<PAGE>
Rule No. 424(b)(5)
Registration No. 33-52647
Prospectus Supplement
To Prospectus Supplement dated July 26, 1994
Real Estate Investment Trust Portfolio Total Return
MITTS(R)
Combining 90% Principal Protection with Equity Participation Based on Price and
Dividends
[GRAPHIC NO. 1 APPEARS HERE]
For This Offering:
. Degree of Principal Protection: a minimum of $9.00 per unit, representing 90%
of the original issue price is returned at maturity
. Upside Potential: based on the performance of the REIT portfolio and the
aggregate dollar amount of dividends
This brochure must be attached to the Prospectus and Prospectus Supplement that
provides a description of MITTS, including details on the risks associated with
an investment in MITTS.
<PAGE>
REIT Portfolio Total Return MITTS Features
The Market Index Target-Term Securities(SM) (MITTS(R)) offered hereby are
intermediate-term, senior debt securities of Merrill Lynch & Co., Inc. These
MITTS combine attractive features of equity and fixed-income investing by
offering at maturity 90% protection of the original issue price with the
opportunity to participate in (1) the upside potential of the underlying equity
portfolio and (2) the aggregate dollar amount of dividends payed on the
Portfolio Securities.
The Real Estate Investment Trust ( REIT ) Portfolio is a fixed portfolio
consisting of 20 equity securities that trade on the NYSE or AMEX representing a
variety of real estate investments.
These MITTS offer investors:
. Degree of Principal Protection: No less than $9.00, representing 90% of the
original issue price, is returned at maturity regardless of the performance of
the underlying equity portfolio during the term of the Securities.
. Participation in Price Appreciation and Aggregate Dividends of the Underlying
Portfolio: At maturity, an investor will receive the Total Return Portfolio
Value which will be an amount based upon the value of a REIT portfolio plus the
aggregate dollar amount of dividends paid on such stocks during approximately
the term of the Securities.
. Intermediate Maturity: The REIT Portfolio MITTS mature in approximately six
years.
. Senior Debt Securities: These MITTS are non-callable senior debt securities of
Merrill Lynch & Co., Inc. There will be no payment of interest, periodic or
otherwise, prior to maturity.
. New York Stock Exchange Listing: Application will be made to list the
Securities on the New York Stock Exchange. Such listing is subject to certain
conditions described in the Prospectus Supplement.
. Provides for Payment Only at Maturity: These MITTS provide for a payment only
at maturity. There are no periodic payments prior to maturity.
. Special Considerations: Consult the attached Prospectus Supplement for a
detailed description of the risks associated with an investment in MITTS,
including the possibility that an investor may receive only 90% of original
issue price at maturity. The aggregate dividends paid on the Portfolio
Securities will not reflect the opportunity to reinvest dividends as they are
paid on the Portfolio Securities. The price an investor receives for MITTS upon
sale prior to maturity may be more or less than the original cost, depending on
interest rates, dividend rates, time remaining to maturity, the value and
volatility of the underlying equity portfolio, creditworthiness of the issuer
and other factors described in the Prospectus Supplement.
<PAGE>
Delivery of this brochure without an attached Prospectus and Prospectus
Supplement which provides a description of the issuer and the Securities,
including details on the risks associated with an investment in MITTS, is not
authorized.
<PAGE>
Who Should Consider MITTS
Since these MITTS are tied to the results of an underlying equity index or
portfolio plus aggregate dividends thereon, they may be appropriate for
investors with specific investment horizons who seek to participate in the
potential price appreciation of stocks and payments of dividends, with the
comfort provided by a degree of principal protection.
In particular, MITTS may be an alternative for investors who:
. Seek total return, but not current income. Any supplemental payment will be
payable only at maturity.
. Want to participate in the aggregate dividends paid and potential changes of
dividend rates, but are willing to defer receipt of those dividends until
maturity.
. Want to participate in the appreciation potential offered by stocks but are
concerned about limiting principal risk.
. Seek to add a high-quality, equity-linked investment to balance out a
portfolio otherwise dominated by fixed income investments.
. Are willing to forego current low to moderate interest rates in order to seek
higher potential long-term results.
This MITTS offering is made by the attached Prospectus and Prospectus Supplement
only, which provide a description of the issuer and the Securities, including
details on the risks associated with an investment in MITTS.
<PAGE>
How These MITTS Work
Purchase Price
MITTS are purchased for $10 each.
Payment at Maturity
. The amount payable at maturity with respect to a Security will equal the Total
Return Portfolio Value.
. The Total Return Portfolio Value will be based on price movement of the
underlying portfolio plus aggregate dividends.
. If the Total Return Portfolio Value is less than the Original Portfolio Value,
the amount payable at maturity with respect to a Security will be less than
the principal amount of such Security. In no event will the investor receive
at maturity less than 90% of principal.
Component Stocks of the REIT Portfolio
<TABLE>
<CAPTION>
Component Stock Primary Realty Type Weighting
- --------------- ------------------- ---------
<S> <C> <C>
Burnham Pacific Properties, Inc. Commercial Properties 3.00%
Carr Realty Corporation Office Buildings 3.00%
Duke Realty Investments, Inc. Industrial/Office 9.00%
Excel Realty Trust, Inc. Shopping Centers 2.00%
Federal Realty Investment Trust Shopping Centers 6.00%
Gables Residential Trust Apartments 6.00%
General Growth Properties, Inc. Shopping Centers 4.00%
Health and Retirement Property Trust Rehab/Nursing Homes 9.00%
Health Care Property Investors, Inc. Long-Term Care/Rehab 5.00%
JP Realty, Inc. Shopping Centers 6.00%
Kimco Realty Corporation Shopping Centers 3.00%
Nationwide Health Properties, Inc. Nursing Homes/Long-Term Care 5.00%
New Plan Realty Trust Shopping Centers/Apartments 7.00%
Simon Property Group, Inc. Regional Malls/Power Centers 10.00%
Taubman Centers, Inc. Regional Malls 2.00%
TriNet Corporate Realty Trust, Inc. Industrial/Office 4.00%
Urban Shopping Centers, Inc. Regional Malls 3.00%
Weingarten Realty Investors Shopping Centers 8.00%
Wellsford Residential Property Trust Apartments 3.00%
Western Investment Real Estate Trust Shopping Centers 2.00%
</TABLE>
The inclusion of a component stock in the portfolio should not be viewed as a
recommendation to buy or sell such component stock or any underlying shares, and
neither the Company nor any of its affiliates make any representation to any
purchaser of Securities as to the performance of the portfolio or any component
stock. Beneficial owners of the Securities will not have any right to receive
any underlying shares.
<PAGE>
Merrill Lynch & Co.
"MITTS(R)" is a registered service mark and "Market Index Target-Term
Securities(SM)" is a service mark owned by Merrill Lynch & Co., Inc.
(C)Merrill Lynch & Co., 1994
<PAGE>
SUBJECT TO COMPLETION AND AMENDMENT
PRELIMINARY PROSPECTUS DATED JULY 26, 1994
PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED MARCH 24, 1994)
[LOGO OF MERRILL LYNCH]
2,500,000 UNITS
MERRILL LYNCH & CO., INC.
REAL ESTATE INVESTMENT TRUST PORTFOLIO TOTAL RETURN
MARKET INDEX TARGET-TERM SECURITIES(SM) DUE AUGUST 31, 2000
("MITTS(R)")
---------------
An aggregate principal amount of $25,000,000 of Real Estate Investment Trust
Portfolio Total Return Market Index Target-Term Securities(SM) due August 31,
2000 (the "Securities" or "MITTS(R)") of Merrill Lynch & Co., Inc. (the
"Company") are being offered hereby. Each $10 principal amount of Securities
will be deemed a "Unit" for purposes of trading and transfer at the Securities
Depository described below. Units will be transferable by the Securities
Depository, as more fully described below, in denominations of whole Units.
The Securities are being offered at an original issue price of 100% of the
principal amount thereof, and will mature on August 31, 2000. At maturity, a
beneficial owner of a Security will be paid the Total Return Portfolio Value
with respect to each $10 principal amount of the Security; provided, however,
that the amount payable at maturity will not be less than $9.00 for each Unit
of the Securities (the "Minimum Payment"). The Total Return Portfolio Value
will be an amount based upon the value of a portfolio (the "Portfolio") of
specified stocks of real estate investment trusts ("REITs") plus the aggregate
dollar amount of dividends paid on such stocks after the issuance of the
Securities as more fully described herein. The value of the Portfolio on the
date the Securities are priced by the Company for initial offering to the
public will equal $10 (the "Original Portfolio Value"). While at maturity a
beneficial owner of a Security may receive an amount in excess of the
principal amount of such Security if the Total Return Portfolio Value exceeds
the Original Portfolio Value, there will be no payment of interest, periodic
or otherwise, prior to maturity.
IF THE TOTAL RETURN PORTFOLIO VALUE IS LESS THAN THE ORIGINAL PORTFOLIO
VALUE, THE AMOUNT PAYABLE AT MATURITY WITH RESPECT TO A SECURITY WILL BE LESS
THAN THE PRINCIPAL AMOUNT OF SUCH SECURITY.
The Securities are to be issued as a series of Senior Debt Securities under
the Chemical Indenture described herein. The Securities are not redeemable
prior to maturity.
For information as to the calculation of the amount that will be paid at
maturity, the calculation and the composition of the Portfolio and certain tax
consequences to beneficial owners of the Securities, see "Description of
Securities," "The Portfolio" and "Certain United States Federal Income Tax
Considerations" in this Prospectus Supplement. FOR OTHER INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "SPECIAL CONSIDERATIONS" IN
THIS PROSPECTUS SUPPLEMENT.
Ownership of the Securities will be maintained in book-entry form by or
through the Securities Depository. Beneficial owners of the Securities will
not have the right to receive physical certificates evidencing their ownership
except under the limited circumstances described herein.
Application will be made to list the Securities on the New York Stock
Exchange.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT THE COMPANY(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit.................................. $10 $ $
- --------------------------------------------------------------------------------
Total..................................... $ $ $
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Before deduction of expenses payable by the Company.
The Securities are offered by the Underwriter, subject to prior sale, when,
as and if issued by the Company and accepted by the Underwriter and subject to
certain other conditions. The Underwriter reserves the right to reject orders
in whole or in part. It is expected that delivery of the Securities will be
made in New York, New York on or about , 1994.
This Prospectus Supplement and the accompanying Prospectus may be used by
the Underwriter in connection with offers and sales related to market-making
transactions in the Securities. The Underwriter may act as principal or agent
in such transactions. Such sales will be made at prices related to prevailing
market prices at the time of sale.
---------------
MERRILL LYNCH & CO.
---------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS AUGUST , 1994.
"MITTS" is a registered service mark and "Market Index Target-Term Securities"
is a service mark owned by Merrill Lynch & Co., Inc.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
The Commissioner of Insurance of the State of North Carolina has not
approved or disapproved the offering of the Securities made hereby nor has the
Commissioner passed upon the accuracy or adequacy of this Prospectus
Supplement or Prospectus.
S-2
<PAGE>
SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by the more detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus.
Issuer ............... Merrill Lynch & Co., Inc.
Securities Offered ... $25,000,000 Real Estate Investment Trust Portfolio
Total Return Market Index Target-Term Securities
("MITTS") due August 31, 2000. The Securities are to be
issued as a series of Senior Debt Securities under the
Chemical Indenture described herein.
Listing .............. Application will be made to list the Securities on the
New York Stock Exchange.
Denominations ........ Units consisting of $10 principal amount of Securities
and integral multiples thereof.
Original Issue Price . 100%
Maturity ............. August 31, 2000
Payment at Maturity .. At maturity, a beneficial owner of a Security will be
entitled to receive, with respect to each $10 principal
amount of the Security, the Total Return Portfolio
Value; provided, however, that the amount payable at
maturity will not be less than $9 for each $10
principal amount of Securities (the "Minimum Payment").
The "Total Return Portfolio Value" will be determined
by Merrill Lynch, Pierce, Fenner & Smith Incorporated,
an affiliate of the Company, or successor thereto (the
"Calculation Agent"), and will equal the average (mean)
of the Daily Total Return Portfolio Values determined
on each of the first forty-five Calculation Days (or
such other lesser number of Calculation Days as shall
occur) during the Calculation Period. The "Daily Total
Return Portfolio Value" for any Calculation Day will be
determined by Bridge Data Company (the "Pricing Agent")
and will equal (i) the Equity Value, plus (ii) the
Aggregate Dividend Value for such Calculation Day. The
Pricing Agent currently intends to publish the Daily
Total Return Portfolio Value three times during each
business day.
If the Total Return Portfolio Value is less than the
Original Portfolio Value, the amount payable at
maturity with respect to a Security will be less than
the principal amount of such Security; provided,
however, that the amount payable at maturity will not
be less than the Minimum Payment.
Equity Value ......... "Equity Value" for any Calculation Day will equal the
sum of the products of the Market Prices and the
applicable Multipliers for the Portfolio Securities (as
defined below). The "Market Price" of a Portfolio
Security is the closing price of such Portfolio
Security on such Calculation Day as more fully
described herein. The "Multiplier" relating to each
Portfolio Security will be specified under the caption
"Description of Securities--Portfolio Securities" below
and indicates the number of shares (or fraction
S-3
<PAGE>
of one share) of such Portfolio Security included in
the calculation of the Daily Total Return Portfolio
Value. The Multipliers will remain constant for the
term of the Securities unless adjusted for certain
corporate events such as stock splits, reverse stock
splits or stock dividends or similar adjustments. See
"Description of Securities--Adjustments to the
Multiplier and Portfolio" in this Prospectus
Supplement.
Aggregate Dividend "Aggregate Dividend Value" for any Calculation Day will
Value ............... equal the sum of the Dividend Payment amount for each
Portfolio Security. The "Dividend Payment" with respect
to a Portfolio Security for any Calculation Day will
equal the sum of the products of (i) each dividend paid
by the issuer of such Portfolio Security on one share
of such Portfolio Security during the period from the
issue date of the Securities through such Calculation
Day multiplied by (ii) the Multiplier applicable to
such Portfolio Security at the time each such dividend
is paid.
Original Portfolio On the date the Securities are priced for initial sale
Value ............... to the public, the Multiplier for each Portfolio
Security will be initially set so that the Portfolio
value on such date equals $10 (the "Original Portfolio
Value").
Portfolio Securities . The stocks indicated under the caption "Description of
Securities--Portfolio Securities" below will be used to
calculate the Daily Total Return Portfolio Value.
Beneficial owners of the Securities will not have any
right to receive Portfolio Securities. The Portfolio
Securities are equity securities issued by twenty real
estate investment trusts ("REITs"). The initial
Multipliers will be determined so that each Portfolio
Security represents a percentage of the Original
Portfolio Value on the date the Securities are priced
for initial sale to the public based on a measure of
the liquidity of such Portfolio Security as compared to
the other Portfolio Securities. See "Description of
Securities--Portfolio Securities" in this Prospectus
Supplement. The inclusion of a Portfolio Security in
the Portfolio is not a recommendation to buy or sell
such Portfolio Security, and neither the Company nor
any of its affiliates make any representation to any
purchaser of Securities as to the performance of the
Portfolio.
Special The purchase of the Securities involves certain special
Considerations ...... considerations. The payment at maturity on the
Securities will be based on the Total Return Portfolio
Value which reflects both changes in the prices of the
Portfolio Securities (i.e., the Equity Value) and
dividends paid on the Portfolio Securities (i.e., the
Aggregate Dividend Value). Decreases in the Equity
Value may offset the Aggregate Dividend Value such that
the Total Return Portfolio Value may be less than the
Original Portfolio Value and result in a payment at
maturity less than the principal amount of the
Securities. If the Total Return Portfolio Value is less
than $9, the Minimum Payment will be paid at the
maturity of the Securities and no additional amount
will be paid to reflect the Aggregate Dividend Value.
If the Total Return Portfolio Value is less than the
Original Portfolio Value, beneficial owners of the
Securities will receive less than the principal amount
of such Securities at maturity, but not less than the
Minimum Payment. This will be true even though the
Daily Total Return Portfolio
S-4
<PAGE>
Value on one or more days prior to the Calculation
Period may have exceeded the Original Portfolio Value.
While at maturity a beneficial owner of a Security may
receive an amount in excess of the principal amount of
such Security if the Total Return Portfolio Value
exceeds the Original Portfolio Value, there will be no
payment of interest, periodic or otherwise, prior to
maturity. The return based on the Total Return
Portfolio Value relative to the Original Portfolio
Value generally will not produce the same return as if
the Portfolio Securities were purchased and held for a
similar period, because, among other reasons, any
payment at maturity on the Securities will not reflect
the opportunity to reinvest dividends as they are paid
on the Portfolio Securities. See "Special
Considerations" in this Prospectus Supplement.
There can be no assurance as to how the Securities will
trade in the secondary market or whether such market
will be liquid. It is expected that the secondary
market for the Securities will be affected by the
creditworthiness of the Company and by a number of
other factors including interest rates, the Aggregate
Dividend Value, volatility of the Daily Total Return
Portfolio Value, the time remaining to maturity and
dividend rates. The trading value of the Securities is
expected to depend primarily on the extent of the
increase, if any, of the Daily Total Return Portfolio
Value over the Original Portfolio Value. If, however,
Securities are sold prior to the maturity date at a
time when the Daily Total Return Portfolio Value
exceeds the Original Portfolio Value, the sale price
may be at a discount from the amount expected to be
payable to the beneficial owner if such excess of the
Daily Total Return Portfolio Value over the Original
Portfolio Value were to prevail during the Calculation
Period because of the possible fluctuation of the Daily
Total Return Portfolio Value between the time of such
sale and the calculation of the Total Return Portfolio
Value. The price at which a beneficial owner will be
able to sell Securities prior to maturity may be at a
discount, which could be substantial, from the
principal amount thereof, if, at such time, the Daily
Total Return Portfolio Value is below, equal to or not
sufficiently above the Original Portfolio Value. A
discount could also result from rising interest rates.
Beneficial owners of the Securities will receive a
payment at maturity which will be based on the Equity
Value and the Aggregate Dividend Value, but will not
have any right to receive any of the Portfolio
Securities.
It is suggested that prospective investors who consider
purchasing the Securities should reach an investment
decision only after carefully considering the
suitability of the Securities in light of the
prospective investor's particular circumstances.
Prospective investors should also consider the risks
specific to the Portfolio, including the risks relating
to the real estate market, as described in "The
Portfolio".
Investors should also consider the tax consequences of
investing in the Securities. See "Certain United States
Federal Income Tax Considerations" in this Prospectus
Supplement.
S-5
<PAGE>
SPECIAL CONSIDERATIONS
PAYMENT AT MATURITY
The payment at maturity on the Securities will be based on the Total Return
Portfolio Value which reflects both changes in the prices of the Portfolio
Securities (i.e., the Equity Value) and dividends paid on the Portfolio
Securities (i.e., the Aggregate Dividend Value). Decreases in the Equity Value
may offset the Aggregate Dividend Value such that the Total Return Portfolio
Value may be less than the Original Portfolio Value and result in a payment at
maturity less than the principal amount of the Securities. If the Total Return
Portfolio Value is less than $9, the Minimum Payment will be paid at the
maturity of the Securities and no additional amount will be paid to reflect the
Aggregate Dividend Value.
If the Total Return Portfolio Value is less than the Original Portfolio
Value, beneficial owners of the Securities will receive less than the principal
amount of such Securities at maturity, but not less than the Minimum Payment.
Beneficial owners will receive only the return of principal if the Total Return
Portfolio Value equals the Original Portfolio Value. This will be true even
though the Daily Total Return Portfolio Value on one or more days prior to the
Calculation Period may have exceeded the Original Portfolio Value since the
Total Return Portfolio Value is calculated on the basis of the average of the
Daily Total Return Portfolio Values only on certain Calculation Days. While at
maturity a beneficial owner of a Security may receive an amount in excess of
the principal amount of such Security if the Total Return Portfolio Value
exceeds the Original Portfolio Value, there will be no payment of interest,
periodic or otherwise, prior to maturity.
Even if the principal of the Securities is fully returned, such return of
principal does not reflect any opportunity cost implied by inflation and other
factors relating to the time value of money.
The return based on the Total Return Portfolio Value relative to the Original
Portfolio Value generally will not produce the same return as if the Portfolio
Securities were purchased and held for a similar period, because, among other
reasons, any payment at maturity on the Securities will not reflect the
opportunity to reinvest dividends as they are paid on the Portfolio Securities.
The payment of dividends on the Portfolio Securities is reflected in the
Aggregate Dividend Value which is used to determine the Daily Total Return
Portfolio Values and in turn the Total Return Portfolio Value. There will be no
payments prior to the maturity of the Securities to reflect the payment of
dividends on the Portfolio Securities during the term of the Securities.
The Indenture provides that the Indenture and the Securities will be governed
by and construed in accordance with the laws of New York. Under present New
York law, the maximum rate of interest is 25% per annum on a simple interest
basis. This limit may not apply to Securities in which $2,500,000 or more has
been invested. While the Company believes that New York law would be given
effect by a state or Federal court sitting outside of New York, state laws
frequently regulate the amount of interest that may be charged to and paid by a
borrower (including, in some cases, corporate borrowers). It is suggested that
prospective investors consult their personal advisors with respect to the
applicability of such laws. The Company will covenant for the benefit of the
Holders of the Securities, to the extent permitted by law, not to claim
voluntarily the benefits of any laws concerning usurious rates of interest
against a Holder of the Securities.
TRADING
Application will be made to list the Securities on the New York Stock
Exchange. There can be no assurance as to how the Securities will trade in the
secondary market or whether such market will be liquid. It is expected that the
secondary market for the Securities will be affected by the creditworthiness of
the Company and by a number of other factors. The trading value of the
Securities is expected to depend primarily on the extent of the increase, if
any, of the Daily Total Return Portfolio Value over the Original Portfolio
Value. If, however, Securities are sold prior to the maturity date at a time
when the Daily Total Return Portfolio Value exceeds the Original Portfolio
Value, the sale price may be at a discount from the amount expected to be
payable to the beneficial owner if such excess of the Daily Total Return
Portfolio
S-6
<PAGE>
Value over the Original Portfolio Value were to prevail during the Calculation
Period due to the possibility of fluctuation of the Daily Total Return
Portfolio Value between the time of such sale and the calculation of the Total
Return Portfolio Value. Furthermore, the price at which a beneficial owner will
be able to sell Securities prior to maturity may be at a discount, which could
be substantial, from the principal amount thereof, if, at such time, the Daily
Total Return Portfolio Value is below, equal to or not sufficiently above the
Original Portfolio Value. A discount could also result from rising interest
rates.
The trading values of the Securities may be affected by a number of
interrelated factors, including those listed below. The relationship among
these factors is complex, including how these factors affect the value of the
principal amount of the Securities payable at maturity, if any, in excess of
the principal amount of the Securities. Accordingly, investors should be aware
that factors other than the level of the Daily Total Return Portfolio Value are
likely to affect their trading value. The expected theoretical effect on the
trading value of the Securities of each of the factors listed below, assuming
in each case that all other factors are held constant, is as follows:
Interest Rates. In general, if U.S. interest rates increase, the value of the
Securities is expected to decrease. If U.S. interest rates decrease, the value
of the Securities is expected to increase. Interest rates may also affect the
U.S. economy, and, in turn, affect the Daily Total Return Portfolio Value.
Volatility of the Daily Total Return Portfolio Value. If the volatility of
the Daily Total Return Portfolio Value increases, the trading value of the
Securities is expected to increase. If the volatility of the Daily Total Return
Portfolio Value decreases, the trading value of the Securities is expected to
decrease.
Time Remaining to Maturity. The Securities may trade at a value above that
which may be inferred from the level of the Daily Total Return Portfolio Value.
This difference will reflect a "time premium" due to expectations concerning
the Daily Total Return Portfolio Value during the period prior to maturity of
the Securities. As the time remaining to maturity of the Securities decreases,
however, this time premium is expected to decrease, thus decreasing the trading
value of the Securities.
Aggregate Dividend Value. As the Aggregate Dividend Value increases because
dividends are paid on the Portfolio Securities, the value of the Securities is
expected to increase.
Dividend Rates. In general, if dividend rates on the Portfolio Securities
increase, the value of the Securities is expected to decrease. Conversely, if
dividend rates on the Portfolio Securities decrease, the value of the
Securities is expected to increase. However, rising dividend rates on the
Portfolio Securities may increase the value of the Portfolio Securities and, in
turn, increase the value of the Securities. Conversely, falling dividend rates
on the Portfolio Securities may decrease the value of the Portfolio Securities
and, in turn, decrease the value of the Securities.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities should reach an investment decision only after carefully considering
the suitability of the Securities in the light of each investor's particular
circumstances.
Prospective investors should also consider the risks specific to the
Portfolio, including the risks relating to the real estate market, as described
in "The Portfolio".
Investors should also consider the tax consequences of investing in the
Securities. See "Certain United States Federal Income Tax Considerations" in
this Prospectus Supplement.
S-7
<PAGE>
RECENT DEVELOPMENTS
The following summary of certain consolidated financial information
concerning the Company for the six months ended June 25, 1993 and July 1, 1994
was derived from, and is qualified in its entirety by reference to, the
financial information and data contained in the Company's Current Report on
Form 8-K dated July 19, 1994, and other documents incorporated by reference
herein. See "Incorporation of Certain Documents by Reference" in the
accompanying Prospectus. The Current Report on Form 8-K dated July 19, 1994
(which includes unaudited preliminary financial information for the three and
six months ended July 1, 1994) and certain other documents incorporated herein
by reference will be superseded by the Company's Quarterly Report on Form 10-Q
for the quarter ended July 1, 1994. In the opinion of management of the
Company, all adjustments, consisting only of normal recurring accruals,
necessary for a fair statement of the results of operations for the six months
ended July 1, 1994 have been included.
The Company conducts its business in highly volatile markets. Consequently,
the Company's results can be affected by many factors, including general market
conditions, the liquidity of secondary markets, the level and volatility of
interest rates and currency values, the valuation of securities positions,
competitive conditions, and the size, number and timing of transactions. In
periods of unfavorable market activity, profitability can be adversely affected
because certain expenses remain relatively fixed. As a result, net earnings and
revenues can vary significantly from period to period. Thus, interim results
may not necessarily be representative of the full year results of operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
JUNE 25, JULY 1,
1993 1994
------------ ----------
(IN THOUSANDS, EXCEPT
RATIOS)
<S> <C> <C>
Revenues.............................................. $ 7,921,993 $9,219,111
Net Revenues(1)....................................... $ 5,166,613 $5,229,547
Earnings before income taxes and cumulative effect of
change in accounting principle....................... $ 1,185,229 $1,084,870
Cumulative effect of change in accounting
principle(2)......................................... $ (35,420) $ --
Net earnings.......................................... $ 652,013 $ 623,568
Ratio of earnings to fixed charges(3)................. 1.4 --
Total assets(4)....................................... $130,631,933 $ --
Long-term borrowings(4)............................... $ 12,525,414 $ --
Stockholders' equity(4)............................... $ 5,267,155 $ --
</TABLE>
- --------
Notes:
(1) Net revenues are revenues net of interest expense.
(2) Net earnings for 1993 have been reduced by $35,420,000 to reflect the
effect of the adoption of Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits".
(3) The ratio of earnings to fixed charges for the six months ended July 1,
1994 is not available as of the date of this Prospectus Supplement. At April
1, 1994, the ratio of earnings to fixed charges was 1.3. For the purpose of
calculating the ratio of earnings to fixed charges, "earnings" consists of
earnings from continuing operations before income taxes and fixed charges.
"Fixed charges" consists of interest costs and that portion of rentals
estimated to be representative of the interest factor.
(4) Certain information as of July 1, 1994 is not available as of the date of
the Prospectus Supplement. At April 1, 1994, total assets, long-term
borrowings and stockholders' equity were $179,683,796,000, $14,852,894,000,
and $5,603,067,000, respectively. To finance its diverse activities, the
Company and certain of its subsidiaries borrow substantial amounts of short-
term funds on a regular basis. Although the amount of short-term borrowings
significantly varies with the level of general business activity, on April
1, 1994, $492,147,000 of bank loans and $14,965,436,000 of commercial paper
were outstanding. In addition, certain of the Company's subsidiaries lend
securities and enter into repurchase agreements to obtain financing. At
April 1, 1994, cash deposits for securities loaned and securities sold under
agreements to repurchase amounted to $1,619,172,000 and $66,156,594,000,
respectively. From April 1, 1994 to July 22, 1994, long-term borrowings, net
of repayments and repurchases, increased in the amount of approximately
$101,917,000.
S-8
<PAGE>
SIX MONTHS ENDED JULY 1, 1994
Strong financial markets, evident throughout 1993 and continuing into the
first six weeks of 1994, weakened during the remainder of the 1994 first-half
primarily as a result of higher interest rates, unsettled currency markets, and
investor caution. Persistent inflation concerns prompted the Federal Reserve to
increase short-term interest rates throughout the first six months of 1994.
Rising U.S. interest rates, a weak U.S. dollar, reduced underwriting volumes,
and unsettled international financial markets contributed to lower levels of
business activity industrywide.
For the first six months of 1994, net earnings were $623.6 million, down
$28.4 million (4%) from the $652.0 million reported in last year's record
first-half. Net earnings for the 1993 period included a $35.4 million
cumulative effect charge (net of $25.1 million of applicable income tax
benefits) related to the adoption of Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits". Earnings
before the cumulative effect of the change in accounting principle decreased 9%
from the $687.4 million reported in the 1993 first-half. Earnings per common
share for the first six months of 1994 were $2.87 primary and fully diluted
versus $2.88 primary and $2.87 fully diluted ($3.04 primary and $3.03 fully
diluted, before the 1993 cumulative effect charge) in the prior year's period.
As previously reported, 1993 six month results included a non-recurring
pretax lease charge totaling $103.0 million ($59.7 million after income taxes)
related to the Company's decision not to occupy certain office space at its
World Financial Center Headquarters ("Headquarters") facility. An agreement to
sublet this space was entered into in the 1993 fourth quarter.
Total revenues increased 16% from the 1993 six-month period to $9,219
million. Revenues after interest expense ("net revenues") increased 1% in the
1994 first-half to $5,230 million.
Commission revenues increased 12% from the 1993 six-month period to $1,559
million on the strength of higher mutual fund, commodity, and listed securities
transactions commissions. Mutual fund commissions benefited from increased
distribution and redemption fees earned on mutual funds sold in prior periods.
Sales of third party mutual funds decreased from a year ago as transactions in
such funds declined, particularly in the 1994 second quarter. Commissions on
listed securities and commodity transactions benefited from higher trading
volume.
Interest and dividend revenues for the first six months of 1994 rose 37% to
$4,517 million. Interest expense, which includes dividend expense, increased
45% to $3,990 million. Net interest profit decreased 1% to $528 million, due
primarily to an increase in short-term interest rates and a general flattening
of the yield curve, which is the difference between short-term and long-term
interest rates. As a result, interest spreads declined, while financing and
hedging costs increased from the comparable 1993 period.
Principal transactions revenues decreased 18% for the 1994 six-month period
to $1,228 million. Fixed-income and foreign exchange trading revenues, in the
aggregate, decreased due to lower revenues from corporate bonds and preferred
stock, non-U.S. government and agency securities, and foreign exchange
activities. Equity and commodity trading revenues, in the aggregate, also
decreased due to a modest loss from convertible securities, partially offset by
higher revenues from commodities trading and foreign equities activities.
Investment banking revenues totaled $766 million, down 11% in the 1994 first-
half. Underwriting activity was slow as industrywide volume in the 1994 second
quarter fell to the lowest level since the 1991 third quarter. Lower
underwriting revenues were reported in corporate debt and preferred stock,
convertible securities, and municipal bonds. Strategic service revenues, which
include merger and acquisition fees and advisory service fees, benefited from
an increase in merger and acquisition advisory assignments in various
industries.
Asset management and portfolio service fees increased 18% to $876 million
due, in part, to increases in stock and bond fund assets under management.
Other revenues rose 106% from the 1993 first-half to $273 million. Contributing
to this advance were net realized investment gains in the 1994 period, compared
with net investment losses in the year-ago period.
S-9
<PAGE>
Non-interest expenses increased 4% over the corresponding 1993 period to
$4,145 million (7% excluding the non-recurring lease charge of $103.0 million).
Compensation and benefits expense, which represented 64% of non-interest
expenses, rose 4% from the 1993 six-month period. An increase in the number of
full-time employees led to higher base wages, benefit expenses, and production-
related compensation. Offsetting this increase was lower incentive compensation
tied to reduced profitability. Compensation and benefits expense, as a
percentage of net revenues, was 50.6% in 1994 first-half compared with 49.2% in
the corresponding 1993 period.
Occupancy costs decreased 35% compared to the corresponding 1993 period (6%
excluding the non-recurring pretax lease charge of $103.0 million), benefiting
from continued relocation of support staff to lower cost facilities and reduced
space requirements at the Headquarters facility. Other facilities-related
costs, which include communications and equipment rental expense and
depreciation and amortization expense, rose 11% primarily due to the increased
use of market data services and higher depreciation expense from the
acquisition of technology-related equipment.
Brokerage, clearing, and exchange fees were up 23% from last year's six-month
period due to increased clearinghouse fees related to risk management
activities in volatile markets and higher commodity trading volume. Advertising
and market development expenses rose 15% from the 1993 six-month period as a
result of increased international business initiatives and higher recognition
program costs, particularly in the first quarter of 1994. Professional fees
were up 43% from the year-ago period due primarily to increased system
consulting fees related to technology improvements and higher legal fees. Other
expenses advanced 9% due to increased provisions related to customer
receivables and higher client-related printing costs.
Income tax expense totaled $461 million for the 1994 first-half, down 7% from
the year earlier period. The tax rate for the 1994 six-month period was 42.5%
versus 42.0% in the comparable 1993 period.
On January 1, 1994 the Company adopted Financial Accounting Standards Board
Interpretation No. 39 ("Interpretation No. 39"), "Offsetting of Amounts Related
to Certain Contracts". Interpretation No. 39 affects the financial statement
presentation of balances related to swap, forward, and other similar exchange
or conditional type contracts, and certain unconditional type contracts. Prior
to the adoption of Interpretation No. 39, the Company followed industry
practice in reporting balances for certain types of contracts on a net basis.
Unrealized gains and losses for swap, forward, and other similar contracts were
reported net on the balance sheet by contract type, while certain receivables
and payables related to resale and repurchase agreements were reported net by
counterparty. The adoption of Interpretation No. 39 increased assets and
liabilities at April 1, 1994 by approximately $14.0 billion.
The Company believes that its equity is adequate relative to the level and
composition of its assets and the mix of its business.
In the normal course of business, the Company underwrites, trades, and holds
non-investment grade securities in connection with its market-making,
investment banking, insurance, and derivative structuring activities. These
activities are subject to risks related to the creditworthiness of the issuers
and the liquidity of the market for such securities, in addition to the usual
risks associated with investing, extending credit, underwriting, and trading in
investment grade instruments.
Information concerning the Company's positions in highly leveraged and non-
investment grade securities and investments in highly leveraged transactions at
July 1, 1994 is not available as of the date of this Prospectus Supplement. At
April 1, 1994, the carrying value of the extensions of credit provided to
corporations entering into leveraged transactions aggregated $323 million
(excluding unutilized revolving lines of credit and other lending commitments
of $56 million), consisting primarily of senior term and subordinated
financings to 39 medium-sized corporations. At April 1, 1994, the Company had
no bridge loans outstanding. Loans to highly leveraged corporations are carried
at unpaid principal balance less a reserve for
S-10
<PAGE>
estimated losses. The allowance for loan losses is estimated based on a review
of each loan, and consideration of economic, market, and credit conditions.
Direct equity investments made in conjunction with the Company's investment and
merchant banking activities, which are generally recorded at the lower of cost
or estimated net realizable value, aggregated $296 million at April 1, 1994,
representing investments in 81 enterprises. Equity investments in privately
held corporations for which sale is restricted by government or contractual
requirements are carried at the lower of cost or estimated net realizable
value. At April 1, 1994, the Company held interests in partnerships, totaling
$99 million (recorded on the cost basis), that invest in highly leveraged
transactions and non-investment grade securities. The Company has a co-
investment arrangement to enter into direct equity investments. At April 1,
1994, the additional co-investment commitments were $30 million. As of April 1,
1994, the Company also has committed to invest an additional $18 million in
partnerships that invest in leveraged transactions. The Company has committed
to invest up to $50 million in a partnership which is expected to be funded by
the end of 1994.
As a market-maker, the Company holds trading positions in non-investment
grade securities.
At April 1, 1994, the fair value of long and short non-investment grade
trading positions represented 4% of aggregated consolidated trading
inventories.
The Company's insurance subsidiaries hold non-investment grade securities. At
April 1, 1994, non-investment grade insurance investments were $457 million,
representing 6.4% of the total insurance investments. At April 1, 1994, non-
investment grade securities of insurance subsidiaries were classified as
trading or available-for-sale and were carried at fair value.
At April 1, 1994, the largest non-investment grade concentration consisted of
various issues of a Latin American sovereign totaling $480 million, of which
$166 million represented on-balance sheet hedges. No single industry sector
accounted for more than 17% of total non-investment grade positions. At April
1, 1994, the Company held an aggregate carrying value of $293 million in debt
and equity securities of issuers in various stages of bankruptcy proceedings.
Approximately 61% of this amount resulted from the Company's market-making
activities.
S-11
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Securities are to be issued as a series of Senior Debt Securities under
the Senior Indenture specified as the "Chemical Indenture", which is more fully
described in the accompanying Prospectus. The principal amount of each Security
will equal $10 for each Unit. The Securities will mature on August 31, 2000.
While at maturity a beneficial owner of a Security may receive an amount in
excess of the principal amount of such Security if the Total Return Portfolio
Value exceeds the Original Portfolio Value, there will be no payment of
interest, periodic or otherwise, prior to maturity. See "Payment at Maturity"
below.
The Securities are not subject to redemption by the Company or at the option
of any Holder prior to maturity. Upon the occurrence of an Event of Default
with respect to the Securities, Holders of the Securities may accelerate the
maturity of the Securities, as described under "--Events of Default and
Acceleration" below and "Description of Debt Securities--General--Events of
Default" in the accompanying Prospectus.
The Securities are to be issued in denominations of whole Units.
PAYMENT AT MATURITY
At maturity, a beneficial owner of a Security will be entitled to receive,
with respect to each $10 principal amount of the Security, the Total Return
Portfolio Value; provided, however, that the amount payable at maturity will
not be less than $9 for each $10 principal amount of Securities (the "Minimum
Payment"). Based on the prices of the Portfolio Securities on the date the
Securities are priced by the Company for initial offering to the public, the
Multipliers will be initially set so that the value of the Portfolio on such
date will equal $10 (the "Original Portfolio Value").
If the Total Return Portfolio Value is equal to $9 or less, a beneficial
owner of a Security will receive the Minimum Payment of $9 for each $10
principal amount of the Securities at maturity. If the Total Return Portfolio
Value is between $9 and $10, a beneficial owner of a Security will receive
between $9 and $10 for each $10 principal amount of the Securities at maturity.
The "Total Return Portfolio Value" will be determined by Merrill Lynch,
Pierce, Fenner & Smith Incorporated, an affiliate of the Company, or successor
thereto (the "Calculation Agent"), and will equal the average (mean) of the
Daily Total Return Portfolio Values determined on each of the first forty-five
Calculation Days during the Calculation Period. If there are fewer than forty-
five Calculation Days, then the Total Return Portfolio Value will equal the
average (mean) of the Daily Total Return Portfolio Values on such Calculation
Days, and if there is only one Calculation Day, then the Total Return Portfolio
Value will equal the Daily Total Return Portfolio Value on such Calculation
Day. If no Calculation Days occur during the Calculation Period because of
Market Disruption Events, then the Total Return Portfolio Value will equal the
Daily Total Return Portfolio Value determined on the last scheduled NYSE
Trading Day in the Calculation Period, regardless of the occurrence of a Market
Disruption Event on such day. The "Calculation Period" means the period from
and including the ninetieth scheduled NYSE Trading Day prior to the maturity
date to and including the fourth scheduled NYSE Trading Day prior to the
maturity date. "Calculation Day" with respect to the Portfolio Securities means
any NYSE Trading Day during the Calculation Period on which a Market Disruption
Event with respect to a Portfolio Security has not occurred. "NYSE Trading Day"
for purposes of determining the Daily Total Return Portfolio Value shall mean a
day on which trading is generally conducted on the New York Stock Exchange and
in the over-the-counter market for equity securities in the United States as
determined by the Calculation Agent.
S-12
<PAGE>
The "Daily Total Return Portfolio Value" for any Calculation Day will be
determined by Bridge Data Company, or successor thereto (the "Pricing Agent"),
and will equal (i) the Equity Value, plus (ii) the Aggregate Dividend Value for
such Calculation Day.
"Equity Value" for any Calculation Day will equal the sum of the products of
the Market Prices and the applicable Multipliers for the Portfolio Securities
(as defined below). The "Multiplier" relating to each Portfolio Security will
be specified under the caption "Description of Securities--Portfolio
Securities" below.
"Aggregate Dividend Value" for any Calculation Day will equal the sum of the
Dividend Payments for each Portfolio Security. The "Dividend Payment" with
respect to a Portfolio Security for any Calculation Day will equal the sum of
the products of (i) each dividend paid by the issuer of such Portfolio Security
on one share of such Portfolio Security during the period from the issue date
of the Securities through such Calculation Day (but not including any
reinvestment thereof) multiplied by (ii) the Multiplier applicable to such
Portfolio Security at the time each such dividend is paid. A dividend will be
considered paid by an issuer on the day the issuer actually pays such dividend
and not on the day such dividend is declared or the record date for the payment
of such dividend is fixed.
"Market Price" means for a Calculation Day (i) the last reported sale price,
regular way, on such day on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such Portfolio
Security is listed or admitted to trading, or (ii) if not listed or admitted to
trading on any such securities exchange or if such last reported sale price is
not obtainable, the last reported regular way sale price on the over-the-
counter market as reported on the Nasdaq National Market ("NNM") or OTC
Bulletin Board Service ("OTC Bulletin Board") operated by the National
Association of Securities Dealers, Inc. (the "NASD") on such day, or (iii) if
the last reported sale price is not available pursuant to (i) and (ii) above,
the mean of the last reported bid and offer price on the over-the-counter
market as reported on the NNM or OTC Bulletin Board on such day as determined
by the Pricing Agent. If the Portfolio Security is not listed on a national
securities exchange in the United States, is not a NNM security or is not
included in the OTC Bulletin Board operated by the NASD, Market Price means the
average (mean) of the last available bid and offer prices in the United States
over-the-counter market of the three dealers which have the highest volume of
transactions in such Portfolio Security in the immediately preceding calendar
month as determined by the Calculation Agent based on information that is
reasonably available to it. The term "NNM security" shall include a security
included in any successor to such system and the term "OTC Bulletin Board
Service" shall include any successor service thereto. If the Pricing Agent is
required to use the bid and offer price for a Portfolio Security to determine
the Market Price of such Portfolio Security pursuant to the foregoing, the
Pricing Agent shall not use any bid or offer price announced by Merrill Lynch,
Pierce, Fenner & Smith Incorporated or any other affiliate of the Company or
the Pricing Agent.
"Market Disruption Event" with respect to a Portfolio Security means either
of the following events, as determined by the Calculation Agent:
(i) the suspension or material limitation (provided that limitations
pursuant to New York Stock Exchange Rule 80A (or any applicable rule or
regulation enacted or promulgated by the New York Stock Exchange, any other
self regulatory organization or the Securities and Exchange Commission of
similar scope as determined by the Calculation Agent) on trading during
significant market fluctuations shall be considered "material" for purposes
of this definition) in the trading of such Portfolio Security in the over-
the-counter market or on any exchange in the United States for more than
two hours of trading or during the period one-half hour prior to the time
that such Portfolio Security is to be priced, or
(ii) the suspension or material limitation (whether by reason of
movements in price otherwise exceeding levels permitted by the relevant
exchange or otherwise) in option contracts related to a Portfolio Security
traded on any exchange for more than two hours of trading or during the
period one-half hour prior to the time that such Portfolio Security is to
be priced.
S-13
<PAGE>
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
All determinations made by the Calculation Agent or the Pricing Agent, as the
case may be, shall be at the sole discretion of the Calculation Agent or the
Pricing Agent, as the case may be, and, in the absence of a determination of
manifest error, shall be conclusive for all purposes and binding on the Company
and beneficial owners of the Securities. All percentages resulting from any
calculation on the Securities will be rounded to the nearest one hundred-
thousandth of a percentage point, with five one millionths of a percentage
point rounded upwards (e.g., 9.876545% (or .09876545) would be rounded to
9.87655% (or .0987655)), and all dollar amounts used in or resulting from such
calculation will be rounded to the nearest cent with one-half cent being
rounded upwards.
PORTFOLIO SECURITIES
The common stocks of the issuers listed below (the "Portfolio Securities")
will be used to calculate the Daily Total Return Portfolio Value. Holders of
the Securities will not have any right to receive the Portfolio Securities. The
following table sets forth the issuers of the Portfolio Securities, the value
of market capitalization of the Portfolio Securities, the percentage of each
Portfolio Security in the Original Portfolio Value and their initial
Multipliers. The percentage of each Portfolio Security in the Original
Portfolio Value was based on a measure of the liquidity of each such Portfolio
Security as compared to other Portfolio Securities as more fully described
below. The market capitalization of a Portfolio Security was not used to
determine the percentage of each Portfolio Security in the Original Portfolio
Value.
<TABLE>
<CAPTION>
% OF PORTFOLIO
APPROXIMATE MARKET VALUE REPRESENTED
ISSUERS OF THE VALUE OF ISSUERS OF IN ORIGINAL INITIAL
PORTFOLIO SECURITIES PORTFOLIO SECURITIES(1) PORTFOLIO VALUE(2) MULTIPLIER(2)
-------------------- ----------------------- ------------------ -------------
(IN MILLIONS)
<S> <C> <C> <C>
Burnham Pacific Proper-
ties, Inc. ............ $ 270 3.00%
Carr Realty Corporation. $ 269 3.00%
Duke Realty Investments,
Inc. .................. $ 435 9.00%
Excel Realty Trust,
Inc. .................. $ 216 2.00%
Federal Realty Invest-
ment Trust............. $ 818 6.00%
Gables Residential
Trust.................. $ 234 6.00%
General Growth Proper-
ties, Inc. ............ $ 509 4.00%
Health and Retirement
Property Trust......... $ 678 9.00%
Health Care Property In-
vestors, Inc. ......... $ 793 5.00%
JP Realty, Inc. ........ $ 276 6.00%
Kimco Realty Corpora-
tion................... $ 737 3.00%
Nationwide Health Prop-
erties, Inc. .......... $ 672 5.00%
New Plan Realty Trust... $1,059 7.00%
Simon Property Group,
Inc. .................. $1,282 10.00%
Taubman Centers, Inc. .. $ 502 2.00%
TriNet Corporate Realty
Trust, Inc. ........... $ 263 4.00%
Urban Shopping Centers,
Inc. .................. $ 307 3.00%
Weingarten Realty In-
vestors................ $1,007 8.00%
Wellsford Residential
Property Trust......... $ 211 3.00%
Western Investment Real
Estate Trust........... $ 233 2.00%
</TABLE>
- --------
(1) The approximate total market value of the issuer of a Portfolio Security
was calculated by multiplying the most recent publicly available number of
outstanding shares (excluding treasury shares) of the Portfolio Security of
such issuer by the Market Price for such share on July 19, 1994.
(2) The initial Multipliers will be determined on the date the Securities are
priced by the Company for initial offering to the public. The percentage of
the value of each Portfolio Security indicated in the foregoing table is
based on market prices of the Portfolio Securities on July 15, 1994.
S-14
<PAGE>
The percentage of the Original Portfolio Value represented by each Portfolio
Security was determined by the Calculation Agent on July 15, 1994 and equaled
the Average Dollar Volume of such Portfolio Security expressed as a percentage
of the Total Average Dollar Volume of all Portfolio Securities for the 180
calendar days preceding July 15, 1994 rounded to the nearest whole percent;
provided, however, such percentage was not allowed to exceed 10%. Since the
Portfolio Security issued by Simon Property Group, Inc. would otherwise have
exceeded 10% of the Original Portfolio Value, the percentage of the Original
Portfolio Value assigned to such Portfolio Security was set at 10% and the
percentage of the Original Portfolio Value represented by each other Portfolio
Security was determined by allocating the remaining 90% of the Original
Portfolio Value to the other Portfolio Securities based on the Average Dollar
Volume of each such other Portfolio Security relative to the Total Average
Dollar Volume of all Portfolio Securities, excluding the Portfolio Security
issued by Simon Property Group, Inc. "Average Dollar Volume" for a Portfolio
Security means the product of the daily average (mean) number of shares of such
Portfolio Security based on the number of shares traded during the specified
period and the last reported sale price of such Portfolio Security on July 15,
1994 as such information is reported on the information service operated by
Bloomberg, L.P. The Calculation Agent and an affiliate together own a 30%
limited partnership interest of Bloomberg, L.P. "Total Average Dollar Volume"
means the total of the Average Dollar Volumes for each Portfolio Security
during the specified period. Portfolio Securities which have a higher Average
Dollar Volume relative to other Portfolio Securities will have a greater weight
in the Original Portfolio Value, subject to the limitation that no Portfolio
Security may represent more than 10% of the Original Portfolio Value. The
initial Multiplier with respect to each Portfolio Security will be determined
by the Calculation Agent on the date that the Securities are priced by the
Company for initial offering to the public (the "Pricing Date") and will equal
the number of shares, or portion of a share, of such Portfolio Security which
could be purchased on the Pricing Date by the portion of the Original Portfolio
Value allocated to such Portfolio Security using the closing market price of
such Portfolio Security on the Pricing Date. The respective Multipliers will
remain constant for the term of the Securities unless adjusted for certain
corporate events, as described below.
The Daily Total Return Portfolio Value for any Calculation Day will equal the
sum of the Equity Value and the Aggregate Dividend Value (determined as
described herein on such Calculation Day). The Total Return Portfolio Value,
however, is calculated based on averaging the Daily Total Return Portfolio
Values on certain Calculation Days.
The Pricing Agent currently intends to publish the Daily Total Return
Portfolio Value three times during each business day calculated in the same
manner as the Daily Total Return Portfolio Value will be calculated on a
Calculation Day. The Pricing Agent will make available information concerning
the Daily Total Return Portfolio Value to the electronic reporting services
operated by Bloomberg, L.P. and to newspapers and specialized trade
publications. There can be no assurance that such information will ultimately
be published by such sources. Investors will be able to request the current
Daily Total Return Portfolio Value from their brokers, who will generally be
able to obtain the Daily Total Return Portfolio Value from such electronic
reporting services. If an investor has a Merrill Lynch brokerage account, such
investor should consult his/her Financial Consultant, who will generally be
able to obtain the Daily Total Return Portfolio Value from such electronic
reporting services.
ADJUSTMENTS TO THE MULTIPLIER AND PORTFOLIO
The Multiplier with respect to any Portfolio Security and the Portfolio will
be adjusted as follows:
1. If a Portfolio Security is subject to a stock split or reverse stock
split, then once such split has become effective, the Multiplier relating
to such Portfolio Security will be adjusted to equal the product of the
number of shares issued with respect to one such share of such Portfolio
Security, and the prior multiplier.
2. If a Portfolio Security is subject to a stock dividend (issuance of
additional shares of the Portfolio Security) that is given equally to all
holders of shares of the issuer of such Portfolio Security, then once the
dividend has become effective and such Portfolio Security is trading ex-
dividend, the Multiplier will be adjusted so that the new Multiplier shall
equal the former Multiplier plus the product of the number of shares of
such Portfolio Security issued with respect to one such share of Portfolio
Security and the prior multiplier.
S-15
<PAGE>
3. There will be no adjustments to the Multipliers to reflect cash
dividends or distributions paid with respect of a Portfolio Security. Cash
dividends will be included in the calculation of the Aggregate Dividend
Value.
4. If the issuer of a Portfolio Security is being liquidated or is
subject to a proceeding under any applicable bankruptcy, insolvency or
other similar law, such Portfolio Security will continue to be included in
the Portfolio so long as a Market Price for such Portfolio Security is
available. If a Market Price is no longer available for a Portfolio
Security for whatever reason, including the liquidation of the issuer of
such Portfolio Security or the subjection of the issuer of such Portfolio
Security to a proceeding under any applicable bankruptcy, insolvency or
other similar law, then the value of such Portfolio Security will equal
zero in connection with calculating the Equity Value and Total Return
Portfolio Value for so long as no Market Price is available, and no attempt
will be made to find a replacement stock or increase the value of the
Portfolio to compensate for the deletion of such Portfolio Security.
5. If the issuer of a Portfolio Security has been subject to a merger or
consolidation and is not the surviving entity, then a value for such
Portfolio Security will be determined at the time such issuer is merged or
consolidated and will equal the last available Market Price for such
Portfolio Security and that value will be constant for the remaining term
of the Securities. At such time, no adjustment will be made to the
Multiplier of such Portfolio Security. The Company may at its sole
discretion increase such last available Market Price to reflect payments or
dividends of securities or other consideration to holders of such Portfolio
Security in connection with such a merger or consolidation which may not be
reflected in such last available Market Price.
6. If the issuer of a Portfolio Security issues to all of its
shareholders equity securities of an issuer other than the issuer of the
Portfolio Security, then such new equity securities will be added to the
Portfolio as a new Portfolio Security. The Multiplier for such new
Portfolio Security will equal the product of the original Multiplier with
respect to the Portfolio Security for which the new Portfolio Security is
being issued (the "Original Portfolio Security") and the number of shares
of the new Portfolio Security issued with respect to one share of the
Original Portfolio Security. The Dividend Payment for such new Portfolio
Security will be determined as described herein, except that the period
during which dividends paid by the issuer of such new Portfolio Security
will be from the date such new Portfolio Security is issued to holders of
the Original Portfolio Security through the relevant Calculation Date.
No adjustments of any Multiplier of a Portfolio Security will be required
unless such adjustment would require a change of at least 1% in the Multiplier
then in effect. The Multiplier resulting from any of the adjustments specified
above will be rounded to the nearest one thousandth with five ten-thousandths
being rounded upward.
No adjustments to the Multiplier of any Portfolio Security or to the
Portfolio will be made other than those specified above.
HYPOTHETICAL PAYMENTS
The following table illustrates, for a range of hypothetical Equity Values
and hypothetical Aggregate Dividend Values, the percentage change in the Equity
Value, the Total Return Portfolio Value, the amount payable at maturity for
each $10 principal amount of Securities and the pretax annualized rate of
return to beneficial owners of the Securities. AN INVESTMENT IN THE PORTFOLIO
SECURITIES WOULD BE SIGNIFICANTLY DIFFERENT THAN INVESTING IN THE SECURITIES,
BECAUSE, AMONG OTHER REASONS, ANY PAYMENT AT MATURITY ON THE SECURITIES WILL
NOT REFLECT THE OPPORTUNITY TO REINVEST DIVIDENDS AS THEY ARE PAID ON THE
PORTFOLIO SECURITIES.
<TABLE>
<CAPTION>
AMOUNT PRETAX
TOTAL PAYABLE AT ANNUALIZED
PERCENTAGE HYPOTHETICAL RETURN MATURITY RATE OF RETURN
HYPOTHETICAL CHANGE IN AGGREGATE PORTFOLIO PER UNIT AT
EQUITY VALUE EQUITY VALUE DIVIDEND VALUE(2) VALUE OF MITTS MATURITY(1)(2)
------------ ------------ ----------------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
$0.00 -100% $2.01 $2.01 $9.00 -1.76%
$1.00 -90% $2.23 $3.23 $9.00 -1.76%
$2.00 -80% $2.45 $4.45 $9.00 -1.76%
$3.00 -70% $2.67 $5.67 $9.00 -1.76%
$4.00 -60% $2.89 $6.89 $9.00 -1.76%
$5.00 -50% $3.11 $8.11 $9.00 -1.76%
$5.73 -42.70% $3.27 $9.00 $9.00 -1.76%
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
AMOUNT PRETAX
TOTAL PAYABLE AT ANNUALIZED
PERCENTAGE HYPOTHETICAL RETURN MATURITY RATE OF RETURN
HYPOTHETICAL CHANGE IN AGGREGATE PORTFOLIO PER UNIT AT
EQUITY VALUE EQUITY VALUE DIVIDEND VALUE(2) VALUE OF MITTS MATURITY(1)(2)
------------ ------------ ----------------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
$ 6.00 -40.00% $3.32 $ 9.32 $ 9.32 -1.16%
$ 7.00 -30.00% $3.54 $10.54 $10.54 0.88%
$ 8.00 -20.00% $3.76 $11.76 $11.76 2.72%
$ 9.00 -10.00% $3.98 $12.98 $12.98 4.40%
$10.00 0.00% $4.20 $14.20 $14.20 5.93%
$11.00 10.00% $4.42 $15.42 $15.42 7.35%
$12.00 20.00% $4.64 $16.64 $16.64 8.67%
$13.00 30.00% $4.86 $17.86 $17.86 9.90%
$14.00 40.00% $5.07 $19.08 $19.08 11.06%
$15.00 50.00% $5.29 $20.29 $20.29 12.15%
$16.00 60.00% $5.51 $21.51 $21.51 13.18%
$17.00 70.00% $5.73 $22.73 $22.73 14.17%
$18.00 80.00% $5.95 $23.95 $23.95 15.10%
$19.00 90.00% $6.17 $25.17 $25.17 15.99%
$20.00 100.00% $6.39 $26.39 $26.39 16.84%
</TABLE>
- --------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis. All returns assume a
maturity of six years.
(2) The annualized pretax rates of return and hypothetical Aggregate Dividend
Values specified in the preceding table were calculated assuming (i)
dividends are paid at the end of each calendar quarter from the date the
Securities are issued by the Company at a constant dividend yield of 7% per
annum on the hypothetical Equity Value of the Portfolio Securities at the
end of each such quarter, and (ii) the hypothetical Equity Value of the
Portfolio Securities at the end of each such quarter is determined based on
the Equity Value increasing or decreasing, as the case may be, from $10 to
the hypothetical Equity Value specified in the table in a straight line
manner. The aggregate dividend yield of the Portfolio Securities was
approximately 7% as of July 15, 1994.
The above figures are for purposes of illustration only. The actual amount
payable at maturity with respect to the Securities will depend entirely on the
actual Total Return Portfolio Value.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any Securities shall have
occurred and be continuing, the amount payable to a Holder of a Security upon
any acceleration permitted by the Securities will be equal to the amount
payable calculated as though the date of early repayment were the maturity date
of the Securities. See "Description of Securities--Payment at Maturity" in this
Prospectus Supplement. If a bankruptcy proceeding is commenced in respect of
the Company, the claim of the Holder of a Security may be limited, under
Section 502(b)(2) of Title 11 of the United States Code, to the principal
amount of the Security plus an additional amount, if any, of contingent
interest calculated as though the date of the commencement of the proceeding
were the maturity date of the Securities.
In case of default in payment at the maturity date of the Securities (whether
at their stated maturity or upon acceleration), from and after the maturity
date the Securities shall bear interest, payable upon demand of the Holders
thereof, at the rate of 7 1/2% per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the Securities to the date payment of
such amount has been made or duly provided for.
SECURITIES DEPOSITORY
Upon issuance, all Securities will be represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company,
as Securities Depository, registered in the name of the Securities Depository
or a nominee thereof.
S-17
<PAGE>
Unless and until it is exchanged in whole or in part for Securities in
definitive form, no Global Security may be transferred except as a whole by the
Securities Depository to a nominee of such Securities Depository or by a
nominee of such Securities Depository to such Securities Depository or another
nominee of such Securities Depository or by such Securities Depository or any
such nominee to a successor of such Securities Depository or a nominee of such
successor.
The Securities Depository has advised the Company as follows: The Securities
Depository is a limited-purpose trust company organized under the Banking Law
of the State of New York, 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
Securities Exchange Act of 1934, as amended. The Securities Depository was
created to hold securities of its participants ("Participants") and to
facilitate the clearance and settlement of securities transactions among its
Participants in such securities through electronic book-entry changes in
accounts of the Participants, thereby eliminating the need for physical
movement of securities certificates. The Securities Depository's Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations.
The Securities Depository is owned by a number of Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the Securities Depository
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly ("Indirect Participants").
Purchases of Securities must be made by or through Participants, which will
receive a credit on the records of the Securities Depository. The ownership
interest of each actual purchaser of each Security ("Beneficial Owner") is in
turn to be recorded on the Participants' or Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Securities
Depository of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Ownership of
beneficial interests in such Global Security will be shown on, and the transfer
of such ownership interests will be effected only through, records maintained
by the Securities Depository (with respect to interests of Participants) and on
the records of Participants (with respect to interests of persons held through
Participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to own, transfer or pledge
beneficial interests in Global Securities.
So long as the Securities Depository, or its nominee, is the registered owner
of a Global Security, the Securities Depository or its nominee, as the case may
be, will be considered the sole owner or Holder of the Securities represented
by such Global Security for all purposes under the Chemical Indenture. Except
as provided below, Beneficial Owners in a Global Security will not be entitled
to have the Securities represented by such Global Securities registered in
their names, will not receive or be entitled to receive physical delivery of
the Securities in definitive form and will not be considered the owners or
Holders thereof under the Chemical Indenture. Accordingly, each Person owning a
beneficial interest in a Global Security must rely on the procedures of the
Securities Depository and, if such Person is not a Participant, on the
procedures of the Participant through which such Person owns its interest, to
exercise any rights of a Holder under the Chemical Indenture. The Company
understands that under existing industry practices, in the event that the
Company requests any action of Holders or that an owner of a beneficial
interest in such a Global Security desires to give or take any action which a
Holder is entitled to give or take under the Chemical Indenture, the Securities
Depository would authorize the Participants holding the relevant beneficial
interests to give or take such action, and such Participants would authorize
Beneficial Owners owning through such Participants to give or take such action
or would otherwise act upon the instructions of beneficial owners. Conveyance
of notices and other communications by the Securities Depository to
Participants, by Participants to Indirect Participants, and by Participants and
Indirect Participants to Beneficial Owners will be governed by
S-18
<PAGE>
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Payment of the principal of, and any additional amount payable at maturity
with respect to, Securities registered in the name of the Securities Depository
or its nominee will be made to the Securities Depository or its nominee, as the
case may be, as the Holder of the Global Securities representing such
Securities. None of the Company, the Trustee or any other agent of the Company
or agent of the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests or for supervising or reviewing any records relating to
such beneficial ownership interests. The Company expects that the Securities
Depository, upon receipt of any payment of principal or any additional amount
payable at maturity in respect of a Global Security, will credit the accounts
of the Participants with payment in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Security as
shown on the records of the Securities Depository. The Company also expects
that payments by Participants to Beneficial Owners will be governed by standing
customer instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of such Participants.
If (x) the Securities Depository is at any time unwilling or unable to
continue as Securities Depository and a successor depository is not appointed
by the Company within 60 days, (y) the Company executes and delivers to the
Trustee a Company Order to the effect that the Global Securities shall be
exchangeable or (z) an Event of Default has occurred and is continuing with
respect to the Securities, the Global Securities will be exchangeable for
Securities in definitive form of like tenor and of an equal aggregate principal
amount, in denominations of $10 and integral multiples thereof. Such definitive
Securities shall be registered in such name or names as the Securities
Depository shall instruct the Trustee. It is expected that such instructions
may be based upon directions received by the Securities Depository from
Participants with respect to ownership of beneficial interests in such Global
Securities.
THE PORTFOLIO
GENERAL
While the Portfolio consists of common stocks of issuers that are REITs, the
Portfolio is not intended to provide an indication of the pattern of price
movements of the REIT industry generally. Each of the issuers of a Portfolio
Security files certain information reports with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Exchange Act of 1934. Such
reports generally contain a description of the business of the issuer,
financial statements and certain other information which may be material to
potential investors in the Securities. Information filed with the SEC is
available at the offices of the Commission specified under "Available
Information" in the attached Prospectus. Neither the Company nor Merrill Lynch,
Pierce, Fenner & Smith Incorporated makes any representation or warranty as to
the accuracy or completeness of such reports. THE INCLUSION OF A PORTFOLIO
SECURITY IN THE PORTFOLIO IS NOT A RECOMMENDATION TO BUY OR SELL SUCH PORTFOLIO
SECURITY, AND NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES MAKE ANY
REPRESENTATION TO ANY PURCHASER OF SECURITIES AS TO THE PERFORMANCE OF THE
PORTFOLIO.
The Company or its affiliates may presently or from time to time engage in
business with one or more of the issuers of the Portfolio Securities, including
extending loans to, making equity investments in, or selling property to such
issuers or providing advisory services to such issuers, including merger and
acquisition advisory services. In the course of such business, the Company or
its affiliates may acquire non-public information with respect to such issuers
and, in addition, one or more affiliates of the Company may publish research
reports with respect to such issuers. The Company does not make any
representation to any purchaser of Securities with respect to any matters
whatsoever relating to such issuers. Any prospective purchaser of a Security
should undertake an independent investigation of the issuers of the Portfolio
Securities as in its judgment is appropriate to make an informed decision with
respect to an investment in the Securities.
S-19
<PAGE>
REAL ESTATE INVESTMENT TRUSTS ("REITS")
The Portfolio consists of stocks issued by REITs. REITs invest primarily in
income producing real estate or real estate-related loans or interests and are
generally required to distribute to shareholders at least 95% of their taxable
income (other than net capital gains) for each year. A REIT generally is not
subject to U.S. federal income tax on income distributed to shareholders. The
Portfolio Securities are subject to the requirements of the federal securities
laws and the rules of any stock exchanges on which their shares are traded as
to such matters as financial reporting, corporate governance and disclosure of
material business developments. REITs can invest in various segments of the
real estate market, including health care related properties, commercial
properties and residential properties. The primary real estate market segment
that each issuer of a Portfolio Security invests in is specified below under
"Real Estate Market Segments".
The Portfolio Securities are subject to risks similar to those associated
with the direct ownership of real estate (in addition to securities markets
risks). These include declines in the value of real estate generally, risks
related to general and local economic conditions, dependency on the management
skill of both the officers of the REITs and the managers of the underlying
properties, possible lack of diversification, possible lack of availability of
financing, changes in interest rates, overbuilding, oversupply of properties
for sale, extended vacancies of properties, increased competition, increases in
property taxes and operating expenses, changes in zoning laws, environmental
clean-up costs, liability to third parties for damages resulting from
environmental problems, casualty or condemnation losses, natural disasters,
limitations on rents, and changes in neighborhood values and the appeal of
properties to tenants. Each of the foregoing factors, as well as factors
affecting the securities markets generally, may affect the values of the
securities comprising the Portfolio Securities. In addition, REITs could
possibly fail to qualify for tax free pass-through of income under the Internal
Revenue Code of 1986, as amended. Investors should note that many REITs utilize
"leverage" (i.e., the borrowing of funds for investment purposes). Leverage
increases both investment opportunity and investment risk and could cause a
REIT's operations, or the market value of its shares, to be adversely affected
in periods of rising interest rates.
REAL ESTATE MARKET SEGMENTS
The following table sets forth the issuers of the Portfolio Securities and
the primary real estate market segment in which each such issuer invests:
<TABLE>
<CAPTION>
ISSUER OF THE PORTFOLIO REAL ESTATE
SECURITY MARKET SEGMENTS
----------------------- ---------------
<S> <C>
Burnham Pacific
Properties, Inc. ...... Commercial Properties
Carr Realty Corporation. Office Buildings
Duke Realty Investments,
Inc. .................. Industrial/Office
Excel Realty Trust,
Inc. .................. Shopping Centers
Federal Realty
Investment Trust....... Shopping Centers
Gables Residential
Trust.................. Apartments
General Growth
Properties, Inc. ...... Shopping Centers
Health and Retirement
Property Trust......... Nursing Homes/Rehabilitation
Health Care Property
Investors, Inc. ....... Long-Term Care/Rehabilitation
JP Realty, Inc. ........ Shopping Centers
Kimco Realty
Corporation............ Shopping Centers
Nationwide Health
Properties, Inc. ...... Long-Term Care/Nursing Homes
New Plan Realty Trust... Shopping Centers/Apartments
Simon Property Group,
Inc. .................. Regional Shopping Malls/Power Centers
Taubman Centers, Inc. .. Regional Shopping Malls
TriNet Corporate Realty
Trust, Inc. ........... Industrial/Office
Urban Shopping Centers,
Inc. .................. Regional Shopping Malls
Weingarten Realty
Investors.............. Shopping Centers
Wellsford Residential
Property Trust......... Apartments
Western Investment Real
Estate Trust........... Shopping Centers
</TABLE>
S-20
<PAGE>
HISTORICAL INFORMATION
The following table sets forth the high and low Market Price and yearly
dividend payments during 1991, 1992, 1993 and during 1994 through July 19,
1994, and the Market Price on July 19, 1994 for each Portfolio Security. The
historical prices of the Portfolio Securities should not be taken as an
indication of future performance, and no assurance can be given that the Daily
Total Return Portfolio Value will increase sufficiently to cause the beneficial
owners of the Securities to receive an amount in excess of the Minimum Payment
at the maturity of the Securities.
<TABLE>
<CAPTION>
PORTFOLIO SECURITIES HIGH LOW LAST DIVIDEND
-------------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
BURNHAM PACIFIC PROPERTIES, INC.
1991......................................... $16.000 $11.875 $1.36
1992......................................... $17.875 $14.500 $1.36
1993......................................... $20.875 $15.875 $1.39
1994......................................... $19.000 $17.000 $17.375 $0.70
CARR REALTY CORPORATION
1991......................................... (1) (1) (1)
1992......................................... (1) (1) (1)
1993(2)...................................... $27.125 $20.625 $1.06
1994......................................... $24.375 $20.250 $20.875 $0.88
DUKE REALTY INVESTMENTS, INC.
1991......................................... $16.797 $11.547 $1.68
1992......................................... $18.375 $13.656 $1.68
1993......................................... $26.000 $15.750 $1.68
1994......................................... $27.250 $21.000 $27.125 $0.90
EXCEL REALTY TRUST, INC.
1991......................................... (1) (1) (1)
1992......................................... (1) (1) (1)
1993(2)...................................... $21.250 $17.875 $0.65
1994......................................... $22.250 $18.375 $20.000 $0.85
FEDERAL REALTY INVESTMENT TRUST
1991......................................... $20.500 $13.750 $1.50
1992......................................... $25.000 $18.875 $1.53
1993......................................... $30.000 $24.125 $1.55
1994......................................... $28.625 $23.750 $26.000 $0.78
GABLES RESIDENTIAL TRUST
1991......................................... (1) (1) (1)
1992......................................... (1) (1) (1)
1993......................................... (1) (1) (1)
1994(2)...................................... $26.000 $22.375 $23.125 $0.78
GENERAL GROWTH PROPERTIES, INC.
1991......................................... (1) (1) (1)
1992......................................... (1) (1) (1)
1993(2)...................................... $25.750 $19.250 $0.68
1994......................................... $22.625 $19.250 $22.375 $1.15
HEALTH AND RETIREMENT PROPERTY TRUST
1991......................................... $14.375 $ 7.625 $0.99
1992......................................... $14.500 $ 9.125 $1.25
1993......................................... $16.750 $11.625 $1.29
1994......................................... $16.250 $14.000 $15.375 $0.99
HEALTH CARE PROPERTY INVESTORS, INC.
1991......................................... $24.375 $16.750 $1.62
1992......................................... $26.875 $19.625 $1.73
1993......................................... $33.500 $24.000 $1.85
1994......................................... $32.500 $27.250 $29.750 $1.47
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SECURITIES HIGH LOW LAST DIVIDEND
-------------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
JP REALTY, INC.
1991......................................... (1) (1) (1)
1992......................................... (1) (1) (1)
1993......................................... (1) (1) (1)
1994(2)...................................... $22.375 $17.625 $20.875 $0.72
KIMCO REALTY CORPORATION
1991(2)...................................... $21.500 $19.750 $0.00
1992......................................... $31.000 $21.500 $1.48
1993......................................... $39.125 $30.625 $1.88
1994......................................... $38.500 $34.000 $36.750 $1.50
NATIONWIDE HEALTH PROPERTIES, INC.
1991......................................... $27.500 $16.750 $2.06
1992......................................... $32.500 $25.250 $2.23
1993......................................... $42.125 $31.500 $2.43
1994......................................... $42.125 $35.375 $37.000 $1.29
NEW PLAN REALTY TRUST
1991......................................... $24.250 $16.250 $1.17
1992......................................... $26.000 $19.875 $1.25
1993......................................... $26.125 $21.750 $1.30
1994......................................... $24.250 $21.000 $21.500 $0.66
SIMON PROPERTY GROUP, INC.
1991......................................... (1) (1) (1)
1992......................................... (1) (1) (1)
1993(2)...................................... $22.625 $22.375 $0.00
1994......................................... $28.000 $22.500 $27.500 $0.95
TAUBMAN CENTERS, INC.
1991......................................... (1) (1) (1)
1992(2)...................................... $11.750 $11.375 $0.07
1993......................................... $15.375 $10.500 $0.88
1994......................................... $13.500 $10.750 $11.250 $0.44
TRINET CORPORATE REALTY TRUST, INC.
1991......................................... (1) (1) (1)
1992......................................... (1) (1) (1)
1993(2)...................................... $30.000 $22.625 $1.27
1994......................................... $32.875 $26.250 $28.500 $1.17
URBAN SHOPPING CENTERS, INC.
1991......................................... (1) (1) (1)
1992......................................... (1) (1) (1)
1993(2)...................................... $24.375 $20.000 $0.00
1994......................................... $23.750 $20.875 $22.375 $0.88
WEINGARTEN REALTY INVESTORS
1991......................................... $32.875 $24.125 $1.92
1992......................................... $37.625 $29.500 $2.04
1993......................................... $45.250 $36.500 $2.16
1994......................................... $40.500 $36.625 $38.750 $1.14
WELLSFORD RESIDENTIAL PROPERTY TRUST
1991......................................... (1) (1) (1)
1992(2)...................................... $23.625 $21.875 $0.16
1993......................................... $30.625 $23.625 $1.68
1994......................................... $27.250 $22.750 $23.000 $0.90
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SECURITIES HIGH LOW LAST DIVIDEND
-------------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
WESTERN INVESTMENT REAL ESTATE TRUST
1991........................................... $18.500 $10.625 $1.29
1992........................................... $14.250 $11.125 $1.12
1993........................................... $17.125 $12.250 $1.12
1994........................................... $15.000 $12.375 $14.000 $0.56
</TABLE>
- --------
(1) No shares of the issuer were publicly outstanding during the year.
(2) Shares of the issuer were publicly outstanding during a portion of the
year.
HYPOTHETICAL HISTORICAL DAILY TOTAL RETURN PORTFOLIO VALUES
The following table and graph set forth hypothetical Daily Total Return
Portfolio Values on the last business day of each month since January 1991 and
the hypothetical Daily Total Return Portfolio Value on July 19, 1994 (the
"Hypothetical Historical Daily Total Return Portfolio Values"). Except as
described below, the Hypothetical Historical Daily Total Return Portfolio
Values were calculated on the same basis as the Daily Total Return Portfolio
Value will be calculated in the future. The $10 Hypothetical Historical Daily
Total Return Portfolio Value corresponding to July 19, 1994 is provided as an
illustration of past movements of the Hypothetical Historical Daily Total
Return Portfolio Value only. The Multiplier for each Portfolio Security will be
initially set so that the Original Portfolio Value equals $10 on the date the
Securities are priced for initial offering to the public. The Hypothetical
Historical Daily Total Return Portfolio Value at any given prior date was equal
to the sum of the products of the then current market prices for the relevant
Portfolio Securities on the last business day of the respective month and the
applicable Multipliers plus the aggregate dividends paid on such Portfolio
Securities since January 1, 1991 multiplied by the applicable Multipliers. For
months during which one or more of the Portfolio Securities were not
outstanding and publicly traded, the Hypothetical Historical Daily Total Return
Portfolio Value was calculated based upon the values of the remaining Portfolio
Securities that were then publicly traded. The Multipliers with respect to the
remaining publicly traded Portfolio Securities were adjusted to reflect the
increased weighing of each such remaining Portfolio Security. Only nine of the
twenty Portfolio Securities were outstanding during the entire period
illustrated below.
THE EXPERIENCE OF THE HYPOTHETICAL HISTORICAL DAILY TOTAL RETURN PORTFOLIO
VALUES SHOULD NOT BE TAKEN AS AN INDICATION OF FUTURE PERFORMANCE OF THE DAILY
TOTAL RETURN PORTFOLIO VALUE AND NO ASSURANCE CAN BE GIVEN THAT THE VALUE OF
THE DAILY TOTAL RETURN PORTFOLIO VALUE WILL INCREASE SUFFICIENTLY TO RESULT IN
A PAYMENT AT MATURITY GREATER THAN THE MINIMUM PAYMENT TO BENEFICIAL OWNERS OF
THE SECURITIES AT MATURITY OR OTHERWISE. BECAUSE THE PORTFOLIO SECURITIES WERE
NOT ALL OUTSTANDING AND PUBLICLY TRADING DURING THE ENTIRE PERIOD ILLUSTRATED
BELOW, THE HYPOTHETICAL HISTORICAL DAILY TOTAL RETURN PORTFOLIO VALUES DO NOT
REFLECT ALL OF THE PORTFOLIO SECURITIES DURING THE ENTIRE PERIOD ILLUSTRATED
BELOW.
<TABLE>
<CAPTION>
HYPOTHETICAL
HISTORICAL DAILY TOTAL
RETURN PORTFOLIO VALUE
DATE FOR THE MONTH END
- ---- ----------------------
<S> <C>
1991
January................................................ $4.99
February............................................... 5.12
March.................................................. 5.57
April.................................................. 5.73
May.................................................... 5.92
June................................................... 5.78
July................................................... 5.78
August................................................. 6.00
September.............................................. 6.12
October................................................ 6.16
November(1)............................................ 6.19
December............................................... 6.67
</TABLE>
S-23
<PAGE>
<TABLE>
<CAPTION>
HYPOTHETICAL
HISTORICAL DAILY TOTAL
RETURN PORTFOLIO VALUE
DATE FOR THE MONTH END
- ---- ----------------------
<S> <C>
1992
January................................................ $ 6.88
February............................................... 6.76
March.................................................. 6.55
April.................................................. 6.52
May.................................................... 6.96
June................................................... 6.80
July................................................... 7.13
August................................................. 7.22
September.............................................. 7.31
October................................................ 7.32
November(2)............................................ 7.54
December............................................... 7.73
1993
January................................................ 8.00
February(3)............................................ 8.53
March.................................................. 9.10
April(4)............................................... 8.80
May(5)................................................. 8.69
June................................................... 8.90
July................................................... 8.87
August(6).............................................. 9.22
September.............................................. 9.56
October(7)............................................. 9.51
November............................................... 9.01
December(8)............................................ 9.00
1994
January(9)............................................. 9.29
February............................................... 9.73
March.................................................. 9.59
April.................................................. 9.68
May.................................................... 9.90
June................................................... 9.79
July 19................................................ 10.00
</TABLE>
- --------
(1) Kimco Realty Corporation was included in the calculation of the
Hypothetical Historical Total Return Portfolio Value commencing with this
month.
(2) Taubman Centers, Inc. and Wellsford Residential Property Trust were
included in the calculation of the Hypothetical Historical Daily Total
Return Portfolio Value commencing with this month.
(3) Carr Realty Corporation was included in the calculation of the Hypothetical
Historical Daily Total Return Portfolio Value commencing with this month.
(4) General Growth Properties, Inc. was included in the calculation of the
Hypothetical Historical Daily Total Return Portfolio Value commencing with
this month.
(5) TriNet Corporate Realty Trust, Inc. was included in the calculation of the
Hypothetical Historical Daily Total Return Portfolio Value commencing with
this month.
(6) Excel Realty Trust, Inc. was included in the calculation of the
Hypothetical Historical Daily Total Return Portfolio Value commencing with
this month.
(7) Urban Shopping Centers, Inc. was included in the calculation of the
Hypothetical Historical Daily Total Return Portfolio Value commencing with
this month.
(8) Simon Property Group, Inc. was included in the calculation of the
Hypothetical Historical Daily Total Return Portfolio Value commencing with
this month.
(9) Gables Residential Trust and JP Realty, Inc. were included in the
calculation of the Hypothetical Historical Daily Total Return Portfolio
Value commencing with this month.
S-24
<PAGE>
The following graph sets forth the Hypothetical Historical Daily Total Return
Portfolio Values on the last business day of each month since January 1991 and
the Hypothetical Historical Daily Total Return Portfolio Value on July 19,
1994. PAST MOVEMENTS OF THE HYPOTHETICAL HISTORICAL DAILY TOTAL RETURN
PORTFOLIO VALUES ARE NOT NECESSARILY INDICATIVE OF FUTURE MOVEMENTS OF THE
DAILY TOTAL RETURN PORTFOLIO VALUE.
[GRAPHIC NO. 2 APPEARS HERE]
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Set forth in full below is the opinion of Brown & Wood, counsel to the
Company, as to certain United States Federal income tax consequences of the
purchase, ownership and disposition of the Securities. Such opinion is based
upon laws, regulations, rulings and decisions now in effect (or, in the case of
certain regulations, in proposed form), all of which are subject to change
(including changes in effective dates) or possible differing interpretations.
The discussion below deals only with Securities held as capital assets and does
not purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding Securities as a hedge against
currency risks or as a position in a "straddle" for tax purposes. It also does
not deal with holders other than original purchasers (except where otherwise
specifically noted). Persons considering the purchase of the Securities should
consult their own tax advisors concerning the application of United States
Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Securities
arising under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Security
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created
or organized in or under the laws of the United States or of any political
subdivision
S-25
<PAGE>
thereof, (iii) an estate or trust the income of which is subject to United
States Federal income taxation regardless of its source or (iv) any other
person whose income or gain in respect of a Security is effectively connected
with the conduct of a United States trade or business. As used herein, the term
"non-U.S. Holder" means a holder of a Security that is not a U.S. Holder.
GENERAL
There are no regulations (except the Treasury Regulations as described
below), published rulings or judicial decisions involving the characterization,
for United States Federal income tax purposes, of securities with terms
substantially the same as the Securities. However, although the matter is not
free from doubt, under current law, each Security should be treated as a debt
instrument of the Company for United States Federal income tax purposes. The
Company currently intends to treat each Security as a debt instrument of the
Company for United States Federal income tax purposes and, where required,
intends to file information returns with the Internal Revenue Service ("IRS")
in accordance with such treatment, in the absence of any change or
clarification in the law, by regulation or otherwise, requiring a different
characterization. Prospective investors in the Securities should be aware,
however, that the IRS is not bound by the Company's characterization of the
Securities as indebtedness and the IRS could possibly take a different position
as to the proper characterization of the Securities for United States Federal
income tax purposes. The following discussion of the principal United States
Federal income tax consequences of the purchase, ownership and disposition of
the Securities is based upon the assumption that each Security will be treated
as a debt instrument of the Company for the United States Federal income tax
purposes. If the Securities are not in fact treated as debt instruments of the
Company for United States Federal income tax purposes, then the United States
Federal income tax treatment of the purchase, ownership and disposition of the
Securities could differ from the treatment discussed below with the result that
the timing and character of income, gain or loss recognized on a Security could
differ from the timing and character of income, gain or loss recognized on a
Security had the Securities in fact been treated as debt instruments of the
Company for United States Federal income tax purposes.
U.S. HOLDERS
Under general principles of current United States Federal income tax law,
payments of interest on a debt instrument generally will be taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). Under these principles, the amount payable at maturity with
respect to a Security in excess of the principal amount thereof, if any, would
be treated as contingent interest and generally would be includible in income
by a U.S. Holder as ordinary interest on the date the amount payable at
maturity is accrued (i.e., determined) or when such amount is received (in
accordance with the U.S. Holder's regular method of tax accounting). In
addition, if the amount payable at maturity with respect to a Security exceeds
the principal amount thereof, then such Security would be treated as having
been retired at maturity in exchange for an amount equal to the principal
amount thereof. If, however, the amount payable at maturity with respect to a
Security is equal to or less than the principal amount thereof, then such
Security would be treated as having been retired at maturity in exchange for an
amount equal to the entire amount payable at maturity with respect to such
Security. Upon the sale, exchange or retirement of a Security, a U.S. Holder
generally would recognize taxable gain or loss in an amount equal to the
difference between the amount realized on the sale, exchange or retirement and
such U.S. Holder's tax basis in the Security. A U.S. Holder's tax basis in a
Security generally will equal such U.S. Holder's initial investment in the
Security. Such gain or loss generally would be long-term capital gain or loss
if the Security were held by the U.S. Holder for more than one year (subject to
the market discount rules, as discussed below). It is possible, however, that
the IRS may assert that any amounts realized upon the sale or exchange of a
Security prior to maturity in excess of the principal amount thereof
constitutes ordinary interest income (subject to the bond premium rules, as
discussed below). Nonetheless, although the matter is not free from doubt,
under current law, any gain realized upon the sale or exchange of a Security
prior to maturity should be treated entirely as capital gain (subject to the
market discount rules, as discussed below).
S-26
<PAGE>
On January 27, 1994, the IRS issued final Treasury regulations (the "OID
Regulations") under the original issue discount provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), which replaced certain proposed
Treasury regulations that were issued on December 21, 1992 dealing with debt
instruments issued with original issue discount. The OID Regulations generally
apply to debt instruments issued on or after April 4, 1994; therefore by their
terms they apply to the Securities.
Under the OID Regulations, if a debt instrument qualifies as a "variable rate
debt instrument," then a special set of rules would apply to the debt
instrument whereby all "qualified stated interest" payments on the debt
instrument generally would be taxable to a U.S. Holder as ordinary interest
income in accordance with the U.S. Holder's regular method of tax accounting.
In general, a debt instrument will qualify as a "variable rate debt instrument"
under the OID Regulations (and would therefore not be treated as a contingent
payment debt obligation) if (a) its issue price does not exceed the total
noncontingent principal payments provided for under the terms of the debt
instrument by more than a specified de minimis amount and (b) it provides for
stated interest, paid or compounded at least annually, at current values of a
single objective rate. In general, an "objective rate" is a rate which is
determined using a single fixed formula and which is based upon either the
yield or changes in the price of one or more items of actively traded personal
property (other than stock or debt of the issuer or a related party). The
Securities will not qualify as "variable rate debt instruments" under the OID
Regulations because the stated principal amount of the Securities (i.e., $10)
exceeds the total noncontingent principal payments provided for under the terms
of the Securities (i.e., $9 or the Minimum Payment) by an amount in excess of
an amount equal to .015 multiplied by the product of the total noncontingent
principal payments and the number of complete years to the maturity of a
Security from its issue date (i.e., the de minimis amount) and because the
Securities provide for stated interest (i.e., the amount payable at maturity
with respect to a Security based upon the Portfolio) which is neither paid nor
compounded at least annually. Since the Securities will not qualify as
"variable rate debt instruments" under the OID Regulations, the Securities will
be treated as contingent payment debt obligations.
It is not entirely clear under current law how the Securities will be taxed
since they are classified as contingent payment debt obligations. As noted
above, under general principles of current United States Federal income tax
law, the amount payable at maturity with respect to a Security in excess of the
principal amount thereof, if any, would be treated as contingent interest and
generally would be includible in income by a U.S. Holder as ordinary interest
on the date the amount payable at maturity is determined or when such amount is
received (in accordance with the U.S. Holder's regular method of tax
accounting). In addition, if the amount payable at maturity with respect to a
Security exceeds the principal amount thereof, then such Security would be
treated as having been retired at maturity in exchange for an amount equal to
the principal amount thereof. Alternatively, if the amount payable at maturity
with respect to a Security is equal to or less than the principal amount
thereof, then a U.S. Holder generally would recognize taxable gain or loss at
maturity in an amount equal to the difference between the amount payable at
maturity and such U.S. Holder's tax basis in the Security. Such gain or loss
generally would be long-term capital gain or loss if the Security were held by
the U.S. Holder for more than one year (subject to the market discount rules,
as discussed below).
However, in 1986, the Treasury Department issued proposed regulations (the
"1986 Proposed Regulations") under the original issue discount provisions of
the Code concerning contingent payment debt obligations. The 1986 Proposed
Regulations were not replaced by the OID Regulations and contain a retroactive
effective date of July 1, 1982. In 1991, the Treasury Department issued
additional proposed regulations (the "1991 Proposed Regulations" and, together
with the OID Regulations and the 1986 Proposed Regulations, the "Treasury
Regulations") concerning contingent payment debt obligations which, if
applicable to the Securities, would bifurcate a Security into a debt instrument
and a right based upon the value of the Portfolio. The 1991 Proposed
Regulations, which contain a retroactive effective date of February 20, 1991,
would not apply to any debt instrument where the issue price of the debt
instrument exceeds the total noncontingent payments due under the debt
instrument by more than an insubstantial amount. Although neither the 1991
Proposed Regulations nor the 1986 Proposed Regulations define the term
S-27
<PAGE>
"insubstantial" and therefore the matter is not free from doubt, the 1991
Proposed Regulations should not be applied to the Securities in the event such
regulations are ultimately adopted in their current form, because the issue
price of the Securities should be treated as exceeding the total noncontingent
payments due under the Securities by more than an insubstantial amount.
Alternatively, if the 1986 Proposed Regulations are ultimately adopted in their
current form, such regulations should apply to the Securities.
Under the 1986 Proposed Regulations, the amount payable at maturity with
respect to a Security in excess of the principal amount thereof, if any, would
generally be includible in income by a U.S. Holder as ordinary interest at the
time the amount payable at maturity is determined, regardless of the U.S.
Holder's regular method of tax accounting. In addition, if the amount payable
at maturity with respect to a Security exceeds the principal amount thereof,
then such Security would be treated as having been retired at maturity in
exchange for an amount equal to the principal amount thereof. If, however, the
amount payable at maturity with respect to a Security is equal to or less than
the principal amount thereof, then, under the 1986 Proposed Regulations, a U.S.
Holder generally would recognize taxable gain or loss at maturity in an amount
equal to the difference between the amount payable at maturity and such U.S.
Holder's tax basis in the Security. Such gain or loss generally would be long-
term capital gain or loss if the Security were held by the U.S. Holder for more
than one year (subject to the market discount rules, as discussed below).
There is no assurance that either the 1986 Proposed Regulations or the 1991
Proposed Regulations will be adopted or, if adopted, adopted in their current
forms. In addition, on January 19, 1993, the Treasury Department issued
proposed regulations (the "1993 Proposed Regulations"), concerning contingent
payment debt obligations, which would have replaced both the 1986 Proposed
Regulations and the 1991 Proposed Regulations and which would have provided for
a set of rules with respect to the timing and character of income, gain or loss
on a Security that differ from the rules contained in the 1986 Proposed
Regulations and the 1991 Proposed Regulations with respect to the timing and
character of income, gain or loss on a Security. The 1993 Proposed Regulations,
which would have applied to debt instruments issued 60 days or more after the
1993 Proposed Regulations became final, generally provided for several
alternative timing methods which would have required annual interest accruals
to reflect either a market yield for the debt instrument, determined as of the
issue date, or a reasonable estimate of the performance of contingencies. The
amount of interest deemed to accrue in a taxable year pursuant to such methods
would have been currently includible in income by a U.S. Holder, with
subsequent adjustments to the extent that the estimate of income was incorrect.
In addition, under the 1993 Proposed Regulations, any gain realized on the
sale, exchange or retirement of a contingent payment debt obligation would have
been treated entirely as ordinary interest income and any loss realized on the
sale, exchange or retirement of a contingent payment debt obligation would have
been treated entirely as a capital loss. However, on January 22, 1993, the
United States Government's Office of Management and Budget announced that
certain proposed regulations which had not yet been published in the Federal
Register, including the 1993 Proposed Regulations, had been withdrawn. It is
unclear whether the 1993 Proposed Regulations will be re-proposed or, if re-
proposed, what effect, if any, such regulations would have on the Securities.
Furthermore, on March 1, 1994, the Treasury Department and the IRS stated their
intent to issue proposed regulations under the original issue discount
provisions of the Code concerning contingent payment debt obligations when they
released their 1994 Priorities for Tax Regulations and Other Administrative
Guidance. Presumably, these proposed regulations, if issued, would replace both
the 1986 Proposed Regulations and the 1991 Proposed Regulations. Based upon the
foregoing, the continued viability of the 1986 Proposed Regulations and the
1991 Proposed Regulations is uncertain. It should also be noted that proposed
Treasury regulations are not binding upon either the IRS or taxpayers prior to
becoming effective as temporary or final regulations.
The Company, where required, currently intends to file information returns
with the IRS treating each Security as a debt instrument of the Company for
United States Federal income tax purposes (as discussed above) and reporting
contingent interest on, if any, and gross proceeds received upon the sale,
exchange or retirement of each Security in accordance with general principles
of current United States Federal income tax law (as described above), in the
absence of any change or clarification in the law, by regulation or
S-28
<PAGE>
otherwise. Prospective investors in the Securities are urged to consult their
own tax advisors regarding the application of the Treasury Regulations to their
investment in the Securities and the effect of possible changes to the Treasury
Regulations.
MARKET DISCOUNT AND PREMIUM
If a U.S. Holder purchases a Security for an amount that is less than the
principal amount thereof (i.e., the Security's original issue price), the
amount of the difference will be treated as "market discount," unless such
difference is less than a specified de minimis amount (generally 1/4 of 1% of
the Security's stated principal amount multiplied by the number of complete
years to maturity from the date the U.S. Holder purchased such Security).
Under the market discount rules, a U.S. Holder will be required to treat any
gain realized on the sale, exchange, retirement or other disposition of a
Security as ordinary income to the extent of the lesser of (i) the amount of
such realized gain or (ii) the market discount which has not previously been
included in income and is treated as having accrued on such Security at the
time of such payment or disposition. Market discount will be considered to
accrue ratably during the period from the date of acquisition to the maturity
date of the Security, unless the U.S. Holder elects to accrue market discount
on the basis of semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Security with market discount until the maturity of the
Security or its earlier disposition in a taxable transaction and certain
nontaxable transactions, because a current deduction is only allowed to the
extent that the interest expense exceeds an allocable portion of the market
discount. A U.S. Holder may elect to include market discount in income
currently as it accrues (on either a ratable or semiannual compounding basis),
in which case the rules described above regarding the treatment as ordinary
income of gain upon the disposition or retirement of the Security and regarding
the deferral of interest deductions will not apply. Generally, such currently
included market discount is treated as ordinary interest for United States
Federal income tax purposes and a U.S. Holder would increase its tax basis in a
Security by the amount of any such currently included market discount.
If a U.S. Holder purchases a Security for an amount that is greater than the
principal amount thereof, such U.S. Holder will be considered to have purchased
the Security with "amortizable bond premium" equal in amount to such excess. A
U.S. Holder may offset ordinary interest otherwise required to be included in
respect of the Security at maturity by the amount of such excess and would
reduce its tax basis in the Security by the amount of any such interest offset
taken.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal or interest (including original issue discount, if
any) on a Security, unless such non-U.S. Holder is a direct or indirect 10% or
greater shareholder of the Company, a controlled foreign corporation related to
the Company or a bank receiving interest described in section 881(c)(3)(A) of
the Code. However, interest income allocable to non-U.S. Holders will generally
be subject to annual tax reporting on IRS Form 1042S. For a non-U.S. Holder to
qualify for the exemption from taxation, the last United States payor in the
chain of payment prior to payment to a non-U.S. Holder (the "Withholding
Agent") must have received in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a statement
that (i) is signed by the beneficial owner of the Security under penalties of
perjury, (ii) certifies that such owner is not a U.S. Holder and (iii) provides
the name and address of the beneficial owner. The statement may be made on an
IRS Form W-8 or a substantially similar form, and the beneficial owner must
inform the Withholding Agent of any change in the information on the statement
within 30 days of such change. If a Security is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement to the Withholding Agent.
However, in such case, the signed statement must be accompanied by a copy of
the IRS Form W-8 or the substitute form provided by the beneficial owner to
S-29
<PAGE>
the organization or institution. The Treasury Department is considering
implementation of further certification requirements aimed at determining
whether the issuer of a debt obligation is related to holders thereof.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes capital gain upon retirement or
disposition of a Security, provided the gain is not effectively connected with
the conduct of a trade or business in the United States by the non-U.S. Holder.
Certain other exceptions may be applicable, and a non-U.S. Holder should
consult its own tax advisor with respect to the applicability, if any, of such
other exceptions in light of their particular circumstances.
The Securities will not be includible in the taxable estate of a non-U.S.
Holder unless the individual is a direct or indirect 10% or greater shareholder
of the Company or, at the time of such individual's death, payments in respect
of the Securities would have been effectively connected with the conduct by
such individual of a trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Securities to registered owners who
are not "exempt recipients" and who fail to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the required manner. Generally, individuals are not exempt recipients, whereas
corporations and certain other entities generally are exempt recipients.
Payments made in respect of the Securities to a U.S. Holder must be reported to
the IRS, unless the U.S. Holder is an exempt recipient or establishes an
exemption. Compliance with the identification procedures described in the
preceding section would establish an exemption from backup withholding for
those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a Security to (or through) a broker, the broker
must withhold 31% of the entire sales price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be
reported by the broker to the IRS, unless either (i) the broker determines that
the seller is an exempt recipient or (ii) the seller certifies its non-U.S.
status (and certain other conditions are met). Certification of the registered
owner's non-U.S. status would be made normally on an IRS Form W-8 or a
substantially similar form under penalties of perjury.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
USE OF PROCEEDS
The net proceeds from the sale of the Securities will be used as described
under "Use of Proceeds" in the attached Prospectus and to hedge market risks
affecting the value of the payment at maturity in respect of the Securities.
The Company does not intend to confine its hedging activities to any particular
domestic or foreign exchanges.
S-30
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") has
agreed, subject to the terms and conditions of the Underwriting Agreement and a
Terms Agreement, to purchase from the Company $25,000,000 aggregate principal
amount of Securities.
The Underwriter has advised the Company that it proposes initially to offer
all or part of the Securities directly to the public at the offering price set
forth on the cover page of this Prospectus Supplement and to certain dealers at
such price less a concession not in excess of . % of the principal amount of
the Securities. After the initial public offering, the public offering price
and concession may be changed.
The underwriting of the Securities will conform to the requirements set forth
in the applicable sections of Schedule E to the By-Laws of the National
Association of Securities Dealers, Inc.
VALIDITY OF SECURITIES
The validity of the Securities will be passed upon for the Company and for
the Underwriter by Brown & Wood, New York, New York.
S-31
<PAGE>
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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 IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL
UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................... S-3
Special Considerations..................................................... S-6
Recent Developments........................................................ S-8
Description of Securities.................................................. S-12
The Portfolio.............................................................. S-19
Certain United States Federal Income Tax Considerations.................... S-25
Use of Proceeds............................................................ S-30
Underwriting............................................................... S-31
Validity of Securities..................................................... S-31
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Merrill Lynch & Co., Inc. ................................................. 3
Use of Proceeds............................................................ 3
Summary Financial Information.............................................. 4
Description of Debt Securities............................................. 7
Description of Debt Warrants............................................... 11
Description of Currency Warrants........................................... 12
Description of Index Warrants.............................................. 13
Plan of Distribution....................................................... 17
Experts.................................................................... 18
</TABLE>
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[LOGO OF MERRILL LYNCH]
2,500,000 UNITS
MERRILL LYNCH & CO., INC.
REAL ESTATE INVESTMENT TRUST PORTFOLIO
TOTAL RETURN MARKET
INDEX TARGET-TERM SECURITIES(SM)
DUE AUGUST 31, 2000
"MITTS(R)"
---------------
PROSPECTUS SUPPLEMENT
---------------
MERRILL LYNCH & CO.
AUGUST , 1994
"MITTS" IS A REGISTERED SERVICE MARK AND "MARKET INDEX TARGET-TERM SECURITIES"
IS A SERVICE MARK OWNED BY MERRILL LYNCH & CO., INC.
- -------------------------------------------------------------------------------
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<PAGE>
GRAPHICS APPENDIX LIST
DESCRIPTION OF GRAPHIC
- --------------------------------------------------------------------------------
Graphic No. 1 Artistic representations of the following items are
superimposed over portions of the text of this page:
portions of four separate high-rise buildings and a
series of nine smaller buildings.
- --------------------------------------------------------------------------------
Graphic No. 2 Graph entitled "Hypothetical Historical Daily Total
Return Portfolio Values (January 1991 - July 19, 1994)".
The graph sets forth the month-end values of the
Hypothetical Historical Daily Total Return
Portfolio Value, and the Hypothetical Historical Daily
Total Return Portfolio Value on July 19, 1994, with the
vertical axis specifying the Hypothetical
Historical Daily Total Return Portfolio Values in a
range from 0 to 12, in increments of 2, and the
horizontal axis specifying the time period in
increments of one month, beginning with January 1991
and ending with July 19, 1994.
