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RULE NO. 424(b)(5)
REGISTRATION NO. 333-28537
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 7, 1997)
[LOGO]
2,750,000 UNITS
MERRILL LYNCH & CO., INC.
MAJOR 11 INTERNATIONAL MARKET INDEX TARGET-TERM SECURITIES(SM)
DUE DECEMBER 6, 2002
"MITTS(R)"
($10 PRINCIPAL AMOUNT PER UNIT)
GENERAL:
. Senior unsecured debt securities . Not redeemable prior to maturity
. No payments prior to maturity . Transferable only in whole Units
PAYMENT AT MATURITY:
Principal Amount + Supplemental Redemption Amount
The Supplemental Redemption Amount will be based on the percentage increase,
if any, in the Major 11 International Index, which is a compilation of eleven
equity indices reflecting select stocks listed on certain equity markets in
Europe, Australia and Asia, multiplied by a Participation Rate of 115%. The
Supplemental Redemption Amount may be zero, but will not be less than zero.
BEFORE YOU DECIDE TO INVEST IN THE SECURITIES, CAREFULLY READ THIS PROSPECTUS
SUPPLEMENT AND PROSPECTUS, ESPECIALLY THE RISK FACTORS BEGINNING ON PAGE S-7.
Neither the SEC nor any state securities commission has approved these
securities or passed upon the adequacy of this Prospectus Supplement or the
attached Prospectus. Any representation to the contrary is a criminal offense.
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(1) COMPANY(2)
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Per Unit......................... $10 $.20 $9.80
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Total............................ $27,500,000 $550,000 $26,950,000
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(1) The "Initial Public Offering Price" and "Underwriting Discount" for any
single transaction to purchase 500,000 Units or more will be $9.90 per
Unit and $.10 per Unit, respectively.
(2) Before deduction of expenses payable by the Company.
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We expect that the Securities will be ready for delivery in book-entry form
only through the facilities of DTC on or about November 26, 1997.
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MERRILL LYNCH & CO.
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The date of this Prospectus Supplement is November 20, 1997.
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"MITTS" is a registered service mark and "Market Index Target-Term Securities"
is a service mark owned by Merrill Lynch & Co., Inc.
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STABILIZATION
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") as underwriter
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Securities. Such transactions may include stabilizing and the
purchase of Securities to cover short positions. For a description of these
activities, see "Underwriting".
REQUIRED LEGEND
We are required to disclose that the Commissioner of Insurance of the State
of North Carolina has not approved or disapproved the offering of the
Securities nor has the Commissioner determined the accuracy or adequacy of
this Prospectus Supplement or the Prospectus.
CONTENT OF PROSPECTUS
You should rely only on the information contained in this document or in
documents referenced herein that we have filed with the Securities and
Exchange Commission ("SEC"). We have not authorized anyone to provide you with
different information. You should not assume that the information in the
Prospectus or Prospectus Supplement is accurate as of any date other than the
date on the front of this document.
LIMITATIONS ON OFFERS OR SOLICITATIONS
We do not intend this document to be an offer or solicitation:
(A) if used in a jurisdiction in which such offer or solicitation is
not authorized;
(B) if the person making such offer or solicitation is not qualified
to do so; or
(C) if such offer or solicitation is made to anyone to whom it is
unlawful to make such offer or solicitation.
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TABLE OF CONTENTS
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THE PROSPECTUS SUPPLEMENT:
SUMMARY INFORMATION--Q&A.................................................. S-4
What are the Securities?................................................. S-4
What will I receive at maturity of the Securities?....................... S-4
Who publishes the Index and what does the Index measure?................. S-5
How has the Major 11 Index performed historically?....................... S-5
What about taxes?........................................................ S-5
Will the Securities be listed on a stock exchange?....................... S-6
What is the role of our subsidiary, MLPF&S?.............................. S-6
Can you tell me more about the Company?.................................. S-6
Are there any risks associated with my investment?....................... S-6
WHERE YOU CAN FIND MORE INFORMATION....................................... S-7
RISK FACTORS.............................................................. S-7
The Supplemental Redemption Amount....................................... S-7
Your yield may be lower than the yield on a standard debt security of
comparable maturity..................................................... S-7
Your return will not reflect the payment of dividends.................... S-7
Currency exchange rates.................................................. S-8
Uncertain trading market................................................. S-8
Factors affecting trading value of the Securities........................ S-8
State law limits on interest paid........................................ S-9
The international securities markets..................................... S-9
Purchases and sales by Merrill Lynch..................................... S-10
Potential conflicts...................................................... S-10
RATIO OF EARNINGS TO FIXED CHARGES........................................ S-10
RECENT DEVELOPMENTS....................................................... S-10
DESCRIPTION OF SECURITIES................................................. S-11
General.................................................................. S-11
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Payment at Maturity....................................................... S-11
Hypothetical Returns...................................................... S-12
Adjustments to the Index; Market Disruption Events........................ S-13
Discontinuance of the Index............................................... S-13
Events of Default and Acceleration........................................ S-14
Depository................................................................ S-14
Same-Day Settlement and Payment........................................... S-16
THE INDEX.................................................................. S-16
Determination of Index Multiplier for each Sub-Index...................... S-16
Computation of the Index.................................................. S-17
Sub-Indices............................................................... S-17
Historical Data on the Index.............................................. S-21
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.................... S-25
General................................................................... S-25
U.S. Holders.............................................................. S-26
Non-U.S. Holders.......................................................... S-27
Backup Withholding........................................................ S-28
New Withholding Regulations............................................... S-28
USE OF PROCEEDS............................................................ S-28
UNDERWRITING............................................................... S-29
VALIDITY OF SECURITIES..................................................... S-29
INDEX OF DEFINED TERMS..................................................... S-30
THE PROSPECTUS:
AVAILABLE INFORMATION...................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 2
MERRILL LYNCH & CO., INC................................................... 3
USE OF PROCEEDS............................................................ 3
DESCRIPTION OF DEBT SECURITIES............................................. 4
DESCRIPTION OF DEBT WARRANTS............................................... 8
DESCRIPTION OF CURRENCY WARRANTS........................................... 9
DESCRIPTION OF INDEX WARRANTS.............................................. 10
PLAN OF DISTRIBUTION....................................................... 14
EXPERTS.................................................................... 15
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SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from the Prospectus and Prospectus Supplement to help you
understand the Major 11 International Market Index Target-Term Securities due
December 6, 2002 (the "MITTS" or the "Securities"). You should carefully read
the Prospectus and Prospectus Supplement to fully understand the terms of the
Securities, the Major 11 International Index (the "Major 11 Index" or the
"Index"), as well as the tax and other considerations that are important to
you in making a decision about whether to invest in the Securities. You
should, in particular, carefully review the "Risk Factors" section, which
highlights certain risks, to determine whether an investment in the Securities
is appropriate for you.
WHAT ARE THE SECURITIES?
The Securities are a series of senior debt securities issued by Merrill
Lynch & Co., Inc. (the "Company") and are not secured by collateral. The
Securities will rank equally with all other unsecured and unsubordinated debt
of the Company. The Securities mature on December 6, 2002 and do not provide
for earlier redemption. We will make no payments on the Securities until
maturity.
Each "Unit" of Securities represents $10 principal amount of Securities. You
may transfer the Securities only in whole Units. You will not have the right
to receive physical certificates evidencing your ownership except under
limited circumstances. Instead, we will issue the Securities in the form of a
global certificate, which will be held by The Depository Trust Company
("DTC"), or its nominee. Direct and indirect participants in DTC will record
beneficial ownership of the Securities by individual investors. You should
refer to the section "Description of Securities--Depository" in this
Prospectus Supplement.
WHAT WILL I RECEIVE AT MATURITY OF THE SECURITIES?
We have designed the Securities for investors who want to protect their
investment by receiving at least the principal amount of their investment at
maturity and who also want to participate in possible increases in the Major
11 Index. At maturity, you will receive a payment on the Securities equal to
the sum of two amounts: the "Principal Amount" and the "Supplemental
Redemption Amount".
"Principal Amount"
The Principal Amount per Unit is $10.
"Supplemental Redemption Amount"
The Supplemental Redemption Amount per Unit will equal:
EIV--SIV
$10 x -------- x PR
SIV
but will not be less than zero.
EIV = Ending Index Value
SIV = Starting Index Value
PR = Participation Rate
"ENDING INDEX VALUE" means the average of the values of the Major 11 Index
at the close of the market on five business days before the maturity of the
Securities. We may calculate the Ending Index Value by reference to fewer than
five or even a single day's closing value if, during a period prior to the
maturity date of the Securities, there is a disruption in the trading of the
securities comprising the Major 11 Index.
"STARTING INDEX VALUE" equals 100.
"PARTICIPATION RATE" equals 115%.
For more specific information about the Supplemental Redemption Amount,
please see the section "Description of Securities" in this Prospectus
Supplement.
We will pay you a Supplemental Redemption Amount only if the Ending Index
Value is greater than the Starting Index Value. IF THE ENDING INDEX VALUE IS
LESS THAN, OR EQUAL TO, THE STARTING INDEX VALUE, THE SUPPLEMENTAL REDEMPTION
AMOUNT WILL BE ZERO. We will pay you the Principal Amount of the Securities
regardless of whether any Supplemental Redemption Amount is payable.
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"Examples"
Here are two examples of Supplemental Redemption Amount calculations:
Example 1 - Ending Index Value is less than the Starting Index Value at
maturity:
Starting Index Value: 100
Hypothetical Ending Index Value: 90
Participation Rate: 115%
Supplemental Redemption Amount (Per Unit) =
90-100
$10 x ------ x 115% = $0.00 (Supplemental Redemption
100 Amount cannot be less
than zero)
Total payment at maturity (Per Unit) = $10 + $0 = $10
Example 2 - Ending Index Value is greater than the Starting Index Value at
maturity:
Starting Index Value: 100
Hypothetical Ending Index Value: 150
Participation Rate: 115%
Supplemental Redemption Amount (Per Unit) =
150-100
$10 x ------- x 115% = $5.75
100
Total payment at maturity (Per Unit) = $10 + $5.75 = $15.75
WHO PUBLISHES THE INDEX AND WHAT DOES THE INDEX MEASURE?
The American Stock Exchange (the "AMEX") will publish the Index, which
measures the performance of various European, Australian and Asian stock
indices, each a "Sub-Index". Each Sub-Index measures the performance of
certain common stocks in a designated European or Asian country or Australia.
The publishers of the Sub-Indices use various methods to select and maintain
stocks in a Sub-Index and to calculate the value of a Sub-Index. Sub-Indices
represent common stocks of issuers traded principally on stock exchanges
located in Japan, England, Germany, France, Switzerland, Netherlands, Hong
Kong, Australia, Italy, Sweden and Spain, respectively.
HOW HAS THE MAJOR 11 INDEX PERFORMED HISTORICALLY?
We have calculated the hypothetical values of the Index on the last business
day of each month from January 1993 through October 1997 as if the Major 11
Index had existed during such periods, assuming certain weightings for each
Sub-Index. We calculated these values on the same basis that the Index will be
calculated in the future.
You can find a table with these values in the section "The Index--Historical
Data on the Index" in the Prospectus Supplement. We have provided this
historical information to help you evaluate the behavior of the Major 11 Index
in various past economic environments; however, such hypothetical values based
on prior performance of the Sub-Indices are not necessarily indicative of how
the Index will perform in the future.
WHAT ABOUT TAXES?
Each year, you will be required to pay taxes on ordinary income from the
Securities over their term based upon an estimated yield for the Securities,
even though you will not receive any payments from us until maturity. We have
determined this estimated yield, in accordance with regulations issued by the
Treasury Department, solely in order for you to figure the amount of taxes
that you will owe each year as a result of owning a Security. This amount is
neither a prediction nor a guarantee of what the actual Supplemental
Redemption Amount will be, or that the actual Supplemental Redemption Amount
will even exceed zero. We have determined that this estimated yield will equal
6.25% per annum (compounded semiannually).
Based upon this estimated yield, if you pay your taxes on a calendar year
basis and if you buy a Security for $10 and hold the Security until maturity,
you will be required to pay taxes on the following
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amounts of ordinary income from the Securities each year: $0.0597 in 1997,
$0.6385 in 1998, $0.6788 in 1999, $0.7224 in 2000, $0.7681 in 2001, and
$0.7586 in 2002. However, in 2002, the amount of ordinary income that you will
be required to pay taxes on from owning a Security may be greater or less than
$0.7586, depending upon the Supplemental Redemption Amount, if any, you
receive. Also, if the Supplemental Redemption Amount is less than $3.6261, you
may have a loss which you could deduct against other income you may have in
2002, but under current tax regulations, you would neither be required nor
allowed to amend your tax returns for prior years. For further information,
see "Certain United States Federal Income Tax Considerations" in this
Prospectus Supplement.
WILL THE SECURITIES BE LISTED ON A STOCK EXCHANGE?
The Securities have been approved for listing on the AMEX under the symbol
"EEM". You should be aware that the listing of the Securities on the AMEX will
not necessarily ensure that a liquid trading market will be available for the
Securities. You should review "Risk Factors--Uncertain Trading Market".
WHAT IS THE ROLE OF OUR SUBSIDIARY, MLPF&S?
Our subsidiary, MLPF&S, is the underwriter for the offering and sale of the
Securities. After the initial offering, MLPF&S intends to buy and sell
Securities to create a secondary market for holders of the Securities, and may
stabilize or maintain the market price of the Securities during the initial
distribution of the Securities. However, MLPF&S will not be obligated to
engage in any of these market activities, or continue them once it has
started.
MLPF&S will also be our agent (the "Calculation Agent") for purposes of
calculating the Ending Index Value and the Supplemental Redemption Amount.
Under certain circumstances, these duties could result in a conflict of
interest between MLPF&S's status as a subsidiary of the Company and its
responsibilities as Calculation Agent.
CAN YOU TELL ME MORE ABOUT THE COMPANY?
Merrill Lynch & Co., Inc. is a holding company with various subsidiary and
affiliated companies that provide investment, financing, insurance and related
services on a global basis. For information about the Company see the section
"Merrill Lynch & Co., Inc." in the Prospectus. You should also read the other
documents the Company has filed with the SEC, which you can find by referring
to the section "Where You Can Find More Information" in this Prospectus
Supplement.
ARE THERE ANY RISKS ASSOCIATED WITH MY INVESTMENT?
Yes, the Securities are subject to certain risks. Please refer to the
section "Risk Factors" in this Prospectus Supplement.
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WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and current reports, proxy statements
and other information with the SEC. Some of these documents are incorporated
by reference in, and form a part of, this Prospectus Supplement and the
Prospectus, as described in the section "Incorporation of Certain Documents by
Reference" in the Prospectus. You may read and copy any document we file by
visiting the SEC's public reference rooms in Washington, D.C. at 450 Fifth
Street, Room 1024, N.W., Washington, D.C., 20549; or at the SEC's regional
offices at 500 West Madison Street, Suite 400, Chicago, Illinois 60661-2511
and Seven World Trade Center, New York, New York 10048. Please call the SEC at
1-800-SEC-0330 for further information about the public reference rooms.
Copies of our SEC filings can also be obtained from the SEC's Internet web
site at http://www.sec.gov. You may also read copies of these documents at the
offices of the New York Stock Exchange, the American Stock Exchange, the
Chicago Stock Exchange, and the Pacific Exchange.
We will send you copies of our SEC filings, excluding exhibits, at no cost
upon request. Please address your request to Lawrence M. Egan, Jr., Corporate
Secretary's Office, Merrill Lynch & Co., Inc., 100 Church Street, 12th Floor,
New York, New York 10080-6512; telephone number (212) 602-8439.
RISK FACTORS
Your investment in the Securities will involve certain risks. For example,
there is the risk that you might not earn a return on your investment, and the
risk that you will be unable to sell your Securities prior to their maturity.
You should carefully consider the following discussion of risks before
deciding whether an investment in the Securities is suitable for you.
THE SUPPLEMENTAL REDEMPTION AMOUNT.
You should be aware that if the Ending Index Value does not exceed the
Starting Index Value at maturity, the Supplemental Redemption Amount will be
zero. This will be true even if the value of the Index was higher than the
Starting Index Value at some time during the life of the Securities but later
falls below the Starting Index Value. If the Supplemental Redemption Amount is
zero, we will pay you only the principal amount of your Securities.
The Participation Rate equals 115%. If the Ending Index Value exceeds the
Starting Index Value, then the Participation Rate will enhance the amount of
the interest payment received at maturity. However, if the Ending Index Value
does not exceed the Starting Index Value, you will receive only the principal
amount of your Securities.
YOUR YIELD MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT SECURITY OF
COMPARABLE MATURITY.
The amount we pay you at maturity may be less than the return you could earn
on other investments. Your yield may be less than the yield you would earn if
you bought a standard senior non-callable debt security of the Company with
the same maturity date. Your investment may not reflect the full opportunity
cost to you when you consider the effect of factors that affect the time value
of money.
YOUR RETURN WILL NOT REFLECT THE PAYMENT OF DIVIDENDS.
The AMEX calculates the Index by reference to the Sub-Indices which reflect
the prices of the common stocks comprising such Sub-Indices without taking
into consideration the value of dividends paid on those stocks, except in the
case of the Deutscher Aktienindex Sub-Index which reflects dividends paid on
its underlying common stocks. Therefore, the return you earn on the
Securities, if any, will not be the same as the return that
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you would earn if you actually owned each of the common stocks underlying each
Sub-Index and received the dividends paid on those stocks.
CURRENCY EXCHANGE RATES.
Although the stocks comprising the Sub-Indices are traded in currencies
other than U.S. dollars and the Securities are denominated in U.S. dollars, we
will not adjust the Supplemental Redemption Amount for currency exchange rates
in effect at the maturity of the Securities. The Supplemental Redemption
Amount is based solely upon the percentage increase in the Index. Changes in
exchange rates, however, may reflect changes in the relevant European,
Australian and Asian economies which in turn may affect the value of the Sub-
Indices, and the Securities.
UNCERTAIN TRADING MARKET.
The Securities have been approved for listing on the AMEX under the symbol
"EEM". While there have been a number of issuances of Market Index Target-Term
Securities, trading volumes have varied historically from one transaction to
another and it is therefore impossible to predict how the Securities will
trade. You cannot assume that a trading market will develop for the
Securities. If such a trading market does develop, there can be no assurance
that there will be liquidity in the trading market. The development of a
trading market for the Securities will depend on the financial performance of
the Company, and other factors such as the appreciation, if any, of the value
of the Index.
If the trading market for the Securities is limited, there may be a limited
number of buyers when you decide to sell your Securities if you do not wish to
hold your investment until maturity. This may affect the price you receive.
FACTORS AFFECTING TRADING VALUE OF THE SECURITIES.
We believe that the market value of the Securities will be affected by the
value of the Index and by a number of other factors. Some of these factors are
interrelated in complex ways; as a result, the effect of any one factor may be
offset or magnified by the effect of another factor. The following paragraphs
describe the expected impact on the market value of the Securities given a
change in a specific factor, assuming all other conditions remain constant.
. INDEX VALUE. We expect that the market value of the Securities will
depend substantially on the amount by which the Index exceeds the
Starting Index Value. If you choose to sell your Securities when the
value of the Index exceeds the Starting Index Value, you may receive
substantially less than the amount that would be payable at maturity
based on that Index value because of the expectation that the Index will
continue to fluctuate until the Ending Index Value is determined. If you
choose to sell your Securities when the value of the Index is below the
Starting Index Value, you may receive less than the $10 principal amount
per Unit of Securities. In general, rising dividend rates (i.e.,
dividends per share) in Australia and in the European and Asian countries
related to the common stocks underlying the Sub-Indices (each, an
"applicable home country") may increase the value of the Index while
falling dividend rates in the applicable home countries may decrease the
value of the Index. Political, economic and other developments that
affect the stocks underlying the Index may also affect the value of the
Index and the value of the Securities.
. INTEREST RATES. Because the Securities repay, at a minimum, the principal
amount at maturity, we expect that the trading value of the Securities
will be affected by changes in interest rates. In general, if U.S.
interest rates increase, we expect that the trading value of the
Securities will decrease. If U.S. interest rates decrease, we expect the
trading value of the Securities will increase. In general, if interest
rates in the applicable home countries increase, we expect that the
trading value of the Securities will increase. If interest rates in the
applicable home countries decrease, we expect the trading value of the
Securities will decrease. However, interest rates in the applicable home
countries may also affect the relevant economies and, in turn, the value
of the Sub-Indices. Rising interest rates in the applicable home
countries may lower
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the value of the Sub-Indices and the Securities. Falling interest rates in
the applicable home countries may increase the value of the Index and the
value of the Securities.
. VOLATILITY OF THE INDEX. Volatility is the term used to describe the size
and frequency of market fluctuations. If the volatility of the Index
increases, we expect that the trading value of the Securities will
increase. If the volatility of the Index decreases, we expect that the
trading value of the Securities will decrease.
. TIME REMAINING TO MATURITY. The Securities may trade at a value above
that which would be expected based on 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. However, as the time remaining to maturity of the
Securities decreases, we expect that this time premium will decrease,
lowering the trading value of the Securities.
. DIVIDEND YIELDS. If dividend yields on the stocks comprising the Sub-
Indices increase, we expect that the value of the Securities will
decrease. Conversely, if dividend yields on the underlying stock
comprising the Sub-Indices decrease, we expect that the value of the
Securities will increase.
. COMPANY CREDIT RATINGS. Real or anticipated changes in the Company's
credit ratings may affect the market value of the Securities.
It is important for you to understand that the impact of one of the factors
specified above, such as an increase in interest rates, may offset some or all
of any increase in the trading value of the Securities attributable to another
factor, such as an increase in the Index value.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the Securities of a given change in most of
the factors listed above will be less if it occurs later in the term of the
Securities than if it occurs earlier in the term of the Securities except that
we expect that the effect on the trading value of the Securities of a given
increase in the value of the Index will be greater if it occurs later in the
term of the Securities than if it occurs earlier in the term of the
Securities.
STATE LAW LIMITS ON INTEREST PAID.
New York State laws govern the 1983 Indenture, as hereinafter defined. New
York has certain usury laws that limit the amount of interest that can be
charged and paid on loans, which includes debt securities like the Securities.
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 debt securities in which
$2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws
that regulate the amount of interest that may be charged to and paid by a
borrower. We will promise, for the benefit of the Securities holders, to the
extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
THE INTERNATIONAL SECURITIES MARKETS.
The underlying stocks that constitute the Sub-Indices have been issued by
companies listed on European, Australian and Asian exchanges. You should be
aware that investments in securities indexed to the value of European,
Australian and Asian securities involve certain risks. The European,
Australian and Asian securities markets may be more volatile than U.S. or
other securities markets and may be affected by market developments in
different ways than U.S. or other securities markets. Direct or indirect
government intervention to stabilize a particular non-U.S. securities market
and cross-shareholdings in European, Australian and Asian companies on such
markets may affect prices and volume of trading on those markets. Also, there
is generally less publicly available information about non-U.S. companies than
about those U.S. companies that are subject to the reporting requirements of
the SEC and non-U.S. companies are subject to accounting, auditing and
financial reporting standards and requirements that differ from those
applicable to U.S. reporting companies.
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Securities prices in Europe, Australia and Asia may be affected by
political, economic, financial and social factors in those regions. These
factors (including recent or future changes in a country's government,
economic and fiscal policies; the possible imposition of, or changes in,
currency exchange laws or other laws or restrictions applicable to non-U.S.
companies or investments in non-U.S. equity securities; and possible
fluctuations in the rate of exchange between currencies) could negatively
affect the international securities markets. Moreover, the relevant European,
Australian and Asian economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources and self-sufficiency. Because some
Sub-Indices have a greater weighting than others in calculating the value of
the Index, fluctuations in the securities markets relating to those Sub-
Indices will have a greater effect on the value of the Index than fluctuations
in securities markets relating to Sub-Indices with a lesser weighting. See
"The Index--Sub-Indices" in this Prospectus Supplement for the current
weightings of the Sub-Indices.
PURCHASES AND SALES BY MERRILL LYNCH.
The Company, MLPF&S and other affiliates of the Company may from time to
time buy or sell the stocks underlying the Index for their own accounts for
business reasons or in connection with hedging the Company's obligations under
the Securities. These transactions could affect the price of such stocks and
the value of the Index.
POTENTIAL CONFLICTS.
The Calculation Agent is a subsidiary of the Company, the issuer of the
Securities. Under certain circumstances, MLPF&S's role as a subsidiary of the
Company and its responsibilities as Calculation Agent for the Securities could
give rise to conflicts of interests. You should be aware that because the
Calculation Agent is controlled by the Company, potential conflicts of
interest could arise.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios for earnings to fixed
charges for the periods indicated:
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NINE MONTHS
YEAR ENDED LAST FRIDAY IN DECEMBER ENDED
-------------------------------------- SEPTEMBER 26,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ -------------
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Ratio of earnings to
fixed charges.......... 1.3 1.4 1.2 1.2 1.2 1.2
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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.
RECENT DEVELOPMENTS
On November 19, 1997, the Company and Mercury Asset Management Group plc
("MAM") announced the terms of a recommended offer (the "Offer") to be made
for all the issued share capital of MAM. In the proposed transaction, ML
Invest, PLC, an indirect, wholly owned subsidiary of the Company has offered
to acquire all outstanding shares of MAM for a price of (Pounds)17 per share.
The aggregate offer value for the outstanding shares is approximately
(Pounds)3.1 billion.
The directors of MAM have unanimously recommended to MAM shareholders the
acceptance of the Offer and have entered into irrevocable agreements to accept
the Offer in respect of their shareholdings. The transaction is conditioned
on, among other things, the receipt of all required regulatory approvals.
S-10
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Securities are to be issued as a series of Senior Debt Securities under
the Senior Indenture, referred to as the "1983 Indenture", which is more fully
described in the accompanying Prospectus. The Securities will mature on
December 6, 2002.
While at maturity a beneficial owner of a Security will receive the
principal amount of such Security plus the Supplemental Redemption Amount, if
any, 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
"General"
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.
"Determination of the Supplemental Redemption Amount"
The Supplemental Redemption Amount for a Security will be determined by the
Calculation Agent and will equal:
<TABLE>
<CAPTION>
<S> <C> <C>
Ending Index Value-Starting Index Value
Principal Amount of such Security ($10 per Unit) X --------------------------------------- X Participation Rate
Starting Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The Participation Rate equals 115%. The Starting Index Value equals 100. The
Ending Index Value will be determined by the Calculation Agent and will equal
the average (arithmetic mean) of the closing values of the Index in New York
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,
S-11
<PAGE>
as defined below, 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.
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical Ending Index
Values, (i) the total amount payable at maturity for each $10 principal amount
of Securities, (ii) the total rate of return to beneficial owners of the
Securities, (iii) the pretax annualized rate of return to beneficial owners of
Securities, and (iv) the pretax annualized rate of return of an investment in
the stocks underlying the Index (which includes an assumed aggregate dividend
yield of 2.36% per annum, as more fully described below).
<TABLE>
<CAPTION>
TOTAL AMOUNT PRETAX
PAYABLE AT MATURITY ANNUALIZED PRETAX ANNUALIZED
PERCENTAGE CHANGE PER $10 PRINCIPAL TOTAL RATE OF RATE RATE OF RETURN OF
HYPOTHETICAL ENDING OVER THE STARTING AMOUNT OF RETURN ON OF RETURN ON STOCKS UNDERLYING THE
INDEX VALUE INDEX VALUE SECURITIES THE SECURITIES THE SECURITIES(1) INDEX(1)(2)
- ------------------- ----------------- ------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
40 -60% $10.00 0.00% 0.00% -15.48%
50 -50% $10.00 0.00% 0.00% -11.24%
60 -40% $10.00 0.00% 0.00% -7.73%
70 -30% $10.00 0.00% 0.00% -4.72%
80 -20% $10.00 0.00% 0.00% -2.09%
90 -10% $10.00 0.00% 0.00% 0.25%
100(3) 0% $10.00 0.00% 0.00% 2.36%
110 10% $11.15 11.50% 2.18% 4.28%
120 20% $12.30 23.00% 4.16% 6.04%
130 30% $13.45 34.50% 5.98% 7.68%
140 40% $14.60 46.00% 7.67% 9.20%
150 50% $15.75 57.50% 9.24% 10.62%
160 60% $16.90 69.00% 10.71% 11.96%
170 70% $18.05 80.50% 12.09% 13.22%
180 80% $19.20 92.00% 13.40% 14.41%
190 90% $20.35 103.50% 14.64% 15.55%
200 100% $21.50 115.00% 15.81% 16.63%
210 110% $22.65 126.50% 16.93% 17.66%
220 120% $23.80 138.00% 18.00% 18.64%
230 130% $24.95 149.50% 19.03% 19.59%
</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 Sub-Indices with the allocation of such amount
reflecting the current relative weights of such stocks in the Sub-Indices;
(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 2.36% 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
November 26, 1997 to December 6, 2002; and (vi) a final Index value equal
to the Ending Index Value. The aggregate dividend yield of the stocks
underlying the Sub-Indices as of the close of business on November 20,
1997 was approximately 2.36%.
(3) The Starting Index Value equals 100.
S-12
<PAGE>
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
annualized rate of return resulting therefrom will depend entirely on the
actual Ending Index Value determined by the Calculation Agent as provided
herein. Historical data regarding the Index is included in this Prospectus
Supplement under "The Index--Historical Data on the Index".
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof, is
changed in any material respect, or if the Index is in any other way modified
so that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the
close of business in New York, New York, on each date that the closing value
with respect to the Ending Index Value is to be calculated, make such
adjustments as, in the good faith judgment of the Calculation Agent, may be
necessary in order to arrive at a calculation of a value of a stock index
comparable to the Index as if such changes or modifications had not 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 the occurrence or existence on any Overseas
Index Business Day with respect to a Sub-Index during the one-half hour period
that ends at the regular official weekday time at which trading on the Index
Exchange related to such Sub-Index occurs of any suspension of, or limitation
imposed on, trading (by reason of movements in price exceeding limits
permitted by the relevant exchange or otherwise) on (i) the Index Exchange in
securities that comprise 20% or more of the value of such Sub-Index or (ii)
any exchanges on which futures or options on such Sub-Index are traded in such
options or futures if, in the determination of the Calculation Agent, such
suspension or limitation is material. For the purpose of the foregoing
definition, (i) a limitation on the hours and number of days of trading will
not constitute a Market Disruption Event if it results from an announced
change in the regular hours of the relevant exchange and (ii) a limitation on
trading imposed during the course of a day by reason of movements in price
otherwise exceeding levels permitted by the relevant exchange will constitute
a Market Disruption Event.
"Overseas Index Business Day" means, with respect to any Sub-Index, any day
that is (or, but for the occurrence of a Market Disruption Event, would have
been) a trading day on the relevant Index Exchange or on any exchanges on
which futures or options on such Sub-Index are traded, other than a day on
which trading on any such exchange is scheduled to close prior to its regular
weekday closing time.
"Index Exchange" means, with respect to any Sub-Index, the principal
exchange on which the shares comprising such Sub-Index are traded.
DISCONTINUANCE OF THE INDEX
If the AMEX discontinues publication of the Index and the AMEX 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 the AMEX 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 the AMEX 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
S-13
<PAGE>
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 the AMEX 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 (a) the
determination of the Ending Index Value and (b) 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.
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 the Principal Amount and
the Supplemental Redemption Amount, if any, calculated as though the date of
early repayment were the stated 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 6.25% 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 Cede & Co. (DTC's
partnership nominee). 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.
So long as DTC, or its nominee, is a 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 1983 Indenture. Except as provided below, the actual owner of the
Securities represented by a Global Security (the "Beneficial Owner") 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, except in the event that use of
the book-entry system for the Securities is discontinued, and will not be
considered the owners or Holders thereof under the 1983 Indenture, including
for purposes of receiving any reports delivered by the Company or the Trustee
pursuant to the 1983 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 of DTC (a "Participant"), on the procedures of the
Participant through which such person owns its interest, to exercise any
rights of a Holder under the 1983 Indenture. The Company understands
S-14
<PAGE>
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 1983 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, as defined below, 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.
If (x) the 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 $10
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.
The following is based on information furnished by DTC:
DTC will act as securities depository for the Securities. The Securities
will be issued as fully registered securities registered in the name of Cede &
Co. (DTC's partnership nominee). One or more fully registered Global Security
will be issued for the Securities in the aggregate principal amount of such
issue, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
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 holds securities that its Participants
deposit with DTC. DTC also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants of DTC ("Direct Participants") include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. DTC is owned by a number of its Direct
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's system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or maintain
a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
Purchases of Securities under the DTC's system must be made by or through
Direct Participants, which will receive a credit for the Securities on the
DTC's records. The ownership interest of each Beneficial Owner is in turn to
be recorded on the records of Direct Participants and Indirect Participants.
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 Direct Participants or Indirect Participants through which
such Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the
books of Participants acting on behalf of Beneficial Owners. Beneficial Owners
will not receive certificates representing their ownership interests in
Securities, except in the event that use of the book-entry system for the
Securities is discontinued.
To facilitate subsequent transfers, all Securities deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
Securities with DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the
S-15
<PAGE>
Securities; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Securities are credited, which may or may not be the
Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
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.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the
Company as soon as possible after the applicable record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest, if any, payments on the
Securities will be made in immediately available funds to DTC. DTC's practice
is to credit Direct Participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the Depository's records
unless DTC has reason to believe that it will not receive payment on such
date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is 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 Participant and not of DTC, the
Trustee or the Company, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of principal, premium, if any,
and/or interest, if any, to DTC is the responsibility of the Company or the
Trustee, disbursement of such payments to Direct Participants shall be the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct Participants and Indirect
Participants.
DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the
Company or the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, Security certificates are
required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
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.
THE INDEX
The value of the Index on any Index Business Day will be calculated and
disseminated by the AMEX. The AMEX will generally calculate and disseminate
the value of the Index based on the most recently reported values of the Sub-
Indices, at approximately 15-second intervals during the AMEX's business hours
and the end of each Index Business Day via the Consolidated Tape Association's
Network B. The Index will be reported on the AMEX under the symbol "EUX". The
Starting Index Value was set to 100 on the date the Securities were priced for
initial sale to the public (the "Pricing Date").
"Determination of Index Multiplier for each Sub-Index"
The weighting of each Sub-Index was determined at the close of business on
the Pricing Date based on its relative market capitalization. The market
capitalization of a stock equals the product of the total number of
S-16
<PAGE>
shares of such stock outstanding and the price of a share of such stock. The
total market capitalization of the stocks comprising each Sub-Index was
determined using the most recently available information concerning the number
of shares outstanding for each stock contained in a Sub-Index and the most
recently available price for each such share. Current exchange rates were used
to translate such market capitalization information into U.S. dollars. The
market capitalizations expressed in U.S. dollars of each Sub-Index were
totaled (the "Total Market Capitalization"). The weighting of each Sub-Index
was then determined and equals the percentage of the market capitalization for
such Sub-Index relative to the Total Market Capitalization. The Index
Multiplier for each Sub-Index was then calculated and equals (i) the weighting
for such Sub-Index multiplied by 100, divided by (ii) the most recently
available value of such Sub-Index. The Index Multipliers were calculated in
this way so that the Index would equal 100.00 on the Pricing Date.
The Index Multiplier for each Sub-Index will remain fixed, except that the
AMEX may adjust such Index Multiplier in the event of a significant change in
how a Sub-Index is calculated. There will be no periodic rebalancing of the
Index to reflect changes in the relative market capitalizations of the Sub-
Indices.
"Computation of the Index"
The Index is calculated by totaling the products of the most recently
available value of each Sub-Index and the Index Multiplier applicable to such
Sub-Index. Since the Sub-Indices are based on stocks traded on stock exchanges
in Europe, Asia and Australia, once such stock exchanges close and the values
of the Sub-Indices become fixed until such stock exchanges reopen, the value
of the Index will be fixed.
"Sub-Indices"
The following table sets forth the name of each Sub-Index, the number of
stocks underlying each Sub-Index, the market capitalization in U.S. dollars of
each Sub-Index, the weighting of each Sub-Index as of the Pricing Date and the
Index Multiplier:
<TABLE>
<CAPTION>
NUMBER MARKET CURRENT INDEX
SUB-INDEX OF STOCKS CAPITALIZATION(1) WEIGHTING(1) MULTIPLIER
--------- --------- ----------------- ------------ ----------
(IN BILLIONS)
<S> <C> <C> <C> <C>
Financial Times SE 100
Index.................... 102 US$1,534 25.18% .0051303
Nikkei 225................ 225 1,366 22.43% .0013754
Deutscher Aktienindex..... 30 586 9.62% .0024576
Swiss Market Index........ 23 545 8.95% .0015832
Amsterdam Exchanges-
index.................... 25 432 7.10% .0080236
Compagnie des Agents de
Change 40 Index.......... 40 399 6.54% .0023191
Australia All Ordinaries
Index.................... 338 309 5.08% .0020840
Stockholm Options Market
Index.................... 30 267 4.39% .0018237
Milano Italia Borsa 30
Index.................... 30 258 4.23% .0001851
Hong Kong 30 Index........ 30 216 3.54% .0070410
IBEX 35................... 35 179 2.94% .0004344
--- -------- -------
Total................... 908 US$6,091 100.00%
</TABLE>
- --------
(1) As of November 20, 1997.
The following is a list of the Sub-Indices and certain information
concerning each such Sub-Index. All disclosure contained in this Prospectus
Supplement regarding the Sub-Indices is derived from publicly available
information.
S-17
<PAGE>
NIKKEI STOCK AVERAGE--"NIKKEI 225"
Description of Nikkei 225: The Nikkei 225 is intended to provide an
indication of the pattern of common stock price movement of the 225 most
actively traded common stocks on the Tokyo Stock Exchange. The Nikkei 225
is a modified price-weighted index which means that an underlying stock's
weight in the Nikkei 225 is based on its price per share rather than the
total market capitalization of the issuer.
Publisher: Nihon Keizai Shimbun, Inc. ("NKS")
Required Disclosure: NKS is under no obligation to continue the calculation
and dissemination of the Nikkei 225. The Securities are not sponsored,
endorsed, sold or promoted by NKS. No inference should be drawn from the
information contained in this Prospectus Supplement that NKS makes any
representation or warranty, implied or express, to the Company, the holders
of the Securities or any member of the public regarding the advisability of
investing in securities generally or in the Securities in particular or the
ability of the Nikkei 225 to track general stock market performance. NKS
has no obligation to take the needs of the Company or the holders of the
Securities into consideration in determining, composing or calculating the
Nikkei 225. NKS is not responsible for, and has not participated in the
determination of the timing of, prices for, or quantities of, the
Securities to be issued or in the determination or calculation of the
equation by which the Securities are to be settled in cash. NKS has no
obligation or liability in connection with the administration, marketing or
trading of the Securities.
The use of and reference to the Nikkei 225 in connection with the
Securities have been consented to by NKS, the publisher of the Nikkei 225.
FINANCIAL TIMES SE 100 INDEX--"FTSE 100"
Description of FTSE 100: The FTSE 100 is intended to provide an indication
of the pattern of common stock price movement of the 100 common stocks with
the largest market capitalization on the London Stock Exchange.
Publisher: The Financial Times and London Stock Exchange
Required Disclosure: The FTSE 100 is calculated by FTSE International
Limited in conjunction with the Institute of Actuaries and the Faculty of
Actuaries. Merrill Lynch & Co., Inc. has obtained full license from FTSE
International Limited to use its trademark and copyright in the creation of
this Security. FTSE International Limited does not sponsor, endorse or
promote this Security.
DEUTSCHER AKTIENINDEX--"DAX(R)"
Description of DAX: The DAX is a total rate of return index measuring the
performance of 30 common stocks on the Frankfurt Stock Exchange selected on
the basis of their market capitalization and trading volume. A total rate
of return index reflects both the price performance of the relevant common
stocks as well as the dividends paid on such common stocks.
Publisher: Deutsche Borse AG
--------
"DAX" is a registered trademark of Deutsche Borse AG.
COMPAGNIE DES AGENTS DE CHANGE 40 INDEX--"CAC 40"
Description of CAC 40: The CAC 40 is intended to provide an indication of
the pattern of common stock price movement of the 40 common stocks with the
largest market capitalization on the Paris Bourse.
Publisher: SBF--Paris Bourse
S-18
<PAGE>
Required Disclosure: "CAC-40" is a registered trademark of the Societe des
Bourses Francaises-Paris Bourse, which designates the index that the SBF-
Paris Bourse calculates and publishes. Authorization to use the index and
the "CAC-40" trademark in connection with the Securities has been granted
by license.
The SBF-Paris Bourse, owner of the trademark and of the CAC-40, does not
sponsor, endorse or participate in the marketing of the Securities. The
SBF-Paris Bourse makes no warranty or representation to any person, express
or implied, as to the figure at which the CAC-40 stands at any particular
time, nor as to the results or performance of the Securities. Neither shall
the SBF-Paris Bourse be under any obligation to advise any person of any
error in the published level of the CAC-40.
SWISS MARKET INDEX--"SMI(R)"
Description of SMI: The SMI is intended to provide an indication of the
pattern of common stock price movement of common stocks with the largest
market capitalization and greatest liquidity on the Geneva, Zurich and
Basle Stock Exchanges.
Publisher: Swiss Exchange
Required Disclosure: The Securities are not in any way sponsored, endorsed,
sold or promoted by the Swiss Exchange and the Swiss Exchange makes no
warranty or representation whatsoever, express or implied, either as to the
results to be obtained from the use of the SMI and/or the figure at which
the SMI stands at any particular time on any particular day or otherwise.
The SMI is compiled and calculated solely by the Swiss Exchange. However,
the Swiss Exchange shall not be liable (whether in negligence or otherwise)
to any person for any error in the SMI and the Swiss Exchange shall not be
under any obligation to advise any person of any error therein.
--------
"SMI" is a registered trademark of the Swiss Exchange.
AMSTERDAM EXCHANGES-INDEX(R)--"AEX-INDEX(R)"
Description of AEX: The AEX is intended to provide an indication of the
pattern of common stock price movement of the 25 common stocks with the
largest market capitalization on the Amsterdam Stock Exchange.
Publisher: AEX--Optiebeurs nv
Required Disclosure: The AEX-Optiebeurs nv has all proprietary rights with
relation to the AEX. The AEX-Optiebeurs nv in no way sponsors, endorses or
is otherwise involved in the issue and offering of the Securities. The AEX-
Optiebeurs nv disclaims any liability to any party for any inaccuracy in
the data on which the AEX is based, for any mistakes, errors, or omissions
in the calculation or dissemination of the AEX or for the manner in which
the AEX is used in connection with the issue and offering of the
Securities.
--------
"AEX-index" is a registered trademark of the AEX-Optiebeurs nv.
AMEX HONG KONG 30 INDEX--"HK30"
Description of HK30: The HK30 is intended to provide an indication of the
pattern of common stock price movement of 30 common stocks listed on the
Hong Kong Stock Exchange and selected on the basis of market weight,
trading liquidity and representation of business industry.
Publisher: The American Stock Exchange
Required Disclosure: The AMEX in no way sponsors, endorses or is otherwise
involved in the issuance of the Securities (other than the fact that the
Securities will be listed and traded on the AMEX and the
S-19
<PAGE>
AMEX will calculate and disseminate the Major 11 Index) and the AMEX
disclaims any liability to any party for any inaccuracy in the data on
which the HK30 is based, for any mistakes, errors or omissions in the
calculation, and/or dissemination of the HK30, or for the manner in which
it is applied in connection with the issuance of the Securities.
--------
The use and reference to the term "AMEX Hong Kong 30 Index" herein has been
consented to by the AMEX. The "AMEX Hong Kong 30 Index" is a service mark
of the AMEX.
AUSTRALIA ALL ORDINARIES INDEX--"XAO"
Description of XAO: The XAO is a capitalization-weighted index of 338
common stocks listed on the Australian Stock Exchange.
Publisher: ASX Operations Pty Limited
Required Disclosure: The XAO is a "registered" trade mark of ASX Operations
Pty Limited ("ASXO"), a wholly-owned subsidiary of the Australian Stock
Exchange Limited ("ASX"). ASXO has granted a license for the use of the XAO
on the basis that ASXO does not expressly or impliedly approve, endorse,
make any judgment or express any opinion in respect of the Company or the
Securities. ASX and its related corporations, shall be under no liability
for any claim whatsoever where the claim arises wholly or substantially out
of accident or negligence of ASX, its related corporations and their
servants and agents as the case may be or acts of third parties; and
without in any way limiting the generality of the foregoing, arising out of
unavailability of the All Ordinaries Index or non-supply of the All
Ordinaries Index.
MILANO ITALIA BORSA 30 INDEX--"MIB 30"
Description of MIB 30: The MIB 30 is intended to provide an indication of
the pattern of common stock price movement of common stocks with the
largest market capitalization and greatest liquidity on the Italian Stock
Exchange.
Publisher: Consiglio di Borsa
STOCKHOLM OPTIONS MARKET INDEX--"OMX INDEX"
Description of OMX index: The OMX index is intended to provide an
indication of the pattern of common stock price movement of the 30 common
stocks with the largest volume of trading on the Stockholm Stock Exchange.
Publisher: OM Gruppen AB
Required Disclosure: The Securities are not in any way sponsored, endorsed,
sold or promoted by OM Gruppen AB ("OM") and OM makes no warranty or
representation whatsoever, express or implied, either as to the results to
be obtained from the use of the OMX index and/or the figure at which the
said OMX index stands at any particular time on any particular day or
otherwise. The OMX index is compiled and calculated solely by an indexer on
behalf of OM. However, OM shall not be liable (whether in negligence or
otherwise) to any person for any error in the OMX index and OM shall not be
under any obligation to advise any person of any error therein.
All rights to the trademark OMX, OMX INDEX are vested in OM Gruppen AB and
are used under a license agreement with OM.
IBEX 35 INDEX--"IBEX 35"
Description of IBEX 35: The IBEX 35 is intended to provide an indication of
the pattern of common stock price movement of the 35 common stocks with the
greatest liquidity continuously traded and quoted on the Joint Stock
Exchange System made up of the Barcelona, Bilbao, Madrid and Valencia stock
exchanges.
S-20
<PAGE>
Publisher: Sociedad de Bolsas, S.A.
Required Disclosure: Sociedad de Bolsas, S.A. does not warrant in any case
nor for any reason whatsoever: (a) The continuity of the composition of the
IBEX 35 exactly as it is today; (b) the continuity of the method for
calculating the IBEX 35 exactly as it is calculated today; (c) the
continuity of the calculation, formula and publication of the IBEX 35; (d)
the precision, integrity or freedom from errors or mistakes in the
composition and calculation of the IBEX 35; and (e) the adequacy of the
IBEX 35 for the purposes expected in the issue of the Securities nor for
dealing in the same.
The publisher of each Sub-Index will add or delete stocks due to events such
as the bankruptcy or merger of the issuer of a stock. The publisher of a Sub-
Index may reevaluate the composition of the stocks underlying the Sub-Index at
specified intervals to assure that they still meet the selection criteria or
any ongoing eligibility criteria.
The publisher of a Sub-Index is under no obligation to continue the
calculation and dissemination of such Sub-Index and such publisher may change
the method by which such Sub-Index is calculated. The publishers of the Sub-
Indices are under no obligation to take the needs of the Company or the
holders of the MITTS into consideration in determining, composing or
calculating the Sub-Indices.
HISTORICAL DATA ON THE INDEX
The following table sets forth the hypothetical level of the Index at the
end of each month (the "Historical Month-End Closing Level"), in the period
from January 1993 through October 1997. All historical data presented in the
following table were calculated and are presented as if the Index had existed
during such periods based on weightings for the Sub-Indices determined as of
the close of business on November 20, 1997. Not all of the Sub-Indices were
calculated and published prior to January 1993. Such closing levels have been
calculated hypothetically on the same basis that the Index will be calculated
in the future. The Historical Month-End Closing Level was set to 100 on
January 29, 1993 to provide an illustration of past movements of the
Historical Month-End Closing Level only. The Starting Index Value was set to
100 on the Pricing Date. 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.
S-21
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1993
January.................... 100.00
February................... 102.94
March...................... 107.23
April...................... 111.96
May........................ 112.34
June....................... 111.62
July....................... 115.63
August..................... 121.84
September.................. 118.22
October.................... 122.33
November................... 113.44
December................... 123.38
1994
January.................... 132.30
February................... 127.17
March...................... 121.02
April...................... 124.14
May........................ 124.41
June....................... 120.21
July....................... 123.84
August..................... 126.52
September.................. 119.35
October.................... 121.30
November................... 118.28
December................... 119.40
1995
January.................... 114.83
February................... 112.38
March...................... 110.37
April...................... 114.78
May........................ 114.25
June....................... 111.75
July....................... 119.92
August..................... 123.40
September.................. 123.46
October.................... 122.36
November................... 127.35
December................... 131.11
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1996
January.................... 136.81
February................... 135.43
March...................... 138.85
April...................... 143.20
May........................ 142.54
June....................... 143.81
July....................... 136.57
August..................... 138.35
September.................. 145.05
October.................... 143.31
November................... 149.56
December................... 147.54
1997
January.................... 150.34
February................... 153.72
March...................... 153.67
April...................... 158.88
May........................ 165.52
June....................... 173.28
July....................... 182.84
August..................... 169.41
September.................. 177.65
October.................... 161.25
</TABLE>
S-23
<PAGE>
The following graph sets forth the hypothetical historical performance of
the Index at the end of each month from January 1993 through October 1997.
Past movements of the Index are not necessarily indicative of the future Index
values.
HYPOTHETICAL HISTORICAL MONTH-END CLOSING LEVELS
[The graph sets forth the hypothetical month-end closing levels of the Index
from January 1993 through October 1997, with the vertical axis specifying the
month-end closing level of the Index in a range from 0 to 200 in increments of
20 and the horizontal axis specifying the time period in increments of 4 months
from January 1993 to September 1997 and a month increment from September 1997 to
October 1997.]
S-24
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Set forth in full below is the opinion of Brown & Wood LLP, 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, 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, persons holding Securities in a tax-deferred or tax-
advantaged account, or persons holding Securities as a hedge against currency
risks, as a position in a "straddle" or as part of a "hedging" or "conversion"
transaction 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 States
Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Securities
arising under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a
Security that is for United States Federal income tax purposes (a) a citizen
or resident of the United States, (b) a corporation, partnership or other
entity created or organized in or under the laws of the United States or of
any political subdivision thereof (other than a partnership that is not
treated as a United States person under any applicable Treasury regulations),
(c) an estate the income of which is subject to United States Federal income
taxation regardless of its source, (d) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States fiduciaries have the authority to control
all substantial decisions of the trust, or (e) 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. Notwithstanding the preceding sentence, to
the extent provided in Treasury regulations, certain trusts in existence on
August 20, 1996, and treated as United States persons prior to such date that
elect to continue to be treated as United States persons also will be a U.S.
Holder. 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, 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 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.
S-25
<PAGE>
U.S. HOLDERS
On June 11, 1996, the Treasury Department issued final regulations (the
"Final Regulations") concerning the proper United States Federal income tax
treatment of contingent payment debt instruments such as the Securities, which
apply to debt instruments issued on or after August 13, 1996 and, accordingly,
will apply to the Securities. In general, the Final Regulations 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 prior United States Federal income tax law.
Specifically, the Final Regulations generally require a U.S. Holder of such an
instrument to include future contingent and noncontingent interest payments in
income as such interest accrues based upon a projected payment schedule.
Moreover, in general, under the Final Regulations, any gain recognized by a
U.S. Holder on the sale, exchange, or retirement of a contingent payment debt
instrument is treated as ordinary income and all or a portion of any loss
realized could be treated as ordinary loss as opposed to capital loss
(depending upon the circumstances). The Final Regulations provide no
definitive guidance as to whether or not an instrument is properly
characterized as a debt instrument for United States Federal income tax
purposes.
In particular, solely for purposes of applying the Final Regulations to the
Securities, the Company has determined that the projected payment schedule for
the Securities will consist of payment on the maturity date of the principal
amount thereof and a projected Supplemental Redemption Amount equal to $3.6261
per Unit (the "Projected Supplemental Redemption Amount"). This represents an
estimated yield on the Securities equal to 6.25% per annum (compounded
semiannually). Accordingly, during the term of the Securities, a U.S. Holder
of a Security will be required to include in income as ordinary interest an
amount equal to the sum of the daily portions of interest on the Security that
are deemed to accrue at this estimated yield for each day during the taxable
year (or portion of the taxable year) on which the U.S. Holder holds such
Security. The amount of interest that will be deemed to accrue in any accrual
period (i.e., generally each six month period during which the Securities are
outstanding) will equal the product of this estimated yield (properly adjusted
for the length of the accrual period) and the Security's adjusted issue price
(as defined below) at the beginning of the accrual period. The daily portions
of interest will be determined by allocating to each day in the accrual period
the ratable portion of the interest that is deemed to accrue during the
accrual period. In general, for these purposes, a Security's adjusted issue
price will equal the Security's issue price (i.e., $10), increased by the
interest previously accrued on the Security. At maturity of a Security, in the
event that the actual Supplemental Redemption Amount, if any, exceeds $3.6261
per Unit (i.e., the Projected Supplemental Redemption Amount), a U.S. Holder
will be required to include the excess of the actual Supplemental Redemption
Amount over $3.6261 per Unit (i.e., the Projected Supplemental Redemption
Amount) in income as ordinary interest on the maturity date. Alternatively, in
the event that the actual Supplemental Redemption Amount, if any, is less than
$3.6261 per Unit (i.e., the Projected Supplemental Redemption Amount), the
amount by which the Projected Supplemental Redemption Amount (i.e., $3.6261
per Unit) exceeds the actual Supplemental Redemption Amount will be treated
first as an offset to any interest otherwise includible in income by the U.S.
Holder with respect to the Security for the taxable year in which the maturity
date occurs to the extent of the amount of such includible interest. Further,
a U.S. Holder will be permitted to recognize and deduct, as an ordinary loss
that is not subject to the limitations applicable to miscellaneous itemized
deductions, any remaining portion of the Projected Supplemental Redemption
Amount (i.e., $3.6261 per Unit) in excess of the actual Supplemental
Redemption Amount that is not treated as an interest offset pursuant to the
foregoing rules. U.S. Holders purchasing a Security at a price that differs
from the adjusted issue price of the Security as of the purchase date (e.g.,
subsequent purchasers) will be subject to special rules providing for certain
adjustments to the foregoing rules and such U.S. Holders should consult their
own tax advisors concerning these rules.
Upon the sale or exchange of a Security prior to the maturity date, a U.S.
Holder will be required to recognize taxable gain or loss in an amount equal
to the difference, if any, between the amount realized by the U.S. Holder upon
such sale or exchange and the U.S. Holder's adjusted tax basis in the Security
as of the date of disposition. A U.S. Holder's adjusted tax basis in a
Security generally will equal such U.S. Holder's initial investment in the
Security increased by any interest previously included in income with respect
to the Security by the U.S. Holder. Any such taxable gain will be treated as
ordinary income. Any such taxable loss will be
S-26
<PAGE>
treated as ordinary loss to the extent of the U.S. Holder's total interest
inclusions on the Security. Any remaining loss generally will be treated as
long-term or short-term capital loss (depending upon the U.S. Holder's holding
period for the Security). All amounts includible in income by a U.S. Holder as
ordinary interest pursuant to the Final Regulations will be treated as
original issue discount.
All prospective investors in the Securities should consult their own tax
advisors concerning the application of the Final Regulations to their
investment in the Securities. Investors in the Securities may also obtain the
projected payment schedule, as determined by the Company for purposes of the
application of the Final Regulations to the Securities, by submitting a
written request for such information to Merrill Lynch & Co., Inc., Attn:
Darryl W. Colletti, Corporate Secretary's Office, 100 Church Street, 12th
Floor, New York, New York 10080-6512.
The projected payment schedule (including both the Projected Supplemental
Redemption Amount and the estimated yield on the Securities) has been
determined solely for United States Federal income tax purposes (i.e., for
purposes of applying the Final Regulations to the Securities), and is neither
a prediction nor a guarantee of what the actual Supplemental Redemption Amount
will be, or that the actual Supplemental Redemption Amount will even exceed
zero.
The following table sets forth the amount of interest that will be deemed to
have accrued with respect to each Unit of the Securities during each accrual
period over a term of five years and ten days for the Securities based upon
the projected payment schedule for the Securities as determined by the Company
for purposes of illustrating the application of the Final Regulations to the
Securities:
<TABLE>
<CAPTION>
TOTAL INTEREST
DEEMED TO HAVE
INTEREST DEEMED TO ACCRUED ON
ACCRUE DURING SECURITIES AS OF END
ACCRUAL PERIOD OF ACCRUAL PERIOD
ACCRUAL PERIOD (PER UNIT) (PER UNIT)
-------------- ------------------ --------------------
<S> <C> <C>
November 26, 1997 through December
6, 1997.......................... $0.0169 $0.0169
December 7, 1997 through June 6,
1998............................. $0.3130 $0.3299
June 7, 1998 through December 6,
1998............................. $0.3228 $0.6527
December 7, 1998 through June 6,
1999............................. $0.3329 $0.9856
June 7, 1999 through December 6,
1999............................. $0.3433 $1.3289
December 7, 1999 through June 6,
2000............................. $0.3540 $1.6829
June 7, 2000 through December 6,
2000............................. $0.3651 $2.0480
December 7, 2000 through June 6,
2001............................. $0.3765 $2.4245
June 7, 2001 through December 6,
2001............................. $0.3883 $2.8128
December 7, 2001 through June 6,
2002............................. $0.4004 $3.2132
June 7, 2002 through December 6,
2002............................. $0.4129 $3.6261
</TABLE>
- --------
Projected Supplemental Redemption Amount = $3.6261 per Unit.
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 (a) is
signed by the beneficial owner of the Security under penalties of perjury, (b)
certifies that such owner is not a U.S. Holder and (c) 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
S-27
<PAGE>
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.
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 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 (a) the
broker determines that the seller is a corporation or other exempt recipient
or (b) 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 (a) the broker
determines that the seller is an exempt recipient or (b) 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.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1998, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
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 associated with its obligation to pay the Principal Amount and
the Supplemental Redemption Amount.
S-28
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") has
agreed, subject to the terms and conditions of the Underwriting Agreement and
a Terms Agreement, to purchase from the Company $27,500,000 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. After the initial
public offering, the public offering price and concession may be changed. The
Underwriter is offering the Securities subject to receipt and acceptance and
subject to the Underwriter's right to reject any order in whole or in part.
The underwriting of the Securities will conform to the requirements set
forth in the applicable sections of Rule 2720 of the Conduct Rules of the
National Association of Securities Dealers, Inc.
The Underwriter is permitted to engage in certain transactions that
stabilize the price of the Securities. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Securities.
If the Underwriter creates a short position in the Securities in connection
with the offering, i.e., if they sell more Units of the Securities than are
set forth on the cover page of this Prospectus Supplement, the Underwriter may
reduce that short position by purchasing Units of the Securities in the open
market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Securities. In
addition, neither the Company nor the Underwriter makes any representation
that the Underwriter will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
The Underwriter may use this Prospectus Supplement and the accompanying
Prospectus for offers and sales related to market-making transactions in the
Securities. The Underwriter may act as principal or agent in these
transactions, and the sales will be made at prices related to prevailing
market prices at the time of sale.
VALIDITY OF SECURITIES
The validity of the Securities will be passed upon for the Company and for
the Underwriter by Brown & Wood LLP, New York, New York.
S-29
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
AEX-index.................................................................. S-19
AMEX....................................................................... S-5
Applicable home country.................................................... S-8
ASX........................................................................ S-20
ASXO....................................................................... S-20
Beneficial Owner........................................................... S-14
CAC 40..................................................................... S-18
Calculation Agent.......................................................... S-6
Calculation Day............................................................ S-11
Calculation Period......................................................... S-11
Company.................................................................... S-4
DAX........................................................................ S-18
Direct Participants........................................................ S-15
DTC........................................................................ S-4
Ending Index Value......................................................... S-4
Final Regulations.......................................................... S-26
FTSE 100................................................................... S-18
Global Securities.......................................................... S-14
Historical Month-End Closing Level......................................... S-21
HK30....................................................................... S-19
IBEX 35.................................................................... S-20
Index...................................................................... S-4
Index Business Day......................................................... S-11
Index Exchange............................................................. S-13
Index Multiplier........................................................... S-16
Indirect Participants...................................................... S-15
IRS........................................................................ S-25
Major 11 Index............................................................. S-4
Market Disruption Event.................................................... S-13
MIB 30..................................................................... S-20
MITTS...................................................................... S-1
MLPF&S..................................................................... S-2
New Regulations............................................................ S-28
Nikkei 225................................................................. S-18
NKS........................................................................ S-18
Non-U.S. Holder............................................................ S-25
1983 Indenture............................................................. S-11
OM......................................................................... S-20
OMX Index.................................................................. S-20
Overseas Index Business Day................................................ S-13
Participant................................................................ S-14
Participation Rate......................................................... S-4
Pricing Date............................................................... S-16
Principal Amount........................................................... S-4
Projected Supplemental Redemption Amount................................... S-26
SEC........................................................................ S-2
Securities................................................................. S-4
SMI........................................................................ S-19
Starting Index Value....................................................... S-4
Sub-Index.................................................................. S-5
Successor Index............................................................ S-13
Supplemental Redemption Amount............................................. S-4
Total Market Capitalization................................................ S-17
Underwriter................................................................ S-29
Unit....................................................................... S-4
U.S. Holder................................................................ S-25
Withholding Agent.......................................................... S-27
XAO........................................................................ S-20
</TABLE>
S-30
<PAGE>
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[LOGO]
2,750,000 UNITS
MERRILL LYNCH & CO., INC.
MAJOR 11 INTERNATIONAL MARKET
INDEX TARGET-TERM SECURITIES SM
DUE DECEMBER 6, 2002
"MITTS(R)"
---------------------
PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
NOVEMBER 20, 1997
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