<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
Merrill Lynch & Co., Inc.
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2740599
-------------- -------------
(State of incorporation or organization) (I.R.S. Employer
Identification No.)
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
----------------------------- ---------
(Address of principal executive offices) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
- ------------------- ------------------------------
Real Estate Investment Trust New York Stock Exchange
Portfolio Total Return
Market Index Target-
Term Securities/SM/
("MITTS(R)") due
August 31, 2000
Securities to be registered pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------
(Title of class)
(R)"MITTS" is a registered service mark of Merrill Lynch & Co., Inc.
/SM/"Market Index Target-Term Securities" is a service mark of Merrill Lynch &
Co., Inc.
<PAGE>
Item 1. Description of Registrant's Notes to be Registered.
--------------------------------------------------
The description of the general terms and provisions of the Real Estate
Investment Trust Portfolio Total Return Market Index Target-Term Securities due
August 31, 2000 to be issued by Merrill Lynch & Co., Inc. (the "MITTS") set
forth in the Preliminary Prospectus Supplement dated July 26, 1994, and the
Prospectus dated March 24, 1994, attached hereto as Exhibit 99(a) is hereby
incorporated by reference and contains certain proposed terms and provisions.
The description of the MITTS contained in the Prospectus Supplement to be filed
pursuant to Rule 424(b) under the Securities Act of 1933, as amended, under
Registration Statement Number 33-52647, which will contain the final terms and
provisions of the MITTS, is hereby deemed to be incorporated by reference into
this Registration Statement and to be a part hereof.
Item 2. Exhibits.
--------
99(a) Preliminary Prospectus Supplement dated
July 26, 1994, and Prospectus dated March 24 1994.
99(b) Form of Note.
99(c) Copy of Indenture between Merrill Lynch & Co., Inc. and
Chemical Bank (successor by merger to Manufacturers Hanover
Trust Company), dated as of April 1, 1983, as amended and
restated, and Supplemental Indenture thereto, dated as of March
15, 1990./*/
Other securities issued by Merrill Lynch & Co., Inc. are listed on the
New York Stock Exchange.
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has caused this registration statement to be signed
on its behalf by the undersigned, thereto duly authorized.
MERRILL LYNCH & CO., INC.
/S/ Gregory T. Russo
By: ________________________
Gregory T. Russo
Secretary
Date: August 15, 1994
/*/Exhibit 99(c) is incorporated by reference from Exhibit 99(c) to Registrant's
Registration Statement on Form 8-A dated July 20, 1992.
2
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
MERRILL LYNCH & CO., INC.
EXHIBITS
TO
FORM 8-A DATED AUGUST 15, 1994
Commission File No. 1-7182
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Page No.
- ---------- -------
99(a) Preliminary Prospectus Supplement dated July
26, 1994, and Prospectus dated March 24, 1994.
99(b) Form of Note.
99(c) Copy of Indenture between Merrill Lynch & Co., Inc.
and Chemical Bank (successor by merger to
Manufacturers Hanover Trust Company), dated as of
April 1, 1983, as amended and restated, and Supplemental
Indenture thereto, dated as of March 15, 1990./*/
/*/Exhibit 99(c) is incorporated by reference from Exhibit 99(c) to Registrant's
Registration Statement on Form 8-A dated July 20, 1992.
<PAGE>
EXHIBIT 99(a)
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. 1 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
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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).
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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
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"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
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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
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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.
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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.
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<PAGE>
PROSPECTUS
LOGO OF MERRILL LYNCH
MERRILL LYNCH & CO., INC.
DEBT SECURITIES AND WARRANTS
Merrill Lynch & Co., Inc. (the "Company") intends to sell from time to time
up to $8,043,015,546 aggregate principal amount (or net proceeds in the case of
warrants and in the case of securities issued at an original issue discount),
or its equivalent in such foreign currencies or units of two or more
currencies, based on the applicable exchange rate at the time of offering, as
shall be designated by the Company at the time of offering, of its senior debt
securities ("Senior Debt Securities"), subordinated debt securities
("Subordinated Debt Securities" and, together with the Senior Debt Securities,
the "Debt Securities"), warrants to purchase Debt Securities ("Debt Warrants"),
warrants entitling the holders thereof to receive from the Company a payment or
delivery determined by reference to decreases or increases in the level of an
index or portfolio based on one or more equity or debt securities (including
the price or yield of such securities), any statistical measure of economic or
financial performance (including any consumer price, currency or mortgage
index) or the price or value of any commodity or a combination thereof (the
"Index Warrants") and warrants to receive from the Company the cash value in
U.S. dollars of the right to purchase ("Currency Call Warrants") or to sell
("Currency Put Warrants" and, together with the Currency Call Warrants, the
"Currency Warrants") such foreign currencies or units of two or more currencies
as shall be designated by the Company at the time of offering. The Debt
Securities, Debt Warrants, Index Warrants and Currency Warrants, which are
collectively called the "Securities", may be offered either jointly or
separately and will be offered to the public on terms determined by market
conditions at the time of sale and set forth in a prospectus supplement.
The Securities will be unsecured and, except in the case of Subordinated Debt
Securities, will rank equally with all other unsecured and unsubordinated
indebtedness of the Company. The Subordinated Debt Securities will be
subordinated to all existing and future Senior Indebtedness of the Company.
Each issue of Securities may vary, where applicable, as to aggregate
principal amount, maturity date, public offering or purchase price, interest
rate or rates, if any, and timing of payments thereof, provision for
redemption, sinking fund requirements, if any, exercise provisions, currencies
of denomination or currencies otherwise applicable thereto and any other
variable terms and method of distribution. The accompanying Prospectus
Supplement (the "Prospectus Supplement") sets forth the specific terms with
regard to the Securities in respect of which this Prospectus is being
delivered.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Securities may be sold directly or through Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") as agent or may be
offered and reoffered through, or through underwriting syndicates managed or
co-managed by, one or more of the following: MLPF&S; Bear, Stearns & Co. Inc.;
Donaldson, Lufkin & Jenrette Securities Corporation; The First Boston
Corporation; Goldman, Sachs & Co.; Kidder, Peabody & Co. Incorporated; Lehman
Brothers Inc.; Morgan Stanley & Co. Incorporated; Nomura Securities
International, Inc.; PaineWebber Incorporated; and Salomon Brothers Inc, or
directly to purchasers by the Company. The Company has entered into agreements
with such firms with respect to the Securities providing for agency sales of
the Securities through MLPF&S or the purchase and offering from time to time by
one or more of such firms, either alone or with the several members of any
syndicate formed by them. Additional agreements respecting the distribution of
the Securities may be entered into from time to time by the Company. Securities
may not be sold without delivery of a Prospectus Supplement describing such
issue of Securities and the method and terms of offering thereof.
----------------
The date of this Prospectus is March 24, 1994.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy and information statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and New York Regional Office, Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Reports, proxy and information
statements and other information concerning the Company may also be inspected
at the offices of the New York Stock Exchange, the American Stock Exchange, the
Chicago Stock Exchange and the Pacific Stock Exchange.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 25,
1992, Quarterly Reports on Form 10-Q for the quarters ending March 26, 1993,
June 25, 1993 and September 24, 1993, and Current Reports on Form 8-K dated
January 25, 1993, January 26, 1993, January 28, 1993, February 1, 1993,
February 22, 1993, March 1, 1993, March 19, 1993, April 13, 1993, April 15,
1993, April 22, 1993, April 27, 1993, April 29, 1993, June 24, 1993, June 28,
1993, July 7, 1993, July 13, 1993, July 27, 1993, September 8, 1993, September
13, 1993, September 23, 1993, October 7, 1993, October 11, 1993, October 15,
1993, October 27, 1993, December 17, 1993, December 22, 1993, December 27,
1993, December 30, 1993, January 20, 1994, January 24, 1994, January 27, 1994,
February 3, 1994, March 9, 1994 and March 24, 1994 filed pursuant to Section 13
of the Exchange Act, are hereby incorporated by reference into this Prospectus.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
(WITHOUT EXHIBITS OTHER THAN EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE)
OF ANY OR ALL DOCUMENTS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO MR. GREGORY T. RUSSO, SECRETARY,
MERRILL LYNCH & CO., INC., 100 CHURCH STREET, 12TH FLOOR, NEW YORK, NEW YORK
10080-6512; TELEPHONE NUMBER (212) 602-8435.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, insurance and related services
worldwide. Its principal subsidiary, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), is one of the largest securities firms in the world.
MLPF&S is a broker in securities, options contracts, commodity and financial
futures contracts, a distributor of selected insurance products, a dealer in
options and in corporate and municipal securities and an investment banking
firm. Merrill Lynch Government Securities Inc. is a primary dealer in
obligations issued by the U.S. Government or agencies thereof or guaranteed or
insured by Federal agencies or instrumentalities. Merrill Lynch Capital
Services, Inc. and Merrill Lynch Derivative Products, Inc. are the Company's
primary derivative subsidiaries which enter into interest rate and currency
swaps and other derivative transactions. Merrill Lynch Asset Management, L.P.
manages mutual funds and provides investment advisory services. Other
subsidiaries provide financial services outside the United States similar to
those of MLPF&S and are engaged in such other activities as international
banking, lending and providing other investment and financing services. The
Company's insurance underwriting and marketing operations consist of the
underwriting of life insurance and annuity products through subsidiaries of
Merrill Lynch Insurance Group, Inc., and the sale of life insurance and
annuities through Merrill Lynch Life Agency Inc. and other life insurance
agencies associated with MLPF&S.
The principal executive office of the Company is located at World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281; its telephone
number is (212) 449-1000.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Securities
for general corporate purposes. Such uses may include the funding of
investments in, or extensions of credit to, its subsidiaries, the funding of
assets held by the Company or its subsidiaries, including securities
inventories, customer receivables and loans (including business loans, home
equity loans and loans in connection with investment banking-related merger and
acquisition activities) and the lengthening of the average maturity of the
Company's borrowings (including the refunding of maturing indebtedness). The
precise amount and timing of investments in, and extensions of credit to, its
subsidiaries will depend upon their funding requirements and the availability
of other funds to the Company and its subsidiaries. Pending such applications,
the net proceeds will be temporarily invested or applied to the reduction of
short-term indebtedness. A substantial portion of the proceeds from the sale of
any Currency Warrants or Index Warrants may be used to hedge market risks with
respect to such Warrants. Management of the Company expects that it will, on a
recurrent basis, engage in additional financings as the need arises to finance
the growth of the Company or to lengthen the average maturity of its
borrowings. To the extent that Securities being purchased for resale by MLPF&S
are not resold, the aggregate proceeds to the Company and its subsidiaries
would be reduced.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary consolidated financial information was derived from,
and is qualified in its entirety by reference to, the financial statements and
other information and data contained in the Company's Annual Report on Form
10-K for the year ended December 25, 1992 and Current Report on Form 8-K dated
March 9, 1994. See "Incorporation of Certain Documents by Reference." The
Current Report on Form 8-K, dated March 9, 1994 (which includes the audited
financial statements for the Company for its 1993 fiscal year and other
supplementary information) and the other documents incorporated herein by
reference will be superseded by the Company's Annual Report on Form 10-K for
the year ended December 31, 1993. The year-end results include 52 weeks for
1989, 1990, 1991 and 1992 and 53 weeks for 1993.
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.
<TABLE>
<CAPTION>
YEAR ENDED LAST FRIDAY IN DECEMBER
---------------------------------------------------------------
1989 1990 1991 1992 1993
----------- ----------- ----------- ------------ ------------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
Revenues................ $11,273,223 $11,147,229 $12,352,812 $ 13,412,668 $ 16,588,177
Net Revenues............ $ 5,902,195 $ 5,783,329 $ 7,246,468 $ 8,577,401 $ 10,558,230
Earnings (loss) before
income taxes,
discontinued operations
and cumulative effect
of changes in
accounting
principles(1).......... $ (158,386) $ 282,328 $ 1,017,418 $ 1,621,389 $ 2,424,808
Discontinued operations
(net of income
taxes)(1).............. $ 3,981 -- -- -- --
Cumulative effect of
changes in accounting
principles (net of
applicable income
taxes)(1).............. -- -- -- $ (58,580) $ (35,420)
Net earnings (loss)(1).. $ (213,385) $ 191,856 $ 696,117 $ 893,825 $ 1,358,939
Ratio of earnings to
fixed charges(2)....... -- 1.1 1.2 1.3 1.4
Total assets............ $63,942,263 $68,129,527 $86,259,343 $107,024,173 $152,910,362
Long-term borrowings(3). $ 6,897,109 $ 6,341,559 $ 7,964,424 $ 10,871,100 $ 13,468,900
Stockholders' equity(4). $ 3,151,343 $ 3,225,430 $ 3,818,088 $ 4,569,104 $ 5,485,913
</TABLE>
- --------
(1) Net loss for 1989 includes an after-tax reduction of $395,000,000
($470,000,000 before income taxes) resulting from a provision for the
costs of divesting certain nonstrategic product lines and business
activities, consolidating and relocating selected retail and support
facilities and downsizing certain other operations. Results for 1989 have
been restated to reflect the effects of discontinued operations related to
the sale of the Company's real estate brokerage, relocation and related
services subsidiary, Fine Homes International, L.P. ("FHI"), in the third
quarter of 1989. Discontinued operations include the results of FHI's
operations through September 15, 1989 (the date of final disposition) and
the loss on disposal in 1989. Net earnings for 1992 have been reduced by
$58,580,000 to reflect the effects of the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" and SFAS No. 109,
"Accounting for Income Taxes." Net earnings for 1993 have been reduced by
$35,420,000 to reflect the effects of the adoption of SFAS No. 112,
"Employers' Accounting for Postemployment Benefits."
(2) 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. In 1989, fixed charges exceeded pretax earnings before fixed
charges by $187,564,000.
(3) 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 December 31, 1993,
$972,159,000 of bank loans and $14,895,540,000 of commercial paper were
outstanding. In addition, certain of the Company's subsidiaries lend
securities and enter into repurchase agreements to obtain financing. At
December 31, 1993, cash deposits for securities loaned and securities sold
under agreements to repurchase amounted to $1,047,059,000 and
$56,418,148,000, respectively. From December 31, 1993 to March 17, 1994,
long-term borrowings, net of repayments and repurchases, increased in the
amount of approximately $1,341,543,000.
(4) Stockholders' equity for 1993 has been increased by $21,355,000 to reflect
the effects of the adoption of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
4
<PAGE>
FISCAL YEAR 1993
Net earnings for 1993 were a record $1,358.9 million, an increase of $465.1
million (52%) above the $893.8 million reported for 1992. Results for 1993
include a non-recurring pretax lease charge in the first quarter totaling
$103.0 million ($59.7 million after income taxes) related to the Company's
decision not to occupy certain space at its World Financial Center Headquarters
facility. The 1993 results also reflect the early adoption of Statement of
Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits." The cumulative effect of this change in accounting
principle reduced 1993 net earnings by $35.4 million. Revenues after interest
expense ("net revenues") reached a record $10,558 million, up 23% over the
$8,577 million reported in 1992. Total 1993 revenues advanced 24% to $16,588
million versus $13,413 million for the prior year.
Commission revenues increased 19% in 1993 to $2,894 million due primarily to
the continued growth of listed securities transactions, increases in sales of
mutual funds and higher revenues from other commission categories. Commissions
on listed securities benefited from higher trading volume and increases in
average market prices. Mutual fund commissions benefited from increased sales
of front-end funds. Strong 1992 sales led to an increase in 1993 distribution
fees for deferred-charge funds, however, redemption fees declined from 1992 due
to lower levels of redemptions. Interest and dividend revenues in 1993 were
$7,099 million, up 22% from 1992. Interest expense (including dividend expense)
rose 25% in 1993 to $6,030 million. As a result, in 1993 net interest and
dividend profit advanced 10% to $1,069 million, compared to the $971 million
reported in 1992. This increase in net interest and dividend profit resulted
from the expansion of collateralized borrowing and lending activities, the
increased use of interest-free funds due to a larger equity base, and reduced
funding costs due to lower interest rates and improved credit ratings.
Principal transactions revenues rose to record levels in 1993, up 35% to
$2,920 million from the $2,166 million reported in 1992. Fixed-income and
foreign exchange revenues, in the aggregate, increased on higher revenues from
swaps and derivatives, corporate bonds and preferred stocks, and non-U.S.
governments and agencies. These advances were somewhat offset by lower revenues
from foreign exchange. In addition, 1993 mortgage-backed securities principal
transactions revenues were essentially break-even; however, net revenues,
including related hedges and net interest, were positive, although below 1992
levels. Equity trading revenues increased primarily due to higher volume and
prices in over-the-counter and foreign equity markets. Investment banking
revenues increased 23% to a record $1,831 million from the $1,484 million
reported a year ago. Underwriting revenues benefited from the low interest rate
environment, as corporations refinanced higher interest-bearing debt with lower
rate issuances, or raised capital through equity offerings. Investor demand
remained strong for equity and high-yield bond underwritings which offer the
potential for increased returns compared with other investment alternatives.
Asset management and portfolio service fees were also a record, advancing 24% to
$1,558 million from the $1,253 million reported last year. Increased fees earned
from asset management activities, the Merrill Lynch Consults(Registered
Trademark) portfolio management service and other fee-based portfolio services
businesses contributed to these favorable results. Asset management fees
increased from 1992 due primarily to asset growth in stock and bond funds.
Merrill Lynch Consults revenue increased due to the growth in the number of
accounts and higher asset levels. Other revenues rose 1% to $285 million due to
higher fees generated from increased home equity loan activity, partially offset
by net investment losses related primarily to provisions for merchant banking
activities.
Non-interest expenses totaled $8,133 million, up 17% from the $6,956 million
in 1992. Excluding the 1993 first quarter non-recurring lease charge totaling
$103.0 million, non-interest expenses were up 15%. Compensation and benefits
expense, which represented approximately 65% of total non-interest expenses,
increased 20% from 1992 due to higher production-related compensation and
increases in incentive compensation linked to the Company's improved
profitability and return on common equity. Nevertheless, compensation and
benefits expense, as a percentage of net revenues, declined to 49.8% from 50.9%
in 1992. Facilities-related costs, including occupancy, communications and
equipment rental, and depreciation and amortization, increased 13% from 1992
(3% excluding the non-recurring lease charge). Advertising and market
development expenses increased 25% reflecting higher sales promotion and
recognition program costs for Financial Consultants that are tied to increased
business activity. In addition, travel costs were up as the increase in
business volume required additional domestic and international travel, while
favorable markets
5
<PAGE>
contributed to the expansion of certain discretionary national and local
advertising campaigns. Professional fees increased 13% due to technology
upgrades which required the use of system and management consultants, as well
as higher employment agency fees. Brokerage, clearing and exchange fees were up
1% as a result of increased trading volume, while other expenses increased 5%
principally as a result of additions to loss provisions related to litigation
and claims.
Income tax expense was $1,030 million versus $669 million in the prior year
as the effective rate in 1993 rose to 42.5%, compared with 41.3% a year ago.
The higher effective tax rate in 1993 related to the increase in the Federal
statutory rate from 34% in 1992 to 35% in 1993 due to legislation raising
corporate income tax rates retroactive to January 1, 1993.
The Company's Board of Directors declared a two-for-one common stock split
effected in the form of a 100% stock dividend paid November 24, 1993 to
stockholders of record on October 22, 1993. All share and per share data
presented herein have been restated to reflect the common stock split.
The Company believes that its equity base is adequate relative to the level
and composition of its assets and the mix of its businesses.
In the normal course of business, the Company underwrites, trades, and holds
non-investment grade securities in connection with its market-making,
investment banking 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. At December 31, 1993, the fair value of long and
short non-investment grade trading inventories amounted to $3,129 million and
$214 million, respectively, and in the aggregate (i.e., the sum of long and
short trading inventories), represented 4.6% of aggregate consolidated trading
inventories.
At December 31, 1993, the carrying value of extensions of credit provided to
corporations entering into leveraged transactions aggregated $435 million
(excluding unutilized revolving lines of credit and other lending commitments
of $49 million), consisting primarily of senior term and subordinated
financings to 42 medium-sized corporations. At December 31, 1993, the Company
had no bridge loans outstanding. Loans to highly leveraged corporations are
carried at unpaid principal balance less a reserve for estimated losses. The
allowance for loan losses is estimated based on a review of each loan, and
considerations of economic, market and credit conditions. Direct equity
investments made in conjunction with the Company's investment and merchant
banking activities aggregated $276 million at December 31, 1993, representing
investments in 82 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 net realizable value. At
December 31, 1993, the Company held interests in partnerships, totaling $92
million that invest in highly leveraged transactions and non-investment grade
securities. Subsequent to December 31, 1993, the Company increased its
partnership interests by $15 million. The Company has a co-investment
arrangement to enter into direct equity investments. At December 31, 1993, the
additional co-investment commitments were $49 million. The Company also has
committed to invest an additional $19 million in partnerships that invest in
leveraged transactions. Subsequent to year-end, the Company increased its
partnership commitments by up to $50 million.
The Company's insurance subsidiaries hold non-investment grade securities. At
December 31, 1993, non-investment grade insurance investments were $458
million, representing 5.8% of the total insurance investments. At December 31,
1993, non-investment grade securities of insurance subsidiaries were classified
as trading or available-for-sale in accordance with Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities." At December 31, 1993, these investment securities were
carried at fair value.
At December 31, 1993, the largest non-investment grade concentration
consisted of various issues of a Latin American sovereign totaling $341
million, of which $146 million represented on-balance sheet hedges. No one
industry sector accounted for more than 15% of total non-investment grade
positions. At December 31, 1993, the Company held an aggregate carrying value
of $393 million in debt and equity securities of issuers who were in various
stages of bankruptcy proceedings. Approximately 59% of this amount resulted
from the Company's market-making activities.
6
<PAGE>
DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities are to be issued under an indenture (the "Chemical Indenture"),
dated as of April 1, 1983, as amended and restated, between the Company and
Chemical Bank (successor by merger to Manufacturers Hanover Trust Company), as
trustee or issued under an indenture (the "Chase Indenture"), dated as of
October 1, 1993 between the Company and The Chase Manhattan Bank, N.A. as
trustee (each, a "Senior Debt Trustee"). The Chemical Indenture and the Chase
Indenture are referred to herein as the "Senior Indentures". The Subordinated
Debt Securities are to be issued under an indenture (the "Subordinated
Indenture"), dated as of August 1, 1991, between the Company and Chemical Bank
(successor by merger to Manufacturers Hanover Trust Company), as trustee (the
"Subordinated Debt Trustee"). The Senior Debt Securities and Subordinated Debt
Securities may also be issued under one or more other indentures (each, a
"Subsequent Indenture") and have one or more other trustees (each, a
"Subsequent Trustee"). Any Subsequent Indenture relating to Senior Debt
Securities will have terms and conditions identical in all material respects
to the above-referenced Senior Indentures and any Subsequent Indenture
relating to Subordinated Debt Securities will have terms and conditions
identical in all material respects to the above-referenced Subordinated
Indenture, including, but not limited to, the applicable terms and conditions
described below. Any Subsequent Indenture relating to a series of Debt
Securities, and the trustee with respect thereto, will be identified in the
applicable Prospectus Supplement. The Senior Indentures, the Subordinated
Indenture and any Subsequent Indentures (whether senior or subordinated) are
referred to herein as the "Indentures"; and the Senior Debt Trustees, the
Subordinated Debt Trustee and any Subsequent Trustees are referred to herein
as the "Trustees". A copy of each Indenture is filed (or, in the case of a
Subsequent Indenture, will be filed) as an exhibit to the registration
statements relating to the Securities (collectively, the "Registration
Statement"). The following summaries of certain provisions of the Indentures
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all provisions of the respective Indentures,
including the definitions therein of certain terms.
GENERAL
Each Indenture provides that Debt Securities (Senior Debt Securities in the
case of the Senior Indentures or a Subsequent Indenture for Senior Debt
Securities, and Subordinated Debt Securities in the case of the Subordinated
Indenture or a Subsequent Indenture for Subordinated Debt Securities) may be
issued thereunder, without limitation as to aggregate principal amount, in one
or more series, by the Company from time to time upon satisfaction of certain
conditions precedent, including the delivery by the Company to the applicable
Trustee of a resolution of the Board of Directors, or the Executive Committee
thereof, of the Company which fixes or provides for the establishment of terms
of such Debt Securities, including: (1) the aggregate principal amount of such
Debt Securities and whether there is any limit upon the aggregate principal
amount of such Debt Securities that may be subsequently issued; (2) the date
on which such Debt Securities will mature; (3) the principal amount payable
with respect to such Debt Securities whether at maturity or upon earlier
acceleration, and whether such principal amount will be determined with
reference to an index, formula or other method; (4) the rate or rates per
annum (which may be fixed or variable) at which such Debt Securities will bear
interest, if any; (5) the dates on which such interest, if any, will be
payable; (6) the provisions for redemption of such Debt Securities, if any,
the redemption price and any remarketing arrangements relating thereto; (7)
the sinking fund requirements, if any, with respect to such Debt Securities;
(8) whether such Debt Securities are denominated or provide for payment in
United States dollars or a foreign currency or units of two or more of such
foreign currencies; (9) the form (registered or bearer or both) in which such
Debt Securities may be issued and any restrictions applicable to the exchange
of one form for another and to the offer, sale and delivery of such Debt
Securities in either form; (10) whether and under what circumstances the
Company will pay additional amounts ("Additional Amounts") in respect of such
Debt Securities held by a person who is not a U.S. person (as defined in the
Prospectus Supplement, as applicable) in respect of specified taxes,
assessments or other governmental charges and whether the Company has the
option to redeem the affected Debt Securities rather than pay such Additional
Amounts; (11) whether such Debt Securities are to be issued in global form;
(12) the title of the Debt Securities and the series of which such Debt
Securities shall be a part; and (13) the denominations of such Debt
Securities. Reference is made to
7
<PAGE>
the Prospectus Supplement for the terms of the Debt Securities being offered
thereby, including whether such Debt Securities are Senior Debt Securities or
Subordinated Debt Securities. Debt Securities may also be issued under the
Indentures upon the exercise of Debt Warrants. See "Description of Debt
Warrants". Nothing in the Indentures or in the terms of the Debt Securities
will prohibit the issuance of securities representing subordinated
indebtedness that is senior or junior to the Subordinated Debt Securities.
The Debt Securities will be issued, to the extent provided in the Prospectus
Supplement, in fully registered form without coupons, and/or in bearer form
with or without coupons, and in denominations set forth in the Prospectus
Supplement. No service charge will be made for any registration of transfer of
registered Debt Securities or exchange of Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charges that may be imposed in connection therewith. Each Indenture provides
that Debt Securities issued thereunder may be issued in global form. If any
series of Debt Securities is issuable in global form, the applicable
Prospectus Supplement will describe the circumstances, if any, under which
beneficial owners of interest in any such global Debt Securities may exchange
such interests for Debt Securities of such series and of like tenor and
principal amount in any authorized form and denomination. Principal of, and
any premium, Additional Amounts and interest on, a global Debt Security will
be payable in the manner described in the applicable Prospectus Supplement.
The provisions of the Indentures described above provide the Company with
the ability, in addition to the ability to issue Debt Securities with terms
different from those of Debt Securities previously issued, to "reopen" a
previous issue of a series of Debt Securities and issue additional Debt
Securities of such series.
The Senior Debt Securities will be unsecured and will rank pari passu with
all other unsecured and unsubordinated indebtedness of the Company. The
Subordinated Debt Securities will be unsecured and will be subordinated to all
existing and future Senior Indebtedness (as defined below) of the Company.
Since the Company is a holding company, the right of the Company, and hence
the right of creditors of the Company (including the Holders of the Debt
Securities), to participate in any distribution of the assets of any
subsidiary upon its liquidation or reorganization or otherwise is necessarily
subject to the prior claims of creditors of the subsidiary, except to the
extent that claims of the Company itself as a creditor of the subsidiary may
be recognized. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to the Company are restricted by net capital
requirements under the Securities Exchange Act of 1934 and under rules of
certain exchanges and other regulatory bodies.
Principal and interest, premium and Additional Amounts, if any, will be
payable in the manner, at the places and subject to the restrictions set forth
in the applicable Indenture, the Debt Securities and the Prospectus Supplement
relating thereto, provided that payment of any interest and any Additional
Amounts may be made at the option of the Company by check mailed to the
holders of registered Debt Securities at their registered addresses.
Debt Securities may be presented for exchange, and registered Debt
Securities may be presented for transfer, in the manner, at the places and
subject to the restrictions set forth in the applicable Indenture, the Debt
Securities and the Prospectus Supplement relating thereto. Debt Securities in
bearer form and the coupons, if any, pertaining thereto will be transferable
by delivery. No service charge will be made for any transfer or exchange of
Debt Securities, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
MERGER AND CONSOLIDATION
The Company may consolidate or merge with or into any other corporation, and
the Company may sell, lease or convey all or substantially all of its assets
to any corporation, provided that (i) the corporation (if other than the
Company) formed by or resulting from any such consolidation or merger or which
shall have received such assets shall be a corporation organized and existing
under the laws of the United States of America or a state thereof and shall
assume payment of the principal of, and any premium, Additional Amounts or
interest on, the Debt Securities and the performance and observance of all of
the covenants and conditions of the Indentures to be performed or observed by
the Company, and (ii) the Company or such successor corporation, as the case
may be, shall not immediately thereafter be in default under the Indentures.
8
<PAGE>
MODIFICATION AND WAIVER
Modification and amendment of each Indenture may be effected by the Company
and the applicable Trustee with the consent of the Holders of 66 2/3% in
principal amount of the Outstanding Debt Securities of each series issued
pursuant to such Indenture and affected thereby, provided that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Debt Security affected thereby, (a) change the Stated Maturity of,
or any installment of interest or Additional Amounts on, any Debt Security or
any premium payable on the redemption thereof, or change the Redemption Price;
(b) reduce the principal amount of, or the interest or Additional Amounts
payable on, any Debt Security or reduce the amount of principal which could be
declared due and payable prior to the Stated Maturity; (c) change the place or
currency of any payment of principal of, or any premium, interest or Additional
Amounts on, any Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security; (e) reduce
the percentage in principal amount of the Outstanding Debt Securities of any
series, the consent of whose Holders is required to modify or amend such
Indenture; or (f) modify the foregoing requirements or reduce the percentage of
Outstanding Debt Securities necessary to waive any past default to less than a
majority. No modification or amendment of the Subordinated Indenture or any
Subsequent Indenture for Subordinated Debt Securities may adversely affect the
rights of any Holder of Senior Indebtedness without the consent of such Holder.
Except with respect to certain fundamental provisions, the Holders of at least
a majority in principal amount of Outstanding Debt Securities of any series
may, with respect to such series, waive past defaults under the applicable
Indenture and waive compliance by the Company with certain provisions of such
Indenture.
EVENTS OF DEFAULT
Under each Indenture, the following will be Events of Default with respect to
Debt Securities of any series issued thereunder: (a) default in the payment of
any interest or Additional Amounts upon any Debt Security of that series when
due, continued for 30 days; (b) default in the payment of any principal of or
premium, if any, on any Debt Security of that series when due; (c) default in
the deposit of any sinking fund payment, when due, in respect of any Debt
Security of that series; (d) default in the performance of any other covenant
of the Company contained in such Indenture for the benefit of such series or in
the Debt Securities of such series, continued for 60 days after written notice
as provided in such Indenture; (e) certain events in bankruptcy, insolvency or
reorganization; and (f) any other Event of Default provided with respect to
Debt Securities of that series. The applicable Trustee or the Holders of 25% in
principal amount of the Outstanding Debt Securities of that series may declare
the principal amount (or such lesser amount as may be provided for in the Debt
Securities of that series) of all Outstanding Debt Securities of that series
and the interest accrued thereon and Additional Amounts payable in respect
thereof, if any, to be due and payable immediately if an Event of Default with
respect to Debt Securities of such series shall occur and be continuing at the
time of declaration. At any time after a declaration of acceleration has been
made with respect to Debt Securities of any series but before a judgment or
decree for payment of money due has been obtained by the applicable Trustee,
the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series may rescind any declaration of acceleration and its
consequences, if all payments due (other than those due as a result of
acceleration) have been made and all Events of Default have been remedied or
waived. Any Event of Default with respect to Debt Securities of any series may
be waived by the Holders of a majority in principal amount of all Outstanding
Debt Securities of that series, except in a case of failure to pay principal of
or premium, if any, or interest or Additional Amounts, if any, on any Debt
Security of that series for which payment had not been subsequently made or in
respect of a covenant or provision which cannot be modified or amended without
the consent of the Holder of each Outstanding Debt Security of such series
affected.
The Holders of a majority in principal amount of the Outstanding Debt
Securities of a series may direct the time, method and place of conducting any
proceeding for any remedy available to the applicable Trustee or exercising any
trust or power conferred on such Trustee with respect to Debt Securities of
such series, provided that such direction shall not be in conflict with any
rule of law or the applicable Indenture. Before
9
<PAGE>
proceeding to exercise any right or power under an Indenture at the direction
of such Holders, the applicable Trustee shall be entitled to receive from such
Holders reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in complying with any such direction.
The Company will be required to furnish to each Trustee annually a statement
as to the fulfillment by the Company of all of its obligations under the
applicable Indenture.
SPECIAL TERMS RELATING TO THE SENIOR DEBT SECURITIES
LIMITATIONS UPON LIENS
The Senior Indentures provide that the Company may not, and may not permit
any Subsidiary to, create, assume, incur or permit to exist any indebtedness
for borrowed money secured by a pledge, lien or other encumbrance (except for
certain liens specifically permitted by the Senior Indentures) on the Voting
Stock owned directly or indirectly by the Company of any Subsidiary (other than
a Subsidiary which, at the time of incurrence of such secured indebtedness, has
a net worth of less than $3,000,000) without making effective provision whereby
the Outstanding Senior Debt Securities will be secured equally and ratably with
such secured indebtedness.
LIMITATION ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS BY,
MLPF&S
The Senior Indentures provide that the Company may not sell, transfer or
otherwise dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell
or otherwise dispose of any of its Voting Stock, unless, after giving effect to
any such transaction, MLPF&S remains a Controlled Subsidiary (defined in the
Senior Indentures to mean a corporation more than 80% of the outstanding shares
of Voting Stock of which are owned directly or indirectly by the Company). In
addition, the Senior Indentures provide that the Company may not permit MLPF&S
to (i) merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or (ii) convey or transfer its properties and assets substantially
as an entirety, except to one or more Controlled Subsidiaries.
SPECIAL TERMS RELATING TO THE SUBORDINATED DEBT SECURITIES
Upon any distribution of assets of the Company resulting from any
dissolution, winding up, liquidation or reorganization, payments on
Subordinated Debt Securities are to be subordinated to the extent provided in
the Subordinated Indenture in right of payment to the prior payment in full of
all Senior Indebtedness, but the obligation of the Company to make payments on
the Subordinated Debt Securities will not otherwise be affected. No payment on
Subordinated Debt Securities may be made at any time when there is a default in
the payment of any principal, premium, interest, Additional Amounts or sinking
fund of or on any Senior Indebtedness. Holders of Subordinated Debt Securities
will be subrogated to the rights of holders of Senior Indebtedness to the
extent of payments made on Senior Indebtedness upon any distribution of assets
in any such proceedings out of the distributive shares of Subordinated Debt
Securities. By reason of such subordination, in the event of a distribution of
assets upon insolvency, certain creditors of the Company may recover more,
ratably, than Holders of Subordinated Debt Securities.
Senior Indebtedness is defined in the Subordinated Indenture as the principal
of, premium, if any, and unpaid interest on (a) indebtedness of the Company
(including indebtedness of others guaranteed by the Company), other than the
Subordinated Debt Securities, whether outstanding on the date of execution of
the Subordinated Indentures or thereafter created, incurred, assumed or
guaranteed, (i) for money owing to banks, (ii) for money borrowed from sources
other than banks or (iii) in connection with the acquisition by the Company or
a subsidiary of assets of any kind except in the ordinary course of business,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is provided that such indebtedness is not superior
in right of payment to the Subordinated Debt Securities, and (b) renewals,
extensions, modifications and refundings of any such indebtedness. As of
December 31, 1993, a total of approximately $30.2 billion of the Company's
indebtedness would have been Senior Indebtedness as so defined.
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DESCRIPTION OF DEBT WARRANTS
The Company may issue, together with Debt Securities, Currency Warrants or
Index Warrants or separately, Debt Warrants for the purchase of Debt
Securities. The Debt Warrants are to be issued under Debt Warrant Agreements
(each a "Debt Warrant Agreement") to be entered into between the Company and a
bank or trust company, as Debt Warrant Agent (the "Debt Warrant Agent"), all as
shall be set forth in the Prospectus Supplement relating to Debt Warrants being
offered thereby. A copy of the form of Debt Warrant Agreement, including the
form of Warrant Certificates representing the Debt Warrants (the "Debt Warrant
Certificates"), reflecting the alternative provisions to be included in the
Debt Warrant Agreements that will be entered into with respect to particular
offerings of Debt Warrants, is filed as an exhibit to the Registration
Statement. The following summaries of certain provisions of the Debt Warrant
Agreement and the Debt Warrant Certificates do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all the
provisions of the Debt Warrant Agreement and the Debt Warrant Certificates,
respectively, including the definitions therein of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of Debt Warrants
offered thereby, the Debt Warrant Agreement relating to such Debt Warrants and
the Debt Warrant Certificates representing such Debt Warrants, including the
following: (1) the designation, aggregate principal amount, price at which such
principal amount may be purchased upon exercise and terms of the Debt
Securities purchasable upon exercise of such Debt Warrants, including whether
such Debt Securities are Senior Debt Securities or Subordinated Debt
Securities, and the procedures and conditions relating to the exercise of such
Debt Warrants; (2) the designation and terms of any related Debt Securities
with which such Debt Warrants are issued, including whether such Debt
Securities are Senior Debt Securities or Subordinated Debt Securities, the
number of such Debt Warrants issued with each such Debt Security, and the
Indenture under which the Debt Securities will be issued; (3) the date, if any,
on and after which such Debt Warrants and the related Debt Securities will be
separately transferable; (4) the date on which the right to exercise such Debt
Warrants shall commence and the date on which such right shall expire (the
"Expiration Date"); (5) if the Debt Securities purchasable upon exercise of
such Debt Warrants are original issue discount Debt Securities, a discussion of
Federal income tax considerations applicable thereto; and (6) whether the Debt
Warrants represented by the Debt Warrant Certificates will be issued in
registered or bearer form, and, if registered, where they may be transferred
and registered.
Debt Warrant Certificates will be exchangeable for new Debt Warrant
Certificates of different denominations and Debt Warrants may be exercised at
the corporate trust office of the Debt Warrant Agent or any other office
indicated in the Prospectus Supplement. Prior to the exercise of their Debt
Warrants, holders of Debt Warrants will not have any of the rights of Holders
of the Debt Securities purchasable upon such exercise and will not be entitled
to payments of principal of, and any premium, Additional Amounts or interest
on, the Debt Securities purchasable upon such exercise.
EXERCISE OF DEBT WARRANTS
Each Debt Warrant will entitle the Holder to purchase for cash such principal
amount of Debt Securities at such exercise price as shall in each case be set
forth in, or be determinable as set forth in, the Prospectus Supplement
relating to the Debt Warrants offered thereby. Debt Warrants may be exercised
at any time up to the close of business on the Expiration Date set forth in the
Prospectus Supplement relating to the Debt Warrants offered thereby. After the
close of business on the Expiration Date, unexercised Debt Warrants will become
void.
Debt Warrants may be exercised as set forth in the Prospectus Supplement
relating to the Debt Warrants offered thereby. Upon receipt of payment and the
Debt Warrant Certificate properly completed and duly executed at the corporate
trust office of the Debt Warrant Agent or any other office indicated in the
Prospectus Supplement, the Company will, as soon as practicable, forward the
Debt Securities purchasable
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upon such exercise. If less than all of the Debt Warrants represented by such
Debt Warrant Certificate are exercised, a new Debt Warrant Certificate will be
issued for the remaining amount of Debt Warrants.
DESCRIPTION OF CURRENCY WARRANTS
The Company may issue, together with Debt Securities, Debt Warrants or Index
Warrants or separately, Currency Warrants either in the form of Currency Put
Warrants entitling the Holders thereof to receive from the Company the cash
settlement value in U.S. dollars of the right to sell a specified amount of a
specified foreign currency or currency units for a specified amount of U.S.
dollars, or in the form of Currency Call Warrants entitling the Holders thereof
to receive from the Company the cash settlement value in U.S. dollars of the
right to purchase a specified amount of a specified foreign currency or units
of two or more currencies for a specified amount of U.S. dollars. The Currency
Warrants are to be issued under a Currency Put Warrant Agreement or a Currency
Call Warrant Agreement, as applicable (each a "Currency Warrant Agreement"), to
be entered into between the Company and a bank or trust company, as Currency
Warrant Agent (the "Currency Warrant Agent"), all as shall be set forth in the
applicable Prospectus Supplement. Copies of the forms of Currency Put Warrant
Agreement and Currency Call Warrant Agreement, including the forms of global
Warrant Certificates representing the Currency Put Warrants and Currency Call
Warrants (the "Currency Warrant Certificates"), reflecting the provisions to be
included in the Currency Warrant Agreements that will be entered into with
respect to particular offerings of Currency Warrants, are filed as exhibits to
the Registration Statement. The following summaries of certain provisions of
the Currency Warrant Agreements and the Currency Warrant Certificates do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Currency Warrant Agreements and the
Currency Warrant Certificates, respectively, including the definitions therein
of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of Currency
Warrants offered thereby, the Currency Warrant Agreement relating to such
Currency Warrants and the Currency Warrant Certificates representing such
Currency Warrants, including the following: (1) whether such Currency Warrants
shall be Currency Put Warrants, Currency Call Warrants, or both; (2) the
formula for determining the cash settlement value of each Currency Warrant; (3)
the procedures and conditions relating to the exercise of such Currency
Warrants; (4) the circumstances which will cause the Currency Warrants to be
deemed to be automatically exercised; (5) any minimum number of Currency
Warrants which must be exercised at any one time, other than upon automatic
exercise; and (6) the date on which the right to exercise such Currency
Warrants shall commence and the date on which such right shall expire (the
"Expiration Date"), provided that the commencement date and the Expiration Date
may be the same date.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Except as may otherwise be provided in an applicable Prospectus Supplement,
the Currency Warrants will be issued in the form of global Currency Warrant
Certificates, registered in the name of a depository or its nominee. Beneficial
owners will not be entitled to receive definitive certificates representing
Currency Warrants. Ownership of a Currency Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains a
beneficial owner's account. In turn, the total number of Currency Warrants held
by an individual brokerage firm for its clients will be maintained on the
records of the depository in the name of such brokerage firm or its agent.
Transfer of ownership of any Currency Warrant will be effected only through the
selling beneficial owner's brokerage firm.
EXERCISE OF CURRENCY WARRANTS
Each Currency Warrant will entitle the Holder to the cash settlement value of
such Currency Warrant on the applicable Exercise Date, in each case as such
terms will be defined in the applicable Prospectus Supplement. If a Currency
Warrant has more than one exercise date and is not exercised prior to 1:30
P.M., New York City time, on the fifth New York Business Day preceding the
Expiration Date, Currency Warrants will be deemed automatically exercised.
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LISTING
Each issue of Currency Warrants will be listed on a national securities
exchange, subject only to official notice of issuance, as a condition of sale
of any such Currency Warrants. In the event that the Currency Warrants are
delisted from, or permanently suspended from trading on, such exchange, the
Expiration Date for such Currency Warrants will be the date such delisting or
trading suspension becomes effective and Currency Warrants not previously
exercised will be deemed automatically exercised on such Expiration Date. The
applicable Currency Warrant Agreement will contain a covenant of the Company
not to seek delisting of the Currency Warrants, or suspension of their trading,
on such exchange.
DESCRIPTION OF INDEX WARRANTS
The Company may issue from time to time Index Warrants consisting of put
warrants (the "Index Put Warrants") or call warrants (the "Index Call
Warrants"). The Index Warrants will entitle the holders to receive from the
Company a payment or delivery, subject to applicable law, determined by
reference to decreases (in the case of Index Put Warrants) or to increases (in
the case of Index Call Warrants) in the level of an index or portfolio based on
one or more equity or debt securities (including the price or yield of such
securities), any statistical measure of economic or financial performance
(including any consumer price, currency or mortgage index) or the price or
value of any commodity or any combination thereof (the "Index"). Unless
otherwise specified in the accompanying Prospectus Supplement, payments, if
any, upon exercise (or deemed exercise) of the Index Warrants will be made in
U.S. dollars. The Index Warrants will be offered on terms to be determined at
the time of sale. The amount of Index Warrants offered by this Prospectus,
other than those Index Warrants which will entitle the holders to receive a
payment from the Company determined by reference to increases or decreases in
the level of a specified stock or security index or the value of a portfolio of
specified stocks or other securities, is currently limited to $8,300,000,000.
This amount may be increased by the Company without the consent of
Warrantholders.
GENERAL
The applicable Prospectus Supplement will describe the Index Warrant
Agreement or Index Warrant Trust Indenture (each as defined below), as the case
may be, relating to the Index Warrants being offered thereby and the terms of
such Index Warrants, including, without limitation: (i) whether the Index
Warrants to be issued will be Index Put Warrants, Index Call Warrants or both;
(ii) the aggregate number and initial public offering price or purchase price;
(iii) the Index for such Index Warrants; (iv) whether the Index Warrants will
be deemed exercised as of a specified date or whether the Index Warrants may be
exercised during a period and the date on which the right to exercise such
Index Warrants commences and the date on which such right expires; (v) the
manner in which such Index Warrants may be exercised and any restrictions on,
or other special provisions relating to, the exercise of such Index Warrants;
(vi) the minimum number, if any, of such Index Warrants exercisable at any one
time; (vii) the maximum number, if any, of such Index Warrants that may,
subject to the Company's election, be exercised by all Index Warrantholders (or
by any person or entity) on any day; (viii) any provisions permitting an Index
Warrantholder to condition an exercise notice on the absence of certain
specified changes in the level of the applicable Index after the exercise date,
any provisions permitting the Company to suspend exercise of such Index
Warrants based on market conditions or other circumstances and any other
special provision relating to the exercise of such Index Warrants; (ix) any
provisions for the automatic exercise of such Index Warrants other than at
expiration; (x) any provisions permitting the Company to cancel such Index
Warrants upon the occurrence of certain events; (xi) any additional
circumstances which would constitute an Event of Default with respect to such
Index Warrants; (xii) the method of determining (a) the payment or delivery, if
any, to be made in connection with the exercise or deemed exercise of such
Index Warrants (the "Settlement Value"), (b) the minimum payment or delivery,
if any, to be made upon expiration of such Index Warrants (the "Minimum
Expiration Value"), (c) the payment or delivery to be made upon the exercise of
any right which the Company may have to cancel such Index Warrants and (d) the
value of the Index; (xiii) in the case of Index Warrants relating to an Index
for which the trading prices of underlying securities, commodities or rates are
expressed in a foreign currency, the method of converting amounts in the
relevant foreign currency or currencies into U.S. dollars (or such
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other currency or composite currency in which the Index Warrants are payable);
(xiv) the method of providing for a substitute index or otherwise determining
the payment or delivery, if any, to be made in connection with the exercise of
such Index Warrants if the Index changes or ceases to be made available by its
publisher; (xv) the time or times at which payment or delivery, if any, will be
made in respect of such Index Warrants following exercise or deemed exercise;
(xvi) the national securities exchange on which such Index Warrants will be
listed, if any; (xvii) any provisions for issuing such Index Warrants in other
than book-entry form; (xviii) if such Index Warrants are not issued in book-
entry form, the place or places at which payment or delivery on cancellation,
if any, and the Minimum Expiration Value, if any, of such Index Warrants is to
be made by the Company; (xix) certain U.S. federal income tax consequences
relating to such Index Warrants; and (xx) other specific provisions.
Except as otherwise provided in the applicable Prospectus Supplement, each
issue of Index Warrants will contain the terms set forth below.
The Index Warrants which are issued without a Minimum Expiration Value will
be issued under one or more index warrant agreements (each, an "Index Warrant
Agreement") to be entered into between the Company and a bank or trust company,
as warrant agent (the "Index Warrant Agent"), all as described in the
Prospectus Supplement relating to such Index Warrants. The Index Warrant Agent
will act solely as the agent of the Company under the applicable Index Warrant
Agreement and will not assume any obligation or relationship of agency or trust
for or with any Index Warrantholders. A single bank or trust company may act as
Index Warrant Agent for more than one issue of Index Warrants.
The Index Warrants which are issued with a Minimum Expiration Value will be
issued under one or more index warrant trust indentures (each an "Index Warrant
Trust Indenture") to be entered into between the Company and a corporation (or
other person permitted to so act by the Trust Indenture Act of 1939, as amended
from time to time (the "Trust Indenture Act")), to act as trustee (the "Index
Warrant Trustee"), all as described in the Prospectus Supplement relative to
such Index Warrants. Any Index Warrant Trust Indenture will be qualified under
the Trust Indenture Act. To the extent allowed by the Trust Indenture Act, a
single qualified corporation may act as Index Warrant Trustee for more than one
issue of Index Warrants.
Forms of Index Warrant Agreement and Index Warrant Trust Indenture and the
respective global Index Warrant Certificates related thereto are filed as
exhibits to the Registration Statement. The summaries herein of certain
provisions of the Index Warrant Agreement, the Index Warrant Trust Indenture
and global Index Warrant Certificates do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Index Warrant Agreement, the Index Warrant Trust Indenture
and global Index Warrant Certificates, respectively.
The Company will have the right to "reopen" a previous issue of Index
Warrants and to issue additional Index Warrants of such issue without the
consent of any Index Warrantholder.
The Index Warrants involve a high degree of risk, including the risk that the
Index Warrants will expire worthless except for the Minimum Expiration Value,
if any, of such Index Warrants. Investors should therefore be prepared to
sustain a total loss of the purchase price of the Index Warrants (except for
the Minimum Expiration Value, if applicable). Investors who consider purchasing
Index Warrants should be experienced with respect to options and option
transactions and reach an investment decision only after carefully considering
the suitability of the Index Warrants in light of their particular
circumstances and the information set forth below and under "Description of
Index Warrants" as well as additional information contained in the Prospectus
Supplement relating to such Index Warrants.
Unless otherwise provided in the Prospectus Supplement, each Index Warrant
will entitle Index Warrantholders to receive from the Company upon exercise the
Settlement Value of such Index Warrant. Certain Index Warrants issued pursuant
to an Index Warrant Trust Indenture will, if specified in the Prospectus
Supplement, entitle the Index Warrantholder to receive from the Company, under
certain circumstances specified in the Prospectus Supplement, a payment or
delivery equal to the greater of the applicable Settlement Value and a Minimum
Expiration Value of such Index Warrants. In addition, certain Index Warrants
will, if specified in the Prospectus Supplement, entitle Index Warrantholders
to receive from the Company a certain payment or delivery upon cancellation of
the Index Warrants by the Company, upon
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the occurrence of specified events. In addition, if so specified in the
Prospectus Supplement, following the occurrence of an extraordinary event, the
Settlement Value of an Index Warrant may, at the option of the Company, be
determined on a different basis, including in connection with automatic
exercise at expiration.
Unless otherwise specified in the related Prospectus Supplement, the Index
Warrants will be deemed to be automatically exercised upon expiration or such
earlier date that may be specified. Upon such automatic exercise, Index
Warrantholders will be entitled to receive a payment or delivery equal to the
Settlement Value of the Index Warrants, except that holders of Index Warrants
having a Minimum Expiration Value will be entitled to receive a payment or
delivery equal to the greater of such Settlement Value and the applicable
Minimum Expiration Value. The Minimum Expiration Value may be either a
predetermined payment or delivery or a payment or delivery that varies during
the term of the Index Warrants in accordance with a schedule or formula. Any
Minimum Expiration Value applicable to an issue of Index Warrants, as well as
any additional circumstances resulting in the automatic exercise of such Index
Warrants, will be specified in the related Prospectus Supplement.
If so specified in the Prospectus Supplement, the Index Warrants may be
canceled by the Company, or the exercise or valuation of, or payment or
delivery for, such Index Warrants may be delayed or postponed upon the
occurrence of an extraordinary event. Any extraordinary events relating to an
issue of Index Warrants will be set forth in the related Prospectus Supplement.
Upon cancellation, the related Index Warrantholders will be entitled to receive
only the applicable payment or delivery on cancellation specified in such
Prospectus Supplement. The payment or delivery on cancellation may be either a
predetermined payment or delivery or a payment or delivery that varies during
the term of the Index Warrants in accordance with a schedule or formula.
If the Company defaults with respect to any of its obligations under Index
Warrants which are issued with a Minimum Expiration Value pursuant to an Index
Warrant Trust Indenture, such default may be waived by the Index Warrantholders
of a majority in interest of all outstanding Index Warrants, except a default
in the payment or delivery of the Settlement Value, Minimum Expiration Value or
cancellation payment or delivery (if applicable) on such Index Warrants or in
respect of a covenant or provision of the applicable Index Warrant Trust
Indenture which cannot be modified or amended without the consent of the Index
Warrantholder of each outstanding Index Warrant affected.
The Index Warrants are unsecured contractual obligations of the Company and
will rank pari passu with the Company's other unsecured contractual obligations
and with the Company's unsecured and unsubordinated debt. Since the Company is
a holding company, the right of the Company, and hence the right of creditors
of the Company (including the Holders of the Debt Securities), to participate
in any distribution of the assets of any subsidiary upon its liquidation or
reorganization or otherwise is necessarily subject to the prior claims of
creditors of the subsidiary, except to the extent that claims of the Company
itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Securities
Exchange Act of 1934 and under rules of certain exchanges and other regulatory
bodies.
Certain special United States federal income tax considerations may be
applicable to instruments such as the Index Warrants. The related Prospectus
Supplement will describe such tax considerations. The summary of United Stated
federal income tax considerations contained in the Prospectus Supplement will
be presented for informational purposes only, however, and will not be intended
as legal or tax advice to prospective purchasers. Prospective purchasers of
Index Warrants are urged to consult their own tax advisors prior to any
acquisition of Index Warrants.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Except as may otherwise be provided in an applicable Prospectus Supplement,
Index Warrants will be issued in book-entry form and represented by global
Index Warrants, registered in the name of a depository or its nominee. Except
as may otherwise be provided in an applicable Prospectus Supplement, Index
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Warrantholders will not be entitled to receive definitive certificates
representing Index Warrants, unless the depository is unwilling or unable to
continue as depository or the Company decides to have the Index Warrants
represented by definitive certificates. A beneficial owner's interest in an
Index Warrant represented by a global Index Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains such
beneficial owner's account. In turn, the total number of Index Warrants held by
an individual brokerage firm or other entity for its clients will be maintained
on the records of the depository in the name of such brokerage firm or other
entity or its agent.
LISTING
Unless otherwise indicated in the Prospectus Supplement, the Index Warrants
will be listed on a national securities exchange as specified in the Prospectus
Supplement. It is expected that such exchange will cease trading an issue of
Index Warrants at the close of business on the related expiration date of such
Index Warrants.
MODIFICATION
Any Index Warrant Agreement or Index Warrant Trust Indenture and the terms of
the related Index Warrants may be amended by the Company and the Index Warrant
Agent or Index Warrant Trustee, as the case may be (which amendment shall take
the form of a supplemental index warrant agreement or supplemental index
warrant trust indenture (collectively referred to as "Supplemental
Agreements")), without the consent of the holders of any Index Warrants, for
the purpose of (i) curing any ambiguity, or of curing, correcting or
supplementing any defective or inconsistent provision contained therein, or of
making any other provisions with respect to matters or questions arising under
the Index Warrant Agreement or Index Warrant Trust Indenture, as the case may
be, which shall not be inconsistent with the provisions thereof or of the Index
Warrants, (ii) evidencing the succession of another corporation to the Company
and the assumption by any such successor of the covenants of the Company
contained in the Index Warrant Agreement or the Index Warrant Trust Indenture,
as the case may be, and the Index Warrants, (iii) appointing a successor
depository, (iv) evidencing and providing for the acceptance of appointment by
a successor Index Warrant Agent or Index Warrant Trustee with respect to the
Index Warrants, as the case may be, (v) adding to the covenants of the Company,
for the benefit of the Index Warrantholders or surrendering any right or power
conferred upon the Company under the Index Warrant Agreement or Index Warrant
Trust Indenture, as the case may be, (vi) issuing Index Warrants in definitive
form, or (vii) amending the Index Warrant Agreement or Index Warrant Trust
Indenture, as the case may be, in any manner which the Company may deem to be
necessary or desirable and which will not materially and adversely affect the
interests of the Index Warrantholders.
The Company and the Index Warrant Agent may also amend any Index Warrant
Agreement or Index Warrant Trust Indenture, as the case may be, and the terms
of the related Index Warrants (which amendment shall take the form of a
Supplemental Agreement) with the consent of the Index Warrantholders holding
not less than 66 2/3 in number of the then outstanding unexercised Index
Warrants affected by such amendment, for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the Index
Warrant Agreement or Index Warrant Trust Indenture, as the case may be, or of
modifying in any manner the rights of the Index Warrantholders; provided that
no such amendment that (i) changes the determination of the Settlement Value or
the payment or delivery to be made on cancellation, if any, or Minimum
Expiration Value, if any, of the Index Warrants (or any aspects of such
determination) so as to reduce the payment or delivery to be made upon exercise
or deemed exercise, (ii) shortens the period of time during which the Index
Warrants may be exercised, or otherwise materially and adversely affects the
exercise rights of the Index Warrantholders or (iii) reduces the number of
outstanding Index Warrants, the consent of whose holders is required for
amendment of the Index Warrant Agreement, the Index Warrant Trust Indenture or
the terms of the related Index Warrants, may be made without the consent of
each Index Warrantholder affected thereby.
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EVENT OF DEFAULT
Certain events in bankruptcy, insolvency or reorganization of the Company
will constitute an Event of Default with respect to Index Warrants having a
Minimum Expiration Value which are issued under an Index Warrant Trust
Indenture. Upon the occurrence of an Event of Default, the holders of 25% of
unexercised Index Warrants may elect to receive a settlement payment or
delivery for such unexercised Index Warrants, which will immediately become due
to the Index Warrantholders upon such election in an amount equal to the market
value of such Index Warrants (assuming the Company's ability to satisfy its
obligations under such Index Warrants as they would become due) as of the date
the Company is notified of the intended liquidation, as determined by a
nationally recognized securities broker-dealer unaffiliated with the Company
and mutually selected by the Company and the Index Warrant Trustee.
MERGER, CONSOLIDATION, SALE, LEASE OR OTHER DISPOSITIONS
The Company may consolidate or merge with or into any other corporation and
the Company may sell, lease or convey all or substantially all of its assets to
any corporation, provided that (i) the corporation (if other than the Company)
formed by or resulting from any such consolidation or merger or which shall
have received such assets shall be a corporation organized and existing under
the laws of the United States of America or a State thereof and shall assume
the Company's obligations in respect of the payment or delivery of the
Settlement Value (or any Minimum Expiration Value or cancellation payment or
delivery, if applicable) with respect to all the unexercised Index Warrants and
the performance and observance of all of the covenants and conditions of the
Index Warrant Agreement or Index Warrant Trust Indenture, as the case may be,
to be performed or observed by the Company, and (ii) the Company or such
successor corporation, as the case may be, shall not immediately be in default
under the Index Warrant Agreement or Index Warrant Trust Indenture, as the case
may be.
ENFORCEABILITY OF RIGHTS BY INDEX WARRANTHOLDERS
Any Index Warrantholder may, without the consent of the related Index Warrant
Agent, enforce by appropriate legal action, in and for its own behalf, its
right to exercise, and receive payment or delivery for, its Index Warrants.
PLAN OF DISTRIBUTION
The Company may sell Securities (i) through MLPF&S as agent, (ii) to the
public through, or through underwriting syndicates managed by, one or more of
the firms named on the cover page of this Prospectus or (iii) directly to
purchasers. The Prospectus Supplement with respect to the Securities of a
particular series describes the terms of the offering of such Securities,
including the name of the agent or the name or names of any underwriters, the
public offering or purchase price, any discounts and commissions to be allowed
or paid to the agent or underwriters, all other items constituting underwriting
compensation, the discounts and commissions to be allowed or paid to dealers,
if any, and the exchanges, if any, on which the Securities will be listed. Only
the agents or underwriters so named in the Prospectus Supplement are agents or
underwriters in connection with the Securities offered thereby. Under certain
circumstances, the Company may repurchase Securities and reoffer them to the
public as set forth above. The Company may also arrange for repurchases and
resales of such Securities by dealers.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters to solicit offers by certain institutions to purchase Debt
Securities from the Company pursuant to Delayed Delivery Contracts providing
for payment and delivery on the date stated in the Prospectus Supplement. Each
such contract will be for an amount not less than, and, unless the Company
otherwise agrees, the aggregate principal amount of Debt Securities sold
pursuant to such contracts shall not be more than, the respective amounts
stated in the Prospectus Supplement. Institutions with whom such contracts,
when authorized, may
17
<PAGE>
be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions, and other
institutions, but shall in all cases be subject to the approval of the Company.
Delayed Delivery Contracts will not be subject to any conditions except that
the purchase by an institution of the Debt Securities covered thereby shall not
at the time of delivery be prohibited under the laws of any jurisdiction in the
United States to which such institution is subject.
The Company has agreed to indemnify the agent and the several underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933 (the "Act"), or contribute to payments the agent or the
underwriters may be required to make in respect thereof.
The distribution of 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.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included or incorporated by
reference in the Company's 1992 Annual Report on Form 10-K and Current Report
on Form 8-K dated March 9, 1994, and incorporated by reference in this
Prospectus, have been audited by Deloitte & Touche, independent auditors, as
stated in their reports incorporated by reference herein. The information under
the caption "Summary Financial Information" for each of the five years in the
period ended December 31, 1993 included in this Prospectus and the Selected
Financial Data under the captions "Operating Results", "Financial Position" and
"Common Share Data" for (i) each of the five years in the period ended December
25, 1992 included in the 1992 Annual Report to Stockholders of the Company and
(ii) each of the five years in the period ended December 31, 1993 included in
the Current Report on Form 8-K dated March 9, 1994 of the Company, and
incorporated by reference herein, has been derived from consolidated financial
statements audited by Deloitte & Touche, as set forth in their reports
incorporated by reference herein. Such consolidated financial statements and
related financial statement schedules, such Summary Financial Information and
such Selected Financial Data appearing or incorporated by reference in this
Prospectus and the Registration Statement of which this Prospectus is a part,
have been included or incorporated herein by reference in reliance upon such
reports of Deloitte & Touche given upon their authority as experts in
accounting and auditing.
With respect to unaudited interim financial information for the periods
included in any of the Quarterly Reports on Form 10-Q which may be incorporated
herein by reference, Deloitte & Touche have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their report included in any such Quarterly Report on
Form 10-Q and incorporated by reference herein, they did not audit and they do
not express an opinion on such interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
are not subject to the liability provisions of Section 11 of the Act for any
such report on unaudited interim financial information because any such report
is not a "report" or a "part" of the registration statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the Act.
18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
GRAPHICS APPENDIX LIST
DESCRIPTION OF GRAPHIC
- --------------------------------------------------------------------------------
Graphic No. 1 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.
<PAGE>
Exhibit 99(b)
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO A NOMINEE OF DTC OR BY DTC OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC TO MERRILL LYNCH & CO., INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
No. R-
CUSIP Principal Amount: $
MERRILL LYNCH & CO., INC.
Real Estate Investment Trust Portfolio Total Return
Market Index Target-Term Securities/SM/ due August 31, 2000
("MITTS(R)")
Merrill Lynch & Co., Inc., a Delaware corporation (hereinafter called the
"Company", which term includes any successor corporation under the Indenture
herein referred to), for value received, hereby promises to pay to CEDE & CO.,
or registered assigns, an amount calculated as described below (the "Redemption
Amount") on August 31, 2000 (the "Stated Maturity").
Payment of the Redemption Amount at maturity with respect to this Note
shall be made at the office or agency of the Company maintained for that purpose
in the Borough of Manhattan, The City of New York, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
This Note is one of the series of Real Estate Investment Trust Portfolio
Total Return Market Index Target-Term Securities due August 31, 2000 (the
"Notes").
Redemption Amount
The Redemption Amount with respect to this Note shall equal the Total
Return Portfolio Value; provided, however, that the amount payable at maturity
will not be less than $9 for each $10
/SM/"Market Index Target-Term Securities" is a service mark of Merrill Lynch &
Co., Inc.
(R)"MITTS" is a registered service mark of Merrill Lynch & Co., Inc.
<PAGE>
principal amount of the Securities (the "Minimum Payment"). The principal
amount shall equal the amount so specified on the front page hereof.
The "Total Return Portfolio Value" shall be determined by Merrill Lynch,
Pierce, Fenner & Smith Incorporated or a successor thereto (the "Calculation
Agent"), and shall 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 shall 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 shall 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 shall 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" shall be 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 shall be 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 be 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.
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 shall equal the sum of the products
of the Market Prices and the applicable Multipliers for the Portfolio Securities
as defined below.
"Aggregate Dividend Value" for any Calculation Day shall equal the sum of
the Dividend Payments for each Portfolio Security. The "Dividend Payment" with
respect to a Portfolio Security for any Calculation Day shall 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 date of this
Note 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 shall be considered paid by an
issuer on the day the issuer actually pays such
2
<PAGE>
dividend and not on the day such dividend is declared or the record date for the
payment of such dividend is fixed.
"Market Price" shall be 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 shall be 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" 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 affiliate of the Company or the Pricing Agent.
3
<PAGE>
The common stocks of the issuers listed below (the "Portfolio Securities")
shall be used to calculate the Daily Total Return Portfolio Value. The
following table sets forth the issuers of the Portfolio Securities and the
initial Multipliers,
<TABLE>
<CAPTION>
Issuers of the Portfolio Security Initial
- -------------------------------------- Multiplier
----------
<S> <C>
Burnham Pacific Properties, Inc.......
Carr Realty Corporation...............
Duke Realty Investments, Inc..........
Excel Realty Trust, Inc...............
Federal Realty Investment Trust.......
Gables Residential Trust..............
General Growth Properties, Inc........
Health and Retirement Property Trust..
Health Care Property Investors, Inc...
JP Realty, Inc........................
Kimco Realty Corporation..............
Nationwide Health Properties, Inc.....
New Plan Realty Trust.................
Simon Property Group, Inc.............
Taubman Centers, Inc..................
TriNet Corporate Realty Trust, Inc....
Urban Shopping Centers, Inc...........
Weingarten Realty Investors...........
Wellsford Residential Property Trust..
Western Investment Real Estate Trust..
</TABLE>
The Multiplier with respect to any Portfolio Security and the Portfolio
shall 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 shall 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 shall 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.
3. There shall be no adjustments to the Multipliers to reflect cash
dividends or distributions paid with respect of a Portfolio Security.
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 shall continue to be included in
the Portfolio so long as a Market Price for such Portfolio
4
<PAGE>
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
shall 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 shall 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 shall be determined at the time such issuer is merged or
consolidated and shall equal the last available Market Price for such
Portfolio Security, and such value shall be constant for the remaining term
of the Securities. At such time, no adjustment shall 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 shall be added to the
Portfolio as a new Portfolio Security. The Multiplier for such new
Portfolio Security shall 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 shall be determined as described herein, except that the period
during which dividends paid by the issuer of such new Portfolio Security
shall 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 shall 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 shall be rounded to the nearest one thousandth with five ten-thousandths
being rounded upward.
5
<PAGE>
No adjustments to the Multiplier of any Portfolio Security or to the
Portfolio shall be made other than those specified above.
"Market Disruption Event" with respect to a Portfolio Security shall be
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.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading shall 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 Pricing Agent, as the
case may be, shall be at the sole discretion of the Calculation Agent or 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
Holders of the Notes. All percentages resulting from any calculation on the
Notes shall 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 shall be rounded to
the nearest cent with one-half cent being rounded upwards.
This Note is one of a duly authorized issue of Securities of the Company,
issued and to be issued under the Indenture, dated
6
<PAGE>
as of April 1, 1983, as amended and restated (herein called the "Indenture"),
between the Company and Chemical Bank (successor by merger to Manufacturers
Hanover Trust Company), Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights thereunder of the Company, the Trustee and the Holders of the
Securities, and the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Company hereby covenants for the benefit of the Holders of the Notes,
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 Notes.
The Notes are not subject to redemption by the Company or at the option of
the Holder prior to the Stated Maturity.
If an Event of Default with respect to the Notes shall occur and be
continuing, the principal of all the Notes may be declared due and payable in
the manner and with the effect provided in the Indenture. In case an Event of
Default with respect to any Notes shall have occurred and be continuing, the
amount payable to a Holder of a Note upon any acceleration permitted by the
Notes shall be equal to an amount payable calculated as if the date of early
repayment were the Stated Maturity. In case of default in payment at the
maturity date of the Notes (whether at the Stated Maturity or upon
acceleration), from and after the maturity date the Notes 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
Notes to the date payment of such amount has been made or duly provided for.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66-2/3% in aggregate principal amount of the
Securities at the time Outstanding, as defined in the Indenture, of each series
affected thereby. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount of the Securities of each
series at the time Outstanding, on behalf of the Holders of all Securities of
each series, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Note shall be conclusive and
binding upon such Holder and upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange herefor or
in lieu hereof whether or not notation of such consent or waiver is made upon
this Note.
7
<PAGE>
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the Redemption Amount plus any additional
amount with respect to this Note at the times, places, and rate, and in the coin
or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations set forth
therein and on the first page hereof, the transfer of this Note may be
registered on the Security Register of the Company, upon surrender of this Note
for registration of transfer at the office or agency of the Company in the
Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by
a written instrument of transfer in form satisfactory to the Company duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, shall be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without coupons in
denominations of $10 and integral multiples thereof. As provided in the
Indenture and subject to certain limitations set forth therein and on the first
page hereof, the Notes are exchangeable for a like aggregate principal amount of
Notes in authorized denominations, as requested by the Holder surrendering the
same. If (x) Depository is at any time unwilling or unable to continue as
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 this Note shall be exchangeable or (z) an Event of Default has
occurred and is continuing with respect to the Notes, this Note shall be
exchangeable for Notes in definitive form of like tenor and of an equal
aggregate principal amount, in denominations of $10 and integral multiples
thereof. Such definitive Notes shall be registered in such name or names as the
Depository shall instruct the Trustee. If definitive Notes are so delivered,
the Company may make such changes to the form of this Note as are necessary or
appropriate to allow for the issuance of such definitive Notes.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
8
<PAGE>
All terms used in this Note which are defined in the Indenture but not in
this Note shall have the meanings assigned to them in the Indenture.
Unless the certificate of authentication hereon has been executed by
Chemical Bank, the Trustee under the Indenture, or its successor thereunder, by
the manual signature of one of its authorized officers, this Note shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
MERRILL LYNCH & CO., INC.
By:___________________________
[SEAL] Treasurer
Attest:___________________________
Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the
series designated therein referred to
in the within-mentioned Indenture.
CHEMICAL BANK, as Trustee
By:________________________
Authorized Officer
9
