<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-44173
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 29, 1998)
28,500,000 UNITS LOGO
MERRILL LYNCH & CO., INC.
S&P 500(R) MARKET INDEX TARGET-TERM SECURITIES SM
DUE JULY 1, 2005
"MITTS(R)"
($10 PRINCIPAL AMOUNT PER UNIT)
GENERAL: . 100% principal protection at maturity
. No payments prior to the stated maturity date
. Senior unsecured debt securities of Merrill Lynch & Co.,
Inc.
. The MITTS Securities have been approved for listing on
the American Stock Exchange ("AMEX") under the symbol
"MLF".
PAYMENT AT Principal Amount + Supplemental Redemption Amount
MATURITY:
The Supplemental Redemption Amount will be based on the
percentage increase, if any, in the S&P 500 Index, reduced
on a daily basis by a percentage equal to the pro rata
portion of an annual adjustment factor. The annual
adjustment factor equals 1.3% (the "Adjustment Factor").
At maturity, the annual application of the Adjustment
Factor will result in a total reduction in the S&P 500
Index equal to approximately 8.78%. The Supplemental
Redemption Amount may be ZERO, but will not be less than
zero.
BEFORE YOU DECIDE TO INVEST IN THE MITTS SECURITIES, CAREFULLY READ THIS
PROSPECTUS SUPPLEMENT AND PROSPECTUS, ESPECIALLY THE RISK FACTORS BEGINNING ON
PAGE S-7.
Neither the SEC nor any state securities commission has approved these
securities or passed upon the adequacy of this Prospectus Supplement or the
attached Prospectus. Any representation to the contrary is a criminal offense.
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT COMPANY(1)
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<S> <C> <C> <C>
Per Unit.............................. $10.00 $.30 $9.70
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Total................................. $285,000,000 $8,550,000 $276,450,000
</TABLE>
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(1) Before deduction of expenses payable by the Company.
----------------
We expect that the MITTS Securities will be ready for delivery in book-entry
form only through the facilities of DTC, on or about June 26, 1998.
----------------
MERRILL LYNCH & CO.
----------------
The date of this Prospectus Supplement is June 23, 1998.
- ---------------------
"MITTS" is a registered service mark and "Market Index Target-Term Securities"
is a service mark owned by Merrill Lynch & Co., Inc.
"Standard & Poor's(R)", "Standard & Poor's 500", "S&P 500(R)", "S&P(R)" and
"500", are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by Merrill Lynch Capital Services, Inc. and the Company is an
authorized sublicensee.
<PAGE>
STABILIZATION
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") may engage in
transactions that stabilize, maintain or otherwise affect the price of the
MITTS Securities. Such transactions may include stabilizing and the purchase
of MITTS Securities to cover short positions. For a description of these
activities, see "Underwriting".
REQUIRED DISCLOSURE
STANDARD & POOR'S ("S&P") DOES NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY, MLPF&S,
HOLDERS OF THE MITTS SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE S&P INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS
LICENSED UNDER THE LICENSE AGREEMENT DESCRIBED HEREIN OR FOR ANY OTHER USE.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE S&P INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT OR CONSEQUENTIAL DAMAGE (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
CONTENT OF PROSPECTUS
You should rely only on the information contained in this document or in
documents we filed with the Securities and Exchange Commission ("SEC") that we
have referred you to. We have not authorized anyone to provide you with
different information. You should not assume that the information in the
Prospectus or Prospectus Supplement is accurate as of any date other than the
date on the front of this document.
LIMITATIONS ON OFFERS OR SOLICITATIONS
We do not intend this document to be an offer or solicitation:
(A) if used in a jurisdiction in which such offer or solicitation is not
authorized;
(B) if the person making such offer or solicitation is not qualified to
do so; or
(C) if such offer or solicitation is made to anyone to whom it is
unlawful to make such offer or solicitation.
S-2
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY INFORMATION--Q&A.................................................. S-4
What are the MITTS Securities?........................................... S-4
What will I receive at the stated maturity date of the MITTS
Securities?............................................................. S-4
Who publishes the Index and what does the Index measure?................. S-5
How has the Index performed historically?................................ S-5
What about taxes?........................................................ S-6
Will the MITTS Securities be listed on a stock exchange?................. S-6
What is the role of our subsidiary, MLPF&S?.............................. S-6
Can you tell me more about the Company?.................................. S-6
Are there any risks associated with my investment?....................... S-6
WHERE YOU CAN FIND MORE INFORMATION....................................... S-7
RISK FACTORS.............................................................. S-7
The Supplemental Redemption Amount....................................... S-7
Your yield may be lower than the yield on a standard debt security of
comparable maturity..................................................... S-7
Your return will not reflect the return of owning the stocks underlying
the Index............................................................... S-7
Uncertain trading market................................................. S-7
Factors affecting trading value of the MITTS Securities.................. S-8
State law limits on interest paid........................................ S-9
Purchases and sales by MLPF&S............................................ S-9
Potential conflicts...................................................... S-9
RATIO OF EARNINGS TO FIXED CHARGES........................................ S-9
DESCRIPTION OF THE MITTS SECURITIES....................................... S-9
General.................................................................. S-9
Payment at Maturity...................................................... S-10
Adjustments to the Index; Market Disruption Events....................... S-11
Discontinuance of the Index.............................................. S-12
Events of Default and Acceleration....................................... S-13
Depositary............................................................... S-13
Same-Day Settlement and Payment.......................................... S-15
</TABLE>
<TABLE>
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PAGE
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<S> <C>
THE INDEX.................................................................. S-15
General................................................................... S-15
Computation of the Index.................................................. S-16
Historical Data on the Index.............................................. S-17
License Agreement......................................................... S-18
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.................... S-19
General................................................................... S-20
U.S. Holders.............................................................. S-20
Non-U.S. Holders.......................................................... S-22
Backup Withholding........................................................ S-22
New Withholding Regulations............................................... S-23
USE OF PROCEEDS............................................................ S-23
UNDERWRITING............................................................... S-23
VALIDITY OF THE MITTS SECURITIES........................................... S-24
INDEX OF DEFINED TERMS..................................................... S-25
THE PROSPECTUS:
AVAILABLE INFORMATION...................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 2
MERRILL LYNCH & CO., INC................................................... 3
USE OF PROCEEDS............................................................ 3
DESCRIPTION OF DEBT SECURITIES............................................. 4
DESCRIPTION OF DEBT WARRANTS............................................... 9
DESCRIPTION OF CURRENCY WARRANTS........................................... 10
DESCRIPTION OF INDEX WARRANTS.............................................. 12
DESCRIPTION OF PREFERRED STOCK............................................. 16
DESCRIPTION OF DEPOSITARY SHARES........................................... 21
DESCRIPTION OF PREFERRED STOCK WARRANTS.................................... 25
DESCRIPTION OF COMMON STOCK................................................ 27
DESCRIPTION OF COMMON STOCK WARRANTS....................................... 29
PLAN OF DISTRIBUTION....................................................... 31
EXPERTS.................................................................... 32
</TABLE>
S-3
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from the Prospectus and Prospectus Supplement to help you
understand the S&P 500 Market Index Target-Term Securities due July 1, 2005
(the "MITTS Securities"). You should carefully read the Prospectus and
Prospectus Supplement to fully understand the terms of the MITTS Securities,
the S&P 500 Index (the "Index"), and the tax and other considerations that are
important to you in making a decision about whether to invest in the MITTS
Securities. You should, in particular, carefully review the "Risk Factors"
section, which highlights certain risks associated with an investment in the
MITTS Securities, to determine whether an investment in the MITTS Securities
is appropriate for you.
WHAT ARE THE MITTS SECURITIES?
The MITTS Securities are a series of senior debt securities issued by
Merrill Lynch & Co., Inc. (the "Company") and are not secured by collateral.
The MITTS Securities will rank equally with all other unsecured and
unsubordinated debt of the Company. The MITTS Securities will mature on July
1, 2005 and do not provide for earlier redemption. We will make no payments on
the MITTS Securities until maturity.
Each "Unit" of MITTS Securities represents $10 principal amount of MITTS
Securities. You may transfer the MITTS Securities only in whole Units. You
will not have the right to receive physical certificates evidencing your
ownership except under limited circumstances. Instead, we will issue the MITTS
Securities in the form of a global certificate, which will be held by The
Depository Trust Company ("DTC"), or its nominee. Direct and indirect
participants in DTC will record beneficial ownership of the MITTS Securities
by individual investors. You should refer to the section "Description of the
MITTS Securities--Depositary" in this Prospectus Supplement.
WHAT WILL I RECEIVE AT THE STATED MATURITY DATE OF THE MITTS SECURITIES?
We have designed the MITTS Securities for investors who want to protect
their investment by receiving at least the principal amount of their
investment at maturity and who also want to participate in possible increases
in the Index as reduced by the Adjustment Factor. At the stated maturity date,
you will receive a payment on the MITTS Securities equal to the sum of two
amounts: the "Principal Amount" and the "Supplemental Redemption Amount".
"Principal Amount"
The Principal Amount per Unit is $10.
"Supplemental Redemption Amount"
The Supplemental Redemption Amount per Unit will equal:
Adjusted Ending Value - Starting Value
$10 X ( -------------------------------------- )
Starting Value
but will not be less than zero.
"ADJUSTED ENDING VALUE" means the average of the values of the Index as
reduced by the Adjustment Factor at the close of the market on five business
days before the maturity of the MITTS Securities. We may calculate the
Adjusted Ending Value by reference to fewer than five or even a single day's
closing value if, during the period prior to the stated maturity date of the
MITTS Securities, there is a disruption in the trading of the component stocks
comprising the Index or certain futures or options relating to the Index.
The "ADJUSTMENT FACTOR" equals 1.3% per annum and will be prorated and
applied each calendar day to reduce the Index. As a result of the application
of the Adjustment Factor, the adjusted value of the Index used to calculate
your Supplemental Redemption Amount at the stated maturity of the MITTS
Securities will be approximately 8.78% less than the actual Index value on any
day during the Calculation Period. For a detailed discussion of how the
Adjustment Factor will affect the value of the Index used to calculate your
Supplemental Redemption Amount (i.e., the Adjusted Ending Value), see
"Description of the MITTS Securities--Delivery at Maturity" in this Prospectus
Supplement.
S-4
<PAGE>
"STARTING VALUE" equals 1,119.49, the value of the Index on the date the
MITTS Securities are priced for initial sale to the public (the "Pricing
Date").
For more specific information about the Supplemental Redemption Amount,
please see the section "Description of the MITTS Securities" in this
Prospectus Supplement.
We will pay you a Supplemental Redemption Amount only if the Adjusted Ending
Value is greater than the Starting Value. IF THE ADJUSTED ENDING VALUE IS LESS
THAN, OR EQUAL TO, THE STARTING VALUE, THE SUPPLEMENTAL REDEMPTION AMOUNT WILL
BE ZERO. We will pay you the Principal Amount of the MITTS Securities
regardless of whether any Supplemental Redemption Amount is payable.
"Examples"
Here are two examples of Supplemental Redemption Amount calculations:
EXAMPLE 1--The Index, as adjusted, is below the Starting Value at maturity:
Starting Value: 1,119.49
<TABLE>
<S> <C>
Hypothetical Adjusted Ending Value: 783.64 (Supplemental
783.64 - 1,119.49 Redemption
Supplemental Redemption Amount (Per Unit) = $10 X ( ----------------- ) = $0.00 Amount cannot
1,119.49 be less than zero)
</TABLE>
TOTAL PAYMENT AT MATURITY (PER UNIT) = $10 + $0 = $10
EXAMPLE 2--The Index, as adjusted, is above the Starting Value at maturity:
Starting Value: 1,119.49
Hypothetical Adjusted Ending Value: 1,455.34
<TABLE>
<S> <C>
1,455.34 - 1,119.49
Supplemental Redemption Amount (Per Unit) = $10 X ( ------------------- ) = $3.00
1,119.49
</TABLE>
TOTAL PAYMENT AT MATURITY (PER UNIT) = $10 + $3.00 = $13.00
WHO PUBLISHES THE INDEX AND WHAT DOES THE INDEX MEASURE?
The Index is published by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc., and is intended to provide an indication of the pattern of
common stock price movement. The calculation of the value of the Index is
based on the relative value of the aggregate Market Value of the common stocks
of 500 companies as of a particular time compared to the aggregate average
Market Value of the common stocks of 500 similar companies during the base
period of the years 1941 through 1943. "Market Value" for the common stock of
a company means the product of the market price per share of such common stock
and the number of outstanding shares of such common stock. As of April 30,
1998, the 500 companies included in the Index represented approximately 81% of
the aggregate Market Value of common stocks traded on the New York Stock
Exchange (the "NYSE"); however, these 500 companies are not the 500 largest
companies listed on the NYSE and not all of these 500 companies are listed on
such exchange. As of April 30, 1998, the aggregate Market Value of the 500
companies included in the Index represented approximately 73% of the aggregate
market value of United States domestic, public companies. S&P chooses
companies for inclusion in the Index with the aim of achieving a distribution
by broad industry groupings that approximates the distribution of these
groupings in the common stock population of the NYSE, which S&P uses as an
assumed model for the composition of the total market.
Please note than an investment in the MITTS Securities does not entitle you
to any ownership interest in the stocks of the companies included in the
Index.
HOW HAS THE INDEX PERFORMED HISTORICALLY?
Tables showing the year end closing value of the Index for each year from
1947 through 1997 and the month end closing value of the Index for the period
from January 1989 through May 1998 are provided in the section "The Index--
Historical Data on the Index", in this Prospectus Supplement. We have provided
this historical information to help you
S-5
<PAGE>
evaluate the behavior of the Index in various economic environments; however,
past performance of the Index is not necessarily indicative of how the Index
will perform in the future.
WHAT ABOUT TAXES?
Each year, you will be required to pay taxes on ordinary income from the
MITTS Securities over their term based upon an estimated yield for the MITTS
Securities, even though you will not receive any payments from us until
maturity. We have determined this estimated yield, in accordance with
regulations issued by the Treasury Department, solely in order for you to
figure the amount of taxes that you will owe each year as a result of owning a
MITTS Security. This estimated yield is neither a prediction nor a guarantee
of what the actual Supplemental Redemption Amount will be, or that the actual
Supplemental Redemption Amount will even exceed zero. We have determined that
this estimated yield will equal 5.90% per annum (compounded semiannually).
Based upon this estimated yield, if you pay your taxes on a calendar year
basis and if you buy a MITTS Security for $10 and hold the MITTS Security
until maturity, you will be required to pay taxes on the following amounts of
ordinary income from the MITTS Securities each year: $0.3041 in 1998, $0.6169
in 1999, $0.6538 in 2000, $0.6930 in 2001, $0.7345 in 2002, $0.7785 in 2003,
$0.8251 in 2004 and $0.4331 in 2005. However, in 2005, the amount of ordinary
income that you will be required to pay taxes on from owning such MITTS
Security may be greater or less than $0.4331, depending upon the Supplemental
Redemption Amount, if any, you receive. Also, if the Supplemental Redemption
Amount is less than $5.0390, you may have a loss which you could deduct
against other income you may have in 2005, but under current tax regulations,
you would neither be required nor allowed to amend your tax returns for prior
years. For further information, see "Certain United States Federal Income Tax
Considerations" in this Prospectus Supplement.
WILL THE MITTS SECURITIES BE LISTED ON A STOCK EXCHANGE?
The MITTS Securities have been approved for listing on the AMEX under the
symbol "MLF". You should be aware that the listing of the MITTS Securities on
the AMEX will not necessarily ensure that a liquid trading market will be
available for the MITTS Securities. You should review "Risk Factors--Uncertain
trading market".
WHAT IS THE ROLE OF OUR SUBSIDIARY, MLPF&S?
Our subsidiary, MLPF&S, is the underwriter for the offering and sale of the
MITTS Securities. After the initial offering, MLPF&S intends to buy and sell
MITTS Securities to create a secondary market for holders of the MITTS
Securities, and may stabilize or maintain the market price of the MITTS
Securities during the initial distribution of the MITTS Securities. However,
MLPF&S will not be obligated to engage in any of these market activities or
continue them once it has started.
MLPF&S will also be our agent (the "Calculation Agent") for purposes of
calculating the Adjusted Ending Value and the Supplemental Redemption Amount.
Under certain circumstances, these duties could result in a conflict of
interest between MLPF&S's status as a subsidiary of the Company and its
responsibilities as Calculation Agent.
CAN YOU TELL ME MORE ABOUT THE COMPANY?
Merrill Lynch & Co., Inc. is a holding company with various subsidiary and
affiliated companies that provide investment, financing, insurance and related
services on a global basis. For information about the Company see the section
"Merrill Lynch & Co., Inc." in the Prospectus. You should also read the other
documents the Company has filed with the SEC, which you can find by referring
to the section "Where You Can Find More Information" in this Prospectus
Supplement.
ARE THERE ANY RISKS ASSOCIATED WITH MY INVESTMENT?
Yes, the MITTS Securities are subject to certain risks. Please refer to the
section "Risk Factors" in this Prospectus Supplement.
S-6
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and current reports, proxy statements
and other information with the SEC. Some of these documents are incorporated
by reference in, and form a part of, this Prospectus Supplement and the
Prospectus, as described in the section "Incorporation of Certain Documents by
Reference" in the Prospectus. You may read and copy any document we file by
visiting the SEC's public reference rooms in Washington, D.C. at 450 Fifth
Street, Room 1024, N.W., Washington, D.C., 20549; or at the SEC's regional
offices at 500 West Madison Street, Suite 400, Chicago, Illinois 60661-2511
and Seven World Trade Center, New York, New York 10048. Please call the SEC at
1-800-SEC-0330 for further information about the public reference rooms.
Copies of our SEC filings can also be obtained from the SEC's Internet web
site at http://www.sec.gov. You may also read copies of these documents at the
offices of the NYSE, the AMEX, the Chicago Stock Exchange, and the Pacific
Exchange.
We will send you copies of our SEC filings, excluding exhibits, at no cost
upon request. Please address your request to Lawrence M. Egan, Jr., Corporate
Secretary's Office, Merrill Lynch & Co., Inc., 100 Church Street, 12th Floor,
New York, New York 10080-6512; telephone number (212) 602-8439.
RISK FACTORS
Your investment in the MITTS Securities will involve certain risks. For
example, there is the risk that you might not earn a return on your
investment, and the risk that you will be unable to sell your MITTS Securities
prior to the stated maturity date. You should carefully consider the following
discussion of risks before deciding whether an investment in the MITTS
Securities is suitable for you.
THE SUPPLEMENTAL REDEMPTION AMOUNT
You should be aware that if the Adjusted Ending Value does not exceed the
Starting Value at the stated maturity, the Supplemental Redemption Amount will
be "zero". This will be true even if the value of the Index, as reduced by the
Adjustment Factor, was higher than the Starting Value at some time during the
life of the MITTS Securities but later falls below the Starting Value. If the
Supplemental Redemption Amount is zero, we will pay you only the Principal
Amount of your MITTS Securities.
YOUR YIELD MAY BE LOWER THAN THE YIELD ON A STANDARD DEBT SECURITY OF
COMPARABLE MATURITY
The amount we pay you at maturity may be less than the return you could earn
on other investments. Your yield may be less than the yield you would earn if
you bought a standard senior non-callable debt security of the Company with
the same maturity date. Your investment may not reflect the full opportunity
cost to you when you take into account factors that affect the time value of
money.
YOUR RETURN WILL NOT REFLECT THE RETURN OF OWNING THE STOCKS UNDERLYING THE
INDEX
Your return will not reflect the return you would realize if you actually
owned the stocks underlying the Index and received the dividends paid on those
stocks because of the reduction caused by the Adjustment Factor and because
S&P calculates the Index by reference to the prices of the common stocks
comprising the Index without taking into consideration the value of dividends
paid on those stocks.
UNCERTAIN TRADING MARKET
The MITTS Securities have been approved for listing on the AMEX under the
symbol "MLF". While there have been a number of issuances of Market Index
Target-Term Securities, trading volumes have varied historically from one
transaction to another and it is therefore impossible to predict how the MITTS
Securities will trade. You cannot assume that a trading market will develop
for the MITTS Securities. If such a trading market does develop, there can be
no assurance that there will be liquidity in the trading market. The
development of a trading market for the MITTS Securities will depend on the
financial performance of the Company, and other factors such as the
appreciation, if any, of the value of the Index.
S-7
<PAGE>
If the trading market for the MITTS Securities is limited, there may be a
limited number of buyers when you decide to sell your MITTS Securities if you
do not wish to hold your investment until maturity. This may affect the price
you receive.
FACTORS AFFECTING TRADING VALUE OF THE MITTS SECURITIES
We believe that the market value of the MITTS Securities will be affected by
the value of the Index and by a number of other factors. Some of these factors
are interrelated in complex ways; as a result, the effect of any one factor
may be offset or magnified by the effect of another factor. The following
paragraphs describe the expected impact on the market value of the MITTS
Securities given a change in a specific factor, assuming all other conditions
remain constant.
. INDEX VALUE. We expect that the market value of the MITTS Securities will
depend substantially on the amount by which the Index, as reduced by the
Adjustment Factor, exceeds the Starting Value. If you choose to sell your
MITTS Securities when the value of the Index, as reduced by the Adjustment
Factor, exceeds the Starting Value, you may receive substantially less
than the amount that would be payable at maturity based on such value
because of the expectation that the Index will continue to fluctuate until
the Adjusted Ending Value is determined. If you choose to sell your MITTS
Securities when the value of the Index is below the Starting Value, you
may receive less than the $10 Principal Amount per Unit of MITTS
Securities. In general, rising U.S. dividend rates (i.e., dividends per
share) may increase the value of the Index while falling U.S. dividend
rates may decrease the value of the Index. Political, economic and other
developments that affect the stocks underlying the Index may also affect
the value of the Index and the value of the MITTS Securities.
. INTEREST RATES. Because the MITTS Securities repay, at a minimum, the
Principal Amount at maturity, we expect that the trading value of the
MITTS Securities will be affected by changes in interest rates. In
general, if U.S. interest rates increase, we expect that the trading value
of the MITTS Securities will decrease. If U.S. interest rates decrease, we
expect the trading value of the MITTS Securities will increase. Interest
rates may also affect the U.S. economy and, in turn, the value of the
Index. Rising interest rates may lower the value of the Index and, thus,
the MITTS Securities. Falling interest rates may increase the value of the
Index and, thus, may increase the value of the MITTS Securities.
. VOLATILITY OF THE INDEX. Volatility is the term used to describe the size
and frequency of market fluctuations. If the volatility of the Index
increases, we expect that the trading value of the MITTS Securities will
increase. If the volatility of the Index decreases, we expect that the
trading value of the MITTS Securities will decrease.
. TIME REMAINING TO MATURITY. The MITTS Securities may trade at a value
above that which would be expected based on the level of interest rates
and the Index. This difference will reflect a "time premium" due to
expectations concerning the value of the Index during the period prior to
the stated maturity of the MITTS Securities. However, as the time
remaining to the stated maturity of the MITTS Securities decreases, we
expect that this time premium will decrease, lowering the trading value of
the MITTS Securities.
. DIVIDEND YIELDS. If dividend yields on the stocks comprising the Index
increase, we expect that the value of the MITTS Securities will decrease.
Conversely, if dividend yields on the stock comprising the Index decrease,
we expect that the value of the MITTS Securities will increase.
. COMPANY CREDIT RATINGS. Real or anticipated changes in the Company's
credit ratings may affect the market value of the MITTS Securities.
It is important for you to understand that the impact of one of the factors
specified above, such as an increase in interest rates, may offset some or all
of any increase in the trading value of the MITTS Securities attributable to
another factor, such as an increase in the Index value.
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In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the MITTS Securities of a given change in
most of the factors listed above will be less if it occurs later in the term
of the MITTS Securities than if it occurs earlier in the term of the MITTS
Securities except that we expect that the effect on the trading value of the
MITTS Securities of a given increase in the value of the Index will be greater
if it occurs later in the term of the MITTS Securities than if it occurs
earlier in the term of the MITTS Securities.
STATE LAW LIMITS ON INTEREST PAID
New York State law governs the 1983 Indenture, as defined herein. New York
has certain usury laws that limit the amount of interest that can be charged
and paid on loans, which includes debt securities like the MITTS Securities.
Under present New York law, the maximum rate of interest is 25% per annum on a
simple interest basis. This limit may not apply to debt securities in which
$2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws
that regulate the amount of interest that may be charged to and paid by a
borrower. We will promise, for the benefit of the holders of the MITTS
Securities, to the extent permitted by law, not to voluntarily claim the
benefits of any laws concerning usurious rates of interest.
PURCHASES AND SALES BY MLPF&S
The Company, MLPF&S and other affiliates of the Company may from time to
time buy or sell the stocks underlying the Index for their own accounts for
business reasons or in connection with hedging the Company's obligations under
the MITTS Securities. These transactions could affect the price of such stocks
and the value of the Index.
POTENTIAL CONFLICTS
The Calculation Agent is a subsidiary of the Company, the issuer of the
MITTS Securities. Under certain circumstances, MLPF&S's role as a subsidiary
of the Company and its responsibilities as Calculation Agent for the MITTS
Securities could give rise to conflicts of interests. You should be aware that
because the Calculation Agent is controlled by the Company, potential
conflicts of interest could arise.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
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<CAPTION>
YEAR ENDED LAST FRIDAY THREE MONTHS
IN DECEMBER ENDED
------------------------ MARCH 27,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges... 1.4 1.2 1.2 1.2 1.2 1.2
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist 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.
DESCRIPTION OF THE MITTS SECURITIES
GENERAL
The S&P 500 Market Index Target-Term Securities due July 1, 2005, which are
referred to herein as the "MITTS Securities" are to be issued as a series of
Senior Debt Securities under the Senior Indenture, referred to as the "1983
Indenture", which is more fully described in the accompanying Prospectus. The
MITTS Securities will mature on July 1, 2005.
S-9
<PAGE>
While at maturity a beneficial owner of a MITTS Security will receive the
Principal Amount of such MITTS Security plus the Supplemental Redemption
Amount, if any, there will be no other payment of interest, periodic or
otherwise. See "Payment at Maturity" below.
The MITTS Securities are not subject to redemption by the Company or at the
option of any beneficial owner prior to maturity. Upon the occurrence of an
Event of Default with respect to the MITTS Securities, beneficial owners of
the MITTS Securities may accelerate the maturity of the MITTS Securities, as
described under "Description of the MITTS Securities--Events of Default and
Acceleration" in this Prospectus Supplement and "Description of Debt
Securities--General--Events of Default" in the accompanying Prospectus.
The MITTS Securities are to be issued in denominations of whole Units.
PAYMENT AT MATURITY
"General"
At the stated maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the Principal Amount thereof plus the Supplemental
Redemption Amount, if any, all as provided below. If the Adjusted Ending Value
does not exceed the Starting Value, a beneficial owner of a MITTS Security
will be entitled to receive only the Principal Amount thereof.
"Determination of the Supplemental Redemption Amount"
The Supplemental Redemption Amount for a MITTS Security will be determined
by the Calculation Agent and will equal:
<TABLE>
<S> <C>
Principal Amount of such MITTS Security ($10 per Unit) X Adjusted Ending Value - Starting Value
( ------------------------------------- )
Starting Value
</TABLE>
"provided, however", that in no event will the Supplemental Redemption Amount
be less than zero.
The Starting Value equals 1,119.49.
The Adjusted Ending Value will be determined by the Calculation Agent and
will equal the average (arithmetic mean) of the closing values of the Index as
adjusted by the Adjustment Factor (the "Adjusted Index Value") determined on
each of the first five Calculation Days during the Calculation Period. If
there are fewer than five Calculation Days, then the Adjusted Ending Value
will equal the average (arithmetic mean) of the closing values of the Adjusted
Index Value on such Calculation Days, and if there is only one Calculation
Day, then the Adjusted Ending Value will equal the closing value of the
Adjusted Index Value on such Calculation Day. If no Calculation Days occur
during the Calculation Period, then the Adjusted Ending Value will equal the
closing value of the Adjusted Index Value determined on the last scheduled
Index Business Day in the Calculation Period, regardless of the occurrence of
a Market Disruption Event on such day.
The "Adjustment Factor" equals 1.3% per annum and will be prorated and
applied each calendar day during the term of the MITTS Securities to reduce
the Index. As a result of the application of the Adjustment Factor, the
adjusted value of the Index used to calculate your Supplemental Redemption
Amount at the stated maturity of the MITTS Securities will be approximately
8.78% less than the actual Index value on any day during the Calculation
Period.
S-10
<PAGE>
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day prior to the maturity date to and including the
second scheduled Index Business Day prior to the maturity date.
"Calculation Day" means any Index Business Day during the Calculation Period
on which a Market Disruption Event has not occurred.
For purposes of determining the Adjusted Ending Value, an "Index Business
Day" is a day on which the NYSE and the AMEX are open for trading and the
Index or any Successor Index, as defined below, is calculated and published.
All determinations made by the Calculation Agent shall be at the sole
discretion of the Calculation Agent and, absent a determination by the
Calculation Agent of a manifest error, shall be conclusive for all purposes
and binding on the Company and beneficial owners of the MITTS Securities.
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical values of the
Index during the Calculation Period, (i) the Adjusted Ending Value used to
calculate the Supplemental Redemption Amount; (ii) the percentage change from
the initial Index value to the Adjusted Ending Value; (iii) the total amount
payable per Unit of MITTS Securities; (iv) the total rate of return on the
MITTS Securities; (v) the pretax annualized rate of return on the MITTS
Securities; and (vi) the pretax annualized rate of return of the stocks
underlying the Index (which includes an assumed aggregate dividend yield of
1.40% per annum, as more fully described below).
<TABLE>
<CAPTION>
TOTAL AMOUNT PRETAX
PERCENTAGE CHANGE PAYABLE AT MATURITY ANNUALIZED PRETAX ANNUALIZED
HYPOTHETICAL INDEX OF ADJUSTED ENDING PER $10 PRINCIPAL TOTAL RATE OF RATE OF RATE OF RETURN ON
VALUE DURING THE ADJUSTED VALUE OVER THE AMOUNT OF RETURN ON THE RETURN ON THE STOCKS UNDERLYING
CALCULATION PERIOD ENDING VALUE STARTING VALUE MITTS SECURITIES MITTS SECURITIES MITTS SECURITIES(1) THE INDEX(1)(2)
- ------------------ ------------ ------------------ ------------------- ---------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
559.75 510.62 -54.39% $10.00 0.00% 0.00% -8.25%
671.69 612.75 -45.27% $10.00 0.00% 0.00% -5.77%
783.64 714.87 -36.14% $10.00 0.00% 0.00% -3.64%
895.59 817.00 -27.02% $10.00 0.00% 0.00% -1.77%
1,007.54 919.12 -17.90% $10.00 0.00% 0.00% -0.11%
1,119.49 1,021.25 -8.78% $10.00 0.00% 0.00% 1.40%
1,231.44 1,123.37 0.35% $10.03 0.35% 0.05% 2.77%
1,343.39 1,225.50 9.47% $10.95 9.47% 1.29% 4.04%
1,455.34 1,327.62 18.59% $11.86 18.59% 2.44% 5.21%
1,567.29 1,429.75 27.71% $12.77 27.71% 3.52% 6.30%
1,679.24 1,531.87 36.84% $13.68 36.84% 4.52% 7.32%
1,791.18 1,634.00 45.96% $14.60 45.96% 5.46% 8.28%
1,903.13 1,736.12 55.08% $15.51 55.08% 6.35% 9.19%
2,015.08 1,838.25 64.20% $16.42 64.20% 7.19% 10.05%
2,127.03 1,940.37 73.33% $17.33 73.33% 7.99% 10.87%
2,238.98 2,042.50 82.45% $18.24 82.45% 8.75% 11.65%
2,350.93 2,144.62 91.57% $19.16 91.57% 9.48% 12.40%
2,462.88 2,246.75 100.69% $20.07 100.69% 10.17% 13.11%
2,574.83 2,348.87 109.82% $20.98 109.82% 10.84% 13.80%
2,686.78 2,451.00 118.94% $21.89 118.94% 11.48% 14.46%
2,798.73 2,553.12 128.06% $22.81 128.06% 12.10% 15.09%
</TABLE>
- --------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes (i) a constant dividend yield of 1.40% per
annum, paid quarterly from the date of initial delivery of MITTS
Securities, applied to the value of the Index at the end of each such
quarter assuming such value increases or decreases linearly from the
Starting Value to the hypothetical Index value during the Calculation
Period; (ii) no transaction fees or expenses; (iii) the term for the MITTS
Securities from June 26, 1998 to July 1, 2005; and (iv) a final Index
value equal to the hypothetical Index value during the Calculation Period.
(3) The Starting Value of the Index equals 1,119.49.
S-11
<PAGE>
The figures on the previous page are for purposes of illustration only. The
actual Supplemental Redemption Amount received by investors and the total and
pretax annualized rate of return resulting therefrom will depend entirely on
the Starting Value, Adjustment Factor and the actual Adjusted Ending Value
determined by the Calculation Agent as provided herein. Historical data
regarding the Index is included in this Prospectus Supplement under "The
Index--Historical Data on the Index".
ADJUSTMENTS TO THE INDEX; MARKET DISRUPTION EVENTS
If at any time the method of calculating the Index, or the value thereof, is
changed in any material respect, or if the Index is in any other way modified
so that such Index does not, in the opinion of the Calculation Agent, fairly
represent the value of the Index had such changes or modifications not been
made, then, from and after such time, the Calculation Agent shall, at the
close of business in New York, New York, on each date that the closing value
with respect to the Adjusted Ending Value is to be calculated, make such
adjustments as, in the good faith judgment of the Calculation Agent, may be
necessary in order to arrive at a calculation of a value of a stock index
comparable to the Index as if such changes or modifications had not been made,
and calculate such closing value with reference to the Index, as adjusted.
Accordingly, if the method of calculating the Index is modified so that the
value of such Index is a fraction or a multiple of what it would have been if
it had not been modified (e.g., due to a split in the Index), then the
Calculation Agent shall adjust such Index in order to arrive at a value of the
Index as if it had not been modified (e.g., as if such split had not
occurred).
"Market Disruption Event" means either of the following events; as
determined by the Calculation Agent:
(a) the suspension or material limitation (limitations pursuant to New
York Stock Exchange Rule 80A (or any applicable rule or regulation enacted
or promulgated by the NYSE or any other self regulatory organization or the
SEC of similar scope as determined by the Calculation Agent) on trading
during significant market fluctuations shall be considered "material" for
purposes of this definition), in each case, for more than two hours of
trading, or during the one-half hour period preceding the close of trading
on the applicable exchange, in 20% or more of the stocks which then
comprise the Index; or
(b) the suspension or material limitation, in each case, for more than
two hours of trading (whether by reason of movements in price otherwise
exceeding levels permitted by the relevant exchange or otherwise) in (A)
futures contracts related to the Index, or options on such futures
contracts, which are traded on any major U.S. exchange or (B) option
contracts related to the Index which are traded on any major U.S. exchange.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
DISCONTINUANCE OF THE INDEX
If S&P discontinues publication of the Index and S&P or another entity
publishes a successor or substitute index that the Calculation Agent
determines, in its sole discretion, to be comparable to such Index (any such
index being referred to herein as a "Successor Index"), then, upon the
Calculation Agent's notification of such determination to the Trustee and the
Company, the Calculation Agent will substitute the Successor Index as
calculated by S&P or such other entity for the Index. Upon any selection by
the Calculation Agent of a Successor Index, the Company shall cause notice
thereof to be given to Holders of the MITTS Securities.
If S&P discontinues publication of the Index and a Successor Index is not
selected by the Calculation Agent or is no longer published on any of the
Calculation Days, the value to be substituted for the Index for any such
Calculation Day used to calculate the Supplemental Redemption Amount at
maturity will be a value computed by the Calculation Agent for each
Calculation Day in accordance with the procedures last used to calculate the
Index prior to such discontinuance. If a Successor Index is selected or the
Calculation Agent calculates a value as a substitute for the Index as
described below, such Successor Index or value shall be substituted for the
Index
S-12
<PAGE>
for all purposes, including for purposes of determining whether a Market
Disruption Event exists. If the Calculation Agent calculates a value as a
substitute for the Index, "Index Calculation Day" shall mean any day on which
the Calculation Agent is able to calculate such value.
If S&P discontinues publication of the Index prior to the period during
which the Supplemental Redemption Amount is to be determined and the
Calculation Agent determines that no Successor Index is available at such
time, then on each Business Day until the earlier to occur of (a) the
determination of the Adjusted Ending Value and (b) a determination by the
Calculation Agent shall determine the value that would be used in computing
the Supplemental Redemption Amount as described in the preceding paragraph as
if such day were a Calculation Day. The Calculation Agent will cause notice of
each such value to be published not less often than once each month in "The
Wall Street Journal" (or another newspaper of general circulation), and arrange
for information with respect to such values to be made available by telephone.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Index may adversely affect trading in the MITTS Securities.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any MITTS Securities shall have
occurred and be continuing, the amount payable to a beneficial owner of a
MITTS Security upon any acceleration permitted by the MITTS Securities, with
respect to each $10 principal amount thereof, will be equal to the Principal
Amount and the Supplemental Redemption Amount, if any, calculated as though
the date of early repayment were the stated maturity date of the MITTS
Securities. See "Description of the MITTS Securities--Payment at Maturity" in
this Prospectus Supplement. If a bankruptcy proceeding is commenced in respect
of the Company, the claim of the beneficial owner of a MITTS Security may be
limited, under Section 502(b)(2) of Title 11 of the United States Code, to the
Principal Amount of the MITTS Security plus an additional amount of contingent
interest calculated as though the date of the commencement of the proceeding
were the maturity date of the MITTS Securities.
In case of default in payment of the MITTS Securities (whether at the stated
maturity or upon acceleration), from and after the maturity date the MITTS
Securities shall bear interest, payable upon demand of the beneficial owners
thereof, at the rate of 5.90% per annum (to the extent that payment of such
interest shall be legally enforceable) on the unpaid amount due and payable on
such date in accordance with the terms of the MITTS Securities to the date
payment of such amount has been made or duly provided for.
DEPOSITARY
Upon issuance, all MITTS Securities will be represented by one or more fully
registered global securities (the "Global Securities"). Each such Global
Security will be deposited with, or on behalf of, The Depository Trust Company
("DTC"; DTC, together with any successor thereto, being a "Depositary"), as
Depositary, registered in the name of Cede & Co. (DTC's partnership nominee).
Unless and until it is exchanged in whole or in part for MITTS Securities in
definitive form, no Global Security may be transferred except as a whole by
the Depositary to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a nominee
of such successor.
So long as DTC, or its nominee, is a registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole owner or
Holder of the MITTS Securities represented by such Global Security for all
purposes under the 1983 Indenture. Except as provided below, the actual owner
of the MITTS Securities represented by a Global Security (the "Beneficial
Owner") will not be entitled to have the MITTS Securities represented by such
Global Securities registered in their names, will not receive or be entitled
to receive physical delivery of the MITTS Securities in definitive form and
will not be considered the owners or Holders thereof under the 1983 Indenture,
including for purposes of receiving any reports delivered by the Company or
the Trustee pursuant to the 1983 Indenture. Accordingly, each person owning a
beneficial interest in a Global Security must rely on the procedures of DTC
and, if such person is not a participant of DTC (a "Participant"), on the
procedures of the Participant through which such person owns its interest, to
exercise any
S-13
<PAGE>
rights of a Holder under the 1983 Indenture. The Company understands that
under existing industry practices, in the event that the Company requests any
action of Holders or that an owner of a beneficial interest in such a Global
Security desires to give or take any action which a Holder is entitled to give
or take under the 1983 Indenture, DTC would authorize the Participants holding
the relevant beneficial interests to give or take such action, and such
Participants would authorize Beneficial Owners owning through such
Participants to give or take such action or would otherwise act upon the
instructions of Beneficial Owners. Conveyance of notices and other
communications by DTC to Participants, by Participants to Indirect
Participants, as defined below, and by Participants and Indirect Participants
to Beneficial Owners will be governed by arrangements among them, subject to
any statutory or regulatory requirements as may be in effect from time to
time.
If (x) the Depositary is at any time unwilling or unable to continue as
Depositary and a successor depositary is not appointed by the Company within
60 days, (y) the Company executes and delivers to the Trustee a Company Order
to the effect that the Global Securities shall be exchangeable or (z) an Event
of Default has occurred and is continuing with respect to the MITTS
Securities, the Global Securities will be exchangeable for MITTS Securities in
definitive form of like tenor and of an equal aggregate principal amount, in
denominations of $10 and integral multiples thereof. Such definitive MITTS
Securities shall be registered in such name or names as the Depositary shall
instruct the Trustee. It is expected that such instructions may be based upon
directions received by the Depositary from Participants with respect to
ownership of beneficial interests in such Global Securities.
The following is based on information furnished by DTC:
DTC will act as securities depositary for the MITTS Securities. The MITTS
Securities will be issued as fully registered securities registered in the
name of Cede & Co. (DTC's partnership nominee). One or more fully registered
Global Security will be issued for the MITTS Securities in the aggregate
principal amount of such issue, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants of DTC
("Direct Participants") include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. DTC is owned
by a number of its Direct Participants and by The New York Stock Exchange,
Inc., the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC's system is also available to
others such as securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The rules applicable
to DTC and its Participants are on file with the SEC.
Purchases of MITTS Securities under the DTC's system must be made by or
through Direct Participants, which will receive a credit for the MITTS
Securities on the DTC's records. The ownership interest of each Beneficial
Owner is in turn to be recorded on the records of Direct Participants and
Indirect Participants. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the Direct Participants or
Indirect Participants through which such Beneficial Owner entered into the
transaction. Transfers of ownership interests in the MITTS Securities are to
be accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in MITTS Securities, except in the
event that use of the book-entry system for the MITTS Securities is
discontinued.
S-14
<PAGE>
To facilitate subsequent transfers, all MITTS Securities deposited with DTC
are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of MITTS Securities with DTC and their registration in the name of
Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the MITTS Securities; DTC's records reflect
only the identity of the Direct Participants to whose accounts such MITTS
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the MITTS
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the
Company as soon as possible after the applicable record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the MITTS Securities are credited on the record
date (identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest, if any, payments on the MITTS
Securities will be made in immediately available funds to DTC. DTC's practice
is to credit Direct Participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the Depositary's records
unless DTC has reason to believe that it will not receive payment on such
date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in "street
name", and will be the responsibility of such Participant and not of DTC, the
Trustee or the Company, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of principal, premium, if any,
and/or interest, if any, to DTC is the responsibility of the Company or the
Trustee, disbursement of such payments to Direct Participants shall be the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct Participants and Indirect
Participants.
DTC may discontinue providing its services as securities depositary with
respect to the MITTS Securities at any time by giving reasonable notice to the
Company or the Trustee. Under such circumstances, in the event that a
successor securities depositary is not obtained, MITTS Security certificates
are required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depositary). In that event,
MITTS Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the MITTS Securities will be made by the Underwriter in
immediately available funds. All payments of principal and the Supplemental
Redemption Amount, if any, will be made by the Company in immediately
available funds so long as the MITTS Securities are maintained in book-entry
form.
THE INDEX
GENERAL
The Index is published by S&P, and is intended to provide an indication of
the pattern of common stock price movement. The calculation of the value of
the Index (discussed below in further detail) is based on the relative value
of the aggregate Market Value (as defined below) of the common stocks of 500
companies as of a particular time compared to the aggregate average Market
Value of the common stocks of 500 similar companies
S-15
<PAGE>
during the base period of the years 1941 through 1943. As of April 30, 1998
the 500 companies included in the Index represented approximately 81% of the
aggregate Market Value of common stocks traded on the NYSE; however, these 500
companies are not the 500 largest companies listed on the NYSE and not all of
these 500 companies are listed on such exchange. As of April 30, 1998, the
aggregate Market Value of the 500 companies included in the Index represented
approximately 73% of the aggregate Market Value of United States domestic,
public companies. S&P chooses companies for inclusion in the Index with the
aim of achieving a distribution by broad industry groupings that approximates
the distribution of these groupings in the common stock population of the
NYSE, which S&P uses as an assumed model for the composition of the total
market. Relevant criteria employed by S&P include the viability of the
particular company, the extent to which that company represents the industry
group to which it is assigned, the extent to which the market price of that
company's common stock is generally responsive to changes in the affairs of
the respective industry and the Market Value and trading activity of the
common stock of that company. As of April 30, 1998, the 500 companies included
in the Index were divided into 104 individual groups.
These individual groups comprised the following four main groups of
companies (with the number of companies currently included in each group
indicated in parentheses): Industrials (379), Utilities (37), Transportation
(10) and Financial (74). S&P may from time to time, in its sole discretion,
add companies to, or delete companies from, the Index to achieve the
objectives stated above.
THE INDEX DOES NOT REFLECT THE PAYMENT OF DIVIDENDS ON THE STOCKS UNDERLYING
IT AND THEREFORE THE RETURN BASED ON THE SUPPLEMENTAL REDEMPTION AMOUNT WILL
NOT PRODUCE THE SAME RETURN YOU WOULD RECEIVE IF YOU WERE TO PURCHASE SUCH
UNDERLYING STOCKS AND HOLD THEM FOR A PERIOD EQUAL TO THE MATURITY OF THE
MITTS SECURITIES.
COMPUTATION OF THE INDEX
S&P currently computes the Index as of a particular time as follows:
(a) the product of the market price per share and the number of then
outstanding shares of each component stock is determined as of such time
(such product referred to as the "Market Value" of such stock);
(b) the Market Value of all component stock as of such time (as
determined under clause (a) above) are aggregated;
(c) the mean average of the Market Values as of each week in the base
period of the years 1941 through 1943 of the common stock of each company
in a group of 500 substantially similar companies is determined;
(d) the mean average Market Values of all such common stocks over such
base period (as determined under clause (c) above are aggregated (such
aggregate amount being referred to as the "Base Value");
(e) the aggregate Market Value of all component stocks as of such time
(as determined under clause (b) above) is divided by the Base Value; and
(f) the resulting quotient (expressed in decimals) is multiplied by ten.
While S&P currently employs the above methodology to calculate the Index, no
assurance can be given that S&P will not modify or change such methodology in
a manner that may affect the Supplemental Redemption Amount, if any, payable
to beneficial owners of MITTS Securities upon maturity or otherwise.
S&P adjusts the foregoing formula to negate the effects of changes in the
Market Value of a component stock that are determined by S&P to be arbitrary
or not due to true market fluctuations. Such changes may result from such
causes as the issuance of stock dividends, the granting to shareholders of
rights to purchase additional shares of such stock, the purchase of shares by
employees pursuant to employee benefit plans, certain consolidations and
acquisitions, the granting to shareholders of rights to purchase other
securities of the company, the substitution by S&P of particular component
stocks in the Index, and other reasons. In all such
S-16
<PAGE>
cases, S&P first recalculates the aggregate Market Value of all component
stocks (after taking account of the new market price per share of the
particular component stock or the new number of outstanding shares thereof or
both, as the case may be) and then determines the New Base Value in accordance
with the following formula:
New Market Value
Old Base Value X ---------------- = New Base Value
Old Market Value
The result is that the Base Value is adjusted in proportion to any change in
the aggregate Market Value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of such
clauses upon the Index.
HISTORICAL DATA ON THE INDEX
The following table sets forth the closing values of the Index on the last
business day of each year from 1947 through 1997, as published by S&P. The
historical experience of the Index should not be taken as an indication of
future performance and no assurance can be given that the value of the Index
will not decline and thereby reduce or eliminate the Supplemental Redemption
Amount which may be payable to holders of the MITTS Securities at the stated
maturity date.
YEAR END VALUE OF THE INDEX
<TABLE>
<CAPTION>
CLOSING
YEAR VALUE
- ---- -------
<S> <C>
1947.................... 15.30
1948.................... 15.20
1949.................... 16.79
1950.................... 20.43
1951.................... 23.77
1952.................... 26.57
1953.................... 24.81
1954.................... 35.98
1955.................... 45.48
1956.................... 46.67
1957.................... 39.99
1958.................... 55.21
1959.................... 59.89
1960.................... 58.11
1961.................... 71.55
1962.................... 63.10
1963.................... 75.02
1964.................... 84.75
1965.................... 92.43
1966.................... 80.33
1967.................... 96.47
1968.................... 103.86
1969.................... 92.06
1970.................... 92.15
1971.................... 102.09
1972.................... 118.05
</TABLE>
<TABLE>
<CAPTION>
CLOSING
YEAR VALUE
---- -------
<S> <C>
1973................... 97.55
1974................... 68.56
1975................... 90.19
1976................... 107.46
1977................... 95.10
1978................... 96.11
1979................... 107.94
1980................... 135.76
1981................... 122.55
1982................... 140.64
1983................... 164.93
1984................... 167.24
1985................... 211.28
1986................... 242.17
1987................... 247.08
1988................... 277.72
1989................... 353.40
1990................... 330.22
1991................... 417.09
1992................... 435.71
1993................... 466.45
1994................... 459.27
1995................... 615.93
1996................... 740.74
1997................... 970.43
</TABLE>
S-17
<PAGE>
The following table sets forth the value of the Index at the end of each
month, in the period from January 1989 through May 1998. These historical data
on the Index are not necessarily indicative of the future performance of the
Index or what the value of the MITTS Securities may be. Any historical upward
or downward trend in the value of the Index during any period set forth below
is not any indication that the Index is more or less likely to increase or
decrease at any time during the term of the MITTS Securities.
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January................. 297.47 329.08 343.93 408.78 438.78 481.61 470.42 636.02 786.16 980.28
February................ 288.86 331.89 367.07 412.70 443.38 467.14 487.39 640.43 790.82 1,049.34
March................... 294.87 339.94 375.22 403.69 451.67 445.76 500.71 645.50 757.12 1,101.75
April................... 309.64 330.80 375.34 414.95 440.19 450.91 514.71 654.17 801.34 1,111.75
May..................... 320.52 361.23 389.83 415.35 450.19 456.51 533.40 669.12 848.28 1,090.82
June.................... 317.98 358.02 371.16 408.14 450.53 444.27 544.75 670.63 885.14 --
July.................... 346.08 356.15 387.81 424.22 448.13 458.26 562.06 639.95 954.29 --
August.................. 351.45 322.56 395.43 414.03 463.56 475.50 561.88 651.99 899.47 --
September............... 349.15 306.05 387.86 417.80 458.93 462.71 584.41 687.31 947.28 --
October................. 340.36 304.00 392.45 418.68 467.83 472.35 581.50 705.27 914.62 --
November................ 345.99 322.22 375.22 431.35 461.79 453.69 605.37 757.02 955.40 --
December................ 353.40 330.22 417.09 435.71 466.45 459.27 615.93 740.74 970.43 --
</TABLE>
The following graph sets forth the historical performance of the Index at the
end of each year from 1947 through 1997. Past movements of the Index are not
necessarily indicative of the future Index values. On June 23, 1998 the closing
value of the Index was 1,119.49.
YEAR END VALUE OF THE INDEX
[LINE CHART APPEARS HERE]
[THE GRAPH INSERTED SETS FORTH THE PERFORMANCE OF THE INDEX FROM 1947 THROUGH
1997. THE VERTICAL AXIS HAS A RANGE OF NUMBERS FROM 0 TO 1,000 IN INCREMENTS OF
100. THE HORIZONTAL AXIS HAS A RANGE OF YEARS FROM 1947 TO 1997 IN INCREMENTS OF
TWO YEARS.]
This table is for historical information only and should not be used or
interpreted as a forecast or indication of future stock market performance,
interest rate levels, or variable returns applicable to the MITTS Securities.
LICENSE AGREEMENT
S&P and Merrill Lynch Capital Services, Inc. have entered into a non-
exclusive license agreement providing for the license to Merrill Lynch Capital
Services, Inc., in exchange for a fee, of the right to use indices owned
S-18
<PAGE>
and published by S&P in connection with certain securities, including the
MITTS Securities, and the Company is an authorized sublicensee thereof.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this Prospectus
Supplement:
"The MITTS Securities are not sponsored, endorsed, sold or promoted by S&P.
S&P makes no representation or warranty, express or implied, to the Holders of
the MITTS Securities or any member of the public regarding the advisability of
investing in securities generally or in the MITTS Securities particularly or
the ability of the Index to track general stock market performance. S&P's only
relationship to Merrill Lynch Capital Services, Inc. and the Company (other
than transactions entered into in the ordinary course of business) is the
licensing of certain servicemarks and trade names of S&P and of the Index
which is determined, composed and calculated by S&P without regard to the
Company or the MITTS Securities. S&P has no obligation to take the needs of
the Company or the Holders of the MITTS Securities into consideration in
determining, composing or calculating the Index. S&P is not responsible for
and has not participated in the determination of the timing of the sale of the
MITTS Securities, prices at which the MITTS Securities are to initially be
sold, or quantities of the MITTS Securities to be issued or in the
determination or calculation of the equation by which the MITTS Securities are
to be converted into cash. S&P has no obligation or liability in connection
with the administration, marketing or trading of the MITTS Securities."
All disclosures contained in this Prospectus Supplement regarding the Index,
including its make-up, method of calculation and changes in its components,
are derived from publicly available information prepared by S&P. The Company
and MLPF&S do not assume any responsibility for the accuracy or completeness
of such information.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Set forth in full below is the opinion of Brown & Wood LLP, counsel to the
Company, as to certain United States Federal income tax consequences of the
purchase, ownership and disposition of the MITTS Securities. Such opinion is
based upon laws, regulations, rulings and decisions now in effect, all of
which are subject to change (including retroactive changes in effective dates)
or possible differing interpretations. The discussion below deals only with
MITTS Securities held as capital assets and does not purport to deal with
persons in special tax situations, such as financial institutions, insurance
companies, regulated investment companies, dealers in securities or
currencies, tax-exempt entities, persons holding MITTS Securities in a tax-
deferred or tax-advantaged account, or persons holding MITTS Securities as a
hedge against currency risks, as a position in a "straddle" or as part of a
"hedging" or "conversion" transaction for tax purposes. It also does not deal
with holders other than original purchasers (except where otherwise
specifically noted herein). The following discussion also assumes that the
issue price of the MITTS Securities, as determined for United States Federal
income tax purposes, equals the principal amount thereof. Persons considering
the purchase of the MITTS Securities should consult their own tax advisors
concerning the application of the United States Federal income tax laws to
their particular situations as well as any consequences of the purchase,
ownership and disposition of the MITTS Securities arising under the laws of
any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a MITTS
Security that is for United States Federal income tax purposes (a) a citizen
or resident of the United States, (b) a corporation, partnership or other
entity created or organized in or under the laws of the United States or of
any political subdivision thereof (other than a partnership that is not
treated as a United States person under any applicable Treasury regulations),
(c) an estate the income of which is subject to United States Federal income
taxation regardless of its source, (d) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust, or (e) any other person whose income or
gain in respect of a MITTS Security is effectively connected with the conduct
of a United States trade or business. Notwithstanding the preceding sentence,
to the extent provided in Treasury regulations, certain trusts in existence on
August 20, 1996, and treated as United States persons prior to
S-19
<PAGE>
such date that elect to continue to be treated as United States persons will
also be a U.S. Holder. As used herein, the term "non-U.S. Holder" means a
beneficial owner of a MITTS Security that is not a U.S. Holder.
GENERAL
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization, for United
States Federal income tax purposes, of the MITTS Securities or securities with
terms substantially the same as the MITTS Securities. However, although the
matter is not free from doubt, under current law, each MITTS Security should
be treated as a debt instrument of the Company for United States Federal
income tax purposes. The Company currently intends to treat each MITTS
Security as a debt instrument of the Company for United States Federal income
tax purposes and, where required, intends to file information returns with the
Internal Revenue Service ("IRS") in accordance with such treatment, in the
absence of any change or clarification in the law, by regulation or otherwise,
requiring a different characterization of the MITTS Securities. Prospective
investors in the MITTS Securities should be aware, however, that the IRS is
not bound by the Company's characterization of the MITTS Securities as
indebtedness and the IRS could possibly take a different position as to the
proper characterization of the MITTS Securities for United States Federal
income tax purposes. The following discussion of the principal United States
Federal income tax consequences of the purchase, ownership and disposition of
the MITTS Securities is based upon the assumption that each MITTS Security
will be treated as a debt instrument of the Company for United States Federal
income tax purposes. If the MITTS Securities are not in fact treated as debt
instruments of the Company for United States Federal income tax purposes, then
the United States Federal income tax treatment of the purchase, ownership and
disposition of the MITTS Securities could differ from the treatment discussed
below with the result that the timing and character of income, gain or loss
recognized in respect of a MITTS Security could differ from the timing and
character of income, gain or loss recognized in respect of a MITTS Security
had the MITTS Securities in fact been treated as a debt instrument of the
Company for United States Federal income tax purposes.
U.S. HOLDERS
On June 11, 1996, the Treasury Department issued final regulations (the
"Final Regulations") concerning the proper United States Federal income tax
treatment of contingent payment debt instruments such as the MITTS Securities,
which apply to debt instruments issued on or after August 13, 1996 and,
accordingly, will apply to the MITTS Securities. In general, the Final
Regulations cause the timing and character of income, gain or loss reported on
a contingent payment debt instrument to substantially differ from the timing
and character of income, gain or loss reported on a contingent payment debt
instrument under general principles of prior United States Federal income tax
law. Specifically, the Final Regulations generally require a U.S. Holder of
such an instrument to include future contingent and noncontingent interest
payments in income as such interest accrues based upon a projected payment
schedule. Moreover, in general, under the Final Regulations, any gain
recognized by a U.S. Holder on the sale, exchange, or retirement of a
contingent payment debt instrument is treated as ordinary income and all or a
portion of any loss realized could be treated as ordinary loss as opposed to
capital loss (depending upon the circumstances). The Final Regulations provide
no definitive guidance as to whether or not an instrument is properly
characterized as a debt instrument for United States Federal income tax
purposes.
In particular, solely for purposes of applying the Final Regulations to the
MITTS Securities, the Company has determined that the projected payment
schedule for the MITTS Securities will consist of payment on the maturity date
of the principal amount thereof and a projected Supplemental Redemption Amount
equal to $5.0390 per Unit (the "Projected Supplemental Redemption Amount").
This represents an estimated yield on the MITTS Securities equal to 5.90% per
annum (compounded semiannually). Accordingly, during the term of the MITTS
Securities, a U.S. Holder of a MITTS Security will be required to include in
income the sum of the daily portions of interest on the MITTS Security that
are deemed to accrue at this estimated yield for each day during the taxable
year (or portion of the taxable year) on which the U.S. Holder holds such
MITTS Security. The amount of interest that will be deemed to accrue in any
accrual period (i.e., generally each six month period
S-20
<PAGE>
during which the MITTS Securities are outstanding) will equal the product of
this estimated yield (properly adjusted for the length of the accrual period)
and the MITTS Security's adjusted issue price (as defined below) at the
beginning of the accrual period. The daily portions of interest will be
determined by allocating to each day in the accrual period the ratable portion
of the interest that is deemed to accrue during the accrual period. In
general, for these purposes, a MITTS Security's adjusted issue price will
equal the MITTS Security's issue price (i.e., $10), increased by the interest
previously accrued on the MITTS Security. At maturity of a MITTS Security, in
the event that the actual Supplemental Redemption Amount, if any, exceeds
$5.0390 per Unit (i.e., the Projected Supplemental Redemption Amount), a U.S.
Holder will be required to include the excess of the actual Supplemental
Redemption Amount over $5.0390 per Unit (i.e., the Projected Supplemental
Redemption Amount) in income as ordinary interest on the maturity date.
Alternatively, in the event that the actual Supplemental Redemption Amount, if
any, is less than $5.0390 per Unit (i.e., the Projected Supplemental
Redemption Amount), the excess of $5.0390 per Unit (i.e., the Projected
Supplemental Redemption Amount) over the actual Supplemental Redemption Amount
will be treated first as an offset to any interest otherwise includible in
income by the U.S. Holder with respect to the MITTS Security for the taxable
year in which the maturity date occurs to the extent of the amount of such
includible interest. A U.S. Holder will be permitted to recognize and deduct,
as an ordinary loss that is not subject to the limitations applicable to
miscellaneous itemized deductions, any remaining portion of the excess of
$5.0390 per Unit (i.e., the Projected Supplemental Redemption Amount) over the
actual Supplemental Redemption Amount that is not treated as an interest
offset pursuant to the foregoing rules. U.S. Holders purchasing a MITTS
Security at a price that differs from the adjusted issue price of the MITTS
Security as of the purchase date (e.g., subsequent purchasers) will be subject
to special rules providing for certain adjustments to the foregoing rules and
such U.S. Holders should consult their own tax advisors concerning these
rules.
Upon the sale or exchange of a MITTS Security prior to the maturity date, a
U.S. Holder will be required to recognize taxable gain or loss in an amount
equal to the difference, if any, between the amount realized by the U.S.
Holder upon such sale or exchange and the U.S. Holder's adjusted tax basis in
the MITTS Security as of the date of disposition. A U.S. Holder's adjusted tax
basis in a MITTS Security generally will equal such U.S. Holder's initial
investment in the MITTS Security increased by any interest previously included
in income with respect to the MITTS Security by the U.S. Holder. Any such
taxable gain will be treated as ordinary income. Any such taxable loss will be
treated as ordinary loss to the extent of the U.S. Holder's total interest
inclusions on the MITTS Security. Any remaining loss generally will be treated
as long-term or short-term capital loss (depending upon the U.S. Holder's
holding period for the MITTS Security). All amounts includible in income by a
U.S. Holder as ordinary interest pursuant to the Final Regulations will be
treated as original issue discount.
All prospective investors in the MITTS Securities should consult their own
tax advisors concerning the application of the Final Regulations to their
investment in the MITTS Securities. Investors in the MITTS Securities may also
obtain the projected payment schedule, as determined by the Company for
purposes of the application of the Final Regulations to the MITTS Securities,
by submitting a written request for such information to Merrill Lynch & Co.,
Inc., Attn: Darryl W. Colletti, Corporate Secretary's Office, 100 Church
Street, 12th Floor, New York, New York 10080-6512.
The projected payment schedule (including both the Projected Supplemental
Redemption Amount and the estimated yield on the MITTS Securities) has been
determined solely for United States Federal income tax purposes (i.e., for
purposes of applying the Final Regulations to the MITTS Securities), and is
neither a prediction nor a guarantee of what the actual Supplemental
Redemption Amount will be, or that the actual Supplemental Redemption Amount
will even exceed zero.
The following table sets forth the amount of interest that will be deemed to
have accrued with respect to each Unit of the MITTS Securities during each
accrual period over a term of seven years and four days for the MITTS
Securities based upon the projected payment schedule for the MITTS Securities
(including both the Projected Supplemental Redemption Amount and the estimated
yield equal to 5.90% per annum (compounded
S-21
<PAGE>
semiannually)) as determined by the Company for purposes of the application of
the Final Regulations to the MITTS Securities:
<TABLE>
<CAPTION>
TOTAL INTEREST
DEEMED TO
HAVE ACCRUED
ON THE MITTS
INTEREST DEEMED TO SECURITIES
ACCRUE DURING AS OF END OF
ACCRUAL PERIOD ACCRUAL PERIOD
ACCRUAL PERIOD (PER UNIT) (PER UNIT)
-------------- ------------------ --------------
<S> <C> <C>
June 26, 1998 through January 1, 1999........ $0.3057 $0.3057
January 2, 1999 through July 1, 1999......... $0.3040 $0.6097
July 2, 1999 through January 1, 2000......... $0.3130 $0.9227
January 2, 2000 through July 1, 2000......... $0.3222 $1.2449
July 2, 2000 through January 1, 2001......... $0.3317 $1.5766
January 2, 2001 through July 1, 2001......... $0.3415 $1.9181
July 2, 2001 through January 1, 2002......... $0.3516 $2.2697
January 2, 2002 through July 1, 2002......... $0.3620 $2.6317
July 2, 2002 through January 1, 2003......... $0.3726 $3.0043
January 2, 2003 through July 1, 2003......... $0.3836 $3.3879
July 2, 2003 through January 1, 2004......... $0.3950 $3.7829
January 2, 2004 through July 1, 2004......... $0.4066 $4.1895
July 2, 2004 through January 1, 2005......... $0.4186 $4.6081
January 2, 2005 through July 1, 2005......... $0.4309 $5.0390
</TABLE>
- --------
Projected Supplemental Redemption Amount = $5.0390 per Unit.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original
issue discount, if any) on a MITTS Security, unless such non-U.S. Holder is a
direct or indirect 10% or greater shareholder of the Company, a controlled
foreign corporation related to the Company or a bank receiving interest
described in section 881(c)(3)(A) of the Internal Revenue Code of 1986, as
amended. However, income allocable to non-U.S. Holders will generally be
subject to annual tax reporting on IRS Form 1042S. For a non-U.S. Holder to
qualify for the exemption from taxation, the last United States payor in the
chain of payment prior to payment to a non-U.S. Holder (the "Withholding
Agent") must have received in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a
statement that (a) is signed by the beneficial owner of the MITTS Security
under penalties of perjury, (b) certifies that such owner is not a U.S. Holder
and (c) provides the name and address of the beneficial owner. The statement
may be made on an IRS Form W-8 or a substantially similar form, and the
beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a MITTS
Security is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide a signed
statement to the Withholding Agent. However, in such case, the signed
statement must be accompanied by a copy of the IRS Form W-8 or the substitute
form provided by the beneficial owner to the organization or institution.
Under current law, a MITTS Security will not be includible in the estate of
a non-U.S. Holder unless the individual is a direct or indirect 10% or greater
shareholder of the Company or, at the time of such individual's death,
payments in respect of such MITTS Security would have been effectively
connected with the conduct by such individual of a trade or business in the
United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the MITTS Securities to registered owners
who are not "exempt recipients" and who fail to provide
S-22
<PAGE>
certain identifying information (such as the registered owner's taxpayer
identification number) in the required manner. Generally, individuals are not
exempt recipients, whereas corporations and certain other entities generally
are exempt recipients. Payments made in respect of the MITTS Securities to a
U.S. Holder must be reported to the IRS, unless the U.S. Holder is an exempt
recipient or establishes an exemption. Compliance with the identification
procedures described in the preceding section would establish an exemption
from backup withholding for those non-U.S. Holders who are not exempt
recipients.
In addition, upon the sale of a MITTS Security to (or through) a broker, the
broker must withhold 31% of the entire purchase price, unless either (a) the
broker determines that the seller is a corporation or other exempt recipient
or (b) the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Holder, certifies that such seller
is a non-U.S. Holder (and certain other conditions are met). Such a sale must
also be reported by the broker to the IRS, unless either (a) the broker
determines that the seller is an exempt recipient or (b) the seller certifies
its non-U.S. status (and certain other conditions are met). Certification of
the registered owner's non-U.S. status would be made normally on an IRS Form
W-8 under penalties of perjury, although in certain cases it may be possible
to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the backup withholding and
information reporting rules described above. The New Regulations will
generally be effective for payments made after December 31, 1999, subject to
certain transition rules. Prospective investors are urged to consult their own
tax advisors regarding the New Regulations.
USE OF PROCEEDS
The net proceeds from the sale of the MITTS Securities will be used as
described under "Use of Proceeds" in the attached Prospectus and to hedge
market risks of the Company associated with its obligation to pay the
Principal Amount and the Supplemental Redemption Amount.
UNDERWRITING
MLPF&S (the "Underwriter") has agreed, subject to the terms and conditions
of the Underwriting Agreement and a Terms Agreement, to purchase from the
Company $285,000,000 aggregate principal amount of MITTS Securities. The
Underwriting Agreement provides that the obligations of the Underwriter are
subject to certain conditions precedent and that the Underwriter will be
obligated to purchase all of the MITTS Securities if any are purchased.
The Underwriter has advised the Company that it proposes initially to offer
all or part of the MITTS Securities directly to the public at the offering
prices set forth on the cover page of this Prospectus Supplement. After the
initial public offering, the public offering price may be changed. The
Underwriter is offering the MITTS Securities subject to receipt and acceptance
and subject to the Underwriter's right to reject any order in whole or in
part.
The underwriting of the MITTS Securities will conform to the requirements
set forth in the applicable sections of Rule 2720 of the Conduct Rules of the
National Association of Securities Dealers, Inc.
The Underwriter is permitted to engage in certain transactions that
stabilize the price of the MITTS Securities. Such transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of
the MITTS Securities.
S-23
<PAGE>
If the Underwriter creates a short position in the MITTS Securities in
connection with the offering, i.e., if it sells more Units of the MITTS
Securities than are set forth on the cover page of this Prospectus Supplement,
the Underwriter may reduce that short position by purchasing Units of the
MITTS Securities in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the MITTS Securities. In
addition, neither the Company nor the Underwriter makes any representation
that the Underwriter will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
The Underwriter may use this Prospectus Supplement and the accompanying
Prospectus for offers and sales related to market-making transactions in the
MITTS Securities. The Underwriter may act as principal or agent in these
transactions, and the sales will be made at prices related to prevailing
market prices at the time of sale.
VALIDITY OF THE MITTS SECURITIES
The validity of the MITTS Securities will be passed upon for the Company and
for the Underwriter by Brown & Wood LLP, New York, New York.
S-24
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Adjusted Ending Value...................................................... S-4
Adjusted Index Value....................................................... S-10
Adjustment Factor.......................................................... S-1
AMEX....................................................................... S-1
Base Value................................................................. S-16
Beneficial Owner........................................................... S-13
Calculation Agent.......................................................... S-6
Calculation Day............................................................ S-11
Calculation Period......................................................... S-11
Company.................................................................... S-4
Depositary................................................................. S-13
Direct Participants........................................................ S-14
DTC........................................................................ S-4
Final Regulations.......................................................... S-20
Global Securities.......................................................... S-13
Index...................................................................... S-4
Index Business Day......................................................... S-11
Index Calculation Day...................................................... S-13
Indirect Participants...................................................... S-14
IRS........................................................................ S-20
Market Disruption Event.................................................... S-12
Market Value............................................................... S-5
MITTS...................................................................... S-1
MITTS Securities........................................................... S-4
MLPF&S..................................................................... S-2
New Regulations............................................................ S-23
Non-U.S. Holder............................................................ S-20
NYSE....................................................................... S-5
1983 Indenture............................................................. S-9
Participant................................................................ S-13
Pricing Date............................................................... S-5
Principal Amount........................................................... S-4
Projected Supplemental Redemption Amount................................... S-20
SEC........................................................................ S-2
S&P........................................................................ S-2
Starting Value............................................................. S-5
Successor Index............................................................ S-12
Supplemental Redemption Amount............................................. S-4
U.S. Holder................................................................ S-19
Underwriter................................................................ S-23
Unit....................................................................... S-4
Withholding Agent.......................................................... S-22
</TABLE>
S-25
<PAGE>
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[LOGO]
28,500,000 UNITS
MERRILL LYNCH & CO., INC.
S&P 500(R) MARKET INDEX TARGET-TERM SECURITIES SM
DUE JULY 1, 2005
"MITTS(R)"
-------------------------------
PROSPECTUS SUPPLEMENT
-------------------------------
MERRILL LYNCH & CO.
JUNE 23, 1998
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