<PAGE>
PROSPECTUS
Filed pursuant to Rule 424(b)(1)
Registration No. 333-20137
[LOGO]
12,000,000 TRUST PREFERRED SECURITIES
MERRILL LYNCH PREFERRED CAPITAL TRUST II
8% TRUST ORIGINATED PREFERRED SECURITIES-SM- ("TOPRS-SM-")
(LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
MERRILL LYNCH & CO., INC.
------------------
The 8% Trust Originated Preferred Securities-SM- (the "TOPrS-SM-" or "Trust
Preferred Securities") offered hereby represent preferred undivided beneficial
ownership interests in the assets of Merrill Lynch Preferred Capital Trust II, a
statutory business trust formed under the laws of the State of Delaware (the
"Trust"). Merrill Lynch & Co., Inc., a Delaware corporation (the "Company" or
"Merrill Lynch"), will own all the common securities (the "Trust Common
Securities" and, together with the Trust Preferred Securities, the "Trust
Securities") representing undivided beneficial ownership interests in the assets
of the Trust. The Trust exists for the sole purpose of issuing the Trust
Securities and investing the proceeds as described below and engaging in
activities incident thereto. The proceeds from the sale of the Trust Securities
will be used by the Trust to purchase Partnership Preferred Securities
("Partnership Preferred Securities"), representing the limited partner interests
of Merrill Lynch Preferred Funding II, L.P., a Delaware limited partnership (the
"Partnership"). The general partner interest, which constitutes all of the
interest in the Partnership other than the limited partner interests represented
by the Partnership Preferred Securities, is owned by the Company, which is the
sole general partner of the Partnership (in such capacity, the "General
Partner"). Substantially all of the proceeds from the sale of the Partnership
Preferred Securities, together with the capital contribution from the General
Partner, will be used by the Partnership to purchase Debentures (as defined
herein), which consist of debt instruments of the Company and one or more of its
eligible controlled affiliates. In addition, approximately one percent of the
proceeds from the sale of the Partnership Preferred Securities and the capital
contribution from the General Partner will be used to purchase Eligible Debt
Securities (as defined herein). See "Description of the Partnership Preferred
Securities -- Partnership Investments".
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE TRUST PREFERRED
SECURITIES, INCLUDING CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
Application has been made to list the Trust Preferred Securities on the New
York Stock Exchange, Inc. (the "New York Stock Exchange"). If approved for
listing, trading of the Trust Preferred Securities on the New York Stock
Exchange is expected to commence within the 30-day period after the initial
delivery of the Trust Preferred Securities. See "Underwriting".
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO PUBLIC (1) COMMISSION (2)
<S> <C> <C>
Per Trust Preferred Security...................................... $25 (3)
Total............................................................. $300,000,000 (3)
<CAPTION>
PROCEEDS TO
THE TRUST(3)(4)
<S> <C>
Per Trust Preferred Security...................................... $25
Total............................................................. $300,000,000
</TABLE>
(1) Plus accumulated distributions, if any, from February 6, 1997.
(2) The Trust, the Partnership and the Company have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(3) In view of the fact that the proceeds of the sale of the Trust Preferred
Securities will be ultimately invested in investment instruments of the
Company and its subsidiaries, the Company has agreed to pay to the
Underwriters as compensation (the "Underwriters' Compensation") $.7875 per
Trust Preferred Security (or $9,450,000 in the aggregate); provided that
such compensation for sales of more than 10,000 Trust Preferred Securities
to a single purchaser will be $.50 per Trust Preferred Security. Therefore,
to the extent of such sales, the actual amount of Underwriters' Compensation
will be less than the aggregate amount specified in the preceding sentence.
See "Underwriting".
(4) Expenses of the offering payable by the Company are estimated to be
$700,000.
------------------------------
The Trust Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Trust Preferred Securities will be made only in book-entry
form through the facilities of The Depository Trust Company ("DTC") on or about
February 6, 1997.
This Prospectus may be used by Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S") in connection with offers and sales
related to market-making transactions in the Trust Preferred Securities. MLPF&S
may act as principal or agent in such transactions. Such sales will be made at
prices related to prevailing market prices at the time of sale.
------------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
INCORPORATED
SMITH BARNEY INC.
------------------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY 4, 1997.
-SM-"TRUST ORIGINATED PREFERRED SECURITIES" AND "TOPRS" ARE SERVICE MARKS OF
MERRILL LYNCH & CO., INC.
<PAGE>
(CONTINUED FROM COVER PAGE)
Holders of the Trust Preferred Securities will be entitled to receive
cumulative cash distributions accumulating from the date of original issuance
and payable quarterly in arrears on each March 30, June 30, September 30 and
December 30, commencing March 30, 1997, at an annual rate of 8% of the
liquidation amount of $25 per Trust Preferred Security (equivalent to $2.00 per
Trust Preferred Security per annum), if, as and when the Trust has funds
available for payment. See "Description of the Trust Preferred Securities --
Distributions." Distributions not paid on the scheduled payment date will
accumulate and compound quarterly at a rate per annum equal to 8%. The
distribution rate and the distribution payment dates and other payment dates for
the Trust Preferred Securities will correspond to the distribution rate and
distribution payment dates and other payment dates for the Partnership Preferred
Securities, which are the sole assets of the Trust. As described above, the
assets of the Partnership will initially consist only of the Debentures and, to
a limited extent, Eligible Debt Securities.
The payment of distributions by the Trust and payments on liquidation of the
Trust or the redemption of Trust Preferred Securities, as described below, are
guaranteed on a subordinated basis by the Company (the "Trust Guarantee") to the
extent the Trust has funds available therefor as described under "Description of
the Trust Guarantee". The payment of distributions by the Partnership (if, as
and when declared) and payments on liquidation of the Partnership or the
redemption of Partnership Preferred Securities, as described below, are also
guaranteed on a subordinated basis by the Company (the "Partnership Guarantee")
to the extent the Partnership has funds available therefor as described under
"Description of the Partnership Guarantee". In addition, payments in respect of
the Debentures (other than the Company Debenture (as defined herein)) will be
fully and unconditionally guaranteed, on a subordinated basis, by the Company
(the "Investment Guarantees") for the benefit of the holders of the Partnership
Preferred Securities. The Trust Guarantee, the Partnership Guarantee and the
Investment Guarantees (collectively, the "Guarantees"), when taken together with
the Company Debenture and the Company's obligations to pay all fees and expenses
of the Trust and the Partnership, constitute a guarantee to the extent set forth
herein by the Company of the distribution, redemption and liquidation payments
payable to the holders of the Trust Preferred Securities. The Guarantees do not
apply to current distributions by the Partnership unless and until such
distributions are declared by the Partnership out of funds legally available for
payment or to liquidating distributions unless there are assets available for
payment in the Partnership, each as more fully described in the next succeeding
paragraph and under "Risk Factors -- Insufficient Income or Assets Available to
Partnership". The Company's obligations under the Guarantees are subordinate and
junior in right of payment to all other liabilities of the Company and rank PARI
PASSU with the most senior preferred stock issued from time to time by the
Company, with similar guarantees issued by the Company in connection with the
$275,000,000 aggregate liquidation amount of 7 3/4% Trust Originated Preferred
Securities issued by Merrill Lynch Preferred Capital Trust I, and with any
guarantee now or hereafter entered into by the Company in respect of any
preferred stock of any other Finance Subsidiary (as defined below). The
Company's obligations under the Company Debenture are subordinate and junior in
right of payment to all Senior Indebtedness of the Company. At September 27,
1996, the Company had outstanding Senior Indebtedness aggregating approximately
$47.7 billion, which would have ranked senior to the Company's obligations under
the Guarantees and the Company Debenture. See "Risk Factors -- Ranking of
Subordinate Obligations Under the Guarantees and the Company Debenture". The
term "Senior Indebtedness" means any payment in respect of indebtedness of the
Company for money borrowed, except for any such indebtedness that is by its
terms subordinated to or PARI PASSU with the Company Debenture, as the case may
be.
Distributions on the Partnership Preferred Securities will be declared and
paid only as determined in the sole discretion of the Company in its capacity as
the General Partner of the Partnership. In addition, the General Partner is not
obligated to declare distributions on the Partnership Preferred Securities at
any time, including upon or following a Partnership Enforcement Event (as
defined herein). To the extent that the issuers (including, where applicable,
the Company, as guarantor) of the securities in which the Partnership invests
defer or fail to make any payments in respect of such securities (or, if
applicable,
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<PAGE>
guarantees), the Partnership will not have sufficient funds to pay and will not
declare or pay distributions on the Partnership Preferred Securities. In
addition, as described under "Risk Factors -- Insufficient Income or Assets
Available to Partnership", the Partnership may not have sufficient funds to pay
current or liquidating distributions on the Partnership Preferred Securities if
(i) at any time that the Partnership is receiving current payments in respect of
the securities held by the Partnership (including the Debentures), the General
Partner, in its sole discretion, does not declare distributions on the
Partnership Preferred Securities and the Partnership receives insufficient
amounts to pay the additional compounded distributions that will accumulate in
respect of the Partnership Preferred Securities, (ii) the Partnership reinvests
the proceeds received in respect of the Debentures upon their retirement or at
their maturities in Affiliate Investment Instruments (as defined herein) and
Eligible Debt Securities that do not generate income in an amount that is
sufficient to pay full distributions in respect of the Partnership Preferred
Securities or (iii) the Partnership invests in equity or debt securities of
Investment Affiliates that are not guaranteed by the Company and that cannot be
liquidated by the Partnership for an amount sufficient to pay such distributions
in full. The Debentures will provide that payments of interest may be deferred
at any time, and from time to time, by the relevant issuer for a period not
exceeding six consecutive quarters. If an issuer were to so defer the payment of
interest, interest would continue to accrue and compound at the stated interest
rate on such Debenture. If the Partnership does not declare and pay
distributions on the Partnership Preferred Securities out of funds legally
available for distribution, the Trust will not have sufficient funds to make
distributions on the Trust Preferred Securities, in which event the Trust
Guarantee will not apply to such distributions until the Trust has sufficient
funds available therefor. See "Risk Factors -- Distributions Payable Only if
Declared by General Partner; Restrictions on Certain Payments; Tax
Consequences", "-- Insufficient Income or Assets Available to Partnership",
"Description of the Trust Preferred Securities -- Distributions" and
"Description of the Partnership Preferred Securities -- Distributions".
The Partnership may, from time to time and subject to the restrictions
described herein, reinvest payments received with respect to the Affiliate
Investment Instruments (including the Debentures) and the Eligible Debt
Securities, in additional Affiliate Investment Instruments and Eligible Debt
Securities. As of the date of this Prospectus, the Company, as the General
Partner, does not intend to cause the Partnership to reinvest regularly
scheduled periodic payments of interest or dividends received by the Partnership
in the manner described herein, although there can be no assurance that the
General Partner's intention in respect of such reinvestments will not change in
the future.
If (a) for any distribution period, full distributions on a cumulative basis
on any Trust Preferred Securities have not been paid or set apart for payment,
(b) an Investment Event of Default by any Investment Affiliate in respect of any
Affiliate Investment Instrument has occurred and is continuing or (c) the
Company is in default of its obligations under any Guarantee, then during such
period (i) the Company shall not declare or pay dividends on, make distributions
with respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock or comparable equity interest (except
for (x) dividends or distributions in shares of, or options, warrants or rights
to subscribe for or purchase shares of, its capital stock, and conversions or
exchanges of common stock of one class into common stock of another class, (y)
redemptions or purchases of any rights pursuant to the Rights Agreement dated as
of December 16, 1987 between the Company and The Chase Manhattan Bank (successor
by merger to Manufacturers Hanover Trust Company), or any successor to such
Rights Agreement (the "Rights Agreement") and the issuance of preferred stock
pursuant to such rights and (z) purchases or acquisitions by the Company or its
affiliates in connection with transactions effected by or for the account of
customers of the Company or any of its subsidiaries or in connection with the
distribution or trading of such capital stock or comparable equity interest) and
(ii) the Company shall not make, permit any Finance Subsidiary to make, or make
any payments that would enable any Finance Subsidiary to make, any payment of
any dividends on, any distribution with respect to, or any redemption, purchase
or other acquisition of, or any liquidation payment with respect to, any
preferred security or
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<PAGE>
comparable equity interest of any Finance Subsidiary. "Finance Subsidiary" means
Merrill Lynch Preferred Capital Trust I and any other wholly-owned subsidiary of
the Company the principal purpose of which is to raise capital for the Company
by issuing securities that are guaranteed by the Company and the proceeds of
which are loaned to or invested in the Company or one or more of its affiliates.
The Partnership Preferred Securities are redeemable by the Partnership, in
whole or in part, from time to time, on or after March 30, 2007 at an amount per
Partnership Preferred Security equal to $25 plus accumulated and unpaid
distributions thereon to the date fixed for redemption. The Partnership
Preferred Securities may also be redeemed, in whole but not in part, at any time
upon the occurrence of a Partnership Special Event (as defined herein). If the
Partnership redeems the Partnership Preferred Securities, the Trust must redeem
Trust Securities on a PRO RATA basis having an aggregate liquidation amount
equal to the aggregate liquidation preference of the Partnership Preferred
Securities so redeemed at a redemption price of $25 per Partnership Preferred
Security plus all accumulated and unpaid distributions thereon to the date fixed
for redemption (the "Redemption Price"). See "Description of the Trust Preferred
Securities -- Mandatory Redemption". Neither the Partnership Preferred
Securities nor the Trust Preferred Securities have any scheduled maturity or are
redeemable at any time at the option of the holders thereof.
The Trust will be dissolved upon the occurrence of a Trust Special Event (as
defined herein). Upon dissolution of the Trust, the Partnership Preferred
Securities will be distributed to the holders of the Trust Securities, on a PRO
RATA basis, in lieu of any cash distribution, unless the Partnership Preferred
Securities are redeemed in the limited circumstances described herein. If the
Partnership Preferred Securities are distributed to the holders of the Trust
Securities, the Company will use its best efforts to cause the Partnership
Preferred Securities to be listed on the New York Stock Exchange or such other
national securities exchange or similar organization as the Trust Preferred
Securities are then listed or quoted. See "Description of the Trust Preferred
Securities -- Trust Special Event Redemption or Distribution" and "Description
of the Partnership Preferred Securities".
In the event of any liquidation, dissolution, winding up or termination of
the Trust, the holders of the Trust Preferred Securities will be entitled to
receive for each Trust Preferred Security a liquidation amount of $25 plus
accumulated and unpaid distributions thereon, except to the extent, in
connection with such dissolution, Partnership Preferred Securities are
distributed to the holders of the Trust Preferred Securities. Upon (i) the
occurrence of an Investment Event of Default by an Investment Affiliate in
respect of any Affiliate Investment Instrument or (ii) default by the Company on
any of its obligations under any Guarantee, the holders of the Trust Preferred
Securities will have a preference over the holders of the Trust Common
Securities with respect to payments upon liquidation of the Trust. Under no
circumstances will the investment instruments held by the Partnership be
distributed in kind to the holders of the Trust Preferred Securities or
Partnership Preferred Securities. See "Description of the Trust Preferred
Securities -- Liquidation Distribution Upon Dissolution".
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAYBE
DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company, the Trust and the Partnership have filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement on Form S-3
(the "Registration Statement", which term shall include all amendments, exhibits
and schedules thereto), pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder, with
respect to the Trust Preferred Securities offered hereby (as well as the
Partnership Preferred Securities, the Trust Guarantee, the Partnership
Guarantee, the Investment Guarantees and the Company Debenture). This
4
<PAGE>
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission, and to which reference is hereby made.
The Company is subject to the informational and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
Except for the listing of Trust Preferred Securities that is expected to be made
on the New York Stock Exchange, neither the Trust nor the Partnership has any
securities that are listed on any national securities exchange. The Registration
Statement, as well as reports, proxy and information statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Northeast Regional Office, Seven World Trade Center, New York,
New York 10048 and Midwest Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2551. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Reports, proxy and information
statements and other information concerning the Company may also be inspected at
the offices of the New York Stock Exchange, the American Stock Exchange, the
Chicago Stock Exchange and the Pacific Stock Exchange. The Commission maintains
a Web site at http:// www.sec.gov containing reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission.
Statements made in this Prospectus concerning the provisions of any
contract, agreement or other document referred to herein are not necessarily
complete. With respect to each such statement concerning a contract, agreement
or other document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission, reference is made to such exhibit or other filing for
a more complete description of the matter involved, and each such statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 29,
1995 (the "1995 Form 10-K"), Quarterly Reports on Form 10-Q for the periods
ended March 29, 1996, June 28, 1996 and September 27, 1996, and Current Reports
on Form 8-K dated January 17, 1996, January 22, 1996, February 7, 1996, February
29, 1996, March 1, 1996, March 12, 1996, March 18, 1996, April 1, 1996, April
15, 1996, May 1, 1996, May 13, 1996, May 15, 1996, May 28, 1996 (as amended by
Form 8-K/A filed June 7, 1996), July 9, 1996, July 16, 1996, July 31, 1996,
August 12, 1996, October 15, 1996, October 30, 1996, January 13, 1997 and
January 27, 1997 filed pursuant to Section 13 of the Exchange Act, are hereby
incorporated by reference into this Prospectus.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Trust Preferred Securities shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on written or oral request of such person, a copy
(without exhibits other than exhibits specifically incorporated by reference) of
any or all documents incorporated by reference into this Prospectus. Requests
for such copies should be directed to Mr. Gregory T. Russo, Secretary, Merrill
Lynch & Co., Inc., 100 Church Street, 12th Floor, New York, New York 10080-6512;
telephone number (212) 602-8435.
5
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS. CERTAIN TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS
PROSPECTUS. SEE "INDEX OF DEFINED TERMS" FOR A CROSS REFERENCE TO THE LOCATION
IN THIS PROSPECTUS WHERE SUCH TERMS ARE DEFINED.
<TABLE>
<S> <C>
The Trust.................... Merrill Lynch Preferred Capital Trust II, a Delaware
statutory business trust. The sole assets of the Trust will
be the Partnership Preferred Securities.
The Partnership.............. Merrill Lynch Preferred Funding II, L.P., a Delaware limited
partnership. The assets of the Partnership will initially
consist of Debentures and certain Eligible Debt Securities.
Securities Offered........... 12,000,000 of 8% Trust Preferred Securities.
Distributions................ Distributions on the Trust Preferred Securities will
accumulate from the date of original issuance of the Trust
Preferred Securities and will be payable at the annual rate
of 8% of the liquidation amount of $25 per Trust Preferred
Security if, as and when the Trust has funds available for
payment. Distributions will be payable quarterly in arrears
on each March 30, June 30, September 30 and December 30,
commencing March 30, 1997. Distributions not made on the
scheduled payment date will accumulate and compound
quarterly at a rate per annum equal to 8%. The distributions
payable with respect to March 30, 1997 will represent
distributions accumulated from February 6, 1997 and will
equal $.30 for each $25 Trust Preferred Security.
The ability of the Trust to pay distributions on the Trust
Preferred Securities is entirely dependent on its receipt of
corresponding distributions with respect to the Partnership
Preferred Securities. The ability of the Partnership to pay
distributions on the Partnership Preferred Securities is, in
turn, dependent on its receipt of payments with respect to
the Debentures and the Eligible Debt Securities held by the
Partnership. The Debentures will provide that payments of
interest may be deferred at any time, and from time to time,
by the relevant issuer for a period not exceeding six
consecutive quarters. Distributions on the Partnership
Preferred Securities will be declared and paid only as
determined in the sole discretion of the Company in its
capacity as the General Partner of the Partnership. See
"Risk Factors -- Distributions Payable Only if Declared by
General Partner; Restrictions on Certain Payments; Tax
Consequences," "Description of the Trust Preferred
Securities -- Distributions" and "Description of the
Partnership Preferred Securities -- Distributions" and "--
Partnership Investments".
Rights Upon Non-Payment of
Distributions and Certain
Defaults; Covenants of the
Company.................... If, at any time, (i) arrearages on distributions on the
Trust Preferred Securities shall exist for six consecutive
quarterly distribution periods, (ii) an Investment Event of
Default occurs and is continuing on any
</TABLE>
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<TABLE>
<S> <C>
Affiliate Investment Instrument or (iii) the Company is in
default on any of its obligations under the Trust Guarantee
or the Partnership Guarantee, then (a) the Property Trustee,
as the holder of the Partnership Preferred Securities, will
have the right to enforce the terms of the Partnership
Preferred Securities, including the right to direct the
Special Representative (as defined herein) to enforce (1)
the Partnership's creditors' rights and other rights with
respect to the Affiliate Investment Instruments and the
Investment Guarantees and (2) the rights of the holders of
the Partnership Preferred Securities to receive
distributions (only if, as and when declared) on the
Partnership Preferred Securities, and (b) the Trust
Guarantee Trustee or the Special Representative, as the
holders of the Trust Guarantee and the Partnership
Guarantee, respectively, shall have the right to enforce
such Guarantees, including the right to enforce the covenant
restricting certain payments by the Company and Finance
Subsidiaries described below.
Under no circumstances, however, shall the Special
Representative have authority to cause the General Partner
to declare distributions on the Partnership Preferred
Securities. If the Partnership does not declare and pay
distributions on the Partnership Preferred Securities out of
funds legally available for distribution, the Trust will not
have sufficient funds to make distributions on the Trust
Preferred Securities. See "Risk Factors -- Insufficient
Income or Assets Available to Partnership", "Description of
the Trust Preferred Securities -- Trust Enforcement Events"
and "Description of the Partnership Preferred Securities --
Partnership Enforcement Events".
The Company has agreed that if (a) for any distribution
period, full distributions on a cumulative basis on any
Trust Preferred Securities have not been paid or set apart
for payment, (b) an Investment Event of Default by any
Investment Affiliate in respect of any Affiliate Investment
Instrument has occurred and is continuing or (c) the Company
is in default of its obligations under the Trust Guarantee,
the Partnership Guarantee or any Investment Guarantee, then,
during such period (i) the Company shall not declare or pay
dividends on, make distributions with respect to, or redeem,
purchase or acquire, or make a liquidation payment with
respect to any of its capital stock or comparable equity
interest (except for (x) dividends or distributions in
shares of, or options, warrants or rights to subscribe for
or purchase shares of, its capital stock and conversions or
exchanges of common stock of one class into common stock of
another class, (y) redemptions or purchases of any rights
pursuant to the Rights Agreement and the issuance of
preferred stock pursuant to such rights and (z) purchases or
acquisitions by the Company or its affiliates in connection
with transactions effected by or for the account of custom-
ers of the Company or any of its subsidiaries or in
connection with the distribution or trading of such capital
stock or comparable equity interest) and (ii) the Company
shall not make, permit any Finance Subsidiary to make, nor
make any payments that would enable any Finance Subsidiary
to make, any payment of any dividends on, any distribution
with respect to, or any redemption, purchase or other
</TABLE>
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<TABLE>
<S> <C>
acquisition of, or any liquidation payment with respect to,
any preferred security or comparable equity interest of any
Finance Subsidiary.
Liquidation Amount........... In the event of any liquidation of the Trust, holders will
be entitled to receive $25 per Trust Preferred Security plus
an amount equal to any accumulated and unpaid distributions
thereon to the date of payment (such amount being the "Trust
Liquidation Distribution"), unless Partnership Preferred
Securities are distributed to such holders in connection
with a Trust Special Event. If upon a liquidation of the
Trust (in which the Partnership Preferred Securities are not
distributed to holders of the Trust Securities), the Trust
Liquidation Distribution can be paid only in part because
the Trust has insufficient assets available to pay in full
the aggregate Trust Liquidation Distribution, then the
amounts payable directly by the Trust on the Trust Preferred
Securities shall be paid on a PRO RATA basis. The holders of
the Trust Common Securities will be entitled to receive
distributions upon any such liquidation PRO RATA with the
holders of the Trust Preferred Securities, except that upon
(i) the occurrence of an Investment Event of Default by an
Investment Affiliate (including the Company) in respect of
any Affiliate Investment Instrument or (ii) default by the
Company on any of its obligations under any Guarantee, the
holders of the Trust Preferred Securities will have a
preference over the holders of the Trust Common Securities
with respect to payments upon liquidation of the Trust. See
"Description of the Trust Preferred Securities --
Liquidation Distribution Upon Dissolution".
Optional Redemption.......... The Partnership Preferred Securities will be redeemable for
cash, at the option of the Partnership, in whole or in part,
from time to time, after March 30, 2007 at an amount per
Partnership Preferred Security equal to $25 plus accumulated
and unpaid distributions thereon. Upon any redemption of the
Partnership Preferred Securities, the Trust Preferred
Securities will be redeemed, in whole or in part, as
applicable, at the Redemption Price. See "Description of the
Partnership Preferred Securities--Optional Redemption" and
"Description of the Trust Preferred Securities -- Mandatory
Redemption". Neither the Partnership Preferred Securities
nor the Trust Preferred Securities have any scheduled
maturity or are redeemable at any time at the option of the
holders thereof.
Guarantees................... The Company will irrevocably guarantee, on a subordinated
basis, the payment in full of (i) any accumulated and unpaid
distributions on the Trust Preferred Securities to the
extent of funds of the Trust legally available therefor,
(ii) the amount payable upon redemption of the Trust
Preferred Securities to the extent of funds of the Trust
legally available therefor and (iii) generally, the
liquidation amount of the Trust Preferred Securities to the
extent of the assets of the Trust legally available for
distribution to holders of Trust Preferred Securities. See
"Description of the Trust Guarantee".
The Company will also irrevocably guarantee, on a
subordinated basis and to the extent set forth herein, the
payment in full of (i) any
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
accumulated and unpaid distributions on the Partnership
Preferred Securities if, as and when declared out of funds
legally available therefor, (ii) the amount payable upon
redemption of the Partnership Preferred Securities to the
extent of funds of the Partnership legally available
therefor and (iii) generally, the liquidation preference of
the Partnership Preferred Securities to the extent of the
assets of the Partnership legally available for distribution
to holders of Partnership Preferred Securities. See
"Description of the Partnership Guarantee".
The Company will fully and unconditionally guarantee, on a
subordinated basis, payments in respect of the Debentures
(other than the Company Debenture) for the benefit of the
holders of the Partnership Preferred Securities, to the
extent described under "Description of the Partnership
Preferred Securities -- Investment Guarantees". The
Guarantees, when taken together with the Company Debenture
and the Company's obligations to pay all fees and expenses
of the Trust and the Partnership, constitute a guarantee to
the extent set forth herein by the Company of the
distribution, redemption and liquidation amounts payable to
the holders of the Trust Preferred Securities. The
Guarantees do not apply, however, to current distributions
by the Partnership unless and until such distributions are
declared by the Partnership out of funds legally available
for payment or to liquidating distributions unless there are
assets available for payment in the Partnership, each as
more fully described under "Risk Factors -- Insufficient
Income or Assets Available to Partnership". The Company's
obligations under the Guarantees are subordinate and junior
in right of payment to all other liabilities of the Company
and rank PARI PASSU with the most senior preferred stock
issued from time to time by the Company, with similar
guarantees issued by the Company in connection with the
$275,000,000 aggregate liquidation amount of 7 3/4% Trust
Originated Preferred Securities issued by Merrill Lynch
Preferred Capital Trust I, and with any guarantee now or
hereafter entered into by the Company in respect of any
preferred stock of any other Finance Subsidiary.
Voting Rights................ Generally, holders of the Trust Preferred Securities will
not have any voting rights. The holders of a majority in
liquidation amount of the Trust Preferred Securities,
however, have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the
Property Trustee, or direct the exercise of any trust or
power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property
Trustee, as holder of the Partnership Preferred Securities,
(i) to exercise its rights in the manner described above
under "Rights Upon Non-Payment of Distributions and Certain
Defaults; Covenants of the Company" and (ii) to consent to
any amendment, modification or termination of the Limited
Partnership Agreement or the Partnership Preferred
Securities where such consent shall be required. See
"Description of the Trust Preferred Securities -- Voting
Rights".
Special Event Redemptions or
Distributions.............. Upon the occurrence of a Trust Tax Event (which event will
generally
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
be triggered upon the occurrence of certain adverse tax
consequences or the denial of an interest deduction on the
Debentures held by the Partnership) or a Trust Investment
Company Event (which event will generally be triggered if
the Trust is considered an "investment company" under the
Investment Company Act of 1940, as amended (the "1940
Act")), except in certain limited circumstances, the Regular
Trustees (as defined herein) will have the right to
liquidate the Trust and cause Partnership Preferred
Securities to be distributed to the holders of the Trust
Preferred Securities. In certain circumstances involving a
Partnership Tax Event (which event will generally be
triggered upon the occurrence of certain adverse tax
consequences or the denial of an interest deduction on the
Debentures held by the Partnership) or a Partnership
Investment Company Event (which event will generally be
triggered if the Partnership is considered an "investment
company" under the 1940 Act), the Partnership will have the
right to redeem the Partnership Preferred Securities, in
whole (but not in part), at $25 per Partnership Preferred
Security plus accumulated and unpaid distributions thereon,
regardless of the occurrence of any Trust Tax Event or Trust
Investment Company Event and in lieu of any distribution of
the Partnership Preferred Securities required in connection
therewith, in which event the Trust Securities will be
redeemed at the Redemption Price. See "Description of the
Trust Preferred Securities -- Trust Special Event Redemption
or Distribution" and "Description of the Partnership
Preferred Securities -- Partnership Special Event
Redemption".
Form of Trust Preferred
Securities................. The Trust Preferred Securities will be represented by a
global certificate or certificates registered in the name of
Cede & Co., as nominee for DTC. Beneficial interests in the
Trust Preferred Securities will be evidenced by, and
transfers thereof will be effected only through, records
maintained by the participants in DTC. Except as described
herein, Trust Preferred Securities in certificated form will
not be issued in exchange for the global certificate or
certificates. See "Description of the Trust Preferred
Securities -- Book-Entry Only Issuance -- The Depository
Trust Company".
Use of Proceeds.............. All of the proceeds from the sale of the Trust Securities
will be invested by the Trust in the Partnership Preferred
Securities. The Partnership will use the funds to make
investments in Debentures and certain Eligible Debt
Securities. See "Use of Proceeds".
</TABLE>
10
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE TRUST PREFERRED SECURITIES SHOULD CONSIDER
CAREFULLY THE RISK FACTORS SET FORTH BELOW, AS WELL AS ALL OTHER INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, IN EVALUATING AN
INVESTMENT IN THE TRUST PREFERRED SECURITIES.
DISTRIBUTIONS PAYABLE ONLY IF DECLARED BY GENERAL PARTNER; RESTRICTIONS ON
CERTAIN PAYMENTS; TAX CONSEQUENCES
Distributions on the Partnership Preferred Securities will be payable only
if, as and when declared by the General Partner in its sole discretion. The
Company is the sole General Partner of the Partnership, and the Debentures will
constitute obligations of the Company and its affiliates. If interest payments
on the Debentures are deferred as permitted thereby, or if such interest
payments are not paid to the Partnership according to their terms (and guarantee
payments on the Investment Guarantees are not made by the Company), the
Partnership will generally lack funds to pay distributions on the Partnership
Preferred Securities. If the Partnership does not make current distributions on
the Partnership Preferred Securities, either because the General Partner does
not declare distributions to be made or because the Partnership lacks sufficient
funds, the Trust will not have funds available to make current distributions on
the Trust Preferred Securities. As described under "Description of the Trust
Guarantee -- Covenants of the Company", in certain circumstances, the Company
will be restricted from, among other things, paying any dividends on its Common
Stock.
Should the Partnership fail to pay current distributions on the Partnership
Preferred Securities, each holder of Trust Preferred Securities will generally
be required to accrue income, for United States federal income tax purposes, in
respect of the cumulative deferred distributions (including interest thereon)
allocable to its proportionate share of the Partnership Preferred Securities. As
a result, each holder of Trust Preferred Securities will recognize income for
United States federal income tax purposes in advance of the receipt of cash and
will not receive the cash from the Trust related to such income if such holder
disposes of its Trust Preferred Securities prior to the record date for the date
on which distributions of such amounts are made by the Trust. See "Certain
Federal Income Tax Considerations".
INSUFFICIENT INCOME OR ASSETS AVAILABLE TO PARTNERSHIP
The Trust Preferred Securities are subject to the risk of a current or
liquidating distribution rate mismatch between the rate paid on the Trust
Preferred Securities and the rate paid on the securities held by the
Partnership, including the Debentures and any additional securities acquired by
the Partnership in the future. Such mismatch could occur if (i) at any time that
the Partnership is receiving current payments in respect of the securities held
by the Partnership (including the Debentures), the General Partner, in its sole
discretion, does not declare distributions on the Partnership Preferred
Securities and the Partnership receives insufficient amounts to pay the
additional compounded distributions that will accumulate in respect of the
Partnership Preferred Securities, (ii) the Partnership reinvests the proceeds
received in respect of the Debentures upon their retirement or at their
maturities in Affiliate Investment Instruments or Eligible Debt Securities that
do not generate income in an amount that is sufficient to pay full distributions
in respect of the Partnership Preferred Securities at a rate of 8% per annum or
(iii) the Partnership invests in equity or debt securities of Investment
Affiliates that are not guaranteed by the Company and that cannot be liquidated
by the Partnership for an amount sufficient to pay such distributions in full.
If the reinvestments in the securities of the Investment Affiliates contemplated
by the General Partner do not meet the eligibility criteria for Affiliate
Investment Instruments described under "Description of the Partnership Preferred
Securities -- Partnership Investments," the Partnership shall invest funds
available for reinvestment in Eligible Debt Securities. To the extent that the
Partnership lacks sufficient funds to make current or liquidating distributions
on the Partnership Preferred Securities in full,
11
<PAGE>
the Trust will not have sufficient funds available to pay full current or
liquidating distributions on the Trust Preferred Securities.
DEPENDENCE ON AFFILIATE INVESTMENT INSTRUMENTS
Approximately 99% of the proceeds from the issuance of the Partnership
Preferred Securities and the General Partner's capital contribution will be
invested in Debentures, which consist of debt instruments of the Company and one
or more eligible controlled affiliates. See "Description of the Partnership
Preferred Securities -- Partnership Investments".
PROPOSED TAX LEGISLATION
On March 19, 1996, as part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") that would, among other things, deny the borrower an interest
deduction with respect to certain types of debt instruments that are payable in
stock of the issuer or a related party. The Proposed Legislation also would
treat as equity for United States federal income tax purposes instruments with a
maximum term of more than 20 years that are not shown as indebtedness on the
consolidated balance sheet of the issuer. On March 29, 1996, Senate Finance
Committee Chairman William V. Roth and House Ways and Means Committee Chairman
Bill Archer issued a joint statement (the "Joint Statement") indicating their
intent that certain legislative proposals initiated by the Clinton
administration, including the Proposed Legislation, that may be adopted by
either of the tax-writing committees of Congress, would have an effective date
that is no earlier than the date of "appropriate Congressional action". In
addition, subsequent to the publication of the Joint Statement, Senator Daniel
Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel wrote
letters to Treasury Department officials concurring with the view expressed in
the Joint Statement (the "Democrat Letters"). If the principles contained in the
Joint Statement and the Democrat Letters were followed and the Proposed
Legislation were enacted, such legislation would not apply to the Debentures.
There can be no assurances, however, that legislation enacted after the date
hereof will not adversely affect the tax treatment of the Debentures, or whether
such tax treatment would cause a Partnership Tax Event or a Trust Tax Event that
may result in the redemption of the Partnership Preferred Securities and,
consequently, the Trust Preferred Securities.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Trust Special Event or a Partnership Special Event
(each of which will generally be triggered either upon (i) the occurrence of
certain adverse tax consequences to the Trust or the Partnership, as the case
may be, or the denial of an interest deduction by the related Investment
Affiliate on the Debentures held by the Partnership or (ii) the Trust or
Partnership being considered an "investment company" under the 1940 Act) (each,
a "Special Event"), the Trust will be dissolved with the result that, except in
the limited circumstances described below, the Partnership Preferred Securities
would be distributed to the holders of the Trust Securities in connection with
the liquidation of the Trust. In certain circumstances, the Partnership shall
have the right to redeem the Partnership Preferred Securities, in whole (but not
in part), in lieu of a distribution of the Partnership Preferred Securities by
the Trust, in which event the Trust will redeem the Trust Preferred Securities
for cash. See "Description of the Trust Preferred Securities -- Trust Special
Event Redemption or Distribution" and "Description of the Partnership Preferred
Securities -- Partnership Special Event Redemption".
Unless the liquidation of the Trust occurs as a result of the Trust being
subject to United States federal income tax with respect to income on the
Partnership Preferred Securities, a distribution of the Partnership Preferred
Securities upon the dissolution of the Trust would not be a taxable event to
holders of the Trust Preferred Securities. If, however, the liquidation of the
Trust were to occur because the Trust is subject to United States federal income
tax with respect to income accrued or received on the Partnership Preferred
Securities, the distribution of Partnership Preferred Securities to holders by
the Trust would likely be a
12
<PAGE>
taxable event to each such holder, and a holder would recognize gain or loss as
if the holder had exchanged its Trust Preferred Securities for the Partnership
Preferred Securities it received upon the liquidation of the Trust. Similarly,
the holders of the Trust Preferred Securities would recognize gain or loss if
the Trust dissolves upon an occurrence of a Partnership Special Event and the
holders of Trust Preferred Securities receive cash in exchange for their Trust
Preferred Securities. See "Certain Federal Income Tax Considerations --
Redemption of Trust Preferred Securities for Cash".
There can be no assurance as to the market prices for the Partnership
Preferred Securities that may be distributed in exchange for Trust Preferred
Securities if a dissolution or liquidation of the Trust were to occur.
Accordingly, the Partnership Preferred Securities that a holder of Trust
Preferred Securities may receive upon dissolution and liquidation of the Trust
may trade at a discount to the price that the investor paid to purchase the
Trust Preferred Securities offered hereby. Because holders of Trust Preferred
Securities may receive Partnership Preferred Securities upon the occurrence of a
Special Event, prospective purchasers of Trust Preferred Securities also are
making an investment decision with regard to the Partnership Preferred
Securities and should carefully review all the information regarding the
Partnership Preferred Securities contained herein. See "Description of the
Partnership Preferred Securities -- Partnership Special Event Redemption" and
"-- General".
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEES AND THE COMPANY
DEBENTURE
The Company's obligations under the Trust Guarantee, the Partnership
Guarantee and the Investment Guarantees are subordinate and junior in right of
payment to all liabilities of the Company and will rank PARI PASSU with the most
senior preferred stock, if any, issued from time to time by the Company, with
similar guarantees issued by the Company in connection with the $275,000,000
aggregate liquidation amount of 7 3/4% Trust Originated Preferred Securities
issued by Merrill Lynch Preferred Capital Trust I, and with any guarantee now or
hereafter entered into by the Company in respect of any preferred stock of any
other Finance Subsidiary, and the Company's obligations under the Company
Debenture are subordinate and junior in right of payment to all Senior
Indebtedness. At September 27, 1996, the Company had outstanding Senior
Indebtedness aggregating approximately $47.7 billion which would have ranked
senior to the Company's obligations under the Guarantees and the Company
Debenture. There are no terms in the Trust Preferred Securities, the Partnership
Preferred Securities, the Guarantees or the Debentures that limit the Company's
ability to incur additional indebtedness, including indebtedness that ranks
senior to the Guarantees. See "Description of the Partnership Preferred
Securities -- Partnership Investments" and "-- Investment Guarantees",
"Description of the Trust Guarantee" and "Description of the Partnership
Guarantee".
ENFORCEMENT OF CERTAIN RIGHTS BY OR ON BEHALF OF HOLDERS OF TRUST PREFERRED
SECURITIES
If a Trust Enforcement Event occurs and is continuing, then (a) the holders
of Trust Preferred Securities would rely on the enforcement by the Property
Trustee of its rights, as a holder of the Partnership Preferred Securities,
against the Company, including the right to direct the Special Representative to
enforce (i) the Partnership's creditors' rights and other rights with respect to
the Affiliate Investment Instruments and the Investment Guarantees, (ii) the
rights of the holders of the Partnership Preferred Securities under the
Partnership Guarantee, and (iii) the rights of the holders of the Partnership
Preferred Securities to receive distributions (only if and to the extent
declared out of funds legally available therefor) on the Partnership Preferred
Securities, and (b) the Trust Guarantee Trustee shall have the right to enforce
the terms of the Trust Guarantee, including the right to enforce the covenant
restricting certain payments by the Company and Finance Subsidiaries. Under no
circumstances, however, shall the Special Representative have authority to cause
the General Partner to declare distributions on the Partnership Preferred
Securities. As a result, although the Special Representative may be able to
enforce the Partnership's creditors' rights to accelerate and receive payments
in respect of the Affiliate Investment Instruments and the Investment
Guarantees, the Partnership would be entitled to reinvest such payments
13
<PAGE>
in additional Affiliate Investment Instruments, subject to satisfying the
reinvestment criteria described under "Description of the Partnership Preferred
Securities -- Partnership Investments", and the Eligible Debt Securities, rather
than declaring and making distributions on the Partnership Preferred Securities.
See "Description of the Trust Preferred Securities -- Trust Enforcement Events".
LIMITED VOTING RIGHTS
Holders of the Trust Preferred Securities will have limited voting rights
and will not be entitled to vote to appoint, remove or replace, or to increase
or decrease the number of, Trustees, which voting rights are vested exclusively
in the holder of the Trust Common Securities. See "Description of the Trust
Preferred Securities -- Voting Rights".
TRADING CHARACTERISTICS OF TRUST PREFERRED SECURITIES
The price at which the Trust Preferred Securities may trade may not fully
reflect the value of the accumulated but unpaid distributions on the Trust
Preferred Securities (which will equal the accumulated but unpaid distributions
on the Partnership Preferred Securities). In addition, as a result of the right
of the General Partner not to declare current distributions on the Partnership
Preferred Securities, the market price of the Trust Preferred Securities (which
represent undivided beneficial ownership interests in the Partnership Preferred
Securities) may be more volatile than other similar securities where there is no
such right to defer current distributions. A holder who disposes of its Trust
Preferred Securities will be required to include for United States federal
income tax purposes accumulated but unpaid distributions on the Partnership
Preferred Securities through the date of disposition in income as ordinary
income, and to add such amount to its adjusted tax basis in its pro rata share
of the Partnership Preferred Securities deemed disposed of. To the extent the
selling price is less than the holder's adjusted tax basis (which will include
all accumulated but unpaid distributions), a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes. See
"Certain Federal Income Tax Considerations".
NO PRIOR MARKET FOR THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities constitute a new issue of securities with no
established trading market. Application has been made to list the Trust
Preferred Securities on the New York Stock Exchange. There can be no assurance
that an active market for the Trust Preferred Securities will develop or be
sustained in the future on the New York Stock Exchange. Although the
Underwriters have indicated to the Company that they intend to make a market in
the Trust Preferred Securities, as permitted by applicable laws and regulations,
they are not obligated to do so and may discontinue any such market-making at
any time without notice. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Trust Preferred Securities.
The Trust Preferred Securities will only be sold to those investors for whom
such Trust Preferred Securities are considered suitable in light of their
particular circumstances.
14
<PAGE>
MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, insurance, and
related services on a global basis. Its principal subsidiary, MLPF&S, one of the
largest securities firms in the world, is a leading broker in securities,
options contracts, and commodity and financial futures contracts; a leading
dealer in options and in corporate and municipal securities; a leading
investment banking firm that provides advice to, and raises capital for, its
clients; and an underwriter of selected insurance products. Other subsidiaries
provide financial services on a global basis similar to those of MLPF&S and are
engaged in such other activities as international banking, lending, and
providing other investment and financing services. Merrill Lynch International
Incorporated, through subsidiaries and affiliates, provides investment,
financing, and related services outside the United States and Canada. Merrill
Lynch Asset Management, LP and Fund Asset Management, LP together constitute one
of the largest mutual fund managers in the world and provide investment advisory
services. Merrill Lynch Government Securities Inc. is a primary dealer in
obligations issued or guaranteed by the U.S. Government and its agencies.
Merrill Lynch Capital Services, Inc., Merrill Lynch Derivative Products AG, and
Merrill Lynch Capital Markets PLC are the Company's primary derivative product
dealers and enter into interest rate and currency swaps and other derivative
transactions as intermediaries and as principals. The Company's insurance
underwriting operations consist of the underwriting of life insurance and
annuity products. Banking, trust, and mortgage lending operations conducted
through subsidiaries of the Company include issuing certificates of deposit,
offering money market deposit accounts, making secured loans, and providing
foreign exchange facilities and other related services.
The principal executive office of the Company is located at World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281; its telephone
number is (212) 449-1000.
USE OF PROCEEDS
The proceeds to be received by the Trust from the sale of the Trust
Preferred Securities and the Trust Common Securities will be used by the Trust
to purchase Partnership Preferred Securities, and will be applied by the
Partnership to invest in Debentures and Eligible Debt Securities. See
"Description of the Partnership Preferred Securities -- Partnership
Investments". The Company and the subsidiaries of the Company which are the
issuers of the Debentures will use the proceeds from the sale of such Debentures
to the Partnership of $300,000,000 for general corporate purposes and to repay
certain intercompany indebtedness. To the extent that Trust Preferred Securities
being purchased for resale by MLPF&S are not resold, the aggregate proceeds to
the Company and its subsidiaries would be reduced.
15
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary of consolidated financial information was derived
from, and is qualified in its entirety by reference to, the financial
statements, condensed financial statements, and other information and data
contained in the Company's Annual Report on Form 10-K for the year ended
December 29, 1995, the Quarterly Report on Form 10-Q for the period ended
September 27, 1996 (the "Quarterly Report"), and the Current Report on Form 8-K
dated January 27, 1997 (the "Current Report"). See "Incorporation of Certain
Documents by Reference." The Quarterly Report and the Current Report (which
include unaudited preliminary financial information for the year ended December
27, 1996) and the other documents incorporated herein by reference will be
superseded by the Company's Annual Report on Form 10-K for the year ended
December 27, 1996. In the opinion of management of the Company, all adjustments
(consisting only of normal recurring accruals) necessary for a fair statement of
the results of operations have been included. The year-end results include 52
weeks for 1992, 1994, 1995, and 1996 and 53 weeks for 1993.
The Company conducts its business in highly volatile markets. Consequently,
the Company's results can be affected by many factors, including general market
conditions, the liquidity of secondary markets, the level and volatility of
interest rates and currency values, the valuation of securities positions,
competitive conditions, and the size, number, and timing of transactions. In
periods of unfavorable market activity, profitability can be adversely affected
because certain expenses remain relatively fixed. As a result, net earnings and
revenues can vary significantly from period to period.
<TABLE>
<CAPTION>
YEAR ENDED LAST FRIDAY IN DECEMBER
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
Revenues................................................... $ 13,413 $ 16,588 $ 18,234 $ 21,513 $ 25,011
Net revenues(1)............................................ $ 8,577 $ 10,558 $ 9,625 $ 10,265 $ 13,116
Earnings before income taxes and cumulative effect of
changes in accounting principles(2)...................... $ 1,621 $ 2,425 $ 1,730 $ 1,811 $ 2,566
Cumulative effect of changes in accounting principles (net
of applicable income taxes)(2)........................... $ (58) $ (35) -- -- --
Net earnings(2)............................................ $ 894 $ 1,359 $ 1,017 $ 1,114 $ 1,619
Ratio of earnings to fixed charges(3)...................... 1.3 1.4 1.2 1.2 --
Total assets(4)(5)......................................... $ 107,024 $ 152,910 $ 163,749 $ 176,857 --
Long-term borrowings(4)(6)................................. $ 10,871 $ 13,469 $ 14,863 $ 17,340 --
Stockholders' equity(4)(7)................................. $ 4,569 $ 5,486 $ 5,818 $ 6,141 --
</TABLE>
- ------------------------
(1) Net revenues are revenues net of interest expense.
(2) Net earnings for 1992 have been reduced by $58 million to reflect the
adoption of Statement of Financial Accounting Standards ("SFAS") No. 106,
EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, and
SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Net earnings for 1993 were
reduced by $35 million to reflect the adoption of SFAS No. 112, EMPLOYERS'
ACCOUNTING FOR POSTEMPLOYMENT BENEFITS.
(3) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consists of earnings from continuing operations before income
taxes and fixed charges. "Fixed charges" consists of interest costs,
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. The ratio of earnings to fixed
charges for the year ended December 27, 1996 is not available as of the date
of this Prospectus. The ratio of earnings to fixed charges was 1.2 for the
year ended December 27, 1991 and was 1.2 for the nine months ended September
27, 1996.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
16
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
(4) Balance sheet information for the year ended December 27, 1996 is not
available as of the date of this Prospectus. At September 27, 1996, total
assets, long-term borrowings, and stockholders' equity were $207,911
million, $24,098 million and $6,618 million, respectively.
(5) In 1994, the Company adopted Financial Accounting Standards Board ("FASB")
Interpretation No. 39, "OFFSETTING OF AMOUNTS RELATED TO CERTAIN CONTRACTS",
and FASB Interpretation No. 41, "OFFSETTING OF AMOUNTS RELATED TO CERTAIN
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS", which increased assets and
liabilities at December 30, 1994 by approximately $8,500 million.
(6) To finance its diverse activities, the Company and certain of its
subsidiaries borrow substantial amounts of short-term funds on a regular
basis. Although the amount of short-term borrowings varies significantly
with the level of general business activity, on September 27, 1996, $2,659
million of bank loans and $20,208 million of commercial paper were
outstanding. In addition, certain of the Company's subsidiaries lend
securities and enter into repurchase agreements to obtain financing. At
September 27, 1996, cash deposits for securities loaned and securities sold
under agreements to repurchase amounted to $5,067 million and $65,123
million, respectively. From September 28, 1996 to January 29, 1997,
long-term borrowings, net of repayments and repurchases, increased by
approximately $4,047 million.
(7) On December 17, 1996, Merrill Lynch Preferred Capital Trust I, a subsidiary
of the Company ("Trust I"), issued $275 million of 7 3/4% Trust Originated
Preferred Securities. Trust I holds preferred securities of a partnership,
which is also a subsidiary of the Company. The assets of the partnership
consist primarily of debt securities of the Company and one of its eligible
controlled affiliates. The Company has guaranteed, on a subordinated basis,
certain payments by Trust I and the partnership.
FISCAL YEAR 1996
Financial markets were strong in 1996, led by a stable U.S. economy and
heightened individual and institutional investor activity. Low interest rates
and strong cash flows into mutual funds combined to make 1996 a record-breaking
year in U.S. equity markets and led to significant gains in most international
markets.
Net earnings for 1996 were a record $1,619 million, up 45% from $1,114
million in 1995. Earnings per common share were $8.20 primary and $8.06 fully
diluted, compared with $5.44 primary and $5.42 fully diluted in 1995. Total
revenues were a record $25,011 million, up 16% from 1995. Net revenues (revenues
after interest expense) totaled $13,116 million in 1996, up 28% from 1995.
Commission revenues increased 21% to a record $3,786 million from $3,126
million in 1995, due primarily to higher levels of listed and over-the-counter
securities transactions and mutual fund commissions. Commissions from listed and
over-the-counter securities were up as a result of higher trading volumes on the
New York Stock Exchange, Nasdaq, and most international exchanges. Mutual fund
commission revenues rose primarily as a result of strong sales of U.S. funds and
higher distribution fees from deferred-charge funds.
Interest and dividend revenues increased 6% to $12,899 million from $12,221
million in 1995. Interest expense, which includes dividend expense, increased 6%
from 1995 to $11,895 million. Net interest and dividend profit was $1,004
million, up 3% from $973 million in 1995. Higher dividend income attributable to
increased levels of equity securities inventory during 1996 contributed to the
increase.
Principal transactions revenues rose 37% from 1995 to a record $3,454
million due to favorable market conditions, highlighted by rising stock prices,
low interest rates, and narrowing credit spreads. These conditions led to
increased customer demand particularly for higher yielding securities.
Equities and equity derivative trading revenues increased 25% to $1,138
million, due principally to higher trading revenues from international equities
and over-the-counter securities. International equities trading revenues
benefited primarily from improved market conditions and increased capacity due
to the
17
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acquisition of Smith New Court PLC in the third quarter of 1995.
Over-the-counter securities trading revenues were up as a result of record
Nasdaq volume.
Taxable fixed-income trading revenues increased 87% to $966 million
primarily due to higher revenues from mortgage-backed products, non-U.S.
governments and agencies securities, and money market instruments. The increase
in mortgage-backed securities trading revenues was attributable to improved
liquidity in this market and increased customer demand compared with a year ago.
Trading revenues from non-U.S. governments and agencies securities advanced due
in part to increased customer demand for higher yields associated with emerging
market securities. Trading revenues from money market instruments benefited from
increased floating-rate note activity in European markets.
Interest rate and currency swaps trading revenues rose 22% to $893 million
due to higher revenues from both non-U.S. and U.S. dollar-denominated
transactions. Municipal securities revenues were up 19% to $323 million as a
result of increased investor demand for tax-advantaged products. Foreign
exchange and commodities trading revenues, in the aggregate, increased 56% to
$134 million. Higher volume led to increased foreign exchange trading revenues
as the U.S. dollar strengthened versus most currencies, particularly the
Japanese yen and German mark.
Investment banking revenues advanced to a record $1,945 million, up 49% from
$1,308 million in 1995. Underwriting fees were higher in virtually all products
due to record equity and debt underwriting volume industrywide. Strategic
services revenues benefited from strong merger and acquisition activity
industrywide and significant gains in market share.
Asset management and portfolio service fees were a record $2,261 million in
1996, up 20% from $1,890 million in 1995, as a result of strong inflows of
client assets and net asset appreciation. Other revenues were up 48% to $666
million primarily due to an increase in realized investment gains of $171
million, of which $155 million related to the sale of one-third of Merrill
Lynch's minority interest in Bloomberg L.P., and a $40 million increase in gains
from real estate transactions, primarily sales of mortgages to Real Estate
Mortgage Investment Conduits ("REMICs").
Non-interest expenses were $10,550 million, up 25% from $8,454 million in
1995. Compensation and benefits expense, which represented approximately 64% of
non-interest expenses, increased 27% during 1996 due to higher incentive and
production-related compensation and an 8% increase in the number of full-time
employees. Compensation and benefits expense was 51.1% of net revenues for 1996,
compared with 51.3% in 1995.
Non-interest expenses excluding compensation and benefits, rose 21% to
$3,846 million. A significant component of the increase related to strategic
investments to upgrade technology and processing capabilities.
Communications and equipment rental expense was up 15% from 1995 due to
increased computer maintenance costs related to system initiatives, as well as
higher levels of business activity. Depreciation and amortization expense rose
12% from 1995 due primarily to purchases of technology-related equipment during
the past year. Higher systems development and management consulting costs led to
a 37% increase in professional fees.
Occupancy costs rose 13%, primarily as a result of a non-recurring pre-tax
charge of $40 million. This charge related to the rejection in bankruptcy of the
long-term sublease agreement with Olympia & York for space in the World
Financial Center, South Tower, which led to a difference between expected rents
from sublessees and the Company's lease obligation for the space. Advertising
and market development costs rose 29% due to increased international travel and
higher production-related recognition programs. Brokerage, clearing, and
exchange fees were up 15% as a result of higher securities volume, particularly
in international markets. Other expenses were up 23% from 1995 due in part to
provisions related to various business activities and goodwill amortization.
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Income tax expense totaled $947 million for 1996. The effective tax rate in
1996 was 36.9%, compared with 38.5% a year ago. The effective tax rate decreased
in 1996 primarily as a result of tax benefits associated with international
operations and lower state taxes.
CERTAIN BALANCE SHEET INFORMATION AS OF SEPTEMBER 27, 1996
Balance Sheet information as of December 27, 1996 is not available as of the
date of this Prospectus.
The Company believes that its equity base is adequate relative to the level
and composition of its assets and the mix of its business.
In the normal course of business, the Company underwrites, trades, and holds
non-investment grade securities in connection with its investment banking,
market making, and derivative activities. These activities are subject to risks
related to the creditworthiness of the issuers of, and the liquidity of the
market for, such securities, in addition to the usual risks associated with
investing in, financing, underwriting, and trading in investment grade
instruments.
At September 27, 1996, the fair value of long and short non-investment grade
trading inventories amounted to $8,912 million and $879 million, respectively,
and in the aggregate (I.E. the sum of long and short trading inventories),
represented 8.5% of aggregate consolidated trading inventories.
At September 27, 1996, the carrying value of extensions of credit provided
to corporations entering into leveraged transactions aggregated $269 million
(excluding unutilized revolving lines of credit and other lending commitments of
$109 million), consisting primarily of senior term and subordinated financing to
38 large- and medium-sized corporations. At September 27, 1996, the Company had
no bridge loans outstanding but had two bridge loan commitments at September 27,
1996 that were subsequently canceled by the counterparties. Subsequent to
quarter-end, the Company entered into a bridge loan commitment for $90 million
to a non-investment grade counterparty. The Company intends to syndicate the
loan, if extended, and may retain a residual portion. Loans to highly leveraged
corporations are carried at unpaid principal balances less a reserve for
estimated losses. The allowance for loan losses is estimated based on a review
of each loan, and a consideration of economic, market, and credit conditions.
Direct equity investments made in conjunction with the Company's investment
and merchant banking activities aggregated $153 million at September 27, 1996,
representing investments in 61 enterprises. Equity investments in privately-held
companies for which sale is restricted by government or contractual requirements
are carried at the lower of cost or estimated net realizable value. At September
27, 1996, the Company held interests in partnerships, totaling $112 million
(recorded on the cost basis), that invest in highly leveraged transactions and
non-investment grade securities. At September 27, 1996, the Company also
committed to invest an additional $74 million in partnerships that invest in
leveraged transactions.
The Company's insurance subsidiaries hold non-investment grade securities.
Non-investment grade securities were 4.7% of total insurance investments at
September 27, 1996. Non-investment grade securities of insurance subsidiaries
are classified as available-for-sale and are carried at fair value.
At September 27, 1996, the largest non-investment grade concentration
consisted of various sovereign and corporate issues of a South American country
totaling $1,186 million, which primarily represented hedges of other financial
instruments. No one industry sector accounted for more than 20% of total non-
investment grade positions. At September 27, 1996, the Company held an aggregate
carrying value of $144 million in debt and equity securities of issuers in
various stages of bankruptcy proceedings or in default, of which 50% resulted
from the Company's market making activities in such instruments. In addition,
the Company held distressed bank loans totaling $385 million at quarter-end.
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MERRILL LYNCH PREFERRED CAPITAL TRUST II
Merrill Lynch Preferred Capital Trust II (the "Trust") is a statutory
business trust formed under the Delaware Business Trust Act, as amended (the
"Trust Act"), pursuant to a declaration of trust and the filing of a certificate
of trust with the Secretary of State of the State of Delaware on January 16,
1997; such declaration will be amended and restated in its entirety (as so
amended and restated, the "Declaration") substantially in the form filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
Declaration will be qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). Upon issuance of the Trust
Preferred Securities, the purchasers thereof will own all the Trust Preferred
Securities. See "Description of the Trust Preferred Securities". The Company
will acquire Trust Common Securities in an amount equal to at least 3% of the
total capital of the Trust. The Trust will use all the proceeds derived from the
issuance of the Trust Securities to purchase the Partnership Preferred
Securities from the Partnership and, accordingly, the assets of the Trust will
consist solely of the Partnership Preferred Securities. The Trust exists for the
exclusive purpose of (i) issuing the Trust Securities representing undivided
beneficial ownership interests in the assets of the Trust, (ii) investing the
gross proceeds of the Trust Securities in the Partnership Preferred Securities,
and (iii) engaging in only those other activities necessary or incidental
thereto.
Pursuant to the Declaration, there will initially be four trustees (the
"Trustees") for the Trust. Two of the Trustees will be individuals who are
employees or officers of or who are affiliated with the Company (the "Regular
Trustees"). The third trustee will be a financial institution that is
unaffiliated with the Company and is indenture trustee for purposes of
compliance with the provisions of the Trust Indenture Act (the "Property
Trustee"). The fourth trustee will be an entity that maintains its principal
place of business in the State of Delaware (the "Delaware Trustee"). Initially,
The Chase Manhattan Bank, a New York banking corporation, will act as Property
Trustee, and its affiliate, Chase Manhattan Bank Delaware, a Delaware
corporation, will act as Delaware Trustee until, in each case, removed or
replaced by the holder of the Trust Common Securities. For purposes of
compliance with the Trust Indenture Act, The Chase Manhattan Bank will also act
as trustee under the Trust Guarantee (the "Trust Guarantee Trustee"), as
Property Trustee under the Declaration and as trustee under the indenture
applicable to the Company Debenture.
The Property Trustee will hold title to the Partnership Preferred Securities
for the benefit of the holders of the Trust Securities, and the Property Trustee
will have the power to exercise all rights, powers and privileges with respect
to the Partnership Preferred Securities under the Amended and Restated Agreement
of Limited Partnership to be entered into by the Company and the Trust (the
"Limited Partnership Agreement") as the holder of the Partnership Preferred
Securities. In addition, the Property Trustee will maintain exclusive control of
a segregated non-interest bearing bank account (the "Property Account") to hold
all payments made in respect of the Partnership Preferred Securities for the
benefit of the holders of the Trust Securities. The Trust Guarantee Trustee will
hold the Trust Guarantee for the benefit of the holders of the Trust Preferred
Securities. The Company, as the holder of all the Trust Common Securities, will
have the right to appoint, remove or replace any of the Trustees and to increase
or decrease the number of trustees, provided that at least one trustee shall be
a Delaware Trustee, at least one trustee shall be the Property Trustee and at
least one Trustee shall be a Regular Trustee. The Company will pay all fees and
expenses related to the organization and operations of the Trust (including any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States or any other domestic
taxing authority upon the Trust) and the offering of the Trust Preferred
Securities and be responsible for all debts and obligations of the Trust (other
than with respect to the Trust Securities).
For so long as the Trust Preferred Securities remain outstanding, the
Company will covenant (i) to maintain directly 100% ownership of the Trust
Common Securities, (ii) to cause the Trust to remain a statutory business trust
and not to voluntarily dissolve, wind-up, liquidate or be terminated, except as
permitted by the Declaration of the Trust and (iii) to use its commercially
reasonable efforts to ensure that
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the Trust will not be (A) an "investment company" for purposes of the 1940 Act
or (B) classified as other than a grantor trust for United States federal income
tax purposes.
The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, are as set forth in
the Declaration and the Trust Act. See "Description of the Trust Preferred
Securities". The Declaration and the Trust Guarantee also incorporate by
reference the terms of the Trust Indenture Act.
The location of the principal executive office of the Trust is c/o Merrill
Lynch & Co., Inc., World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281, and its telephone number is (212) 449-1000.
MERRILL LYNCH PREFERRED FUNDING II, L.P.
Merrill Lynch Preferred Funding II, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act, as amended (the "Partnership Act"), on January 16, 1997 for the
exclusive purposes of purchasing certain eligible securities of the Company and
wholly-owned subsidiaries of the Company (the "Affiliate Investment
Instruments") with the proceeds from the sale of Partnership Preferred
Securities to the Trust and a capital contribution from the Company in exchange
for the general partner interest in the Partnership. Pursuant to the certificate
of limited partnership, as amended, and the Limited Partnership Agreement, the
Company is the sole general partner of the Partnership (in such capacity the
"General Partner"). Upon the issuance of the Partnership Preferred Securities,
which securities represent limited partner interests in the Partnership, the
Trust will be the sole limited partner of the Partnership. Contemporaneously
with the issuance of the Partnership Preferred Securities, the General Partner
will contribute capital to the Partnership in an amount sufficient to establish
its initial capital account at an amount equal to at least 15% of the total
capital of the Partnership.
The Partnership is managed by the General Partner and exists for the sole
purpose of (i) issuing its partnership interests, (ii) investing the proceeds
thereof in Affiliate Investment Instruments and Eligible Debt Securities and
(iii) engaging in only those other activities necessary or incidental thereto.
To the extent that aggregate payments to the Partnership on the Affiliate
Investment Instruments and on Eligible Debt Securities exceed distributions
accumulated or payable with respect to the Partnership Preferred Securities, the
Partnership may at times have excess funds which shall be allocated to and may,
in the General Partner's sole discretion, be distributed to the General Partner.
For so long as the Partnership Preferred Securities remain outstanding, the
General Partner will covenant in the Limited Partnership Agreement (i) to remain
the sole general partner of the Partnership and to maintain directly 100%
ownership of the General Partner's interest in the Partnership, which interest
will at all times represent at least 1% of the total capital of the Partnership,
(ii) to cause the Partnership to remain a limited partnership and not to
voluntarily dissolve, liquidate, wind-up or be terminated, except as permitted
by the Limited Partnership Agreement and (iii) to use its commercially
reasonable efforts to ensure that the Partnership will not be (A) an "investment
company" for purposes of the 1940 Act or (B) an association or a publicly traded
partnership taxable as a corporation for United States federal income tax
purposes. The Company or the then General Partner may transfer its obligations
as General Partner to a wholly-owned direct or indirect subsidiary of the
Company provided that (i) such successor entity expressly accepts such transfer
of the obligations as General Partner and (ii) prior to such transfer, the
Company has received an opinion of nationally recognized independent counsel to
the Partnership experienced in such matters to the effect that (A) the
Partnership will be treated as a partnership for United States federal income
tax purposes, (B) such transfer would not cause the Trust to be classified as an
association taxable as a corporation for United States federal income tax
purposes, (C) following such transfer, the Company and such successor entity
will be in compliance with the 1940 Act
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without registering thereunder as an investment company, and (D) such transfer
will not adversely affect the limited liability of the holders of the
Partnership Preferred Securities.
The rights of the holders of the Partnership Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in the
Limited Partnership Agreement and the Partnership Act. See "Description of the
Partnership Preferred Securities".
The Limited Partnership Agreement provides that the General Partner will
have liability for the fees and expenses of the Partnership (including any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States or any other domestic
taxing authority upon the Partnership) and be responsible for all debts and
obligations of the Partnership (other than with respect to the Partnership
Preferred Securities). Under Delaware law, assuming a limited partner in a
Delaware limited partnership such as the Partnership (I.E., a holder of the
Partnership Preferred Securities) does not participate in the control of the
business of the limited partnership, such limited partner will not be personally
liable for the debts, obligations and liabilities of such limited partnership,
whether arising in contract, tort or otherwise, solely by reason of being a
limited partner of such limited partnership (subject to any obligation such
limited partner may have to repay any funds that may have been wrongfully
distributed to it). The Partnership's business and affairs will be conducted by
the General Partner.
The location of the principal executive offices of the Partnership is c/o
Merrill Lynch & Co., Inc., World Financial Center, North Tower, 250 Vesey
Street, New York, New York 10281 and its telephone number is (212) 449-1000.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee, The Chase Manhattan Bank, will act as
trustee for the Trust Preferred Securities under the Declaration for purposes of
compliance with the provisions of the Trust Indenture Act. The terms of the
Trust Preferred Securities will include those stated in the Declaration and
those made part of the Declaration by the Trust Indenture Act. The following
summary of the material terms and provisions of the Trust Preferred Securities
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the Declaration, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part, the Trust Act and the
Trust Indenture Act.
GENERAL
The Trust Preferred Securities will be issued in fully registered form
without coupons. Trust Preferred Securities will not be issued in bearer form.
See "-- Book-Entry Only Issuance -- The Depository Trust Company".
The Declaration authorizes the Regular Trustees of the Trust to issue the
Trust Securities, which represent undivided beneficial ownership interests in
the assets of the Trust. Title to the Partnership Preferred Securities will be
held by the Property Trustee for the benefit of the holders of the Trust
Securities. The Declaration does not permit the Trust to acquire any assets
other than the Partnership Preferred Securities or the issuance by the Trust of
any securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. The payment of distributions out of money held by the
Trust, and payments out of money held by the Trust upon redemption of the Trust
Preferred Securities or liquidation of the Trust, are guaranteed by the Company
to the extent described under "Description of the Trust Guarantee". The Trust
Guarantee will be held by The Chase Manhattan Bank, the Trust Guarantee Trustee,
for the benefit of the holders of the Trust Preferred Securities. The Trust
Guarantee does not cover payment of distributions when the Trust does not have
sufficient available funds to pay such
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distributions. In such event, holders of Trust Preferred Securities will have
the remedies described below under "-- Trust Enforcement Events".
DISTRIBUTIONS
The distribution rate on Trust Preferred Securities will be fixed at a rate
per annum of 8% of the stated liquidation amount of $25 per Trust Preferred
Security and will be paid if, as and when the Trust has funds available for
payment. Distributions not paid on the scheduled payment date will accumulate
and compound quarterly at a rate per annum equal to 8%. The term "distribution"
as used herein includes any such compounded amounts unless otherwise stated or
the context otherwise requires. The amount of distributions payable for any
period will be computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the Trust Preferred Securities will be cumulative, will
accumulate from the date of initial issuance and will be payable quarterly in
arrears on each March 30, June 30, September 30 and December 30, commencing
March 30, 1997, if, as and when available for payment, by the Property Trustee,
except as otherwise described below. If distributions are not paid when
scheduled, the accumulated distributions shall be paid to the holders of record
of Trust Preferred Securities as they appear on the books and records of the
Trust on the record date with respect to the payment date for the Trust
Preferred Securities which corresponds to the payment date fixed by the
Partnership with respect to the payment of cumulative distributions on the
Partnership Preferred Securities.
Distributions on the Trust Preferred Securities will be made to the extent
that the Trust has funds available for the payment of such distributions in the
Property Account. Amounts available to the Trust for distribution to the holders
of the Trust Preferred Securities will be limited to payments received by the
Trust from the Partnership with respect to the Partnership Preferred Securities
or from the Company on the Partnership Guarantee or the Trust Guarantee.
Distributions on the Partnership Preferred Securities will be paid only if, as
and when declared in the sole discretion of the Company, as the General Partner
of the Partnership. Pursuant to the Limited Partnership Agreement, the General
Partner is not obligated to declare distributions on the Partnership Preferred
Securities at any time, including upon or following a Partnership Enforcement
Event. See "Description of Partnership Preferred Securities -- Partnership
Enforcement Events".
The assets of the Partnership will consist only of Affiliate Investment
Instruments (which initially will be Debentures) and Eligible Debt Securities.
To the extent that the issuers (and, where applicable, the Company, as
guarantor) of the securities in which the Partnership invests defer or fail to
make any payment in respect of such securities (or, if applicable, such
guarantees), the Partnership will not have sufficient funds to pay and will not
declare or pay distributions on the Partnership Preferred Securities. If the
Partnership does not declare and pay distributions on the Partnership Preferred
Securities out of funds legally available for distribution, the Trust will not
have sufficient funds to make distributions on the Trust Preferred Securities,
in which event the Trust Guarantee will not apply to such distributions until
the Trust has sufficient funds available therefor. See "Description of the
Partnership Preferred Securities -- Distributions" and "Description of the Trust
Guarantee". In addition, as described under "Risk Factors -- Insufficient Income
or Assets Available to Partnership", the Partnership may not have sufficient
funds to pay current or liquidating distributions on the Partnership Preferred
Securities if (i) at any time that the Partnership is receiving current payments
in respect of the securities held by the Partnership (including the Debentures),
the General Partner, in its sole discretion, does not declare distributions on
the Partnership Preferred Securities and the Partnership receives insufficient
amounts to pay the additional compounded distributions that will accumulate in
respect of the Partnership Preferred Securities, (ii) the Partnership reinvests
the proceeds received in respect of the Debentures upon their retirement or at
their maturities in Affiliate Investment Instruments that do not generate income
in an amount that is sufficient to pay full distributions in respect of the
Partnership Preferred Securities or (iii) the Partnership invests in equity or
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debt securities of Investment Affiliates that are not guaranteed by the Company
and that cannot be liquidated by the Partnership for an amount sufficient to pay
such distributions in full.
Distributions on the Trust Preferred Securities will be payable to the
holders thereof as they appear on the books and records of the Trust on the
relevant record dates, which will be one Business Day (as defined herein) prior
to the relevant payment dates. Such distributions will be paid through the
Property Trustee who will hold amounts received in respect of the Partnership
Preferred Securities in the Property Account for the benefit of the holders of
the Trust Securities. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment will be made as described under
"-- Book-Entry Only Issuance -- The Depository Trust Company" below. In the
event that the Trust Preferred Securities do not remain in book-entry only form,
the relevant record dates shall be the 15th day of the month of the relevant
payment dates. In the event that any date on which distributions are payable on
the Trust Preferred Securities is not a Business Day, payment of the
distribution payable on such date will be made on the next succeeding day which
is a Business Day (without any interest or other payment in respect of the
distribution subject to such delay) except that, if such Business Day is in the
next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. A "Business Day" shall mean any day other than a day on which
banking institutions in The City of New York are authorized or required by law
to close.
TRUST ENFORCEMENT EVENTS
The occurrence, at any time, of (i) arrearages on distributions on the Trust
Preferred Securities that shall exist for six consecutive quarterly distribution
periods, (ii) a default by the Company in respect of any of its obligations
under the Trust Guarantee or (iii) a Partnership Enforcement Event under the
Limited Partnership Agreement, will constitute an enforcement event under the
Declaration with respect to the Trust Securities (a "Trust Enforcement Event");
PROVIDED, that pursuant to the Declaration, the holder of the Trust Common
Securities will be deemed to have waived any Trust Enforcement Event with
respect to the Trust Common Securities until all Trust Enforcement Events with
respect to the Trust Preferred Securities have been cured, waived or otherwise
eliminated. Until such Trust Enforcement Events with respect to the Trust
Preferred Securities have been so cured, waived or otherwise eliminated, the
Property Trustee will be deemed to be acting solely on behalf of the holders of
the Trust Preferred Securities and only the holders of the Trust Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration and, in the case of a Partnership
Enforcement Event, the Special Representative with respect to certain matters
under the Limited Partnership Agreement. See "Description of the Partnership
Preferred Securities -- Partnership Enforcement Events" for a description of the
events which will trigger the occurrence of a Partnership Enforcement Event.
Upon the occurrence of a Trust Enforcement Event, (a) the Property Trustee,
as the holder of the Partnership Preferred Securities, shall have the right to
enforce the terms of the Partnership Preferred Securities, including the right
to direct the Special Representative to enforce (i) the Partnership's creditors'
rights and other rights with respect to the Affiliate Investment Instruments and
the Investment Guarantees, (ii) the rights of the holders of the Partnership
Preferred Securities under the Partnership Guarantee and (iii) the rights of the
holders of the Partnership Preferred Securities to receive distributions (only
if and to the extent declared out of funds legally available therefor) on the
Partnership Preferred Securities, and (b) the Trust Guarantee Trustee shall have
the right to enforce the terms of the Trust Guarantee, including the right to
enforce the covenant restricting certain payments by the Company and Finance
Subsidiaries.
If the Property Trustee fails to enforce its rights under the Partnership
Preferred Securities after a holder of Trust Preferred Securities has made a
written request, such holder of record of Trust Preferred Securities may
directly institute a legal proceeding against the Partnership and the Special
Representative to enforce the Property Trustee's rights under the Partnership
Preferred Securities without first instituting any legal proceeding against the
Property Trustee, the Trust or any other person or entity. In addition, for
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so long as the Trust holds any Partnership Preferred Securities, if the Special
Representative fails to enforce its rights on behalf of the Partnership under
the Affiliate Investment Instruments after a holder of Trust Preferred
Securities has made a written request, a holder of record of Trust Preferred
Securities may on behalf of the Partnership directly institute a legal
proceeding against the Investment Affiliates under the Affiliate Investment
Instruments, without first instituting any legal proceeding against the Property
Trustee, the Trust, the Special Representative or the Partnership. In any event,
for so long as the Trust is the holder of any Partnership Preferred Securities,
if a Trust Enforcement Event has occurred and is continuing and such event is
attributable to the failure of an Investment Affiliate to make any required
payment when due on any Affiliate Investment Instrument or the failure of the
Company to make any required payment when due on any Investment Guarantee, then
a holder of Trust Preferred Securities may on behalf of the Partnership directly
institute a proceeding against such Investment Affiliate with respect to such
Affiliate Investment Instrument or against the Company with respect to any such
Investment Guarantee, in each case for enforcement of payment.
Under no circumstances, however, shall the Special Representative have
authority to cause the General Partner to declare distributions on the
Partnership Preferred Securities. As a result, although the Special
Representative may be able to enforce the Partnership's creditors' rights to
accelerate and receive payments in respect of the Affiliate Investment
Instruments and the Investment Guarantees, the Partnership would be entitled to
reinvest such payments in additional Affiliate Investment Instruments, subject
to satisfying the reinvestment criteria described under "Description of the
Partnership Preferred Securities -- Partnership Investments", and Eligible Debt
Securities, rather than declaring and making distributions on the Partnership
Preferred Securities.
The Company and the Trust are each required to file annually with the
Property Trustee an officer's certificate as to its compliance with all
conditions and covenants under the Declaration.
MANDATORY REDEMPTION
The Partnership Preferred Securities may be redeemed by the Partnership at
the option of the General Partner, in whole or in part, at any time on or after
March 30, 2007 or at any time in certain circumstances upon the occurrence of a
Partnership Special Event. Upon such redemption of the Partnership Preferred
Securities (either at the option of the General Partner or pursuant to a
Partnership Special Event), the proceeds from such repayment shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the Partnership Preferred Securities so redeemed at
an amount per Trust Security equal to $25 plus accumulated and unpaid
distributions thereon; PROVIDED, that holders of the Trust Securities shall be
given not less than 30 nor more than 60 days notice of such redemption. See
"Description of the Partnership Preferred Securities -- General" and "--
Optional Redemption".
TRUST SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If, at any time, a Trust Tax Event or a Trust Investment Company Event (each
as hereinafter defined, and each, a "Trust Special Event") shall occur and be
continuing, the Regular Trustees shall, unless the Partnership Preferred
Securities are redeemed in the limited circumstances described below, within 90
days following the occurrence of such Trust Special Event elect to either (i)
dissolve the Trust upon not less than 30 nor more than 60 days notice with the
result that, after satisfaction of creditors of the Trust, if any, Partnership
Preferred Securities would be distributed on a PRO RATA basis to the holders of
the Trust Preferred Securities and the Trust Common Securities in liquidation of
such holders' interests in the Trust; PROVIDED, HOWEVER, that if at the time
there is available to the Trust the opportunity to eliminate, within such 90-day
period, the Trust Special Event by taking some ministerial action, such as
filing a form or making an election, or pursuing some other similar reasonable
measure which in the sole judgment of the Company has or will cause no adverse
effect on the Trust, the Partnership, the Company or the holders of the Trust
Securities and will involve no material cost, the Trust will pursue such measure
in lieu of dissolution or (ii)
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cause the Trust Preferred Securities to remain outstanding, provided that in the
case of this clause (ii), the Company shall pay any and all expenses incurred by
or payable by the Trust attributable to the Trust Special Event. Furthermore, if
in the case of the occurrence of a Trust Tax Event, the Regular Trustees have
received an opinion (a "Trust Redemption Tax Opinion") of nationally recognized
independent tax counsel experienced in such matters that there is more than an
insubstantial risk that interest payable by one or more of the Investment
Affiliates with respect to the Debentures issued by such Investment Affiliate is
not, or will not be, deductible by such Investment Affiliate for United States
federal income tax purposes even if the Partnership Preferred Securities were
distributed to the holders of the Trust Securities in liquidation of such
holders' interests in the Trust as described above, then the General Partner
shall have the right, within 90 days following the occurrence of such Trust Tax
Event, to elect to cause the Partnership to redeem the Partnership Preferred
Securities in whole (but not in part) for cash upon not less than 30 nor more
than 60 days notice and promptly following such redemption, the Trust Preferred
Securities and Trust Common Securities will be redeemed by the Trust at the
Redemption Price.
"Trust Tax Event" means that the Company shall have requested and received
and shall have delivered to the Regular Trustees an opinion of nationally
recognized independent tax counsel experienced in such matters (a "Trust
Dissolution Tax Opinion") to the effect that there has been (a) an amendment to,
change in or announced proposed change in the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein, (b) a judicial decision interpreting, applying, or
clarifying such laws or regulations, (c) an administrative pronouncement or
action that represents an official position (including a clarification of an
official position) of the governmental authority or regulatory body making such
administrative pronouncement or taking such action, or (d) a threatened
challenge asserted in connection with an audit of the Company or any of its
subsidiaries, the Partnership, or the Trust, or a threatened challenge asserted
in writing against any other taxpayer that has raised capital through the
issuance of securities that are substantially similar to the Debentures, the
Partnership Preferred Securities, or the Trust Preferred Securities, which
amendment or change is adopted or which proposed change, decision or
pronouncement is announced or which action, clarification or challenge occurs on
or after the date of this Prospectus (collectively a "Tax Action"), which Tax
Action relates to any of the items described in (i) through (iii) below, and
that following the occurrence of such Tax Action there is more than an
insubstantial risk that (i) the Trust is, or will be, subject to United States
federal income tax with respect to income accrued or received on the Partnership
Preferred Securities, (ii) the Trust is, or will be, subject to more than a DE
MINIMIS amount of other taxes, duties or other governmental charges or (iii)
interest payable by an Investment Affiliate with respect to the Debenture issued
by such Investment Affiliate is not, or will not be, deductible by such
Investment Affiliate for United States federal income tax purposes.
"Trust Investment Company Event" means that the Company shall have requested
and received and shall have delivered to the Regular Trustees an opinion of
nationally recognized independent legal counsel experienced in such matters to
the effect that as a result of the occurrence on or after the date hereof of a
change in law or regulation or a change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), the Trust is or will be considered an
"investment company" which is required to be registered under the 1940 Act.
If the Partnership Preferred Securities are distributed to the holders of
the Trust Preferred Securities, the Company will use its best efforts to cause
the Partnership Preferred Securities to be listed on the New York Stock Exchange
or on such other national securities exchange or similar organization as the
Trust Preferred Securities are then listed or quoted.
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On the date fixed for any distribution of Partnership Preferred Securities,
upon dissolution of the Trust, (i) the Trust Preferred Securities and the Trust
Common Securities will no longer be deemed to be outstanding and (ii)
certificates representing Trust Securities will be deemed to represent the
Partnership Preferred Securities having a liquidation preference equal to the
stated liquidation amount of such Trust Securities until such certificates are
presented to the Company or its agent for transfer or reissuance.
There can be no assurance as to the market price for the Partnership
Preferred Securities which may be distributed in exchange for Trust Preferred
Securities if a dissolution and liquidation of the Trust were to occur.
Accordingly, the Partnership Preferred Securities which an investor may
subsequently receive on dissolution and liquidation of the Trust may trade at a
discount to the price of the Trust Preferred Securities exchanged.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Trust Preferred
Securities unless all accumulated and unpaid distributions have been paid on all
Trust Preferred Securities for all quarterly distribution periods terminating on
or prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Trust Preferred
Securities (which notice will be irrevocable), and if the Company has paid to
the Property Trustee a sufficient amount of cash in connection with the related
redemption of the Partnership Preferred Securities, then, by 12:00 noon, New
York time, on the redemption date, the Trust will irrevocably deposit with DTC
funds sufficient to pay the amount payable on redemption of all book-entry
certificates and will give DTC irrevocable instructions and authority to pay
such amount to holders of the Trust Preferred Securities. See "-- Book-Entry
Only Issuance -- The Depository Trust Company". If notice of redemption shall
have been given and funds are deposited as required, then upon the date of such
deposit, all rights of holders of such Trust Preferred Securities so called for
redemption will cease, except the right of the holders of such Trust Preferred
Securities to receive the Redemption Price, but without interest on such
Redemption Price. In the event that any date fixed for redemption of Trust
Preferred Securities is not a Business Day, then payment of the amount payable
on such date will be made on the next succeeding day which is a Business Day
(without any interest or other payment in respect of the amount payable subject
to such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day. In
the event that payment of the Redemption Price in respect of Trust Preferred
Securities is improperly withheld or refused and not paid either by the Trust or
by the Company pursuant to the Trust Guarantee described under "Description of
the Trust Guarantee", distributions on such Trust Preferred Securities will
continue to accumulate from the original redemption date to the date of payment.
In the event that fewer than all of the outstanding Trust Preferred
Securities are to be redeemed, the Trust Preferred Securities will be redeemed
in accordance with the procedures of DTC. See "-- Book-Entry Only Issuance --
The Depository Trust Company". In the event that the Trust Preferred Securities
do not remain in book-entry only form and fewer than all of the outstanding
Trust Preferred Securities are to be redeemed, the Trust Preferred Securities
shall be redeemed on a PRO RATA basis or pursuant to the rules of any securities
exchange on which the Trust Preferred Securities are listed.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or its subsidiaries may at
any time and from time to time purchase outstanding Trust Preferred Securities
by tender, in the open market or by private agreement.
SUBORDINATION OF TRUST COMMON SECURITIES
Payment of amounts upon liquidation of the Trust Securities shall be made
PRO RATA based on the liquidation amount of the Trust Securities; PROVIDED,
HOWEVER, that upon (i) the occurrence of an Investment Event of Default by an
Investment Affiliate (including the Company) in respect of any Affiliate
Investment Instrument or (ii) default by the Company on any of its obligations
under any Guarantee, the
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holders of the Trust Preferred Securities will have a preference over the
holders of the Trust Common Securities with respect to payments upon liquidation
of the Trust.
In the case of any Trust Enforcement Event, the holder of Trust Common
Securities will be deemed to have waived any such Trust Enforcement Event until
all such Trust Enforcement Events with respect to the Trust Preferred Securities
have been cured, waived or otherwise eliminated. Until all Trust Enforcement
Events with respect to the Trust Preferred Securities have been so cured, waived
or otherwise eliminated, the Property Trustee shall act solely on behalf of the
holders of the Trust Preferred Securities and not on behalf of the holder of the
Trust Common Securities, and only the holders of the Trust Preferred Securities
will have the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Trust Liquidation"), the holders
of the Trust Preferred Securities will be entitled to receive out of the assets
of the Trust, after satisfaction of liabilities to creditors, distributions in
cash or other immediately available funds in an amount equal to the aggregate of
the stated liquidation amount of $25 per Trust Preferred Security plus
accumulated and unpaid distributions thereon to the date of payment (the "Trust
Liquidation Distribution"), unless, in connection with such Trust Liquidation,
Partnership Preferred Securities have been distributed on a PRO RATA basis to
the holders of the Trust Securities.
If, upon any such Trust Liquidation, the Trust Liquidation Distribution can
be paid only in part because the Trust has insufficient assets available to pay
in full the aggregate Trust Liquidation Distribution, then the amounts payable
directly by the Trust on the Trust Preferred Securities shall be paid on a PRO
RATA basis. The holders of the Trust Common Securities will be entitled to
receive distributions upon any such liquidation PRO RATA with the holders of the
Trust Preferred Securities, except in the limited circumstances described above
under "-- Subordination of Trust Common Securities".
Pursuant to the Declaration, the Trust shall terminate (i) upon the
bankruptcy of the Company, (ii) upon the filing of a certificate of dissolution
or the equivalent with respect to the Company, the filing of a certificate of
cancellation with respect to the Trust after having obtained the consent of at
least a majority in liquidation amount of the Trust Securities, voting together
as a single class, to file such certificate of cancellation, or the revocation
of the charter of the Company and the expiration of 90 days after the date of
revocation without a reinstatement thereof, (iii) upon the distribution of all
of the Partnership Preferred Securities upon the occurrence of a Trust Special
Event, (iv) upon the entry of a decree of a judicial dissolution of the Company
or the Trust, or (v) upon the redemption of all the Trust Securities.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act and
under "Description of the Trust Guarantee -- Amendments and Assignment", and as
otherwise required by law and the Declaration, the holders of the Trust
Preferred Securities will have no voting rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion
as set forth in the last sentence of this paragraph, the holders of a majority
in liquidation amount of the Trust Preferred Securities have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Property Trustee, or direct the exercise of any trust or power conferred
upon the Property Trustee under the Declaration, including the right to direct
the Property Trustee, as holder of the Partnership Preferred Securities, to (i)
exercise the remedies available to it under the Limited Partnership Agreement as
a holder of the Partnership Preferred Securities, including the right to direct
the Special Representative to exercise its rights in the manner described above
under "-- Trust Enforcement Events" and (ii) consent to any amendment,
modification, or termination of the Limited Partnership Agreement or the
Partnership Preferred Securities where such consent shall be required; PROVIDED,
HOWEVER, that where a
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consent or action under the Limited Partnership Agreement would require the
consent or act of the holders of more than a majority of the aggregate
liquidation preference of Partnership Preferred Securities affected thereby,
only the holders of the percentage of the aggregate stated liquidation amount of
the Trust Securities which is at least equal to the percentage required under
the Limited Partnership Agreement may direct the Property Trustee to give such
consent or take such action on behalf of the Trust. See "Description of the
Partnership Preferred Securities -- Voting Rights". The Property Trustee shall
notify all holders of the Trust Preferred Securities of any notice of any
Partnership Enforcement Event received from the General Partner with respect to
the Partnership Preferred Securities and the Affiliate Investment Instruments.
Such notice shall state that such Partnership Enforcement Event also constitutes
a Trust Enforcement Event. Except with respect to directing the time, method,
and place of conducting a proceeding for a remedy as described above, the
Property Trustee shall be under no obligation to take any of the actions
described in clauses (i) or (ii) above unless the Property Trustee has obtained
an opinion of independent tax counsel to the effect that as a result of such
action, the Trust will not fail to be classified as a grantor trust for United
States federal income tax purposes and that after such action each holder of
Trust Securities will continue to be treated as owning an undivided beneficial
ownership interest in the Partnership Preferred Securities.
A waiver of a Partnership Enforcement Event with respect to the Partnership
Preferred Securities held by the Property Trustee will constitute a waiver of
the corresponding Trust Enforcement Event.
Any required approval or direction of holders of Trust Preferred Securities
may be given at a separate meeting of holders of Trust Preferred Securities
convened for such purpose, at a meeting of all of the holders of Trust
Securities or pursuant to written consent. The Regular Trustees will cause a
notice of any meeting at which holders of Trust Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of such
holders is to be taken, to be mailed to each holder of record of Trust Preferred
Securities. Each such notice will include a statement setting forth the
following information: (i) the date of such meeting or the date by which such
action is to be taken; (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Trust
Preferred Securities will be required for the Trust to redeem and cancel Trust
Preferred Securities or distribute Partnership Preferred Securities in
accordance with the Declaration.
Notwithstanding that holders of Trust Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the Trust
Securities that are beneficially owned at such time by the Company or any entity
directly or indirectly controlled by, or under direct or indirect common control
with, the Company, shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if such Trust Securities were
not outstanding, except for Trust Preferred Securities purchased or acquired by
the Company or its affiliates in connection with transactions effected by or for
the account of customers of the Company or any of its subsidiaries or in
connection with the distribution or trading of such Trust Preferred Securities;
PROVIDED, HOWEVER, that persons (other than affiliates of the Company) to whom
the Company or any of its subsidiaries have pledged Trust Preferred Securities
may vote or consent with respect to such pledged Trust Preferred Securities
pursuant to the terms of such pledge.
The procedures by which holders of Trust Preferred Securities represented by
the global certificates may exercise their voting rights are described below.
See "-- Book-Entry Only Issuance -- The Depository Trust Company".
Holders of the Trust Preferred Securities will have no rights to appoint or
remove the Regular Trustees, who may be appointed, removed or replaced solely by
the Company, as the holder of all of the Trust Common Securities.
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MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other entity, except as
described below. The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the holders of the Trust Securities, the
Property Trustee or the Delaware Trustee consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State of
the United States; PROVIDED, that (i) if the Trust is not the survivor, such
successor entity either (x) expressly assumes all of the obligations of the
Trust under the Trust Securities or (y) substitutes for the Trust Preferred
Securities other securities having substantially the same terms as the Trust
Preferred Securities (the "Successor Securities"), so long as the Successor
Securities rank the same as the Trust Securities rank with respect to
distributions, assets and payments, (ii) the Company expressly acknowledges a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee as the holder of the Partnership Preferred Securities, (iii)
the Trust Preferred Securities or any Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or with another organization on which the Trust
Preferred Securities are then listed or quoted, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Trust Preferred Securities
(including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Preferred Securities (including any
Successor Securities) in any material respect, (vi) such successor entity has a
purpose substantially identical to that of the Trust, (vii) the Company
guarantees the obligations of such successor entity under the Successor
Securities to the same extent as provided by the Trust Guarantee and (viii)
prior to such merger, consolidation, amalgamation or replacement, the Company
has received an opinion of a nationally recognized independent counsel to the
Trust experienced in such matters to the effect that: (A) such merger,
consolidation, amalgamation or replacement will not adversely affect the rights,
preferences and privileges of the holders of the Trust Preferred Securities
(including any Successor Securities) in any material respect (other than with
respect to any dilution of the holders' interest in the new entity), (B)
following such merger, consolidation, amalgamation or replacement, neither the
Trust nor such successor entity will be required to register as an investment
company under the 1940 Act, (C) following such merger, consolidation,
amalgamation or replacement, the Trust (or such successor trust) will not be
classified as an association or a publicly traded partnership taxable as a
corporation for United States federal income tax purposes and (D) following such
merger, consolidation, amalgamation or replacement, the Partnership will not be
classified as an association or a publicly traded partnership taxable as a
corporation for United States federal income tax purposes. Notwithstanding the
foregoing, the Trust shall not, except with the consent of holders of 100% in
liquidation amount of the Trust Preferred Securities, consolidate, amalgamate,
merge with or into, or be replaced by any other entity or permit any other
entity to consolidate, amalgamate, merge with or into, or replace it, if such
consolidation, amalgamation, merger or replacement would cause the Trust or the
successor entity to be classified as an association or a publicly traded
partnership taxable as a corporation for United States federal income tax
purposes.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by a majority of the
Regular Trustees (and in certain circumstances the Property Trustee and the
Delaware Trustee), PROVIDED, that if any proposed amendment provides for, or the
Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise or (ii)
the dissolution, winding-up or termination of the Trust other than pursuant to
the terms of the Declaration, then the holders of the Trust Securities voting
together as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of at least a majority in liquidation amount of the Trust Securities
affected thereby; PROVIDED, FURTHER that if any amendment or proposal referred
to in clause
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(i) above would adversely affect only the Trust Preferred Securities or the
Trust Common Securities, then only the affected class will be entitled to vote
on such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of a majority in liquidation amount of such
class of Trust Securities.
The Declaration may be amended without the consent of the holders of the
Trust Securities to (i) cure any ambiguity, (ii) correct or supplement any
provision in the Declaration that may be defective or inconsistent with any
other provision of the Declaration, (iii) add to the covenants, restrictions or
obligations of the Sponsor, (iv) conform to any change in the 1940 Act, the
Trust Indenture Act or the rules or regulations of either such Act and (v)
modify, eliminate and add to any provision of the Declaration to such extent as
may be necessary or desirable; PROVIDED that no such amendment shall have a
material adverse effect on the rights, preferences or privileges of the holders
of the Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
fail to be classified as a grantor trust for United States federal income tax
purposes, (ii) cause the Partnership to be classified as an association or
publicly traded partnership taxable as a corporation for such purposes, (iii)
reduce or otherwise adversely affect the powers of the Property Trustee or (iv)
cause the Trust or the Partnership to be deemed an "investment company" which is
required to be registered under the 1940 Act.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depository (the
"Depository") for the Trust Preferred Securities and, to the extent distributed
to the holders of Trust Preferred Securities, the Partnership Preferred
Securities. The Trust Preferred Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (DTC's
nominee). One or more fully-registered global Trust Preferred Securities
certificates ("Global Certificates"), representing the total aggregate number of
Trust Preferred Securities, will be issued 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 Exchange Act. DTC
holds securities that its participants ("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. Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Participants and by the New York Stock Exchange, the American Stock Exchange,
Inc., and the National Association of Securities Dealers, Inc. Access to the DTC
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 Participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to DTC and its Participants are on file with the Commission.
Purchases of Trust Preferred Securities within the DTC system must be made
by or through Participants, which will receive a credit for the Trust Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
Trust Preferred Securities ("Beneficial Owner") is in turn to be recorded on the
Participants' and Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchases, but Beneficial Owners
are expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the
Participants or Indirect Participants through which the Beneficial Owners
purchased Trust Preferred Securities. Transfers of ownership interests in the
Trust Preferred Securities are to be accomplished by entries made on the books
of Participants and Indirect Participants acting on behalf of Beneficial Owners.
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Beneficial Owners will not receive certificates representing their ownership
interests in Trust Preferred Securities, except in the event that use of the
book-entry system for the Trust Preferred Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Trust Preferred
Securities; DTC's records reflect only the identity of the Participants to whose
accounts such Trust Preferred Securities are credited, which may or may not be
the Beneficial Owners. The Participants and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Trust Preferred Securities represented thereby
for all purposes under the Declaration and the Trust Preferred Securities. No
beneficial owner of an interest in a Global Certificate will be able to transfer
that interest except in accordance with DTC's applicable procedures, in addition
to those provided for under the Declaration.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Trust Preferred Securities (including the presentation of
Trust Preferred Securities for exchange as described below) only at the
direction of one or more Participants to whose account the DTC interests in the
Global Certificates are credited and only in respect of such portion of the
aggregate liquidation amount of Trust Preferred Securities as to which such
Participant or Participants has or have given such direction. Also, if there is
a Trust Enforcement Event under the Trust Preferred Securities, DTC will
exchange the Global Certificates for Certificated Securities, which it will
distribute to its Participants in accordance with its customary procedures.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices in respect of the Trust Preferred Securities held in
book-entry form will be sent to Cede & Co. If less than all of the Trust
Preferred Securities are being redeemed, DTC will determine the amount of the
interest of each Participant to be redeemed in accordance with its procedures.
Although voting with respect to the Trust Preferred Securities is limited,
in those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Trust Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Participants to whose accounts the Trust Preferred
Securities are allocated on the record date (identified in a listing attached to
the Omnibus Proxy).
Distributions on the Trust Preferred Securities held in book-entry form will
be made to DTC in immediately available funds. DTC's practice is to credit
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payments on such payment date. Payments by Participants and
Indirect Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participants and Indirect Participants and not of DTC, the Trust or the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of any distributions to DTC is the responsibility of the
Trust, disbursement of such payments to Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Participants and Indirect Participants.
Except as described, a Beneficial Owner of an interest in a Global
Certificate will not be entitled to receive physical delivery of Trust Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Trust Preferred Securities.
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Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Certificates among Participants of DTC, DTC
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trust will have any responsibility for the performance by DTC or its
Participants or Indirect Participants under the rules and procedures governing
DTC. DTC may discontinue providing its services as securities depository with
respect to the Trust Preferred Securities at any time by giving notice to the
Trust. Under such circumstances, in the event that a successor securities
depository is not obtained, Trust Preferred Security certificates are required
to be printed and delivered to the Property Trustee. Additionally, the Trust
(with the consent of the Company) may decide to discontinue use of the system of
book-entry transfers through DTC or any successor depository. In that event,
certificates for the Trust Preferred Securities will be printed and delivered to
the Property Trustee. In each of the above circumstances, the Company will
appoint a paying agent with respect to the Trust Preferred Securities.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the global Trust Preferred
Securities as represented by a Global Certificate.
PAYMENT
Payments in respect of the Trust Preferred Securities represented by the
Global Certificates shall be made to DTC, which shall credit the relevant
accounts at DTC on the scheduled payment dates or, in the case of certificated
securities, if any, such payments shall be made by check mailed to the address
of the holder entitled thereto as such address shall appear on the register. The
Paying Agent shall be permitted to resign as Paying Agent upon 30 days written
notice to the Regular Trustees. In the event that The Chase Manhattan Bank shall
no longer be the Paying Agent, the Regular Trustees shall appoint a successor to
act as Paying Agent (which shall be a bank or trust company).
REGISTRAR, TRANSFER AGENT, AND PAYING AGENT
The Property Trustee will act as Registrar, Transfer Agent and Paying Agent
for the Trust Preferred Securities.
Registration of transfers of Trust Preferred Securities will be effected
without charge by or on behalf of the Trust, but upon payment (with the giving
of such indemnity as the Trust or the Company may require) in respect of any tax
or other government charges which may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Trust Preferred Securities after such Trust Preferred Securities
have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Declaration and, after default, shall exercise the same degree
of care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the Property Trustee is under no obligation
to exercise any of the powers vested in it by the Declaration at the request of
any holder of Trust Preferred Securities, unless offered reasonable indemnity by
such holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Trust Preferred Securities will not be required to offer
such indemnity in the event such holders, by exercising their voting rights,
direct the Property Trustee to take any action following a Trust Enforcement
Event.
GOVERNING LAW
The Declaration and the Trust Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
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MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the affairs of
and to operate the Trust in such a way that the Trust will not be deemed to be
an "investment company" required to be registered under the 1940 Act or
characterized as other than a grantor trust for United States federal income tax
purposes. In this connection, the Regular Trustees are authorized to take any
action, not inconsistent with applicable law, the certificate of trust or the
Declaration that the Regular Trustees determine in their discretion to be
necessary or desirable for such purposes as long as such action does not
adversely affect the interests of the holders of the Trust Preferred Securities.
Holders of the Trust Preferred Securities have no preemptive rights.
DESCRIPTION OF THE TRUST GUARANTEE
Set forth below is a summary of information concerning the Trust Guarantee
which will be executed and delivered by the Company for the benefit of the
holders from time to time of Trust Preferred Securities. The summary does not
purport to be complete and is subject in all respects to the provisions of, and
is qualified in its entirety by reference to, the Trust Guarantee, which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The Trust Guarantee incorporates by reference the terms of, and will be
qualified as an indenture under, the Trust Indenture Act. The Chase Manhattan
Bank, as the Trust Guarantee Trustee, will hold the Trust Guarantee for the
benefit of the holders of the Trust Preferred Securities and will act as
indenture trustee for the purposes of compliance with the Trust Indenture Act.
GENERAL
Pursuant to the Trust Guarantee, the Company will irrevocably agree, on a
subordinated basis and to the extent set forth therein, to pay in full to the
holders of the Trust Preferred Securities (except to the extent paid by the
Trust), as and when due, regardless of any defense, right of set off or
counterclaim which the Trust may have or assert, the following payments (the
"Trust Guarantee Payments"), without duplication: (i) any accumulated and unpaid
distributions on the Trust Preferred Securities to the extent the Trust has
funds available therefor, (ii) the Redemption Price with respect to any Trust
Preferred Securities called for redemption by the Trust, to the extent the Trust
has funds available therefor and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with the distribution of Partnership Preferred Securities to the holders of
Trust Preferred Securities or the redemption of all of the Trust Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accumulated and unpaid distributions on the Trust Preferred Securities and (b)
the amount of assets of the Trust remaining available for distribution to
holders of Trust Preferred Securities upon the liquidation of the Trust. The
Company's obligation to make a Trust Guarantee Payment may be satisfied by
direct payment of the required amounts by the Company to the holders of Trust
Preferred Securities or by causing the Trust to pay such amounts to such
holders.
The Trust Guarantee will be a guarantee on a subordinated basis with respect
to the Trust Preferred Securities from the time of issuance of such Trust
Preferred Securities but will only apply to any payment of distributions or
Redemption Price, or to payments upon the dissolution, winding-up or termination
of the Trust, to the extent the Trust shall have funds available therefor. If
the Partnership fails to declare distributions on Partnership Preferred
Securities, the Trust would lack available funds for the payment of
distributions or amounts payable on redemption of the Trust Preferred Securities
or otherwise, and in such event holders of the Trust Preferred Securities would
not be able to rely upon the Trust Guarantee for payment of such amounts.
Instead, holders of the Trust Preferred Securities will have the remedies
described herein under "Description of the Trust Preferred Securities -- Trust
Enforcement Events", including the right to direct the Trust Guarantee Trustee
to enforce the covenant restricting certain payments by the Company and Finance
Subsidiaries. See "-- Covenants of the Company" below.
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The Guarantees, when taken together with the Company Debenture and the
Company's obligations to pay all fees and expenses of the Trust and the
Partnership, constitute a guarantee to the extent set forth herein by the
Company of the distribution, redemption and liquidation payments payable to the
holders of the Trust Preferred Securities. The Guarantees do not apply, however,
to current distributions by the Partnership unless and until such distributions
are declared by the Partnership out of funds legally available for payment or to
liquidating distributions unless there are assets available for payment in the
Partnership, each as more fully described under "Risk Factors -- Insufficient
Income or Assets Available to Partnership".
COVENANTS OF THE COMPANY
The Company will covenant in the Trust Guarantee that, if (a) for any
distribution period, full distributions on a cumulative basis on any Trust
Preferred Securities have not been paid, (b) an Investment Event of Default by
any Investment Affiliate in respect of any Affiliate Investment Instrument has
occurred and is continuing or (c) the Company is in default of its obligations
under the Trust Guarantee, the Partnership Guarantee or any Investment
Guarantee, then, during such period (i) the Company shall not declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
or comparable equity interest (except for (x) dividends or distributions in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, its capital stock, and conversions or exchanges of common stock of one class
into common stock of another class, (y) redemptions or purchases of any rights
pursuant to the Rights Agreement and the issuance of preferred stock pursuant to
such rights and (z) purchases or acquisitions by the Company or its affiliates
in connection with transactions effected by or for the account of customers of
the Company or any of its subsidiaries or in connection with the distribution or
trading of such capital stock or comparable equity interest) and (ii) the
Company shall not make, permit any Finance Subsidiary to make, or make any
payments that would enable any Finance Subsidiary to make, any payment of any
dividends on, any distribution with respect to, or any redemption, purchase or
other acquisition of, or any liquidation payment with respect to, any preferred
security or comparable equity interest of any Finance Subsidiary.
EVENTS OF DEFAULT; ENFORCEMENT OF TRUST GUARANTEE
An event of default under the Trust Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder.
The holders of a majority in liquidation amount of the Trust Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trust Guarantee Trustee or to direct
the exercise of any trust or power conferred upon the Trust Guarantee Trustee
under the Trust Guarantee. If the Trust Guarantee Trustee fails to enforce its
rights under the Trust Guarantee after a holder of Trust Preferred Securities
has made a written request, such holder may institute a legal proceeding
directly against the Company to enforce the Trust Guarantee Trustee's rights
under the Trust Guarantee, without first instituting a legal proceeding against
the Trust, the Trust Guarantee Trustee or any other person or entity. In any
event, if the Company has failed to make a guarantee payment under the Trust
Guarantee, a holder of Trust Preferred Securities may directly institute a
proceeding in such holder's own name against the Company for enforcement of the
Trust Guarantee for such payment.
STATUS OF THE TRUST GUARANTEE; SUBORDINATION
The Trust Guarantee will constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of payment to all other
liabilities of the Company and will rank PARI PASSU with the most senior
preferred stock, if any, issued from time to time by the Company, with similar
guarantees issued by the Company in connection with the $275,000,000 aggregate
liquidation amount of 7 3/4% Trust Originated Preferred Securities issued by
Merrill Lynch Preferred Capital Trust I, and with any guarantee now or hereafter
entered into by the Company in respect of any preferred stock of any other
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Finance Subsidiary. Accordingly, the rights of the holders of Trust Preferred
Securities to receive payments under the Trust Guarantee will be subject to the
rights of the holders of any obligations of the Company that are senior in
priority to the obligations under the Trust Guarantee. Furthermore, the holders
of obligations of the Company that are senior to the obligations under the Trust
Guarantee (including, but not limited to, obligations constituting Senior
Indebtedness) will be entitled to the same rights upon payment default or
dissolution, liquidation and reorganization in respect of the Trust Guarantee
that inure to the holders of Senior Indebtedness as against the holders of the
Company Debenture. The terms of the Trust Preferred Securities, provide that
each holder of Trust Preferred Securities, by acceptance thereof, agrees to the
subordination provisions and other terms of the Trust Guarantee.
The Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may directly institute a legal
proceeding against the Company to enforce its rights under the Trust Guarantee
without instituting a legal proceeding against any other person or entity).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Trust Preferred Securities (in which case no vote will
be required), the Trust Guarantee may be amended only with the prior approval of
the holders of at least a majority in liquidation amount of all the outstanding
Trust Preferred Securities. The manner of obtaining any such approval of holders
of the Trust Preferred Securities will be as set forth under "Description of the
Trust Preferred Securities -- Voting Rights". All guarantees and agreements
contained in the Trust Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Trust Preferred Securities then outstanding. Except in
connection with permitted merger or consolidation of the Company with or into
another entity or permitted sale, transfer or lease of the Company's assets to
another entity in which the surviving corporation (if other than the Company)
assumes the Company's obligations under the Trust Guarantee, the Company may not
assign its rights or delegate its obligations under the Trust Guarantee without
the prior approval of the holders of at least a majority of the aggregate stated
liquidation amount of the Trust Preferred Securities then outstanding.
TERMINATION OF THE TRUST GUARANTEE
The Trust Guarantee will terminate as to each holder of Trust Preferred
Securities upon (i) full payment of the Redemption Price of all Trust Preferred
Securities, (ii) distribution of the Partnership Preferred Securities held by
the Trust to the holders of the Trust Preferred Securities or (iii) full payment
of the amounts payable in accordance with the Declaration upon liquidation of
the Trust. The Trust Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Trust Preferred
Securities must restore payment of any sum paid under such Trust Preferred
Securities or such Trust Guarantee.
INFORMATION CONCERNING THE TRUST GUARANTEE TRUSTEE
The Trust Guarantee Trustee, prior to the occurrence of a default with
respect to the Trust Guarantee, undertakes to perform only such duties as are
specifically set forth in the Trust Guarantee and, after default with respect to
the Trust Guarantee, shall exercise the same degree of care as a prudent man
would exercise in the conduct of his own affairs. Subject to such provision, the
Trust Guarantee Trustee is under no obligation to exercise any of the powers
vested in it by the Trust Guarantee at the request of any holder of Trust
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
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DESCRIPTION OF THE PARTNERSHIP PREFERRED SECURITIES
GENERAL
All of the partnership interests in the Partnership, other than the
Partnership Preferred Securities acquired by the Trust, are owned directly by
the Company. Initially, the Company will be the sole General Partner of the
Partnership. The Limited Partnership Agreement authorizes and creates the
Partnership Preferred Securities, which represent limited partner interests in
the Partnership. The limited partner interests represented by the Partnership
Preferred Securities will have a preference with respect to distributions and
amounts payable on redemption or liquidation over the General Partner's interest
in the Partnership. Except as otherwise described herein or provided in the
Limited Partnership Agreement, the Limited Partnership Agreement does not permit
the issuance of any additional partnership interests, or the incurrence of any
indebtedness by the Partnership.
The summary of certain material terms and provisions of the Partnership
Preferred Securities set forth below does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the Limited
Partnership Agreement, which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part, and the Partnership Act.
DISTRIBUTIONS
Holders of Partnership Preferred Securities will be entitled to receive
cumulative cash distributions, if, as and when declared by the General Partner
in its sole discretion out of assets of the Partnership legally available for
payment. The distributions payable on each Partnership Preferred Security will
be fixed at a rate per annum of 8% of the stated liquidation preference of $25
per Partnership Preferred Security. Distributions not paid on the scheduled
payment date will accumulate and compound quarterly at the rate per annum equal
to 8%. The amount of distributions payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months.
Distributions on the Partnership Preferred Securities will be payable
quarterly in arrears on March 30, June 30, September 30 and December 30 of each
year, commencing March 30, 1997. If distributions are not declared and paid when
scheduled, the accumulated distributions shall be paid to the holders of record
of Partnership Preferred Securities as they appear on the books and records of
the Partnership on the record date with respect to the payment date for the
Partnership Preferred Securities.
The Partnership's earnings available for distribution to the holders of the
Partnership Preferred Securities will be limited to payments made on the
Affiliate Investment Instruments and Investment Guarantees and payments on
Eligible Debt Securities in which the Partnership has invested from time to
time. See "-- Partnership Investments". To the extent that the issuers (and,
where applicable, the Company, as guarantor) of the securities in which the
Partnership invests fail to make any payment in respect of such securities (or,
if applicable, such guarantees), the Partnership will not have sufficient funds
to pay and will not declare or pay distributions on the Partnership Preferred
Securities, in which event the Partnership Guarantee will not apply to such
distributions until the Partnership has sufficient funds available therefor. See
"Description of the Partnership Guarantee". In addition, distributions on the
Partnership Preferred Securities may be declared and paid only as determined in
the sole discretion of the General Partner of the Partnership. If the
Partnership fails to declare and pay distributions on the Partnership Preferred
Securities out of funds legally available for distribution, the Trust will not
have sufficient funds to make distributions on the Trust Preferred Securities,
in which event the Trust Guarantee will not apply to such distributions until
the Trust has sufficient funds available therefor. In addition, as described
under "Risk Factors -- Insufficient Income or Assets Available to Partnership",
the Partnership may not have sufficient funds to pay current or liquidating
distributions on the Partnership Preferred Securities if (i) at any time that
the Partnership is receiving current payments in respect of the securities held
by the Partnership (including the Debentures), the General Partner, in its sole
discretion, does not declare distributions on the Partnership Preferred
Securities and the Partnership receives insufficient
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amounts to pay the additional compounded distributions that will accumulate in
respect of the Partnership Preferred Securities, (ii) the Partnership reinvests
the proceeds received in respect of the Debentures upon their retirement or at
their maturities in Affiliate Investment Instruments that do not generate income
in an amount that is sufficient to pay full distributions in respect of the
Partnership Preferred Securities or (iii) the Partnership invests in equity or
debt securities of Investment Affiliates that are not guaranteed by the Company
and that cannot be liquidated by the Partnership for an amount sufficient to pay
such distributions in full.
Distributions on the Partnership Preferred Securities will be payable to the
holders thereof as they appear on the books and records of the Partnership on
the relevant record dates, which, as long as the Trust Preferred Securities
remain (or, in the event that the Trust is liquidated in connection with a Trust
Special Event, as long as the Partnership Preferred Securities remain) in
book-entry-only form, will be one Business Day prior to the relevant payment
dates. In the event the Trust Preferred Securities (or in the event that the
Trust is liquidated in connection with a Trust Special Event, the Partnership
Preferred Securities) shall not continue to remain in book-entry only form, the
relevant record dates shall be the 15th day of the month of the relevant payment
dates. In the event that any date on which distributions are payable on the
Partnership Preferred Securities is not a Business Day, then payment of the
distribution payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay) except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date.
PARTNERSHIP ENFORCEMENT EVENTS
If one or more of the following events shall occur and be continuing (each a
"Partnership Enforcement Event"): (i) arrearages on distributions on the
Partnership Preferred Securities shall exist for six consecutive quarterly
distribution periods, (ii) the Company is in default on any of its obligations
under the Partnership Guarantee or any Investment Guarantee or (iii) an
Investment Event of Default occurs and is continuing on any Affiliate Investment
Instrument, then the Property Trustee, for so long as the Partnership Preferred
Securities are held by the Property Trustee, will have the right, or holders of
the Partnership Preferred Securities will be entitled by the vote of a majority
in aggregate liquidation preference of such holders (a) under the Limited
Partnership Agreement to enforce the terms of the Partnership Preferred
Securities, including the right to appoint and authorize a special
representative of the Partnership and the limited partners (a "Special
Representative") to enforce (1) the Partnership's creditors' rights and other
rights with respect to the Affiliate Investment Instruments and the Investment
Guarantees, (2) the rights of the holders of the Partnership Preferred
Securities under the Partnership Guarantee and (3) the rights of the holders of
the Partnership Preferred Securities to receive distributions (only if and to
the extent declared out of funds legally available therefor) on the Partnership
Preferred Securities, and (b) under the Partnership Guarantee to enforce the
terms of the Partnership Guarantee, including the right to enforce the covenant
restricting certain payments by the Company and Finance Subsidiaries.
If the Special Representative fails to enforce its rights under the
Affiliate Investment Instruments after a holder of Partnership Preferred
Securities has made a written request, such holder of record of Partnership
Preferred Securities may directly institute a legal proceeding against the
Company to enforce the rights of the Special Representative and the Partnership
under the Affiliate Investment Instruments without first instituting any legal
proceeding against the Special Representative, the Partnership or any other
person or entity. In any event, if a Partnership Enforcement Event has occurred
and is continuing and such event is attributable to the failure of an Investment
Affiliate to make any required payment when due on any Affiliate Investment
Instrument, then a holder of Partnership Preferred Securities may on behalf of
the Partnership directly institute a proceeding against such Investment
Affiliate with respect to such Affiliate Investment Instrument for enforcement
of payment. A holder of Partnership Preferred Securities may also bring a direct
action against the Company to enforce such holder's right under the
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Partnership Guarantee. See "Description of the Partnership Guarantee -- Events
of Default; Enforcement of Partnership Guarantee".
Under no circumstances, however, shall the Special Representative have
authority to cause the General Partner to declare distributions on the
Partnership Preferred Securities. As a result, although the Special
Representative may be able to enforce the Partnership's creditors' rights to
accelerate and receive payments in respect of the Affiliate Investment
Instruments and the Investment Guarantees, the Partnership would be entitled to
reinvest such payments in additional Affiliate Investment Instruments, subject
to satisfying the reinvestment criteria described under "-- Partnership
Investments", and Eligible Debt Securities, rather than declaring and making
distributions on the Partnership Preferred Securities. The Special
Representative shall not, by virtue of acting in such capacity, be admitted as a
general partner in the Partnership or otherwise be deemed to be a general
partner in the Partnership and shall have no liability for the debts,
obligations or liabilities of the Partnership.
PARTNERSHIP INVESTMENTS
Approximately 99% of the proceeds from the issuance of the Partnership
Preferred Securities and the General Partner's contemporaneous capital
contribution (the "Initial Partnership Proceeds") will be used by the
Partnership to purchase the Debentures and the remaining 1% of the Initial
Partnership Proceeds will be used to purchase Eligible Debt Securities. The
purchase of the Debentures by the Partnership will occur contemporaneously with
the issuance of the Partnership Preferred Securities.
The initial Affiliate Investment Instruments purchased by the Partnership
will consist of two or more debt instruments (the "Debentures"). The Company
anticipates that approximately 85% of the Initial Partnership Proceeds will be
used to purchase a Debenture of the Company (the "Company Debenture"), and
approximately 14% of the Initial Partnership Proceeds will be used to purchase
Debentures of one or more eligible controlled affiliates of the Company (the
"Affiliate Debentures"). Each Debenture is expected to have a term of 20 years
and to provide for interest payable on March 30, June 30, September 30 and
December 30 of each year, commencing March 30, 1997, at market rates for such
Debentures. The Debentures will be general unsecured debt obligations of the
relevant issuer, except that the Company Debenture will rank subordinate and
junior to all Senior Indebtedness of the Company.
The payment of interest on each of the Debentures may be deferred at any
time, and from time to time, by the relevant issuer for a period not exceeding
six consecutive quarters. If an issuer were to so defer the payment of interest,
interest would continue to accrue and compound at the stated interest rate on
such Debenture. The Debentures will contain covenants appropriate for unsecured
debt securities issued or guaranteed by similar borrowers pursuant to a public
offering or private placement under Rule 144A of the Securities Act of a
comparable debt security, including a limitation on consolidation, merger, sale
or conveyance of assets. The Debentures will contain redemption provisions that
correspond to the redemption provisions applicable to the Partnership Preferred
Securities, including an option to redeem the Debentures by the relevant issuer,
in whole or in part, from time to time, on or after March 30, 2007, and
following the occurrence of a Partnership Special Event, in each case, in the
same manner described under "-- Optional Redemption" and "-- Partnership Special
Event Redemption". The Debentures, and any other Affiliate Investment
Instruments that are debt instruments acquired by the Partnership in the future,
will also contain customary events of default (the "Investment Events of
Default"), including events of default for defaults in payments on such
securities when due (provided that no default shall occur upon a valid deferral
of an interest payment by an issuer), defaults in the performance of the
relevant issuer's obligations under its Debenture or Affiliate Investment
Instruments, as the case may be, and certain bankruptcy, insolvency or
reorganization events (subject to customary exceptions and grace periods).
The payment of interest and principal when due and other payment terms of
the Debentures (other than the Company Debenture), will be guaranteed to the
extent described herein (each, an "Investment Guarantee") by the Company for the
benefit of the holders of Partnership Preferred Securities. See "-- Investment
Guarantees".
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Approximately 1% of the Initial Partnership Proceeds will be invested in
Eligible Debt Securities. "Eligible Debt Securities" means cash or book-entry
securities, negotiable instruments, or other securities of entities not
affiliated with the Company which evidence any of the following: (a) any
security issued or guaranteed as to principal or interest by the United States,
or by a person controlled or supervised by and acting as an instrumentality of
the Government of the United States pursuant to authority granted by the
Congress of the United States, or any certificate of deposit for any of the
foregoing; (b) commercial paper issued pursuant to Section 3(a)(3) of the
Securities Act and having, at the time of the investment or contractual
commitment to invest therein, a rating from each of Standard & Poor's Ratings
Services, a division of the McGraw-Hill Companies, Inc. ("S&P") and Moody's
Investors Service, Inc. ("Moody's") in the highest investment rating category
granted by such rating agency and having a maturity not in excess of nine
months; (c) demand deposits, time deposits and certificates of deposit which are
fully insured by the Federal Deposit Insurance Corporation ("FDIC"); (d)
repurchase obligations with respect to any security that is a direct obligation
of, or fully guaranteed by, the Government of the United States of America or
any agency or instrumentality thereof, the obligations of which are backed by
the full faith and credit of the United States of America, in either case
entered into with a depository institution or trust company which is an Eligible
Institution (as defined herein) and the deposits of which are insured by the
FDIC; and (e) any other security which is identified as a permitted investment
of a finance subsidiary pursuant to Rule 3a-5 under the 1940 Act at the time it
is acquired by the Partnership.
"Eligible Institution" means (a) a depository institution organized under
the laws of the United States or any one of the states thereof or the District
of Columbia (or any domestic branch of a foreign bank), (1) (i) which has either
(A) a long-term unsecured debt rating of AA or better by S&P and Aa or better by
Moody's or (B) a short-term unsecured debt rating or a certificate of deposit
rating of A-1+ by S&P and P-1 by Moody's and (ii) whose deposits are insured by
the FDIC or (2) (i) the parent of which has a long-term or short-term unsecured
debt rating which signifies investment grade and (ii) whose deposits are insured
by the FDIC.
The Partnership may, from time to time and subject to the restrictions
described below, reinvest payments received with respect to the Affiliate
Investment Instruments (including the Debentures) and the Eligible Debt
Securities in additional Affiliate Investment Instruments and Eligible Debt
Securities. As of the date of this Prospectus, the Company, as the General
Partner, does not intend to cause the Partnership to reinvest regularly
scheduled, periodic payments of interest or dividends received by the
Partnership in the manner described below, although there can be no assurance
that the General Partner's intention in respect of such reinvestments will not
change in the future.
The fairness of specific terms of all Affiliate Investment Instruments
(including the Debentures) will be passed upon by a nationally recognized
accounting firm, bank or investment banking firm that does not (and whose
directors, officers, employees and affiliates do not) have a direct or indirect
material equity interest in the Company or any of its subsidiaries (the
"Independent Financial Advisor").
The Partnership may reinvest in additional Affiliate Investment Instruments
only if certain procedures and criteria are satisfied with respect to such
Affiliate Investment Instrument, including the satisfaction of the following
conditions: (i) the Partnership did not hold debt or equity securities of the
issuer of the proposed Affiliate Investment Instrument within the three-year
period ending on the date of such proposed investment; (ii) there was never a
default on any debt obligation of, or arrearages of dividends on preferred stock
issued by, the issuer of the proposed Affiliate Investment Instrument that was
previously or is currently owned by the Partnership; (iii) the applicable terms
and provisions with respect to the proposed Affiliate Investment Instrument have
been determined by the Independent Financial Advisor to be at least as favorable
as terms which could be obtained by the Partnership in a public offering or
private placement under Rule 144A of the Securities Act of a comparable security
issued by the relevant Investment Affiliate and guarantees, if any, included
therein; and (iv) the requesting Investment Affiliate shall not be deemed to be
an investment company by reason of Section 3(a) or 3(b) of the 1940 Act or is
otherwise an eligible recipient of funds directly or indirectly from the Trust
pursuant to an order issued by
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the Commission. The term "Investment Affiliate" means the Company or any
corporation, partnership, limited liability company or other entity (other than
the Partnership or the Trust) that is controlled by the Company. If the
Partnership is unable to reinvest payments and proceeds from Affiliate
Investment Instruments in additional Affiliate Investment Instruments meeting
the above criteria, the Partnership may only invest such funds in Eligible Debt
Securities (subject to restrictions of applicable law, including the 1940 Act).
INVESTMENT GUARANTEES
GENERAL
The Company will agree to execute and deliver an Investment Guarantee, on a
subordinated basis, for the benefit of the holders of Partnership Preferred
Securities with respect to each Debenture issued by an Investment Affiliate
(other than the Company Debenture) to the extent set forth below. The Investment
Guarantees shall be enforceable regardless of any defense, right of set-off or
counterclaim that the Company may have or assert. The Investment Guarantees will
be full and unconditional guarantees, to the extent set forth therein, with
respect to the applicable Debentures from the time of issuance. To the extent
that, as described above, the Partnership invests in additional Affiliate
Investment Instruments, the determination as to whether such Affiliate
Investment Instrument will contain an Investment Guarantee will be made at the
date of its issuance and will be based, among other things, upon its approval by
the Independent Financial Advisor in accordance with the reinvestment criteria
described above.
The Investment Guarantees will constitute guarantees of payment and not of
collection (that is, the guaranteed party may directly institute a legal
proceeding against the Company to enforce its rights under the applicable
Investment Guarantee without instituting a legal proceeding against any other
person or entity). If no Special Representative has been appointed to enforce
any Investment Guarantee, the General Partner has the right to enforce such
Investment Guarantee on behalf of the holders of the Partnership Preferred
Securities. The holders of not less than a majority in aggregate liquidation
preference of the Partnership Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available in
respect of any Investment Guarantee, including the giving of directions to the
General Partner or the Special Representative, as the case may be. If the
General Partner or the Special Representative fails to enforce any Investment
Guarantee as above provided, any holder of Trust Preferred Securities may
institute its own legal proceeding to enforce such Investment Guarantee. No
Investment Guarantee will be discharged except by payment in full of all amounts
guaranteed by such Investment Guarantee (without duplication of amounts
theretofore paid by the relevant Investment Affiliate).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Partnership Preferred Securities (in which case no consent will be
required), the Investment Guarantees may be amended only with the prior approval
of the holders of not less than a majority in liquidation preference of the
outstanding Partnership Preferred Securities, PROVIDED that for so long as the
Property Trustee of the Trust is the holder of the Partnership Preferred
Securities, such amendment will not be effective without the prior written
approval of a majority in liquidation amount of the outstanding Trust Preferred
Securities. All guarantees and agreements contained in the Investment Guarantees
shall bind the successors, assigns, receivers, trustees and representatives of
the Company and shall inure to the benefit of the holders of Partnership
Preferred Securities. Except in connection with any permitted merger or
consolidation of the Company with or into another entity or any permitted sale,
transfer or lease of the Company's assets to another entity in which the
surviving corporation (if other than the Company) assumes the Company's
obligations under the Investment Guarantees, the Company may not assign its
rights or delegate its obligations under the Investment Guarantees without the
prior approval of the holders of at
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least a majority of the aggregate stated liquidation preference of the
Partnership Preferred Securities then outstanding.
STATUS OF THE INVESTMENT GUARANTEES
The Company's obligations under the Investment Guarantees will constitute
unsecured obligations of the Company and will rank subordinate and junior in
right of payment to all other liabilities of the Company and will rank PARI
PASSU with the most senior preferred stock, if any, issued from time to time by
the Company, with similar guarantees issued by the Company in connection with
the $275,000,000 aggregate liquidation amount of 7 3/4% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust I, and with
any guarantee now or hereafter entered into by the Company in respect of any
preferred stock of any other Finance Subsidiary. Accordingly, the rights of the
holders of the Debentures to receive payments under the Investment Guarantees
will be subject to the rights of the holders of any obligations that are senior
in priority to the obligations under the Investment Guarantees. Furthermore, the
holders of obligations of the Company that are senior to the obligations under
the Investment Guarantees (including, but not limited to, obligations
constituting Senior Indebtedness) will be entitled to the same rights upon
payment default or dissolution, liquidation and reorganization in respect of the
Investment Guarantees that inure to the holders of Senior Indebtedness as
against the holders of the Company Debenture. The terms of the Debentures
provide that each holder of Debentures, by acceptance thereof, agrees to the
subordination provisions and other terms of the Investment Guarantees.
GOVERNING LAW
The Investment Guarantees will be governed by and construed in accordance
with the internal laws of the State of New York.
OPTIONAL REDEMPTION
The Partnership Preferred Securities are redeemable, at the option of the
General Partner, in whole or in part, from time to time, on or after March 30,
2007, upon not less than 30 nor more than 60 days notice, at an amount per
Partnership Preferred Security equal to $25 plus accumulated and unpaid
distributions thereon. If the Partnership redeems Partnership Preferred
Securities in accordance with the terms thereof, Trust Securities will be
mandatorily redeemed at the Redemption Price. If a partial redemption would
result in the delisting of the Trust Preferred Securities (or, if the Trust is
liquidated in connection with a Trust Special Event, or if a partial redemption
would result in the delisting of the Partnership Preferred Securities), the
Partnership may only redeem the Partnership Preferred Securities in whole.
PARTNERSHIP SPECIAL EVENT REDEMPTION
If, at any time, a Partnership Tax Event or a Partnership Investment Company
Event (each as hereinafter defined, and each a "Partnership Special Event")
shall occur and be continuing, the General Partner shall, within 90 days
following the occurrence of such Partnership Special Event, elect to either (i)
redeem the Partnership Preferred Securities in whole (but not in part), upon not
less than 30 or more than 60 days notice at the Redemption Price, PROVIDED that,
if at the time there is available to the Partnership the opportunity to
eliminate, within such 90-day period, the Partnership Special Event by taking
some ministerial action, such as filing a form or making an election, or
pursuing some other similar reasonable such measure that in the sole judgment of
the Company has or will cause no adverse effect on the Partnership, the Trust or
the Company, the General Partner will pursue such measure in lieu of redemption;
or (ii) cause the Partnership Preferred Securities to remain outstanding,
PROVIDED that in the case of this clause (ii), the General Partner shall pay any
and all costs and expenses incurred by or payable by the Partnership
attributable to the Partnership Special Event.
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"Partnership Tax Event" means that the General Partner shall have requested
and received an opinion of nationally recognized independent tax counsel
experienced in such matters to the effect that there has been a Tax Action which
affects any of the events described in (i) through (iii) below and that there is
more than an insubstantial risk that (i) the Partnership is, or will be, subject
to United States federal income tax with respect to income accrued or received
on the Affiliate Investment Instruments or the Eligible Debt Securities, (ii)
the Partnership is, or will be, subject to more than a DE MINIMIS amount of
other taxes, duties or other governmental charges or (iii) interest payable by
an Investment Affiliate with respect to the Debenture issued by such Investment
Affiliate to the Partnership is not, or will not be, deductible by such
Investment Affiliate for United States federal income tax purposes.
"Partnership Investment Company Event" means that the General Partner shall
have requested and received an opinion of nationally recognized independent
legal counsel experienced in such matters to the effect that as a result of the
occurrence on or after the date hereof of a Change in 1940 Act Law, the
Partnership is or will be considered an "investment company" which is required
to be registered under the 1940 Act.
REDEMPTION PROCEDURES
The Partnership may not redeem fewer than all the outstanding Partnership
Preferred Securities unless all accumulated and unpaid distributions have been
paid on all Partnership Preferred Securities for all quarterly distribution
periods terminating on or prior to the date of redemption.
If the Partnership gives a notice of redemption in respect of Partnership
Preferred Securities (which notice will be irrevocable) then, by 12:00 noon, New
York City time, on the redemption date, the Partnership (i) if the Partnership
Preferred Securities are in book entry form with DTC, will deposit irrevocably
with DTC funds sufficient to pay the applicable Redemption Price and will give
DTC irrevocable instructions and authority to pay the Redemption Price in
respect of the Partnership Preferred Securities held through DTC in global form
or (ii) if the Partnership Preferred Securities are held in certificated form,
will deposit with the paying agent for the Partnership Preferred Securities
funds sufficient to pay such amount in respect of any Partnership Preferred
Securities in certificated form and will give such paying agent irrevocable
instructions and authority to pay such amounts to the holders of Partnership
Preferred Securities upon surrender of their certificates. See "Description of
the Trust Preferred Securities -- Book-Entry-Only Issuance -- The Depository
Trust Company".
If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit, all rights of holders of such
Partnership Preferred Securities so called for redemption will cease, except the
right of the holders of such Partnership Preferred Securities to receive the
Redemption Price, but without interest on such Redemption Price. In the event
that any date fixed for redemption of Partnership Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date fixed for redemption. In the event that payment of the Redemption
Price in respect of Partnership Preferred Securities is improperly withheld or
refused and not paid either by the Partnership or by the Company pursuant to the
Partnership Guarantee described under "Description of the Partnership
Guarantee," distributions on such Partnership Preferred Securities will continue
to accumulate, from the original redemption date to the date of payment.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or any of its subsidiaries
may at any time and from time to time purchase outstanding Partnership Preferred
Securities by tender, in the open market or by private agreement.
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LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution, winding-up or
termination of the Partnership, the holders of the Partnership Preferred
Securities at the time will be entitled to receive out of the assets of the
Partnership available for distribution to partners after satisfaction of
liabilities of creditors as required by the Partnership Act, before any
distribution of assets is made to the General Partner, an amount equal to, in
the case of holders of Partnership Preferred Securities, the aggregate of the
stated liquidation preference of $25 per Partnership Preferred Security plus
accumulated and unpaid distributions thereon to the date of payment (such amount
being the "Partnership Liquidation Distribution").
Pursuant to the Limited Partnership Agreement, the Partnership shall be
dissolved and its affairs shall be wound up: (i) upon the bankruptcy of the
General Partner, (ii) upon the assignment by the General Partner of its entire
interest in the Partnership when the assignee is not admitted to the Partnership
as a general partner of the Partnership in accordance with the Limited
Partnership Agreement, or the filing of a certificate of dissolution or its
equivalent with respect to the General Partner, or the revocation of the General
Partner's charter and the expiration of 90 days after the date of notice to the
General Partner of revocation without a reinstatement of its charter, or if any
other event occurs that causes the General Partner to cease to be a general
partner of the Partnership under the Partnership Act, unless the business of the
Partnership is continued in accordance with the Partnership Act, (iii) if the
Partnership has redeemed or otherwise purchased all the Partnership Preferred
Securities, (iv) upon the entry of a decree of judicial dissolution or (v) upon
the written consent of all partners of the Partnership.
VOTING RIGHTS
Except as provided below and under "Description of the Partnership Guarantee
- -- Amendments and Assignment" and as otherwise required by law and the Limited
Partnership Agreement, the holders of the Partnership Preferred Securities will
have no voting rights.
Not later than 30 days after any Partnership Enforcement Event occurs, the
General Partner will convene a meeting for the purpose of appointing a Special
Representative. If the General Partner fails to convene such meeting within such
30-day period, the holders of 10% in liquidation preference of the outstanding
Partnership Preferred Securities will be entitled to convene such meeting. The
provisions of the Limited Partnership Agreement relating to the convening and
conduct of the meetings of the partners will apply with respect to any such
meeting. In the event that, at any such meeting, holders of less than a majority
in aggregate liquidation preference of Partnership Preferred Securities entitled
to vote for the appointment of a Special Representative vote for such
appointment, no Special Representative shall be appointed. Any Special
Representative appointed shall cease to be a Special Representative of the
Partnership and the limited partners if (1) the Partnership (or the Company
pursuant to the Partnership Guarantee) shall have paid in full all accumulated
and unpaid distributions on the Partnership Preferred Securities, (2) such
Investment Event of Default, as the case may be, shall have been cured, and (3)
the Company is in compliance with all its obligations under the Partnership
Guarantee and the Company, in its capacity as the General Partner, shall
continue the business of the Partnership without dissolution. Notwithstanding
the appointment of any such Special Representative, the Company shall continue
as General Partner and shall retain all rights under the Limited Partnership
Agreement, including the right to declare, in its sole discretion, the payment
of distributions on the Partnership Preferred Securities for which the failure
of such declaration would not constitute a default under the Limited Partnership
Agreement.
If any proposed amendment to the Limited Partnership Agreement provides for,
or the General Partner otherwise proposes to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Partnership
Preferred Securities, whether by way of amendment to the Limited Partnership
Agreement or otherwise (including, without limitation, the authorization or
issuance of any
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limited partner interests in the Partnership ranking, as to participation in the
profits or distributions or in the assets of the Partnership, senior to the
Partnership Preferred Securities), or (ii) the dissolution, winding-up or
termination of the Partnership, other than (x) in connection with the occurrence
of a Partnership Special Event or (y) as described under "Merger, Consolidation
or Amalgamation of the Partnership" below, then the holders of outstanding
Partnership Preferred Securities will be entitled to vote on such amendment or
proposal of the General Partner (but not on any other amendment or proposal) as
a class, and such amendment or proposal shall not be effective except with the
approval of the holders of a majority in liquidation preference of such
outstanding Partnership Preferred Securities having a right to vote on the
matter; PROVIDED, HOWEVER, that if the Property Trustee on behalf of the Trust
is the holder of the Partnership Preferred Securities, any such amendment or
proposal not excepted by clauses (x) and (y) above shall not be effective
without the prior or concurrent approval of the holders of a majority in
liquidation amount of the outstanding Trust Preferred Securities having a right
to vote on such matters.
The General Partner shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available, (ii) waive any Investment
Event of Default that is waivable under the Affiliate Investment Instruments,
(iii) exercise any right to rescind or annul a declaration that the principal of
any Affiliate Investment Instruments which are debt instruments shall be due and
payable, (iv) waive the breach of the covenant by the Company to restrict
certain payments by the Company, or (v) consent to any amendment, modification
or termination of any Affiliate Investment Instrument, where such consent shall
be required from the investor, without, in each case, obtaining the prior
approval of the holders of at least a majority in liquidation preference of the
Partnership Preferred Securities; PROVIDED, HOWEVER, that if the Property
Trustee on behalf of the Trust is the holder of the Partnership Preferred
Securities, such waiver, consent or amendment or other action shall not be
effective without the prior or concurrent approval of at least a majority in
liquidation amount of the outstanding Trust Preferred Securities having a right
to vote on such matters. The General Partner shall not revoke any action
previously authorized or approved by a vote of the holders of the Partnership
Preferred Securities without the approval of such revocation by a majority in
liquidation preference of the outstanding Partnership Preferred Securities. The
General Partner shall notify all holders of the Partnership Preferred Securities
of any notice of an Investment Event of Default received with respect to any
Affiliate Investment Instrument.
Any required approval of holders of Partnership Preferred Securities may be
given at a separate meeting of holders of Partnership Preferred Securities
convened for such purpose, at a meeting of all of the partners in the
Partnership or pursuant to written consent. The Partnership will cause a notice
of any meeting at which holders of Partnership Preferred Securities are entitled
to vote, or of any matter upon which action by written consent of such holders
is to be taken, to be mailed to each holder of record of Partnership Preferred
Securities. Each such notice will include a statement setting forth (i) the date
of such meeting or the date by which such action is to be taken, (ii) a
description of any resolution proposed for adoption at such meeting on which
such holders are entitled to vote or of such matters upon which written consent
is sought and (iii) instruction for the delivery of proxies or consents.
No vote or consent of the holders of Partnership Preferred Securities will
be required for the Partnership to redeem and cancel Partnership Preferred
Securities in accordance with the Limited Partnership Agreement.
Notwithstanding that holders of Partnership Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Partnership Preferred Securities at such time that are beneficially owned
by the Company or by any entity directly or indirectly controlled by, or under
direct or indirect common control with, the Company, shall not be entitled to
vote or consent and shall, for purposes of such vote or consent, be treated as
if they were not outstanding, except for Partnership Preferred Securities
purchased or acquired by the Company or its affiliates in connection with
transactions effected by or for the account of customers of the Company or any
of its subsidiaries or in connection with the distribution or trading of such
Partnership Preferred Securities; PROVIDED, HOWEVER, that persons (other than
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affiliates of the Company) to whom the Company or any of its subsidiaries have
pledged Partnership Preferred Securities may vote or consent with respect to
such pledged Partnership Preferred Securities pursuant to the terms of such
pledge.
Holders of the Partnership Preferred Securities will have no rights to
remove or replace the General Partner.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE PARTNERSHIP
The Partnership may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other body, except as
described below. The Partnership may, without the consent of the holders of the
Partnership Preferred Securities, consolidate, amalgamate, merge with or into,
or be replaced by a limited partnership, limited liability company or trust
organized as such under the laws of any state of the United States of America,
provided that (i) such successor entity either (x) expressly assumes all of the
obligations of the Partnership under the Partnership Preferred Securities or (y)
substitutes for the Partnership Preferred Securities other securities having
substantially the same terms as the Partnership Preferred Securities (the
"Partnership Successor Securities") so long as the Partnership Successor
Securities are not junior to any other equity securities of the successor
entity, with respect to participation in the profits and distributions, and in
the assets, of the successor entity, (ii) the Investment Affiliates expressly
acknowledge such successor entity as the holder of the Affiliate Investment
Instruments, (iii) the Partnership Preferred Securities or any Successor
Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Partnership Preferred Securities, if so listed, are
then listed, (iv) such merger, consolidation, amalgamation or replacement does
not cause the Trust Preferred Securities (or, in the event that the Trust is
liquidated in connection with a Trust Special Event, the Partnership Preferred
Securities (including any Partnership Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the powers,
preferences and other special rights of the holders of the Trust Preferred
Securities or Partnership Preferred Securities (including any Partnership
Successor Securities) in any material respect (other than, in the case of the
Partnership Preferred Securities, with respect to any dilution of the holders'
interest in the new resulting entity), (vi) such successor entity has a purpose
substantially identical to that of the Partnership, (vii) prior to such merger,
consolidation, amalgamation or replacement, the Company has received an opinion
of nationally recognized independent counsel to the Partnership experienced in
such matters to the effect that (A) such successor entity will be treated as a
partnership for United States federal income tax purposes, (B) such merger,
consolidation, amalgamation or replacement would not cause the Trust to be
classified as an association taxable as a corporation for United States federal
income tax purposes, (C) following such merger, consolidation, amalgamation or
replacement, the Company and such successor entity will be in compliance with
the 1940 Act without registering thereunder as an investment company, and (D)
such merger, consolidation, amalgamation or replacement will not adversely
affect the limited liability of the holders of the Partnership Preferred
Securities and (viii) the Company guarantees the obligations of such successor
entity under the Partnership Successor Securities at least to the extent
provided by the Partnership Guarantee.
BOOK-ENTRY AND SETTLEMENT
If the Partnership Preferred Securities are distributed to holders of Trust
Preferred Securities in connection with the involuntary or voluntary
dissolution, winding-up or liquidation of the Trust as a result of the
occurrence of a Trust Special Event, the Partnership Preferred Securities will
be issued in the form of one or more global certificates (each a "Global
Partnership Security") registered in the name of DTC as the depository or its
nominee. For a description of DTC and the specific terms of the Depository
arrangements, see "Description of the Trust Preferred Securities -- Book-Entry
Only Issuance -- The
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Depository Trust Company". As of the date of this Prospectus, the description
therein of DTC's book-entry system and DTC's practices as they relate to
purchases, transfers, notices and payments with respect to the Trust Preferred
Securities apply in all material respects to any Partnership Preferred
Securities represented by one or more Global Partnership Securities.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
The General Partner will act as registrar, transfer agent and paying agent
for the Partnership Preferred Securities for so long as the Partnership
Preferred Securities are held by the Trust or, if the Trust is liquidated in
connection with a Trust Special Event, for so long as the Partnership Preferred
Securities remain in book-entry only form. In the event the Partnership
Preferred Securities are distributed in connection with a Trust Special Event
and the book-entry system for the Partnership Preferred Securities is
discontinued, it is anticipated that The Chase Manhattan Bank or one of its
affiliates will act as registrar, transfer agent and paying agent for the
Partnership Preferred Securities.
Registration of transfers of Partnership Preferred Securities will be
effected without charge by or on behalf of the Partnership, but upon payment
(with the giving of such indemnity as the Partnership or the General Partner may
require) in respect of any tax or other governmental charges that may be imposed
in relation to it.
The Partnership will not be required to register or cause to be registered
the transfer of Partnership Preferred Securities after such Partnership
Preferred Securities have been called for redemption.
MISCELLANEOUS
The General Partner is authorized and directed to conduct its affairs and to
operate the Partnership in such a way that (i) the Partnership will not be
deemed to be an "investment company" required to be registered under the 1940
Act or characterized as an association taxable as a corporation for United
States federal income tax purposes, (ii) the Affiliate Investment Instruments
that are debt instruments will be treated as indebtedness of the issuer of such
debt instruments for United States federal income tax purposes and (iii) the
Partnership will not be treated as an association or as a "publicly traded
partnership" (within the meaning of Section 7704 of the Code) taxable as a
corporation. In this connection, the General Partner is authorized to take any
action, not inconsistent with applicable law, the certificate of limited
partnership of the Partnership or the Limited Partnership Agreement, that the
General Partner determines in its discretion to be necessary or desirable for
such purposes as long as such action does not adversely affect the interests of
the holders of the Partnership Preferred Securities.
DESCRIPTION OF THE PARTNERSHIP GUARANTEE
Set forth below is a summary of information concerning the Partnership
Guarantee that will be executed and delivered by the Company for the benefit of
the holders from time to time of Partnership Preferred Securities. The summary
does not purport to be complete and is subject in all respects to the provisions
of, and is qualified in its entirety by reference to, the Partnership Guarantee,
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The General Partner will hold the Partnership Guarantee
for the benefit of the holders of the Partnership Preferred Securities.
GENERAL
Pursuant to the Partnership Guarantee, the Company will irrevocably agree,
on a subordinated basis to the extent set forth therein, to pay in full to the
holders of the Partnership Preferred Securities (without duplication of amounts
theretofore paid by the Partnership), as and when due, regardless of any
defense, right of set-off or counterclaim that the Partnership may have or
assert, the following payments (the
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"Partnership Guarantee Payments"): (i) any accumulated and unpaid distributions
that have theretofore been declared on the Partnership Preferred Securities out
of funds legally available therefor, (ii) the redemption price with respect to
any Partnership Preferred Securities called for redemption by the Partnership
out of funds legally available therefor, and (iii) upon a liquidation of the
Partnership, the lesser of (a) the aggregate of the liquidation preference and
all accumulated and unpaid distributions on the Partnership Preferred Securities
to the date of payment and (b) the amount of assets of the Partnership, after
satisfaction of all liabilities, remaining available for distribution to holders
of Partnership Preferred Securities in liquidation of the Partnership. The
Company's obligation to make a Partnership Guarantee Payment may be satisfied by
direct payment of the required amounts by the Company to the holders of
Partnership Preferred Securities or by causing the Partnership to pay such
amounts to such holders.
The Partnership Guarantee will be a guarantee on a subordinated basis with
respect to the Partnership Preferred Securities from the time of issuance of
such Partnership Preferred Securities but will not apply to any payment of
distributions or Redemption Price, or to payments upon the dissolution,
winding-up or termination of the Trust, except to the extent the Partnership
shall have funds available therefor. If Investment Affiliates (including, where
applicable, the Company, as guarantor) of the Affiliate Investment Instruments
in which the Partnership invests fail to make any payment in respect of such
securities (or, if applicable, guarantees), the Partnership may not declare or
pay dividends on the Partnership Preferred Securities. In such event, holders of
the Partnership Preferred Securities would not be able to rely upon the
Partnership Guarantee for payment of such amounts. Instead, holders of the
Partnership Preferred Securities will have the remedies described herein under
"Description of the Partnership Preferred Securities -- Partnership Enforcement
Events," including the right to direct the General Partner or the Special
Representative, as the case may be, to enforce the covenant restricting certain
payments by the Company and Finance Subsidiaries. See "-- Covenants of the
Company" below.
The Guarantees, when taken together with the Company Debenture and the
Company's obligations to pay all fees and expenses of the Trust and the
Partnership, constitute a guarantee to the extent set forth herein by the
Company of the distribution, redemption and liquidation payments payable to the
holders of the Trust Preferred Securities. The Guarantees do not apply, however,
to current distributions by the Partnership unless and until such distributions
are declared by the Partnership out of funds legally available for payment or to
liquidating distributions unless there are assets available for payment in the
Partnership, each as more fully described under "Risk Factors--Insufficient
Income or Assets Available to Partnership".
COVENANTS OF THE COMPANY
The Company will covenant in the Partnership Guarantee that if (a) for any
distribution period, full distributions on a cumulative basis on any Partnership
Preferred Securities have not been paid or declared and set apart for payment,
(b) an Investment Event of Default by any Investment Affiliate in respect of any
Affiliate Investment Instrument has occurred and is continuing or (c) the
Company is in default of its obligations under the Trust Guarantee, the
Partnership Guarantee or any Investment Guarantee, then, during such period (i)
the Company shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock or comparable equity interest (except for
(x) dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, its capital stock, and conversions or
exchanges of common stock of one class into common stock of another class, (y)
redemptions or purchases of any rights pursuant to the Rights Agreement and the
issuance of preferred stock pursuant to such rights and (z) purchases or
acquisitions by the Company or its affiliates in connection with transactions
effected by or for the account of customers of the Company or any of its
subsidiaries or in connection with the distribution or trading of such capital
stock or comparable equity interest) and (ii) the Company shall not make, permit
any Finance Subsidiary to make, or make any payments that would enable any
Finance Subsidiary to make, any payment of any dividends on, any distribution
with respect to, or any redemption, purchase or other
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acquisition of, or any liquidation payment with respect to, any preferred
security or comparable equity interest of any Finance Subsidiary.
EVENTS OF DEFAULT; ENFORCEMENT OF PARTNERSHIP GUARANTEE
An event of default under the Partnership Guarantee will occur upon the
failure of the Company to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the Partnership Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Special Representative in respect of
the Partnership Guarantee or to direct the exercise of any trust or power
conferred upon the Special Representative under the Partnership Guarantee. If
the Special Representative fails to enforce its rights under the Partnership
Guarantee, after a holder of Partnership Preferred Securities has made a written
request, such holder of Partnership Preferred Securities may institute a legal
proceeding directly against the Company to enforce the Special Representative's
rights under the Partnership Guarantee without first instituting a legal
proceeding against the Partnership, the Special Representative or any other
person or entity. Notwithstanding the foregoing, if the Company has failed to
make a guarantee payment, a holder of Partnership Preferred Securities may
directly institute a proceeding against the Company for enforcement of the
Partnership Guarantee for such payment.
STATUS OF THE PARTNERSHIP GUARANTEE; SUBORDINATION
The Partnership Guarantee will constitute an unsecured obligation of the
Company and will rank subordinate and junior in right of payment to all other
liabilities of the Company and will rank PARI PASSU with the most senior
preferred stock issued from time to time by the Company, with similar guarantees
issued by the Company in connection with the $275,000,000 aggregate liquidation
amount of 7 3/4% Trust Originated Preferred Securities issued by Merrill Lynch
Preferred Capital Trust I, and with any guarantee now or hereafter entered into
by the Company in respect of any preferred stock of any other Finance
Subsidiary. Accordingly, the rights of the holders of Partnership Preferred
Securities to receive payments under the Partnership Guarantee will be subject
to the rights of the holders of any obligations of the Company that are senior
in priority to the obligations under the Partnership Guarantee. Furthermore, the
holders of obligations of the Company that are senior to the obligations under
the Partnership Guarantee (including, but not limited to, obligations
constituting Senior Indebtedness) will be entitled to the same rights upon
payment default or dissolution, liquidation and reorganization in respect of the
Partnership Guarantee that inure to the holders of Senior Indebtedness as
against the holders of the Company Debenture. The Limited Partnership Agreement
provides that each holder of Partnership Preferred Securities, by acceptance
thereof, agrees to the subordination provisions and other terms of the
Partnership Guarantee.
The Partnership Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may directly institute a legal
proceeding against the Company to enforce its rights under the Partnership
Guarantee without instituting a legal proceeding against any other person or
entity).
The Partnership Guarantee will be deposited with the General Partner to be
held for the benefit of the holders of the Partnership Preferred Securities. In
the event of the appointment of a Special Representative to, among other things,
enforce the Partnership Guarantee, the Special Representative may take
possession of the Partnership Guarantee for such purpose. If no Special
Representative has been appointed to enforce the Partnership Guarantee, the
General Partner has the right to enforce the Partnership Guarantee on behalf of
the holders of the Partnership Preferred Securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Partnership Preferred Securities (in which case no consent will be
required), the Partnership Guarantee may be amended only with the prior approval
of the holders of not less than a majority in liquidation preference of
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the outstanding Partnership Preferred Securities. All guarantees and agreements
contained in the Partnership Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the Company and shall inure to the
benefit of the holders of the Partnership Preferred Securities then outstanding.
Except in connection with any permitted merger or consolidation of the Company
with or into another entity or any permitted sale, transfer or lease of the
Company's assets to another entity in which the surviving corporation (if other
than the Company) assumes the Company's obligations under the Partnership
Guarantee, the Company may not assign its rights or delegate its obligations
under the Partnership Guarantee without the prior approval of the holders of at
least a majority of the aggregate stated liquidation preference of the
Partnership Preferred Securities then outstanding.
TERMINATION OF THE PARTNERSHIP GUARANTEE
The Partnership Guarantee will terminate and be of no further force and
effect as to the Partnership Preferred Securities upon (i) full payment of the
redemption price of all Partnership Preferred Securities or (ii) full payment of
the amounts payable in accordance with the Limited Partnership Agreement upon
liquidation of the Partnership. The Partnership Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Partnership Preferred Securities must in accordance with the Partnership Act
restore payment of any sums paid under the Partnership Preferred Securities or
the Partnership Guarantee. The Partnership Act provides that a limited partner
of a limited partnership who wrongfully receives a distribution may be liable to
the limited partnership for the amount of such distribution.
GOVERNING LAW
The Partnership Guarantee will be governed by and construed in accordance
with the internal laws of the State of New York.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
In the opinion of Brown & Wood LLP, tax counsel to the Company, the Trust
and the Partnership ("Tax Counsel"), the following summary accurately describes
the material United States federal income tax consequences that may be relevant
to the purchase, ownership and disposition of Trust Preferred Securities. Unless
otherwise stated, this summary deals only with Trust Preferred Securities held
as capital assets by United States Persons (defined herein) who purchase the
Trust Preferred Securities upon original issuance. As used herein, a "United
States Person" means a person that is a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust as defined in section 7701(a)(30) of the Internal Revenue Code
of 1986, as amended (the "Code"). The tax treatment of a holder may vary
depending on its particular situation. This summary does not address all the tax
consequences that may be relevant to holders who may be subject to special tax
treatment, such as banks, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors, or foreign investors. This summary does not include any description
of any alternative minimum tax consequences or the tax laws of any state or
local government or of any foreign government that may be applicable to the
Trust Preferred Securities. This summary is based on the Code, the Treasury
regulations promulgated thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis.
The Trust Preferred Securities are not being marketed to persons that are
not United States Persons ("non-United States Persons") and, consequently, the
following discussion does not discuss the tax consequences that might be
relevant to non-United States Persons. Moreover, in order to protect the Trust
and the Partnership from potential adverse consequences, non-United States
Persons will be subject to withholding on distributions on the Trust Preferred
Securities held by such non-United States Persons at a rate of 30%. In
determining a holder's status, the United States entity otherwise required to
withhold taxes may rely on an IRS form W-8, an IRS form W-9, or a holder's
certification of its non-foreign status signed under penalty of perjury.
NON-UNITED STATES PERSONS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND
DISPOSITION OF TRUST PREFERRED SECURITIES.
Tax Counsel has advised that there is no authority directly on point dealing
with securities such as the Trust Preferred Securities or transactions of the
type described herein and that the opinions of Tax Counsel are not binding on
the Internal Revenue Service ("IRS") or the courts, either of which could take a
contrary position. No rulings have been or will be sought from the IRS.
Accordingly, there can be no assurance that the IRS will not challenge the
opinions expressed herein or that a court would not sustain such a challenge.
Nevertheless, Tax Counsel has advised that it is of the view that, if
challenged, the opinions expressed herein would be sustained by a court with
jurisdiction in a properly presented case.
HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TRUST
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES
FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE
TRUST PREFERRED SECURITIES OR REDEMPTION OF THE PARTNERSHIP PREFERRED SECURITIES
UPON THE OCCURRENCE OF CERTAIN TAX EVENTS SEE "DESCRIPTION OF THE TRUST
PREFERRED SECURITIES -- TRUST SPECIAL EVENT REDEMPTION OR DISTRIBUTION" AND
"DESCRIPTION OF THE PARTNERSHIP PREFERRED SECURITIES -- PARTNERSHIP SPECIAL
EVENT REDEMPTION" RESPECTIVELY.
51
<PAGE>
CLASSIFICATION OF THE TRUST
Tax Counsel is of the opinion that, under current law, and based on certain
representations, facts and assumptions set forth in such opinion, the Trust will
be classified for United States federal income tax purposes as a grantor trust
and not as an association taxable as a corporation. Accordingly, for United
States federal income tax purposes, each holder of Trust Preferred Securities
will be considered the owner of an undivided interest in the Partnership
Preferred Securities held by the Trust, and each holder will be required to
include in its gross income its distributive share of income attributable to the
Partnership, which generally will be equal to such holder's allocable share of
amounts accrued on the Partnership Preferred Securities. Unless the Partnership
invests in the stock of certain Investment Affiliates (for example, after
repayment of the Debentures), no amount included in income with respect to the
Trust Preferred Securities will be eligible for the corporate dividends-received
deduction.
CLASSIFICATION OF THE PARTNERSHIP
Tax Counsel is of the opinion that, under current law, and based on certain
representations, facts and assumptions set forth in such opinion, the
Partnership will be classified for United States federal income tax purposes as
a partnership and not as an association or publicly traded partnership taxable
as a corporation.
Tax Counsel's opinion is based on certain factual assumptions relating to
the organization and operation of the Partnership and is conditioned upon
certain representations made by the General Partner and the Partnership as to
factual matters, such as the organization and the operation of the Partnership
and the type and frequency of investments made by the Partnership.
The General Partner has represented that it intends to operate the
Partnership in a manner such that it will continue to constitute a partnership
for all future taxable periods in which any Partnership Preferred Securities
remain outstanding. In particular, pursuant to the Limited Partnership
Agreement, the General Partner is prohibited from taking any action that would
cause the Partnership to constitute a "publicly traded partnership" taxable as a
corporation under section 7704(a) of the Code. Accordingly, it is expected that
the Partnership will continue to qualify as a partnership, and therefore will
not constitute a publicly traded partnership taxable as a corporation, for all
taxable years in which the Partnership Preferred Securities remain outstanding.
CLASSIFICATION OF THE DEBENTURES
The Partnership, the Company, the relevant Investment Affiliates and the
holders of the Trust Securities (by acceptance of a beneficial interest in a
Trust Security) will agree to treat the Debentures as indebtedness of the
relevant issuer for all United States tax purposes. In connection with the
issuance of the Debentures, Tax Counsel will issue its opinion that, under
current law, and based on certain representations, facts and assumptions set
forth in such opinion, the Debentures will be classified as indebtedness of the
relevant issuer for United States federal income tax purposes.
INCOME AND DEDUCTIONS
A holder's distributive share of income attributable to the Partnership
generally will be substantially equal to the amount of the cash distributions
that accumulate with respect to the Trust Preferred Securities. Accordingly, if
quarterly distributions on the Trust Preferred Securities are paid currently,
the amount of income recognized by a holder during a taxable year generally will
be substantially equal to the cash distributions received by the holder with
respect to its Trust Preferred Securities.
52
<PAGE>
The nature and timing of the income that is allocated to holders of Trust
Preferred Securities will, however, depend on the United States federal income
tax characterization of the investments held by the Partnership during the
period in question. Because the Partnership will be an accrual basis taxpayer
for United States federal income tax purposes, income will accrue on the Trust
Preferred Securities and will be allocated to holders of Trust Preferred
Securities on a daily accrual basis, generally at a rate that is expected to be
equal to (and that will not be greater than) the distribution rate on the Trust
Preferred Securities, regardless of the holders' method of accounting. Actual
cash distributions on the Trust Preferred Securities will not, however, be
separately reported as taxable income to the holders at the time they are
received.
If distributions on the Partnership Preferred Securities are not made
currently, the corresponding distributions on the Trust Preferred Securities
will not be made currently. Because the Partnership is an accrual basis taxpayer
it can be expected that during a period in which interest payments on the
Debentures or distributions on the Partnership Preferred Securities are deferred
(for whatever reason), holders will generally recognize income in advance of
their receipt of any cash distributions with respect to their Trust Preferred
Securities. The amount of income that will be allocated to holders of Trust
Preferred Securities during any such deferral period will equal their pro rata
share of the amount of distributions accruing on the Partnership Preferred
Securities during such deferral period.
The Partnership does not presently intend to make an election under Section
754 of the Code. Accordingly, a subsequent purchaser of Trust Preferred
Securities will not be permitted to adjust the tax basis in his allocable share
of the Partnership's assets so as to reflect any difference between his purchase
price for the Trust Preferred Securities and his share of the Partnership's
underlying tax basis in its assets. As a result, a holder of Trust Preferred
Securities may be required to report a larger or smaller amount of income from
holding the Trust Preferred Securities than would otherwise be appropriate based
upon the holder's purchase price for the Trust Preferred Securities.
RECEIPT OF PARTNERSHIP PREFERRED SECURITIES UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Trust Preferred Securities -- Trust Special Event Redemption or
Distribution", Partnership Preferred Securities may be distributed to holders of
Trust Preferred Securities in exchange for their Trust Preferred Securities and
in liquidation of the Trust. Unless the liquidation of the Trust occurs as a
result of the Trust being subject to United States federal income tax with
respect to income accrued or received on the Partnership Preferred Securities,
such a distribution to holders would, for United States federal income tax
purposes, be treated as a nontaxable event to each holder, each holder would
receive an aggregate tax basis in the Partnership Preferred Securities equal to
such holder's aggregate tax basis in its Trust Preferred Securities, and a
holder's holding period in the Partnership Preferred Securities so received in
liquidation of the Trust would include the period during which the Trust
Preferred Securities were held by such holder. If, however, the liquidation of
the Trust were to occur because the Trust is subject to United States federal
income tax with respect to income accrued or received on the Partnership
Preferred Securities, the distribution of Partnership Preferred Securities to
holders by the Trust would likely be a taxable event to each holder, and a
holder would recognize gain or loss as if the holder had exchanged its Trust
Preferred Securities for the Partnership Preferred Securities it received upon
the liquidation of the Trust. Such gain or loss would be equal to the difference
between the holder's aggregate tax basis in its Trust Preferred Securities
surrendered in the exchange and the aggregate fair market value of the
Partnership Preferred Securities received in the exchange.
53
<PAGE>
REDEMPTION OF TRUST PREFERRED SECURITIES FOR CASH
Under certain circumstances, as described under the caption "Description of
the Trust Preferred Securities -- Optional Redemption", "Description of the
Trust Preferred Securities -- Trust Special Event Redemption or Distribution"
and "Description of the Partnership Preferred Securities -- Partnership Special
Event Redemption", the General Partner may cause the Partnership to redeem the
Partnership Preferred Securities for cash, in which event the Trust would use
the proceeds of such redemption to redeem the Trust Preferred Securities. Under
current law, such a redemption would constitute, for United States federal
income tax purposes, a taxable disposition, and a holder would recognize gain or
loss as if it sold the holder's proportionate interest in the redeemed
Partnership Preferred Securities for an amount of cash equal to the proceeds
received upon redemption. See "-- Disposition of Trust Preferred Securities".
DISPOSITION OF TRUST PREFERRED SECURITIES
A holder that sells Trust Preferred Securities will recognize gain or loss
equal to the difference between the amount realized on the sale of the Trust
Preferred Securities and the holder's adjusted tax basis in such Trust Preferred
Securities. Such gain or loss will be a capital gain or loss and will be a long-
term capital gain or loss if the Trust Preferred Securities have been held for
more than one year at the time of the sale. A holder will be required to include
accumulated but unpaid distributions on the Partnership Preferred Securities
through the date of disposition in income as ordinary income, and to add such
amount to the adjusted tax basis of its Trust Preferred Securities.
A holder's tax basis in its Trust Preferred Securities generally will equal
(i) the amount paid by such holder for its Trust Preferred Securities, (ii)
increased by the amount includible in income by such holder with respect to its
Trust Preferred Securities, and (iii) reduced by the amount of cash or other
property distributed to such holder with respect to its Trust Preferred
Securities. A holder who acquires Trust Preferred Securities at different prices
may be required to maintain a single aggregate adjusted tax basis in all of his
Trust Preferred Securities and, upon sale or other disposition of some of such
Trust Preferred Securities, to allocate a PRO RATA portion of such aggregate tax
basis to the Trust Preferred Securities sold (rather than maintaining a separate
tax basis in each Trust Preferred Security for purposes of computing gain or
loss on a sale of that Trust Preferred Security).
OTHER PARTNERSHIP PROVISIONS
SECTION 708. Under Section 708 of the Code, the Partnership will be deemed
to terminate for United States federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a deemed termination were to occur, the Partnership
would be considered to have distributed its assets to the partners who would
then be treated as having recontributed those assets to a new partnership. If
any such constructive termination occurs, the General Partner does not intend to
comply with certain technical requirements that might be applicable for various
reasons including the likely lack of relevant data. As a result, the Partnership
may be subject to certain tax penalties and may incur additional expenses, which
would be the obligation of the General Partner. Proposed Treasury regulations,
should they become effective, would mitigate some of the effects of a
constructive termination.
SECTION 701. The Department of Treasury has promulgated regulations under
Section 701 of the Code that permit it to recast a transaction or disregard a
partnership if a partnership is "formed or availed of in connection with a
transaction a principal purpose of which is to reduce substantially the present
value of the partners' aggregate federal tax liability in a manner that is
inconsistent with the intent of [the partnership provisions of the Code]" or to
treat a partnership as an aggregate of its partners "as appropriate to carry out
the purpose of any provision of the . . . Code or the [Treasury] regulations."
The Partnership has been formed for, and will engage in, activities typical for
partnerships. Although there is no
54
<PAGE>
precedent that applies to the transactions contemplated herein, Tax Counsel
believes that the Partnership is not of the type intended to fall within the
scope of these regulations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Income on the Trust Preferred Securities will be reported to holders on an
IRS Form 1099, which form should be mailed to holders of Trust Preferred
Securities by January 31 following each calendar year. Payments made on and
proceeds from the sale of Trust Preferred Securities may be subject to a
"back-up" withholding tax of 31% unless the holder complies with certain
identification requirements. Any withheld amount generally will be allowed as a
credit against the holder's United States federal income tax, provided the
required information is timely filed with the IRS.
PROPOSED LEGISLATION
On March 19, 1996, as part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed legislation that would, among other
things, deny the borrower an interest deduction with respect to certain types of
debt instruments that are payable in stock of the issuer or a related party. The
Proposed Legislation also would treat as equity for United States federal income
tax purposes instruments with a maximum term of more than 20 years that are not
shown as indebtedness on the consolidated balance sheet of the issuer. On March
29, 1996, Senate Finance Committee Chairman William V. Roth and House Ways and
Means Committee Chairman Bill Archer issued a joint statement indicating their
intent that certain legislative proposals initiated by the Clinton
administration, including the Proposed Legislation, that may be adopted by
either of the tax-writing committees of Congress, would have an effective date
that is no earlier than the date of "appropriate Congressional action". In
addition, subsequent to the publication of the Joint Statement, Senator Daniel
Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel wrote
letters to Treasury Department officials concurring with the view expressed in
the Joint Statement. If the principles contained in the Joint Statement and the
Democrat Letters were followed and the Proposed Legislation were enacted, such
legislation would not apply to the Debentures. There can be no assurances,
however, that legislation enacted after the date hereof will not adversely
affect the tax treatment of the Debentures, or whether such tax treatment would
cause a Partnership Tax Event or a Trust Tax Event that may result in the
redemption of the Partnership Preferred Securities and, consequently, the Trust
Preferred Securities.
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Trust has agreed to sell to each of the Underwriters
named below, and each of the Underwriters, for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Dean Witter Reynolds Inc., A.G. Edwards & Sons,
Inc., PaineWebber Incorporated, Prudential Securities Incorporated and Smith
Barney Inc. are acting as representatives (the "Representatives"), has severally
agreed to purchase the number of Trust Preferred Securities set forth opposite
its name below. In the Purchase Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all the Trust
Preferred Securities offered hereby if any of the Trust Preferred Securities are
purchased. In the event of default by an Underwriter, the Purchase Agreement
provides that, in certain circumstances, the purchase commitments of the
non-defaulting Underwriters may be increased or the Purchase Agreement may be
terminated.
<TABLE>
<CAPTION>
NUMBER OF TRUST
PREFERRED
UNDERWRITERS SECURITIES
- ---------------------------------------------------------------------------------- ------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................................ 1,460,000
Dean Witter Reynolds Inc.......................................................... 1,460,000
A.G. Edwards & Sons, Inc.......................................................... 1,460,000
PaineWebber Incorporated.......................................................... 1,460,000
Prudential Securities Incorporated................................................ 1,460,000
Smith Barney Inc.................................................................. 1,460,000
Bear, Stearns & Co. Inc........................................................... 120,000
Alex. Brown & Sons Incorporated................................................... 120,000
Cowen & Company................................................................... 120,000
Dain Bosworth Incorporated........................................................ 120,000
Dillon, Read & Co. Inc............................................................ 120,000
Donaldson, Lufkin & Jenrette Securities Corporation............................... 120,000
EVEREN Securities, Inc............................................................ 120,000
The Ohio Company.................................................................. 120,000
Oppenheimer & Co., Inc............................................................ 120,000
Piper Jaffray Inc................................................................. 120,000
Raymond James & Associates, Inc................................................... 120,000
Tucker Anthony Incorporated....................................................... 120,000
Wheat, First Securities, Inc...................................................... 120,000
Advest, Inc....................................................................... 60,000
Robert W. Baird & Co. Incorporated................................................ 60,000
J.C. Bradford & Co................................................................ 60,000
Davenport & Co. of Virginia, Inc.................................................. 60,000
Fahnestock & Co. Inc.............................................................. 60,000
First Albany Corporation.......................................................... 60,000
Gibraltar Securities Co........................................................... 60,000
Gruntal & Co., Incorporated....................................................... 60,000
J.J.B. Hilliard, W.L. Lyons, Inc.................................................. 60,000
Interstate/Johnson Lane Corporation............................................... 60,000
Janney Montgomery Scott Inc....................................................... 60,000
Josephthal Lyon & Ross Incorporated............................................... 60,000
Kennedy, Cabot & Co............................................................... 60,000
Legg Mason Wood Walker, Incorporated.............................................. 60,000
McDonald & Company Securities, Inc................................................ 60,000
McGinn, Smith & Co., Inc.......................................................... 60,000
Mesirow Financial, Inc............................................................ 60,000
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
Morgan Keegan & Company, Inc...................................................... 60,000
David A. Noyes & Company.......................................................... 60,000
Principal Financial Securities, Inc............................................... 60,000
Rauscher Pierce Refsnes, Inc...................................................... 60,000
The Robinson-Humphrey Company, Inc. 60,000
Roney & Co., LLC.................................................................. 60,000
Scott & Stringfellow, Inc......................................................... 60,000
Stifel, Nicolaus & Company, Incorporated.......................................... 60,000
Stone & Youngberg................................................................. 60,000
US Clearing Corp.................................................................. 60,000
Utendahl Capital Partners, L.P.................................................... 60,000
------------------
Total................................................................... 12,000,000
------------------
------------------
</TABLE>
The Underwriters propose to offer the Trust Preferred Securities, in part,
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and, in part, to certain securities dealers at
such price less a concession of $.50 per Trust Preferred Security; provided
that, such concession for sales of 10,000 or more Trust Preferred Securities to
any single purchaser will be $.30 per Trust Preferred Security. The Underwriters
may allow, and such dealers may re-allow, a concession not in excess of $.45 per
Trust Preferred Security to certain brokers and dealers. After the Trust
Preferred Securities are released for sale to the public, the offering price and
other selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the Trust Preferred
Securities will ultimately be used to purchase the investment instruments of the
Company and its subsidiaries, the Purchase Agreement provides that the Company
will pay as compensation ("Underwriters' Compensation") to the Underwriters, an
amount in immediately available funds of $.7875 per Trust Preferred Security (or
$9,450,000 in the aggregate) for the accounts of the several Underwriters;
provided that, such compensation for sales of 10,000 or more Trust Preferred
Securities to any single purchaser will be $.50 per Trust Preferred Security.
Therefore, to the extent of such sales, the actual amount of Underwriters'
Compensation will be less than the aggregate amount specified in the preceding
sentence.
Application has been made to list the Trust Preferred Securities on the New
York Stock Exchange. Trading of the Trust Preferred Securities on the New York
Stock Exchange is expected to commence within a 30-day period after the initial
delivery of the Trust Preferred Securities. The Representatives have advised the
Trust that they intend to make a market in the Trust Preferred Securities prior
to the commencement of trading on the New York Stock Exchange. The
Representatives will have no obligation to make a market in the Trust Preferred
Securities, however, and may cease market making activities, if commenced, at
any time.
Prior to this offering there has been no public market for the Trust
Preferred Securities. In order to meet one of the requirements for listing the
Trust Preferred Securities on the New York Stock Exchange, the Underwriters will
undertake to sell lots of 100 or more Trust Preferred Securities to a minimum of
400 beneficial holders.
The Trust, the Company, and the Partnership have agreed to indemnify the
Underwriters against, or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
Because Merrill Lynch, Pierce, Fenner & Smith Incorporated, one of the
Underwriters in the offering, is an affiliate of the Company and a member of the
National Association of Dealers, Inc. ("NASD"), the offering of Trust Preferred
Securities will be conducted pursuant to the Conduct Rules of the NASD. The
Underwriters may not confirm sales to any discretionary account without the
prior specific written approval of the customer.
57
<PAGE>
LEGAL MATTERS
Certain matters of Delaware law relating to the legality of the Trust
Preferred Securities, the validity of the Trust Agreement, the formation of the
Trust and the Partnership and the legality under state law of the Trust
Preferred Securities and the Partnership Preferred Securities are being passed
upon by Skadden, Arps, Slate, Meagher & Flom (Delaware), special Delaware
counsel to the Trust, the Partnership and the Company. The legality under state
law of the Trust Guarantee, the Partnership Guarantee, the Company Debenture and
the Investment Guarantees with respect to the Affiliate Debentures will be
passed upon on behalf of the Trust, the Partnership and the Company by Brown &
Wood LLP, New York, New York. The validity of the Trust Preferred Securities,
the Partnership Preferred Securities and the Trust Guarantee and the Partnership
Guarantee will be passed upon on behalf of the Underwriters by Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York, counsel to the Underwriters.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included or incorporated by
reference in the Company's 1995 Annual Report on Form 10-K, and incorporated by
reference in this Prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports incorporated by reference
herein. The information under the caption "Summary Financial Information" for
each of the four years in the period ended December 29, 1995 included in this
Prospectus and the Selected Financial Data under the captions "Operating
Results", "Financial Position" and "Common Share Data" for each of the five
years in the period ended December 29, 1995 included in the 1995 Annual Report
to Stockholders of the Company and incorporated by reference herein, has been
derived from consolidated financial statements audited by Deloitte & Touche LLP,
as set forth in their reports incorporated by reference herein. Such
consolidated financial statements and related financial statement schedules,
such Summary Financial Information and Selected Financial Data appearing or
incorporated by reference in this Prospectus and the Registration Statement of
which this Prospectus is a part, have been included or incorporated herein by
reference in reliance upon such reports of Deloitte & Touche LLP given upon
their authority as experts in accounting and auditing. The balance sheets of
Merrill Lynch Preferred Funding II, L.P. and Merrill Lynch Preferred Capital
Trust II included in this Prospectus have also been audited by Deloitte & Touche
LLP and have been included in reliance upon such reports of Deloitte & Touche
LLP given upon their authority as experts in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q which are incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in accordance
with professional standards for a review of such information. However, as stated
in their report included in such Quarterly Report on Form 10-Q and incorporated
by reference herein, they did not audit and they do not express an opinion on
such interim financial information. Accordingly, the degree of reliance on their
reports on such information should be restricted in light of the limited nature
of the review procedures applied. Deloitte & Touche LLP are not subject to the
liability provisions of Section 11 of the Act for any such report on unaudited
interim financial information because any such report is not a "report" or a
"part" of the registration statement prepared or certified by an accountant
within the meaning of Sections 7 and 11 of the Act.
58
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- -------------------------------------------------------------------------------------------------------- -------------
<S> <C>
Affiliate Debentures.................................................................................... 39
Affiliate Investment Instruments........................................................................ 21
Beneficial Owner........................................................................................ 31
Business Day............................................................................................ 24
Change in 1940 Act Law.................................................................................. 26
Code.................................................................................................... 51
Commission.............................................................................................. 4
Company................................................................................................. 1
Company Debenture....................................................................................... 39
Current Report.......................................................................................... 16
Debentures.............................................................................................. 39
Declaration............................................................................................. 20
Delaware Trustee........................................................................................ 20
Democrat Letters........................................................................................ 12
Depository.............................................................................................. 31
DTC..................................................................................................... 1
Eligible Institution.................................................................................... 40
Eligible Debt Securities................................................................................ 40
Exchange Act............................................................................................ 5
FASB.................................................................................................... 17
FDIC.................................................................................................... 40
Finance Subsidiary...................................................................................... 4
General Partner......................................................................................... 1
Global Certificates..................................................................................... 31
Global Partnership Security............................................................................. 46
Guarantees.............................................................................................. 2
Independent Financial Advisor........................................................................... 40
Indirect Participants................................................................................... 31
Initial Partnership Proceeds............................................................................ 39
Investment Affiliate.................................................................................... 41
Investment Events of Default............................................................................ 39
Investment Guarantee.................................................................................... 39
IRS..................................................................................................... 51
Joint Statement......................................................................................... 12
Limited Partnership Agreement........................................................................... 20
Merrill Lynch........................................................................................... 1
MLPF&S.................................................................................................. 1
Moody's................................................................................................. 40
NASD.................................................................................................... 57
New York Stock Exchange................................................................................. 1
1940 Act................................................................................................ 10
Non-United States Persons............................................................................... 51
Participants............................................................................................ 31
Partnership............................................................................................. 1
Partnership Act......................................................................................... 21
Partnership Enforcement Event........................................................................... 38
Partnership Guarantee................................................................................... 2
Partnership Guarantee Payments.......................................................................... 48
Partnership Investment Company Event.................................................................... 43
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- -------------------------------------------------------------------------------------------------------- -------------
<S> <C>
Partnership Liquidation Distribution.................................................................... 44
Partnership Preferred Securities........................................................................ 1
Partnership Special Event............................................................................... 42
Partnership Successor Securities........................................................................ 46
Partnership Tax Event................................................................................... 43
Property Account........................................................................................ 20
Property Trustee........................................................................................ 20
Proposed Legislation.................................................................................... 12
Purchase Agreement...................................................................................... 56
Quarterly Report........................................................................................ 16
Redemption Price........................................................................................ 4
Registration Statement.................................................................................. 4
Regular Trustees........................................................................................ 20
REMIC................................................................................................... 18
Representatives......................................................................................... 56
S&P..................................................................................................... 40
Securities Act.......................................................................................... 4
Senior Indebtedness..................................................................................... 2
SFAS.................................................................................................... 16
Special Event........................................................................................... 12
Special Representative.................................................................................. 38
Successor Securities.................................................................................... 30
Tax Action.............................................................................................. 26
Tax Counsel............................................................................................. 51
Trust................................................................................................... 1
Trust Act............................................................................................... 20
Trust Common Securities................................................................................. 1
Trust Dissolution Tax Opinion........................................................................... 26
Trust Enforcement Event................................................................................. 24
Trust Guarantee......................................................................................... 2
Trust Guarantee Payments................................................................................ 34
Trust Guarantee Trustee................................................................................. 20
Trust Indenture Act..................................................................................... 20
Trust Investment Company Event.......................................................................... 26
Trust Liquidation....................................................................................... 28
Trust Liquidation Distribution.......................................................................... 28
Trust Preferred Securities.............................................................................. 1
Trust Redemption Tax Opinion............................................................................ 26
Trust Securities........................................................................................ 1
Trust Special Event..................................................................................... 25
Trust Tax Event......................................................................................... 26
Trustees................................................................................................ 20
Underwriters' Compensation.............................................................................. 1
United States Person.................................................................................... 51
</TABLE>
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
-------------
<S> <C>
MERRILL LYNCH PREFERRED FUNDING II, L.P.
Independent Auditors' Report.......................................................................... F-2
Balance Sheet......................................................................................... F-3
Notes to Balance Sheet................................................................................ F-3
MERRILL LYNCH PREFERRED CAPITAL TRUST II
Independent Auditors' Report.......................................................................... F-4
Balance Sheet......................................................................................... F-5
Notes to Balance Sheet................................................................................ F-5
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the General Partner and Initial Limited Partner of
MERRILL LYNCH PREFERRED FUNDING II, L.P.
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Funding II, L.P. (the "Partnership") as of January 16, 1997. This balance sheet
is the responsibility of the Partnership's management. Our responsibility is to
express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Partnership as of January 16,
1997, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
January 21, 1997
New York, New York
F-2
<PAGE>
BALANCE SHEET OF
MERRILL LYNCH PREFERRED FUNDING II, L.P.
OPENING BALANCE SHEET
JANUARY 16, 1997
<TABLE>
<S> <C>
Assets............................................................... $ --
---------
---------
Partnership securities
Limited partner interest........................................... $ 85
General partner interest........................................... 15
---------
$ 100
Less: Receivables from partners for subscribed partnership
interests.......................................................... (100)
---------
--
---------
---------
</TABLE>
NOTES TO BALANCE SHEET OF MERRILL LYNCH PREFERRED FUNDING II, L.P.
Merrill Lynch Preferred Funding II, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act on January 16, 1997 for the exclusive purposes of purchasing
certain eligible debt instruments of Merrill Lynch & Co., Inc. (the "Company")
and wholly owned subsidiaries of the Company (the "Affiliate Investment
Instruments") with the proceeds from the sale of Partnership Preferred
Securities (the "Partnership Preferred Securities") to Merrill Lynch Preferred
Capital Trust II (the "Trust") and a capital contribution from the Company in
exchange for the general partnership interest in the Partnership (collectively,
the "Partnership Proceeds").
The Partnership Preferred Securities will be redeemable for cash, at the
option of the Partnership, in whole or in part, from time to time, after March
30, 2007. Except as provided in the Limited Partnership Agreement and
Partnership Preferred Securities Guarantee Agreement, and as otherwise provided
by law, the holders of the Partnership Preferred Securities will have no voting
rights.
The Partnership Proceeds will be used initially to purchase debt instruments
from the Company and certain domestic wholly owned subsidiaries of the Company,
retaining 1% in unaffiliated debt securities. The Partnership shall have a
perpetual existence subject to certain termination events. The Company serves as
the sole general partner of the Partnership. The Company, in its capacity as
General Partner of the Partnership, has agreed to pay all fees and expenses
related to the organization and operations of the Partnership (including any
taxes, duties, assessments or government charges of whatever nature (other than
withholding taxes) imposed by the United States or any other domestic taxing
authority upon the Partnership) and the offering of the Partnership Preferred
Securities and be responsible for all debts and other obligations of the
Partnership (other than with respect to the Partnership Preferred Securities).
The General Partner has agreed to indemnify certain officers and agents of the
Partnership.
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of
MERRILL LYNCH PREFERRED CAPITAL TRUST II
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Capital Trust II (the "Trust"), as of January 16, 1997. This balance sheet is
the responsibility of the Trust's management. Our responsibility is to express
an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Trust as of January 16, 1997,
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
January 21, 1997
New York, New York
F-4
<PAGE>
BALANCE SHEET OF
MERRILL LYNCH PREFERRED CAPITAL TRUST II
OPENING BALANCE SHEET
JANUARY 16, 1997
<TABLE>
<S> <C>
Assets................................................................. $ 0
--
--
Trust securities....................................................... $ 0
--
--
</TABLE>
NOTES TO BALANCE SHEET OF MERRILL LYNCH PREFERRED CAPITAL TRUST II
Merrill Lynch Preferred Capital Trust II (the "Trust") is a statutory
business trust formed on January 16, 1997 under the laws of the State of
Delaware for the exclusive purposes of (i) issuing the Trust Originated
Preferred Securities (the "Trust Preferred Securities") and the Trust Common
Securities (together with the Trust Preferred Securities, the "Trust
Securities") representing undivided beneficial ownership interests in the assets
of the Trust, (ii) purchasing Partnership Preferred Securities (the "Partnership
Preferred Securities") representing the limited partnership interests of Merrill
Lynch Preferred Funding II, L.P. (the "Partnership") with the proceeds from the
sale of the Trust Securities, and (iii) engaging in only those other activities
necessary or incidental thereto. The Trust has a perpetual existence, subject to
certain termination events as provided in the Declaration of Trust under which
it was formed. Subsequent to January 16, 1997, the Trust intends to issue and
sell its Trust Preferred Securities in a public offering and to issue and sell
its Trust Common Securities to Merrill Lynch & Co., Inc. (the "Company"). No
Trust Preferred Securities have been issued as of January 16, 1997.
The proceeds from the Trust's sale of the Trust Securities will be used to
purchase the Partnership Preferred Securities from the Partnership. The
Partnership Preferred Securities will be redeemable for cash, at the option of
the Partnership, in whole or in part, from time to time, after March 30, 2007.
Upon any redemption of the Partnership Preferred Securities, the Trust Preferred
Securities will be redeemed, in whole or in part, as applicable. Holders of the
Trust Preferred Securities will have limited voting rights and will not be
entitled to vote to appoint, remove or replace, or to increase or decrease the
number of, Trustees, which voting rights are vested exclusively in the holder of
the Trust Common Securities.
The Company will be obligated to pay compensation to the underwriters of the
offering of the Trust Preferred Securities. The Company will pay all fees and
expenses related to the organization and operations of the Trust (including any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States or any other domestic
taxing authority upon the Trust) and the offering of the Trust Preferred
Securities and be responsible for all debts and other obligations of the Trust
(other than the Trust Securities). The Company has also agreed to indemnify the
Trustees and certain other persons.
F-5
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE TRUST PREFERRED SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information........................... 4
Incorporation of Certain Documents by
Reference..................................... 5
Summary......................................... 6
Risk Factors.................................... 11
Merrill Lynch & Co., Inc........................ 15
Use of Proceeds................................. 15
Summary Financial Information................... 16
Merrill Lynch Preferred Capital Trust II........ 20
Merrill Lynch Preferred Funding II, L.P. ....... 21
Description of the Trust Preferred Securities... 22
Description of the Trust Guarantee.............. 34
Description of the Partnership Preferred
Securities.................................... 37
Description of the Partnership Guarantee........ 47
Certain Federal Income Tax Considerations....... 51
Underwriting.................................... 56
Legal Matters................................... 58
Experts......................................... 58
Index of Defined Terms.......................... 59
Index to Financial Statements................... F-1
</TABLE>
[LOGO]
12,000,000
TRUST PREFERRED SECURITIES
MERRILL LYNCH PREFERRED
CAPITAL TRUST II
8% TRUST ORIGINATED
PREFERRED SECURITIES-SM- ("TOPRS-SM-")
GUARANTEED TO THE EXTENT SET
FORTH HEREIN BY
MERRILL LYNCH & CO., INC.
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
FEBRUARY 4, 1997
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