<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 33-65135
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT, DATED APRIL 4, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 4, 1996)
[LOGO]
2,500,000 UNITS
MERRILL LYNCH & CO., INC.
S&P 500 MARKET INDEX TARGET-TERM SECURITIES (service mark) DUE APRIL , 2001
"MITTS (registered service mark)"
An aggregate principal amount of $25,000,000 of S&P Market Index Target-Term
Securities (service mark) due April , 2001 (the "Securities" or "MITTS
(registered service mark)") 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
Securities Depository, 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 April , 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
will be the closing value of the Index on the date the Securities are 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 will equal a factor of
100% to 110% which will be determined on the Pricing Date. The Starting Index
Value and the Participation Rate will be set forth in the final form of this
Prospectus Supplement delivered to investors in connection with sales of the
Securities.
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 (as hereinafter defined). Beneficial owners of the
Securities will not have the right to receive physical certificates evidencing
their ownership except under the limited circumstances described herein.
Application will be made to list the Securities on the New York Stock
Exchange (the "NYSE"). The symbol for the Security on such Exchange is
expected to be "MIX".
---------------
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 $ $
- --------------------------------------------------------------------------------
Total................................. $25,000,000 $ $
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The "Price to Public" and "Underwriting Discount" for any single
transaction to purchase 200,000 to (but not including) 1,000,000 Units
will be $ per Unit and $ per Unit, respectively, and the "Price to
Public" and "Underwriting Discount" for any single transaction to purchase
1,000,000 Units or more will be $ per Unit and $ 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 , 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 , 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.... 2,500,000 Units of S&P 500 Market Index Target-Term
Securities due April , 2001. The Securities are to be
issued as a series of Senior Debt Securities under the
Chemical Indenture described herein.
LISTING............... Application will be made to list the Securities on the
New York Stock Exchange. The symbol for the Security on
such Exchange is expected to be "MIX".
DENOMINATIONS......... A Unit consisting of $10 principal amount of Securities
and integral multiples thereof.
MATURITY.............. April , 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 will be the closing value of the
Index on the date the Securities are 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 will equal a factor of 100% to 110%
which will be determined on the Pricing Date. The
Starting Index Value and the Participation Rate will be
set forth in the final form of the Prospectus
Supplement delivered to investors in connection with
sales of the Securities.
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
Application will be made to list the Securities on the New York Stock
Exchange. The symbol for such Security on such Exchange is expected to be
"MIX". 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>
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. The Securities will mature on
April , 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 will be the closing value of the Index
on the date the Securities are priced by the Company for initial sale to the
public (i.e, the Pricing Date). The Participation Rate will equal a factor of
100% to 110% which will be determined on the Pricing Date. The Starting Index
Value and the Participation Rate will be set forth in the final form of the
Prospectus Supplement delivered to investors in connection with sales of the
Securities. 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-8
<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 (assuming a Participation Rate which equals 105% (the midpoint
of the offering range of 100% to 110%)), (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 2.16% 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>
325 -50% $10.00 0.00% 0.00% -11.45%
390 -40% $10.00 0.00% 0.00% -7.94%
455 -30% $10.00 0.00% 0.00% -4.93%
520 -20% $10.00 0.00% 0.00% -2.29%
585 -10% $10.00 0.00% 0.00% 0.05%
650(3) 0% $10.00 0.00% 0.00% 2.17%
715 10% $11.05 10.50% 2.01% 4.10%
780 20% $12.10 21.00% 3.85% 5.89%
845 30% $13.15 31.50% 5.55% 7.55%
910 40% $14.20 42.00% 7.14% 9.11%
975 50% $15.25 52.50% 8.62% 10.56%
1,040 60% $16.30 63.00% 10.01% 11.94%
1,105 70% $17.35 73.50% 11.33% 13.24%
1,170 80% $18.40 84.00% 12.57% 14.47%
1,235 90% $19.45 94.50% 13.76% 15.65%
1,300 100% $20.50 105.00% 14.88% 16.77%
1,365 110% $21.55 115.50% 15.96% 17.85%
1,430 120% $22.60 126.00% 16.99% 18.88%
</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 2.16% 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
April 15, 1996 to April 15, 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 March 29, 1996 was approximately 2.16%.
(3) This value is the assumed Starting Index Value for purposes of calculating
the above table. The actual Starting Index Value will be determined on the
Pricing Date.
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
Starting Index Value, the actual Participation Rate and 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-9
<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-10
<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 % 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-11
<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-12
<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 February 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 February 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 February 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 (373), Utilities (49), Transportation (14) and
Financial (64). 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-13
<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.
<TABLE>
<CAPTION>
YEAR END VALUE OF THE INDEX
-------------------------------------------------
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-14
<PAGE>
The following table sets forth the level of the Index at the end of each
month, in the period from January, 1989 through March, 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-15
<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-16
<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
</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 April 3, 1996 the closing
level of the Index was 655.88.
[The graph set 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-17
<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-18
<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-19
<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-20
<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-21
<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 $25,000,000 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 % 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-22
<PAGE>
PROSPECTUS
[LOGO]
MERRILL LYNCH & CO., INC.
DEBT SECURITIES AND WARRANTS
Merrill Lynch & Co., Inc. (the "Company") intends to sell from time to time
up to $6,311,925,546 aggregate principal amount (or net proceeds in the case of
warrants and in the case of securities issued at an original issue discount),
or its equivalent in such foreign currencies or units of two or more
currencies, based on the applicable exchange rate at the time of offering, as
shall be designated by the Company at the time of offering, of its senior debt
securities ("Senior Debt Securities"), subordinated debt securities
("Subordinated Debt Securities" and, together with the Senior Debt Securities,
the "Debt Securities"), warrants to purchase Debt Securities ("Debt Warrants"),
warrants entitling the holders thereof to receive from the Company a payment or
delivery determined by reference to decreases or increases in the level of an
index or portfolio based on one or more equity or debt securities (including
the price or yield of such securities), any statistical measure of economic or
financial performance (including any consumer price, currency or mortgage
index) or the price or value of any commodity or a combination thereof (the
"Index Warrants") and warrants to receive from the Company the cash value in
U.S. dollars of the right to purchase ("Currency Call Warrants") or to sell
("Currency Put Warrants" and, together with the Currency Call Warrants, the
"Currency Warrants") such foreign currencies or units of two or more currencies
as shall be designated by the Company at the time of offering. The Debt
Securities, Debt Warrants, Index Warrants and Currency Warrants, which are
collectively called the "Securities", may be offered either jointly or
separately and will be offered to the public on terms determined by market
conditions at the time of sale and set forth in a prospectus supplement.
The Securities will be unsecured and, except in the case of Subordinated Debt
Securities, will rank equally with all other unsecured and unsubordinated
indebtedness of the Company. The Subordinated Debt Securities will be
subordinated to all existing and future Senior Indebtedness of the Company.
Each issue of Securities may vary, where applicable, as to aggregate
principal amount, maturity date, public offering or purchase price, interest
rate or rates, if any, and timing of payments thereof, provision for
redemption, sinking fund requirements, if any, exercise provisions, currencies
of denomination or currencies otherwise applicable thereto and any other
variable terms and method of distribution. The accompanying Prospectus
Supplement (the "Prospectus Supplement") sets forth the specific terms with
regard to the Securities in respect of which this Prospectus is being
delivered. The Company may elect to deliver to purchasers of Securities an
abbreviated term sheet setting forth a description of the Securities being
offered, or a summary thereof (a "Terms Sheet"), instead of a Prospectus
Supplement. This Prospectus may be delivered prior to or concurrently with a
Terms Sheet.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
The Securities may be sold directly or through Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") as agent or may be
offered and reoffered through, or through underwriting syndicates managed or
co-managed by, one or more of the following: MLPF&S; Bear, Stearns & Co. Inc.;
Donaldson, Lufkin & Jenrette Securities Corporation; CS First Boston
Corporation; Goldman, Sachs & Co.; Lehman Brothers Inc.; Morgan Stanley & Co.
Incorporated; Nomura Securities International, Inc.; PaineWebber Incorporated;
and Salomon Brothers Inc, or directly to purchasers by the Company. The Company
has entered into agreements with such firms with respect to the Securities
providing for agency sales of the Securities through MLPF&S or the purchase and
offering from time to time by one or more of such firms, either alone or with
the several members of any syndicate formed by them. Additional agreements
respecting the distribution of the Securities may be entered into from time to
time by the Company. Securities may not be sold without delivery of a
Prospectus Supplement describing such issue of Securities and the method and
terms of offering thereof or of a Terms Sheet.
-----------
The date of this Prospectus is April 4, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy and information statements and
other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and Northeast Regional Office, Seven
World Trade Center, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Reports, proxy and
information statements and other information concerning the Company may also be
inspected at the offices of the New York Stock Exchange, the American Stock
Exchange, the Chicago Stock Exchange and the Pacific Stock Exchange.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 29, 1995
and Current Reports on Form 8-K dated January 17, 1996, January 22, 1996,
February 7, 1996, February 29, 1996, March 1, 1996, March 12, 1996, March 18,
1996, and April 1, 1996 filed pursuant to Section 13 of the Exchange Act, are
hereby incorporated by reference into this Prospectus.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
(WITHOUT EXHIBITS OTHER THAN EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE)
OF ANY OR ALL DOCUMENTS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO MR. GREGORY T. RUSSO, SECRETARY,
MERRILL LYNCH & CO., INC., 100 CHURCH STREET, 12TH FLOOR, NEW YORK, NEW YORK
10080-6512; TELEPHONE NUMBER (212) 602-8435.
2
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, insurance, and related services
on a global basis. Its principal subsidiary, MLPF&S, one of the largest
securities firms in the world, is a leading broker in securities, options
contracts, and commodity and financial futures contracts; a leading dealer in
options and in corporate and municipal securities; a leading investment banking
firm that provides advice to, and raises capital for, its clients; and an
underwriter of selected insurance products. Other subsidiaries provide
financial services on a global basis similar to those of MLPF&S and are engaged
in such other activities as international banking, lending, and providing other
investment and financing services. Merrill Lynch International Incorporated,
through subsidiaries and affiliates, provides investment, financing, and
related services outside the United States and Canada. Merrill Lynch Government
Securities Inc. is a primary dealer in obligations issued or guaranteed by the
U.S. Government and by Federal agencies or instrumentalities. Merrill Lynch
Capital Services, Inc., Merrill Lynch Derivative Products, Inc., and Merrill
Lynch Capital Markets PLC are the Company's primary derivative product dealers
and enter into interest rate and currency swaps and other derivative
transactions as intermediaries and as principals. Merrill Lynch Asset
Management, L.P., with its related affiliates, is one of the largest mutual
fund managers in the world and provides investment advisory services. The
Company's insurance underwriting operations consist of the underwriting of life
insurance and annuity products. Banking, trust, and mortgage lending operations
conducted through subsidiaries of the Company include issuing certificates of
deposit, offering money market deposit accounts, making secured loans, and
providing foreign exchange facilities and other related services.
The principal executive office of the Company is located at World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281; its telephone
number is (212) 449-1000.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Securities
for general corporate purposes. Such uses may include the funding of
investments in, or extensions of credit to, its subsidiaries, the funding of
assets held by the Company or its subsidiaries, including securities
inventories, customer receivables and loans (including business loans, home
equity loans and loans in connection with investment banking-related merger and
acquisition activities) and the lengthening of the average maturity of the
Company's borrowings (including the refunding of maturing indebtedness). The
precise amount and timing of investments in, and extensions of credit to, its
subsidiaries will depend upon their funding requirements and the availability
of other funds to the Company and its subsidiaries. Pending such applications,
the net proceeds will be temporarily invested or applied to the reduction of
short-term indebtedness. A substantial portion of the proceeds from the sale of
any Currency Warrants or Index Warrants may be used to hedge market risks with
respect to such Warrants. Management of the Company expects that it will, on a
recurrent basis, engage in additional financings as the need arises to finance
the growth of the Company or to lengthen the average maturity of its
borrowings. To the extent that Securities being purchased for resale by MLPF&S
are not resold, the aggregate proceeds to the Company and its subsidiaries
would be reduced.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary 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 29, 1995. See "Incorporation
of Certain Documents by Reference." The year-end results include 52 weeks for
1991, 1992, 1994, and 1995 and 53 weeks for 1993.
The Company conducts its business in highly volatile markets. Consequently,
the Company's results can be affected by many factors, including general
market conditions, the liquidity of secondary markets, the level and
volatility of interest rates and currency values, the valuation of securities
positions, competitive conditions, and the size, number, and timing of
transactions. In periods of unfavorable market activity, profitability can be
adversely affected because certain expenses remain relatively fixed. As a
result, net earnings and revenues can vary significantly from period to
period.
<TABLE>
<CAPTION>
YEAR ENDED LAST FRIDAY IN DECEMBER
---------------------------------------------
1991 1992 1993 1994 1995
------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
Revenues..................... $12,353 $ 13,413 $ 16,588 $ 18,234 $ 21,513
Net revenues................. $ 7,246 $ 8,577 $ 10,558 $ 9,625 $ 10,265
Earnings before income taxes
and cumulative effect of
changes in accounting
principles(1)............... $ 1,017 $ 1,621 $ 2,425 $ 1,730 $ 1,811
Cumulative effect of changes
in accounting principles
(net of applicable income
taxes)(1)................... -- $ (58) $ (35) -- --
Net earnings(1).............. $ 696 $ 894 $ 1,359 $ 1,017 $ 1,114
Ratio of earnings to fixed
charges(2).................. 1.2 1.3 1.4 1.2 1.2
Total assets(3).............. $86,259 $107,024 $152,910 $163,749 $176,857
Long-term borrowings(4)...... $ 7,964 $ 10,871 $ 13,469 $ 14,863 $ 17,340
Stockholders' equity......... $ 3,818 $ 4,569 $ 5,486 $ 5,818 $ 6,141
</TABLE>
- --------
(1) Net earnings for 1992 have been reduced by $58 million to reflect the
adoption of Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions," and
SFAS No. 109, "Accounting for Income Taxes." Net earnings for 1993 have been
reduced by $35 million to reflect the adoption of SFAS No. 112, "Employers'
Accounting for Postemployment Benefits."
(2) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consists of earnings from continuing operations before income
taxes and fixed charges. "Fixed charges" consists of interest costs,
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.
(3) In 1994, the Company adopted Financial Accounting Standards Board
("FASB") Interpretation No. 39, "Offsetting of Amounts Related to Certain
Contracts," and FASB Interpretation No. 41, "Offsetting of Amounts Related
to Certain Repurchase and Reverse Repurchase Agreements," which increased
assets and liabilities at December 30, 1994 by approximately $8,500
million.
(4) 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 varies significantly
with the level of general business activity, on December 29, 1995, $1,022
million of bank loans and $16,969 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
December 29, 1995, cash deposits for securities loaned and securities sold
under agreements to repurchase amounted to $2,857 million and $56,817
million, respectively. From December 30, 1995 to April 2, 1996, long-term
borrowings, net of repayments and repurchases, increased by approximately
$2,916 million.
FISCAL YEAR 1995
Global financial markets, which steadily weakened during most of 1994,
generally improved during 1995, led by a more stable U.S. economy, declining
interest rates, and heightened investor activity. Inflationary fears eased
throughout 1995 as key U.S. economic statistics indicated slow to moderate
growth. The Federal Reserve decreased short-term interest rates in July and
December 1995 following seven rate increases between
4
<PAGE>
February 1994 and February 1995. Investors reacted favorably to these events
and were more active in stock and bond markets during 1995. Net earnings for
the 1995 fourth quarter were $303 million, up 1% from the 1995 third quarter
and up 88% from the 1994 fourth quarter.
Net earnings for 1995 were $1,114 million, up 10% from 1994 net earnings of
$1,017 million. Earnings per common share were $5.44 primary and $5.42 fully
diluted in 1995, compared with $4.75 primary and $4.74 fully diluted in 1994.
Total revenues were a record $21,513 million, up 18% from 1994. Net revenues
(revenues after interest expense) totaled $10,265 million in 1995, up 7% from
1994.
Commission revenues increased 9% to a record $3,126 million from $2,871
million in 1994, due primarily to higher levels of listed and over-the-counter
securities transactions and mutual fund commissions, partially offset by lower
revenues from commodities. Commissions from listed and over-the-counter
securities increased due primarily to higher trading volumes on most major U.S.
and international exchanges. Mutual fund commissions increased due primarily to
higher distribution and redemption fees. Distribution fees from deferred-charge
funds increased due to strong fund sales in prior periods and higher asset
levels. Redemption fees increased as clients repositioned invested assets.
Interest and dividend revenues increased 28% to $12,221 million from $9,578
million in 1994. Interest expense, which includes dividend expense, increased
31% from 1994 to $11,248 million. Net interest and dividend profit was $973
million, virtually unchanged from $969 million in 1994, with increases in net
interest-earning assets offset by declining interest spreads due to the
flattening of the U.S. Treasury yield curve. The change in the yield curve
resulted from long-term interest rates falling more than short-term rates
during 1995.
Principal transactions revenues increased 8% from 1994 to $2,519 million in
1995. Increases in equities and equity derivatives and taxable fixed-income
trading revenues were partially offset by decreases in trading revenues from
municipal securities, foreign exchange and commodities, and interest rate and
currency swaps. Equities and equity derivatives trading revenues, in the
aggregate, increased 46% to $912 million, due primarily to improved volumes in
the convertible, over-the-counter, and international equities markets,
partially offset by lower equity derivatives trading revenues. Taxable fixed-
income trading revenues increased 10% to $516 million due, in part, to higher
revenues from corporate bonds and preferred stock, high-yield bonds, and non-
U.S. governments and agencies securities. Trading revenues from mortgage-backed
products were negatively affected by reduced market liquidity, leading to a
loss. Nevertheless, trading results from mortgage-backed products, which
include related net interest revenues, were positive. U.S. Government and
agencies securities trading revenues were down from 1994 due to tighter spreads
between U.S. Treasury securities and related futures hedges, as well as reduced
retail investor demand attributable to lower interest rates. Municipal
securities revenues decreased 28% to $273 million as a result of decreased
investor demand for tax-exempt investments as investors remained wary of
potential tax law changes and sought higher returns in equity and taxable
fixed-income securities. Foreign exchange and commodities revenues, in the
aggregate, declined 22% to $86 million. Commodities trading revenues decreased
due to lower volumes. Increases in foreign exchange trading revenues resulted
from higher customer volume caused by the strengthening of the U.S. dollar
versus other major currencies during 1995. Interest rate and currency swaps
revenues declined 2% to $732 million. Decreases in U.S. dollar-denominated
transactions were substantially offset by increased revenues in non-dollar-
denominated transactions, particularly in Japanese and European markets.
Investment banking revenues were $1,308 million, up 5% from $1,240 million in
1994. Strategic services revenues, which include fees for merger and
acquisition activity, debt restructuring, and other advisory services,
increased, as companies worldwide sought strategic partners to promote growth
while cutting costs and increasing efficiencies. Underwriting revenues were
down, as lower revenues from equities, private placements, high-yield debt, and
mortgage-backed securities underwriting were partially offset by increased
underwriting revenues from corporate bonds and preferred stock and defined
asset funds.
5
<PAGE>
Asset management and portfolio service fees rose 9% in 1995 to a record
$1,890 million from $1,739 million in 1994, as a result of higher fees earned
from asset management and other fee-based services. Other revenues decreased 5%
from 1994 to $449 million, due to lower net realized investment gains in 1995
compared with 1994.
Non-interest expenses were $8,454 million, up 7% from $7,895 million in the
year-ago period. Compensation and benefits expense, which represented
approximately 62% of non-interest expenses, increased 6% due primarily to
increased production-related and incentive compensation and the addition of
Smith New Court PLC ("Smith New Court") employees. Compensation and benefits
expense as a percentage of net revenues was 51.3% in 1995, compared with 51.5%
in 1994.
Occupancy costs increased 3% from 1994 primarily due to international growth.
Other facilities-related costs, which include communications and equipment
rental expense and depreciation and amortization expenses, rose 13% primarily
due to expanded 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 16% from the year-ago period, due to higher legal
fees and systems development costs related to upgrading technology and
processing capabilities in customer, trading, and transaction processing
systems. Advertising and market development expenses increased 6% from 1994 as
a result of increased advertising, international travel, and sales promotion
primarily related to international growth. Brokerage, clearing, and exchange
fees increased 7% as a result of higher securities volume, particularly in
international markets. Other expenses increased 4% from 1994, due primarily to
a $26 million first quarter charge for the write-off of assets related to a
technology contract and $14 million of goodwill amortization related to Smith
New Court.
Income tax expense totaled $697 million in 1995. The effective tax rate in
1995 was 38.5%, compared with 41.2% in 1994. The decrease in the effective tax
rate was attributable to lower state income taxes, expanded international
business activities in jurisdictions with lower tax rates, and increases in
deductions for dividends received.
In 1995 the Company acquired Smith New Court, a U.K.-based global securities
firm, for approximately $800 million. The Company recorded approximately $530
million of goodwill related to the acquisition, which is being amortized on a
straight-line basis over 15 years. The Company's 1995 results include those of
Smith New Court since mid-August 1995.
CERTAIN BALANCE SHEET INFORMATION AS OF DECEMBER 29, 1995
The Company believes that its equity base is adequate relative to the level
and composition of its assets and the mix of its business.
In the normal course of business, the Company underwrites, trades, and holds
non-investment grade securities in connection with its investment banking,
market-making, and derivative structuring activities. These activities are
subject to risks related to the creditworthiness of the issuers of, and the
liquidity of the market for, such securities, in addition to the usual risks
associated with investing in, financing, underwriting, and trading in
investment grade instruments.
At December 29, 1995, the fair value of long and short non-investment grade
trading inventories amounted to $5,489 million and $353 million, respectively,
and in the aggregate (i.e. the sum of long and short trading inventories)
represented 6.3% of aggregate consolidated trading inventories.
At December 29, 1995, the carrying value of extensions of credit provided to
corporations entering into leveraged transactions aggregated $489 million
(excluding unutilized revolving lines of credit and other lending commitments
of $127 million), consisting primarily of senior term and subordinated
financings to 30
6
<PAGE>
medium-sized corporations. At December 29, 1995, the Company had no bridge
loans outstanding. Loans to highly leveraged corporations are carried at unpaid
principal balances less a reserve for estimated losses. The allowance for loan
losses is estimated based on a review of each loan, and consideration of
economic, market, and credit conditions. Direct equity investments made in
conjunction with the Company's investment and merchant banking activities
aggregated $211 million at December 29, 1995, representing investments in 62
enterprises. Equity investments in privately-held companies for which sale is
restricted by government or contractual requirements are carried at the lower
of cost or estimated net realizable value. At December 29, 1995, the Company
held interests in partnerships, totaling $91 million (recorded on the cost
basis), that invest in highly leveraged transactions and non-investment grade
securities. At December 29, 1995, the Company also committed to invest an
additional $79 million in partnerships that invest in leveraged transactions.
The Company's insurance subsidiaries hold non-investment grade securities.
Non-investment grade securities were 4.2% of total insurance investments at
December 29, 1995. Non-investment grade securities of insurance subsidiaries
are classified as available-for-sale and are carried at fair value.
At December 29, 1995, the largest non-investment grade concentration
consisted of various issues of a South American sovereign totaling $674
million, of which $672 million represented on-balance-sheet hedges for off-
balance-sheet financial instruments. No one industry sector accounted for more
than 35% of total non-investment grade positions. At December 29, 1995, the
Company held an aggregate carrying value of $164 million in debt and equity
securities of issuers in various stages of bankruptcy proceedings or in
default, of which 75% resulted from the Company's market-making activities in
such securities.
DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities are to be issued under an indenture (the "Chemical Indenture"),
dated as of April 1, 1983, as amended and restated, between the Company and
Chemical Bank (successor by merger to Manufacturers Hanover Trust Company), as
trustee or issued under an indenture (the "Chase Indenture"), dated as of
October 1, 1993 between the Company and The Chase Manhattan Bank, N.A. as
trustee (each, a "Senior Debt Trustee"). The Chemical Indenture and the Chase
Indenture are referred to herein as the "Senior Indentures". The Subordinated
Debt Securities are to be issued under an indenture (the "Subordinated
Indenture"), between the Company and Chemical Bank, as trustee (the
"Subordinated Debt Trustee"). The Senior Debt Securities and Subordinated Debt
Securities may also be issued under one or more other indentures (each, a
"Subsequent Indenture") and have one or more other trustees (each, a
"Subsequent Trustee"). Any Subsequent Indenture relating to Senior Debt
Securities will have terms and conditions identical in all material respects to
the above-referenced Senior Indentures and any Subsequent Indenture relating to
Subordinated Debt Securities will have terms and conditions identical in all
material respects to the above-referenced Subordinated Indenture, including,
but not limited to, the applicable terms and conditions described below. Any
Subsequent Indenture relating to a series of Debt Securities, and the trustee
with respect thereto, will be identified in the applicable Prospectus
Supplement. The Senior Indentures, the Subordinated Indenture and any
Subsequent Indentures (whether senior or subordinated) are referred to herein
as the "Indentures"; and the Senior Debt Trustees, the Subordinated Debt
Trustee and any Subsequent Trustees are referred to herein as the "Trustees". A
copy of each Indenture is filed (or, in the case of a Subsequent Indenture,
will be filed) as an exhibit to the registration statements relating to the
Securities (collectively, the "Registration Statement"). The following
summaries of certain provisions of the Indentures do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
provisions of the respective Indentures, including the definitions therein of
certain terms.
GENERAL
Each Indenture provides that Debt Securities (Senior Debt Securities in the
case of the Senior Indentures or a Subsequent Indenture for Senior Debt
Securities, and Subordinated Debt Securities in the case of the
7
<PAGE>
Subordinated Indenture or a Subsequent Indenture for Subordinated Debt
Securities) may be issued thereunder, without limitation as to aggregate
principal amount, in one or more series, by the Company from time to time upon
satisfaction of certain conditions precedent, including the delivery by the
Company to the applicable Trustee of a resolution of the Board of Directors,
or the Executive Committee thereof, of the Company which fixes or provides for
the establishment of terms of such Debt Securities, including: (1) the
aggregate principal amount of such Debt Securities and whether there is any
limit upon the aggregate principal amount of such Debt Securities that may be
subsequently issued; (2) the date on which such Debt Securities will mature;
(3) the principal amount payable with respect to such Debt Securities whether
at maturity or upon earlier acceleration, and whether such principal amount
will be determined with reference to an index, formula or other method; (4)
the rate or rates per annum (which may be fixed or variable) at which such
Debt Securities will bear interest, if any; (5) the dates on which such
interest, if any, will be payable; (6) the provisions for redemption of such
Debt Securities, if any, the redemption price and any remarketing arrangements
relating thereto; (7) the sinking fund requirements, if any, with respect to
such Debt Securities; (8) whether such Debt Securities are denominated or
provide for payment in United States dollars or a foreign currency or units of
two or more of such foreign currencies; (9) the form (registered or bearer or
both) in which such Debt Securities may be issued and any restrictions
applicable to the exchange of one form for another and to the offer, sale and
delivery of such Debt Securities in either form; (10) whether and under what
circumstances the Company will pay additional amounts ("Additional Amounts")
in respect of such Debt Securities held by a person who is not a U.S. person
(as defined in the Prospectus Supplement, as applicable) in respect of
specified taxes, assessments or other governmental charges and whether the
Company has the option to redeem the affected Debt Securities rather than pay
such Additional Amounts; (11) whether such Debt Securities are to be issued in
global form; (12) the title of the Debt Securities and the series of which
such Debt Securities shall be a part; and (13) the denominations of such Debt
Securities. Reference is made to the Prospectus Supplement for the terms of
the Debt Securities being offered thereby, including whether such Debt
Securities are Senior Debt Securities or Subordinated Debt Securities. The
Company may elect to deliver to purchasers of Securities a Terms Sheet instead
of a Prospectus. This Prospectus may be delivered prior to or concurrently
with a Terms Sheet. Debt Securities may also be issued under the Indentures
upon the exercise of Debt Warrants. See "Description of Debt Warrants".
Nothing in the Indentures or in the terms of the Debt Securities will prohibit
the issuance of securities representing subordinated indebtedness that is
senior or junior to the Subordinated Debt Securities.
The Debt Securities will be issued, to the extent provided in the Prospectus
Supplement, in fully registered form without coupons, and/or in bearer form
with or without coupons, and in denominations set forth in the Prospectus
Supplement. No service charge will be made for any registration of transfer of
registered Debt Securities or exchange of Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charges that may be imposed in connection therewith. Each Indenture provides
that Debt Securities issued thereunder may be issued in global form. If any
series of Debt Securities is issuable in global form, the applicable
Prospectus Supplement will describe the circumstances, if any, under which
beneficial owners of interest in any such global Debt Securities may exchange
such interests for Debt Securities of such series and of like tenor and
principal amount in any authorized form and denomination. Principal of, and
any premium, Additional Amounts and interest on, a global Debt Security will
be payable in the manner described in the applicable Prospectus Supplement.
The provisions of the Indentures described above provide the Company with
the ability, in addition to the ability to issue Debt Securities with terms
different from those of Debt Securities previously issued, to "reopen" a
previous issue of a series of Debt Securities and issue additional Debt
Securities of such series.
The Senior Debt Securities will be unsecured and will rank pari passu with
all other unsecured and unsubordinated indebtedness of the Company. The
Subordinated Debt Securities will be unsecured and will be subordinated to all
existing and future Senior Indebtedness (as defined below) of the Company.
Since the Company is a holding company, the right of the Company, and hence
the right of creditors of the Company (including the Holders of the Debt
Securities), to participate in any distribution of the assets of any
subsidiary upon its liquidation or reorganization or otherwise is necessarily
subject to the prior claims of creditors of
8
<PAGE>
the subsidiary, except to the extent that claims of the Company itself as a
creditor of the subsidiary may be recognized. In addition, dividends, loans and
advances from certain subsidiaries, including MLPF&S, to the Company are
restricted by net capital requirements under the Securities Exchange Act of
1934 and under rules of certain exchanges and other regulatory bodies.
Principal and any interest, premium and Additional Amounts will be payable in
the manner, at the places and subject to the restrictions set forth in the
applicable Indenture, the Debt Securities and the Prospectus Supplement
relating thereto, provided that payment of any interest and any Additional
Amounts may be made at the option of the Company by check mailed to the holders
of registered Debt Securities at their registered addresses.
Debt Securities may be presented for exchange, and registered Debt Securities
may be presented for transfer, in the manner, at the places and subject to the
restrictions set forth in the applicable Indenture, the Debt Securities and the
Prospectus Supplement relating thereto. Debt Securities in bearer form and the
coupons, if any, pertaining thereto will be transferable by delivery. No
service charge will be made for any transfer or exchange of Debt Securities,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
MERGER AND CONSOLIDATION
The Company may consolidate or merge with or into any other corporation, and
the Company may sell, lease or convey all or substantially all of its assets to
any corporation, provided that (i) the corporation (if other than the Company)
formed by or resulting from any such consolidation or merger or which shall
have received such assets shall be a corporation organized and existing under
the laws of the United States of America or a state thereof and shall assume
payment of the principal of, and any premium, Additional Amounts or interest
on, the Debt Securities and the performance and observance of all of the
covenants and conditions of the Indentures to be performed or observed by the
Company, and (ii) the Company or such successor corporation, as the case may
be, shall not immediately thereafter be in default under the Indentures.
MODIFICATION AND WAIVER
Modification and amendment of each Indenture may be effected by the Company
and the applicable Trustee with the consent of the Holders of at least 66 2/3%
in principal amount of the Outstanding Debt Securities of each series issued
pursuant to such Indenture and affected thereby, provided that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Debt Security affected thereby, (a) change the Stated Maturity of,
or any installment of interest or Additional Amounts on, any Debt Security or
any premium payable on the redemption thereof, or change the Redemption Price;
(b) reduce the principal amount of, or the interest or Additional Amounts
payable on, any Debt Security or reduce the amount of principal which could be
declared due and payable prior to the Stated Maturity; (c) change the place or
currency of any payment of principal of, or any premium, interest or Additional
Amounts on, any Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security; (e) reduce
the percentage in principal amount of the Outstanding Debt Securities of any
series, the consent of whose Holders is required to modify or amend such
Indenture; or (f) modify the foregoing requirements or reduce the percentage of
Outstanding Debt Securities necessary to waive any past default to less than a
majority. No modification or amendment of the Subordinated Indenture or any
Subsequent Indenture for Subordinated Debt Securities may adversely affect the
rights of any Holder of Senior Indebtedness without the consent of such Holder.
Except with respect to certain fundamental provisions, the Holders of at least
a majority in principal amount of Outstanding Debt Securities of any series
may, with respect to such series, waive past defaults under the applicable
Indenture and waive compliance by the Company with certain provisions of such
Indenture.
EVENTS OF DEFAULT
Under each Indenture, the following will be Events of Default with respect to
Debt Securities of any series issued thereunder: (a) default in the payment of
any interest or Additional Amounts upon any Debt
9
<PAGE>
Security of that series when due, and such default has continued for 30 days;
(b) default in the payment of any principal of or premium, if any, on any Debt
Security of that series when due; (c) default in the deposit of any sinking
fund payment, when due, in respect of any Debt Security of that series; (d)
default in the performance of any other covenant of the Company contained in
such Indenture for the benefit of such series or in the Debt Securities of such
series, and such default has continued for 60 days after written notice as
provided in such Indenture; (e) certain events in bankruptcy, insolvency or
reorganization; and (f) any other Event of Default provided with respect to
Debt Securities of that series. The applicable Trustee or the Holders of 25% in
principal amount of the Outstanding Debt Securities of that series may declare
the principal amount (or such lesser amount as may be provided for in the Debt
Securities of that series) of all Outstanding Debt Securities of that series
and the interest accrued thereon and Additional Amounts payable in respect
thereof, if any, to be due and payable immediately if an Event of Default with
respect to Debt Securities of such series shall occur and be continuing at the
time of declaration. At any time after a declaration of acceleration has been
made with respect to Debt Securities of any series but before a judgment or
decree for payment of money due has been obtained by the applicable Trustee,
the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series may rescind any declaration of acceleration and its
consequences, provided that all payments due (other than those due as a result
of acceleration) have been made and all Events of Default have been remedied or
waived. Any Event of Default with respect to Debt Securities of any series may
be waived by the Holders of a majority in principal amount of all Outstanding
Debt Securities of that series, except in a case of failure to pay principal of
or premium, if any, or interest or Additional Amounts, if any, on any Debt
Security of that series for which payment had not been subsequently made or in
respect of a covenant or provision which cannot be modified or amended without
the consent of the Holder of each Outstanding Debt Security of such series
affected.
The Holders of a majority in principal amount of the Outstanding Debt
Securities of a series may direct the time, method and place of conducting any
proceeding for any remedy available to the applicable Trustee or exercising any
trust or power conferred on such Trustee with respect to Debt Securities of
such series, provided that such direction shall not be in conflict with any
rule of law or the applicable Indenture. Subject to the provisions of each
Indenture relating to the duties of the appropriate Trustee, before proceeding
to exercise any right or power under an Indenture at the direction of such
Holders, the applicable Trustee shall be entitled to receive from such Holders
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in complying with any such direction.
The Company will be required to furnish to each Trustee annually a statement
as to the fulfillment by the Company of all of its obligations under the
applicable Indenture.
SPECIAL TERMS RELATING TO THE SENIOR DEBT SECURITIES
LIMITATIONS UPON LIENS
The Senior Indentures provide that the Company may not, and may not permit
any Subsidiary to, create, assume, incur or permit to exist any indebtedness
for borrowed money secured by a pledge, lien or other encumbrance (except for
certain liens specifically permitted by the Senior Indentures) on the Voting
Stock owned directly or indirectly by the Company of any Subsidiary (other than
a Subsidiary which, at the time of incurrence of such secured indebtedness, has
a net worth of less than $3,000,000) without making effective provision whereby
the Outstanding Senior Debt Securities will be secured equally and ratably with
such secured indebtedness.
LIMITATIONS ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS
BY, MLPF&S
The Senior Indentures provide that the Company may not sell, transfer or
otherwise dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell
or otherwise dispose of any of its Voting Stock, unless, after giving effect to
any such transaction, MLPF&S remains a Controlled Subsidiary (defined in the
Senior Indentures to mean a corporation more than 80% of the outstanding shares
of Voting Stock of which
10
<PAGE>
are owned directly or indirectly by the Company). In addition, the Senior
Indentures provide that the Company may not permit MLPF&S to (i) merge or
consolidate, unless the surviving company is a Controlled Subsidiary, or (ii)
convey or transfer its properties and assets substantially as an entirety,
except to one or more Controlled Subsidiaries.
SPECIAL TERMS RELATING TO THE SUBORDINATED DEBT SECURITIES
Upon any distribution of assets of the Company resulting from any
dissolution, winding up, liquidation or reorganization, payments on
Subordinated Debt Securities are to be subordinated to the extent provided in
the Subordinated Indenture in right of payment to the prior payment in full of
all Senior Indebtedness, but the obligation of the Company to make payments on
the Subordinated Debt Securities will not otherwise be affected. No payment on
Subordinated Debt Securities may be made at any time when there is a default in
the payment of any principal, premium, interest, Additional Amounts, if any, or
sinking fund of or on any Senior Indebtedness. Holders of Subordinated Debt
Securities will be subrogated to the rights of holders of Senior Indebtedness
to the extent of payments made on Senior Indebtedness upon any distribution of
assets in any such proceedings out of the distributive shares of Subordinated
Debt Securities. By reason of such subordination, in the event of a
distribution of assets upon insolvency, certain creditors of the Company may
recover more, ratably, than Holders of Subordinated Debt Securities.
Senior Indebtedness is defined in the Subordinated Indenture as the principal
of, premium, if any, and unpaid interest on (a) indebtedness of the Company
(including indebtedness of others guaranteed by the Company), other than the
Subordinated Debt Securities, whether outstanding on the date of execution of
the Subordinated Indenture or thereafter created, incurred, assumed or
guaranteed, (i) for money owing to banks, (ii) for money borrowed from sources
other than banks or (iii) in connection with the acquisition by the Company or
a subsidiary of assets of any kind except in the ordinary course of business,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is provided that such indebtedness is not superior
in right of payment to the Subordinated Debt Securities, and (b) renewals,
extensions, modifications and refundings of any such indebtedness. As of
December 29, 1995, a total of approximately $35.9 billion of the Company's
indebtedness would have been Senior Indebtedness as so defined.
DESCRIPTION OF DEBT WARRANTS
The Company may issue, together with Debt Securities, Currency Warrants or
Index Warrants or separately, Debt Warrants for the purchase of Debt
Securities. The Debt Warrants are to be issued under debt warrant agreements
(each a "Debt Warrant Agreement") to be entered into between the Company and a
bank or trust company, as debt warrant agent (the "Debt Warrant Agent"), all as
shall be set forth in the Prospectus Supplement relating to Debt Warrants being
offered thereby. A copy of the form of Debt Warrant Agreement, including the
form of warrant certificates representing the Debt Warrants (the "Debt Warrant
Certificates"), reflecting the alternative provisions to be included in the
Debt Warrant Agreements that will be entered into with respect to particular
offerings of Debt Warrants, is filed as an exhibit to the Registration
Statement. The following summaries of certain provisions of the Debt Warrant
Agreement and the Debt Warrant Certificates do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all the
provisions of the Debt Warrant Agreement and the Debt Warrant Certificates,
respectively, including the definitions therein of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of Debt Warrants
offered thereby, the Debt Warrant Agreement relating to such Debt Warrants and
the Debt Warrant Certificates representing such Debt Warrants, including the
following: (1) the designation, aggregate principal amount, price at which such
principal amount may be purchased upon exercise and terms of the Debt
Securities purchasable upon
11
<PAGE>
exercise of such Debt Warrants, including whether such Debt Securities are
Senior Debt Securities or Subordinated Debt Securities, and the procedures and
conditions relating to the exercise of such Debt Warrants; (2) the designation
and terms of any related Debt Securities with which such Debt Warrants are
issued, including whether such Debt Securities are Senior Debt Securities or
Subordinated Debt Securities, the number of such Debt Warrants issued with each
such Debt Security, and the Indenture under which the Debt Securities will be
issued; (3) the date, if any, on and after which such Debt Warrants and the
related Debt Securities will be separately transferable; (4) the date on which
the right to exercise such Debt Warrants shall commence and the date on which
such right shall expire (the "Expiration Date"); (5) if the Debt Securities
purchasable upon exercise of such Debt Warrants are original issue discount
Debt Securities, a discussion of Federal income tax considerations applicable
thereto; and (6) whether the Debt Warrants represented by the Debt Warrant
Certificates will be issued in registered or bearer form, and, if registered,
where they may be transferred and registered.
Debt Warrant Certificates will be exchangeable for new Debt Warrant
Certificates of different denominations and Debt Warrants may be exercised at
the corporate trust office of the Debt Warrant Agent or any other office
indicated in the Prospectus Supplement. Prior to the exercise of their Debt
Warrants, holders of Debt Warrants will not have any of the rights of Holders
of the Debt Securities purchasable upon such exercise and will not be entitled
to payments of principal of, and any premium, Additional Amounts, if any, or
interest on, the Debt Securities purchasable upon such exercise.
EXERCISE OF DEBT WARRANTS
Each Debt Warrant will entitle the Holder to purchase for cash such principal
amount of Debt Securities at such exercise price as shall in each case be set
forth in, or be determinable as set forth in, the Prospectus Supplement
relating to the Debt Warrants offered thereby. Debt Warrants may be exercised
at any time up to the close of business on the Expiration Date set forth in the
Prospectus Supplement relating to the Debt Warrants offered thereby. After the
close of business on the Expiration Date, unexercised Debt Warrants will become
void.
Debt Warrants may be exercised as set forth in the Prospectus Supplement
relating to the Debt Warrants offered thereby. Upon receipt of payment and the
Debt Warrant Certificate properly completed and duly executed at the corporate
trust office of the Debt Warrant Agent or any other office indicated in the
Prospectus Supplement, the Company will, as soon as practicable, forward the
Debt Securities purchasable upon such exercise. If less than all of the Debt
Warrants represented by such Debt Warrant Certificate are exercised, a new Debt
Warrant Certificate will be issued for the remaining amount of Debt Warrants.
DESCRIPTION OF CURRENCY WARRANTS
The Company may issue, together with Debt Securities, Debt Warrants or Index
Warrants or separately, Currency Warrants either in the form of Currency Put
Warrants entitling the Holders thereof to receive from the Company the cash
settlement value in U.S. dollars of the right to sell a specified amount of a
specified foreign currency or currency units for a specified amount of U.S.
dollars, or in the form of Currency Call Warrants entitling the Holders thereof
to receive from the Company the cash settlement value in U.S. dollars of the
right to purchase a specified amount of a specified foreign currency or units
of two or more currencies for a specified amount of U.S. dollars. The Currency
Warrants are to be issued under a currency put warrant agreement or a currency
call warrant agreement, as applicable (each a "Currency Warrant Agreement"), to
be entered into between the Company and a bank or trust company, as currency
warrant agent (the "Currency Warrant Agent"), all as shall be set forth in the
applicable Prospectus Supplement. Copies of the forms of Currency Put Warrant
Agreement and Currency Call Warrant Agreement, including the forms of warrant
certificates representing the Currency Put Warrants and Currency Call Warrants
(the "Currency Warrant Certificates"), reflecting the provisions to be included
in the Currency Warrant Agreements that will be entered into with respect to
particular offerings of Currency Warrants, are filed as exhibits to the
12
<PAGE>
Registration Statement. The following summaries of certain provisions of the
Currency Warrant Agreements and the Currency Warrant Certificates do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Currency Warrant Agreements and the
Currency Warrant Certificates, respectively, including the definitions therein
of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of Currency
Warrants offered thereby, the Currency Warrant Agreement relating to such
Currency Warrants and the Currency Warrant Certificates representing such
Currency Warrants, including the following: (1) whether such Currency Warrants
shall be Currency Put Warrants, Currency Call Warrants, or both; (2) the
formula for determining the cash settlement value of each Currency Warrant; (3)
the procedures and conditions relating to the exercise of such Currency
Warrants; (4) the circumstances which will cause the Currency Warrants to be
deemed to be automatically exercised; (5) any minimum number of Currency
Warrants which must be exercised at any one time, other than upon automatic
exercise; and (6) the date on which the right to exercise such Currency
Warrants shall commence and the date on which such right shall expire (the
"Expiration Date"), provided that the commencement date and the Expiration Date
may be the same date.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Except as may otherwise be provided in an applicable Prospectus Supplement,
the Currency Warrants will be issued in the form of global Currency Warrant
Certificates, registered in the name of a depository or its nominee. Beneficial
owners will not be entitled to receive definitive certificates representing
Currency Warrants. Ownership of a Currency Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains a
beneficial owner's account. In turn, the total number of Currency Warrants held
by an individual brokerage firm for its clients will be maintained on the
records of the depository in the name of such brokerage firm or its agent.
Transfer of ownership of any Currency Warrant will be effected only through the
selling beneficial owner's brokerage firm.
EXERCISE OF CURRENCY WARRANTS
Each Currency Warrant will entitle the Holder to the cash settlement value of
such Currency Warrant on the applicable Exercise Date, in each case as such
terms will be defined in the applicable Prospectus Supplement. If a Currency
Warrant has more than one exercise date and is not exercised prior to 1:30
P.M., New York City time, on the fifth New York Business Day preceding the
Expiration Date, Currency Warrants will be deemed automatically exercised.
LISTING
Each issue of Currency Warrants will be listed on a national securities
exchange, subject only to official notice of issuance, as a condition of sale
of any such Currency Warrants. In the event that the Currency Warrants are
delisted from, or permanently suspended from trading on, such exchange, the
Expiration Date for such Currency Warrants will be the date such delisting or
trading suspension becomes effective and Currency Warrants not previously
exercised will be deemed automatically exercised on the business day
immediately preceding such Expiration Date. The applicable Currency Warrant
Agreement will contain a covenant of the Company not to seek delisting of the
Currency Warrants, or suspension of their trading, on such exchange.
DESCRIPTION OF INDEX WARRANTS
The Company may issue from time to time Index Warrants consisting of put
warrants (the "Index Put Warrants") or call warrants (the "Index Call
Warrants"). The Index Warrants will entitle the holders to receive from the
Company a payment or delivery, subject to applicable law, determined by
reference to decreases (in the case of Index Put Warrants) or to increases (in
the case of Index Call Warrants) in the level
13
<PAGE>
of an index or portfolio based on one or more equity or debt securities
(including the price or yield of such securities), any statistical measure of
economic or financial performance (including any consumer price, currency or
mortgage index) or the price or value of any commodity or any combination
thereof (the "Index"). Unless otherwise specified in the accompanying
Prospectus Supplement, payments, if any, upon exercise (or deemed exercise) of
the Index Warrants will be made in U.S. dollars. The Index Warrants will be
offered on terms to be determined at the time of sale.
GENERAL
The applicable Prospectus Supplement will describe the Index Warrant
Agreement or Index Warrant Trust Indenture (each as defined below), as the case
may be, relating to the Index Warrants being offered thereby and the terms of
such Index Warrants, including, without limitation: (i) whether the Index
Warrants to be issued will be Index Put Warrants, Index Call Warrants or both;
(ii) the aggregate number and initial public offering price or purchase price;
(iii) the Index for such Index Warrants; (iv) whether the Index Warrants will
be deemed exercised as of a specified date or whether the Index Warrants may be
exercised during a period and the date on which the right to exercise such
Index Warrants commences and the date on which such right expires; (v) the
manner in which such Index Warrants may be exercised and any restrictions on,
or other special provisions relating to, the exercise of such Index Warrants;
(vi) the minimum number, if any, of such Index Warrants exercisable at any one
time; (vii) the maximum number, if any, of such Index Warrants that may,
subject to the Company's election, be exercised by all Index Warrantholders (or
by any person or entity) on any day; (viii) any provisions permitting an Index
Warrantholder to condition an exercise notice on the absence of certain
specified changes in the level of the applicable Index after the exercise date,
any provisions permitting the Company to suspend exercise of such Index
Warrants based on market conditions or other circumstances and any other
special provision relating to the exercise of such Index Warrants; (ix) any
provisions for the automatic exercise of such Index Warrants other than at
expiration; (x) any provisions permitting the Company to cancel such Index
Warrants upon the occurrence of certain events; (xi) any additional
circumstances which would constitute an Event of Default with respect to such
Index Warrants; (xii) the method of determining (a) the payment or delivery, if
any, to be made in connection with the exercise or deemed exercise of such
Index Warrants (the "Settlement Value"), (b) the minimum payment or delivery,
if any, to be made upon expiration of such Index Warrants (the "Minimum
Expiration Value"), (c) the payment or delivery to be made upon the exercise of
any right which the Company may have to cancel such Index Warrants and (d) the
value of the Index; (xiii) in the case of Index Warrants relating to an Index
for which the trading prices of underlying securities, commodities or rates are
expressed in a foreign currency, the method of converting amounts in the
relevant foreign currency or currencies into U.S. dollars (or such other
currency or composite currency in which the Index Warrants are payable); (xiv)
the method of providing for a substitute index or otherwise determining the
payment or delivery, if any, to be made in connection with the exercise of such
Index Warrants if the Index changes or ceases to be made available by its
publisher; (xv) the time or times at which payment or delivery, if any, will be
made in respect of such Index Warrants following exercise or deemed exercise;
(xvi) the self-regulatory organization on which such Index Warrants will be
traded, if any; (xvii) any provisions for issuing such Index Warrants in other
than book-entry form; (xviii) if such Index Warrants are not issued in book-
entry form, the place or places at which payment or delivery on cancellation,
if any, and the Minimum Expiration Value, if any, of such Index Warrants is to
be made by the Company; (xix) certain U.S. federal income tax consequences
relating to such Index Warrants; and (xx) other specific provisions.
Except as otherwise provided in the applicable Prospectus Supplement, each
issue of Index Warrants will contain the terms set forth below.
The Index Warrants which are issued without a Minimum Expiration Value will
be issued under one or more index warrant agreements (each, an "Index Warrant
Agreement") to be entered into between the Company and a bank or trust company,
as warrant agent (the "Index Warrant Agent"), all as described in the
Prospectus Supplement relating to such Index Warrants. The Index Warrant Agent
will act solely as the
14
<PAGE>
agent of the Company under the applicable Index Warrant Agreement and will not
assume any obligation or relationship of agency or trust for or with any Index
Warrantholders. A single bank or trust company may act as Index Warrant Agent
for more than one issue of Index Warrants.
The Index Warrants which are issued with a Minimum Expiration Value will be
issued under one or more index warrant trust indentures (each an "Index Warrant
Trust Indenture") to be entered into between the Company and a corporation (or
other person permitted to so act by the Trust Indenture Act of 1939, as amended
from time to time (the "Trust Indenture Act")), to act as trustee (the "Index
Warrant Trustee"), all as described in the Prospectus Supplement relative to
such Index Warrants. Any Index Warrant Trust Indenture will be qualified under
the Trust Indenture Act. To the extent allowed by the Trust Indenture Act, a
single qualified corporation may act as Index Warrant Trustee for more than one
issue of Index Warrants.
Forms of Index Warrant Agreement and Index Warrant Trust Indenture and the
respective global index warrant certificates related thereto are filed as
exhibits to the Registration Statement. The summaries herein of certain
provisions of the Index Warrant Agreement, the Index Warrant Trust Indenture
and global index warrant certificates do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Index Warrant Agreement, the Index Warrant Trust Indenture
and global index warrant certificates, respectively.
The Company will have the right to "reopen" a previous issue of Index
Warrants and to issue additional Index Warrants of such issue without the
consent of any Index Warrantholder.
The Index Warrants involve a high degree of risk, including the risk that the
Index Warrants will expire worthless except for the Minimum Expiration Value,
if any, of such Index Warrants. Investors should therefore be prepared to
sustain a total loss of the purchase price of the Index Warrants (except for
the Minimum Expiration Value, if applicable). Investors who consider purchasing
Index Warrants should be experienced with respect to options and option
transactions and reach an investment decision only after carefully considering
the suitability of the Index Warrants in light of their particular
circumstances and the information set forth below as well as additional
information contained in the Prospectus Supplement relating to such Index
Warrants.
Unless otherwise provided in the Prospectus Supplement, each Index Warrant
will entitle Index Warrantholders to receive from the Company upon exercise the
Settlement Value of such Index Warrant. Certain Index Warrants issued pursuant
to an Index Warrant Trust Indenture will, if specified in the Prospectus
Supplement, entitle the Index Warrantholder to receive from the Company, under
certain circumstances specified in the Prospectus Supplement, a payment or
delivery equal to the greater of the applicable Settlement Value and a Minimum
Expiration Value of such Index Warrants. In addition, certain Index Warrants
will, if specified in the Prospectus Supplement, entitle Index Warrantholders
to receive from the Company a certain payment or delivery upon cancellation of
the Index Warrants by the Company, upon the occurrence of specified events. In
addition, if so specified in the Prospectus Supplement, following the
occurrence of an extraordinary event, the Settlement Value of an Index Warrant
may, at the option of the Company, be determined on a different basis,
including in connection with automatic exercise at expiration.
Unless otherwise specified in the related Prospectus Supplement, the Index
Warrants will be deemed to be automatically exercised upon expiration or such
earlier date that may be specified. Upon such automatic exercise, Index
warrantholders will be entitled to receive a payment or delivery equal to the
Settlement Value of the Index Warrants, except that holders of Index Warrants
having a Minimum Expiration Value will be entitled to receive a payment or
delivery equal to the greater of such Settlement Value and the applicable
Minimum Expiration Value. The Minimum Expiration Value may be either a
predetermined payment or delivery or a payment or delivery that varies during
the term of the Index Warrants in accordance with a schedule or formula. Any
Minimum Expiration Value applicable to an issue of Index Warrants, as well as
any additional circumstances resulting in the automatic exercise of such Index
Warrants, will be specified in the related Prospectus Supplement.
15
<PAGE>
If so specified in the Prospectus Supplement, the Index Warrants may be
canceled by the Company, or the exercise or valuation of, or payment or
delivery for, such Index Warrants may be delayed or postponed upon the
occurrence of an extraordinary event. Any extraordinary events relating to an
issue of Index Warrants will be set forth in the related Prospectus Supplement.
Upon cancellation, the related Index warrantholders will be entitled to receive
only the applicable payment or delivery on cancellation specified in such
Prospectus Supplement. The payment or delivery on cancellation may be either a
predetermined payment or delivery or a payment or delivery that varies during
the term of the Index Warrants in accordance with a schedule or formula.
If the Company defaults with respect to any of its obligations under Index
Warrants which are issued with a Minimum Expiration Value pursuant to an Index
Warrant Trust Indenture, such default may be waived by the Index warrantholders
of a majority in interest of all outstanding Index Warrants, except a default
in the payment or delivery of the Settlement Value, Minimum Expiration Value or
cancellation payment or delivery (if applicable) on such Index Warrants or in
respect of a covenant or provision of the applicable Index Warrant Trust
Indenture which cannot be modified or amended without the consent of the Index
warrantholder of each outstanding Index Warrant affected.
The Index Warrants are unsecured contractual obligations of the Company and
will rank pari passu with the Company's other unsecured contractual obligations
and with the Company's unsecured and unsubordinated debt. Since the Company is
a holding company, the right of the Company, and hence the right of creditors
of the Company (including the Holders of the Debt Securities), to participate
in any distribution of the assets of any subsidiary upon its liquidation or
reorganization or otherwise is necessarily subject to the prior claims of
creditors of the subsidiary, except to the extent that claims of the Company
itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Securities
Exchange Act of 1934 and under rules of certain exchanges and other regulatory
bodies.
Certain special United States federal income tax considerations may be
applicable to instruments such as the Index Warrants. The related Prospectus
Supplement will describe such tax considerations. The summary of United States
Federal income tax considerations contained in the Prospectus Supplement will
be presented for informational purposes only, however, and will not be intended
as legal or tax advice to prospective purchasers. Prospective purchasers of
Index Warrants are urged to consult their own tax advisors prior to any
acquisition of Index Warrants.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Except as may otherwise be provided in an applicable Prospectus Supplement,
Index Warrants will be issued in book-entry form and represented by global
Index Warrants, registered in the name of a depository or its nominee. Except
as may otherwise be provided in an applicable Prospectus Supplement, Index
Warrantholders will not be entitled to receive definitive certificates
representing Index Warrants, unless the depository is unwilling or unable to
continue as depository or the Company decides to have the Index Warrants
represented by definitive certificates. A beneficial owner's interest in an
Index Warrant represented by a global Index Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains such
beneficial owner's account. In turn, the total number of Index Warrants held by
an individual brokerage firm or other entity for its clients will be maintained
on the records of the depository in the name of such brokerage firm or other
entity or its agent.
LISTING
Unless otherwise indicated in the Prospectus Supplement, the Index Warrants
will be traded pursuant to the rules of a self-regulatory organization as
specified in the Prospectus Supplement. It is expected that such self-
regulatory organization will cease trading an issue of Index Warrants at the
close of business on the related expiration date of such Index Warrants.
16
<PAGE>
MODIFICATION
Any Index Warrant Agreement or Index Warrant Trust Indenture and the terms of
the related Index Warrants may be amended by the Company and the Index Warrant
Agent or Index Warrant Trustee, as the case may be (which amendment shall take
the form of a supplemental index warrant agreement or supplemental index
warrant trust indenture (collectively referred to as "Supplemental
Agreements")), without the consent of the holders of any Index Warrants, for
the purpose of (i) curing any ambiguity, or of curing, correcting or
supplementing any defective or inconsistent provision contained therein, or of
making any other provisions with respect to matters or questions arising under
the Index Warrant Agreement or Index Warrant Trust Indenture, as the case may
be, which shall not be inconsistent with the provisions thereof or of the Index
Warrants, (ii) evidencing the succession of another corporation to the Company
and the assumption by any such successor of the covenants of the Company
contained in the Index Warrant Agreement or the Index Warrant Trust Indenture,
as the case may be, and the Index Warrants, (iii) appointing a successor
depository, (iv) evidencing and providing for the acceptance of appointment by
a successor Index Warrant Agent or Index Warrant Trustee with respect to the
Index Warrants, as the case may be, (v) adding to the covenants of the Company,
for the benefit of the Index Warrantholders or surrendering any right or power
conferred upon the Company under the Index Warrant Agreement or Index Warrant
Trust Indenture, as the case may be, (vi) issuing Index Warrants in definitive
form, or (vii) amending the Index Warrant Agreement or Index Warrant Trust
Indenture, as the case may be, in any manner which the Company may deem to be
necessary or desirable and which will not materially and adversely affect the
interests of the Index warrantholders.
The Company and the Index Warrant Agent may also amend any Index Warrant
Agreement or Index Warrant Trust Indenture, as the case may be, and the terms
of the related Index Warrants (which amendment shall take the form of a
Supplemental Agreement) with the consent of the Index warrantholders holding
not less than 66 2/3% in number of the then outstanding unexercised Index
Warrants affected by such amendment, for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the Index
Warrant Agreement or Index Warrant Trust Indenture, as the case may be, or of
modifying in any manner the rights of the Index warrantholders; provided that
no such amendment that (i) changes the determination of the Settlement Value or
the payment or delivery to be made on cancellation, if any, or Minimum
Expiration Value, if any, of the Index Warrants (or any aspects of such
determination) so as to reduce the payment or delivery to be made upon exercise
or deemed exercise, (ii) shortens the period of time during which the Index
Warrants may be exercised, or otherwise materially and adversely affects the
exercise rights of the Index warrantholders or (iii) reduces the number of
outstanding Index Warrants, the consent of whose holders is required for
amendment of the Index Warrant Agreement, the Index Warrant Trust Indenture or
the terms of the related Index Warrants, may be made without the consent of
each Index warrantholder affected thereby.
EVENTS OF DEFAULT
Certain events in bankruptcy, insolvency or reorganization of the Company
will constitute an Event of Default with respect to Index Warrants having a
Minimum Expiration Value which are issued under an Index Warrant Trust
Indenture. Upon the occurrence of an Event of Default, the holders of 25% of
unexercised Index Warrants may elect to receive a settlement payment or
delivery for such unexercised Index Warrants, which will immediately become due
to the Index warrantholders upon such election in an amount equal to the market
value of such Index Warrants (assuming the Company's ability to satisfy its
obligations under such Index Warrants as they would become due) as of the date
the Company is notified of the intended liquidation, as determined by a
nationally recognized securities broker-dealer unaffiliated with the Company
and mutually selected by the Company and the Index Warrant Trustee.
MERGER, CONSOLIDATION, SALE, LEASE OR OTHER DISPOSITIONS
The Company may consolidate or merge with or into any other corporation and
the Company may sell, lease or convey all or substantially all of its assets to
any corporation, provided that (i) the corporation
17
<PAGE>
(if other than the Company) formed by or resulting from any such consolidation
or merger or which shall have received such assets shall be a corporation
organized and existing under the laws of the United States of America or a
State thereof and shall assume the Company's obligations in respect of the
payment or delivery of the Settlement Value (or any Minimum Expiration Value or
cancellation payment or delivery, if applicable) with respect to all the
unexercised Index Warrants and the performance and observance of all of the
covenants and conditions of the Index Warrant Agreement or Index Warrant Trust
Indenture, as the case may be, to be performed or observed by the Company, and
(ii) the Company or such successor corporation, as the case may be, shall not
immediately be in default under the Index Warrant Agreement or Index Warrant
Trust Indenture, as the case may be.
ENFORCEABILITY OF RIGHTS BY INDEX WARRANTHOLDERS
Any Index warrantholder may, without the consent of the related Index Warrant
Agent, enforce by appropriate legal action, in and for its own behalf, its
right to exercise, and receive payment or delivery for, its Index Warrants.
PLAN OF DISTRIBUTION
The Company may sell Securities (i) through MLPF&S as agent, (ii) to the
public through, or through underwriting syndicates managed by, one or more of
the firms named on the cover page of this Prospectus or (iii) directly to
purchasers. The Prospectus Supplement with respect to the Securities of a
particular series describes the terms of the offering of such Securities,
including the name of the agent or the name or names of any underwriters, the
public offering or purchase price, any discounts and commissions to be allowed
or paid to the agent or underwriters, all other items constituting underwriting
compensation, the discounts and commissions to be allowed or paid to dealers,
if any, and the exchanges, if any, on which the Securities will be listed. Only
the agents or underwriters so named in the Prospectus Supplement are agents or
underwriters in connection with the Securities offered thereby. Under certain
circumstances, the Company may repurchase Securities and reoffer them to the
public as set forth above. The Company may also arrange for repurchases and
resales of such Securities by dealers.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters to solicit offers by certain institutions to purchase Debt
Securities from the Company pursuant to delayed delivery contracts providing
for payment and delivery on the date stated in the Prospectus Supplement. Each
such contract will be for an amount not less than, and, unless the Company
otherwise agrees, the aggregate principal amount of Debt Securities sold
pursuant to such contracts shall not be more than, the respective amounts
stated in the Prospectus Supplement. Institutions with whom such contracts,
when authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions, but shall in all cases be subject to the
approval of the Company. Delayed delivery contracts will not be subject to any
conditions except that the purchase by an institution of the Debt Securities
covered thereby shall not at the time of delivery be prohibited under the laws
of any jurisdiction in the United States to which such institution is subject.
The Company has agreed to indemnify the agent and the several underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933, as amended (the "Act"), or contribute to payments the agent or the
underwriters may be required to make in respect thereof.
The distribution of Securities will conform to the requirements set forth in
the applicable sections of Schedule E to the By-Laws of the National
Association of Securities Dealers, Inc.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included or incorporated by
reference in the Company's 1995 Annual Report on Form 10-K,
18
<PAGE>
and incorporated by reference in this Prospectus, have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports incorporated by
reference herein. The information under the caption "Summary Financial
Information" for each of the five years in the period ended December 29, 1995
included in this Prospectus and the Selected Financial Data under the captions
"Operating Results", "Financial Position" and "Common Share Data" for each of
the five years in the period ended December 29, 1995 included in the 1995
Annual Report to Stockholders of the Company and incorporated by reference
herein, has been derived from consolidated financial statements audited by
Deloitte & Touche LLP, as set forth in their reports included as an exhibit to
the Registration Statement or incorporated by reference herein. Such
consolidated financial statements and related financial statement schedules,
such Summary Financial Information and Selected Financial Data appearing or
incorporated by reference in this Prospectus and the Registration Statement of
which this Prospectus is a part, have been included or incorporated herein by
reference in reliance upon such reports of Deloitte & Touche LLP given upon
their authority as experts in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q which are incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as
stated in their report included in such Quarterly Report on Form 10-Q and
incorporated by reference herein, they did not audit and they do not express an
opinion on such interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP are
not subject to the liability provisions of Section 11 of the Act for any such
report on unaudited interim financial information because any such report is
not a "report" or a "part" of the registration statement prepared or certified
by an accountant within the meaning of Sections 7 and 11 of the Act.
19
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
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
Description of Securities.................................................. S-8
The Index.................................................................. S-13
Certain United States Federal Income Tax Considerations.................... S-18
Use of Proceeds............................................................ S-22
Underwriting............................................................... S-22
Validity of Securities..................................................... S-22
</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>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO]
2,500,000 UNITS
MERRILL LYNCH & CO., INC.
S&P 500 MARKET
INDEX TARGET-TERM SECURITIES (service mark)
DUE APRIL , 2001
"MITTS (registered service mark)"
----------------------
PROSPECTUS SUPPLEMENT
----------------------
MERRILL LYNCH & CO.
, 1996
"MITTS" IS A REGISTERED SERVICE MARK AND "MARKET INDEX TARGET-TERM
SECURITIES" IS A SERVICE MARK OWNED BY MERRILL LYNCH & CO., INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
