<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 33-65135
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 4, 1996)
[LOGO OF MERRILL LYNCH & CO., INC.]
11,000,000 UNITS
MERRILL LYNCH & CO., INC.
S&P 500 MARKET INDEX TARGET-TERM SECURITIES SM DUE MAY 10, 2001
"MITTS (R)"
An aggregate principal amount of $110,000,000 of S&P Market Index Target-
Term Securities SM due May 10, 2001 (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. Units will be transferable by the Depository (as hereinafter
defined), as more fully described below.
The Securities are debt securities of the Company, which are being issued in
denominations of $10 and integral multiples thereof, will bear no periodic
payments of interest and will mature on May 10, 2001. At maturity, a
beneficial owner of a Security will be entitled to receive, with respect to
each Security, the principal amount thereof plus an interest payment, if any
(the "Supplemental Redemption Amount"), based on the percentage increase, if
any, in the S&P 500 Composite Stock Price Index (the "Index") over the
Starting Index Value. The Supplemental Redemption Amount will in no event be
less than zero. The Securities are not redeemable or callable by the Company
prior to maturity. At maturity, a beneficial owner of a Security will receive
the principal amount of such Security plus the Supplemental Redemption Amount,
if any, however, there will be no other payment of interest, periodic or
otherwise.
The Supplemental Redemption Amount payable with respect to a Security at
maturity will equal the product of (A) the principal amount of the applicable
Security, (B) the percentage increase from the Starting Index Value to the
Ending Index Value, and (C) the Participation Rate. The Starting Index Value
equals 638.26 which was the closing value of the Index on the date the
Securities were priced by the Company for initial sale to the public (the
"Pricing Date"). The Ending Index Value, as more particularly described
herein, will be the average (arithmetic mean) of the closing values of the
Index on certain days, or, if certain events occur, the closing value of the
Index on a single day prior to the maturity of the Securities. The
Participation Rate equals 110%.
FOR INFORMATION AS TO THE CALCULATION OF THE SUPPLEMENTAL REDEMPTION AMOUNT
WHICH WILL BE PAID AT MATURITY, THE CALCULATION AND THE COMPOSITION OF THE
INDEX, AND CERTAIN TAX CONSEQUENCES TO BENEFICIAL OWNERS OF THE SECURITIES,
SEE "DESCRIPTION OF SECURITIES", "THE INDEX", AND "CERTAIN UNITED STATES
FEDERAL INCOME TAX CONSIDERATIONS", RESPECTIVELY, IN THIS PROSPECTUS
SUPPLEMENT. FOR OTHER INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE S-5 OF THIS PROSPECTUS
SUPPLEMENT.
Ownership of the Securities will be maintained in book-entry form by or
through the 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.
The Securities have been approved for listing on the New York Stock Exchange
under the symbol "MIX", 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC(1) DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit............................. $10 $.25 $9.75
- --------------------------------------------------------------------------------
Total................................ $110,000,000 $2,750,000 $107,250,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The "Price to Public" and "Underwriting Discount" for any single
transaction to purchase 100,000 to (but not including) 500,000 Units will
be $9.95 per Unit and $.20 per Unit, respectively, and the "Price to
Public" and "Underwriting Discount" for any single transaction to purchase
500,000 Units or more will be $9.80 per Unit and $.05 per Unit,
respectively.
(2) 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 May 13, 1996.
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 May 7, 1996.
- -------
"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.
STANDARD & POOR'S ("S&P") DOES NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY, MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED, HOLDERS OF THE SECURITIES, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THEREIN IN
CONNECTION WITH THE RIGHTS LICENSED UNDER THE LICENSE AGREEMENT DESCRIBED
HEREIN OR FOR ANY OTHER USE. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY
FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGE (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
----------------
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.... 11,000,000 Units of S&P 500 Market Index Target-Term
Securities due May 10, 2001. The Securities are to be
issued as a series of Senior Debt Securities under the
Chemical Indenture described herein.
LISTING............... The Securities have been approved for listing on the
New York Stock Exchange under the symbol "MIX", subject
to official notice of issuance.
DENOMINATIONS......... A Unit consisting of $10 principal amount of Securities
and integral multiples thereof.
MATURITY.............. May 10, 2001.
PAYMENT AT MATURITY... At maturity, a beneficial owner of a Security will be
entitled to receive (i) the principal amount thereof
($10 for each Unit), and (ii) the Supplemental
Redemption Amount equal to:
Ending Index Value-Starting
Principal Index Value Participation
Amount x --------------------------- x Rate
Starting Index Value
provided, however, that in no event will the
Supplemental Redemption Amount be less than zero. The
Starting Index Value equals 638.26, which was the
closing value of the Index on the date the Securities
were priced by the Company for initial sale to the
public (i.e, the Pricing Date). The Ending Index Value
will equal the average (arithmetic mean) of the closing
value of the Index on certain days prior to the
maturity of the Securities, or, if Market Disruption
Events occur on certain days, then the Ending Index
Value will equal the closing value of the Index on a
single day. The Participation Rate equals 110%.
INDEX................. The S&P 500 Index is published by Standard & Poor's
("S&P") and is intended to provide an indication of the
pattern of common stock price movement. The calculation
of the value of the S&P 500 Index is based on the
relative value of the aggregate market value of the
common stocks of 500 companies at a particular time as
compared to the aggregate average market value of the
common stocks of 500 similar companies during the base
period from the years 1941 through 1943. S&P may from
time to time, in its sole discretion, add companies to,
or delete companies from, the S&P 500 Index to fulfill
the above-stated intention of providing an indication
of common stock price movement. "Standard &
Poor's (R)", "S&P (R)", "S&P 500 (R)", and "Standard &
Poor's 500" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by
Merrill Lynch Capital Services, Inc. and the Company is
an authorized sublicensee thereof. See "The Index" in
this Prospectus Supplement.
RISK FACTORS.......... The Securities are subject to certain special
considerations. Investors should be aware that if the
Ending Index Value does not exceed the
S-3
<PAGE>
Starting Index Value, beneficial owners of the
Securities will receive only the principal amount
thereof at maturity, even if the value of the Index at
some point between the issue date and the maturity date
of the Securities exceeded the Starting Index Value. A
beneficial owner of the Securities may receive no
Supplemental Redemption Amount at maturity or a
Supplemental Redemption Amount which is below what the
Company would pay as interest as of the date hereof if
the Company issued non-callable senior debt securities
with a similar maturity as that of the Securities. The
return of principal of the Securities at maturity and
the payment of the Supplemental Redemption Amount may
not reflect the full opportunity costs implied by
inflation or other factors relating to the time value
of money and will not produce the same yield as if the
stocks underlying the Index were purchased and held for
the same period as the Securities.
The Index does not reflect the payment of dividends on
the stocks underlying it and, therefore, the yield
based on the Index to the maturity of the Securities
will not produce the same yield as if such underlying
stocks were purchased and held for a similar period.
There is little precedent to indicate 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 substantially on the
extent of the appreciation, if any, of the Index over
the Starting Index Value. See "The Index--Historical
Data on the Index" in this Prospectus Supplement for
historical values of the Index. If, however, Securities
are sold prior to the maturity date at a time when the
Index exceeds the Starting Index Value, the sale price
may be at a substantial discount from the amount
expected to be payable to the beneficial owner if such
excess of the Index over the Starting Index Value were
to prevail until maturity of the Securities because of
the possible fluctuation of the Index between the time
of such sale and the time that the Ending Index Value
is determined. 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 Index is below, equal to or not
sufficiently above the Starting Index Value. A discount
could also result from rising interest rates.
The value of the Index and the Supplemental Redemption
Amount, if any, may be adversely affected by political,
economic and other developments that affect the stocks
underlying the Index.
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 their
particular circumstances.
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-4
<PAGE>
RISK FACTORS
PAYMENT AT MATURITY
Supplemental Redemption Amount May be Zero. Investors should be aware that if
the Ending Index Value does not exceed the Starting Index Value, beneficial
owners of the Securities will receive only the principal amount thereof at
maturity, even if the value of the Index at some point between the issue date
and the maturity date of the Securities exceeded the Starting Index Value.
Yield may be Below Market Interest Rates on the Pricing Date. A beneficial
owner of the Securities may receive no Supplemental Redemption Amount at
maturity, or a Supplemental Redemption Amount that is below what the Company
would pay as interest as of the Pricing Date if the Company issued non-callable
senior debt securities with a similar maturity as that of the Securities. The
return of principal of the Securities at maturity and the payment of the
Supplemental Redemption Amount, if any, may not reflect the full opportunity
costs implied by inflation or other factors relating to the time value of
money.
Yield on Securities will not Reflect Dividends. The Index does not reflect
the payment of dividends on the stocks underlying it and therefore the yield
based on the Index to the maturity of the Securities will not produce the same
yield as if such underlying stocks were purchased and held for a similar
period.
State Law Limit on Interest Paid. Because the Chemical Indenture provides
that the Securities will be governed by and construed in accordance with the
laws of New York, certain usury laws of New York State may apply. 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
The Securities have been approved for listing on the New York Stock Exchange
under the symbol "MIX", subject to official notice of issuance. There is little
precedent to indicate how the Securities will trade in the secondary market or
whether such market will be liquid.
It is expected that the trading value of the Securities in the secondary
market 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
substantially on the extent of the appreciation, if any, of the Index over the
Starting Index Value. See "The Index--Historical Data on the Index" in this
Prospectus Supplement for historical values of the Index. If, however,
Securities are sold prior to the maturity date at a time when the Index exceeds
the Starting Index Value, the sale price may be at a substantial discount from
the amount expected to be payable to the beneficial owner if such excess of the
Index over the Starting Index Value were to prevail until maturity of the
Securities because of the possible fluctuation of the Index between the time of
such sale and the time that the Ending Index Value is determined. 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 Index is below, equal to, or not
sufficiently above the Starting Index Value. A discount could also result from
rising interest rates.
In addition to the value of the Index, the trading value of the Securities
may be affected by a number of interrelated factors, including the
creditworthiness of the Company and those factors listed below. The
relationship among these factors is complex, including how these factors affect
the relative value of the principal amount of the Securities to be repaid at
maturity and the value of the Supplemental Redemption Amount, if any.
Accordingly, investors should be aware that factors other than the level of the
Index are
S-5
<PAGE>
likely to affect the Securities' trading value. The expected 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. Because the Securities repay at a minimum the principal
amount thereof at maturity, the trading value of the Securities will likely
be affected by changes in interest rates. In general, if U.S. interest
rates increase, the trading value of the Securities is expected to
decrease. If U.S. interest rates decrease, the trading value of the
Securities is expected to increase. Interest rates may also affect the U.S.
economy, and, in turn, the value of the Index. Rising interest rates may
lower the value of the Index and, thus, the Securities. Falling interest
rates may increase the value of the Index and, thus, may increase the value
of the Securities.
Volatility of the Index. If the volatility of the Index increases, the
trading value of the Securities is expected to increase. If the volatility
of the Index 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 interest rates and the Index.
This difference will reflect a "time premium" due to expectations
concerning the value of the Index 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. In addition, the price at
which a beneficial owner may be able to sell Securities prior to maturity
may be at a discount, which may be substantial, from the principal amount
of the Securities if the value of the Index is below, equal to, or not
sufficiently above the Starting Index Value.
Dividend Rates in the United States. If dividend rates on the stocks
comprising the Index increase, the value of the Securities is expected to
decrease. Conversely, if dividend rates on the stocks comprising the Index
decrease, the value of the Securities is expected to increase. However, in
general, rising U.S. corporate dividend rates may increase the value of the
Index and, in turn, increase the value of the Securities. Conversely,
falling U.S. dividend rates may decrease the value of the Index and, in
turn, decrease the value of the Securities.
The impact of the factors specified above, excluding the value of the Index,
may offset, partially or in whole, any increase in the trading value of the
Securities that is attributable to an increase in the value of the Index. For
example, an increase in U.S. interest rates may cause the Securities to trade
at a discount from their initial offering price, even if the Index has
appreciated significantly. In general, assuming all relevant factors are held
constant, the effect on the trading value of the Securities of a given change
in interest rates, Index volatility and/or dividend rates of stocks comprising
the Index is expected to be less if it occurs later in the term of the
Securities than if it occurs earlier in the term of the Securities. The effect
on the trading value of the Securities of a given appreciation of the Index in
excess of the Starting Index Value is expected to be greater if it occurs later
in the term of the Securities than if it occurs earlier in the term of the
Securities, assuming all other relevant factors are held constant.
THE INDEX
The value of the Index and the Supplemental Redemption Amount, if any, may be
adversely affected by political, economic and other developments that affect
the stocks underlying the Index.
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 light of their particular circumstances.
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-6
<PAGE>
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S") or its affiliates may from time to time engage in transactions
involving the stocks underlying the Index for their proprietary accounts and
for other accounts under their management, which may influence the value of
such stocks and therefore the value of the Securities. MLPF&S and its
affiliates will also be the counterparties to the hedge of the Company's
obligations under the Securities. See "Use of Proceeds" herein. Accordingly,
under certain circumstances, conflicts of interest may arise between MLPF&S's
responsibilities as Calculation Agent with respect to the Securities and its
obligations under its hedge and its status as a subsidiary of the Company.
Under certain circumstances, the duties of MLPF&S as Calculation Agent in
determining the existence of Market Disruption Events could conflict with the
interests of MLPF&S as an affiliate of the issuer of the Securities, Merrill
Lynch & Co., Inc., and with the interests of the holders of the Securities.
S-7
<PAGE>
RECENT DEVELOPMENTS
The following summary of 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 30, 1995 and Current Reports
on Form 8-K, dated April 15, 1996 and May 1, 1996 (the "Current Reports"). The
Current Reports will be superseded in their entirety by the Company's
Quarterly Report on Form 10-Q for the period ended March 29, 1996. See
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus.
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>
THREE MONTHS ENDED
----------------------------
MARCH 31, MARCH 29,
INCOME STATEMENT INFORMATION 1995 1996
- ---------------------------- --------------- ------------
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C>
Revenues........................................... $ 5,204 $ 6,019
Net revenues....................................... $ 2,421 $ 3,261
Earnings before income taxes....................... $ 380 $ 671
Net earnings....................................... $ 228 $ 409
Ratio of earnings to fixed charges(1).............. 1.1 1.2
<CAPTION>
AT DECEMBER 29, AT MARCH 29,
BALANCE SHEET INFORMATION(2) 1995 1996
- ---------------------------- --------------- ------------
(IN MILLIONS)
<S> <C> <C>
Total assets....................................... $176,857 $195,884
Long-term borrowings............................... $ 17,340 $ 20,226
Stockholders' equity............................... $ 6,141 $ 6,364
</TABLE>
- --------
(1) 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,
amortization of debt expense, preferred stock dividend requirements of
majority-owned subsidiaries, and that portion of rentals estimated to be
representative of the interest factor.
(2) 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 29, 1996, $526
million of bank loans and $17,222 million 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 29, 1996, cash deposits for securities loaned and securities sold
under agreements to repurchase amounted to $3,768 million and $61,657
million, respectively. From March 30, 1996 to May 6, 1996, long-term
borrowings, net of repayments and repurchases, increased by approximately
$768 million.
FIRST QUARTER 1996
Global financial markets were generally strong during 1995, led by a stable
U.S. economy, declining interest rates, and heightened investor activity.
Market expectations for additional declines in interest rates continued
through February 1996, fueling further market advances, strong investor and
issuer activity, higher fee-based revenues, and improved trading profits
industrywide. In March 1996, inflationary fears were stirred by the release of
U.S. economic statistics indicating stronger than anticipated growth and the
Federal
S-8
<PAGE>
Reserve's decision to hold short-term interest rates at current levels. This
led to increases in long-term interest rates and greater market volatility,
although interest rates remained low relative to the year-ago period.
Net earnings for the 1996 first quarter were a record $409 million, up 80%
from 1995 first quarter net earnings of $228 million. Earnings per common share
were $2.03 primary and fully diluted in the 1996 first quarter, compared with
$1.08 primary and fully diluted in the 1995 first quarter. Total revenues were
a record $6,019 million in the first quarter of 1996, up 16% from the 1995
first quarter. Net revenues (revenues after interest expense) totaled $3,261
million in the first quarter of 1996, up 35% from the 1995 first quarter.
Commissions revenues rose 44% to a record $989 million from $685 million in
the 1995 first quarter. Commissions revenues from listed and over-the-counter
securities increased to record levels due to higher trading volumes on most
major U.S. and international exchanges. Mutual fund commissions advanced to
record levels due to strong sales of both domestic and offshore funds.
Interest and dividend revenues decreased to $3,010 million from $3,030
million in the 1995 first quarter. Interest expense, which includes dividend
expense, decreased to $2,758 million from $2,783 million in the year-ago
quarter. Net interest and dividend profit was $252 million, up slightly from
$247 million in 1995, with increases in net interest-earning assets
substantially offset by the effect of lower interest rates.
Principal transactions revenues increased 46% from the 1995 first quarter to
a record $982 million, as higher investor activity and market volatility led to
increases in virtually all trading products. Equities and equity derivatives
trading revenues, in the aggregate, were up 109% to $347 million. Trading
revenues from most equity products increased, due primarily to higher trading
volume and rising stock prices. International equities trading revenues, in
particular, benefited from the addition of Smith New Court trading activity.
Taxable fixed-income trading revenues rose 62% to $265 million due primarily to
higher revenues from non-U.S. governments and agencies, mortgage-backed
securities, and high-yield bonds. Non-U.S. governments and agencies trading
revenues advanced due to improved results from trading of Japanese Government
Bonds, as well as increased trading volume in certain Latin American emerging
markets as credit ratings improved and investors sought higher returns.
Mortgage-backed securities trading revenues increased due primarily to improved
liquidity and increased customer demand compared with the year-ago period.
Trading revenues from high-yield bonds were up due to lower interest rates and
improved credit ratings of certain issuers. Interest rate and currency swap
trading revenues increased 9% to $255 million due to higher trading revenues
from non-U.S. dollar-denominated transactions, partially offset by decreases in
revenues from U.S. dollar-denominated transactions. Foreign exchange and
commodities trading revenues, in the aggregate, rose 94% from the 1995 first
quarter to $40 million, as foreign exchange trading revenues continued to
benefit from the strengthening of the U.S. dollar versus other major
currencies. Municipal securities trading revenues declined 17% to $75 million,
primarily due to continued weak investor demand for tax-exempt investments.
Investment banking revenues were $378 million, up 52% from $249 million in
the 1995 first quarter. Underwriting revenues increased 82%, benefiting from
strong levels of debt and equity underwriting industrywide, with higher fees
from convertibles, corporate bonds and preferred stock, equities, and high-
yield securities. Strategic services revenues were down slightly from a year
ago, but remained comparable to record 1995 levels, benefiting from continued
strong merger and acquisition activity.
Asset management and portfolio service fees rose 20% in 1996 to a record $538
million from $448 million in the first quarter of 1995, primarily as a result
of strong inflows of client assets. Other revenues were $122 million, up 4%
from $117 million reported in the 1995 first quarter.
Non-interest expenses were $2,590 million, up 27% from $2,041 million in the
year-ago period. Compensation and benefits expense, which represented
approximately 65% of non-interest expenses, increased 33% due primarily to
higher incentive and production-related compensation as well as a 6% increase
in the number of full-time employees, largely due to acquisitions. Compensation
and benefits expense as a percentage of net revenues was 51.8% in the first
quarter of 1996, compared with 52.5% in the 1995 first quarter.
S-9
<PAGE>
Occupancy costs increased 5% from the 1995 first quarter primarily due to
international growth. Other facilities-related costs, which include
communications and equipment rental expense and depreciation and amortization
expense, rose 16% primarily due to higher levels of business activity and
increased use of market data services, as well as higher depreciation expense
from the purchase of technology-related assets over the past year.
Professional fees increased 32% from the year ago period, primarily as a
result of higher systems development costs related to upgrading technology and
processing capabilities. Advertising and market development expenses increased
33% from the 1995 first quarter. Increased international travel and higher
advertising and client promotion costs contributed to this advance. Brokerage,
clearing, and exchange fees rose 27% as a result of higher trading volume,
particularly in international markets. Other expenses increased 4% from 1995,
primarily due to goodwill amortization related to Smith New Court.
Income tax expense totaled $262 million in the 1996 first quarter. The
effective tax rate in the 1996 first quarter was 39.0%, compared with 40.0% in
the first quarter of 1995. The decrease in the effective tax rate was primarily
attributable to increases in dividends qualifying for the Federal dividends
received deduction, lower state taxes, and expanded international business
activities.
CERTAIN BALANCE SHEET INFORMATION AS OF MARCH 29, 1996
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 additional risks related to the creditworthiness of the issuers and
the liquidity of the market for such securities.
At March 29, 1996, the fair value of long and short non-investment grade
trading inventories amounted to $6,026 million and $529 million, respectively,
and in the aggregate (i.e., the sum of long and short trading inventories)
represented 6.6% of aggregate consolidated trading inventories.
At March 29, 1996, the carrying value of extensions of credit provided to
corporations entering into leveraged transactions aggregated $517 million
(excluding unutilized revolving lines of credit and other lending commitments
of $75 million), consisting primarily of senior term and subordinated
financings to 34 medium-sized corporations. In addition, at March 29, 1996, the
Company had an outstanding bridge loan of $90 million, and as of May 6, 1996,
the Company had an outstanding bridge loan commitment for $100 million. Direct
equity investments made in conjunction with the Company's investment and
merchant banking activities aggregated $189 million at March 29, 1996,
representing investments in 62 enterprises. At March 29, 1996, the Company held
interests in partnerships, totaling $82 million, that invest in highly
leveraged transactions and non-investment grade securities. At March 29, 1996,
the Company also committed to invest an additional $83 million in partnerships
that invest in leveraged transactions.
The Company's insurance subsidiaries hold non-investment grade securities.
Non-investment grade securities were 4.7% of total insurance investments at
March 29, 1996. Non-investment grade securities of insurance subsidiaries are
classified as available-for-sale and are carried at fair value.
At March 29, 1996, the largest non-investment grade concentration consisted
of various issues of a South American sovereign totaling $764 million, which
primarily represented on-balance-sheet hedges for off-balance-sheet financial
instruments. No one industry sector accounted for more than 31% of total non-
investment grade positions. At March 29, 1996, the Company held an aggregate
carrying value of $169 million in debt and equity securities of issuers in
various stages of bankruptcy proceedings or in default, of which 80% resulted
from the Company's market-making activities in such securities.
S-10
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Securities are to be issued as a series of Senior Debt Securities under
the Senior Indenture, referred to as the "Chemical Indenture", which is more
fully described in the accompanying Prospectus. Terms used herein but not
otherwise defined have the meanings set forth in the accompanying Prospectus.
The Securities will mature on May 10, 2001.
At maturity, a beneficial owner of a Security will receive the principal
amount of such Security plus the Supplemental Redemption Amount, if any,
however, there will be no other payment of interest, periodic or otherwise.
(See "Payment at Maturity" below.)
The Securities are not subject to redemption by the Company or at the option
of any beneficial owner prior to maturity. Upon the occurrence of an Event of
Default with respect to the Securities, beneficial owners of the Securities may
accelerate the maturity of the Securities, as described under "Description of
Securities--Events of Default and Acceleration" in this Prospectus Supplement
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 the
principal amount thereof plus a Supplemental Redemption Amount, if any, all as
provided below. If the Ending Index Value does not exceed the Starting Index
Value a beneficial owner of a Security will be entitled to receive only the
principal amount thereof.
At maturity, a beneficial owner of a Security will be entitled to receive,
with respect to each such Security, (i) the principal amount thereof ($10 for
each Unit), and (ii) the Supplemental Redemption Amount equal in amount to:
Ending Index Value--Starting Index Value
Principal Amount X ---------------------------------------- X Participation Rate
Starting Index Value
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero. The Starting Index Value equals 638.26, which was the closing
value of the Index on the date the Securities were priced by the Company for
initial sale to the public (i.e, the Pricing Date). The Participation Rate
equals 110%. The Ending Index Value will be determined by Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Calculation Agent") and will equal
the average (arithmetic mean) of the closing values of the Index determined on
each of the first five Calculation Days during the Calculation Period. If there
are fewer than five Calculation Days, then the Ending Index Value will equal
the average (arithmetic mean) of the closing values of the Index on such
Calculation Days, and if there is only one Calculation Day, then the Ending
Index Value will equal the closing value of the Index on such Calculation Day.
If no Calculation Days occur during the Calculation Period because of Market
Disruption Events, then the Ending Index Value will equal the closing value of
the Index determined on the last scheduled Index Business Day in the
Calculation Period, regardless of the occurrences of a Market Disruption Event
on such day. The "Calculation Period" means the period from and including the
seventh scheduled Index Business Day prior to the maturity date to and
including the second scheduled Index Business Day prior to the maturity date.
"Calculation Day" means any Index Business Day during the Calculation Period on
which a Market Disruption Event has not occurred. For purposes of determining
the Ending Index Value, an "Index Business Day" is a day on which the New York
Stock Exchange and the American Stock Exchange are open for trading and the
Index or any Successor Index is calculated and published. All determinations
made by the Calculation Agent shall be at the sole discretion of the
Calculation Agent and, absent a determination by the Calculation Agent of a
manifest error, shall be conclusive for all purposes and binding on the Company
and beneficial owners of the Securities.
S-11
<PAGE>
The following table illustrates, for a range of hypothetical Ending Index
Values, (i) the total amount payable at maturity for each $10 principal amount
of Securities, (ii) the total rate of return to beneficial owners of the
Securities, (iii) the pretax annualized rate of return to beneficial owners of
Securities, and (iv) the pretax annualized rate of return of an investment in
the stocks underlying the Index (which includes an assumed aggregate dividend
yield of 2.20% per annum, as more fully described below).
<TABLE>
<CAPTION>
TOTAL AMOUNT PRETAX PRETAX ANNUALIZED
PERCENTAGE CHANGE PAYABLE AT MATURITY TOTAL RATE OF ANNUALIZED RATE RATE OF RETURN OF
HYPOTHETICAL ENDING OVER THE STARTING PER $10 PRINCIPAL RETURN ON OF RETURN ON STOCKS UNDERLYING THE
INDEX VALUE INDEX VALUE AMOUNT OF SECURITIES THE SECURITIES THE SECURITIES(1) INDEX(1)(2)
- ------------------- ----------------- -------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
319.13 -50% $10.00 0.00% 0.00% -11.41%
382.96 -40% $10.00 0.00% 0.00% -7.89%
446.78 -30% $10.00 0.00% 0.00% -4.89%
510.61 -20% $10.00 0.00% 0.00% -2.25%
574.43 -10% $10.00 0.00% 0.00% 0.09%
638.26(3) 0% $10.00 0.00% 0.00% 2.21%
702.09 10% $11.10 11.00% 2.10% 4.15%
765.91 20% $12.20 22.00% 4.02% 5.94%
829.74 30% $13.30 33.00% 5.80% 7.61%
893.56 40% $14.40 44.00% 7.44% 9.16%
957.39 50% $15.50 55.00% 8.97% 10.62%
1,021.22 60% $16.60 66.00% 10.42% 12.00%
1,085.04 70% $17.70 77.00% 11.77% 13.30%
1,148.87 80% $18.80 88.00% 13.05% 14.54%
1,212.69 90% $19.90 99.00% 14.27% 15.72%
1,276.52 100% $21.00 110.00% 15.43% 16.84%
1,340.35 110% $22.10 121.00% 16.53% 17.92%
1,404.17 120% $23.20 132.00% 17.59% 18.95%
</TABLE>
- --------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes (i) an investment of a fixed amount in the
stocks underlying the Index with the allocation of such amount reflecting
the current relative weights of such stocks in the Index; (ii) a
percentage change in the aggregate price of such stocks that equals the
percentage change in the Index from the Starting Index Value to the
relevant hypothetical Ending Index Value; (iii) a constant dividend yield
of 2.20% per annum, paid quarterly from the date of initial delivery of
Securities, applied to the value of the Index at the end of each such
quarter assuming such value increases or decreases linearly from the
Starting Index Value to the applicable hypothetical Ending Index Value;
(iv) no transaction fees or expenses; (v) a term for the Securities from
May 13, 1996 to May 10, 2001; and (vi) a final Index value equal to the
Ending Index Value. The aggregate dividend yield of the stocks underlying
the Index as of May 7, 1996 was approximately 2.20%.
(3) The Starting Index Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
annualized rate of return resulting therefrom will depend entirely on the
actual Ending Index Value determined by the Calculation Agent as provided
herein. Historical data regarding the Index is included in this Prospectus
Supplement under "The Index--Historical Data on the Index".
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof, is
changed in any material respect, or if the Index is in any other way modified
so that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the
close of business in New York, New York, on each date that the closing value
with respect to the Ending Index Value is to be calculated, make such
adjustments as, in the good faith judgment of the Calculation Agent, may be
necessary in order to arrive at a calculation of a value of a stock index
comparable to the Index as if such changes or modifications had not
S-12
<PAGE>
been made, and calculate such closing value with reference to the Index, as
adjusted. Accordingly, if the method of calculating the Index is modified so
that the value of such Index is a fraction or a multiple of what it would have
been if it had not been modified (e.g., due to a split in the Index), then the
Calculation Agent shall adjust such Index in order to arrive at a value of the
Index as if it had not been modified (e.g., as if such split had not occurred).
"Market Disruption Event" means either of the following events, as determined
by the Calculation Agent:
(i) the suspension or material limitation (limitations pursuant to New
York Stock Exchange Rule 80A (or any applicable rule or regulation enacted
or promulgated by the New York Stock Exchange or 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 each case, for more than two hours of trading in 100 or
more of the securities included in the S&P 500 Index, or
(ii) the suspension or material limitation, in each case, for more than
two hours of trading (whether by reason of movements in price otherwise
exceeding levels permitted by the relevant exchange or otherwise) in (A)
futures contracts related to the Index which are traded on the Chicago
Mercantile Exchange or (B) option contracts related to the Index which are
traded on the Chicago Board Options Exchange, Inc.
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.
DISCONTINUANCE OF THE INDEX
If S&P discontinues publication of the Index and S&P or another entity
publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to such Index (any such
index being referred to hereinafter as a "Successor Index"), then, upon the
Calculation Agent's notification of such determination to the Trustee and the
Company, the Calculation Agent will substitute the Successor Index as
calculated by S&P or such other entity for the Index and calculate the Ending
Index Value as described above under "Payment at Maturity". Upon any selection
by the Calculation Agent of a Successor Index, the Company shall cause notice
thereof to be given to Holders of the Securities.
If S&P discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at
maturity will be a value computed by the Calculation Agent for each Calculation
Day in accordance with the procedures last used to calculate the Index prior to
any such discontinuance. If a Successor Index is selected or the Calculation
Agent calculates a value as a substitute for the Index as described below, such
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If S&P discontinues publication of the Index prior to the period during which
the Supplemental Redemption Amount is to be determined and the Calculation
Agent determines that no Successor Index is available at such time, then on
each Business Day until the earlier to occur of (i) the determination of the
Ending Index Value and (ii) a determination by the Calculation Agent that a
Successor Index is available, the Calculation Agent shall determine the value
that would be used in computing the Supplemental Redemption Amount as described
in the preceding paragraph as if such day were a Calculation Day. The
Calculation Agent will cause notice of each such value to be published not less
often than once each month in The Wall Street Journal (or another newspaper of
general circulation), and arrange for information with respect to such values
to be made available by telephone. Notwithstanding these alternative
arrangements, discontinuance of the publication of the Index may adversely
affect trading in the Securities.
S-13
<PAGE>
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 beneficial owner of a
Security upon any acceleration permitted by the Securities, with respect to
each $10 principal amount thereof, will be equal to: (i) the initial issue
price ($10), plus (ii) an additional amount of contingent interest 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 beneficial owner 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 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 beneficial
owners thereof, at the rate of 8% 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.
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
("DTC"), as Depository, registered in the name of DTC or a nominee thereof.
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
Depository to a nominee of such Depository or by a nominee of such Depository
to such Depository or another nominee of such Depository or by such Depository
or any such nominee to a successor of such Depository or a nominee of such
successor.
DTC has advised the Company as follows: DTC 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. DTC 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. DTC's Participants include
securities brokers and dealers, banks, trust companies, clearing corporations,
and certain other organizations.
DTC 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 DTC 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 DTC. 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 DTC 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 DTC (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.
S-14
<PAGE>
So long as DTC, or its nominee, is the registered owner of a Global Security,
DTC 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,
including for purposes of receiving any reports delivered by the Company or the
Trustee pursuant to the Chemical Indenture. Accordingly, each Person owning a
beneficial interest in a Global Security must rely on the procedures of DTC
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, DTC 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 DTC to
Participants, by Participants to Indirect Participants, and by Participants and
Indirect Participants to Beneficial Owners will be governed by 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 Supplemental Redemption Amount with
respect to, Securities registered in the name of DTC or its nominee will be
made to DTC 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 DTC, upon receipt of any payment of principal or any
Supplemental Redemption Amount 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 DTC. 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) any 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 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
$1,000 and integral multiples thereof. Such definitive Securities shall be
registered in such name or names as the Depository shall instruct the Trustee.
It is expected that such instructions may be based upon directions received by
the Depository from Participants with respect to ownership of beneficial
interests in such Global Securities.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Securities will be made by the Underwriter in immediately
available funds. All payments of principal and the Supplemental Redemption
Amount, if any, will be made by the Company in immediately available funds so
long as the Securities are maintained in book-entry form.
S-15
<PAGE>
THE INDEX
All disclosure contained in this Prospectus Supplement regarding the Index,
including, without limitation, its make-up, method of calculation and changes
in its components, is derived from publicly available information prepared by
S&P. Neither the Company nor the Underwriter takes any responsibility for the
accuracy or completeness of such information.
GENERAL
The Index is published by S&P and is intended to provide an indication of the
pattern of common stock price movement. The calculation of the value of the
Index (discussed below in further detail) is based on the relative value of the
aggregate Market Value (as defined below) of the common stocks of 500 companies
as of a particular time as compared to the aggregate average Market Value of
the common stocks of 500 similar companies during the base period of the years
1941 through 1943. As of April 29, 1996, the 500 companies included in the
Index represented approximately 77% of the aggregate Market Value of common
stocks traded on The New York Stock Exchange; however, these 500 companies are
not the 500 largest companies listed on The New York Stock Exchange and not all
of these 500 companies are listed on such exchange. As of April 29, 1996, the
aggregate market value of the 500 companies included in the Index represented
approximately 70% of the aggregate market value of United States domestic,
public companies. S&P chooses companies for inclusion in the Index with the aim
of achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of The New York
Stock Exchange, which S&P uses as an assumed model for the composition of the
total market. Relevant criteria employed by S&P include the viability of the
particular company, the extent to which that company represents the industry
group to which it is assigned, the extent to which the market price of that
Company's common stock is generally responsive to changes in the affairs of the
respective industry and the Market Value and trading activity of the common
stock of that company. As of April 29, 1996, the 500 companies included in the
Index were divided into 90 individual groups. These individual groups comprised
the following four main groups of companies (with the number of companies
currently included in each group indicated in parentheses): Industrials (372),
Utilities (49), Transportation (14) and Financial (65). S&P may from time to
time, in its sole discretion, add companies to, or delete companies from, the
Index to achieve the objectives stated above.
COMPUTATION OF THE S&P 500 INDEX
S&P currently computes the Index as of a particular time as follows:
(1) the product of the market price per share and the number of then
outstanding shares of each component stock is determined as of such time
(such product referred to as the "Market Value" of such stock);
(2) the Market Value of all component stocks as of such time (as
determined under clause (1) above) are aggregated;
(3) the mean average of the Market Values as of each week in the base
period of the years 1941 through 1943 of the common stock of each company
in a group of 500 substantially similar companies is determined;
(4) the mean average Market Values of all such common stocks over such
base period (as determined under clause (3) above) are aggregated (such
aggregate amount being referred to as the "Base Value");
(5) the aggregate Market Value of all component stocks as of such time
(as determined under clause (2) above) is divided by the Base Value; and
(6) the resulting quotient (expressed in decimals) is multiplied by ten.
While S&P currently employs the above methodology to calculate the Index, no
assurance can be given that S&P will not modify or change such methodology in a
manner that may affect the Supplemental Redemption Amount, if any, payable to
beneficial owners of Securities upon maturity or otherwise.
S-16
<PAGE>
S&P adjusts the foregoing formula to negate the effect of changes in the
Market Value of a component stock that are determined by S&P to be arbitrary or
not due to true market fluctuations. Such changes may result from such causes
as the issuance of stock dividends, the granting to shareholders of rights to
purchase additional shares of such stock, the purchase thereof by employees
pursuant to employee benefit plans, certain consolidations and acquisitions,
the granting to shareholders of rights to purchase other securities of the
company, the substitution by S&P of particular component stocks in the Index,
and other reasons. In all such cases, S&P first recalculates the aggregate
Market Value of all component stocks (after taking account of the new market
price per share of the particular component stock or the new number of
outstanding shares thereof or both, as the case may be) and then determines the
New Base Value in accordance with the following formula:
New Market Value
Old Base Value X ------------------------- = New Base Value
Old Market Value
The result is that the Base Value is adjusted in proportion to any change in
the aggregate Market Value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of such causes
upon the Index.
HISTORICAL DATA ON THE INDEX
The following table sets forth the closing values of the Index on the last
business day of each year from 1947 through 1988, as published by S&P. The
historical experience of the Index should not be taken as an indication of
future performance and no assurance can be given that the value of the Index
will not decline and thereby reduce the Supplemental Redemption Amount which
may be payable to beneficial owners of Securities at maturity or otherwise.
YEAR END VALUE OF THE INDEX
------------------------------------------------------
<TABLE>
<CAPTION>
YEAR CLOSING VALUE YEAR CLOSING VALUE
---- ------------- ---- -------------
<S> <C> <C> <C>
1947 15.30 1968 103.86
1948 15.20 1969 92.06
1949 16.76 1970 92.15
1950 20.41 1971 102.09
1951 23.77 1972 118.05
1952 26.57 1973 97.55
1953 24.81 1974 68.56
1954 35.98 1975 90.19
1955 45.48 1976 107.46
1956 46.67 1977 95.10
1957 39.99 1978 96.11
1958 55.21 1979 107.94
1959 59.89 1980 135.76
1960 58.11 1981 122.55
1961 71.55 1982 140.64
1962 63.10 1983 164.93
1963 75.02 1984 167.24
1964 84.75 1985 211.28
1965 92.43 1986 242.17
1966 80.33 1987 247.08
1967 96.47 1988 277.72
</TABLE>
S-17
<PAGE>
The following table sets forth the level of the Index at the end of each
month, in the period from January, 1989 through April, 1996. These historical
data on the Index are not necessarily indicative of the future performance of
the Index or what the value of the Securities may be. Any historical upward or
downward trend in the level of the Index during any period set forth below is
not any indication that the Index is more or less likely to increase or
decrease at any time during the term of the Securities.
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1989:
January......................................................... 297.47
February........................................................ 288.86
March........................................................... 294.87
April........................................................... 309.64
May............................................................. 320.52
June............................................................ 317.98
July............................................................ 346.08
August.......................................................... 351.45
September....................................................... 349.15
October......................................................... 340.36
November........................................................ 345.99
December........................................................ 353.40
1990:
January......................................................... 329.08
February........................................................ 331.89
March........................................................... 339.94
April........................................................... 330.80
May............................................................. 361.23
June............................................................ 358.02
July............................................................ 356.15
August.......................................................... 322.56
September....................................................... 306.05
October......................................................... 304.00
November........................................................ 322.22
December........................................................ 330.22
1991:
January......................................................... 343.93
February........................................................ 367.04
March........................................................... 375.22
April........................................................... 375.35
May............................................................. 389.83
June............................................................ 371.16
July............................................................ 387.81
August.......................................................... 395.43
September....................................................... 387.86
October......................................................... 392.46
November........................................................ 375.22
December........................................................ 417.09
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1992:
January......................................................... 408.79
February........................................................ 412.70
March........................................................... 403.69
April........................................................... 414.95
May............................................................. 415.35
June............................................................ 408.14
July............................................................ 424.21
August.......................................................... 414.03
September....................................................... 417.80
October......................................................... 418.68
November........................................................ 431.35
December........................................................ 435.71
1993:
January......................................................... 438.78
February........................................................ 443.38
March........................................................... 451.67
April........................................................... 440.19
May............................................................. 450.19
June............................................................ 450.53
July............................................................ 448.13
August.......................................................... 463.56
September....................................................... 458.93
October......................................................... 467.83
November........................................................ 461.79
December........................................................ 466.45
1994:
January......................................................... 481.61
February........................................................ 467.14
March........................................................... 445.77
April........................................................... 450.91
May............................................................. 456.50
June............................................................ 444.27
July............................................................ 458.26
August.......................................................... 475.49
September....................................................... 462.69
October......................................................... 472.35
November........................................................ 453.69
December........................................................ 459.27
1995:
January......................................................... 470.42
February........................................................ 487.39
March........................................................... 500.71
April........................................................... 514.71
May............................................................. 533.40
June............................................................ 544.75
July............................................................ 562.06
August.......................................................... 561.88
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1995:
September....................................................... 584.41
October......................................................... 581.50
November........................................................ 605.37
December........................................................ 615.93
1996:
January......................................................... 636.02
February........................................................ 640.43
March........................................................... 645.50
April........................................................... 654.17
</TABLE>
The following graph sets forth the historical performance of the Index at the
end of each year from 1947 through 1995. Past movements of the Index are not
necessarily indicative of the future Index values. On May 7, 1996 the closing
level of the Index was 638.26.
[The graph sets forth the historical year-end closing levels of the Index from
1947 through 1995, with the vertical axis specifying the year-end closing level
of the Index in a range from 0 to 650 in increments of 50 and the horizontal
axis specifying the time period in increments of one year from 1947 to 1995.]
LICENSE AGREEMENT
S&P and Merrill Lynch Capital Services, Inc. have entered into a non-
exclusive license agreement providing for the license to Merrill Lynch Capital
Services, Inc., in exchange for a fee, of the right to use indices owned and
published by S&P in connection with certain securities, including the
Securities, and the Company is an authorized sublicensee thereof.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this Prospectus
Supplement:
"The Securities are not sponsored, endorsed, sold or promoted by S&P. S&P
makes no representation or warranty, express or implied, to the Holders of
the Securities or any member of the public regarding the advisability of
investing in securities generally or in the Securities particularly or the
ability of the Index to track general stock market performance. S&P's only
relationship to Merrill
S-20
<PAGE>
Lynch Capital Services, Inc. and the Company (other than transactions
entered into in the ordinary course of business) is the licensing of
certain servicemarks and trade names of S&P and of the Index which is
determined, composed and calculated by S&P without regard to the Company or
the Securities. S&P has no obligation to take the needs of the Company or
the Holders of the Securities into consideration in determining, composing
or calculating the Index. S&P is not responsible for and has not
participated in the determination of the timing of the sale of the
Securities, prices at which the Securities are to initially be sold, or
quantities of the Securities to be issued or in the determination or
calculation of the equation by which the Securities are to be converted
into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Securities."
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 retroactive 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, tax-exempt entities,
or 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
herein). The following discussion also assumes that the issue price of the
Securities, as determined for United States Federal income tax purposes, equals
the principal amount thereof. Persons considering the purchase of the
Securities should consult their own tax advisors concerning the application of
the United Stated 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 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 beneficial owner of a Security that
is not a U.S. Holder.
GENERAL
There are no statutory provisions, regulations (except possibly the Proposed
Regulations as described below), published rulings or judicial decisions
addressing or involving the characterization, for United States Federal income
tax purposes, of the Securities or 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 of the
Securities. 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 United States
S-21
<PAGE>
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 in respect of a Security could differ from the timing and character
of income, gain or loss recognized in respect of 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 (i.e., the
Supplemental Redemption Amount), 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 that the Supplemental Redemption Amount is
accrued (i.e., generally when the Supplemental Redemption Amount becomes fixed
in amount and becomes unconditionally payable) 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.
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, if
any, between the amount realized on the sale, exchange or retirement and such
U.S. Holder's adjusted tax basis in the Security. A U.S. Holder's adjusted tax
basis in a Security generally will equal such U.S. Holder's initial investment
in the Security. Such gain or loss generally should be capital gain or loss and
should 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 could assert that any
amounts realized upon the sale or exchange of a Security prior to its 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 its maturity should be treated
entirely as capital gain (subject to the market discount rules, as discussed
below).
Prospective investors in the Securities should be aware that on December 16,
1994, the Treasury Department issued proposed regulations (the "Proposed
Regulations") concerning the proper United States Federal income tax treatment
of contingent payment debt instruments such as the Securities. The Proposed
Regulations, however, are proposed to apply only to debt instruments issued 60
days or more after the date on which the Proposed Regulations are published as
final Treasury regulations. Accordingly, if ultimately adopted in their current
form, the Proposed Regulations would not apply to the Securities. Furthermore,
proposed Treasury regulations are not binding upon either the IRS or taxpayers
prior to becoming effective as temporary or final regulations. In general, if
ultimately adopted in their current form, the Proposed Regulations would cause
the timing and character of income, gain or loss reported on a contingent
payment debt instrument to substantially differ from the timing and character
of income, gain or loss reported on a contingent payment debt instrument under
general principles of current United States Federal income tax law (as
described above). Specifically, the Proposed Regulations generally would
require a U.S. Holder of such an instrument to include future contingent
interest payments in income as such interest accrues based upon a projected
payment schedule. Moreover, in general, under the Proposed Regulations, any
gain recognized by a U.S. Holder on the sale, exchange, or retirement of a
contingent payment debt instrument such as the Securities would be treated as
ordinary income and a portion of any loss realized could be treated as ordinary
loss as opposed to capital loss (depending upon the circumstances). Prospective
investors in the
S-22
<PAGE>
Securities are urged to consult their own tax advisers concerning the effect,
if any, of the Proposed Regulations on their investment in the Securities.
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, if any, on 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 otherwise
requiring a different treatment.
MARKET DISCOUNT AND PREMIUM
If a U.S. Holder purchases a Security for an amount that is less than the
Security's issue price (i.e., the Security's stated principal amount), 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 Securities stated redemption price at maturity (defined below) 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 disposition. Market discount will be considered to accrue ratably
during the period from the date of acquisition to the Security's maturity,
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 Security's maturity
or certain earlier dispositions of the Security, because a current deduction is
only allowed to the extent the interest expense exceeds an allocable portion of
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 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 the
Security by the amount of any such currently included market discount. Such an
election will apply to all debt instruments acquired by the U.S. Holder on or
after the first day of the first taxable year to which such election applies
and may be revoked only with the consent of the IRS.
If a U.S. Holder purchases a Security for an amount that is greater than its
stated redemption price at maturity (i.e., the Security's stated principal
amount), 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 elect to amortize such premium using a constant yield method over the
remaining term of the Security and may offset interest otherwise required to be
included in respect of the Security during any taxable year by the amortized
amount of such excess for the taxable year. A U.S. Holder generally will reduce
its tax basis in the Security by the amount of any interest offset taken. Such
election, if made, would apply to all debt instruments held by the U.S. Holder
at the beginning of the first taxable year to which such election applies and
to all debt instruments acquired by such U.S. Holder thereafter. Such election
would also be irrevocable once made, unless the U.S. Holder making such an
election obtains the express consent of the IRS to revoke such election.
ORIGINAL ISSUE DISCOUNT
Prospective investors in the Securities should be aware that if the principal
amount of a Security exceeds the issue price of the Security, as determined for
United States Federal income tax purposes, by more than a specified de minimis
amount (generally 1/4 of 1% of the principal amount of the Security multiplied
by the
S-23
<PAGE>
number of complete years from the Security's issue date to its maturity date),
then such Security will be treated as having been issued with original issue
discount. If a significant percentage of the total aggregate amount of the
Securities originally issued is sold at a discount from the principal amount
thereof (e.g. pursuant to the discounts noted on the cover of this Prospectus
Supplement), then the issue price of the Securities, as determined for United
States Federal income tax purposes, may be less than the principal amount of
the Securities and the Securities may be issued with original issue discount.
In general, a U.S. Holder of a Security issued with original issue discount
would be required to include such original issue discount into income as
ordinary interest over the entire term of the Security using a constant yield
method. A U.S. Holder would increase such U.S. Holder's tax basis in a Security
by any original issue discount included in income by such U.S. Holder.
Nevertheless, if a U.S. Holder purchases a Security issued with original issue
discount for an amount equal to the principal amount thereof, such U.S. Holder
would not be required to include any such original issue discount into income.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) 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 Internal Revenue Code of 1986, as amended. However,
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 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 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 tax
advisor in this regard.
Under current law, a Security will not be includible in the 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 such Security 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
S-24
<PAGE>
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 purchase 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 under
penalties of perjury, although in certain cases it may be possible to submit
other documentary evidence.
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 of
the Company affecting the value of the Supplemental Redemption Amount.
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 $110,000,000 aggregate principal
amount of Securities. The Underwriting Agreement provides that the obligations
of the Underwriter are subject to certain conditions precedent and that the
Underwriter will be obligated to purchase all of the Securities if any are
purchased.
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 prices set
forth on the cover page of this Prospectus Supplement and to certain dealers at
such prices less a concession not in excess of 2% of the principal amount of
the Securities. After the initial public offering, the public offering price
and concession may be changed.
The underwriting of the Securities will conform to the requirements set forth
in the applicable sections of Schedule E to the By-Laws of the National
Association of Securities Dealers, Inc.
VALIDITY OF SECURITIES
The validity of the Securities will be passed upon for the Company and for
the Underwriter by Brown & Wood, New York, New York.
S-25
<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>
Summary.................................................................... S-3
Risk Factors............................................................... S-5
Recent Developments........................................................ S-8
Description of Securities.................................................. S-11
The Index.................................................................. S-16
Certain United States Federal Income Tax Considerations.................... S-21
Use of Proceeds............................................................ S-25
Underwriting............................................................... S-25
Validity of Securities..................................................... S-25
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
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........................................................ 18
Experts..................................................................... 18
</TABLE>
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[LOGO OF MERRILL LYNCH & CO., INC.]
11,000,000 UNITS
MERRILL LYNCH & CO., INC.
S&P 500 MARKET
INDEX TARGET-TERM SECURITIES SM
DUE MAY 10, 2001
"MITTS (R)"
----------------------
PROSPECTUS SUPPLEMENT
----------------------
MERRILL LYNCH & CO.
MAY 7, 1996
"MITTS" IS A REGISTERED SERVICE MARK AND "MARKET INDEX TARGET-TERM
SECURITIES" IS A SERVICE MARK OWNED BY MERRILL LYNCH & CO., INC.
- -------------------------------------------------------------------------------
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