that day will be considered the settlement   
date. If the Purchase Contract Agent receives the foregoing after 5:00 p.m., New
York City time, on a Business Day or at any time on a day that is not a Business
Day (other than from Income PRIDES holders after the occurrence of a Tax Event  
Redemption), the next Business Day will be considered the settlement date.      

    Upon Early Settlement of Purchase Contracts in the manner described above,
presentation and surrender of the FELINE PRIDES Certificate evidencing the      
related Income PRIDES or Growth PRIDES and payment of any transfer or similar   
taxes payable by the holder in connection with the issuance of the related      
Common Stock to any person other than the holder of such Income PRIDES or Growth
PRIDES, the Company will cause the shares of Common Stock being purchased to be 
issued, and the related Capital Securities, the appropriate Applicable Ownership
Interest of the Treasury Portfolio or the Treasury Securities, as the case may  
be, securing such Purchase Contracts to be released from the pledge under the   
Pledge Agreement (described in "-- Pledged Securities and Pledge Agreement") and
transferred, within three Business Days following the settlement date, to the   
purchasing holder or such holder's designee.                                    

NOTICE TO SETTLE WITH CASH                                                      

A holder of an Income PRIDES wishing to settle the related Purchase   
Contract with separate cash on the Business Day immediately preceding the       
Purchase Contract Settlement Date must notify the Purchase Contract Agent by    
presenting and surrendering the Income PRIDES Certificate evidencing such Income
PRIDES at the offices of the Purchase Contract Agent with the form of "Notice to
Settle by Separate Cash" on the reverse side of the certificate completed and   
executed as indicated on or prior to 5:00 p.m., New York City time, on the      
second Business Day immediately preceding the Purchase Contract Settlement Date 
(if a Tax Event Redemption has occurred) or on the fifth Business Day           
immediately preceding the Purchase                                              

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Contract Settlement Date (if a Tax Event has not occurred). If a holder that has
given notice of such holder's intention to settle the related Purchase Contract 
with separate cash fails to deliver such cash to the Collateral Agent on the    
Business Day immediately preceding the Purchase Contract Settlement Date, the   
Company will exercise its right as a secured party to dispose of, in accordance 
with applicable law, the related Capital Security to satisfy in full, from the  
disposition of such Capital Security such holder's obligation to purchase Common
Stock under the related Purchase Contracts.                                     

CONTRACT ADJUSTMENT PAYMENTS                                                    

   Contract Adjustment Payments will be fixed at a rate per annum of .25% of
the Stated Amount per Purchase Contract in the case of Income PRIDES, and at a  
rate per annum of .75% of the Stated Amount per Purchase Contract in the case of
Growth PRIDES. Contract Adjustment Payments that are not paid when due (after   
giving effect to any permitted deferral thereof) will bear interest thereon at  
the rate per annum of 8.75% thereof, compounded quarterly, until paid. Contract 
Adjustment Payments payable for any period will be computed on the basis of a   
360-day year of twelve 30-day months. Contract Adjustment Payments will accrue  
from the Original Issue Date and will be payable quarterly in arrears on        
February 16, May 16, August 16 and November 16 of each year, commencing August  
16, 1998.                                                                       

 Contract Adjustment Payments will be payable to the holders of Purchase
Contracts as they appear on the books and records of the Purchase Contract Agent
on the relevant record dates, which, as long as the Income PRIDES or Growth     
PRIDES remain in book-entry only form, will be one Business Day prior to the    
relevant payment dates. Such distributions will be paid through the Purchase    
Contract Agent, who will hold amounts received in respect of the Contract       
Adjustment Payments for the benefit of the holders of the Purchase Contracts    
relating to such Income PRIDES or Growth PRIDES. Subject to any applicable laws 
and regulations, each such payment will be made as described under              
"-- Book-Entry System." In the event that the Income PRIDES or Growth PRIDES do 
not continue to remain in book-entry only form, the relevant record dates shall 
be one Business Day prior to the relevant payment dates. In the event that any  
date on which Contract Adjustment Payments are to be made on the Purchase       
Contracts related to the Income PRIDES or Growth PRIDES is not a Business Day,  
then payment of the Contract Adjustment Payments payable on such date will be   
made on the next succeeding day which is a Business Day (and without any        
interest or other payment in respect of any such delay), except that, if such   
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and 
effect as if made on such payment date. A "Business Day" shall mean any day     
other than Saturday, Sunday or any other day on which banking institutions in   
New York City (in the State of New York) are permitted or required by any       
applicable law to close.                                                        

     The Company's obligations with respect to Contract Adjustment Payments will
be subordinated and junior in right of payment to the Company's obligations     
under any Senior Indebtedness.                                                  

OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS                                    

     The Company may, at its option and upon prior written notice to the holders
of the FELINE PRIDES and the Purchase Contract Agent, defer the payment of      
Contract Adjustment Payments on the related Purchase Contracts until no later   
than the Purchase Contract Settlement Date. However, Deferred Contract          
Adjustment Payments will bear additional Contract Adjustment Payments at the    
rate of 8.75% per annum (compounding on each succeeding Payment Date) until     
paid. If the Purchase Contracts are terminated (upon the occurrence of certain  
events of bankruptcy, insolvency or reorganization with respect to the Company),
the right to receive Contract Adjustment Payments and Deferred Contract         
Adjustment Payments will also terminate.                                        

 No fractional shares of Common Stock will be issued by the Company with
respect to the payment of Deferred Contract Adjustment Payments on the Purchase 
Contract Settlement Date. In lieu of fractional shares otherwise issuable with  
respect to such payment of Deferred Contract Adjustment Payments, the holder    
will be entitled to receive an amount in cash equal to such fraction of a share 
times the Applicable Market Value.                                              

In the event that the Company elects to defer the payment of Contract 
Adjustment Payments on the Purchase Contracts until the Purchase Contract       
Settlement Date, each holder of FELINE PRIDES will                              

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receive on the Purchase Contract Settlement Date in respect of the Deferred     
Contract Adjustment Payments, in lieu of a cash payment, a number of shares of  
Common Stock equal to (x) the aggregate amount of Deferred Contract Adjustment  
Payments payable to such holder divided by (y) the Applicable Market Value.     

In the event the Company exercises its option to defer the payment of 
Contract Adjustment Payments until the Deferred Contract Adjustment Payments    
have been paid, the Company shall not declare or pay dividends on, make         
distributions with respect to, or redeem, purchase or acquire, or make a        
liquidation payment with respect to, any of its capital stock or make guarantee 
payments with respect to the foregoing (other than (i) purchases or acquisitions
of shares of capital stock of the Company in connection with the satisfaction by
the Company of its obligations under any employee benefit plans or the          
satisfaction by the Company of its obligations pursuant to any contract or      
security outstanding on the date of such event requiring the Company to purchase
capital stock of the Company, (ii) as a result of a reclassification of the     
Company's capital stock or the exchange or conversion of one class or series of 
the Company's capital stock for another class or series of such capital stock,  
(iii) the purchase of fractional interests in shares of the Company's capital   
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (iv) dividends or distributions in   
capital stock of the Company (or rights to acquire capital stock) or repurchases
or redemptions of capital stock solely from the issuance or exchange of capital 
stock or (v) redemptions or repurchases of any rights outstanding under a       
shareholder rights plan or the declaration thereunder of a dividend of rights in
the future).                                                                    

ANTI-DILUTION ADJUSTMENTS                                                       

The formula for determining the Settlement Rate will be subject to    
adjustment (without duplication) upon the occurrence of certain events,         
including: (a) the payment of dividends (and other distributions) of Common     
Stock on Common Stock; (b) the issuance to all holders of Common Stock of       
rights, warrants or options (other than any dividend reinvestment or share      
purchase plans) entitling them, for a period of up to 45 days, to subscribe for 
or purchase Common Stock at less than the Current Market Price (as defined      
herein) thereof; (c) subdivisions, splits and combinations of Common Stock; (d) 
distributions to all holders of Common Stock of evidences of indebtedness of the
Company, shares of capital stock, securities, cash or property (excluding any   
dividend or distribution covered by clause (a) or (b) above and any dividend or 
distribution paid exclusively in cash); (e) distributions (other than regular   
quarterly cash distributions) consisting exclusively of cash to all holders of  
Common Stock in an aggregate amount that, together with (i) other all-cash      
distributions (other than regular quarterly cash distributions) made within the 
preceding 12 months and (ii) any cash and the fair market value, as of the      
expiration of the tender or exchange offer referred to below, of consideration  
payable in respect of any tender or exchange offer (other than consideration    
payable in respect of any odd-lot tender offer) by the Company or a subsidiary  
thereof for Common Stock concluded within the preceding 12 months, exceeds 15%  
of the Company's aggregate market capitalization (such aggregate market         
capitalization being the product of the Current Market Price of Common Stock    
multiplied by the number of shares of Common Stock then outstanding) on the date
of such distribution; and (f) the successful completion of a tender or exchange 
offer made by the Company or any subsidiary thereof for Common Stock which      
involves an aggregate consideration that, together with (i) any cash and the    
fair market value of other consideration payable in respect of any tender or    
exchange offer (other than consideration payable in respect of any odd-lot      
tender offer) by the Company or a subsidiary thereof for the Common Stock       
concluded within the preceding 12 months and (ii) the aggregate amount of any   
all-cash distributions (other than regular quarterly cash distributions) to all 
holders of Common Stock made within the preceding 12 months, exceeds 15% of the 
Company's aggregate market capitalization on the expiration of such tender or   
exchange offer. The "Current Market Price" per share of Common Stock on any day 
means the average of the daily Closing Prices for the five consecutive Trading  
Days selected by the Company commencing not more than 30 Trading Days before,   
and ending not later than, the earlier of the day in question and the day before
the "ex date" with respect to the issuance or distribution requiring such       
computation. For purposes of this paragraph, the term "ex date," when used with 
respect to any issuance or distribution, shall mean the first date on which the 
Common Stock trades regular way on such exchange or in such market without the  
right to receive such issuance or distribution.                                 

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     In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which the Common Stock is 
converted into the right to receive other securities, cash or property, each    
Purchase Contract then outstanding would, without the consent of the holders of 
the related Income PRIDES or Growth PRIDES, as the case may be, become a        
contract to purchase only the kind and amount of securities, cash and other     
property receivable upon consummation of the transaction by a holder of the     
number of shares of Common Stock which would have been received by the holder of
the related Income PRIDES or Growth PRIDES immediately prior to the date of     
consummation of such transaction if such holder had then settled such Purchase  
Contract.                                                                       

If at any time the Company makes a distribution of property to its    
stockholders which would be taxable to such stockholders as a dividend for      
United States federal income tax purposes (i.e., distributions out of the       
Company's current or accumulated earnings and profits of evidences of           
indebtedness or assets of the Company, but generally not stock dividends or     
rights to subscribe to capital stock) and, pursuant to the Settlement Rate      
adjustment provisions of the Purchase Contract Agreement, the Settlement Rate is
increased, such increase may give rise to a taxable dividend to holders of      
FELINE PRIDES. See "Federal Income Tax Consequences -- Purchase                 
Contracts -- Adjustment to Settlement Rate."                                    

    In addition, the Company may make such increases in the Settlement Rate as
the Board of Directors of the Company deems advisable to avoid or diminish any  
income tax to holders of its capital stock resulting from any dividend or       
distribution of capital stock (or rights to acquire capital stock) or from any  
event treated as such for income tax purposes or for any other reasons.         

Adjustments to the Settlement Rate will be calculated to the nearest  
1/10,000th of a share. No adjustment in the Settlement Rate shall be required   
unless such adjustment would require an increase or decrease of at least one    
percent in the Settlement Rate; provided, however, that any adjustments which by
reason of the foregoing are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.                                

The Company will be required, within ten Business Days following the  
adjustment of the Settlement Rate, to provide written notice to the Purchase    
Contract Agent of the occurrence of such event and a statement in reasonable    
detail setting forth the method by which the adjustment to the Settlement Rate  
was determined and setting forth the revised Settlement Rate.                   

Each adjustment to the Settlement Rate will result in a corresponding 
adjustment to the number of shares of Common Stock issuable upon early          
settlement of a Purchase Contract.                                              

TERMINATION                                                                     

   The Purchase Contracts, and the rights and obligations of the Company and
of the holders of the FELINE PRIDES thereunder (including the right thereunder  
to receive accrued Contract Adjustment Payments or Deferred Contract Adjustment 
Payments, if any, and the right and obligation to purchase Common Stock), will  
immediately and automatically terminate upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to the Company. Upon such 
termination, the Collateral Agent will release the related Capital Securities,  
the appropriate Applicable Ownership Interest of the Treasury Portfolio or the  
Treasury Securities, as the case may be, held by it to the Purchase Contract    
Agent for distribution to the holders, subject in the case of the Treasury      
Portfolio to the Purchase Contract Agent's disposition of the subject securities
for cash, and the payment of such cash to the holders, to the extent that the   
holders would otherwise have been entitled to receive less than $1,000 principal
amount at maturity of any such security. Upon such termination, however, such   
release and distribution may be subject to a delay. In the event that the       
Company becomes the subject of a case under the Bankruptcy Code, such delay may 
occur as a result of the automatic stay under the Bankruptcy Code and continue  
until such automatic stay has been lifted.                                      

PLEDGED SECURITIES AND PLEDGE AGREEMENT                                         

     Pledged Securities will be pledged to the Collateral Agent, for the benefit
of the Company, pursuant to the Pledge Agreement to secure the obligations of   
holders of FELINE PRIDES to purchase Common Stock under the related Purchase    
Contracts. The rights of holders of FELINE PRIDES to the related Pledged        
Securities will be subject to the Company's security interest therein created by
the Pledge Agreement. No                                                        

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holder of Income PRIDES or Growth PRIDES will be permitted to withdraw the      
Pledged Securities related to such Income PRIDES or Growth PRIDES from the      
pledge arrangement except (i) to substitute Treasury Securities for the related 
Capital Securities or the appropriate Applicable Ownership Interest of the      
Treasury Portfolio, as the case may be, (ii) to substitute Capital Securities or
the appropriate Applicable Ownership Interest of the Treasury Portfolio, as the 
case may be, for the related Treasury Securities (for both (i) and (ii), as     
provided for under "Description of the FELINE PRIDES -- Creating Growth PRIDES" 
and "-- Creating Income PRIDES") or (iii) upon the termination or Early         
Settlement of the related Purchase Contracts. Subject to such security interest 
and the terms of the Purchase Contract Agreement and the Pledge Agreement, each 
holder of Income PRIDES (unless a Tax Event Redemption has occurred) will be    
entitled through the Purchase Contract Agent and the Collateral Agent to all of 
the proportional rights and preferences of the related Capital Securities       
(including distribution, voting, redemption, repayment and liquidation rights), 
and each holder of Growth PRIDES or Income PRIDES (if a Tax Event Redemption has
occurred) will retain beneficial ownership of the related Treasury Securities or
the appropriate Applicable Ownership Interest of the Treasury Portfolio, as     
applicable, pledged in respect of the related Purchase Contracts. The Company   
will have no interest in the Pledged Securities other than its security         
interest.                                                                       

Except as described in "-- General," the Collateral Agent will, upon  
receipt of distributions on the Pledged Securities, distribute such payments to 
the Purchase Contract Agent, which will in turn distribute those payments,      
together with Contract Adjustment Payments received from the Company, to the    
persons in whose names the related Income PRIDES or Growth PRIDES are registered
at the close of business on the record date immediately preceding the date of   
such distribution.                                                              

BOOK ENTRY-SYSTEM                                                               

 The Depository Trust Company (the "Depositary", which term includes its
successors in such capacity) will act as securities depositary for the FELINE   
PRIDES. The FELINE PRIDES will be issued only as fully-registered securities    
registered in the name of Cede & Co. (the Depositary's nominee). One or more    
fully-registered global security certificates ("Global Security Certificates"), 
representing the total aggregate number of FELINE PRIDES, will be issued and    
will be deposited with the Depositary and will bear a legend regarding the      
restrictions on exchanges and registration of transfer thereof referred to      
below.                                                                          

The laws of some jurisdictions may require that certain purchasers of 
securities take physical delivery of securities in definitive form. Such laws   
may impair the ability to transfer beneficial interests in the FELINE PRIDES so 
long as such FELINE PRIDES are represented by Global Security Certificates.     

   The Depositary 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 Federal Reserve System, a "clearing corporation"   
within the meaning of the New York Uniform Commercial Code and a "clearing      
agency" registered pursuant to the provisions of Section 17A of the Exchange    
Act. The Depositary holds securities that its participants ("Participants")     
deposit with the Depositary. The Depositary also facilitates the settlement     
among Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in      
Participants' accounts, thereby 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 ("Direct Participants"). The Depositary 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 the Depositary's 
system is also available to others, such as securities brokers and dealers,     
banks and trust companies that clear transactions through or maintain a direct  
or indirect custodial relationship with a Direct Participant either directly or 
indirectly ("Indirect Participants"). The rules applicable to the Depositary and
its Participants are on file with the Commission.                               

   Although the Depositary has agreed to the foregoing procedure in order to
facilitate transfer of interests in the Global Security Certificates among      
Participants, the Depositary is under no obligation to perform or continue to   
perform such procedures and such procedures may be discontinued at any time.    
None of the Company, the Trust or any KBHC Trustee will have any responsibility 
for the performance by the Depositary or its Direct Participants or Indirect    
Participants under the rules and procedures governing the Depositary. In        

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the event that (i) the Depositary notifies the Company that it is unwilling or  
unable to continue as a depositary for such Global Security Certificates and no 
successor depositary shall have been appointed within 90 days after notice      
thereof to the Company, (ii) the Depositary at any time ceases to be a clearing 
agency registered under the Exchange Act at which time the Depositary is        
required to be so registered to act as such depositary and no successor         
depositary shall have been appointed within 90 days after the Company learns    
that the Depositary has ceased to be so registered, (iii) the Company, in its   
sole discretion, determines that such Global Security Certificates shall be so  
exchangeable or (iv) there shall have occurred and be continuing an Indenture   
Event of Default, certificates for the FELINE PRIDES will be printed and        
delivered in exchange for beneficial interests in the Global Security           
Certificates. Any global Capital Security that is exchangeable pursuant to the  
preceding sentence shall be exchangeable for FELINE PRIDES Certificates         
registered in such names as the Depositary shall direct. It is expected that    
such instructions will be based upon directions received by the Depositary from 
its Participants with respect to ownership of beneficial interests in such      
Global Security Certificates.                                                   

 As long as the Depositary or its nominee is the registered owner of the
Global Security Certificates, such Depositary or such nominee, as the case may  
be, will be considered the sole owner and holder of the Global Security         
Certificates and all FELINE PRIDES represented thereby for all purposes under   
the FELINE PRIDES and the Purchase Contract Agreement. Except in the limited    
circumstances referred to above, owners of beneficial interests in Global       
Security Certificates will not be entitled to have such Global Security         
Certificates or the FELINE PRIDES represented thereby registered in their names,
will not receive or be entitled to receive physical delivery of FELINE PRIDES   
Certificates in exchange therefor and will not be considered to be owners or    
holders of such Global Security Certificates or any FELINE PRIDES represented   
thereby for any purpose under the FELINE PRIDES or the Purchase Contract        
Agreement. All payments on the FELINE PRIDES represented by the Global Security 
Certificates and all transfers and deliveries of Capital Securities, Treasury   
Portfolio, Treasury Securities and Common Stock with respect thereto will be    
made to the Depositary or its nominee, as the case may be, as the holder        
thereof.                                                                        

    Ownership of beneficial interests in the Global Security Certificates will
be limited to Participants or persons that may hold beneficial interests through
institutions that have accounts with the Depositary or its nominee. Ownership of
beneficial interests in Global Security Certificates will be shown only on, and 
the transfer of those ownership interests will be effected only through, records
maintained by the Depositary or its nominee (with respect to Participants'      
interests) or any such Participant (with respect to interests of persons held by
such Participants on their behalf). Procedures for settlement of Purchase       
Contracts on the Purchase Contract Settlement Date or upon Early Settlement will
be governed by arrangements among the Depositary, Participants and persons that 
may hold beneficial interests through Participants designed to permit such      
settlement without the physical movement of certificates. Payments, transfers,  
deliveries, exchanges and other matters relating to beneficial interests in     
Global Security Certificates may be subject to various policies and procedures  
adopted by the Depositary from time to time. None of the Company, the Purchase  
Contract Agent or any agent of the Company or the Purchase Contract Agent will  
have any responsibility or liability for any aspect of the Depositary's or any  
Participant's records relating to, or for payments made on account of,          
beneficial interests in Global Security Certificates, or for maintaining,       
supervising or reviewing any of the Depositary's records or any Participant's   
records relating to such beneficial ownership interests.                        

The information in this section concerning the Depositary and its     
book-entry system has been obtained from sources that the Company and the Trust 
believe to be reliable, but neither the Company nor the Trust have attempted to 
verify the accuracy thereof.                                                    

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DESCRIPTION OF CAPITAL STOCK

    The Company is authorized to issue (i) 100,000,000 shares of Common Stock,
of which 39,862,267 shares were outstanding as of June 30, 1998, (ii) 25,000,000
shares of Special Common Stock, none of which is outstanding and (iii)          
10,000,000 shares of preferred stock, par value $1.00 per share ("Preferred     
Stock"), none of which is outstanding. The Company has also authorized the      
issuance of up to 1,600,000 shares of its Series A Participating Cumulative     
Preferred Stock in connection with its shareholder rights plan. See             
"-- Shareholder Rights Plan" below. At June 30, 1998, there were 1,763 holders  
of record of the Common Stock. The following summaries of certain provisions of 
the Company's Certificate of Incorporation and Shareholder Rights Plan do not   
purport to be complete and are subject to, and are qualified in their entirety  
by reference to, the Company's Certificate of Incorporation and Shareholder     
Rights Plan, copies of which have been incorporated by reference as exhibits to 
the Registration Statement of which this Prospectus is a part.                  

COMMON STOCK AND SPECIAL COMMON STOCK                                           

The holders of Common Stock and Special Common Stock generally have   
identical rights except that holders of Common Stock are entitled to one vote   
per share while holders of Special Common Stock are entitled to one-tenth of a  
vote per share on all matters to be voted on by stockholders. Holders of shares 
of Common Stock and Special Common Stock are not entitled to cumulate their     
votes in the election of directors. Subject to any voting rights of holders of  
outstanding Preferred Stock, if any, all matters to be voted on by stockholders 
generally must be approved by a majority of the combined voting power of the    
outstanding shares of Common Stock and Special Common Stock, voting together as 
a single class, and amendments to the Company's Certificate of Incorporation    
must be approved by a majority of the combined voting power of all shares of    
Common Stock and Special Common Stock, voting together as a single class.       
However, amendments to the Company's Certificate of Incorporation (i) that      
adversely affect the rights of the Common Stock or Special Common Stock also    
must be approved by a majority of the shares of such class voting as a separate 
class, (ii) that modify the classified board provisions contained in the        
Certificate of Incorporation must be approved by an 80% supermajority of the    
combined voting power of all shares of outstanding capital stock (including     
Common Stock and any outstanding Special Common Stock and voting Preferred      
Stock) and (iii) that modify the "fair price" provisions contained in the       
Company's Certificate of Incorporation must likewise by approved by an 80%      
supermajority of the combined voting power of all shares of outstanding voting  
stock excluding voting stock held by a Related Person (see -- "Additional       
Provisions of the Company's Certificate of Incorporation") and its Affiliates   
and Associates (as defined in the Certificate of Incorporation).                

    PREEMPTIVE RIGHTS; REDEMPTION; NONASSESSABLE.  The holders of Common Stock
and Special Common Stock have no preemptive rights and there are no redemption  
provisions with respect to such shares. Although no shares of Special Common    
Stock are currently outstanding, if issued, each share of Special Common Stock  
would be convertible, at the option of the holder thereof, into one share of    
Common Stock in the event that the Company or a third party made a tender offer 
for the Common Stock. Shares of Special Common Stock could be so converted only 
to enable such shares to be tendered pursuant to such offer, and any converted  
shares which were not purchased pursuant to such offer would be automatically   
re-converted into Common Stock. All the outstanding shares of Common Stock are  
fully paid and nonassessable, the shares of Common Stock issuable upon          
settlement of the Purchase Contract will be fully paid and non-assessable, and  
the shares of Special Common Stock, if issued, will be fully paid and           
nonassessable.                                                                  

    DIVIDENDS.  Subject to the prior dividend rights of holders of outstanding
Preferred Stock, if any, the holders of Common Stock and Special Common Stock   
are entitled to receive such dividends and distributions, if any, as may be     
declared from time to time by the Board of Directors in its discretion from     
funds legally available therefore, and shall share equally in all such dividends
and distributions on a per share basis. In the case of dividends or other       
distributions payable in capital stock other than Preferred Stock (including    
stock splits), only shares of Common Stock shall be paid and distributed with   
respect to Common Stock and only shares of Special Common Stock shall be paid   
and distributed with respect to Special Common Stock, in each case in an amount 
per share equal to the amount per share distributed with respect to the Common  
Stock or the Special Common Stock, as the case may be. In the case of any       
combination or reclassification of Common Stock or Special Common Stock, the    
shares of each such class shall be combined or reclassified in such             
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manner so as to retain the proportionate interest of each such class after      
giving effect to such combination or reclassification.                          

DISTRIBUTIONS ON LIQUIDATION.  The holders of Common Stock and Special
Common Stock are entitled to share pro rata in any distribution upon the        
liquidation, dissolution or winding up of the Company, after giving effect to   
any liquidation preference of any Preferred Stock and after payment or provision
for the payment of all debts and other liabilities of the Company.              

     REORGANIZATION, CONSOLIDATION OR MERGER.  In the event of a reorganization,
consolidation or merger of the Company, each holder of a share of Common Stock  
shall be entitled to receive the same kind and amount of property receivable by 
a holder of a share of Special Common Stock and each holder of a share of       
Special Common Stock shall be entitled to receive the same kind and amount of   
property receivable by a holder of Common Stock.                                

PREFERRED STOCK                                                                 

  The Company is authorized to issue Preferred Stock in one or more series
with such designations, rights, preferences and limitations as the Board of     
Directors may determine, including the consideration to be received therefor,   
the number of shares comprising each series, dividend rates, redemption         
provisions, liquidation preferences, mandatory retirement provisions, conversion
rights and voting rights, all without any stockholder approval. The future      
issuance of Preferred Stock with voting rights could make an acquisition of     
control of the Company more difficult and could adversely affect the rights of  
holders of Common Stock. Preferred stockholders typically would be entitled to  
satisfaction in full of specified dividend and liquidation rights before any    
payment of dividends or distribution of assets on liquidation is made to holders
of the Common Stock. If voting rights are granted to the holders of Preferred   
Stock, the voting power of the Common Stock will be diluted and under some      
circumstances control of the Company would shift from the holders of the Common 
Stock to the holders of Preferred Stock. Certain fundamental matters requiring  
stockholder approval (such as mergers, sale of assets, and certain amendments to
the Certificate of Incorporation) may require approval by the separate vote of  
the holders of the Preferred Stock.                                             

    In connection with its shareholder rights plan, the Company has authorized
the issuance of a series of Preferred Stock designated as the Series A          
Participating Cumulative Preferred Stock (the "Rights Preferred Stock"). The    
initial number of shares constituting such series is 1,600,000. No shares of    
Rights Preferred Stock were outstanding as of June 22, 1997. See"-- Shareholder 
Rights Plan".                                                                   

SHAREHOLDER RIGHTS PLAN                                                         

On January 11, 1989, the Board of Directors declared a dividend of one
Preferred Stock share purchase right (a "Right") for each share of Common Stock 
outstanding on March 7, 1989. Each Right entitles the registered holder, subject
to the occurrence of certain events, to purchase from the Company one           
one-hundredth of a share (a "Unit") of Rights Preferred Stock, at a purchase    
price of $30.00 per Unit subject to adjustment. The terms of the Rights are set 
forth in a rights agreement (the "Shareholder Rights Plan") between the Company 
and ChaseMellon Shareholder Services, L.L.C. (assignee of the Bank of America   
National Trust and Savings Association, successor-by-merger to Security Pacific 
National Bank), as Rights Agent.                                                

Until the Rights Distribution Date (as defined below) or the earlier  
redemption, expiration or termination of the Rights, (i) the Rights are         
evidenced by the certificates for the Common Stock and Special Common Stock and 
are transferred with, and only with, such certificates which contain a notation 
incorporating the Shareholder Rights Plan by reference and (ii) the surrender   
for transfer of any certificates for Common Stock or Special Common Stock       
constitutes a transfer of the Rights associated with the Common Stock or Special
Common Stock represented by such certificate. The Rights will separate from the 
Common Stock and Special Common Stock and will be distributed on the date (the  
"Rights Distribution Date") which occurs upon the earlier of (a) ten days       
following the date (the "Stock Acquisition Date") of a public announcement that 
a person has become an Acquiring Person (as defined below) or (b) ten business  
days following the commencement of a tender offer or exchange offer that would  
result in a person becoming                                                     
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an Acquiring Person. Under the Shareholder Rights Plan, an "Acquiring Person"   
means any person who or which, together with all Affiliates and Associates (as  
defined in the Shareholder Rights Plan) of such person, beneficially owns 20% or
more of the aggregate voting power of the outstanding Common Stock or Special   
Common Stock but does not include (x) the Company or any of its subsidiaries or 
any of their respective employee benefit plans or (y) a specifically designated 
individual formerly affiliated with the Company or certain of his Affiliates or 
Associates.                                                                     

     The Rights are not exerciseable until the Rights Distribution Date and will
expire at the close of business on March 7, 1999, unless earlier redeemed by the
Company as described below or amended or extended, or if a subsequent rights    
plan is adopted.                                                                

As soon as practicable after the Rights Distribution Date, Rights     
Certificates will be mailed to holders of record of the Common Stock and Special
Common Stock as of the close of business on the Rights Distribution Date and,   
thereafter, the separate Rights Certificates alone will represent the Rights.   
Except (i) in connection with the exercise of employee stock options or under   
any employee benefit plan or arrangement, (ii) in connection with the exercise, 
conversion or exchange of securities issued by the Company after the date of the
Shareholder Rights Plan and (iii) as otherwise determined by the Board of       
Directors, only Common Stock and Special Common Stock issued prior to the Rights
Distribution Date will be issued with Rights. Notwithstanding the foregoing, no 
such Rights shall be issued (i) if, and to the extent that, the Company shall be
advised by counsel that, such issuance would create a significant risk of       
material adverse tax consequences to the Company or the person to whom such     
Rights would be issued, (ii) if, and to the extent that, appropriate adjustment 
shall otherwise have been made in lieu of the issuance thereof, and (iii) after 
the earlier of the redemption and expiration of the Rights.                     

 If at any time following the Stock Acquisition Date, (i) the Company is
acquired in a merger or other business combination transaction or (ii) 50% or   
more the Company's assets or earning power is sold, each holder of a Right shall
thereafter have the right to receive, upon exercise, common stock of the        
acquiring company having a value equal to two times the current purchase price  
of the Right.                                                                   

  If (i) any person becomes an Acquiring Person or (ii) the Company is the
surviving corporation in a merger with an Acquiring Person and the Common Stock 
and Special Common Stock is not changed or exchanged, proper provision will be  
made so that each holder of a Right originally issued to a holder of Common     
Stock or Special Common Stock, other than Rights that are, or (under certain    
circumstances specified in the Shareholder Rights Plan) were, beneficially owned
by an Acquiring Person (which will thereafter be void), will thereafter have the
right to receive upon exercise that number of shares of Common Stock (the       
"Exercise Number") having a market value equal to two times the exercise price  
of the Right. The events described in this and the immediately preceding        
paragraph are referred to as the "Triggering Events."                           

     The purchase price payable for a Unit and the number of Units issuable upon
exercise of the Rights is subject to adjustment from time to time in certain    
cases. In addition, the number of Rights associated with each share of Common   
Stock and Special Common Stock is subject to adjustment from time to time in the
event of a stock dividend on, or a subdivision or combination of, Common Stock  
or Special Common Stock.                                                        

With certain exceptions, no adjustment in the purchase price will be  
required until cumulative adjustments amount to at least one percent of the     
purchase price. No fractional shares of Common Stock or Special Common Stock    
will be issued and in lieu thereof, an adjustment in cash will be made based on 
the market price of the Common Stock on the last trading date prior to the date 
on which such fractional shares would have been otherwise issuable.             

    The Board of Directors may redeem the Rights in whole, but not in part, at
the redemption price of $.01 per Right at any time prior to the expiration of a 
ten day period following the Stock Acquisition Date. The foregoing redemption   
period can be extended by a majority of Continuing Directors (as defined in the 
Shareholder Rights Plan) at any time prior to the date on which the Rights would
otherwise become nonredeemable. Immediately upon the action of the Board of     
Directors ordering redemption of the Rights, the Rights will terminate, no      
further Rights will be issued and the only right of the holders of Rights will  
be to receive the redemption price.                                             

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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.                                                

    Prior to the Rights Distribution Date, the Company may, subject to certain
exceptions, amend any provision of the Shareholder Rights Plan without the      
approval of any holders of Common Stock or Special Common Stock.                

   If and when issued, the Rights Preferred Stock will rank, with respect to
dividend rights and rights on liquidation, winding up and dissolution of the    
Company, prior to the Common Stock and the Special Common Stock. Subject to the 
dividend rights of holders of any other series of Preferred Stock ranking senior
to the Rights Preferred Stock, the holders of Rights Preferred Stock, in        
preference to the shares of Common Stock and Special Common Stock, will be      
entitled to receive cumulative dividends, payable on quarterly dividend payment 
dates, in an amount per share equal to the greater of (a) $1.00 or (b) 100 times
the aggregate per share amount of all cash and non-cash dividends or            
distributions (other than dividends payable in shares of Common Stock) paid on  
the Common Stock since the immediately preceding quarterly dividend payment     
date. In addition, subject to the rights of any holders of Preferred Stock      
ranking senior to the Rights Preferred Stock, in the event of any voluntary or  
involuntary liquidation, dissolution or winding up of the Company, holders of   
Rights Preferred Stock will be entitled to receive out of assets of the Company 
legally available therefor, in preference to the Common Stock and Special Common
Stock, an amount per share equal to 100 times the aggregate amount to be        
distributed per share to holders of Common Stock or, if greater, $100 per share 
plus an amount equal to unpaid cumulative dividends.                            

 In addition to such voting rights as may be provided by applicable law,
holders of Rights Preferred Stock will be entitled to 100 votes per share with  
respect to all matters submitted to a vote of holders of Common Stock as well as
any other class or series of capital stock having the right to vote with the    
Common Stock, and all such shares shall vote together as one class, subject to  
certain exceptions and except as otherwise required by law. Shares of Rights    
Preferred Stock will not be entitled to cumulative voting in the election of    
directors. In addition, if at any time cumulative dividends on the outstanding  
shares of Rights Preferred Stock shall be unpaid in an aggregate amount per     
share equal to or exceeding six quarterly dividends thereon, then the number of 
directors constituting the Board of Directors of the Company shall be increased 
by two and the holders of the Rights Preferred Stock, voting separately as a    
class with the holders of any other series of Preferred Stock ranking on a      
parity with or senior to the Rights Preferred Stock and upon which substantially
similar voting rights have been conferred and are exercisable, shall have the   
right to elect two additional members to the Board of Directors. Such voting    
rights shall terminate when all accumulated dividends on the Rights Preferred   
Stock shall have been paid in full (subject to the revesting of such rights in  
the event of any future such dividend arrearage) and the term of office of all  
directors so elected shall thereupon terminate.                                 

The amounts payable on the Rights Preferred Stock as dividends,       
distributions or in the event of liquidation, dissolution or winding up of the  
Company and the number of votes per share of Rights Preferred Stock, are subject
to adjustment in certain circumstances.                                         

ADDITIONAL PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION             

     The Company's Certificate of Incorporation contains "fair price" provisions
which are intended to protect the Company's stockholders from certain possible  
pricing abuses in connection with, among other things, unsolicited attempts to  
gain control of the Company. These provisions require the affirmative vote of   
the holders of at least 80% of the outstanding shares of voting stock of the    
Company held by persons other than a Related Person in order to permit certain  
mergers and other major corporate transactions involving the Company and a      
Related Person, unless the merger or other transaction is approved by at least  
two-thirds of the Continuing Directors (as defined in the Certificate of        
Incorporation) or certain "fair price" criteria are met. A "Related Person" is  
defined as (x) any individual, corporation, partnership or other person or      
entity that, together with its Affiliates and Associates (as defined in the     
Certificate of Incorporation), beneficially owns in the aggregate 20% or more of
the Company's outstanding voting stock, and (y) any "Affiliate" or "Associate"  
of any such individual, corporation, partnership or other person or entity;     
provided, however, that the term "Related Person" shall not include (i) any     
trustee, person or entity whose acquisition of such voting                      

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stock was approved in advance by at least two-thirds of the Continuing          
Directors, (ii) any fiduciary in respect of any employee benefit plan of the    
Company or a wholly owned subsidiary of the Company or (iii) a specifically     
designated corporation formerly affiliated with the Company or any of its       
Affiliates or Associates. The "fair price" provisions are deemed to have been   
satisfied if, in general, the cash or other consideration received per share by 
holders of each class or series of the Company's outstanding voting stock in the
merger or other transaction is not less than the highest price paid at any time 
by the Related Person in acquiring stock of such class or series, as determined 
by two-thirds of the Continuing Directors. The term "Continuing Director" means 
a director of the Company who was a member of the Board of Directors prior to   
the time that a Related Person involved in a merger or other major corporate    
transaction became a Related Person.                                            

The Company has also adopted certain defensive measures that include  
classifying the Board of Directors into three classes of directors, requiring a 
supermajority vote of the Company's stockholders to effect certain amendments to
its Certificate of Incorporation and bylaws, restricting stockholders' ability  
to call special meetings of stockholders, implementing the Shareholder Rights   
Plan and amending the Certificate of Incorporation to provide that Section 203  
of the Delaware General Corporation Law shall apply to the Company. In addition,
the Certificate of Incorporation prohibits stockholder action by written        
consent.                                                                        

The foregoing defensive measures, together with the provisions of the 
Shareholder Rights Plan and the Certificate of Incorporation, in certain        
circumstances could require a potential acquiror of the Company to pay a higher 
price than might otherwise be the case or to obtain the approval of a larger    
percentage of the stockholders than might otherwise be the case, and may have   
the effect of discouraging a proxy contest or making more difficult a merger    
involving the Company, or a tender offer, open-market purchase program or other 
purchase of the Company's shares, in circumstances that would give stockholders 
the opportunity to realize a premium over then-prevailing market prices for     
their shares.                                                                   

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW                             

As a Delaware corporation, the Company is subject to the provisions of
Section 203 of the General Corporation Law of the State of Delaware. Section 203
generally provides that if a person or group acquires 15% or more of a          
corporation's voting stock (thereby becoming an "interested stockholder")       
without prior board approval, such interested stockholder may not, for a period 
of three years, engage in a wide range of business combination transactions with
the corporation. However, this restriction does not apply to a person who       
becomes an interested stockholder in a transaction resulting in the interested  
stockholder owning at least 85% of the corporation's voting stock (excluding    
from the outstanding shares, shares held by officers, directors or pursuant to  
employee stock plans without confidential tender offer decision provisions), or 
to a business combination approved by the board of directors and authorized by  
the affirmative vote of a least 66 2/3% of the outstanding voting stock not     
owned by the interested stockholder. In addition, Section 203 does not apply to 
certain business combinations proposed subsequent to the public announcement of 
specified business combination transactions which are not opposed by the board  
of directors.                                                                   

TRANSFER AGENT                                                                  

The transfer agent and registrar for the Company's Common Stock is    
ChaseMellon Shareholder Services, L.L.C.                                        

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CERTAIN PROVISIONS OF THE PURCHASE CONTRACT 
AGREEMENT AND THE PLEDGE AGREEMENT

GENERAL                                                                         

     Distributions on the FELINE PRIDES will be payable, Purchase Contracts (and
documents related thereto) will be settled and transfers of the FELINE PRIDES   
will be registrable at the office of the Purchase Contract Agent in the Borough 
of Manhattan, The City of New York. In addition, in the event that the FELINE   
PRIDES do not remain in book-entry form, payment of distributions on the FELINE 
PRIDES may be made, at the option of the Company, by check mailed to the address
of the person entitled thereto as shown on the Security Register.               

Shares of Common Stock will be delivered on the Purchase Contract     
Settlement Date (or earlier upon Early Settlement), or, if the Purchase         
Contracts have terminated, the related Pledged Securities will be delivered     
potentially after a delay as a result of the imposition of the automatic stay   
under the Bankruptcy Code (see "Description of the Purchase                     
Contracts -- Termination"), in each case upon presentation and surrender of the 
FELINE PRIDES Certificate at the office of the Purchase Contract Agent.         

    If a holder of outstanding Income PRIDES or Growth PRIDES fails to present
and surrender the FELINE PRIDES Certificate evidencing such Income PRIDES or    
Growth PRIDES to the Purchase Contract Agent on the Purchase Contract Settlement
Date, the shares of Common Stock issuable in settlement of the related Purchase 
Contract and in payment of any Deferred Contract Adjustment Payments will be    
registered in the name of the Purchase Contract Agent and, together with any    
distributions thereon, shall be held by the Purchase Contract Agent as agent for
the benefit of such holder, until such FELINE PRIDES Certificate is presented   
and surrendered or the holder provides satisfactory evidence that such          
certificate has been destroyed, lost or stolen, together with any indemnity that
may be required by the Purchase Contract Agent and the Company.                 

  If the Purchase Contracts have terminated prior to the Purchase Contract
Settlement Date, the related Pledged Securities have been transferred to the    
Purchase Contract Agent for distribution to the holders entitled thereto and a  
holder fails to present and surrender the FELINE PRIDES Certificate evidencing  
such holder's Income PRIDES or Growth PRIDES to the Purchase Contract Agent, the
related Pledged Securities delivered to the Purchase Contract Agent and payments
thereon shall be held by the Purchase Contract Agent as agent for the benefit of
such holder, until such FELINE PRIDES Certificate is presented or the holder    
provides the evidence and indemnity described above.                            

 The Purchase Contract Agent will have no obligation to invest or to pay
interest on any amounts held by the Purchase Contract Agent pending             
distribution, as described above.                                               

     No service charge will be made for any registration of transfer or exchange
of the FELINE PRIDES, except for any tax or other governmental charge that may  
be imposed in connection therewith.                                             

MODIFICATION                                                                    

The Purchase Contract Agreement and the Pledge Agreement will contain 
provisions permitting the Company and the Purchase Contract Agent or Collateral 
Agent, as the case may be, with the consent of the holders of not less than a   
majority of the Purchase Contracts at the time outstanding, to modify the terms 
of the Purchase Contracts, the Purchase Contract Agreement and the Pledge       
Agreement, except that no such modification may, without the consent of the     
holder of each outstanding Purchase Contract affected thereby, (a) change any   
Payment Date, (b) change the amount or type of Pledged Securities related to    
such Purchase Contract, impair the right of the holder of any Pledged Securities
to receive distributions on such Pledged Securities or otherwise adversely      
affect the holder's rights in or to such Pledged Securities, (c) change the     
place or currency of payment or reduce any Contract Adjustment Payments or any  
Deferred Contract Adjustment Payments, (d) impair the right to institute suit   
for the enforcement of such Purchase Contract, any Contract Adjustment Payments 
or any Deferred Contract Adjustment Payments, (e) reduce the number of shares of
Common Stock or the amount of any other property purchasable under such Purchase
Contract, increase the price to purchase Common Stock or any other property upon
settlement of such Purchase Contract, change the Purchase Contract Settlement   
Date or the right to Early Settlement or otherwise                              
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adversely affect the holder's rights under such Purchase Contract or (f) reduce 
the above-stated percentage of outstanding Purchase Contracts the consent of    
whose holders is required for the modification or amendment of the provisions of
the Purchase Contracts, the Purchase Contract Agreement or the Pledge Agreement;
provided, that if any amendment or proposal referred to above would adversely   
affect only the Income PRIDES or the Growth PRIDES, then only the affected class
of holders will be entitled to vote on such amendment or proposal and such      
amendment or proposal shall not be effective except with the consent of the     
holders of not less than a majority of such class.                              

NO CONSENT TO ASSUMPTION                                                        

    Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the Income PRIDES or     
Growth PRIDES, as applicable, be deemed expressly to have withheld any consent  
to the assumption (i.e., affirmance) of the related Purchase Contracts by the   
Company or its trustee in the event that the Company becomes the subject of a   
case under the Bankruptcy Code.                                                 

CONSOLIDATION, MERGER, SALE OR CONVEYANCE                                       

   The Company will covenant in the Purchase Contract Agreement that it will
not merge or consolidate with or into any other entity or sell, assign,         
transfer, lease or convey all or substantially all of its properties and assets 
to any person or entity, unless the Company is the continuing corporation or the
successor entity is a corporation organized and existing under the laws of the  
United States of America or a state hereof or the District of Columbia and such 
corporation expressly assumes the obligations of the Company under the Purchase 
Contracts, the Debentures, the Purchase Contract Agreement, the Pledge          
Agreement, the Indenture (including any supplemental indenture thereto) and the 
Remarketing Agreement and the Company or such successor corporation is not,     
immediately after such merger, consolidation, sale, assignment, transfer, lease 
or conveyance, in default of its payment obligations thereunder or in material  
default in the performance of any of its other obligations thereunder.          

TITLE                                                                           

     The Company, the Purchase Contract Agent and the Collateral Agent may treat
the registered owner of any FELINE PRIDES as the absolute owner thereof for the 
purpose of making payment and settling the related Purchase Contracts and for   
all other purposes.                                                             

REPLACEMENT OF FELINE PRIDES CERTIFICATES                                       

 In the event that physical certificates have been issued, any mutilated
FELINE PRIDES Certificate will be replaced by the Company at the expense of the 
holder upon surrender of such certificate to the Purchase Contract Agent. FELINE
PRIDES Certificates that become destroyed, lost or stolen will be replaced by   
the Company at the expense of the holder upon delivery to the Company and the   
Purchase Contract Agent of evidence of the destruction, loss or theft thereof   
satisfactory to the Company and the Purchase Contract Agent. In the case of a   
destroyed, lost or stolen FELINE PRIDES Certificate, an indemnity satisfactory  
to the Purchase Contract Agent and the Company may be required at the expense of
the holder of the FELINE PRIDES evidenced by such certificate before a          
replacement will be issued.                                                     

   Notwithstanding the foregoing, the Company will not be obligated to issue
any Income PRIDES or Growth PRIDES on or after the Purchase Contract Settlement 
Date (or after Early Settlement) or after the Purchase Contracts have           
terminated. The Purchase Contract Agreement will provide that in lieu of the    
delivery of a replacement FELINE PRIDES Certificate following the Purchase      
Contract Settlement Date, the Purchase Contract Agent, upon delivery of the     
evidence and indemnity described above, will deliver the Common Stock issuable  
pursuant to the Purchase Contracts included in the Income PRIDES or Growth      
PRIDES evidenced by such certificate, or, if the Purchase Contracts have        
terminated prior to the Purchase Contract Settlement Date, transfer the Pledged 
Securities included in the Income PRIDES or Growth PRIDES evidenced by such     
certificate.                                                                    
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GOVERNING LAW                                                                   

The Purchase Contract Agreement, the Pledge Agreement and the Purchase
Contracts will be governed by, and construed in accordance with, the laws of the
State of New York.                                                              

INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT                              

     The First National Bank of Chicago will be the Purchase Contract Agent. The
Purchase Contract Agent will act as the agent for the holders of Income PRIDES  
and Growth PRIDES from time to time. The Purchase Contract Agreement will not   
obligate the Purchase Contract Agent to exercise any discretionary actions in   
connection with a default under the terms of the Income PRIDES and Growth PRIDES
or the Purchase Contract Agreement.                                             

     The Purchase Contract will contain provisions limiting the liability of the
Purchase Contract Agent. The Purchase Contract Agreement will contain provisions
under which the Purchase Contract Agent may resign or be replaced. Such         
resignation or replacement would be effective upon the appointment of a         
successor.                                                                      

The First National Bank of Chicago maintains commercial banking       
relationships with the Company.                                                 

INFORMATION CONCERNING THE COLLATERAL AGENT                                     

 The Bank of New York will be the Collateral Agent. The Collateral Agent
will act solely as the agent of the Company and will not assume any obligation  
or relationship of agency or trust for or with any of the holders of the Income 
PRIDES and Growth PRIDES except for the obligations owed by a pledgee of        
property to the owner thereof under the Pledge Agreement and applicable law.    

    The Pledge Agreement will contain provisions limiting the liability of the
Collateral Agent. The Pledge Agreement will contain provisions under which the  
Collateral Agent may resign or be replaced. Such resignation or replacement     
would be effective upon the appointment of a successor.                         

  The Bank of New York maintains commercial banking relationships with the
Company.                                                                        

MISCELLANEOUS                                                                   

    The Purchase Contract Agreement will provide that the Company will pay all
fees and expenses related to (i) the offering of the FELINE PRIDES, (ii) the    
retention of the Collateral Agent and (iii) the enforcement by the Purchase     
Contract Agent of the rights of the holders of the FELINE PRIDES; provided,     
however, that holders who elect to substitute the related Pledged Securities,   
thereby creating Growth PRIDES or Income PRIDES or recreating Income PRIDES or  
Growth PRIDES, shall be responsible for any fees or expenses payable in         
connection with such substitution, as well as any commissions, fees or other    
expenses incurred in acquiring the Pledged Securities to be substituted, and the
Company shall not be responsible for any such fees or expenses.                 

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DESCRIPTION OF THE CAPITAL SECURITIES 

  The Capital Securities, a certain portion of which will initially form a
component of the Income PRIDES, and a certain portion of which will initially   
trade separately, will be issued pursuant to the terms of the Declaration. See  
"Description of the FELINE PRIDES -- Creation of Income PRIDES." The Declaration
will be qualified as an indenture under the Trust Indenture Act. The            
Institutional Trustee, The First National Bank of Chicago, an independent       
trustee, will act as indenture trustee for the Capital Securities under the     
Declaration for purposes of compliance with the provisions of the Trust         
Indenture Act. The terms of the Capital Securities will include those stated in 
the Declaration and those made part of the Declaration by the Trust Indenture   
Act. The following summary of certain provisions of the Capital Securities and  
the Declaration does not purport to be complete, and reference is hereby made to
the copy of the Declaration (including the definitions therein of certain terms)
which is filed as an exhibit to the Registration Statement relating to this     
Prospectus, the Trust Act and the Trust Indenture Act. Whenever particular      
defined terms are referred to in this Prospectus, such defined terms are        
incorporated herein by reference. As used under this caption, references to the 
Company mean Kaufman and Broad Home Corporation excluding, unless otherwise     
expressly stated or the context otherwise requires, its subsidiaries.           

GENERAL                                                                         

   The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust the Trust Securities, which represent undivided beneficial ownership      
interests in the assets of the Trust. All of the Common Securities will be      
owned, directly or indirectly, by the Company. The Common Securities rank on a  
parity, and payments will be made thereon on a pro rata basis, with the Capital 
Securities, except that upon the occurrence and during the continuance of an    
Indenture Event of Default, the rights of the holders of the Common Securities  
to receive payment of periodic distributions and payments upon liquidation,     
redemption and otherwise will be subordinated to the rights of the holders of   
the Capital Securities. The Declaration does not permit the issuance by the     
Trust of any securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. Pursuant to the Declaration, the Institutional       
Trustee will own the Debentures purchased by the Trust for the benefit of the   
holders of the Trust Securities. The payment of distributions out of money held 
by the Trust, and payments upon redemption of the Capital Securities or         
liquidation of the Trust, are guaranteed by the Company to the extent described 
under "Description of the Guarantee." The Guarantee, when taken together with   
the Company's obligations under the Debentures and the Indenture and its        
obligations under the Declaration, including the obligations to pay costs,      
expenses, debts and liabilities of the Trust (other than with respect to the    
Capital Securities), provides a full and unconditional guarantee of amounts due 
on the Capital Securities. The Guarantee will be held by The First National Bank
of Chicago, the Guarantee Trustee, for the benefit of the holders of the Capital
Securities. The Guarantee does not cover payment of distributions when the Trust
does not have sufficient available funds to pay such distributions. In such     
event, the remedy of a holder of Capital Securities is to vote to direct the    
Institutional Trustee to enforce the Institutional Trustee's rights under the   
Debentures (except in the limited circumstances in which the holder may take    
direct action). See "-- Declaration Events of Default" and "-- Voting Rights."  

DISTRIBUTIONS                                                                   

   Distributions on the Capital Securities will be fixed initially at a rate
per annum of 8% of the stated liquidation amount of $10 per Capital Security.   
The distribution rate on the Capital Securities that remain outstanding on and  
after the Purchase Contract Settlement Date will be reset on the third Business 
Day immediately preceding the Purchase Contract Settlement Date to the Reset    
Rate. See "-- Market Rate Reset." Distributions on the Capital Securities in    
arrears for more than one quarter will bear interest at the rate of 8% per annum
through and including August 15, 2001 and at the Reset Rate thereafter,         
compounded quarterly. The term "distribution" as used herein includes any such  
interest unless otherwise stated. The amount of distributions payable for any   
period will be computed on the basis of a 360-day year of twelve 30-day months  
and for any period shorter than a full quarterly distribution period for which  
distributions are computed, distributions will be computed on the basis of the  
actual number of days elapsed in such 90-day period.                            

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    Distributions on the Capital Securities will be cumulative and will accrue
from the Original Issue Date and will be payable quarterly in arrears on        
February 16, May 16, August 16, and November 16 of each year, commencing August 
16, 1998, when, as and if funds are available for payment. Distributions will be
made by the Institutional Trustee, except as otherwise described below.         

     The Company has the right under the Indenture to defer payments of interest
on the Debentures by extending the interest payment period from time to time on 
the Debentures, which right, if exercised, would defer quarterly distributions  
on the Capital Securities (though such distributions would continue to accrue,  
compounded quarterly, to the extent permitted by law, at the rate of 8% per     
annum through and including August 15, 2001 and at the Reset Rate thereafter)   
during any such Extension Period. Such right to extend the interest payment     
period for the Debentures is limited to a period, in the aggregate, not         
extending beyond the maturity date of the Debentures; provided that an Extension
Period must end on one of the quarterly distribution Payment Dates. In the event
that the Company exercises this right, then (a) the Company shall not declare or
pay dividends on, make distributions with respect to, or redeem, purchase,      
acquire, or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of capital stock of the Company in    
connection with the satisfaction by the Company of its obligations under any    
employee benefit plans or the satisfaction by the Company of its obligations    
pursuant to any contract or security outstanding on the date of such event      
requiring the Company to purchase capital stock of the Company, (ii) as a result
of a reclassification of the Company's capital stock or the exchange or         
conversion of one class or series of the Company's capital stock for another    
class or series of the Company's capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or    
exchanged, (iv) dividends or distributions in capital stock of the Company (or  
rights to acquire capital stock) or repurchases or redemptions of capital stock 
solely from the issuance or exchange of capital stock or (v) redemptions or     
repurchases of any rights outstanding under a shareholder rights plan or the    
declaration thereunder of a dividend of rights in the future), and (b) the      
Company shall not make any guarantee payments with respect to the foregoing     
other than pursuant to the Guarantee. Prior to the termination of any such      
Extension Period, the Company may further extend the interest payment period;   
provided, that such Extension Period, together with all such previous and       
further extensions thereof, may not extend beyond the maturity date of the      
Debentures and each Extension Period must end on a Payment Date. Upon the       
termination of any Extension Period and the payment of all amounts then due, the
Company may commence a new Extension Period, subject to the above requirements. 
See "Description of the Debentures -- Interest" and "-- Option to Extend        
Interest Payment Period." If distributions are deferred, the deferred           
distributions and accrued interest thereon shall be paid to holders of record of
the Capital Securities as they appear on the books and records of the Trust at  
the close of business on the record date for the Payment Date on which such     
Extension Period ends.                                                          

   Distributions on the Capital Securities must be paid on the dates payable
to the extent that the Trust has funds available in the Property Account for the
payment of such distributions. The Trust's funds available for distribution to  
the holders of the Capital Securities will be limited to payments received from 
the Company on the Debentures. See "Description of the Debentures." The payment 
of distributions out of moneys held by the Trust is guaranteed by the Company to
the extent set forth under "Description of the Guarantee." Distributions on the 
Capital Securities will be payable to the holders thereof, including the        
Collateral Agent, as they appear on the books and records of the Trust at the   
close of business on the relevant record dates, which, as long as the Capital   
Securities remain in book-entry only form, will be one Business Day prior to the
relevant payment dates. Such distributions will be paid through the             
Institutional Trustee who will hold amounts received in respect of the          
Debentures in the Property Account for the benefit of the holders of the Capital
Securities. Subject to any applicable laws and regulations and the provisions of
the Declaration, each such payment will be made as described under              
"-- Book-Entry Only Issuance -- The Depository Trust Company" below. With       
respect to Capital Securities not in book-entry form, the relevant record dates 
for the Capital Securities shall conform to the rules of any securities exchange
on which the Capital Securities are listed, and, if none the relevant record    
dates shall be one Business Day prior to the relevant payment dates. In the     
event that any date on which distributions are to be made on the Capital        
Securities is not a Business Day, then payment of the distributions payable on  
such date will be made on the next succeeding day which is a Business Day (and  
without any interest or other payment in respect of any such delay), except     
that, if such                                                                   
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Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and 
effect as if made on such record date.                                          

 Because the Company is a holding company whose operations are conducted
through its subsidiaries, the ability of the Company to pay the principal amount
of and interest on the Debentures, and therefore the ability of the Trust to pay
distributions on the Capital Securities, will depend upon the ability of such   
subsidiaries to provide funds to the Company. The ability of subsidiaries to    
provide funds to the Company may be subject to contractual and other            
limitations, is contingent upon the results of operations and financial         
conditions of such subsidiaries, and is subject to various other business       
considerations. See "Risk Factors -- Holding Company Structure."                

MARKET RATE RESET                                                               

  The interest rate on the Debentures that remain outstanding on and after
the Purchase Contract Settlement Date (and therefore the distribution rate on   
the Capital Securities) will be reset on the third Business Day immediately     
preceding the Purchase Contract Settlement Date to the Reset Rate, which will be
equal to the sum of the Reset Spread and the rate of interest on the Two-Year   
Benchmark Treasury in effect on the third Business Day immediately preceding the
Purchase Contract Settlement Date and will be determined by the Reset Agent as  
the rate the Capital Securities should bear in order for a Capital Security to  
have an approximate market value on the third Business Day immediately preceding
the Purchase Contract Settlement Date of 100.75% of the Stated Amount; provided 
that the Company may limit such Reset Rate to be no higher than the rate on the 
Two-Year Benchmark Treasury on the Purchase Contract Settlement Date plus 300   
basis points (3%), and provided, further that the Reset Rate shall in no event  
exceed the maximum rate permitted by applicable law. Such market value may be   
less than 100.75%, including where the Reset Spread is limited to the maximum of
3% or if the Reset Rate were to be limited by applicable law. The "Two-Year     
Benchmark Treasury" shall mean direct obligations of the United States (which   
may be obligations traded on a when-issued basis only) having a maturity        
comparable to the remaining term to maturity of the Capital Securities, as      
agreed upon by the Company and the Reset Agent. The rate for the Two-Year       
Benchmark Treasury will be the bid side rate displayed at 10:00 A.M., New York  
City time, on the third Business Day immediately preceding the Purchase Contract
Settlement Date in the Telerate system (or if the Telerate system is (a) no     
longer available on the third Business Day immediately preceding the Purchase   
Contract Settlement Date or (b) in the opinion of the Reset Agent (after        
consultation with the Company) no longer an appropriate system from which to    
obtain such rate, such other nationally recognized quotation system as, in the  
opinion of the Reset Agent (after consultation with the Company) is             
appropriate). If such rate is not so displayed, the rate for the Two-Year       
Benchmark Treasury shall be, as calculated by the Reset Agent, the yield to     
maturity for the Two-Year Benchmark Treasury, expressed as a bond equivalent on 
the basis of a year of 365 or 366 days, as applicable, and applied on a daily   
basis, and computed by taking the arithmetic mean of the secondary market bid   
rates, as of 10:30 A.M., New York City time, on the third Business Day          
immediately preceding the Purchase Contract Settlement Date of three leading    
United States government securities dealers selected by the Reset Agent (after  
consultation with the Company) (which may include the Reset Agent or an         
affiliate thereof). It is currently anticipated that Merrill Lynch, Pierce,     
Fenner & Smith Incorporated will be the investment banking firm acting as the   
Reset Agent.                                                                    

On the tenth Business Day immediately preceding the Purchase Contract 
Settlement Date, the Two-Year Benchmark Treasury to be used to determine the    
Reset Rate on the Purchase Contract Settlement Date will be selected and the    
Reset Spread to be added to the rate on the Two-Year Benchmark Treasury in      
effect on the third Business Day immediately preceding the Purchase Contract    
Settlement Date will be established by the Reset Agent, and the Reset Spread and
the Two-Year Benchmark Treasury will be announced by the Company (the "Reset    
Announcement Date"). The Company will cause a notice of the Reset Spread and    
such Two-Year Benchmark Treasury to be published on the Business Day following  
the Reset Announcement Date by publication in a daily newspaper in the English  
language of general circulation in The City of New York, which is expected to be
The Wall Street Journal. The Company will request, not later than 7 nor more    
than 15 calendar days prior to the Reset Announcement Date, that the Depositary 
notify its participants holding Capital Securities, Income PRIDES or Growth     
PRIDES of such Reset Announce-                                                  

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ment Date and of the procedures that must be followed if any owner of Income    
PRIDES wishes to settle the related Purchase Contract with cash on the Business 
Day immediately preceding the Purchase Contract Settlement Date.                

OPTIONAL REMARKETING                                                            

Pursuant to the Remarketing Agreement and subject to the terms of the 
Supplemental Remarketing Agreement, on or prior to the fifth Business Day       
immediately preceding the Purchase Contract Settlement Date, but no earlier than
the Payment Day immediately preceding the Purchase Contract Settlement Date,    
holders of separate Capital Securities which are not components of Income PRIDES
may elect to have their Capital Securities remarketed in the same manner as     
Capital Securities which are components of Income PRIDES by delivering their    
Capital Securities along with a notice of such election to the Custodial Agent. 
The Custodial Agent will hold such Capital Securities in an account separate    
from the collateral account in which the Pledged Securities will be held.       
Holders of Capital Securities electing to have their Capital Securities         
remarketed will also have the right to withdraw such election on or prior to the
fifth Business Day immediately preceding the Purchase Contract Settlement Date. 

OPTIONAL REDEMPTION                                                             

  The Debentures are redeemable at the option of the Company, in whole but
not in part, on not less than 30 days nor more than 60 days notice, upon the    
occurrence and continuation of a Tax Event under the circumstances described    
under "Description of the Debentures -- Tax Event Redemption." If the Company   
redeems the Debentures upon the occurrence and continuation of a Tax Event, the 
proceeds from such redemption shall simultaneously be applied on a pro rata     
basis to redeem Trust Securities having an aggregate stated liquidation amount  
equal to the aggregate principal amount of the Debentures so redeemed at a      
Redemption Price, per Trust Security, equal to the Redemption Amount plus       
accrued and unpaid distributions thereon to the date of such redemption. Such   
proceeds will be payable in cash to the holders of such Trust Securities. If the
Tax Event Redemption occurs prior to the Purchase Contract Settlement Date, the 
Redemption Price payable to the Collateral Agent, in liquidation of the Income  
PRIDES holders' interests in the Trust, will be simultaneously applied by the   
Collateral Agent to purchase on behalf of the holders' of the Income PRIDES the 
Treasury Portfolio. The Treasury Portfolio will be pledged with the Collateral  
Agent to secure the obligation of Income PRIDES holders' to purchase Common     
Stock under the related Purchase Contracts.                                     

MANDATORY REDEMPTION                                                            

  In addition, upon any repayment (other than upon optional redemption) of
any Debentures held by the Trust, whether at stated maturity or otherwise, the  
proceeds from such repayment shall simultaneously be applied by the             
Institutional Trustee, upon not less than 30 nor more than 60 days notice to    
holders of Trust Securities, to redeem, on a pro rata basis, Capital Securities 
and Common Securities having an aggregate stated liquidation amount equal to the
aggregate principal amount of the Debentures so redeemed at a Redemption Price, 
per Trust Security, equal to the stated liquidation amount thereof plus accrued 
and unpaid distributions thereon to the date of such redemption. In the event of
such a mandatory redemption of any Trust Security, the "Redemption Price"       
thereof shall mean the stated liquidation amount thereof plus accumulated and   
unpaid distributions to the date of redemption.                                 

PUT OPTION UPON A FAILED REMARKETING                                            

If a Failed Remarketing has occurred, holders of Trust Securities     
(including, following the distribution of the Debentures upon a dissolution of  
the Trust as described herein, such holders of Debentures), holding such Trust  
Securities (or Debentures, as the case may be) following the Purchase Contract  
Settlement Date will have the right, in the case of Trust Securities, to require
the Trust to distribute their pro rata share of the Debentures to the Exchange  
Agent, who will put such Debentures to the Company on behalf of such holders (or
in the case of Debentures held directly, the holders of such Debentures shall   
have the right to put such Debentures directly to the Company) on September 1,  
2001, upon at least three Business Days' prior notice,                          
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at a price equal to the principal amount, plus accrued and unpaid interest      
(including deferred interest), if any, thereon.                                 

REDEMPTION PROCEDURES                                                           

   Redemptions of the Trust Securities shall be made only to the extent that
the Trust has funds on hand available for such payment. See also                
"-- Subordination of Common Securities".                                        

If the Trust gives a notice of redemption (which notice will be       
irrevocable) in respect of Trust Securities, then, by 12:00 noon, New York City 
time, on the redemption date, provided that the Company has paid to the         
Institutional Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Debentures, the Trust will irrevocably deposit    
with the Depositary, the Purchase Contract Agent or the Collateral Agent, as    
applicable, funds sufficient to pay the applicable Redemption Price and will    
give the Depositary, the Purchase Contract Agent or the Collateral Agent, as    
applicable, irrevocable instructions and authority to pay the Redemption Price  
to the holders of the Trust Securities so called for redemption. If notice of   
redemption shall have been given and funds deposited as required, then          
immediately prior to the close of business on the date of such deposit,         
distributions will cease to accrue and all rights of holders of such Trust      
Securities so called for redemption will cease, except the right of the holders 
of such Trust Securities to receive the Redemption Price but without interest on
such Redemption Price. Notwithstanding the foregoing, distributions on Trust    
Securities which are due and payable on a Payment Date falling on or prior to   
the relevant redemption date shall be payable to the holders of such Trust      
Securities registered as such at the close of business on the relevant record   
dates. In the event that any date fixed for redemption of Trust Securities is   
not a Business Day, then payment of the Redemption Price payable on such date   
will be made on the next succeeding day that is a Business Day (without any     
interest or other payment in respect of any such delay), except that, if such   
Business Day falls in the next calendar year, such payment will be made on the  
immediately preceding Business Day. The proceeds from the redemption or other   
repayment of the Debentures shall be allocated to the pro rata redemption of    
Trust Securities, except as described below under "-- Subordination of Common   
Securities". The Redemption Price for Capital Securities to be redeemed on any  
redemption date shall be the same as the Redemption Price for Common Securities 
to be redeemed on such date.                                                    

In the event that payment of the Redemption Price in respect of Trust 
Securities called for redemption is improperly withheld or refused and not paid 
either by the Trust or by the Company pursuant to the Guarantee, distributions  
on such Trust Securities will continue to accrue at the applicable rate from the
date fixed for such redemption to the date such Redemption Price is actually    
paid, in which case the actual payment date will be the date fixed for          
redemption for purposes of calculating the Redemption Price.                    

    Notice of any redemption will be mailed at least 30 days but not more than
60 days before the applicable redemption date to each holder of Capital         
Securities to be redeemed at its registered address.                            

SUBORDINATION OF COMMON SECURITIES                                              

Payment of distributions on, and the Redemption Price of, the Capital 
Securities and Common Securities shall be made pro rata based on the liquidation
amount of the Capital Securities and Common Securities; provided, however, that 
if on any Payment Date or Redemption Date, a Declaration Event of Default shall 
have occurred and be continuing, no payment of any distribution on, or          
Redemption Price of, any of the Common Securities, and no other payment on      
account of the redemption, liquidation or other acquisition of such Common      
Securities, shall be made unless payment in full in cash of all accrued and     
unpaid distributions on all of the outstanding Capital Securities for all       
distribution periods terminating on or prior thereto, or in the case of payment 
of the Redemption Price, the full amount of such Redemption Price on all of the 
Trust's outstanding Capital Securities then called for redemption, shall have   
been made or provided for, and all funds available to the Institutional Trustee 
shall first be applied to the payment in full in cash of all distributions on,  
or Redemption Price of, the Capital Securities then due and payable.            

   In the case of any Declaration Event of Default, the Company as holder of
the Common Securities will be deemed to have waived any right to act with       
respect to any such Declaration Event of Default until the                      
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effect of all such Declaration Events of Default have been cured, waived or     
otherwise eliminated. Until any such Declaration Events of Default have been so 
cured, waived or otherwise eliminated, the Institutional Trustee shall act      
solely on behalf of the holders of the Capital Securities and not on behalf of  
the Company as holder of the Common Securities, and only the holders of the     
Capital Securities will have the right to direct the Institutional Trustee to   
act on their behalf, and any waiver by the holders of the Capital Securities of 
a Declaration Event of Default with respect to the Capital Securities shall also
be deemed to constitute a waiver by the holders of the Common Securities of any 
such Declaration Event of Default with respect to the Common Securities for all 
purposes of the Declaration.                                                    

DISTRIBUTION OF THE DEBENTURES                                                  

"Investment Company Event" means that the Regular Trustees shall have 
received an opinion from independent counsel experienced in practice under the  
1940 Act (as defined below) to the effect that, as a result of the occurrence of
a change in law or regulation or a written change in interpretation or          
application of law or regulation by any legislative body, court, governmental   
agency or regulatory authority (a "Change in 1940 Act Law"), which Change in    
1940 Act Law becomes effective on or after the date of this Prospectus, there is
more than an insubstantial risk that the Trust is or will be considered an      
"investment company" which is required to be registered under the Investment    
Company Act of 1940, as amended (the "1940 Act").                               

     If, at any time, an Investment Company Event shall occur and be continuing,
the Trust shall be dissolved, with the result that Debentures with an aggregate 
principal amount equal to the aggregate stated liquidation amount of, with an   
interest rate identical to the distribution rate of, and accrued and unpaid     
interest equal to accrued and unpaid distributions on, the Trust Securities,    
would be distributed to the holders of the Trust Securities in liquidation of   
such holders' interests in the Trust on a pro rata basis within 90 days         
following the occurrence of such Investment Company Event; provided, however,   
that such dissolution and distribution shall be conditioned on the Company being
unable to avoid such Investment Company Event within such 90-day period by      
taking some ministerial action or pursuing some other similar reasonable measure
that will have no adverse effect on the Trust, the Company or the holders of the
Trust Securities and will involve no material cost. If an Investment Company    
Event occurs, Debentures distributed to the Collateral Agent in liquidation of  
such holder's interest in the Trust would be pledged (in lieu of the Capital    
Securities) to secure Income PRIDES holders' obligations to purchase Common     
Stock under the Purchase Contracts.                                             

The Company will have the right at any time to dissolve the Trust and,
after satisfaction of liabilities of creditors of the Trust as provided by      
applicable law, cause the Debentures to be distributed to the holders of the    
Trust Securities. As of the date of any distribution of Debentures upon         
dissolution of the Trust, (i) the Capital Securities will no longer be deemed to
be outstanding, (ii) the Depositary or its nominee, as the record holder of the 
Capital Securities, will receive a registered global certificate or certificates
representing the Debentures to be delivered upon such distribution, and (iii)   
any certificates representing Capital Securities not held by the Depositary or  
its nominee will be deemed to represent beneficial interests in the Debentures  
having an aggregate principal amount equal to the aggregate stated liquidation  
amount of, with an interest rate identical to the distribution rate of, and     
accrued and unpaid interest equal to accrued and unpaid distributions on, such  
Capital Securities until such certificates are presented to the Company or its  
agent for transfer or reissuance. Debentures distributed to the Collateral Agent
in liquidation of the interest of the holders of the Capital Securities in the  
Trust would be substituted for the Capital Securities and pledged to secure     
Income PRIDES holders' obligations to purchase Common Stock under the Purchase  
Contracts.                                                                      

  There can be no assurance as to the market prices for either the Capital
Securities or the Debentures that may be distributed in exchange for the Capital
Securities if a dissolution of the Trust were to occur. Accordingly, the Capital
Securities or such Debentures that an investor may receive if a dissolution of  
the Trust were to occur may trade at a discount to the price that the investor  
paid to purchase the Capital Securities forming a part of the Income PRIDES     
offered hereby.                                                                 

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LIQUIDATION DISTRIBUTION UPON DISSOLUTION                                       

In the event of any voluntary or involuntary dissolution of the Trust 
(unless a Tax Event Redemption has occurred), the holders of the Capital        
Securities will be entitled to receive out of the assets of the Trust, after    
satisfaction of liabilities to creditors, Debentures in an aggregate principal  
amount equal to the aggregate stated liquidation amount of, with an interest    
rate identical to the distribution rate of, and bearing accrued and unpaid      
interest in an amount equal to accrued and unpaid distributions on, the Capital 
Securities on a pro rata basis in exchange for such Capital Securities.         

The holders of the Common Securities will be entitled to receive      
distributions upon any such dissolution pro rata with the holders of the Capital
Securities, except that if a Declaration Event of Default has occurred and is   
continuing, the Capital Securities shall have a preference over the Common      
Securities with regard to such distributions.                                   

 Pursuant to the Declaration, the Trust shall dissolve (i) on August 16,
2005, the expiration of the term of the Trust, (ii) upon the bankruptcy of the  
Company or the holder of the Common Securities, (iii) upon the filing of a      
certificate of dissolution or its equivalent with respect to the Company or the 
revocation of the charter of the Company and the expiration of 90 days after the
date of revocation without a reinstatement thereof, (iv) after the receipt by   
the Institutional Trustee of written direction from the Company to dissolve the 
Trust, (v) upon the distribution of Debentures upon an Investment Company Event,
(vi) upon the occurrence and continuation of a Tax Event Redemption or (vii)    
upon the entry of a decree of a judicial dissolution of the holder of the Common
Securities, the Company or the Trust.                                           

DECLARATION EVENTS OF DEFAULT                                                   

   An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust 
Securities (a "Declaration Event of Default"); provided, that pursuant to the   
Declaration, the holder of the Common Securities will be deemed to have waived  
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Capital Securities have been  
cured, waived or otherwise eliminated. Until such Declaration Events of Default 
with respect to the Capital Securities have been so cured, waived or otherwise  
eliminated, the Institutional Trustee will be deemed to be acting solely on     
behalf of the holders of the Capital Securities and only the holders of the     
Capital Securities will have the right to direct the Institutional Trustee with 
respect to certain matters under the Declaration and, therefore, the Indenture. 
If a Declaration Event of Default with respect to the Capital Securities is     
waived by holders of Capital Securities, such waiver will also constitute the   
waiver of such Declaration Event of Default with respect to the Common          
Securities without any further act, vote or consent of the holders of the Common
Securities. If the Institutional Trustee fails to enforce its rights under the  
Debentures in respect of an Indenture Event of Default after a holder of record 
of Capital Securities has made a written request, such holder of record of      
Capital Securities may, to the fullest extent permitted by applicable law,      
institute a legal proceeding against the Company to enforce the Institutional   
Trustee's rights under the Debentures without first proceeding against the      
Institutional Trustee or any other person or entity. Notwithstanding the        
foregoing, if a Declaration Event of Default has occurred and is continuing and 
such event is attributable to the failure of the Company to pay interest or     
principal on the Debentures on the date such interest or principal is otherwise 
payable (after giving effect to any right of deferral), then a holder of Capital
Securities may directly institute a Direct Action for enforcement of such       
payment to such holder directly of the principal of or interest on the          
Debentures having a principal amount equal to the aggregate liquidation amount  
of the Capital Securities of such holder. In connection with such Direct Action,
the Company shall have the right under the Indenture to set off any payment made
to such holder of the Company. The holders of Capital Securities will not be    
able to exercise directly any other remedy available to the holders of the      
Debentures. See "Effect of Obligations under the Debentures and the Guarantee." 

  Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Debentures will have the right under the      
Indenture to declare the principal of and interest on the Debentures to be      
immediately due and payable. The Company and the Trust are each required to file
annually with the                                                               

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Institutional Trustee an officers' certificate as to its compliance with all    
conditions and covenants under the Declaration.                                 

CO-TRUSTEES AND SEPARATE INSTITUTIONAL TRUSTEE                                  

     Unless a Declaration Event of Default shall have occurred and be continuing
at any time or times, for the purpose of meeting the legal requirements of the  
Trust Indenture Act or of any jurisdiction in which any part of the trust       
property may at the time be located, the Company, as the holder of the Common   
Securities, and the Regular Trustees shall have power to appoint one or more    
persons either to act as a co-trustee, jointly with the Institutional Trustee,  
of all or any part of such trust property, or to act as separate trustee of any 
such property, in either case with such powers as may be provided in the        
instrument of appointment, and to vest in such person or persons in such        
capacity any property, title, right or power deemed necessary or desirable,     
subject to the provisions of the Declaration. In the event that an Indenture    
Event of Default has occurred and is continuing, the Institutional Trustee alone
shall have power to make such appointment.                                      

VOTING RIGHTS                                                                   

     Except as described herein, under the Trust Act and the Trust Indenture Act
and under "Description of the Guarantee -- Modification of the Guarantee;       
Assignment," and as otherwise required by law and the Declaration, the holders  
of the Capital Securities will have no voting rights.                           

 Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this         
paragraph, the holders of a majority in aggregate stated liquidation amount of  
the Capital Securities have the right to direct the time, method and place of   
conducting any proceeding for any remedy available to the Institutional Trustee,
or direct the exercise of any trust or power conferred upon the Institutional   
Trustee under the Declaration, including the right to direct the Institutional  
Trustee, as holder of the Debentures, to (i) direct the time, method and place  
of conducting any proceeding for any remedy available to the Debt Trustee, or   
the exercise of any trust or power conferred on the Debt Trustee with respect to
the Debentures, (ii) waive any past Indenture Event of Default and its          
consequences that is waivable under the Indenture, (iii) exercise any right to  
rescind or annul a declaration that the principal of all the Debentures shall be
due and payable or (iv) consent to any amendment, modification or termination of
the Indenture or the Debentures where such consent shall be required; provided, 
however, that, where a consent or action under the Indenture would require the  
consent or act of holders of more than a majority in principal amount of the    
Debentures (a "Super-Majority") affected thereby, only the holders of at least  
such Super-Majority in aggregate stated liquidation amount of the Capital       
Securities may direct the Institutional Trustee to give such consent or take    
such action. The Institutional Trustee shall notify all holders of the Capital  
Securities of any notice of default received from the Debt Trustee (as defined  
herein) with respect to the Debentures. Such notice shall state that such       
Indenture Event of Default also constitutes a Declaration Event of Default.     
Except with respect to directing the time, method and place of conducting a     
proceeding for a remedy, the Institutional Trustee shall not take any of the    
actions described in clauses (i), (ii) or (iii) above unless the Institutional  
Trustee has obtained an opinion of independent tax counsel experienced in such  
matters to the effect that, as a result of such action, the Trust will not fail 
to be classified as a grantor trust for federal income tax purposes.            

     In the event the consent of the Institutional Trustee, as the holder of the
Debentures, is required under the Indenture with respect to any amendment,      
modification or termination of the Indenture or the Debentures, the             
Institutional Trustee shall request the written direction of the holders of the 
Capital Securities and the Common Securities with respect to such amendment,    
modification or termination and shall vote with respect to such amendment,      
modification or termination as directed by a majority in stated liquidation     
amount of the Capital Securities and the Common Securities voting together as a 
single class; provided, however, that where a consent under the Indenture would 
require the consent of a Super-Majority, the Institutional Trustee may only give
such consent at the direction of the holders of at least the proportion in      
stated liquidation amount of the Capital Securities and the Common Securities   
which the relevant Super-Majority represents of the aggregate principal amount  
of the Debentures outstanding. The Institutional Trustee shall not take any such
action in accordance with the directions of the holders of the Capital          
Securities and the Common Securities                                            
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unless the Institutional Trustee has obtained an opinion of independent tax     
counsel experienced in such matters to the effect that, as a result of such     
action, (a) the Trust will not fail to be classified as a grantor trust for     
United States federal income tax purposes or (b) such action would not reduce or
otherwise adversely affect the powers of the Institutional Trustee or cause the 
Trust to be deemed an "investment company" which is required under the          
Investment Company Act.                                                         

   A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.                                     

    Any approval or direction of holders of Capital Securities may be given at
a separate meeting of holders of Capital Securities convened for such purpose,  
at a meeting of all of the holders of Trust Securities or pursuant to written   
consent. The Regular Trustees will cause a notice of any meeting at which       
holders of Capital Securities are entitled to vote, or of any matter upon which 
action by written consent of such holders is to be taken, to be mailed to each  
holder of record of Capital Securities. Each such notice will include a         
statement setting forth the following information: (i) the date of such meeting 
or the date by which such action is to be taken; (ii) a description of any      
resolution proposed for adoption at such meeting on which such holders are      
entitled to vote or of such matter upon which written consent is sought; and    
(iii) instructions for the delivery of proxies or consents. No vote or consent  
of the holders of Capital Securities will be required for the Trust to redeem   
and cancel Capital Securities or distribute Debentures in accordance with the   
Declaration.                                                                    

    Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital      
Securities that are owned at such time by the Company or any entity directly or 
indirectly controlling or controlled by, or under direct or indirect common     
control with, the Company, shall not be entitled to vote or consent and shall,  
for purposes of such vote or consent, be treated as if such Capital Securities  
were not outstanding.                                                           

  The procedures by which holders of Capital Securities may exercise their
voting rights are described below. See "-- Book-Entry Only Issuance -- The      
Depository Trust Company."                                                      

    Holders of the Capital Securities will have no rights to appoint or remove
the KBHC Trustees, who may be appointed, removed or replaced solely by the      
Company as the indirect or direct holder of all of the Common Securities.       

MODIFICATION OF THE DECLARATION                                                 

The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Institutional Trustee or the Delaware
Trustee), provided, that if any proposed amendment provides for, or the Regular 
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Trust Securities, whether by   
way of amendment to the Declaration or otherwise or (ii) the dissolution of the 
Trust other than pursuant to the terms of the Declaration, the holders of the   
Trust Securities voting together as a single class will be entitled to vote on  
such amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least a majority in such stated liquidation      
amount of the Trust Securities affected thereby; provided further, that if any  
amendment or proposal referred to in clause (i) above would adversely affect    
only the Capital Securities or the Common Securities, then only the affected    
class will be entitled to vote on such amendment or proposal and such amendment 
or proposal shall not be effective except with the approval of a majority in    
stated liquidation amount of such class of securities. In addition, the         
Declaration may be amended without the consent of the holders of the Trust      
Securities to, among other things, cause the Trust to continue to be classified 
for United States federal income tax purposes as a grantor trust.               

    Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to  
be classified as other than a grantor trust for purposes of United States       
federal income taxation, (ii) reduce or otherwise adversely affect the powers of
the Institutional Trustee or (iii) cause the Trust to be deemed an "investment  
company" which is required to be registered under the 1940 Act.                 

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MERGERS, CONSOLIDATIONS OR AMALGAMATIONS                                        

The Trust may not consolidate, amalgamate, merge with or into, or be  
replaced by, or convey, transfer or lease its properties and assets             
substantially as an entirety, to any corporation or other entity or person,     
except as described below or as described in "-- Liquidation Distribution Upon  
Dissolution." The Trust may, with the consent of the Regular Trustees and       
without the consent of the holders of the Trust Securities, the Institutional   
Trustee or the Delaware Trustee consolidate, amalgamate, merge with or into, or 
be replaced by a trust organized as such under the laws of any State; provided, 
that (i) if the Trust is not the surviving entity, such successor entity either 
(x) expressly assumes all of the obligations of the Trust under the Trust       
Securities or (y) substitutes for the Trust Securities other securities having  
substantially the same terms as the Trust Securities (the "Successor            
Securities"), so long as the Successor Securities rank the same as the Trust    
Securities with respect to distributions and payments upon liquidation,         
redemption, repayment and otherwise, (ii) the Company expressly acknowledges a  
trustee of such successor entity possessing the same powers and duties as the   
Institutional Trustee as the holder of the Debentures, (iii) if the Capital     
Securities are listed or quoted on any securities exchange or other             
organization, any Successor Securities will be listed upon notification of      
issuance, on any national securities exchange or with another organization on   
which the Capital Securities are then listed or quoted, (iv) such merger,       
consolidation, amalgamation or replacement does not cause the Capital Securities
(including any Successor Securities) to be downgraded by any nationally         
recognized statistical rating organization, (v) such merger, consolidation,     
amalgamation or replacement does not adversely affect the rights, preferences   
and privileges of the holders of the Trust Securities (including any Successor  
Securities) in any material respect (other than with respect to any dilution of 
the holders' interest in the new entity), (vi) such successor entity has a      
purpose substantially identical to that of the Trust, (vii) prior to such       
merger, consolidation, amalgamation or replacement, the Company has received an 
opinion of a nationally recognized independent counsel to the Trust experienced 
in such matters to the effect that, (A) such merger, consolidation, amalgamation
or replacement does not adversely affect the rights, preferences and privileges 
of the holders of the Trust Securities (including any Successor Securities) in  
any material respect (other than with respect to any dilution of the holders'   
interest in the new entity), (B) following such merger, consolidation,          
amalgamation or replacement, neither the Trust nor such successor entity will be
required to register as an investment company under the 1940 Act and (C)        
following such merger, consolidation, amalgamation or replacement, the Trust (or
the successor entity) will continue to be classified as a grantor trust for     
federal income tax purposes, and (viii) the Company guarantees the obligations  
of such successor entity under the Successor Securities at least to the extent  
provided by the Guarantee. Notwithstanding the foregoing the Trust shall not,   
except with the consent of holders of 100% in stated liquidation amount of the  
Trust Securities, consolidate, amalgamate, merge with or into, or be replaced by
any other entity or permit any other entity to consolidate, amalgamate, merge   
with or into, or replace it, if such consolidation, amalgamation, merger or     
replacement would cause the Trust or the successor entity to be classified as   
other than a grantor trust for federal income tax purposes.                     

BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY                        

     The Depositary will act as securities depositary for any Capital Securities
that are held separately from the Income PRIDES. In such event, the Capital     
Securities will be issued only as fully-registered securities registered in the 
name of Cede & Co. (the Depositary's nominee). However, under certain           
circumstances, the Regular Trustees with the consent of the Company may decide  
not to use the system of book-entry transfers through the DTC with respect to   
the Capital Securities. In that event, certificates of the Capital Securities   
will be printed and delivered to the holders. In addition, Capital Securities   
which are components of Income PRIDES will be issued in definitive form,        
registered in the name of The First National Bank of Chicago, as Purchase       
Contract Agent.                                                                 

The laws of some jurisdictions require that certain purchasers of     
securities take physical delivery of securities in definitive form. Such laws   
may impair the ability to transfer beneficial interests in the global Capital   
Securities as represented by a global certificate.                              

     Purchases of Capital Securities within the Depositary's system must be made
by or through Direct Participants, which will receive a credit for the Capital  
Securities on the Depositary's records. The ownership                           
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interest of each actual purchaser of each Capital Security (a "Beneficial       
Owner") is in turn to be recorded on the Direct and Indirect Participants'      
records. Beneficial Owners will not receive written confirmation from the       
Depositary of their purchases, but Beneficial Owners are expected to receive    
written confirmations providing details of the transaction, as well as periodic 
statements of their holdings, from the Direct or Indirect Participants through  
which the Beneficial Owners purchased Capital Securities. Transfers of ownership
interests in the Capital Securities are to be accomplished by entries made on   
the books of Participants acting on behalf of Beneficial Owners. Beneficial     
Owners will not receive certificates representing their ownership interests in  
the Capital Securities, except in the event that use of the book-entry system   
for the Capital Securities is discontinued.                                     

     To facilitate subsequent transfers, all the Capital Securities deposited by
Participants with the Depositary will initially be registered in the name of the
Depositary's nominee, Cede & Co. The deposit of Capital Securities with the     
Depositary and their registration in the name of Cede & Co. effect no change in 
beneficial ownership. The Depositary has no knowledge of the actual Beneficial  
Owners of the Capital Securities. The Depositary's records reflect only the     
identity of the Direct Participants to whose accounts such Capital Securities   
are credited, which may or may not be the Beneficial Owners. The Participants   
will remain responsible for keeping account of their holdings on behalf of their
customers.                                                                      

    So long as the Depositary or its nominee is the registered owner or holder
of a global certificate, the Depositary or such nominee, as the case may be,    
will be considered the sole owner or holder of the Capital Securities           
represented thereby for all purposes under the Declaration and the Capital      
Securities. No Beneficial Owner of an interest in a global certificate will be  
able to transfer that interest except in accordance with the Depositary's       
applicable procedures, in addition to those provided for under the Declaration. 

The Depositary has advised the Company that it will take any action   
permitted to be taken by a holder of Capital Securities (including the          
presentation of Capital Securities for exchange as described below) only at the 
direction of one or more Participants to whose account the Depositary's         
interests in the global certificates are credited and only in respect of such   
portion of the stated liquidation amount of Capital Securities as to which such 
Participant or Participants has or have given such directions. However, if there
is a Declaration Event of Default under the Capital Securities, the Depositary  
will exchange the global certificates for certificated securities, which it will
distribute to its Participants.                                                 

    Conveyance of notices and other communications by the Depositary to Direct
Participants and Indirect Participants and by Direct Participants and Indirect  
Participants to Beneficial Owners will be governed by arrangements among them,  
subject to any statutory or regulatory requirements that may be in effect from  
time to time.                                                                   

     Although voting with respect to the Capital Securities is limited, in those
cases where a vote is required, neither the Depositary nor Cede & Co. will      
itself consent or vote with respect to Capital Securities. Under its usual      
procedures, the Depositary would mail an omnibus proxy to the Trust as soon as  
possible after the record date. The omnibus proxy assigns Cede & Co.'s          
consenting or voting rights to those Direct Participants to whose accounts the  
Capital Securities are credited on the record date (identified in a listing     
attached to the omnibus proxy). The Company and the Trust believe that the      
arrangements among the Depositary, Direct and Indirect Participants, and        
Beneficial Owners will enable the Beneficial Owners to exercise rights          
equivalent in substance to the rights that can be directly exercised by a record
holder of a Capital Security.                                                   

     Payments on the Capital Securities issued in the form of one or more global
certificates will be made to the Depositary in immediately available funds. The 
Depositary's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on the          
Depositary's records unless the Depositary has reason to believe that it will   
not receive payments on such payment date. Payments by Participants to          
Beneficial Owners will be governed by standing instructions and customary       
practices, as is the case with securities held for the account of customers in  
bearer form or registered in "street name," and such payments will be the       
responsibility of such Participants and not of the Depositary, the Trust or the 
Company, subject to any statutory or regulatory requirements to the contrary    
that may be in effect from time to time. Payment of distributions to the        
Depositary is the responsibility of the Trust, disbursement of                  

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such payments to Direct Participants is the responsibility of the Depositary,   
and disbursement of such payments to the Beneficial Owners is the responsibility
of Direct and Indirect Participants.                                            

    Except as provided herein, a Beneficial Owner in a global Capital Security
certificate will not be entitled to receive physical delivery of Capital        
Securities. Accordingly, each Beneficial Owner must rely on the procedures of   
the Depositary to exercise any rights under the Capital Securities.             

   Although the Depositary has agreed to the foregoing procedure in order to
facilitate transfer of interests in the global certificates among Participants, 
the Depositary is under no obligation to perform or continue to perform such    
procedures and such procedures may be discontinued at any time. None of the     
Company, the Trust or any KBHC Trustee will have any responsibility for the     
performance by the Depositary or its Direct Participants or Indirect            
Participants under the rules and procedures governing the Depositary. In the    
event that (i) the Depositary notifies the Company that it is unwilling or      
unable to continue as a depositary for such global Capital Securities and no    
successor depositary shall have been appointed within 90 days after notice      
thereof to the Company, (ii) the Depositary at any time ceases to be a clearing 
agency registered under the Exchange Act at which time the Depositary is        
required to be so registered to act as such depositary and no successor         
depositary shall have been appointed within 90 days after the Company learns    
that the Depositary has ceased to be so registered, (iii) the Company, in its   
sole discretion, determines that such global Capital Securities shall be so     
exchangeable or (iv) there shall have occurred and be continuing a Declaration  
Event of Default, certificates for the Capital Securities will be printed and   
delivered in exchange for beneficial interests in the global Capital Securities.
Any global Capital Securities that are exchangeable pursuant to the preceding   
sentence shall be exchangeable for Capital Securities registered in such names  
as the Depositary shall direct. It is expected that such instructions will be   
based upon directions received by the Depositary from its Participants with     
respect to ownership of beneficial interests in such global Capital Securities. 

The information in this section concerning the Depositary and the     
Depositary's book-entry system has been obtained from sources that the Company  
and the Trust believe to be reliable, but neither the Company nor the Trust have
attempted to verify the accuracy hereof.                                        

REGISTRAR, TRANSFER AGENT AND PAYING AGENT                                      

 Payments in respect of the Capital Securities represented by the global
certificates shall be made to the Depositary, which shall credit the relevant   
accounts at the Depositary on the applicable distribution dates, or, in the case
of certificated securities, such payments shall be made by check mailed to the  
address of the holder entitled thereto as such address shall appear on the      
securities register. The paying agent shall be permitted to resign as paying    
agent upon 30 days' written notice to the KBHC Trustees. In the event that The  
First National Bank of Chicago shall no longer be the paying agent, the Regular 
Trustees shall appoint a successor to act as paying agent (which shall be a bank
or trust company).                                                              

  The First National Bank of Chicago will act as registrar, transfer agent
and paying agent for the Capital Securities. Registration of transfers of       
Capital Securities will be effected without charge by or on behalf of the Trust,
but upon payment (and the giving of such indemnity as the Trust or the Company  
may require) in respect of any tax or other government charge which may be      
imposed in relation to it. The Trust will not be required to register or cause  
to be registered the transfer of the Capital Securities after the Capital       
Securities have been called for redemption.                                     

INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE                                

     The Institutional Trustee prior to the occurrence of a default with respect
to the Trust Securities and after the curing and or waiver of any defaults that 
may have occurred, undertakes to perform only such duties as are specifically   
set forth in the Declaration and, after default, shall exercise the same degree 
of care as a prudent individual would exercise in the conduct of his or her own 
affairs. Subject to such provisions, the Institutional Trustee is under no      
obligation to exercise any of the powers vested in it by the Declaration at the 
request of any holder of Capital Securities, unless offered reasonable indemnity
by such holder against the costs, expenses and liabilities which might be       
incurred thereby. The holders of Capital Securities will not be required to     
offer such indemnity in the event such holders, by exercising their voting      
rights, direct the Institutional                                                
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Trustee to take any action it is empowered to take under the Declaration        
following a Declaration Event of Default.                                       

   If no Declaration Event of Default has occurred and is continuing and the
Institutional Trustee is required to decide between alternative causes of       
action, construe ambiguous provisions in the Declaration or is unsure of the    
application of any provision of the Declaration, and the matter is not one in   
which holders of Capital Securities are entitled under the Declaration to vote, 
then the Institutional Trustee shall take such action as is directed by the     
Company and if not so directed, shall take such action as it deems advisable and
in the best interests of the holders of the Trust Securities and will have no   
liability except for its own bad faith, negligence or willful misconduct.       

   The Institutional Trustee maintains commercial banking relationships with
the Company.                                                                    

GOVERNING LAW                                                                   

The Declaration and the Capital Securities will be governed by, and   
construed in accordance with, the internal laws of the State of Delaware.       

MISCELLANEOUS                                                                   

  The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an "investment 
company" under the 1940 Act or be characterized as other than a grantor trust   
for federal income tax purposes. The Company is authorized and directed to      
conduct its affairs so that the Debentures will be treated as indebtedness of   
the Company for federal income tax purposes. In this connection, the Company and
the Regular Trustees are authorized to take any action not inconsistent with    
applicable law, the Declaration, the certificate of trust of the Trust or the   
certificate of incorporation of the Company, that each of the Company and the   
Regular Trustees determines in its discretion to be necessary or desirable to   
achieve such end, as long as such action does not adversely affect the interests
of the holders of the Capital Securities or vary the terms thereof.             

 Holders of the Capital Securities have no preemptive or similar rights.

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DESCRIPTION OF THE GUARANTEE

    Set forth below is a summary of information concerning the Guarantee which
will be executed and delivered by the Company for the benefit of the holders    
from time to time of Trust Securities. The Guarantee will be qualified as an    
indenture under the Trust Indenture Act. The First National Bank of Chicago will
act as the Guarantee Trustee for the purposes of compliance with the provisions 
of the Trust Indenture Act. The terms of the Guarantee will be those set forth  
in the Guarantee and those made part of the Guarantee by the Trust Indenture    
Act. The following summary does not purport to be complete, and reference is    
hereby made to the copy of the form of Guarantee (including the definitions     
therein of certain terms) which is filed as an exhibit to the Registration      
Statement relating to this Prospectus, and to the Trust Indenture Act. Whenever 
particular defined terms of the Guarantee are referred to in this Prospectus,   
such defined terms are incorporated herein by reference. The Guarantee will be  
held by the Guarantee Trustee for the benefit of the holders of the Capital     
Securities. As used under this caption, references to the Company mean Kaufman  
and Broad Home Corporation excluding, unless otherwise expressly stated or the  
context otherwise requires, its subsidiaries.                                   

GENERAL                                                                         

     Pursuant to the Guarantee, the Company will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full on a senior unsecured    
basis, to the holders of the Trust Securities issued by the Trust, the Guarantee
Payments (as defined herein) (except to the extent paid by the Trust), as and   
when due, taking into account any permitted deferral thereof regardless of any  
defense, right of set-off or counterclaim which the Trust may have or assert.   
The following payments or distributions with respect to Trust Securities issued 
by the Trust, to the extent not paid by or on behalf of the Trust (the          
"Guarantee Payments"), will be subject to the Guarantee thereon (without        
duplication): (i) any accrued and unpaid distributions which are required to be 
paid on the Trust Securities, to the extent the Trust shall have funds available
therefor; (ii) the redemption price, including all accrued and unpaid           
distributions (including deferred distributions) to the date of redemption, of  
Trust Securities in respect of which the related Debentures have been redeemed  
by the Company upon the occurrence of a Tax Event Redemption, to the extent the 
Trust shall have funds available therefor; and (iii) upon a voluntary or        
involuntary dissolution, winding-up or termination of the Trust (other than in  
connection with the distribution of Debentures to the holders of Trust          
Securities in exchange for the Trust Securities as provided for in the          
Declaration), the lesser of (a) the aggregate of the stated liquidation amount  
and all accrued and unpaid distributions (including deferred distributions) on  
such Trust Securities to the date of payment, to the extent the Trust has funds 
available therefor, and (b) the amount of assets of the Trust remaining         
available for distribution to holders of the Trust Securities in liquidation of 
the Trust. The Company's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts by the Company to the holders of Trust
Securities or by causing the Trust to pay such amounts to such holders.         

The Guarantee will be a full and unconditional guarantee on a senior  
unsecured basis with respect to the Trust Securities issued by the Trust, but   
will not apply to any payment of distributions except to the extent the Trust   
shall have funds available therefor. If the Company does not make interest      
payments on the Debentures purchased by the Trust, the Trust will not pay       
distributions on the Trust Securities and will not have funds available         
therefor. See "Effect of Obligations under the Debentures and the Guarantee."   

     The Guarantee, when taken together with the Company's obligations under the
Debentures, the Indenture and the Declaration, will have the effect of providing
a full and unconditional guarantee on a senior unsecured basis by the Company of
payments due on the Trust Securities.                                           

     The Guarantee is for the benefit of all the holders of the Trust Securities
(including the holders of the Common Securities), provided, however, that upon  
an Indenture Event of Default, holders of Capital Securities shall have priority
over holders of Common Securities with respect to distributions and payments on 
liquidation, redemption or otherwise.                                           

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CERTAIN COVENANTS OF THE COMPANY                                                

In the Guarantee, the Company will covenant that, so long as any Trust
Securities issued by the Trust remain outstanding, if there shall have occurred 
any event that would constitute an event of default under the Guarantee or the  
Declaration, then (a) the Company shall not declare or pay any dividend on, make
any distributions with respect to, or redeem, purchase, acquire or make a       
liquidation payment with respect to, any of its capital stock (other than (i)   
purchases or acquisitions of capital stock of the Company in connection with the
satisfaction by the Company of its obligations under any employee benefit plans 
or the satisfaction by the Company of its obligations pursuant to any contract  
or security outstanding on the date of such event requiring the Company to      
purchase capital stock of the Company, (ii) as a result of a reclassification of
the Company's capital stock or the exchange or conversion of one class or series
of the Company's capital stock for another class or series of the Company's     
capital stock, (iii) the purchase of fractional interests in shares of the      
Company's capital stock pursuant to the conversion or exchange provisions of    
such capital stock or the security being converted or exchanged, (iv) dividends 
or distributions in capital stock of the Company (or rights to acquire capital  
stock) or repurchases or redemptions of capital stock solely from the issuance  
or exchange of capital stock or (v) redemptions or repurchases of any rights    
outstanding under a shareholder rights plan or the declaration thereunder of a  
dividend of rights in the future), and (b) the Company shall not make any       
guarantee payments with respect to the foregoing (other than payments pursuant  
to the Guarantee).                                                              

MODIFICATION OF THE GUARANTEE; ASSIGNMENT                                       

     Except with respect to any changes which do not adversely affect the rights
of holders of Trust Securities or the Guarantee Trustee (in which case no       
consent of holders of Trust Securities or the Guarantee Trustee will be         
required, respectively), the Guarantee may be amended only with the prior       
approval of the Guarantor, the Guarantee Trustee and holders of not less than a 
majority in stated liquidation amount of the outstanding Trust Securities issued
by the Trust. All guarantees and agreements contained in the Guarantee shall    
bind the successors, assigns, receivers, trustees and representatives of the    
Company and shall inure to the benefit of the holders of the Trust Securities   
then outstanding.                                                               

TERMINATION                                                                     

   The Guarantee will terminate (a) upon distribution of the Debentures held
by the Trust to the holders of the Trust Securities, (b) upon full payment of   
the redemption price of all the Trust Securities in the event that all of the   
Debentures are redeemed by the Company upon the occurrence of a Tax Event       
Redemption or (c) upon full payment of the amounts payable in accordance with   
the Declaration upon liquidation of the Trust. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder  
of Trust Securities must return payment of any sums paid under the Trust        
Securities or the Guarantee.                                                    

EVENTS OF DEFAULT                                                               

    An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder.          

The holders of a majority in stated liquidation amount of the Trust   
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the  
Guarantee or to direct the exercise of any trust or power conferred upon the    
Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce
such Guarantee, any holder of Trust Securities may institute a legal proceeding 
directly against the Company to enforce such holder's rights under the          
Guarantee, without first instituting a legal proceeding against the Trust, the  
Guarantee Trustee or any other person or entity. Notwithstanding the foregoing, 
if the Company has failed to make a required guarantee payment, a holder of     
Trust Securities may directly institute a proceeding against the Company for    
enforcement of the Guarantee for such payment. The Company waives any right or  
remedy to require that any action be brought first against the Trust or any     
other person or entity before proceeding directly against the Company.          

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STATUS OF THE GUARANTEE                                                         

  The Guarantee will constitute an unsecured obligation of the Company and
will rank on a parity with all of the Company's other senior unsecured          
obligations.                                                                    

INFORMATION CONCERNING THE GUARANTEE TRUSTEE                                    

     The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee, undertakes to perform only such duties as are specifically set   
forth in the Guarantee and, after default, shall exercise the same degree of    
care as a prudent individual would exercise in the conduct of his or her own    
affairs. Subject to such provisions, the Guarantee Trustee is under no          
obligation to exercise any of the powers vested in it by the Guarantee at the   
request of any holder of Capital Securities, unless offered reasonable indemnity
against the costs, expenses and liabilities which might be incurred thereby; but
the foregoing shall not relieve the Guarantee Trustee, upon the occurrence of an
event of default under the Guarantee, from exercising the rights and powers     
vested in it by the Guarantee.                                                  

GOVERNING LAW                                                                   

The Guarantee will be governed by and construed in accordance with the
internal laws of the State of New York.                                         

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DESCRIPTION OF THE DEBENTURES 

     Set forth below is a description of the specific terms of the Debentures in
which the Trust will invest the proceeds from the issuance and sale of the Trust
Securities. The following description does not purport to be complete, and      
reference is hereby made to the copy of the form of the Indenture to be entered 
into between the Company and The First National Bank of Chicago, as trustee (the
"Debt Trustee"), as supplemented or amended from time to time (as so            
supplemented and amended, the "Indenture") which is filed as an exhibit to the  
Registration Statement relating to this Prospectus, and to the Trust Indenture  
Act. Certain capitalized terms used herein are defined in the Indenture. As used
under this caption, references to the Company mean Kaufman and Broad Home       
Corporation excluding, unless otherwise expressly stated or the context         
otherwise requires, its subsidiaries.                                           

Under certain circumstances involving the dissolution of the Trust,   
Debentures may be distributed to the holders of the Trust Securities in         
liquidation of the Trust. See "Description of the Capital Securities --         
Distribution of the Debentures."                                                

GENERAL                                                                         

    The Debentures will be issued as senior unsecured debt under the Indenture
and will rank on a parity in right of payment with all of the Company's other   
senior unsecured debt obligations. The Debentures will be limited in aggregate  
principal amount to $170,103,100 (or up to $195,618,560 if the Underwriters'    
over-allotment option is exercised in full).                                    

   The Indenture provides that debt securities may be issued thereunder from
time to time in one or more series. The Debenture will constitute a series of   
debt securities under the Indenture. The Indenture does not limit the incurrence
or issuance of other secured or unsecured debt of the Company, whether under the
Indenture or otherwise.                                                         

  The Debentures will not be subject to a sinking fund provision. Unless a
Tax Event Redemption has occurred prior to the Purchase Contract Settlement     
Date, the entire principal amount of the Debentures will mature and become due  
and payable, together with any accrued and unpaid interest thereon including    
Compound Interest (as defined herein) and expenses and taxes of the Trust, if   
any, on August 16, 2003.                                                        

     The Company will have the right at any time to dissolve the Trust and cause
the Debentures to be distributed to the holders of the Trust Securities. If     
Debentures are distributed to holders of Trust Securities in liquidation of such
holders' interests in the Trust, such Debentures will initially be issued as a  
Global Security (as defined herein). As described herein, under certain limited 
circumstances, Debentures may be issued in certificated form in exchange for a  
Global Security. See "-- Book-Entry and Settlement" below. In the event that    
Debentures are issued in certificated form, such Debentures will be in          
denominations of $10 and integral multiples thereof, without coupons, and may be
transferred or exchanged, without service charge but upon payment of any taxes  
or other governmental charges payable in connection therewith, at the offices   
described below. Payments on Debentures issued as a Global Security will be made
to the Depositary, a successor depositary or, in the event that no depositary is
used, to a paying agent for the Debentures. In the event Debentures are issued  
in certificated form, principal and interest will be payable, the transfer of   
the Debentures will be registrable and Debentures will be exchangeable for      
Debentures of other denominations of a like aggregate principal amount, at the  
office or agency maintained by the Company for such purpose in the Borough of   
Manhattan, The City of New York; provided, that at the option of the Company,   
payment of interest may be made by check mailed to the address of the holder    
entitled thereto or by wire transfer to an account appropriately designated by  
the holder entitled thereto. Notwithstanding the foregoing, so long as the      
holder of any Debentures is the Institutional Trustee, the payment of principal 
and interest on the Debentures held by the Institutional Trustee will be made at
such place and to such account as may be designated by the Institutional        
Trustee. The Company will appoint the Debt Trustee as the initial paying agent, 
transfer agent and registrar for the Debentures. The Company may at any time    
designate additional transfer agents and paying agents with respect to the      
Debentures, and may remove any transfer agent, paying agent or registrar for the
Debentures; provided, that the Company will at all times be required to maintain
a paying agent and transfer agent for the Debentures in the Borough of          
Manhattan, The City of New York.                                                
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    Any monies deposited with the Debt Trustee or any paying agent, or held by
the Company in trust, for the payment of principal of or interest on any        
Debenture and remaining unclaimed for two years after such principal or interest
has become due and payable shall, at the request of the Company, be repaid to   
the Company or released from such trust, as applicable, and the holder of such  
Debenture shall thereafter look, as a general unsecured creditor, only to the   
Company for the payment thereof.                                                

The Indenture does not contain provisions that afford holders of the  
Debentures protection in the event of a highly leveraged transaction or other   
similar transaction involving the Company that may adversely affect such        
holders.                                                                        

INTEREST                                                                        

  Each Debenture shall bear interest initially at the rate of 8% per annum
from the Original Issue Date, payable quarterly in arrears on February 16, May  
16, August 16 and November 16 of each year (each an "Interest Payment Date"),   
commencing August 16, 1998, to the person in whose name such Debenture is       
registered, subject to certain exceptions, at the close of business on the      
Business Day next preceding such Interest Payment Date. The applicable interest 
rate on the Debentures and the distribution rate on the related Capital         
Securities outstanding on and after the Purchase Contract Settlement Date will  
be reset on the third Business Day immediately preceding the Purchase Contract  
Settlement Date to the Reset Rate, which rate may be limited as described under 
"Description of the Capital Securities -- Market Rate Reset." In the event the  
Debentures shall not continue to remain in book-entry only form, the record     
dates shall be one Business Day prior to the Interest Payment Dates. The amount 
of interest payable for any period will be computed on the basis of a 360-day   
year consisting of twelve 30-day months. The amount of interest payable for any 
period shorter than a full quarterly period for which interest is computed will 
be computed on the basis of the actual number of days elapsed in such 90-day    
period. In the event that any date on which interest is payable on the          
Debentures is not a Business Day, the payment of the interest payable on such   
date will be made on the next succeeding day that is a Business Day (and without
any interest or other payment in respect of any such delay), except that, if    
such Business Day is in the next succeeding calendar year, then such payment    
shall be made on the immediately preceding Business Day, in each case with the  
same force and effect as if made on such date.                                  

TAX EVENT REDEMPTION                                                            

If a Tax Event shall occur and be continuing, the Company may, at its 
option, redeem Debentures in whole (but not in part) at any time at a Redemption
Price equal to, for each Debenture, the Redemption Amount plus accrued and      
unpaid interest thereon, including Compound Interest and expenses and taxes of  
the Trust, if any, to the date of redemption (the "Tax Event Redemption Date"); 
provided that installments of interest on Debentures which are due and payable  
on or prior to a redemption date shall be payable to the holders of such        
Debentures registered as such at the close of business on the relevant record   
dates. If, following the occurrence of a Tax Event, the Company exercises its   
option to redeem the Debentures, the proceeds of such redemption will be applied
to redeem Trust Securities having a liquidation amount equal to the principal   
amount of Debentures to be paid in accordance with their terms, at the          
Redemption Price. Such Redemption Price will be payable in cash to the holders  
of such Trust Securities. If such Tax Event Redemption occurs prior to the      
Purchase Contract Settlement Date, the Redemption Price payable in liquidation  
of the Income PRIDES holders' interest in the Trust will be distributed to the  
Collateral Agent, who in turn will apply an amount equal to the Redemption      
Amount of such Redemption Price to purchase the Treasury Portfolio on behalf of 
the holders of Income PRIDES and remit the remaining portion, if any, of such   
Redemption Price to the Purchase Contract Agent for payment to the holders of   
such Income PRIDES. Such Treasury Portfolio will be substituted for the Capital 
Securities and will be pledged with the Collateral Agent to secure such Income  
PRIDES holders' obligation to purchase the Company's Common Stock under the     
Purchase Contracts; provided, that if the Tax Event Redemption occurs after the 
Purchase Contract Settlement Date, such Treasury Portfolio will not be          
purchased.                                                                      

  "Tax Event" means the receipt by the Trust of an opinion of a nationally
recognized independent tax counsel experienced in such matters to the effect    
that, as a result of (a) any amendment to, change in, or                        
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announced proposed change in, the laws (or any regulations thereunder) of the   
United States or any political subdivision or taxing authority thereof or       
therein affecting taxation, (b) any amendment to or change in an interpretation 
or application of such laws or regulations by any legislative body, court,      
governmental agency or regulatory authority or (c) any interpretation or        
pronouncement that provides for a position with respect to such laws or         
regulations that differs from the generally accepted position on the Original   
Issue Date, which amendment, change or proposed change is effective or which    
interpretation or pronouncement is announced on or after the Original Issue     
Date, there is more than an insubstantial risk that (i) interest payable by the 
Company on the Debentures would not be deductible, in whole or in part, by the  
Company for United States federal income tax purposes or (ii) the income of the 
Trust would be subject to United States federal income tax or the Trust would be
subject to more than a de minimis amount of other taxes, duties or other        
governmental charges.                                                           

     "Treasury Portfolio" means, with respect to the Applicable Principal Amount
of Debentures (a) if the Tax Event Redemption Date occurs prior to the Purchase 
Contract Settlement Date, a portfolio of zero-coupon U.S. Treasury Securities   
consisting of (i) interest or principal strips of U.S. Treasury Securities which
mature on or prior to August 15, 2001 in an aggregate amount equal to the       
Applicable Principal Amount and (ii) with respect to each scheduled interest    
payment date on the Debentures that occurs after the Tax Event Redemption Date  
interest or principal strips of U.S. Treasury Securities which mature on or     
prior to such date in an aggregate amount equal to the aggregate interest       
payment that would be due on the Applicable Principal Amount of the Debentures  
on such date, and (b) if the Tax Event Redemption Date occurs after the Purchase
Contract Settlement Date, a portfolio of zero-coupon U.S. Treasury Securities   
consisting of (i) principal or interest strips of U.S. Treasury Securities which
mature on or prior to August 15, 2003 in an aggregate amount equal to the       
Applicable Principal Amount and (ii) with respect to each scheduled interest    
payment date on the Debentures that occurs after the Tax Event Redemption Date  
interest or principal strips of such U.S. Treasury Securities which mature on or
prior to such date in an aggregate amount equal to the aggregate interest       
payment that would be due on the Applicable Principal Amount of the Debentures  
on such date.                                                                   

    "Applicable Principal Amount" means either (i) if the Tax Event Redemption
Date occurs prior to the Purchase Contract Settlement Date, the aggregate       
principal amount of the Debentures corresponding to the aggregate stated        
liquidation amount of the Capital Securities which are components of Income     
PRIDES on the Tax Event Redemption Date or (ii) if the Tax Event Redemption     
occurs on or after the Purchase Contract Settlement Date, the aggregate         
principal amount of the Debentures corresponding to the aggregate stated        
liquidation amount of the Capital Securities outstanding on such Tax Event      
Redemption Date.                                                                

"Redemption Amount" means for each Debenture, the product of (i) the  
principal amount of such Debenture and (ii) a fraction whose numerator is the   
Treasury Portfolio Purchase Price and whose denominator is the Applicable       
Principal Amount. All references herein to the "principal" of the Debentures    
shall be deemed to include a reference to "and premium, if any," unless         
otherwise expressly stated or the context otherwise requires.                   

     "Treasury Portfolio Purchase Price" means the lowest aggregate price quoted
by a primary U.S. government securities dealer in New York City (a "Primary     
Treasury Dealer") to the Quotation Agent on the third Business Day immediately  
preceding the Tax Event Redemption Date for the purchase of the Treasury        
Portfolio for settlement on the Tax Event Redemption Date.                      

   "Quotation Agent" means (i) Merrill Lynch Government Securities, Inc. and
its respective successors, provided, however, that if the foregoing shall cease 
to be a Primary Treasury Dealer, the Company shall substitute therefor another  
Primary Treasury Dealer, or (ii) any other Primary Treasury Dealer selected by  
the Company.                                                                    

    Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each registered holder of Debentures to be
redeemed at its registered address. Unless the Company defaults in payment of   
the Redemption Price, on and after the redemption date interest shall cease to  
accrue on such Debentures. In the event any Debentures are called for           
redemption, neither the Company nor the Debt Trustee will be required to        
register the transfer of or exchange the Debentures to be redeemed.             
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OPTION TO EXTEND INTEREST PAYMENT PERIOD                                        

     The Company shall have the right at any time, and from time to time, during
the term of the Debentures, to defer payments of interest by extending the      
interest payment period for a period not extending beyond the maturity date of  
the Debentures, at the end of which Extension Period, the Company shall pay all 
interest then accrued and unpaid (including any expenses and taxes of the Trust,
as herein defined) together with interest thereon compounded quarterly at the   
rate of 8% per annum through and including August 15, 2001, and at the Reset    
Rate thereafter, to the extent permitted by applicable law ("Compound           
Interest"); provided, that during any such Extension Period, (a) the Company    
shall not declare or pay dividends on, or make any distribution with respect to,
or redeem, purchase, acquire or make a liquidation payment with respect to, any 
of its capital stock (other than (i) purchases or acquisitions of capital stock 
of the Company in connection with the satisfaction by the Company of its        
obligations under any employee benefit plans or the satisfaction by the Company 
of its obligations pursuant to any contract or security outstanding on the date 
of such event requiring the Company to purchase capital stock of the Company,   
(ii) as a result of a reclassification of the Company's capital stock or the    
exchange or conversion of one class or series of the Company's capital stock for
another class or series of the Company capital stock, (iii) the purchase of     
fractional interests in shares of the Company's capital stock pursuant to the   
conversion or exchange provisions of such capital stock or the security being   
converted or exchanged, (iv) dividends or distributions in capital stock of the 
Company (or rights to acquire capital stock) or repurchases or redemptions of   
capital stock solely from the issuance or exchange of capital stock or (v)      
redemptions or repurchases of any rights outstanding under a shareholder rights 
plan or the declaration thereunder of a dividend of rights in the future), and  
(b) the Company shall not make any guarantee payments with respect to the       
foregoing (other than payments pursuant to the Guarantee). Prior to the         
termination of any such Extension Period, the Company may further defer payments
of interest by extending the interest payment period; provided, however, that   
such Extension Period, including all such previous and further extensions, may  
not extend beyond the maturity of the Debentures or end on other than a Payment 
Date. Upon the termination of any Extension Period and the payment of all       
amounts then due, the Company may commence a new Extension Period, subject to   
the terms set forth in this section. No interest during an Extension Period,    
except at the end thereof, shall be due and payable, but the Company, at its    
option, may prepay on any Interest Payment Date all of the interest accrued     
during then elapsed portion of an Extension Period. The Company has no present  
intention of exercising its right to defer payments of interest by extending the
interest payment period on the Debentures. If the Institutional Trustee shall be
the sole holder of the Debentures, the Company shall give the Regular Trustees  
and the Institutional Trustee notice of its selection of such Extension Period  
one Business Day prior to the earlier of (i) the date distributions on the      
Capital Securities are payable or (ii) the date the Regular Trustees are        
required to give notice, if applicable, to the NYSE (or other applicable        
self-regulatory organization) or to holders of the Capital Securities of the    
record or payment date of such distribution. The Regular Trustees shall give    
notice of the Company's selection of such Extension Period to the holders of the
Capital Securities. If the Institutional Trustee shall not be the sole holder of
the Debentures, the Company shall give the holders of the Debentures notice of  
its selection of such Extension Period ten Business Days prior to the earlier of
(i) the next succeeding Interest Payment Date or (ii) the date upon which the   
Company is required to give notice, if applicable, to the NYSE (or other        
applicable self-regulatory organization) or to holders of the Debentures of the 
record or payment date of such related interest payment.                        

EXPENSES AND TAXES OF THE TRUST                                                 

     In the Indenture, the Company, as borrower, has agreed to pay all debts and
other obligations (other than with respect to the Trust Securities) and all     
costs and expenses of the Trust (including the costs and expenses relating to   
the organization of the Trust, the fees and expenses of the KBHC Trustees and   
the costs and expenses relating to the operation of the Trust) and to pay any   
and all taxes and all costs and expenses with respect thereto (other than United
States withholding taxes) to which the Trust might become subject. The Company  
also has agreed in the Indenture to execute such additional agreements as may be
necessary or desirable to give full effect to the foregoing.                    

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INDENTURE EVENTS OF DEFAULT                                                     

If any Indenture Event of Default shall occur and be continuing, the  
Institutional Trustee, as the holder of the Debentures, will have the right to  
declare the principal of and the interest on the Debentures (including any      
Compound Interest and expenses and taxes of the Trust, if any) and any other    
amounts payable under the Indenture to be forthwith due and payable and to      
enforce its other rights as a creditor with respect to the Debentures.          

     The following are Events of Default under the Indenture with respect to the
Debentures: (1) failure to pay interest on the Debentures when due, continued   
for 30 days; provided, however, that if the Company is permitted by the terms of
the Debentures to defer the payment in question, the date on which such payment 
is due and payable shall be the date on which the Company is required to make   
payment following such deferral, if such deferral has been elected pursuant to  
the terms of the Debentures; (2) failure to pay the principal of (or premium, if
any, on) the Debentures when due and payable at the stated maturity date, upon  
redemption or otherwise; (3) failure by the Company to observe or perform any   
other covenants contained in the Indenture, continued for a period of 90 days   
after written notice has been given to the Company by the Debt Trustee or       
holders of at least 25% in aggregate principal amount of the outstanding        
Debentures; and (4) certain events of bankruptcy, insolvency or reorganization  
relating to the Company.                                                        

  The Indenture provides that the Debt Trustee shall, within 90 days after
the occurrence of any Default or Event of Default with respect to the           
Debentures, give the holders of the Debentures notice of all uncured Defaults or
Events of Default known to it (the term "Default" includes any event which after
notice or passage of time or both would be an Event of Default); provided,      
however, that, except in the case of a Default in the payment of the principal  
of (or premium, if any, on) or interest on the Debentures, the Debt Trustee     
shall be protected in withholding such notice so long as the executive committee
or directors or responsible officers of the Debt Trustee in good faith determine
that the withholding of such notice is in the interest of the holders of the    
Debentures.                                                                     

  If an Indenture Event of Default occurs and is continuing (other than an
Indenture Event of Default described in clause (4) of the second preceding      
paragraph), the Debt Trustee or the holders of at least 25% in aggregate        
principal amount of the outstanding Debentures, by notice in writing to the     
Company (and to the Debt Trustee if given by the holders of at least 25% in     
aggregate principal amount of the Debentures), may declare the unpaid principal 
of and accrued interest on all the outstanding Debentures (including any        
Compound Interest and expenses and taxes of the Trust, if any) to be due and    
payable immediately and, upon any such declaration, such amounts shall become   
immediately due and payable. If an Indenture Event of Default of the nature     
specified in clause (4) of the second preceding paragraph occurs and is         
continuing, the principal of and interest on the Debentures (including any      
Compound Interest and expenses and taxes of the Trust, if any) shall ipso facto 
become immediately due and payable without any declaration or other act on the  
part of the Debt Trustee or any holder of Debentures. After any acceleration of 
the Debentures, the holders of a majority in aggregate principal amount of the  
outstanding Debentures may, under certain circumstances, rescind and annul such 
acceleration if all Indenture Events of Default, other than non-payment of the  
accelerated principal and interest, have been cured or waived as provided in the
Indenture.                                                                      

An Indenture Event of Default also constitutes a Declaration Event of 
Default. The holders of Capital Securities in certain circumstances have the    
right to direct the Institutional Trustee to exercise its rights as the holder  
of the Debentures. See "Description of the Capital Securities -- Declaration    
Events of Default" and "-- Voting Rights." Notwithstanding the foregoing, if an 
Event of Default has occurred and is continuing and such event is attributable  
to the failure of the Company to pay interest or principal on the Debentures on 
the date such interest or principal is otherwise payable, the Company           
acknowledges that a holder of Capital Securities may institute a Direct Action  
for enforcement of payment to such holder directly of the principal of and      
interest on the Debentures having a principal amount equal to the aggregate     
stated liquidation amount of the Capital Securities of such holder after the    
respective due date specified in the Debentures. In connection with such action,
the Company shall have the right under the Indenture to set-off any payment made
to such holder by the Company. The Company may not amend the Indenture to remove
the foregoing right to bring a Direct Action without the prior written consent  
of the holders of all of the Capital Securities. The holders of                 

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Capital Securities will not be able to exercise directly any other remedy       
available to the holders of the Debentures.                                     

  The holders of not less than a majority in aggregate principal amount of
the outstanding Debentures may, on behalf of the holders of all the Debentures, 
waive any past defaults except (a) a default in payment of the principal of or  
interest on any Debenture and (b) a default in respect of a covenant or         
provision of the Indenture which cannot be amended or modified without the      
consent of the holder of each Debenture affected.                               

  A default under any other indebtedness of the Company or the Trust would
not constitute an Indenture Event of Default.                                   

  Subject to the provisions of the Indenture relating to the duties of the
Debt Trustee in case an Indenture Event of Default shall occur and be           
continuing, the Debt Trustee will be under no obligation to exercise any of its 
rights or powers under the Indenture at the request or direction of any holders 
of Debentures, unless such holders shall have offered to the Debt Trustee       
reasonable indemnity. Subject to such provisions for the indemnification of the 
Debt Trustee, the holders of a majority in aggregate principal amount of the    
Debentures then outstanding will have the right to direct the time, method and  
place of conducting any proceeding for any remedy available to the Debt Trustee,
or exercising any trust or power conferred on the Debt Trustee.                 

    No holder of any Debenture will have any right to institute any proceeding
with respect to the Indenture or for any remedy thereunder, unless (i) such     
holder shall have previously given to the Debt Trustee written notice of a      
continuing Indenture Event of Default, (ii) the holders of at least 25% in      
aggregate principal amount of the Debentures then outstanding shall have made   
written request to the Debt Trustee to institute proceedings, (iii) such holder 
has offered reasonable indemnity to the Debt Trustee, (iv) the Debt Trustee     
shall have failed to institute such proceeding within 60 days of such notice and
offer of indemnity, and (v) the Debt Trustee shall not have received from the   
holders of a majority in aggregate principal amount of the outstanding          
Debentures a direction inconsistent with such request. However, such limitations
do not apply to a suit instituted by a holder of a Debenture for enforcement of 
payment of the principal or interest on such Debenture on or after the          
respective due dates expressed in such Debenture.                               

CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS                    

     The Indenture provides that the Company shall not consolidate with or merge
into any other person or entity or sell, assign, convey, transfer or lease its  
properties and assets as an entirety or substantially as an entirety to any     
person or entity unless (i) either the Company is the continuing corporation, or
any successor, lessee, or purchaser is a corporation organized and existing     
under the laws of the United States of America, any State thereof or the        
District of Columbia, and any such successor, lessee or purchaser expressly     
assumes the Company's obligations under the Indenture and the Debentures        
pursuant to a supplemental indenture; and (ii) immediately after giving effect  
thereto, no Indenture Event of Default, and no event which, after notice or     
lapse of time or both, would become an Indenture Event of Default, shall have   
happened and be continuing.                                                     

SATISFACTION AND DISCHARGE; DEFEASANCE                                          

  The Indenture provides that when, among other things, all Debentures not
previously delivered to the Debt Trustee for cancellation (i) have become due   
and payable or (ii) will become due and payable at their stated maturity within 
one year or (iii) are to be called redemption within one year under arrangements
satisfactory to the Debt Trustee, and the Company deposits or causes to be      
deposited with the Debt Trustee, as trust funds in trust for this purpose, an   
amount in cash sufficient to pay and discharge the entire indebtedness on the   
Debentures not previously delivered to the Debt Trustee for cancellation, for   
principal and interest to the date of the deposit or to the stated maturity or  
redemption date, as the case may be, then the Indenture will, subject to certain
exceptions, cease to be of further effect and the Company will be deemed to have
satisfied and discharged the Indenture.                                         

  The Indenture also provides that the Company may, at its option, defease
the Debentures, whereupon the Company will be discharged (subject to certain    
exceptions) from its obligations with respect to the                            

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Debentures on the date the applicable conditions for defeasance set forth in the
Indenture are satisfied. The Indenture also provides that the Company may, at   
its option, effect covenant defeasance with respect to the Debentures, whereupon
the Company will be discharged from its obligations with respect to certain     
covenants under the Indenture. In order to effect defeasance or covenant        
defeasance, the Company will be required to, among other things, irrevocably    
deposit with the Debt Trustee (or another qualifying trustee) cash in an amount,
or U.S. Government Obligations (as defined in the Indenture) which through the  
scheduled payment of principal and interest will provide money in an amount, or 
a combination thereof, in each case sufficient to pay the principal of and      
interest on the Debentures as and when the same shall become due and payable.   

MODIFICATION OF INDENTURE                                                       

 From time to time, the Indenture may be modified by the Company and the
Debt Trustee without the consent of any holders of the Debentures with respect  
to certain matters, including (i) to cure any ambiguity, defect or inconsistency
or to correct or supplement any provision which may be inconsistent with any    
other provision of the Indenture, (ii) to qualify, or maintain the qualification
of, the Indenture under the Trust Indenture Act and (iii) to make any change    
that does not materially adversely affect the interests of any holder of        
Debentures. In addition, any provision of the Indenture and the rights of       
holders of the Debentures may be amended or modified by the Company and the Debt
Trustee with the written consent of the holders of at least a majority in       
aggregate principal amount of the outstanding Debentures; provided that no such 
amendment or modification shall, without the consent of each holder of          
Debentures affected thereby, among other things, extend the maturity of         
Debentures, reduce the interest rate or extend the time for payment of interest 
(except pursuant to the interest deferral provisions described herein) on the   
Debentures, reduce the principal of or premium, if any, on any Debentures,      
change the redemption provisions in a manner adverse to any holder of           
Debentures, or reduce the percentage of holders required for any such amendment 
or modification.                                                                

BOOK-ENTRY AND SETTLEMENT                                                       

If distributed to holders of Capital Securities in connection with the
involuntary or voluntary dissolution of the Trust, the Debentures will be issued
in the form of one or more global certificates (each a "Global Security")       
registered in the name of the Depositary or its nominee. Except under the       
limited circumstances described below, Debentures represented by the Global     
Security will not be exchangeable for, and will not otherwise be issuable as,   
Debentures in certificated form. The Global Securities described above may not  
be transferred except by the Depositary to a nominee of the Depositary or by a  
nominee of the Depositary to the Depositary or another nominee of the Depositary
or to a successor depositary or its nominee.                                    

The laws of some jurisdictions may require that certain purchasers of 
securities take physical delivery of such securities in certificated form. Such 
laws may impair the ability to transfer beneficial interests in such a Global   
Security.                                                                       

   Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Debentures in     
certificated form and will not be considered the holders (as defined in the     
Indenture) thereof for any purpose under the Indenture, and no Global Security  
representing Debentures shall be exchangeable, except for another Global        
Security of like denomination and tenor to be registered in the name of the     
Depositary or its nominee or a successor Depositary or its nominee. Accordingly,
each Beneficial Owner must rely on the procedures of the Depositary or 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 DEPOSITARY                                                                  

If Debentures are distributed to holders of Capital Securities in     
liquidation of such holders' interests in the Trust, the Depositary will act as 
securities depositary for the Debentures. For a description of the Depositary   
and the specific terms of the depositary arrangements, see "Description of the  
Capital Securities -- Book-Entry Only Issuance -- The Depository Trust Company."
As of the date of this Prospectus, the                                          

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description therein of the Depositary's book-entry system and the Depositary's  
practices as they relate to purchases, transfers, notices and payments with     
respect to the Capital Securities apply in all material respects to any debt    
obligations represented by one or more Global Securities held by the Depositary.
The Company may appoint a successor to the Depositary or any successor          
depositary in the event the Depositary or such successor depositary is unable or
unwilling to continue as a depositary for the Global Securities.                

    Although the Depositary has agreed to act as Depositary for the Debentures
in order to facilitate transfers of interests therein among Participants, the   
Depositary is under no obligation to perform or continue to perform such        
procedures, and such procedures may be discontinued at any time. None of the    
Company, the Trust, the Debt Trustee, any paying agent and any other agent of   
the Company or the Debt 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 a Global Security for such Debentures or for maintaining,
supervising or reviewing any records relating to such beneficial ownership      
interests.                                                                      

In the event that (i) the Depositary notifies the Company that it is  
unwilling or unable to continue as a depositary for the Global Securities and no
successor depositary shall have been appointed within 90 days after such        
notification, (ii) the Depositary at any time ceases to be a clearing agency    
registered under the Exchange Act at which time the Depositary is required to be
so registered to act as such depositary and no successor depositary shall have  
been appointed within 90 days after the Trust or the Company becoming aware of  
the Depositary's ceasing to be so registered, (iii) the Company, in its sole    
discretion, determines that such Global Securities shall be so exchangeable or  
(iv) there shall have occurred and be continuing an Indenture Event of Default, 
certificates for the Debentures will be printed and delivered in exchange for   
beneficial interest in the Global Securities. Any Global Security that is       
exchangeable pursuant to the preceding sentence shall be exchangeable for       
Debentures registered in such names as the Depositary shall direct. It is       
expected that such instructions will be based upon directions received by the   
Depositary from its Participants with respect to ownership of beneficial        
interests in such Global Security.                                              

INFORMATION CONCERNING THE DEBT TRUSTEE                                         

The Debt Trustee shall have and be subject to all the duties and      
responsibilities specified with respect to an indenture trustee under the Trust 
Indenture Act. Subject to such provisions, the Debt Trustee is under no         
obligation to exercise any of the powers vested in it by the Indenture at the   
request of any holder of Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred      
thereby. The Debt Trustee is not required to expend or risk its own funds or    
otherwise incur personal financial liability in the performance of its duties if
the Debt Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.                                                       

The Debt Trustee maintains commercial banking relationships with the  
Company.                                                                        

GOVERNING LAW                                                                   

The Indenture and the Debentures will be governed by, and construed in
accordance with, the internal laws of the State of New York.                    

MISCELLANEOUS                                                                   

   The Company will pay all fees and expenses related to (i) the offering of
the Trust Securities and the Debentures, (ii) the organization, maintenance and 
dissolution of the Trust, (iii) the retention of the KBHC Trustees and (iv) the 
enforcement by the Institutional Trustee of the rights of the holders of the    
Capital Securities.                                                             

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EFFECT OF OBLIGATIONS UNDER THE 
DEBENTURES AND THE GUARANTEE

    As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of 
the Trust, and to invest the proceeds from such issuance and sale in the        
Debentures and engage in only those other activities necessary or incidental    
thereto.                                                                        

     As long as payments of interest and other payments are made when due on the
Debentures, such payments will be sufficient to cover distributions and payments
due on the Trust Securities because of the following factors: (i) the aggregate 
principal amount of Debentures will be equal to the sum of the aggregate stated 
liquidation amount of the Trust Securities; (ii) the interest rate and the      
interest and other payment dates on the Debentures will match the distribution  
rate and distribution and other payment dates for the Trust Securities; (iii)   
the Company shall pay, and the Trust shall not be obligated to pay, directly or 
indirectly, all costs, expenses, debts, and obligations of the Trust (other than
with respect to the Trust Securities); and (iv) the Declaration further provides
that the KBHC Trustees shall not take or cause or permit the Trust to, among    
other things, engage in any activity that is not consistent with the purposes of
the Trust.                                                                      

    Payments of distributions (to the extent funds therefor are available) and
other payments due on the Capital Securities (to the extent funds therefor are  
available) are guaranteed by the Company as and to the extent set forth under   
"Description of the Guarantee." If the Company does not make interest payments  
on the Debentures purchased by the Trust, the Trust will not have sufficient    
funds to pay distributions on the Capital Securities. The Guarantee does not    
apply to any payment of distributions unless and until the Trust has sufficient 
funds for the payment of such distributions.                                    

    Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set-off any payment it is otherwise required to make under the     
Debentures with and to the extent the Company has theretofore made, or is       
concurrently on the date of such payment making, a payment under the Guarantee. 

   If the Company fails to make interest or other payments on the Debentures
when due (taking account of any Extension Period), the Declaration provides a   
mechanism whereby the holders of the Capital Securities, using the procedures   
described in "Description of the Capital Securities -- Book-Entry Only Issuance 
-- The Depository Trust Company" and "-- Voting Rights," may direct the         
Institutional Trustee to enforce its rights under the Indenture. If the         
Institutional Trustee fails to enforce its rights under the Indenture in respect
of an Indenture Event of Default, such holder of record of Capital Securities   
may, to the fullest extent permitted by applicable law, institute a legal       
proceeding against the Company to enforce the Institutional Trustee's rights    
under the Indenture without first instituting any legal proceeding against the  
Institutional Trustee or any other person or entity. Notwithstanding the        
foregoing, if a Declaration Event of Default has occurred and is continuing and 
such event is attributable to the failure of the Company to pay interest,       
premium, if any, or principal on the Debentures on the date such interest,      
premium, if any, or principal is otherwise payable, then a holder of Capital    
Securities may directly institute a proceeding against the Company for payment. 
The Company, under the Guarantee, acknowledges that the Guarantee Trustee shall 
enforce the Guarantee on behalf of the holders of the Capital Securities. If the
Company fails to make payments under the Guarantee, the Guarantee provides a    
mechanism whereby the holders of the Capital Securities may direct the Guarantee
Trustee to enforce its rights thereunder. Notwithstanding the foregoing, if the 
Company has failed to make a payment under the Guarantee, any holder of Capital 
Securities may institute a legal proceeding directly against the Company to     
enforce its rights under the Guarantee without first instituting a legal        
proceeding against the Trust, the Guarantee Trustee, or any other person or     
entity.                                                                         

     The Guarantee, when taken together with the Company's obligations under the
Debentures and the Indenture and its obligations under the Declaration,         
including its obligations to pay costs, expenses, debts and liabilities of the  
Trust (other than with respect to the Trust Securities), has the effect of      
providing a full and unconditional guarantee of amounts due on the Capital      
Securities. See "Description of the Guarantee.                                  

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FEDERAL INCOME TAX CONSEQUENCES 

The following is a summary of the anticipated material United States  
federal income tax consequences of the purchase, ownership and disposition of   
the FELINE PRIDES, Capital Securities and Common Stock to investors generally.  
Unless otherwise stated, this summary deals only with FELINE PRIDES, Capital    
Securities and Common Stock held as capital assets (generally, assets held for  
investment) by U.S. Holders who purchase FELINE PRIDES or Capital Securities    
upon original issuance. The tax treatment of a U.S. Holder may vary depending on
such U.S. Holder's particular situation. This summary does not address all of   
the tax consequences that may be relevant to holders who may be subject to      
special tax treatment such as, for example, insurance companies, broker dealers,
tax-exempt organizations, or foreign taxpayers. In addition this summary does   
not address any aspects of state, local, or foreign tax laws. This summary is   
based on the United States federal income tax law in effect as of the date      
hereof, which is subject to change, possibly on a retroactive basis. Each       
investor is urged to consult its tax advisor as to the particular tax           
consequences of purchasing, owning, and disposing of the FELINE PRIDES or       
Capital Securities, including the application and effect of United States,      
federal, state, local, foreign and other tax laws.                              

   No statutory, administrative or judicial authority directly addresses the
treatment of FELINE PRIDES or instruments similar to FELINE PRIDES for United   
States federal income tax purposes. As a result, no assurance can be given that 
the IRS will agree with the tax consequences described herein.                  

     For purposes of this summary, the term "U.S. Holder" means (i) a person who
is a citizen or resident of the United States, (ii) a corporation or partnership
created or organized in or under the laws of the United States or any state     
thereof or the District of Columbia, (iii) an estate the income of which is     
subject to United States federal income taxation, regardless of its source, or  
(iv) a trust if a court within the United States is able to exercise primary    
supervision over the administration of such trust and one or more United States 
persons have the authority to control all substantial decisions of such trust.  

FELINE PRIDES                                                                   

     ALLOCATION OF PURCHASE PRICE.  A U.S. Holder's acquisition of FELINE PRIDES
will be treated as an acquisition of a unit consisting of two components -- in  
the case of an Income PRIDES, the Capital Security and the Purchase Contract    
constituting such Income PRIDES and, in the case of a Growth PRIDES, the        
interest in a Treasury Security and the Purchase Contract constituting such     
Growth PRIDES. The purchase price of each FELINE PRIDES will be allocated       
between the two components in proportion to their respective fair market values 
at the time of purchase. Such allocation will establish the U.S. Holder's       
initial tax basis in the Capital Security or interest in the Treasury Security, 
as the case may be, and the Purchase Contract. The Company will report the fair 
market value of each Capital Security and each interest in a Treasury Security  
so that the entire purchase price of a FELINE PRIDES will be allocable to the   
Capital Security or interest in the Treasury Security, as the case may be, and  
no amount will be allocable to the Purchase Contract. This position will be     
binding upon each U.S. Holder (but not on the IRS) unless such U.S. Holder      
explicitly discloses a contrary position on a statement attached to such U.S.   
Holder's timely filed United States federal income tax return for the taxable   
year in which a FELINE PRIDES is acquired. Thus, absent such disclosure, a U.S. 
Holder should allocate the purchase price for a FELINE PRIDES in accordance with
the foregoing. The remainder of this discussion assumes that this allocation of 
purchase price will be respected for United States federal income tax purposes. 
A different allocation could affect the timing and character of income to a U.S.
Holder.                                                                         

     OWNERSHIP OF CAPITAL SECURITIES OR TREASURY SECURITIES.  A U.S. Holder will
be treated as owning the Capital Securities or Treasury Securities constituting 
a part of the Income PRIDES or Growth PRIDES, respectively. The Company and, by 
acquiring FELINE PRIDES, each U.S. Holder agree to treat such U.S. Holder as the
owner, for United States federal, state and local income and franchise tax      
purposes, of the Capital Securities or Treasury Securities constituting a part  
of the FELINE PRIDES beneficially owned by such U.S. Holder. Based upon such    
agreement, the Company intends to take the position, and the remainder of this  
summary assumes, that U.S. Holders of FELINE PRIDES will be treated as the      
owners of the Capital Securities or Treasury Securities constituting a part of  
such FELINE PRIDES for United States federal, state                             

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and local income and franchise tax purposes. The United States federal income   
tax consequences of owning the Capital Securities or Treasury Securities are    
discussed below (see "-- Capital Securities," "-- Treasury Securities" and "--  
Tax Event Redemption of Capital Securities.").                                  

  SALES, EXCHANGES OR OTHER TAXABLE DISPOSITIONS OF FELINE PRIDES.  Upon a
sale, exchange or other taxable disposition (collectively, a "disposition") of  
FELINE PRIDES, a U.S. Holder will be treated as having sold, exchanged or       
disposed of the Purchase Contract and the Capital Securities, Treasury Portfolio
or, in the case of Growth PRIDES, the Treasury Securities, that constitute such 
FELINE PRIDES and will generally have gain or loss equal to the difference      
between the portion of the proceeds to such U.S. Holder allocable to the        
Purchase Contract and the Capital Securities, Treasury Portfolio or Treasury    
Securities, as the case may be, and such U.S. Holder's respective adjusted tax  
bases in the Purchase Contract and the Capital Securities, Treasury Portfolio or
Treasury Securities. Such gain or loss will generally be capital gain or loss,  
except to the extent that such U.S. holder is treated as receiving an amount    
with respect to accrued but unpaid interest on the Capital Securities or the    
Treasury Portfolio, which amount will be treated as ordinary interest income, or
to the extent such U.S. Holder is treated as receiving an amount with respect to
accrued Contract Adjustment Payments or Deferred Contract Adjustment Payments,  
which may be treated as ordinary income, in each case to the extent not         
previously included in income. Such capital gain or loss will generally be long-
term capital gain or loss if the U.S. Holder held such FELINE PRIDES for more   
than one year immediately prior to such disposition. Long-term capital gains of 
individuals are eligible for reduced rates of taxation depending upon the       
holding period of such capital assets. The deductibility of capital losses is   
subject to limitations. If the disposition of FELINE PRIDES occurs when the     
Purchase Contract has negative value, the U.S. Holder should be considered to   
have received additional consideration for the Capital Securities, Treasury     
Portfolio or Treasury Securities, as the case may be, in an amount equal to such
negative value and to have paid such amount to be released from the U.S.        
Holder's obligation under the Purchase Contract. U.S. Holders should consult    
their tax advisors regarding a disposition of the FELINE PRIDES at a time when  
the Purchase Contract has negative value.                                       

In determining gain or loss, payments to a U.S. Holder of Contract    
Adjustment Payments or Deferred Contract Adjustment Payments that have not      
previously been included in the income of such U.S. Holder should either reduce 
such U.S. Holder's adjusted tax basis in the Purchase Contract or result in an  
increase in the amount realized on the disposition of the Purchase Contract. Any
Contract Adjustment Payments or Deferred Contract Adjustment Payments included  
in a U.S. Holder's income but not paid should increase such U.S. Holder's       
adjusted tax basis in the Purchase Contract. Payments in cash that have been    
made by a U.S. Holder to create Growth PRIDES but not offset against payments of
Contract Adjustment Payments or Deferred Contract Adjustment Payments may       
increase such U.S. Holder's adjusted tax basis in the Purchase Contract or      
result in a decrease in the amount realized on the disposition of the Purchase  
Contract (see "Contract Adjustment Payments and Deferred Contract Adjustment    
Payments; Delivery of Cash" below).                                             

CAPITAL SECURITIES                                                              

     CLASSIFICATION OF THE TRUST.  In connection with the issuance of the FELINE
PRIDES, Skadden, Arps, Slate, Meagher & Flom LLP ("Tax Counsel"), will deliver  
an opinion that, under current law and assuming compliance with the terms of the
Declaration, and based on certain facts and assumptions contained in such       
opinion, the Trust will be classified as a grantor trust and not as an          
association taxable as a corporation for United States federal income tax       
purposes. As a result, each U.S. Holder of Capital Securities will be treated as
owning an undivided beneficial ownership interest in the Debentures and, as     
further discussed below, each U.S. Holder of Capital Securities will be required
to include in its gross income its pro rata share of the interest income or OID 
that is paid or accrued on the Debentures. See "-- Interest Income and Original 
Issue Discount."                                                                

   CLASSIFICATION OF THE DEBENTURES.  In connection with the issuance of the
Debentures, Tax Counsel will deliver an opinion that, under current law, and    
based on certain representations, facts and assumptions set forth in such       
opinion, the Debentures will be classified as indebtedness for United States    
federal income tax purposes. The Company, the Trust and, by acquiring Income    
PRIDES or Capital Securities, each U.S. Holder agree to treat the Debentures as 
indebtedness of the Company for all United States tax purposes.                 
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     INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT.  Under the applicable Treasury
regulations, the Debentures will not be considered to have been issued with OID.
Accordingly, except as set forth below, stated interest on the Debentures will  
generally be included in income by a U.S. Holder at the time such interest      
income is paid or accrued in accordance with such U.S. Holder's regular method  
of tax accounting. If, however, the Company exercises its right to defer        
payments of interest on the Debentures, U.S. Holders will be required to accrue 
the stated interest on the Debentures (as OID) on a daily economic accrual basis
even though the Company will not pay such interest during the deferral period,  
and even though some U.S. Holders may use the cash method of tax accounting.    
Thereafter, the Debentures will be subject to tax as OID instruments for as long
as they remain outstanding, which will require U.S. Holders to include accrued  
OID in gross income in advance of the receipt of cash attributable to such      
accrued OID. Under the OID economic accrual rules, a U.S. Holder would accrue an
amount of interest income each year that approximates the stated interest       
payments called for under the terms of the Debentures, and actual cash payments 
of interest on the Debentures would not be reported separately as taxable       
income. Any amount of OID included in a U.S. Holder's gross income will increase
such U.S. Holder's adjusted tax basis in its Capital Securities, and the amount 
of a distribution received by a U.S. Holder with respect to such Capital        
Securities will reduce the adjusted tax basis of such Capital Securities.       

     The Treasury regulations described above have not yet been addressed in any
rulings or other interpretations by the IRS, and it is possible that the IRS    
could take a contrary position. If the IRS were to assert successfully that the 
stated interest on the Debentures was OID regardless of whether the Company     
exercises its right to defer payments of interest on such Debentures, all U.S.  
Holders would be required to include such stated interest in income on a daily  
economic accrual basis as described above.                                      

U.S. Holders that are corporations will not be entitled to a dividends
received deduction with respect to any income recognized with respect to the    
Capital Securities.                                                             

DISTRIBUTION OF DEBENTURES TO U.S. HOLDERS OF CAPITAL SECURITIES.  A  
distribution by the Trust of the Debentures as described under the caption      
"Description of the Capital Securities -- Liquidation Distribution Upon         
Dissolution" would be non-taxable to U.S. Holders. In such event, a U.S. Holder 
would have an aggregate adjusted tax basis in the Debentures received in the    
liquidation equal to the aggregate adjusted tax basis such U.S. Holder had in   
its Capital Securities surrendered therefor, and the holding period of such     
Debentures would include the period during which such U.S. Holder had held such 
Capital Securities. In addition, a U.S. Holder would continue to include        
interest (or OID) in respect of Debentures received from the Trust in the manner
described under "-- Interest Income and Original Issue Discount."               

     SALES, EXCHANGES OR OTHER TAXABLE DISPOSITIONS OF CAPITAL SECURITIES.  Gain
or loss will be recognized by a U.S. Holder on a disposition of a Capital       
Security (including a redemption for cash or the remarketing thereof) in an     
amount equal to the difference between the amount realized by the U.S. Holder on
the disposition of the Capital Security (except to the extent that such amount  
realized is characterized as a payment in respect of accrued but unpaid interest
on such U.S. Holder's allocable share of the Debentures that such U.S. Holder   
has not previously included in gross income, which amount will be subject to tax
as ordinary interest income) and the U.S. Holder's adjusted tax basis in such   
Capital Security. Selling expenses incurred by a U.S. Holder, including the     
remarketing fee, will reduce the amount of gain or increase the amount of loss  
recognized by such U.S. Holder upon a disposition of a Capital Security. Gain or
loss realized by a U.S. Holder on a disposition of a Capital Security will      
generally be capital gain or loss and will generally be long-term capital gain  
or loss if the U.S. Holder held such Capital Security for more than one year    
immediately prior to such disposition. Long-term capital gains of individuals   
are eligible for reduced rates of taxation depending upon the holding period of 
such capital assets. The deductibility of capital losses is subject to          
limitations.                                                                    

TREASURY SECURITIES                                                             

   ORIGINAL ISSUE DISCOUNT.  A U.S. Holder of Growth PRIDES will be required
to treat its ownership interest in the Treasury Securities comprising a Growth  
PRIDES as an interest in a bond that was originally issued on the date such     
Growth PRIDES is purchased and that has OID equal to the excess of the Stated   

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Amount of the Growth PRIDES over the purchase price of the Growth PRIDES. A U.S.
Holder will be required to include such OID in income on a daily economic       
accrual basis over the period between the issue date of the Growth PRIDES and   
the day immediately preceding the Purchase Contract Settlement Date, regardless 
of such U.S. Holder's method of tax accounting and in advance of the receipt of 
cash attributable to such OID. Amounts of OID included in a U.S. Holder's gross 
income will increase such U.S. Holder's adjusted tax basis in its interest in   
the Treasury Securities.                                                        

    SALES, EXCHANGES OR OTHER TAXABLE DISPOSITIONS OF TREASURY SECURITIES.  In
the event that a U.S. Holder obtains the release of Treasury Securities by      
delivering Capital Securities to the Collateral Agent, gain or loss will be     
recognized by the U.S. Holder on a subsequent disposition of the Treasury       
Securities in an amount equal to the difference between the amount realized by  
the U.S. Holder on such disposition and the U.S. Holder's adjusted tax basis in 
the Treasury Securities. Such gain or loss will generally be capital gain or    
loss and will generally be long-term capital gain or loss if the U.S. Holder    
held such Treasury Securities for more than one year immediately prior to such  
disposition. Long-term capital gains of individuals are eligible for reduced    
rates of taxation depending upon the holding period of such capital assets. The 
deductibility of capital losses is subject to limitations.                      

PURCHASE CONTRACTS                                                              

 CONTRACT ADJUSTMENT PAYMENTS AND DEFERRED CONTRACT ADJUSTMENT PAYMENTS;
DELIVERY OF CASH.  There is no direct authority addressing the treatment, under 
current law, of the Contract Adjustment Payments and Deferred Contract          
Adjustment Payments, or the delivery of cash in respect of excess accrued       
Contract Adjustment Payments by a U.S. Holder of Income PRIDES upon the creation
of Growth PRIDES and such treatment is, therefore, unclear. Contract Adjustment 
Payments and Deferred Contract Adjustment Payments may constitute taxable income
to a U.S. Holder of FELINE PRIDES when received or accrued, in accordance with  
the U.S. Holder's regular method of tax accounting. To the extent the Company is
required to file information returns with respect to Contract Adjustment        
Payments or Deferred Contract Adjustment Payments, it intends to report such    
payments as taxable income to each U.S. Holder. U.S. Holders should consult     
their tax advisors concerning the treatment of Contract Adjustment Payments and 
Deferred Contract Adjustment Payments and the delivery of cash upon creation of 
Growth PRIDES, including the possibility that any Contract Adjustment Payment or
Deferred Contract Adjustment Payment may be treated as a loan, purchase price   
adjustment, rebate or payment analogous to an option premium, rather than being 
includible in income on a current basis, and that the delivery of cash upon     
creation of Growth PRIDES may be treated as an offset to Contract Adjustment    
Payments or Deferred Contract Adjustment Payments or as a purchase price        
adjustment. The treatment of Contract Adjustment Payments Deferred Contract     
Adjustment Payments and the delivery of cash upon creation of Growth PRIDES     
could affect a U.S. Holder's adjusted tax basis in a Purchase Contract or Common
Stock received under a Purchase Contract or the amount realized by a U.S. Holder
upon the sale or disposition of a FELINE PRIDES or the termination of a Purchase
Contract. See "-- Acquisition of Common Stock Under a Purchase Contract,"       
"Sales, Exchanges or Other Taxable Dispositions of FELINE PRIDES" and "--       
Termination of Purchase Contract."                                              

  ACQUISITION OF COMMON STOCK UNDER A PURCHASE CONTRACT.  A U.S. Holder of
FELINE PRIDES generally will not recognize gain or loss on the purchase of      
Common Stock under a Purchase Contract, except with respect to any cash paid in 
lieu of a fractional share of Common Stock. Subject to the following discussion,
a U.S. Holder's aggregate initial tax basis in the Common Stock received under a
Purchase Contract should generally equal the purchase price paid for such Common
Stock plus such U.S. Holder's adjusted tax basis in the Purchase Contract (if   
any), less the portion of such purchase price and adjusted tax basis allocable  
to the fractional share. Payments of Contract Adjustment Payments or Deferred   
Contract Adjustment Payments that have been received in cash by a U.S. Holder   
but not included in income by such U.S. Holder should reduce such U.S. Holder's 
adjusted tax basis in the Purchase Contract or the Common Stock to be received  
thereunder; payments in cash that have been made by a U.S. Holder to create     
Growth PRIDES but not offset against payments of Contract Adjustment Payments or
Deferred Contract Adjustment Payments may increase such U.S. Holder's adjusted  
tax basis in the Purchase Contract or the Common Stock to be received thereunder
(see "Contract Adjustment Payments and Deferred Contract Adjustment             

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Payments" above). The holding period for Common Stock received under a Purchase 
Contract will commence on the day following the acquisition of such Common      
Stock.                                                                          

OWNERSHIP OF COMMON STOCK ACQUIRED UNDER THE PURCHASE CONTRACT.  Any  
distribution on Common Stock paid by the Company out of its current or          
accumulated earnings and profits (as determined for United States federal income
tax purposes) will constitute a dividend and will be includible in income by a  
U.S. Holder when received. Any such dividend will be eligible for the dividends 
received deduction if received by an otherwise qualifying corporate U.S. Holder 
that meets the holding period and other requirements for the dividends received 
deduction.                                                                      

    Upon a disposition of Common Stock, a U.S. Holder will generally recognize
capital gain or loss equal to the difference between the amount realized and    
such U.S. Holder's adjusted tax basis in the Common Stock. Such capital gain or 
loss will generally be long-term capital gain or loss if the U.S. Holder held   
such Common Stock for more than one year immediately prior to such disposition. 
Long-term capital gains of individuals are eligible for reduced rates of        
taxation depending upon the holding period of such capital assets. The          
deductibility of capital losses is subject to limitations.                      

     EARLY SETTLEMENT OF PURCHASE CONTRACT.  A U.S. Holder of FELINE PRIDES will
not recognize gain or loss on the receipt of such U.S. Holder's proportionate   
share of Capital Securities, Treasury Securities or the Treasury Portfolio upon 
Early Settlement of a Purchase Contract and will have the same adjusted tax     
basis in such Capital Securities, Treasury Securities or the Treasury Portfolio 
as before such Early Settlement. Any Contract Adjustment Payments or Deferred   
Contract Adjustment Payments that have been included in a U.S. Holder's income  
but forfeited and not paid upon Early Settlement of a Purchase Contract should  
increase such U.S. Holder's adjusted tax basis in the Common Stock received     
under a Purchase Contract.                                                      

 TERMINATION OF PURCHASE CONTRACT.  If a Purchase Contract terminates, a
U.S. Holder of FELINE PRIDES will recognize gain or loss equal to the difference
between the amount realized (if any) upon such termination and such U.S.        
Holder's adjusted tax basis (if any) in the Purchase Contract at the time of    
such termination. Payments of Contract Adjustment Payments or Deferred Contract 
Adjustment Payments received by a U.S. Holder but not included in income by such
U.S. Holder should either reduce such U.S. Holder's adjusted tax adjusted basis 
in the Purchase Contract or increase the amount realized on the termination of  
the Purchase Contract. Any Contract Adjustment Payments or Deferred Contract    
Adjustment Payments included in a U.S. Holder's income but not paid should      
increase such U.S. Holder's adjusted tax basis in the Purchase Contract;        
payments in cash that have been made by a U.S. Holder to create Growth PRIDES   
but not offset against payments of Contract Adjustment Payments or Deferred     
Contract Adjustment Payments may increase such U.S. Holder's adjusted tax basis 
in the Purchase Contract or result in a deduction on the termination of the     
Purchase Contract (see "Contract Adjustment Payments and Deferred Contract      
Adjustment Payments" above). Such gain or loss generally will be capital gain or
loss and generally will be long-term capital gain or loss if the U.S. Holder    
held such Purchase Contract for more than one year immediately prior to such    
termination. Long-term capital gains of individuals are eligible for reduced    
rates of taxation depending upon the holding period of such capital assets. The 
deductibility of capital losses is subject to limitations. A U.S. Holder will   
not recognize gain or loss on the receipt of such U.S. Holder's proportionate   
share of the Capital Securities, Treasury Securities or Treasury Portfolio upon 
termination of the Purchase Contract and will have the same adjusted tax basis  
in such Capital Securities, Treasury Securities or Treasury Portfolio as before 
such distribution.                                                              

ADJUSTMENT TO SETTLEMENT RATE.  U.S. Holders of FELINE PRIDES might be
treated as receiving a constructive dividend distribution from the Company if   
(i) the Settlement Rate is adjusted and as a result of such adjustment the      
proportionate interest of U.S. Holders of FELINE PRIDES in the assets or        
earnings and profits of the Company is increased and (ii) the adjustment is not 
made pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in
the Settlement Rate would not be considered made pursuant to such a formula if  
the adjustment were made to compensate a U.S. Holder for certain taxable        
distributions with respect to the Common Stock.                                 

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SUBSTITUTION OF TREASURY SECURITIES TO CREATE OR RECREATE GROWTH PRIDES         

    A U.S. Holder of an Income PRIDES that delivers Treasury Securities to the
Collateral Agent in substitution for Capital Securities will generally not      
recognize gain or loss upon the delivery of such Treasury Securities or the     
release of the Capital Securities to such U.S. Holder. Such U.S. Holder will    
continue to take into account items of income or deduction otherwise includible 
or deductible, respectively, by such U.S. Holder with respect to such Treasury  
Securities and Capital Securities, and such U.S. Holder's adjusted tax bases in 
the Treasury Securities, the Capital Securities and the Purchase Contract will  
not be affected by such delivery and release.                                   

SUBSTITUTION OF CAPITAL SECURITIES TO CREATE OR RECREATE INCOME PRIDES          

  A U.S. Holder of a Growth PRIDES that delivers Capital Securities to the
Collateral Agent in substitution for Treasury Securities will generally not     
recognize gain or loss upon the delivery of such Capital Securities or the      
release of the Treasury Securities to the U.S. Holder. Such U.S. Holder will    
continue to take into account items of income or deduction otherwise includible 
or deductible, respectively, by such U.S. Holder with respect to such Treasury  
Securities and Capital Securities, and such U.S. Holder's adjusted tax bases in 
the Treasury Securities, the Capital Securities and the Purchase Contract will  
not be affected by such delivery and release.                                   

TAX EVENT REDEMPTION OF CAPITAL SECURITIES                                      

    A Tax Event Redemption will be a taxable event for U.S. Holders of Capital
Securities which will be subject to tax in the manner described under "Capital  
Securities -- Sales, Exchanges or Other Taxable Dispositions of Capital         
Securities."                                                                    

    OWNERSHIP OF TREASURY PORTFOLIO.  The Company, the Trust and, by acquiring
Income PRIDES, each U.S. Holder agree to treat such U.S. Holder as the owner,   
for United States federal, state and local income and franchise tax purposes, of
the Applicable Ownership Interest of the Treasury Portfolio constituting a part 
of the Income PRIDES beneficially owned by such U.S. Holder in the event of a   
Tax Event Redemption prior to the Purchase Contract Settlement Date. Based on   
such agreement, each U.S. Holder will include in income any amount earned on    
such pro rata portion of the Treasury Portfolio for all United States federal,  
state and local income and franchise tax purposes. The remainder of this summary
assumes that U.S. Holders of Income PRIDES will be treated as the owners of the 
Applicable Ownership Interest of the Treasury Portfolio constituting a part of  
such Income PRIDES for United States federal, state and local income and        
franchise tax purposes.                                                         

   INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT.  The Treasury Portfolio will
consist of stripped U.S. Treasury Securities. Following a Tax Event Redemption  
prior to the Purchase Contract Settlement Date, a U.S. Holder of Income PRIDES  
will be required to treat its pro rata portion of each U.S. Treasury Security in
the Treasury Portfolio as a bond that was originally issued on the date the     
Collateral Agent acquired the relevant U.S. Treasury Securities and that has OID
equal to the U.S. Holder's pro rata portion of the excess of the amounts payable
on such U.S. Treasury Securities over the value of the U.S. Treasury Securities 
at the time the Collateral Agent acquires them on behalf of holders of Income   
PRIDES. A U.S. Holder will be required to include such OID in income on a daily 
economic basis over the life of the U.S. Treasury Securities. The amount of such
excess will constitute only a portion of the total amounts payable in respect of
the Treasury Portfolio. Consequently, a portion of each scheduled interest      
payment to U.S. Holders will be treated as a return of such U.S. Holders'       
investment in the Treasury Portfolio and will not be considered current income  
for United States federal income tax purposes.                                  

 A U.S. Holder, whether on the cash or accrual method of tax accounting,
will be required to include OID (other than OID on short-term U.S. Treasury     
Securities as defined below) in income for United States federal income tax     
purposes as it accrues on a constant yield to maturity basis. See "-- Interest  
Income and Original Issue Discount" above. In the case of any U.S. Treasury     
Security with a maturity of one year or less from the date of its issue (a      
"short-term U.S. Treasury Security"), in general only accrual basis taxpayers   
will be required to include OID in income as it accrues. Unless such an accrual 
basis U.S. Holder elects to accrue                                              
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the OID on a short-term U.S. Treasury Security according to the                 
constant-yield-to-maturity method, such OID will be accrued on a straight-line  
basis.                                                                          

    TAX BASIS OF THE TREASURY PORTFOLIO.  A U.S. Holder's initial tax basis in
such U.S. Holder's Applicable Ownership Interest of the Treasury Portfolio will 
equal such U.S. Holder's pro rata portion of the amount paid by the Collateral  
Agent for the Treasury Portfolio. A U.S. Holder's adjusted tax basis in the     
Treasury Portfolio will be increased by the amount of OID included in income    
with respect thereto and decreased by the amount of cash received in respect of 
the Treasury Portfolio.                                                         

ERISA CONSIDERATIONS

Generally, employee benefit plans that are subject to ERISA, plans and
individual retirement accounts that are subject to Section 4975 of the Code and 
entities whose assets are considered assets of such plans ("Plans") may purchase
the Securities subject to the investing fiduciary's determination that the      
investment in the Securities satisfies ERISA's fiduciary standards and other    
requirements applicable to investments by Plans. Accordingly, among other       
factors, the investing fiduciary should consider whether the investment would   
satisfy the prudence and diversification requirements of ERISA and would be     
consistent with the documents and instruments governing the Plans.              

 Under regulations issued by the U.S. Department of Labor (the "DOL"), a
Plan that owns the Securities may be deemed to own a portion of the assets held 
in the Trust, including a portion of the Debentures held in the Trust. In       
addition, the Company and its affiliates may be "parties in interest" (within   
the meaning of ERISA) or "disqualified persons" (within the meaning of Section  
4975 of the Code) with respect to certain Plans (generally, Plans maintained or 
sponsored by, or contributed to by, any such persons or Plans with respect to   
which any such persons are fiduciaries or service providers). The acquisition   
and ownership of the Securities and a deemed acquisition and ownership of an    
interest in the Debentures by a Plan with respect to which the Company or any of
its affiliates is considered a party in interest or a disqualified person may   
constitute or result in a prohibited transaction under ERISA or Section 4975 of 
the Code, unless such Securities are acquired and are held pursuant to and in   
accordance with an applicable exemption. In this regard, the DOL has issued     
prohibited transaction class exemptions ("PTCEs") that may apply to the         
acquisition and holding of the Securities. These class exemptions are PTCE 84-14
(respecting transactions determined by independent qualified professional asset 
managers), PTCE 90-1 (respecting insurance company separate accounts), PTCE     
91-38 (respecting bank collective trust funds), PTCE 95-60 (respecting insurance
company general accounts) and PTCE 96-23 (respecting transactions determined by 
in-house asset managers).                                                       

Any fiduciary proposing to acquire the Securities on behalf of a Plan 
should consult with ERISA counsel for the Plan and should not acquire the       
Securities unless it is determined that such acquisition and holding does not   
and will not constitute a prohibited transaction and will satisfy the applicable
fiduciary requirements imposed under ERISA. Any such acquisition by a Plan shall
be deemed a representation by the Plan and the fiduciary effecting the          
investment on behalf of the Plan that such acquisition and holding satisfies the
applicable fiduciary requirements of ERISA, and is either (i) not a prohibited  
transaction under ERISA and the Code and is otherwise permissible under         
applicable law or (ii) qualified for to exemptive relief from the prohibited    
transaction provisions of ERISA and the Code in accordance with one or more of  
the foregoing PTCEs or another available prohibited transaction exemption.      

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UNDERWRITING

    Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement") among the Company, the Trust, Merrill Lynch,     
Pierce, Fenner & Smith Incorporated and Donaldson, Lufkin & Jenrette Securities 
Corporation (the "Underwriters"), the Company and the Trust have agreed to sell 
to each of the Underwriters, and each of the Underwriters has severally agreed  
to purchase from the Company and the Trust, the number of Income PRIDES, Growth 
PRIDES and Capital Securities set forth below opposite its name. In the         
Underwriting Agreement, the Underwriters have agreed, subject to the terms and  
conditions set forth therein, to purchase all of the Income PRIDES, Growth      
PRIDES and Capital Securities offered hereby if any of the Income PRIDES, Growth
PRIDES or Capital Securities are purchased.                                     

                                                        [Enlarge/Download Table]

                                                         NUMBER OF   NUMBER OF  NUMBER OF 
                                                           INCOME     GROWTH     CAPITAL  
                     UNDERWRITERS                          PRIDES     PRIDES    SECURITIES
-------------------------------------------------------  ----------  ---------  ----------
                                                                                          
Merrill Lynch, Pierce, Fenner & Smith                                                     
             Incorporated..............................   7,750,000    500,000    500,000 
Donaldson, Lufkin & Jenrette Securities Corporation....   7,750,000    500,000    500,000 
                                                         ----------  ---------  --------- 
             Total.....................................  15,500,000  1,000,000  1,000,000 
                                                         ==========  =========  ========= 

   The Underwriters have advised the Company and the Trust that they propose
initially to offer the Income PRIDES, Growth PRIDES and Capital Securities to   
the public at the public offering prices set forth on the cover page of this    
Prospectus and to certain dealers at such price less a concession not in excess 
of $.18 per Income PRIDES, $.18 per Growth PRIDES and $.025 per Capital         
Security. The Underwriters may allow, and such dealers may reallow, a discount  
not in excess of $.10 per Income PRIDES, $.05 per Growth PRIDES and $.01 per    
Capital Security on sales to certain other dealers. After the initial public    
offering, the public offering prices, concessions and discounts may be changed. 

Until the distribution of the Securities is completed, rules of the   
Commission may limit the ability of the Underwriters and any selling group      
members to bid for and purchase the Securities or shares of Common Stock. As an 
exception to these rules, the Underwriters are permitted to engage in certain   
transactions that stabilize the price of the Securities or the Common Stock.    
Such transactions consist of bids or purchases for the purpose of pegging,      
fixing or maintaining the price of the Securities or the Common Stock.          

     If the Underwriters create a short position in the Securities in connection
with the offering, i.e., if they sell more Securities than are set forth on the 
cover page of this Prospectus, the Underwriters may reduce that short position  
by purchasing Securities in the open market. The Underwriters may also elect to 
reduce any short position by exercising all or part of the over-allotment       
options described below.                                                        

    The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase Securities  
in the open market to reduce the Underwriters' short position or to stabilize   
the price of the Securities, they may reclaim the amount of the selling         
concession from any Underwriters or selling group members who sold those        
Securities as part of the offering.                                             

    In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than 
it might be in the absence of such purchases. The imposition of a penalty bid   
might also have an effect on the price of a security to the extent that it were 
to discourage resales of the security.                                          

Neither the Company, the Trust nor any of the Underwriters makes any  
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Securities or the 
Common Stock. In addition, neither the Company, the Trust nor any of the        
Underwriters makes any representation that the Underwriters will engage in such 
transaction or that such transactions, once commenced, will not be discontinued 
without notice.                                                                 

The Company and the Trust have granted to the Underwriters an option, 
exercisable for 30 days following the date of this Prospectus, to purchase up to
an additional 2,475,000 Income PRIDES from the Company at                       
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the Price to Public set forth on the cover page of this Prospectus less the     
underwriting commission. The Underwriters may exercise this option only to cover
over-allotments, if any, made on the sale of the Income PRIDES offered hereby.  
If the Underwriters exercise this over-allotment option, each of the            
Underwriters has severally agreed, subject to certain conditions, to purchase   
approximately the same percentage of such Income PRIDES that the respective     
number of Income PRIDES set forth opposite its name in the foregoing table bears
to the number of Income PRIDES offered hereby.                                  

   The Company and the Trust have agreed that they will not, for a period of
90 days after the date of this Prospectus, without the prior written consent of 
Merrill Lynch, Pierce, Fenner & Smith Incorporated, directly or indirectly,     
sell, offer to sell, grant any option for the sale of, or otherwise dispose of, 
or enter into any agreement to sell, any Income PRIDES, Growth PRIDES, Purchase 
Contracts, Capital Securities or Common Stock or any securities of the Company  
or any affiliate of the Company similar to the Income PRIDES, Growth PRIDES,    
Purchase Contracts, Capital Securities or Common Stock or any security          
convertible into or exchangeable or exercisable for Income PRIDES, Growth       
PRIDES, Purchase Contracts, Capital Securities or Common Stock or any such      
similar securities, other than (i) to the Underwriters pursuant to the          
Underwriting Agreement, (ii) the Debentures to be sold to the Trust and the     
Common Securities to be sold to the Company; (iii) shares of Common Stock or    
options for shares of Common Stock issued pursuant to or sold in connection with
any employee benefit, dividend reinvestment and stock option and stock purchase 
plans of the Company and its subsidiaries, (iv) any securities issued pursuant  
to a merger or acquisition and (v) the Growth PRIDES or Income PRIDES to be     
created or recreated upon substitution of Pledged Securities, or shares of      
Common Stock issuable upon early settlement of the Income PRIDES or Growth      
PRIDES.                                                                         

Prior to this offering, there has been no public market for the Income
PRIDES, Growth PRIDES and the Capital Securities. The Income PRIDES and the     
Growth PRIDES have been approved for listing on the NYSE, subject to official   
notice of issuance. If Capital Securities are separately traded to a sufficient 
extent that the applicable exchange listing requirements are met, the Company   
will endeavor to cause such securities to be listed on such exchange on which   
the Income PRIDES and the Growth PRIDES are then listed, including, if          
applicable, the NYSE. There can be no assurance that an active trading market   
will develop for the Income PRIDES, the Growth PRIDES or the Capital Securities 
or that the Income PRIDES, Growth PRIDES or Capital Securities will trade in the
public market subsequent to the offering at or above the initial public offering
price.                                                                          

The Company and the Trust have agreed to indemnify the Underwriters   
against, or to contribute to payments that the Underwriters may be required to  
make in respect of, certain liabilities, including liabilities under the        
Securities Act of 1933, as amended.                                             

  This Prospectus, as amended or stickered, may be used in connection with
Early Settlement or cash settlement of the Purchase Contracts, or by the        
Remarketing Agent for remarketing the Capital Securities at such time as is     
necessary.                                                                      

 In the ordinary course of their respective businesses, the Underwriters
have performed, and may in the future perform, investment banking services for  
the Company.                                                                    

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EXPERTS 

The consolidated financial statements of the Company appearing in the 
Company's Annual Report (Form 10-K) for the year ended November 30, 1997 have   
been audited by Ernst & Young LLP, independent auditors, as set forth in their  
report thereon included therein and incorporated herein by reference. Such      
consolidated financial statements are incorporated herein by reference in       
reliance upon such report given upon the authority of such firm as experts in   
accounting and auditing.                                                        

LEGAL OPINIONS

The validity of the Purchase Contracts, the Common Stock issuable upon
settlement thereof, the Capital Securities, the Debentures and the Guarantee    
will be passed upon for the Company and the Trust by Skadden, Arps, Slate,      
Meagher & Flom LLP. Certain matters regarding the Company will be passed upon by
Barton P. Pachino, Esq., Senior Vice President and General Counsel for the      
Company, and by Munger, Tolles & Olson LLP. Brown & Wood LLP, San Francisco,    
California, will act as counsel for the Underwriters.                           

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INDEX OF CERTAIN TERMS FOR PROSPECTUS 

Set forth below is a list of certain defined terms appearing in the   
Prospectus and the page numbers on which such terms are defined.                

                                                                [Download Table]

                                                                PAGE  
                                                                ----  
                                                                      
Act.........................................................         6
1940 Act....................................................        78
Applicable Market Value.....................................        16
Applicable Ownership Interest...............................        53
Bankruptcy Code.............................................        17
Beneficial Owner............................................        83
Capital Securities..........................................         1
Change in 1940 Act Law......................................        78
Collateral Agent............................................        11
Commission..................................................         6
Common Securities...........................................         2
Common Stock................................................         2
Company.....................................................  1, 8, 32
Compound Interest...........................................        92
Contract Adjustment Payments................................         2
Custodial Agent.............................................        18
Debentures..................................................         2
Debt Trustee................................................        89
Declaration.................................................        10
Declaration Event of Default................................        79
Deferred Contract Adjustment Payments.......................         3
Depositary..................................................        63
Direct Action...............................................        30
Direct Participants.........................................        63
disposition.................................................        99
Early Settlement............................................        16
Exchange Act................................................         6
Exchange Agent..............................................         4
Extension Periods...........................................    13, 18
Failed Remarketing..........................................         4
FELINE PRIDES...............................................         1
FELINE PRIDES Certificate...................................        57
Global Security.............................................        95
Global Security Certificates................................        63
Growth PRIDES...............................................      1, 2
Guarantee...................................................         3
Guarantee Payments..........................................        86
Guarantee Trustee...........................................        34
Income PRIDES...............................................      1, 2
Indenture...................................................        89
Indenture Event of Default..................................        79
Indirect Participants.......................................        63
Institutional Trustee.......................................        34

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                                                                [Download Table]

                                                                PAGE  
                                                                ----  
                                                                      
Interest Payment Date.......................................        90
KBHC Trustees...............................................        10
NYSE........................................................         1
OID.........................................................         2
Original Issue Date.........................................         3
Participants................................................        63
Payment Date................................................        14
Pledge Agreement............................................        11
Pledged Securities..........................................        27
Primary Treasury Dealer.....................................        91
Property Account............................................        34
Purchase Contract...........................................         2
Purchase Contract Agent.....................................        12
Purchase Contract Agreement.................................        11
Purchase Contract Settlement Date...........................         2
Redemption Price............................................         5
Reference Price.............................................         2
Regular Trustees............................................        34
Remarketing Agent...........................................        14
Remarketing Agreement.......................................        14
Remarketing Fee.............................................         3
Reset Announcement Date.....................................        75
Reset Rate..................................................         3
Reset Spread................................................         3
Securities..................................................         1
Securities Act..............................................         6
Senior Indebtedness.........................................         3
Settlement Rate.............................................     2, 16
short-term U.S. Treasury Security...........................       103
Sponsor.....................................................        10
Stated Amount...............................................         2
Successor Securities........................................        82
Super-Majority..............................................        80
Supplemental Remarketing Agreement..........................        14
Tax Counsel.................................................        99
Tax Event Redemption........................................         5
Tax Event Redemption Date...................................        90
Threshold Appreciation Price................................         2
Treasury Portfolio..........................................        91
Treasury Securities.........................................         2
Trust.......................................................         1
Trust Indenture Act.........................................        10
Trust Securities............................................         2
Underwriters................................................       105
Underwriting Agreement......................................       105

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======================================================                          

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY  
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR        
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE  
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS   
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST OR  
ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE     
HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS  
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY  
STATE 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 ANYONE 
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.                      
------------------
TABLE OF CONTENTS 

                                                                [Download Table]

                                              PAGE
                                              ----
                                                  
Forward-Looking Statements..................     6
Available Information.......................     6
Incorporation of Certain Documents by             
  Reference.................................     7
Prospectus Summary..........................     8
  Explanatory Diagrams......................    21
Risk Factors................................    25
The Company.................................    32
The Trust...................................    34
Use of Proceeds.............................    35
Price Range of Common Stock and Dividends...    35
Dividend Policy.............................    35
Capitalization..............................    36
Consolidated Ratios of Earnings to Fixed          
  Charges and of Earnings to Combined Fixed       
  Charges and Preferred Stock Dividends.....    37
Selected Consolidated Financial Data........    38
Management's Discussion and Analysis of           
  Financial Condition and Results of              
  Operations................................    40
Accounting Treatment........................    52
Description of the FELINE PRIDES............    53
Description of the Purchase Contracts.......    56
Description of Capital Stock................    65
Certain Provisions of the Purchase Contract       
  Agreement and the Pledge Agreement........    70
Description of the Capital Securities.......    73
Description of the Guarantee................    86
Description of the Debentures...............    89
Effect of Obligations Under the Debentures        
  and the Guarantee.........................    97
Federal Income Tax Consequences.............    98
ERISA Considerations........................   104
Underwriting................................   105
Experts.....................................   107
Legal Opinions..............................   107
Index of Certain Terms for Prospectus.......   108

======================================================                          
                          ======================================================

[Kaufman Broad Logo]

KBHC
FINANCING I 

16,500,000
FELINE PRIDES(SM) 

 1,000,000
CAPITAL SECURITIES

--------------------------- 
PROSPECTUS
--------------------------- 

MERRILL LYNCH & CO. 
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

JUNE 30, 1998 
(SM)Service mark of Merrill Lynch & Co., Inc. 
                          ======================================================

Dates Referenced Herein   and   Documents Incorporated by Reference

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		8/15/01		2		92
		4/30/01		49
		3/7/99		67
		8/16/98		2		90
		7/10/98
		7/7/98		1		54
Filed on:		7/2/98
		6/30/98		1		110			S-3/A
		6/23/98		7					8-K
		5/31/98		8		32			10-Q,  4
		4/9/98		8		32
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		3/19/98		8		32
		2/28/98		6		51			10-Q
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		11/30/97		6		107			10-K
		6/22/97		66
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		11/30/96		37		42			10-K
		4/1/96		37
		3/1/96		42		43
		11/30/95		37		42			10-K
		11/30/94		37		38			10-K
		11/30/93		37		38
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