<PAGE>
Rule 424(b)(5)
Registration No. 33-52647
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 21, 1995)
LOGO
MERRILL LYNCH & CO., INC.
1,250,000
GREATER OF U.S. DOLLAR/DEUTSCHE MARK--U.S. DOLLAR/JAPANESE YEN
PUT CURRENCY WARRANTS, EXPIRING MAY 15, 1997
----------------
Each Greater of U.S. Dollar/Deutsche Mark--U.S. Dollar/Japanese Yen Put
Currency Warrant ("Warrant") will entitle the beneficial owner thereof to
receive from Merrill Lynch & Co., Inc. (the "Company") the cash value, if
positive, (the "Cash Settlement Value") on the Expiration Date (as defined
below), or on such earlier date as described herein, in U.S. dollars of the
greater of (i) the right to sell Deutsche Mark ("DEM") 72.2 on the Exercise
Date at a price of U.S. $50, which represents an exchange rate of DEM 1.4440
per U.S. $1.00, and (ii) the right to sell Japanese Yen ("JPY") 4,325 on the
Exercise Date at a price of U.S. $50, which represents an exchange rate of JPY
86.50 per U.S. $1.00. The Warrants will be automatically exercised on the
earlier of the fifth New York Business Day immediately preceding May 15, 1997
(the "Expiration Date") or the New York Business Day immediately preceding the
date of occurrence of certain events in bankruptcy, insolvency or
reorganization involving the Company or the date of the Warrants' expiration
upon delisting from, or permanent suspension from trading on, the American
Stock Exchange unless the Warrants are simultaneously accepted for trading
pursuant to the rules of another national securities exchange (in either case,
the "Exercise Date"). The Warrants are not exercisable at the option of the
Holder. See "Description of the Warrants".
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING FOREIGN EXCHANGE RISKS
AND THE RISK OF EXPIRING WORTHLESS UNLESS THE DEUTSCHE MARK OR THE JAPANESE
YEN SUFFICIENTLY DEPRECIATES AGAINST THE U.S. DOLLAR. THE WARRANTS ARE NOT
EXERCISABLE AT THE OPTION OF THE HOLDER. INVESTORS THEREFORE SHOULD BE
PREPARED TO SUSTAIN A TOTAL LOSS OF THE PURCHASE PRICE OF THEIR WARRANTS, AND
ARE ADVISED TO CAREFULLY CONSIDER THE INFORMATION UNDER "RISK FACTORS RELATING
TO THE WARRANTS", "DESCRIPTION OF THE WARRANTS", "DESCRIPTION OF THE
WARRANTS--AUTOMATIC EXERCISE PRIOR TO THE EXPIRATION DATE", "EXCHANGE RATES
AND CASH SETTLEMENT VALUES" AND "CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS CONCERNING THE WARRANTS".
The Warrants have been approved for listing by the American Stock Exchange
under the symbol "DMY.WS", subject to official notice of issuance.
----------------
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.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(1) THE COMPANY(2)
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<S> <C> <C> <C>
Per Warrant..................... $4.00 $.25 $3.75
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Total........................... $5,000,000 $312,500 $4,687,500
</TABLE>
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(1) The "Price to Public" and "Underwriting Discount" for any single
transaction to purchase 250,000 Warrants or more will be $3.85 per Warrant
and $.10 per Warrant, respectively.
(2) Before deducting expenses payable by the Company.
----------------
The Warrants are offered by the Underwriter, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter, 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 Warrants will be made on or about
May 23, 1995.
This Prospectus Supplement and related Prospectus may be used by the
Underwriter in connection with offers and sales related to market-making
transactions in the Warrants. 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 May 16, 1995.
<PAGE>
IN CONNECTION WITH THE OFFERING OF THE WARRANTS, THE UNDERWRITER MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF
THE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN 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 this offering nor has the Commissioner passed upon the accuracy
or adequacy of this Prospectus Supplement or Prospectus.
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<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The information below is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus.
THE OFFERING
Securities Offered.......... 1,250,000 Greater of U.S. Dollar/Deutsche Mark--
U.S. Dollar/Japanese Yen Put Currency Warrants
(the "Warrants"), Expiring May 15, 1997.
Cash Settlement Value....... The Cash Settlement Value of a Warrant will be
determined on the Exercise Date as the amount in
U.S. dollars, if positive, which is the greater
of:
(i) U.S. $50 - (U.S. $50 X DEM Strike Price); and
----------------
DEM Spot Rate
(ii) U.S. $50 - (U.S. $50 X JPY Strike Price).
----------------
JPY Spot Rate
"DEM Strike Price" means DEM 1.4440 per U.S.
$1.00 and "DEM Spot Rate" means the noon buying
rate on the Exercise Date per U.S. $1.00 in The
City of New York for cable transfers in
Deutsche Marks as certified for customs
purposes by the Federal Reserve Bank of New
York, or, if unavailable, as described herein.
"JPY Strike Price" means JPY 86.50 per U.S.
$1.00 and "JPY Spot Rate" means the noon buying
rate on the Exercise Date per U.S. $1.00 in The
City of New York for cable transfers in
Japanese Yen as certified for customs purposes
by the Federal Reserve Bank of New York, or, if
unavailable, as described herein.
Automatic Exercise of
Warrants.................... The Warrants will be automatically exercised on
the fifth New York Business Day, as hereinafter
defined, immediately preceding May 15, 1997 or,
if the Warrants are subject to automatic
exercise in the event they cease to be traded
pursuant to the rules of a national securities
exchange or if certain events in bankruptcy,
insolvency or reorganization involving the
Company occur, the New York Business Day
immediately preceding the Early Expiration Date
(as defined herein). The Warrants will be
automatically exercised on the Exercise Date and
are not exercisable at the option of the Holder.
See "Description of the Warrants--Exercise of
Warrants" and "Description of the Warrants--
Automatic Exercise Prior to the Expiration
Date".
Form........................ The Warrants will be in book-entry form and,
accordingly, a beneficial owner will not be
entitled to receive a certificate
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representing such Warrants. See "Description of
the Warrants--Book-Entry Procedures and
Settlement".
Listing..................... The Warrants have been approved for listing by
the American Stock Exchange, subject to official
notice of issuance.
American Stock Exchange DMY.WS
Symbol......................
Certain Risk Factors........ The Warrants involve a high degree of risk,
including foreign exchange risks and the risk of
expiring worthless. If on the Exercise Date the
DEM Strike Price is greater than or equal to the
DEM Spot Rate (i.e., the Deutsche Mark has not
depreciated relative to the U.S. dollar) and the
JPY Strike Price is greater than or equal to the
JPY Spot Rate (i.e., the Japanese Yen has not
depreciated relative to the U.S. dollar), the
Warrants will expire worthless. Beneficial
owners will bear the foreign exchange risks of
the U.S. dollar as compared to the Deutsche Mark
and the Japanese Yen. INVESTORS THEREFORE SHOULD
BE PREPARED TO SUSTAIN A TOTAL LOSS OF THE
PURCHASE PRICE OF THEIR WARRANTS.
It is not possible to predict the price at which
the Warrants will trade in the secondary market
or whether such market will be liquid or
illiquid. The trading value of a Warrant is
expected to be dependent on the DEM Strike Price
and the JPY Strike Price, as described herein,
and also upon a number of complex interrelated
factors, including the expected value on the
Exercise Date of the Deutsche Mark and the
Japanese Yen in terms of the U.S. dollar, the
volatility of the DEM/U.S.$ and JPY/U.S.$
exchange rates, the time remaining to the
expiration of the Warrants, the correlation
between the DEM/U.S.$ and JPY/U.S.$ exchange
rates and the interest rate differential between
U.S. dollar and Deutsche Mark denominated fixed
income instruments and the interest rate
differential between U.S. dollar and Japanese
Yen denominated fixed income instruments. The
value of any currency, including Deutsche Marks,
Japanese Yen, and U.S. dollars, may be affected
by complex political and economic factors.
In the event that the Warrants are delisted from,
or permanently suspended from trading on, the
American Stock Exchange and the Warrants are not
simultaneously accepted for trading pursuant to
the rules of another national securities
exchange, such Warrants will be automatically
exercised on the New York Business Day (as
defined herein) prior to the day such delisting
or trading suspension becomes effective. At the
time of such automatic exercise, the Warrants
may be out-of-the-money such that the Cash
Settlement Value would equal zero.
The initial public offering price of the Warrants
is in excess of the price a commercial user of
Deutsche Marks and/or Japanese Yen might pay in
the interbank market for a comparable option
involving significantly larger amounts of
underlying currencies.
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In general, certain risks associated with the
Warrants are similar to those generally
applicable to other options or warrants of
private corporate issuers. The Warrants are not
standardized foreign currency options of the
type issued by a clearing agency regulated by
the Securities and Exchange Commission.
Investors are advised to carefully consider the
foregoing risk factors, and the risks and other
matters discussed under "Risk Factors Relating
to the Warrants", "Description of the Warrants",
"Exchange Rates and Cash Settlement Values" and
"Certain United States Federal Income Tax
Considerations Concerning the Warrants", prior
to purchasing the Warrants.
Investors in Warrants....... The American Stock Exchange recommends that the
Warrants be sold only to investors with options
approved accounts and that its members and
member organizations and registered employees
thereof make certain suitability determinations
before recommending transactions in the
Warrants. It is suggested that investors
considering purchasing the Warrants be
experienced with respect to options and option
transactions and understand the risks of foreign
currency transactions and reach an investment
decision only after carefully considering the
suitability of the Warrants in light of their
particular circumstances. The Warrants are not
suitable for persons solely dependent upon a
fixed income, for individual retirement plan
accounts or for accounts under the Uniform Gift
to Minors Act. INVESTORS SHOULD BE PREPARED TO
SUSTAIN A TOTAL LOSS OF THE PURCHASE PRICE OF
THEIR WARRANTS.
S-5
<PAGE>
CERTAIN IMPORTANT INFORMATION CONCERNING THE WARRANTS
A beneficial owner will receive a cash payment upon exercise only if the
Warrants have a Cash Settlement Value in excess of zero on the Exercise Date.
The spot exchange rates of the Deutsche Mark and the Japanese Yen on the
Exercise Date as compared to the U.S. dollar will determine whether the
Warrants have a positive Cash Settlement Value. The Warrants may be "out-of-
the-money" (i.e., their Cash Settlement Value will be zero) when initially sold
and the Warrants will be "in-the-money" (i.e., their Cash Settlement Value will
be greater than zero) on the Exercise Date only if, as of such date, the
Deutsche Mark or the Japanese Yen has depreciated (i.e., it takes more DEM or
JPY to purchase one U.S. dollar) against the U.S. dollar to the extent that one
U.S. dollar is worth more than the DEM Strike Price or the JPY Strike Price. If
on the Exercise Date the DEM Strike Price is greater than or equal to the DEM
Spot Rate (i.e., the Deutsche Mark has not depreciated relative to the U.S.
dollar) and the JPY Strike Price is greater than or equal to the JPY Spot Rate
(i.e., the Japanese Yen has not depreciated relative to the U.S. dollar), the
Warrant will expire worthless and the beneficial owner will have sustained a
total loss of the purchase price of such Warrant. Investors therefore should be
prepared to sustain a total loss of the purchase price of their Warrants.
On May 16, 1995 the Noon Buying Rates of Deutsche Marks and Japanese Yen
quoted by the Federal Reserve Bank of New York were U.S. $1 = DEM 1.4360 and
JPY 86.20, respectively. Beneficial owners of Warrants will be subject to
foreign exchange risks which may have important economic and tax consequences
to them. See "Exchange Rates and Cash Settlement Values" and "Certain United
States Federal Income Tax Considerations Concerning the Warrants".
References herein to "U.S. dollars", "U.S.$" or "$" are to the currency of
the United States of America. References to "Deutsche Mark" or "DEM" are to the
currency of the Federal Republic of Germany. References to "Japanese Yen" and
"JPY" are to the currency of Japan.
RISK FACTORS RELATING TO THE WARRANTS
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING FOREIGN EXCHANGE RISKS
AND THE RISK OF EXPIRING WORTHLESS. INVESTORS THEREFORE SHOULD BE PREPARED TO
SUSTAIN A TOTAL LOSS OF THE PURCHASE PRICE OF THEIR WARRANTS. IT IS SUGGESTED
THAT INVESTORS CONSIDERING PURCHASING THE WARRANTS BE EXPERIENCED WITH RESPECT
TO OPTIONS AND OPTION TRANSACTIONS AND UNDERSTAND THE RISKS OF FOREIGN CURRENCY
TRANSACTIONS AND REACH AN INVESTMENT DECISION ONLY AFTER CAREFULLY CONSIDERING
ALL THE RISK FACTORS SET FORTH IN THIS SECTION OF THIS PROSPECTUS SUPPLEMENT,
THE SUITABILITY OF THE WARRANTS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES AND
ALL THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS SUPPLEMENT AND IN THE
ACCOMPANYING PROSPECTUS.
Exercise of the Warrants. The Warrants will be automatically exercised on the
Exercise Date and are not exercisable at the option of the Holder.
Automatic Exercise of the Warrants upon Delisting. In the event that the
Warrants are delisted from, or permanently suspended from trading on, the
American Stock Exchange and the Warrants are not simultaneously accepted for
trading pursuant to the rules of another national securities exchange, the
Warrants will expire on the date such delisting or trading suspension becomes
effective and will be automatically exercised on the New York Business Day
immediately preceding the date of such early expiration. At the time of such
automatic exercise, the Warrants may be out-of-the-money such that the Cash
Settlement Value will equal zero.
Offering Price of the Warrants. The initial public offering price of the
Warrants is in excess of the price a commercial user of, or dealer in options
on, Deutsche Marks or Japanese Yen might pay for a comparable option involving
significantly larger amounts of Deutsche Marks and Japanese Yen.
Certain Factors Affecting the Value of the Warrants. Each Warrant may have a
Cash Settlement Value of zero at issuance. The difference between the trading
value and the Cash Settlement Value will reflect a
S-6
<PAGE>
number of factors, including a "time value" component for the Warrants. The
"time value" of the Warrants will depend upon the time remaining to expiration,
among other factors. The expiration date of the Warrants will be accelerated
should the Warrants be delisted or should their trading on the American Stock
Exchange be suspended permanently unless the Warrants simultaneously are
accepted for trading pursuant to the rules of another national securities
exchange. Any such acceleration would result in the total loss of any otherwise
remaining "time value" and could occur when the Warrants are out-of-the-money,
thus resulting in total loss of the purchase price of the Warrants. See
"Description of the Warrants--Automatic Exercise Prior to the Expiration Date".
Before selling Warrants, beneficial owners should carefully consider the
trading value of the Warrants, the value of the Deutsche Mark and the Japanese
Yen, the probable range of Cash Settlement Values and any related transaction
costs.
It is possible that the trading value of a Warrant may decline significantly
even if there is a decrease in the value of the Deutsche Mark or the Japanese
Yen as compared to the U.S. dollar.
There can be no assurance as to how the Warrants will trade in the secondary
market or whether such market will be liquid. The trading value of a Warrant is
expected to be dependent on the Warrant Strike Prices and also upon a number of
complex interrelated factors, including those listed below. The expected
theoretical effect on the trading value of a Warrant of each of the factors
listed below, assuming in each case that all other factors are held constant,
is as follows:
(1) The DEM/U.S.$ and JPY/U.S.$ exchange rates in the forward
markets. The trading value of the Warrants is expected to depend primarily
on the DEM/U.S.$ and JPY/U.S.$ exchange rates expected on the Exercise
Date. Because the Cash Settlement Value is determined using the DEM/U.S.$
and JPY/U.S.$ exchange rates for immediate transfers (i.e., the spot rates)
on the Exercise Date, the spot rates on other days during the term of the
Warrants may not affect the trading value of the Warrants. If Warrants are
sold prior to the maturity date, the sale price may be at a discount from
the amount expected to be payable to the beneficial owner if the then
current DEM/U.S.$ and JPY/U.S.$ exchange rates at the time of such sale
were to prevail until the Exercise Date because of the possible fluctuation
of the DEM/U.S.$ and JPY/U.S.$ exchange rates between the time of such sale
and the Exercise Date. See "Exchange Rates and Cash Settlement Values" in
this Prospectus Supplement. Furthermore, the price at which a beneficial
owner will be able to sell Warrants prior to the Exercise Date may be at a
discount, which could be substantial, from the purchase price, if, at such
time, the DEM Strike Price and the JPY Strike Price are greater than or
equal to the DEM/U.S.$ exchange rate or the JPY/U.S.$ exchange rate,
respectively, expected on the Exercise Date.
(2) The volatility of the DEM/U.S.$ and JPY/U.S.$ exchange rates. If the
volatility of the DEM/U.S.$ or JPY/U.S.$ exchange rate increases, the
trading value of a Warrant is expected to increase. If such volatility
decreases, the trading value of a Warrant is expected to decrease.
(3) The interest rate differential between U.S. dollar and Deutsche Mark
or Japanese Yen denominated fixed income instruments. If Deutsche Mark
interest rates increase relative to U.S. dollar interest rates, the value
of the Deutsche Mark in terms of the U.S. dollar in the forward market is
expected to decrease and, as a result, the trading value of a Warrant is
expected to increase. If Japanese Yen interest rates increase relative to
U.S. dollar interest rates, the value of the Japanese Yen in terms of the
U.S. dollar in the forward market is expected to decrease and, as a result,
the trading value of a Warrant is expected to increase. If U.S. dollar
interest rates increase relative to Deutsche Mark interest rates or
Japanese Yen interest rates, the trading value of a Warrant is expected to
decrease.
(4) Correlation between DEM/U.S.$ and JPY/U.S.$ exchange rates. The
higher the correlation between changes in the two exchange rates, the lower
the expected value of a Warrant.
(5) The time remaining to the expiration date of the Warrants. As the
time remaining to the expiration date decreases, the trading value of a
Warrant is expected to decrease.
As noted above, these hypothetical scenarios are based on the assumption that
all other factors are held constant. In reality, it is unlikely that only one
factor would change in isolation, since changes in one factor
S-7
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usually cause, or result from, changes in others. Some of the factors referred
to above are, in turn, influenced by the political and economic factors
discussed below.
Warrants not Standardized Options Issued by the Options Clearing
Corporation. The Warrants are not standardized foreign currency options of the
type issued by the Options Clearing Corporation (the "OCC"), a clearing agency
regulated by the Securities and Exchange Commission. For example, unlike
purchasers of OCC standardized options who have the credit benefits of
guarantees and margin and collateral deposits by OCC clearing members to
protect the OCC from a clearing member's failure, purchasers of Warrants must
look solely to the Company for performance of its obligations to pay the Cash
Settlement Value on the exercise of Warrants. In addition, OCC standardized
options provide for physical delivery of the underlying foreign currency
(rather than cash settlement in U.S. dollars), and permit immediate
determination of value upon exercise. Further, the market for the Warrants is
not expected to be generally as liquid as the market for some OCC standardized
options.
The Warrants are unsecured contractual obligations of the Company and will
rank on a parity with the Company's other unsecured contractual obligations and
with the Company's unsecured and unsubordinated debt. However, since the
Company is a holding company, the right of the Company, and hence the right of
creditors of the Company (including beneficial owners of the Warrants), 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 Merrill
Lynch, Pierce, Fenner & Smith Incorporated, to the Company are restricted by
net capital requirements under the Securities Exchange Act of 1934, as amended,
and under rules of certain exchanges and other regulatory bodies.
General Risk Considerations. Options and warrants provide opportunities for
investment and pose risks to investors as a result of fluctuations in the value
of the currency, security, index or other measure underlying such options or
warrants. In general, certain of the risks associated with the Warrants are
similar to those generally applicable to other options or warrants of private
corporate issuers. However, unlike options or warrants on equities or debt
securities, which are priced primarily on the basis of the value of a single
underlying security, the trading value of a Warrant is likely to reflect
expected exchange rates on the Exercise Date.
The purchaser of a Warrant may lose his entire investment. This risk reflects
the nature of a Warrant as an asset which tends to decline in value over time
and which may, depending on the relative values of the Deutsche Mark and the
Japanese Yen as compared to the U.S. dollar, become worthless when it expires.
Assuming all other factors are held constant, the more a Warrant is out-of-the-
money and the shorter its remaining term to expiration, the greater the risk
that a purchaser of the Warrant will lose all of his investment. This means
that the purchaser of a Warrant who does not sell it in the secondary market
will lose his entire investment in the Warrant if, at expiration, the DEM
Strike Price and the JPY Strike Price are greater than or equal to the DEM Spot
Rate and the JPY Spot Rate, respectively.
The fact that Warrants may become valueless upon expiration means that, in
order to recover and realize a return upon his investment, a purchaser of a
Warrant must generally be correct about the direction, timing and magnitude of
an anticipated exchange rate change affecting the Deutsche Mark or the Japanese
Yen in terms of the U.S. dollar. If the value of the Deutsche Mark or the
Japanese Yen in terms of the U.S. dollar does not decline to an extent
sufficient to cover an investor's cost of the Warrant (i.e., the purchase price
plus transaction costs, if any) before the Warrant expires, the investor will
lose all or a part of his investment in the Warrant upon expiration. Beneficial
owners will thus bear the foreign exchange risks of the U.S. dollar in terms of
the Deutsche Mark and the Japanese Yen.
The American Stock Exchange recommends that Warrants be sold only to
investors with options approved accounts and that its members and member
organizations and registered employees thereof make certain suitability
determinations before recommending transactions in Warrants. It is suggested
that
S-8
<PAGE>
investors considering purchasing Warrants be experienced with respect to
options and option transactions and understand the risks of foreign currency
transactions and reach an investment decision only after carefully considering
the suitability of the Warrants in light of their particular circumstances.
Warrants are not suitable for persons solely dependent upon a fixed income, for
individual retirement plan accounts or for accounts under the Uniform Gift to
Minors Act. INVESTORS SHOULD BE PREPARED TO SUSTAIN A TOTAL LOSS OF THE
PURCHASE PRICE OF THEIR WARRANTS.
Currency Exchange Markets. The value of any currency, including the Deutsche
Mark, the Japanese Yen, and the U.S. dollar, may be affected by complex
political and economic factors. The spot exchange rates of the Deutsche Mark
and the Japanese Yen in terms of the U.S. dollar are at any moment a result of
the supply and demand for the three currencies, and changes in the relative
exchange rates result over time from the interaction of many factors directly
or indirectly affecting economic and political conditions in the Federal
Republic of Germany, Japan and the United States, including economic and
political developments in other countries. Of particular importance are the
relative rates of inflation, interest rate levels, the balance of payments and
the extent of governmental surpluses or deficits in the Federal Republic of
Germany, in Japan and in the United States, all of which are in turn sensitive
to the monetary, fiscal and trade policies pursued by the governments of the
Federal Republic of Germany, Japan, the United States and other countries
important to international trade and finance.
Foreign exchange rates can either be fixed by sovereign governments or float.
Exchange rates of most economically developed nations, including the Federal
Republic of Germany and Japan, are permitted to fluctuate in value relative to
the U.S. dollar. Governments, however, sometimes do not allow their currencies
to float freely in response to economic forces. Sovereign governments in fact
use a variety of techniques, such as intervention by a country's central bank
or imposition of regulatory controls or taxes, to affect the exchange rates of
their currencies. Governments may also issue a new currency to replace an
existing currency or alter the exchange rate or relative exchange
characteristics by devaluation or revaluation of a currency. Thus, a special
risk in purchasing the Warrants is that their liquidity, trading value and Cash
Settlement Value could be affected by governmental actions which could change
or interfere with theretofore freely determined currency valuation,
fluctuations in response to other market forces and the movement of currencies
across borders. There will be no adjustment or change in the terms of the
Warrants in the event that exchange rates should become fixed, or in the event
of any devaluation or revaluation or imposition of exchange or other regulatory
controls or taxes, or in the event of other developments affecting the Deutsche
Mark, the Japanese Yen, the U.S. dollar or any other currency. In contrast, the
OCC has reserved the authority to adjust the terms of its standardized options
for certain governmental actions and to impose special exercise settlement
procedures.
The interbank market in foreign currencies is a global, around-the-clock
market. Therefore, the hours of trading for the Warrants will not conform to
the hours during which the Deutsche Mark, the Japanese Yen and U.S. dollar are
traded. To the extent that the American Stock Exchange is closed while the
markets for the Deutsche Mark and the Japanese Yen remain open, significant
price and rate movements may take place in the underlying foreign exchange
markets that will not be reflected immediately in the price of a Warrant on
such exchange. The possibility of such movements should be taken into account
in relating closing prices on the American Stock Exchange for the Warrants to
those in the underlying foreign exchange markets.
There is no systematic reporting of last-sale information for foreign
currencies. Reasonably current bid and offer information is available in
certain brokers' offices, in bank foreign currency trading offices, and to
others who wish to subscribe for this information, but such information will
not necessarily reflect the DEM Noon Buying Rate or the JPY Noon Buying Rate
(each as defined below) used to calculate the DEM Spot Rate and the JPY Spot
Rate. There is no regulatory requirement that those quotations be firm or
revised on a timely basis. The absence of last-sale information and the limited
availability of quotations to individual investors may make it difficult for
many investors to obtain timely, accurate data about the state of the
underlying foreign exchange markets.
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RECENT DEVELOPMENTS
The following summary of certain consolidated financial information
concerning the Company was derived from, and is qualified in its entirety by
reference to, the Company's Annual Report on Form 10-K for the year ended
December 30, 1994 and the condensed consolidated financial statements and data
contained in the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995 (the "Quarterly Report"). See "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus. The condensed
consolidated financial statements contained in the Company's Quarterly Report
are unaudited; however, 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 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.
INCOME STATEMENT INFORMATION
- ----------------------------
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
APRIL 1, MARCH 31,
1994 1995
--------------- ------------
<S> <C> <C>
Revenues.......................................... $ 4,738,811 $ 5,203,877
Net revenues(1)................................... $ 2,831,828 $ 2,420,485
Earnings before income taxes...................... $ 652,208 $ 378,792
Net earnings ..................................... $ 371,759 $ 227,275
Ratio of earnings to fixed charges(2)............. 1.3 1.1
BALANCE SHEET INFORMATION
- -------------------------
(IN THOUSANDS)
<CAPTION>
AT DECEMBER 30, AT MARCH 31,
1994 1995
--------------- ------------
<S> <C> <C>
Total assets ..................................... $163,749,327 $176,732,993
Long-term borrowings(3)........................... $ 14,863,383 $ 14,484,523
Stockholders' equity.............................. $ 5,817,545 $ 5,704,148
</TABLE>
- --------
Notes
(1) Net revenues are revenues net of interest expense.
(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, that
portion of rentals estimated to be representative of the interest factor,
and amortization of debt expense.
(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 March 31, 1995,
$538,157,000 of bank loans and $14,821,594,000 of commercial paper were
outstanding. In addition, certain of the Company's subsidiaries lend
securities and enter into repurchase agreements to obtain financing. At
March 31, 1995, cash deposits for securities loaned and securities sold
under agreements to repurchase amounted to $5,406,241,000 and
$57,110,193,000, respectively. From April 1, 1995 to May 11, 1995, long-
term borrowings, net of repayments and repurchases increased by
approximately $297,552,000.
S-10
<PAGE>
RESULTS OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 1995
Financial markets, which steadily weakened throughout 1994, improved in the
first quarter of 1995 on the prospects of a slowing U.S. economy, relatively
stable interest rates, and heightened investor activity. Net earnings were $227
million in the 1995 first quarter, down 39% from the record $372 million in the
1994 first quarter, but up 41% from $162 million in the 1994 fourth quarter.
Total revenues in the 1995 first quarter were $5,204 million, up 10% and 16%
from the 1994 first and fourth quarters, respectively. Net revenues in the 1995
first quarter were $2,420 million, down 15% from the 1994 first quarter, but up
16% from the 1994 fourth quarter. Non-interest expenses were $2,042 million,
down 6% from the 1994 first quarter, but up 11% from the 1994 fourth quarter.
Commission revenues were $685 million, down 21% from the 1994 first quarter,
primarily as a result of lower mutual fund and listed securities transactions
revenues. Mutual fund commissions were affected by lower volumes due to
declines in value experienced by most stock and bond mutual funds throughout
1994. Commissions on listed securities transactions also decreased, primarily
reflecting a change in the mix of transactions between institutional and retail
clients.
Interest and dividend revenues rose 38% from the 1994 first quarter to $3,029
million. Interest expense, which includes dividend expense, increased 46% to
$2,783 million. Net interest profit declined 16% to $246 million as a result of
a significant increase in short-term interest rates, quarter over quarter, and
the continued 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 1994 first
quarter.
Principal transactions revenues increased 1% from the first quarter of 1994
to $675 million. Taxable fixed-income trading revenues increased as a result of
higher revenues from corporate bonds and preferred stock and money market
instruments. Trading results were negatively affected by higher interest rates,
leading to a modest loss in mortgage-backed products and lower revenues from
U.S. Government and agencies securities. Net trading results from mortgage-
backed products were positive, however, when combined with related net interest
income. Revenues from interest rate and currency swaps increased due to higher
trading revenues from non-U.S. dollar and U.S. dollar denominated swap
transactions. Municipal securities revenues advanced due to continued demand
for tax-exempt investments. Equities and equity derivatives trading revenues
decreased primarily as a result of lower revenues from international equities.
Foreign exchange and commodities trading revenues decreased due primarily to
lower commodity trading volume.
Investment banking revenues were $248 million, down 44% from the first
quarter of 1994, as domestic and global underwriting volumes industrywide
declined 50% and 44%, respectively, compared to volumes in the 1994 first
quarter. Underwriting activity continued at low levels as relatively higher
interest rates and increased cash flows from strong corporate earnings
continued to decrease demand for debt and equity issuances. Lower underwriting
revenues were reported in most categories, including equities, high yield
securities, and corporate debt and preferred stock. Strategic services
revenues, which include merger and acquisition fees and advisory fees,
benefited from increased merger and acquisition advisory assignments in various
industries.
Asset management and portfolio service fees increased 1% from the 1994 first
quarter to $448 million principally as a result of increased fees earned from
certain mutual fund investor services, variable annuity products, and asset
management activities. Other revenues rose 1% from the 1994 first quarter to
$117 million, reflecting higher income from partnership investments partially
offset by net losses on certain other investments.
Non-interest expenses were $2,042 million, down 6% from the 1994 first
quarter. Compensation and benefits expense, which represented approximately 62%
of non-interest expenses, decreased 11% from the 1994 first quarter, due
primarily to lower levels of variable incentive compensation. Compensation and
benefits expense as a percentage of net revenues was 52.5% in the first quarter
of 1995, compared with 50.5% in the year-ago period.
S-11
<PAGE>
Occupancy costs decreased 3% from the 1994 first quarter, 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 increased
usage of market information services, as well as higher depreciation expense
from the purchase of technology-related equipment over the past year.
Advertising and market development expenses decreased 12% from the 1994 first
quarter due to lower discretionary travel costs and reduced production-related
recognition costs. Professional fees increased 5% from the year-ago quarter,
due primarily to higher legal fees, partially offset by lower systems and
management consulting fees. Brokerage, clearing, and exchange fees decreased 3%
from the 1994 first quarter as a result of lower commodity exchange fees
related to reduced trading volume. Other expenses increased 9% from the 1994
first quarter due primarily to a $26 million charge for the write-off of an
asset related to a technology contract.
Income tax expense totaled $152 million in the 1995 first quarter. The
effective tax rate in the 1995 first quarter was 40.0%, compared with 43.0% in
the year-ago period. The decrease in the effective tax rate was attributable to
lower state income taxes and higher tax-exempt interest and dividend income.
CERTAIN BALANCE SHEET INFORMATION AS OF MARCH 31, 1995
The Company believes that its equity base 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 investment banking,
market-making, and derivative structuring activities. These activities are
subject to risks related to the creditworthiness of the issuers of, and the
liquidity of the market for, such securities, in addition to the usual risks
associated with investing in, financing, underwriting, and trading in
investment grade instruments.
At March 31, 1995, the fair value of long and short non-investment grade
trading inventories amounted to $3,446 million and $471 million, respectively,
and in the aggregate (i.e. the sum of long and short trading inventories),
represented 4.1% of aggregate consolidated trading inventories.
At March 31, 1995, the carrying value of extensions of credit provided to
corporations entering into leveraged transactions aggregated $225 million
(excluding unutilized revolving lines of credit and other lending commitments
of $45 million), consisting primarily of senior term and subordinated
financings to 34 medium-sized corporations. Subsequent to March 31, 1995, the
Company extended financing to a non-investment grade counterparty totaling $15
million. At March 31, 1995, the Company had no bridge loans outstanding. Loans
to highly leveraged corporations are carried at unpaid principal balances less
a reserve for 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 aggregated $261 million at
March 31, 1995, representing investments in 76 enterprises. Equity investments
in privately-held companies for which sale is restricted by government or
contractual requirements are carried at the lower of cost or estimated net
realizable value. At March 31, 1995, the Company held interests in
partnerships, totaling $102 million (recorded on the cost basis), that invest
in highly leveraged transactions and non-investment grade securities. At March
31, 1995, the Company also committed to invest an additional $91 million in
partnerships that invest in leveraged transactions.
The Company's insurance subsidiaries hold non-investment grade securities. As
a percentage of total insurance investments, non-investment grade securities
were 4.5% at March 31, 1995. Non-investment grade securities of insurance
subsidiaries are classified as available-for-sale and are carried at fair
value.
S-12
<PAGE>
At March 31, 1995, the largest non-investment grade concentration consisted
of government and corporate obligations of a Latin American sovereign totaling
$307 million, of which $38 million represented on-balance-sheet hedges for off-
balance-sheet financial instruments. No one industry sector accounted for more
than 23% of total non-investment grade positions. At March 31, 1995, the
Company held an aggregate carrying value of $227 million in debt and equity
securities of issuers in various stages of bankruptcy proceedings or in
default, of which 75% resulted from the Company's market-making activities in
such securities.
DESCRIPTION OF THE WARRANTS
GENERAL
An aggregate of 1,250,000 Warrants will be issued. The Warrants will be
issued under a Warrant Agreement (the "Warrant Agreement"), to be dated as of
May 23, 1995, between the Company and Citibank, N.A., as Warrant Agent (the
"Warrant Agent"). The following statements with respect to the Warrants are
summaries of the detailed provisions of the Warrant Agreement, the form of
which is filed as an exhibit to the Registration Statement relating to the
Warrants. Wherever particular provisions of the Warrant Agreement or terms
defined therein are referred to, such provisions or definitions are
incorporated by reference as a part of the statements made, and the statements
are qualified in their entirety by such reference.
A Warrant will not require, or entitle, a beneficial owner to sell or
purchase Deutsche Marks or Japanese Yen to or from the Company. The Company
will make only a U.S. dollar cash settlement, if any, upon automatic exercise
of the Warrants.
The Warrants will expire on May 15, 1997 (the "Expiration Date") or on such
earlier date as described under "Exercise of Warrants" and "Automatic Exercise
Prior to the Expiration Date". The Warrants will be automatically exercised on
the Exercise Date, as set forth under "Exercise of Warrants", and are not
exercisable at the option of the Holder. The term "New York Business Day", as
used herein, means any day other than a Saturday or a Sunday or a day on which
commercial banks in The City of New York are required or authorized by law or
executive order to be closed.
The Warrants are unsecured contractual obligations of the Company and will
rank on a parity with the Company's other unsecured contractual obligations and
with the Company's unsecured and unsubordinated debt. However, since the
Company is a holding company, the right of the Company, and hence the right of
creditors of the Company (including beneficial owners of the Warrants), 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 Merrill
Lynch, Pierce, Fenner & Smith Incorporated, to the Company are restricted by
net capital requirements under the Securities Exchange Act of 1934, as amended,
and under rules of certain exchanges and other regulatory bodies.
EXERCISE OF WARRANTS
The Warrants are not exercisable at the option of the Holder. The Warrants
will be automatically exercised on the fifth New York Business Day immediately
preceding the Expiration Date or, if an Early Expiration Date (as defined
herein) occurs, the New York Business Day immediately preceding the Early
Expiration Date (the "Exercise Date").
The Warrant Agent will obtain the Cash Settlement Value on the Exercise Date
from the Calculation Agent and will pay the Cash Settlement Value of the
Warrants to the Securities Depository by check on the Expiration Date and, if
May 15, 1997 is not a New York Business Day, on the next succeeding New York
S-13
<PAGE>
Business Day. If an Early Expiration Date occurs, as described below under
"Automatic Exercise Prior to the Expiration Date", the Warrant Agent will pay
the Cash Settlement Value of the Warrants to the Securities Depository by check
on the fifth New York Business Day following the Early Expiration Date. See
"Description of the Warrants--Book-Entry Procedures and Settlement".
CASH SETTLEMENT VALUE
The Cash Settlement Value of a Warrant will be determined on the Exercise
Date as the amount in U.S. dollars, if positive, which is the greater of:
(i) the amount computed by subtracting from U.S. $50 an amount equal to
U.S. $50 times a fraction, the numerator of which is DEM 1.4440 per U.S.
$1.00, and the denominator of which is the DEM Spot Rate on such Exercise
Date. The "DEM Spot Rate" on the Exercise Date will be determined by
Merrill Lynch International Bank, an affiliate of the Company, or successor
thereto (the "Calculation Agent") and will equal (a) the noon buying rate
per U.S. $1.00 in The City of New York on the Exercise Date for cable
transfers in Deutsche Marks as certified for customs purposes by the
Federal Reserve Bank of New York (the "DEM Noon Buying Rate") as reported
on page 1FEE of The Reuter Monitor Money Rates Service (or such page as may
replace that page), or (b) if the DEM Noon Buying Rate does not appear on
such page by 1:00 p.m. on the Exercise Date, the DEM Noon Buying Rate on
the Exercise Date as otherwise announced by the Federal Reserve Bank of New
York, or (c) if the Federal Reserve Bank of New York has not quoted such
rate by 1:30 p.m. on the Exercise Date, the offered spot rate of Deutsche
Marks per U.S. $1.00 on such date for a transaction amount approximately
equivalent to U.S. $50 times the aggregate number of Warrants issued,
quoted at approximately 1:30 p.m., New York City time, by a leading bank in
the foreign exchange markets as may be selected by the Calculation Agent;
and
(ii) the amount computed by subtracting from U.S. $50 an amount equal to
U.S. $50 times a fraction, the numerator of which is JPY 86.50 per U.S.
$1.00, and the denominator of which is the JPY Spot Rate on such Exercise
Date. The "JPY Spot Rate" on the Exercise Date will be determined by the
Calculation Agent and will equal (a) the noon buying rate per U.S. $1.00 in
The City of New York on the Exercise Date for cable transfers in Japanese
Yen as certified for customs purposes by the Federal Reserve Bank of New
York (the "JPY Noon Buying Rate") as reported on page 1FEE of The Reuter
Monitor Money Rates Service (or such page as may replace that page), or (b)
if the JPY Noon Buying Rate does not appear on such page by 1:00 p.m. on
the Exercise Date, the JPY Noon Buying Rate on the Exercise Date as
otherwise announced by the Federal Reserve Bank of New York, or (c) if the
Federal Reserve Bank of New York has not quoted such rate by 1:30 p.m. on
the Exercise Date, the offered spot rate of Japanese Yen per U.S. $1.00 on
such date for a transaction amount approximately equivalent to U.S. $50
times the aggregate number of Warrants issued, quoted at approximately 1:30
p.m., New York City time, by a leading bank in the foreign exchange markets
as may be selected by the Calculation Agent.
The Cash Settlement Value will be rounded, if necessary, to the nearest cent
(with one-half cent being rounded upwards).
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Upon issuance, all Warrants will be represented by one registered global
Warrant (the "Global Warrant"). The Global Warrant will be deposited with, or
on behalf of, The Depository Trust Company, as Securities Depository, and
registered in the name of the Securities Depository or a nominee thereof.
Unless and until it is exchanged in whole or in part for Warrants in definitive
form in the limited circumstances described below, the Global Warrant may not
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.
S-14
<PAGE>
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 provision of Section 17A of the
Securities Exchange Act of 1934, as amended. The Securities Depository was
created to hold securities of its participants and to facilitate the clearance
and settlement of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Securities Depository's participants include securities
brokers and dealers (including the Underwriter), banks, trust companies,
clearing corporations, and certain other organizations, some of whom (and/or
their representatives) own the Securities Depository. 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. Persons who are
not participants may beneficially own securities held by the Securities
Depository only through participants.
Ownership of beneficial interests in the Warrants will be limited to entities
which have accounts with the Securities Depository ("Agent Members") or persons
that may hold interests through Agent Members. The Securities Depository has
advised the Company that upon the issuance of the Global Warrant representing
the Warrants, the Securities Depository will credit, on its book-entry
registration and transfer system, the Agent Members' accounts with the
respective aggregate amounts of the Warrants represented by the Global Warrant.
Ownership of beneficial interests in the Global Warrant 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 Agent
Members) and on the records of Agent Members (with respect to interests of
persons held through Agent Members). 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 the Global Warrant.
So long as the Securities Depository, or its nominee, is the registered owner
of the Global Warrant, the Securities Depository or its nominee, as the case
may be, will be considered the sole owner or Holder of the Warrants represented
by the Global Warrant for all purposes under the Warrant Agreement. Except as
provided below, owners of beneficial interests in the Global Warrant will not
be entitled to have the Warrants represented by the Global Warrant registered
in their names, will not receive or be entitled to receive physical delivery of
the Warrants in definitive form and will not be considered the owners or
Holders thereof under the Warrant Agreement. Accordingly, each person owning a
beneficial interest in the Global Warrant must rely on the procedures of the
Securities Depository and, if such person is not an Agent Member, on the
procedures of the Agent Member through which such person owns its interest, to
exercise any rights of a Holder under the Warrant Agreement. 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 Warrant desires to give or take any action which a
Holder is entitled to give or take under the Warrant Agreement, the Securities
Depository would authorize the Agent Members holding the relevant beneficial
interests to give or take such action, and such Agent Members would authorize
beneficial owners owning through such Agent Members to give or take such action
or would otherwise act upon the instructions of beneficial owners through them.
The Cash Settlement Value resulting from the exercise of Warrants registered
in the name of the Securities Depository or its nominee will be paid by the
Warrant Agent to the Securities Depository. None of the Company, the Warrant
Agent or any other agent of the Company or agent of the Warrant Agent 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 payment of the
Cash Settlement Value in respect of the Global Warrant, will credit the
accounts of the Agent Members with payment in amounts proportionate to their
respective beneficial interests in the Global Warrant, as shown on
S-15
<PAGE>
the records of the Securities Depository. The Company also expects that
payments by Agent Members to owners of beneficial interests in the Global
Warrant 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 Agent Members. It is suggested that purchasers of
Warrants with accounts at more than one brokerage firm effect transactions in
the Warrants, only through the brokerage firm or firms which hold that
purchaser's Warrants.
If the Securities Depository is at any time unwilling or unable to continue
as depository and a successor Securities Depository is not appointed by the
Company within 90 days or if the Company is subject to certain events in
bankruptcy, insolvency or reorganization, the Company will issue Warrants in
definitive form in exchange for the Global Warrant. In addition, the Company
may at any time determine not to have the Warrants represented by the Global
Warrant and, in such event, will issue Warrants in definitive form in exchange
for the Global Warrant. In any such instance, an owner of a beneficial interest
in the Global Warrant will be entitled to have a number of Warrants equivalent
to such beneficial interest registered in its name and will be entitled to
physical delivery of such Warrants in definitive form.
LISTING OF THE WARRANTS
The Warrants have been approved for listing by the American Stock Exchange,
subject to official notice of issuance. The American Stock Exchange will expect
to cease trading the Warrants on such Exchange as of the close of business on
the Expiration Date.
AUTOMATIC EXERCISE PRIOR TO THE EXPIRATION DATE
In the event that the Warrants are delisted from, or permanently suspended
from trading on, the American Stock Exchange and the Warrants are not
simultaneously accepted for trading pursuant to the rules of another national
securities exchange, the Warrants will expire on the date such delisting or
trading suspension becomes effective (an "Early Expiration Date") and the
Warrants will be automatically exercised on the New York Business Day
immediately preceding such Early Expiration Date, and the Cash Settlement
Value, if any (determined as provided under "Exercise of Warrants"), of such
automatically exercised Warrants will be paid on the fifth New York Business
Day following such Early Expiration Date. Settlement shall otherwise occur as
described under "Book-Entry Procedures and Settlement". The Company will notify
Holders as soon as practicable of such delisting or trading suspension. The
Company has agreed in the Warrant Agreement that it will not seek delisting of
the Warrants or suspension of their trading on the American Stock Exchange.
The Warrants may also expire on the date of occurrence of certain events in
bankruptcy, insolvency or reorganization involving the Company (any such date
also being an "Early Expiration Date") and the Warrants will be automatically
exercised as of the New York Business Day immediately preceding such Early
Expiration Date. The Cash Settlement Value, if any (determined as provided
under "Cash Settlement Value"), of such automatically exercised Warrants will
be due and payable on the fifth New York Business Day following such Early
Expiration Date. Settlement will otherwise occur as described under "Book-Entry
Procedures and Settlement".
MODIFICATION
The Warrant Agreement and the terms of the Warrants may be amended by the
Company and the Warrant Agent, without the consent of the beneficial owners of
any Warrants, for the purpose of curing any ambiguity, or of curing, correcting
or supplementing any defective or inconsistent provision contained therein, or
in any other manner which the Company may deem necessary or desirable and which
will not materially and adversely affect the interests of the beneficial owners
of the Warrants.
The Company and the Warrant Agent also may modify or amend the Warrant
Agreement and the terms of the Warrants, with the consent of the beneficial
owners of not less than a majority in number of the then
S-16
<PAGE>
outstanding Warrants affected, provided that no such modification or amendment
that changes the DEM Spot Rate or the JPY Spot Rate so as to adversely affect
the beneficial owner, changes the Expiration Date or otherwise materially and
adversely affects the exercise rights of the beneficial owners of the Warrants
or reduces the percentage of the number of outstanding Warrants, the consent of
whose beneficial owners is required for modification or amendment of a Warrant
Agreement or the terms of Warrants may be made without the consent of the
beneficial owners of Warrants affected thereby.
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 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 Cash Settlement Value with respect to all unexercised Warrants,
according to their tenor, and the due and punctual performance and observance
of all of the covenants and conditions of the Warrant Agreement and of the
Global Warrant to be performed by the Company.
S-17
<PAGE>
EXCHANGE RATES AND CASH SETTLEMENT VALUES
The following table sets forth the monthly averages of the noon buying rates
in New York per U.S. dollar for the Deutsche Mark and the Japanese Yen for the
period from January 1990 through April 1995, and the average of the noon buying
rates in New York per U.S. dollar for the Deutsche Mark and the Japanese Yen
for the period from May 1, 1995 through May 16, 1995. The historical experience
of Deutsche Mark/U.S. dollar and Japanese Yen/U.S. dollar exchange rates should
not be taken as indications of future performance and no assurance can be given
that the values of the Deutsche Mark and the Japanese Yen will not increase
relative to the U.S. dollar and thereby cause the Cash Settlement Value with
respect to the Warrants to equal zero.
<TABLE>
<CAPTION>
DEM/U.S. $1 JPY/U.S. $1
----------- -----------
<C> <S> <C> <C>
1990: January........................................ 1.6914 144.98
February....................................... 1.6758 145.69
March.......................................... 1.7053 153.31
April.......................................... 1.6863 158.46
May............................................ 1.6630 154.04
June........................................... 1.6832 153.70
July........................................... 1.6375 149.04
August......................................... 1.5702 147.46
September...................................... 1.5701 138.44
October........................................ 1.5238 129.59
November....................................... 1.4857 129.22
December....................................... 1.4982 133.89
1991: January........................................ 1.5091 133.70
February....................................... 1.4805 130.54
March.......................................... 1.6122 137.39
April.......................................... 1.7027 137.11
May............................................ 1.7199 138.22
June........................................... 1.7828 139.75
July........................................... 1.7852 137.83
August......................................... 1.7435 136.82
September...................................... 1.6933 134.30
October........................................ 1.6893 130.77
November....................................... 1.6208 129.63
December....................................... 1.5630 128.04
1992: January........................................ 1.5788 125.46
February....................................... 1.6186 127.70
March.......................................... 1.6616 132.85
April.......................................... 1.6493 133.54
May............................................ 1.6225 130.77
June........................................... 1.5726 126.84
July........................................... 1.4914 125.88
August......................................... 1.4475 126.23
September...................................... 1.4514 122.60
October........................................ 1.4851 121.17
November....................................... 1.5875 123.88
December....................................... 1.5822 124.04
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
DEM/U.S. $1 JPY/U.S. $1
----------- -----------
<C> <S> <C> <C>
1993: January......................................... 1.6144 124.99
February........................................ 1.6414 120.76
March........................................... 1.6466 117.02
April........................................... 1.5964 112.41
May............................................. 1.6071 110.34
June............................................ 1.6547 107.41
July............................................ 1.7157 107.69
August.......................................... 1.6944 103.77
September....................................... 1.6219 105.57
October......................................... 1.6405 107.02
November........................................ 1.7005 107.88
December........................................ 1.7105 109.91
1994: January......................................... 1.7426 111.44
February........................................ 1.7355 106.30
March........................................... 1.6909 105.10
April........................................... 1.6984 103.48
May............................................. 1.6565 103.75
June............................................ 1.6271 102.53
July............................................ 1.5674 98.44
August.......................................... 1.5646 99.94
September....................................... 1.5491 98.77
October......................................... 1.5195 98.35
November........................................ 1.5396 98.04
December........................................ 1.5716 100.18
1995: January......................................... 1.5302 99.77
February........................................ 1.5022 98.24
March........................................... 1.4061 90.52
April........................................... 1.3812 83.69
May (May 1 through May 16)...................... 1.3973 84.50
</TABLE>
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Source: January 1990 through April 1995: Federal Reserve Board Statistical
Release G.5(405). May 1, 1995 through May 16, 1995: calculated by the
Company using daily exchange rates as quoted in Federal Reserve Board
Statistical Release H.10(512).
S-19
<PAGE>
The following graph sets forth the monthly averages of the noon buying rates
in New York per U.S. dollar for the Deutsche Mark and the Japanese Yen since
January 1990. The historical experience of Deutsche Mark/U.S. dollar and
Japanese Yen/U.S. dollar exchange rates should not be taken as indications of
future performance and no assurance can be given that the values of the
Deutsche Mark and the Japanese Yen will not increase relative to the U.S.
dollar and thereby cause the Cash Settlement Value with respect to the Warrants
to equal zero.
DEM/U.S. $1 AND JPY/U.S. $1 EXCHANGE RATES--HISTORICAL PERFORMANCE
MONTHLY AVERAGES
[The graph sets forth the monthly averages of the noon buying rates in
New York per U.S. dollar for the Deutsche Mark and the Japanese Yen for
the period from January 1990 through April 1995, with the left vertical
axis specifying the buying rate for the Deutsche Mark in a range from
1.2500 to 2.0000 in increments of .2500 and the right vertical axis
specifying the buying rate for the Japanese Yen in a range from 75 to
175 in increments of 25, and the horizontal axis specifying the time
period, in increments of four months, from January 1990 to January
1995, and in a three month increment from January 1995 to April 1995.]
On May 16, 1995 the Noon Buying Rates of Deutsche Marks and Japanese Yen
quoted by the Federal Reserve Bank of New York were U.S. $1 = DEM 1.4360 and
JPY 86.20, respectively.
The information presented in this Prospectus Supplement relating to the
exchange rates of the Deutsche Mark and the Japanese Yen as compared to the
U.S. dollar is furnished as a matter of information only. The fluctuations in
the Deutsche Mark/U.S. dollar and the Japanese Yen/U.S. dollar exchange rates
that have occurred in the past are not necessarily indicative of fluctuations
in that rate which may occur over the term of the Warrants.
As discussed under "Description of the Warrants", the spot exchange rate of
the Deutsche Mark or the Japanese Yen in terms of the U.S. dollar on the
Exercise Date will determine the Cash Settlement Value of a Warrant.
Depreciation of the Deutsche Mark or the Japanese Yen in terms of the U.S.
dollar (i.e., appreciation of the U.S. dollar in terms of the Deutsche Mark or
the Japanese Yen) will result in a greater Cash Settlement Value. Conversely,
appreciation of the Deutsche Mark and the Japanese Yen in terms of the U.S.
dollar (i.e., depreciation of the U.S. dollar in terms of the Deutsche Mark and
the Japanese Yen) will result in a lesser or zero Cash Settlement Value of a
Warrant.
Set forth below is an illustration of the Cash Settlement Values of Warrants
at exercise based on various hypothetical DEM Spot Rates and JPY Spot Rates.
THE ACTUAL CASH SETTLEMENT VALUE OF A WARRANT WILL DEPEND ENTIRELY ON THE
ACTUAL DEM SPOT RATE AND THE ACTUAL JPY SPOT RATE ON THE EXERCISE DATE. The
S-20
<PAGE>
illustrative Cash Settlement Values in the table do not reflect any "time
value" for a Warrant, which may be reflected in trading value, and are not
necessarily indicative of potential profit or loss, which are also affected by
purchase price and transaction costs.
<TABLE>
<CAPTION>
DEM RATES JPY RATES
HYPOTHETICAL CASH SETTLEMENT HYPOTHETICAL CASH SETTLEMENT CASH SETTLEMENT
DEM SPOT RATES VALUE BASED UPON JPY SPOT RATES VALUE BASED UPON VALUE OF
(DEM/U.S. $1) DEM SPOT RATES (JPY/U.S. $1) JPY SPOT RATES A WARRANT
- -------------- ---------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
1.6600........... $6.51........... 99.00............. $6.31........ $6.51
1.5880........... 4.53........... 96.00............. 4.95........ 4.95
1.5160........... 2.37........... 90.00............. 1.94........ 2.37
1.4440(/1/)..... 0.00........... 86.50(/1/)........ 0.00........ 0.00
or below..... or below...
</TABLE>
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(/1/) Strike Prices
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
CONCERNING THE WARRANTS
The following is a summary of the principal United States Federal income tax
consequences of the purchase, ownership and disposition of a Warrant. The
following discussion of certain United States Federal income tax consequences
to beneficial owners of the Warrants applies only to a person who holds a
Warrant as a capital asset and does not purport to address the United States
Federal income tax consequences to special classes of investors including
persons who are securities or options dealers, persons who do not hold the
Warrants as capital assets or persons who may hold the Warrants as part of an
integrated transaction (e.g., as part of a hedge or straddle for tax purposes).
Prospective purchasers of Warrants are urged to consult their own tax advisors
as to the application of the United States Federal income tax laws to their
particular situations as well as any consequences of the purchase, ownership
and disposition of the Warrants arising under the laws of any other taxing
jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Warrant
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 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 Warrant is effectively
connected with the conduct of a United States trade or business. As used
herein, the term "non-U.S. Holder" means a beneficial owner of a Warrant that
is not a U.S. Holder.
In the opinion of Brown & Wood, counsel to the Company, although there is no
authority directly dealing with instruments such as the Warrants, a Warrant
should be treated as a nonequity option for purposes of Section 1256 of the
Internal Revenue Code of 1986, as amended (the "Code"), which must be "marked-
to-market". Accordingly, a U.S. Holder of a Warrant will be required to treat
such Warrant as if sold for its fair market value on the last business day of
the U.S. Holder's taxable year and will be required to recognize taxable gain
or loss for that taxable year in an amount equal to the difference between the
fair market value of the Warrant on the last business day of such taxable year
and the U.S. Holder's adjusted tax basis in the Warrant. A U.S. Holder's
adjusted tax basis in a Warrant will equal such U.S. Holder's initial
investment in the Warrant, increased or decreased by any net gain or loss
recognized by the U.S. Holder in respect of the Warrant in prior taxable years.
Any gain or loss recognized by a U.S. Holder of a Warrant in accordance with
the preceding rules will generally be treated as 60 percent long-term capital
gain or loss and 40 percent short-term capital gain or loss.
Upon the sale, exchange, exercise or expiration of a Warrant, a U.S. Holder
will be required to recognize taxable gain or loss in an amount equal to the
difference between the amount realized upon such sale, exchange, exercise or
expiration and the U.S. Holder's adjusted tax basis in the Warrant. Such gain
or loss would generally be treated as 60 percent long-term capital gain or loss
and 40 percent short-term capital gain or loss.
S-21
<PAGE>
Despite the foregoing, assuming that the U.S. Holder's functional currency
(as defined in Section 985 of the Code) is the U.S. dollar, any gain or loss
recognized by a U.S. Holder in respect of a Warrant (as described above) will
be treated entirely as ordinary income or loss if the U.S. Holder elects, or
has previously elected, under Section 988 of the Code, to treat its acquisition
of the Warrant as a "Section 988 Transaction" giving rise to foreign currency
gain or loss. This election would extend to certain other contracts which are
subject to Section 1256 of the Code and which are required to be marked-to-
market, including certain regulated futures contracts and nonequity options,
entered into by the U.S. Holder in the current or subsequent taxable years, and
would be irrevocable without the consent of the Internal Revenue Service
("IRS"). A U.S. Holder of Warrants should consult its own tax advisor
concerning the consequences and mechanics of making this election prior to
making such election.
NON-U.S. HOLDERS
Gains realized on the sale, exchange or exercise of a Warrant by a non-U.S.
Holder will not be subject to United States Federal income or withholding tax
in respect of such amounts, assuming the income is not effectively connected
with a United States trade or business of the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its own tax
advisor in this regard.
Under current law, the fair market value of a Warrant may be includible in
the estate of an individual non-U.S. Holder for United States Federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
Individual non-U.S. Holders should consult their own tax advisors concerning
the United States Federal estate tax consequences, if any, of investing in the
Warrants.
BACKUP WITHHOLDING
A beneficial owner of a Warrant may be subject to backup withholding at the
rate of 31 percent with respect to the gross proceeds upon a sale or exercise
of a Warrant if such beneficial owner fails to supply an accurate taxpayer
identification number and does not establish, when required, that it is an
exempt recipient or a non-U.S. Holder. Any amount withheld under the backup
withholding rules would be allowed as a refund or a credit against the
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
USE OF PROCEEDS
A substantial portion of the proceeds from the sale of the Warrants may be
used to hedge market risks with respect to the payment at expiration of the
Warrants. The Company does not intend to confine its hedging activities to any
particular domestic or foreign exchanges.
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 all of the Warrants offered
hereby. The Underwriting Agreement and Terms Agreement provide that the
Underwriter will purchase all the Warrants if any are purchased.
The Underwriter has advised the Company that it proposes initially to offer
all or part of the Warrants directly to the public at the offering prices set
forth on the cover page of this Prospectus Supplement and to certain dealers at
such price less a concession not in excess of $.12. After the initial public
offering, the public offering prices and concession may be changed.
An affiliate of the Underwriter will receive a fee from the Company for
assisting the Company in arranging hedging of the Company's currency risks with
respect to the Warrants.
S-22
<PAGE>
The underwriting of the Warrants 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 THE WARRANTS
The validity of the Warrants will be passed upon for the Company and for the
Underwriter by Brown & Wood, New York, New York.
S-23
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION 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>
Prospectus Supplement Summary............................................. S-3
Certain Important Information Concerning the Warrants..................... S-6
Risk Factors Relating to the Warrants..................................... S-6
Recent Developments....................................................... S-10
Description of the Warrants............................................... S-13
Exchange Rates and Cash Settlement Values................................. S-18
Certain United States Federal Income Tax Considerations Concerning the
Warrants................................................................. S-21
Use of Proceeds........................................................... S-22
Underwriting.............................................................. S-22
Validity of Warrants...................................................... S-23
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............................................ 9
Description of Debt Warrants.............................................. 13
Description of Currency Warrants.......................................... 14
Description of Index Warrants............................................. 15
Plan of Distribution...................................................... 19
Experts................................................................... 20
</TABLE>
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LOGO
MERRILL LYNCH & CO., INC.
1,250,000
GREATER OF U.S. DOLLAR/DEUTSCHE MARK--U.S. DOLLAR/JAPANESE YEN
PUT CURRENCY WARRANTS,
EXPIRING MAY 15, 1997
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PROSPECTUS SUPPLEMENT
---------------
MERRILL LYNCH & CO.
MAY 16, 1995
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