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RULE NO. 424(b)(5)
REGISTRATION NO. 333-59997
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 23, 1998
PROSPECTUS
[LOGO]
TRUST ORIGINATED PREFERRED SECURITIES SM
12,000,000 "TOPRS SM"
MERRILL LYNCH PREFERRED CAPITAL TRUST V
% TRUST ORIGINATED PREFERRED SECURITIES SM ("TOPRS SM")
(LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
MERRILL LYNCH & CO., INC.
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Merrill Lynch Preferred Capital Trust V is a business trust formed for
the sole purpose of issuing the TOPrS and investing the proceeds from their
sale in Partnership Preferred Securities of Merrill Lynch Preferred Funding V,
L.P., a limited partnership. The Partnership will use the proceeds from the
sale of the Partnership Preferred Securities and the capital contribution of
Merrill Lynch & Co., Inc., a Delaware corporation ("we" or the "Company"), as
general partner of the Partnership, to purchase Debentures from the Company
and from one or more eligible controlled affiliates, and to purchase certain
other Eligible Debt Securities.
From the interest payments it receives on the Debentures and its other
investments, the Partnership may elect, but is not obligated, to pay
distributions on the Partnership Preferred Securities to the Trust. If the
Partnership makes these distributions, the Trust is expected to have
sufficient funds to pay you a quarterly cash distribution at the rate of %
of the liquidation amount of $25 per TOPrS per annum. This is equivalent to
$ per TOPrS per annum. The Company or its eligible controlled affiliates
may elect to defer interest payments on the Debentures for up to six
consecutive quarters, in which case the Partnership would not have sufficient
funds to pay a distribution to the Trust, and the Trust would not have
sufficient funds to pay cash distributions to you on the TOPrS.
The Company will guarantee the payment of distributions by the Trust and
payments to you if the Trust is liquidated or if the TOPrS are redeemed. This
guarantee will be subordinated, and will be only to the extent that the Trust
has funds available to pay you but fails to do so. The Company will also
guarantee payments by the Partnership to the Trust on a subordinated basis and
only to the extent the Partnership has declared a distribution and has funds
available to pay the Trust but fails to do so.
The Trust may redeem the TOPrS on and after , 2008 or earlier upon
the occurrence of certain Special Events.
The Trust will apply to have the TOPrS listed on the New York Stock
Exchange (the "NYSE"). If the TOPrS are approved for listing by the NYSE, the
Trust expects that trading on the NYSE will commence within 30 days after
delivery of the TOPrS.
INVESTING IN THE TOPRS INVOLVES CERTAIN RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
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<TABLE>
<CAPTION>
PER TOPRS TOTAL
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<S> <C> <C>
Public Offering Price....................... $25 $300,000,000
Underwriting Discount....................... $ (1) $ (1)
Proceeds to Trust........................... $25 $300,000,000
</TABLE>
(1) The proceeds of the sale of the TOPrS will ultimately be invested in the
Debentures and other Eligible Debt Securities; therefore we will pay the
underwriters $ per TOPrS (or $ in the aggregate) (or $ per
TOPrS for sales of more than 10,000 TOPrS to a single purchaser).
The Trust expects that the TOPrS will be ready for delivery in book-entry
form only through the facilities of DTC on or about October , 1998.
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MERRILL LYNCH & CO.
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The date of this prospectus is October , 1998.
SM "TOPrS" and "Trust Originated Preferred Securities" are service marks owned
by Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Where You Can Find More Information........................................ 3
Incorporation of Information We File With the SEC.......................... 3
Summary Information-Q&A.................................................... 4
Risk Factors............................................................... 7
Merrill Lynch & Co., Inc. ................................................. 11
Use Of Proceeds............................................................ 11
Ratio of Earnings to Fixed Charges......................................... 12
Merrill Lynch Preferred Capital Trust V.................................... 13
Merrill Lynch Preferred Funding V, L.P..................................... 14
Description of the Trust Preferred Securities.............................. 15
Description of the Trust Guarantee......................................... 27
Description of the Partnership Preferred Securities........................ 29
Description of the Partnership Guarantee................................... 40
Certain Federal Income Tax Considerations.................................. 43
Underwriting............................................................... 47
Legal Matters.............................................................. 49
Experts.................................................................... 49
Index of Defined Terms..................................................... 50
Index to Financial Statements.............................................. F-1
</TABLE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not, and the underwriters are not, making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date hereof only. Our business, financial condition, results
of operations and prospects may have changed since that date.
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WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Our SEC filings are also
available over the Internet at the SEC's web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC's public reference rooms
in Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for more information on the public reference rooms and
their copy charges. You may also inspect our SEC reports and other information
at the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 pursuant to the
Securities Act of 1933, as amended (the "Securities Act") with the SEC covering
the TOPrS. For further information on the Company and the TOPrS, you should
refer to our registration statement and its exhibits. This prospectus
summarizes material provisions of contracts and other documents that we refer
you to. Since the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 (the "Exchange Act"):
. Annual Report on Form 10-K for the year ended December 26, 1997;
. Quarterly Reports on Form 10-Q for the quarters ended March 27, 1998
and June 26, 1998; and
. Current Reports on Form 8-K dated January 20, 1998, January 30, 1998,
February 4, 1998, February 12, 1998, February 23, 1998, March 19,
1998, April 13, 1998, April 29, 1998, May 19, 1998, June 2, 1998, June
3, 1998, June 15, 1998, June 24, 1998, June 26, 1998, July 2, 1998,
July 14, 1998, July 15, 1998, July 29, 1998, September 3, 1998,
September 8, 1998, September 29, 1998, October 13, 1998 and October
21, 1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus but before the end of
the TOPrS offering:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
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SUMMARY INFORMATION-Q&A
This summary may not contain all the information that may be important to
you. The terms "we", the "Company" or "Merrill Lynch" as used in this
prospectus refer to Merrill Lynch & Co., Inc. Certain terms used in this
summary are defined elsewhere in this prospectus.
See "Index of Defined Terms" for a cross reference to the location in
this prospectus where such terms are defined.
This summary includes questions and answers that highlight selected
information from the prospectus to help you understand the Trust Originated
Preferred Securities (the "TOPrS" or "Trust Preferred Securities"). You should
carefully read the prospectus to fully understand the terms of the TOPrS, as
well as the tax and other considerations that are important to you in making a
decision about whether to invest in the TOPrS. You should pay special attention
to the "Risk Factors" section to determine whether an investment in the TOPrS
is appropriate for you.
WHAT ARE THE TOPRS?
Each TOPrS represents a preferred undivided beneficial interest in the
assets of the Trust. The Company will own all of the common securities of the
Trust. The Trust assets will be Partnership Preferred Securities (the
"Partnership Preferred Securities") in Merrill Lynch Preferred Funding V, L.P.
The Partnership will use the proceeds from the sale of the Partnership
Preferred Securities and the capital contribution from the Company, as general
partner of the Partnership, to make investments by purchasing Debentures, which
are debt instruments of the Company and one or more eligible controlled
affiliates of the Company. In addition, the Partnership will invest
approximately $ in Eligible Debt Securities.
WHAT IS THE TRUST?
Merrill Lynch Preferred Capital Trust V (the "Trust") is a Delaware
statutory business trust that exists for the sole purpose of issuing the TOPrS
and investing the proceeds and engaging in incidental activities.
WHAT IS THE PARTNERSHIP?
Merrill Lynch Preferred Funding V, L.P. (the "Partnership") is a Delaware
limited partnership. The Partnership will initially hold the Debentures and
Eligible Debt Securities. The Company is the General Partner of the
Partnership.
WHAT DISTRIBUTIONS WILL I RECEIVE ON THE TOPRS?
The Trust expects to pay you a quarterly cash distribution at the rate of
% per annum. Distributions are payable on each March 30, June 30, September 30
and December 30, commencing December 30, 1998. Distributions will accumulate
from , 1998, the date of original issuance of the TOPrS. Distributions
may be deferred if interest payments on the Debentures are deferred.
WHAT WILL AFFECT THE TRUST'S DISTRIBUTIONS?
The ability of the Trust to pay you is entirely dependent on its receipt
of corresponding distributions from the Partnership Preferred Securities held
by the Trust. In turn, the Partnership's ability to pay the Trust is dependent
on its receipt of payments on the Debentures and other permitted investments
held by the Partnership. In addition, the Partnership has no obligation to make
distributions to the Trust.
WHAT ARE THE DEBENTURES?
The Debentures are long term loans made by the Partnership to the Company
and one or more eligible controlled affiliates of the Company. Debentures
issued by the Company will be senior unsecured obligations of the Company and
will rank equally with all of the Company's other unsecured obligations.
Debentures issued by affiliates of the Company will be guaranteed on a
subordinated basis by the Company. An issuer of a Debenture may elect to defer
interest payments for a period not exceeding six consecutive quarters.
ARE THERE ANY RISKS ASSOCIATED WITH MY INVESTMENT?
Yes, the TOPrS are subject to certain risks. Please refer to the section
entitled "Risk Factors" in this prospectus.
WHAT HAPPENS IF THE TRUST DOESN'T PAY MY DISTRIBUTION?
If at any time:
. you have not received a distribution for six consecutive quarters,
. an Investment Event of Default occurs and is continuing on an
Affiliate Investment Instrument, or
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. the Company defaults on its obligations under the Trust Guarantee or
the Partnership Guarantee,
then:
. the Property Trustee may enforce the Partnership's creditors' rights,
including the right to receive payments under the Affiliate Investment
Instruments and the Investment Guarantees,
. the Property Trustee has the right to enforce the terms of the
Partnership Preferred Securities, including the Trust's right to
receive distributions on the Partnership Preferred Securities, and
. the Trust Guarantee Trustee or the Special Representative, as the
holders of the Trust Guarantee (the "Trust Guarantee") and the
Partnership Guarantee (the "Partnership Guarantee"), may enforce the
Guarantees, including the right to enforce the covenant restricting
certain payments to others by the Company and Finance Subsidiaries
described below.
You should be aware that the Special Representative does not have the
authority to cause the Partnership to declare distributions on the Partnership
Preferred Securities. If the Partnership does not declare and pay distributions
on the Partnership Preferred Securities, the Trust will not have sufficient
funds to make distributions on the TOPrS.
The Company has agreed that if:
. payments on a cumulative basis on the TOPrS are not paid to you or set
aside by the Trust for payment to you,
. an Investment Event of Default by any Investment Affiliate in respect
of any Affiliate Investment Instrument has occurred and is continuing,
or
. the Company is in default on any of its obligations under the Trust
Guarantee, the Partnership Guarantee or any Investment Guarantee,
then, during such period, the Company will not declare or pay dividends on, or
acquire, or make a liquidation payment with respect to, any of its capital
stock. The Company will not permit any Finance Subsidiary to make any payment
of any dividends on, any distribution with respect to, or any acquisition of,
or any liquidation payment with respect to, any preferred security of any
Finance Subsidiary.
This limitation prevents the Company from paying cash or certain other
dividends to its own shareholders if payments are not being made on the TOPrS,
or Debentures or any Affiliate Investment Instrument, or if the Company is in
default under any guarantee.
These provisions will not restrict:
. the payment of dividends or distributions in shares of, or options,
warrants or rights to subscribe for or purchase shares of, the
Company's capital stock, or conversions or exchanges of common stock
of one class into common stock of another class,
. redemptions or purchases of any rights pursuant to the Company's
Rights Agreement (the "Rights Agreement") and the issuance of
preferred stock pursuant to such rights, and
. purchases by the Company or its affiliates in connection with
transactions for the account of customers of the Company or any of its
subsidiaries or in connection with the distribution or trading of such
capital stock.
WHAT HAPPENS IF THE TRUST IS LIQUIDATED?
If the Trust is liquidated, other than in connection with a Trust Special
Event, you will be entitled to receive $25 per TOPrS plus any accumulated and
unpaid distributions.
OPTIONAL REDEMPTION
The Partnership has the option to redeem the Partnership Preferred
Securities, in whole or in part from time to time, on or after , 2008. If
the Partnership Preferred Securities are redeemed, the TOPrS will in turn be
redeemed for $25 plus accumulated and unpaid distributions. Neither the
Partnership Preferred Securities nor the TOPrS have any scheduled maturity or
are redeemable at any time at the option of the holders.
WHAT ARE THE GUARANTEES?
The Company provides several subordinated guarantees. These are
guarantees, to the extent set forth herein, of (1) distributions by the
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Partnership to the Trust, and by the Trust to you; (2) the amount due to you
upon redemption of the TOPrS; (3) the liquidation amount of the TOPrS if the
Trust is liquidated; and (4) payments under Affiliate Investment Instruments.
The Guarantees, when taken together with the Company Debenture and the
Company's obligations to pay all fees and expenses of the Trust and the
Partnership, constitute a guarantee, to the extent set forth herein, by the
Company of the distribution, redemption and liquidation amounts payable to the
holders of the TOPrS. However, the Guarantees do not apply to either (1)
current distributions by the Partnership unless and until the Partnership
declares distributions out of funds legally available for payment or (2)
liquidating distributions unless there are Partnership assets available for
payment.
The Company's obligations under the Guarantees are subordinate and junior
in right of payment to all other liabilities of the Company and rank equally
with the most senior preferred stock issued from time to time by the Company,
with similar guarantees issued by the Company in connection with prior issues
of TOPrS by certain Finance Subsidiaries and with any guarantee now or
hereafter entered into by the Company in respect of any preferred stock of any
other Finance Subsidiary.
DO I HAVE VOTING RIGHTS?
Generally, holders of the TOPrS will not have any voting rights, except
under the limited circumstances described below. The holders of a majority in
liquidation amount of the TOPrS, however, have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Property Trustee, or direct the exercise of any trust or power conferred upon
the Property Trustee.
WHAT HAPPENS IF SPECIAL EVENT REDEMPTIONS OR DISTRIBUTIONS OCCUR?
Upon the occurrence of a Trust Tax Event (which event will generally be
triggered upon the occurrence of certain adverse tax consequences or the denial
of an interest deduction on the Affiliate Investment Instruments held by the
Partnership) or a Trust Investment Company Event (which event will generally be
triggered if the Trust is considered an "investment company" under the
Investment Company Act of 1940, as amended (the "1940 Act")), except in certain
limited circumstances, the Regular Trustees will have the right to liquidate
the Trust and cause Partnership Preferred Securities to be distributed to the
holders of the TOPrS. In certain circumstances involving a Partnership Tax
Event (which event will generally be triggered upon the occurrence of certain
adverse tax consequences or the denial of an interest deduction on the
Debentures held by the Partnership) or a Partnership Investment Company Event
(which event will generally be triggered if the Partnership is considered an
"investment company" under the 1940 Act), the Partnership will have the right
to redeem the Partnership Preferred Securities, in whole (but not in part), at
$25 per Partnership Preferred Security plus accumulated and unpaid
distributions.
FORM OF THE TOPRS
The TOPrS will be represented by a global certificate or certificates
registered in the name of Cede & Co., as nominee for The Depository Trust
Company ("DTC"). Beneficial interests in the TOPrS will be evidenced by, and
transfers thereof will be effected only through, records maintained by the
participants in DTC. TOPrS in certificated form will not be issued in exchange
for the global certificate or certificates.
CAN YOU TELL ME MORE ABOUT THE COMPANY?
Merrill Lynch & Co., Inc. is a holding company. Its subsidiary and
affiliated companies provide investment, financing, insurance and related
services on a global basis. Our principal executive offices are located at
World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281. The Company's telephone number is (212) 449-1000. 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".
USE OF PROCEEDS
All of the proceeds from the sale of the Trust Common Securities and the
Trust Preferred Securities (together, the "Trust Securities") will be invested
by the Trust in the Partnership Preferred Securities. The Partnership will use
the funds to make investments in Debentures and other permitted investments.
The Company and the subsidiaries of the Company that are the issuers of the
Debentures will use the proceeds from the sale of the Debentures for general
corporate purposes.
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RISK FACTORS
Your investment in the TOPrS will involve certain risks. You should
carefully consider the following discussion of risks before deciding whether an
investment in the TOPrS is suitable for you.
DISTRIBUTIONS PAYABLE ONLY IF DECLARED BY THE GENERAL PARTNER
The Trust's ability to pay distributions to you is dependent upon its
receipt of distributions on the Partnership Preferred Securities. If we defer
or fail to make interest or principal payments on the Debentures or if we or
our Investment Affiliates fail to make such payments on the Affiliate
Investment Instruments and we fail to make guarantee payments on the Investment
Guarantees, the Partnership will lack the funds necessary to pay distributions
on the Partnership Preferred Securities. If the Partnership does not make
current distributions on the Partnership Preferred Securities, either because
the Company, as the General Partner, does not declare distributions to be made
or because the Partnership lacks sufficient funds, the Trust will not have
funds to make current distributions on the TOPrS. If the Trust does not make
payments to you on the TOPrS, the Company will be restricted from, among other
things, paying cash or certain other dividends on its Common Stock.
TAX CONSEQUENCES OF FAILURE OF DISTRIBUTIONS. Even if the Partnership
fails to pay current distributions on the Partnership Preferred Securities, you
will be required to accrue income, for United States federal income tax
purposes, on the cumulative deferred distributions (including interest)
allocable to your proportionate share of the Partnership Preferred Securities.
As a result, you will recognize income for United States federal income tax
purposes in advance of the receipt of cash and will not receive the cash from
the Trust related to such income if you dispose of your TOPrS prior to the
record date for the date on which distributions of such amounts are made by the
Trust.
INSUFFICIENT INCOME OR ASSETS AVAILABLE TO PARTNERSHIP
You are subject to the risk that the current or liquidating distributions
paid on the TOPrS will not match the rate paid on the securities held by the
Partnership, including the Debentures and any additional securities acquired by
the Partnership in the future.
Such mismatch could occur if:
. the Company, as the General Partner of the Partnership, in its
sole discretion, does not declare distributions on the Partnership
Preferred Securities or if the Partnership receives insufficient
amounts from its investments to pay the additional compounded
distributions that will accumulate on any unpaid distributions,
. the Partnership reinvests the proceeds received from the
Debentures upon their retirement or at their maturities in
Affiliate Investment Instruments or Eligible Debt Securities that
do not generate income sufficient to pay full distributions in
respect of the Partnership Preferred Securities at a rate of %
per annum, or
. the Partnership invests in debt securities of Investment
Affiliates that are not guaranteed by the Company and that cannot
be liquidated by the Partnership for an amount sufficient to pay
such distributions in full or if the Partnership does not make
such distributions.
The Trust will not have sufficient funds available to pay you full
current or liquidating distributions on the TOPrS if the Partnership lacks
sufficient funds to make current or liquidating distributions on the
Partnership Preferred Securities in full.
INVESTMENTS ARE NOT DIVERSIFIED
With the proceeds from the issuance of the TOPrS and the Trust Common
Securities (the "Trust Common Securities"), the Trust will purchase the
Partnership Preferred Securities. The Partnership will invest approximately 99%
of the proceeds from the issuance of the Partnership Preferred Securities and
the General Partner's capital contribution in Company Debentures and Affiliate
Investment Instruments.
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SPECIAL EVENT REDEMPTION OR DISTRIBUTION
The occurrence of (i) certain adverse tax consequences to the Trust or
the Partnership, or the denial of an interest deduction by an Investment
Affiliate on any Affiliate Investment Instrument held by the Partnership, or
(ii) the Trust or the Partnership being considered an "investment company"
under the 1940 Act would constitute a "Special Event". If a Trust Special Event
occurs, there is a possibility that your TOPrS will be redeemed for cash, or
that you will receive Partnership Preferred Securities in exchange for your
TOPrS. Partnership Preferred Securities may not trade at the same value as the
TOPrS. In addition, the receipt of Partnership Preferred Securities may cause
you to incur tax liability in excess of what you initially contemplated. There
is also the possibility that you will receive Partnership Preferred Securities
in the event that a Partnership Special Event occurs.
TAX CONSEQUENCES. Unless the liquidation of the Trust occurs as a result
of the Trust being subject to United States federal income tax with respect to
income on the Partnership Preferred Securities, a distribution of the
Partnership Preferred Securities upon the dissolution of the Trust would not be
a taxable event to holders of the TOPrS. If as a consequence of a Trust Special
Event resulting from the Trust becoming subject to United States federal income
tax with respect to income on the Partnership Preferred Securities, Partnership
Preferred Securities distributed to you by the Trust would likely cause you to
recognize a gain or loss as if you had exchanged TOPrS for the Partnership
Preferred Securities. Similarly, you would recognize a gain or loss if, upon an
occurrence of a Partnership Special Event, the Trust redeems the TOPrS for
cash.
EXCHANGE ISSUES. Because you may receive Partnership Preferred Securities
upon the occurrence of a Special Event, you are also making an investment
decision with regard to the Partnership Preferred Securities and should
carefully review all the information regarding the Partnership Preferred
Securities contained herein. There can be no assurance as to the market prices
for the Partnership Preferred Securities that may be distributed in exchange
for TOPrS if a dissolution or liquidation of the Trust were to occur.
Accordingly, the Partnership Preferred Securities that a holder of TOPrS may
receive may trade at a discount to the purchase price of the TOPrS.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEES AND THE COMPANY
DEBENTURE
You should be aware that the Company's obligations under the Trust
Guarantee, the Partnership Guarantee and the Investment Guarantee (the
"Guarantees") will not be paid until certain other obligations of the Company
have been satisfied in full. The Company's obligations under the Guarantees
are:
. subordinate and junior in right of payment to all liabilities of the
Company, and
. will rank equally:
. with the most senior preferred stock, if any, issued from time to
time by the Company,
. with similar guarantees issued by the Company in connection with
. $275,000,000 aggregate liquidation amount of 7.75% Trust
Originated Preferred Securities issued by Merrill Lynch
Preferred Capital Trust I,
. $300,000,000 aggregate liquidation amount of 8% Trust
Originated Preferred Securities issued by Merrill Lynch
Preferred Capital Trust II,
. $750,000,000 aggregate liquidation amount of 7% Trust
Originated Preferred Securities issued by Merrill Lynch
Preferred Capital Trust III,
. $400,000,000 aggregate liquidation amount of 7.12% Trust
Originated Preferred Securities issued by Merrill Lynch
Preferred Capital Trust IV, and
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. with any guarantee now or hereafter entered into by the Company in
respect of any preferred stock of any other Finance Subsidiary.
The Company's obligations under the Company Debenture are subordinate and
junior in right of payment to all Senior Indebtedness. At June 26, 1998, the
Company had outstanding Senior Indebtedness aggregating approximately $9
billion which would have ranked senior to the Company's obligations under the
Guarantees and the Company Debenture.
There are no terms in the TOPrS, the Partnership Preferred Securities,
the Guarantees or the Debentures that limit the Company's ability to incur
additional indebtedness, including indebtedness that ranks senior to the
Guarantees.
ENFORCEMENT OF CERTAIN RIGHTS BY OR ON BEHALF OF HOLDERS OF THE TOPRS
The Special Representative's ability to take action on your behalf is
limited, and it is uncertain that you would receive a distribution on the TOPrS
even if he or she took such action. Under no circumstances will the Special
Representative have authority to cause the General Partner to declare
distributions on the Partnership Preferred Securities. As a result, although
the Special Representative may be able to enforce the Partnership's creditors'
rights to accelerate and receive payments in respect of the Affiliate
Investment Instruments and the Investment Guarantees, the Partnership would be
entitled to reinvest such payments in additional Affiliate Investment
Instruments, subject to satisfying the reinvestment criteria rather than
declaring and making distributions on the Partnership Preferred Securities.
If a Trust Enforcement Event occurs and is continuing, then
(a) You would rely on the enforcement by the Property Trustee of its
rights, as a holder of the Partnership Preferred Securities, against
the Company, including the right to direct the Special
Representative to enforce
(i) the Partnership's creditors' rights and other rights with
respect to the Affiliate Investment Instruments and the
Investment Guarantees,
(ii) the rights of the holders of the Partnership Preferred
Securities under the Partnership Guarantee, and
(iii) the rights of the holders of the Partnership Preferred
Securities to receive distributions (only if and to the
extent declared out of funds legally available therefor) on
the Partnership Preferred Securities, and
(b) the Trust Guarantee Trustee will have the right to enforce the terms
of the Trust Guarantee, including the right to enforce the covenant
restricting certain payments by the Company and Finance
Subsidiaries.
LIMITED VOTING RIGHTS
Holders of the TOPrS will have limited voting rights and will not be
entitled to vote to appoint, change, or to increase or decrease the number of
trustees. Those voting rights are vested exclusively in the Company as the
holder of the Trust Common Securities.
TRADING CHARACTERISTICS OF TOPRS
The price at which the TOPrS may trade may not fully reflect the value of
the accumulated but unpaid distributions on the TOPrS (which will equal the
accumulated but unpaid distributions on the Partnership Preferred Securities).
In addition, as a result of the right of the General Partner not to declare
current distributions on the Partnership Preferred Securities, the market price
of the TOPrS (which represent undivided beneficial ownership interests in the
Partnership Preferred Securities) may be more volatile than other similar
securities where there is no such right to not pay current distributions.
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If you dispose of your TOPrS, you will be required to include for United
States federal income tax purposes accumulated but unpaid distributions on the
Partnership Preferred Securities through the date of disposition in income as
ordinary income, and to add such amount to your adjusted tax basis in your pro
rata share of the Partnership Preferred Securities deemed disposed of. To the
extent the selling price is less than your adjusted tax basis (which will
include all accumulated but unpaid distributions), you will recognize a capital
loss. Subject to certain limited exceptions, you cannot apply capital losses to
offset ordinary income for United States federal income tax purposes.
NO PRIOR MARKET FOR THE TOPRS
The TOPrS constitute a new issue of securities with no established
trading market. We have applied to list the TOPrS on the NYSE. There can be no
assurance that an active market for the TOPrS will develop or be sustained in
the future on the NYSE. Although the underwriters have indicated to the Company
that they intend to make a market in the TOPrS, as permitted by applicable laws
and regulations, they are not obligated to do so and may discontinue any such
market-making at any time without notice. Accordingly, no assurance can be
given as to the liquidity of, or trading markets for, the TOPrS.
The TOPrS will only be sold to those investors for whom such TOPrS are
considered suitable in light of their particular circumstances.
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MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its
subsidiaries and affiliates, provides investment, financing, advisory,
insurance, and related services on a global basis. Its principal subsidiary,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), one of the
largest securities firms in the world, is a leading broker in securities,
options contracts, and commodity and financial futures contracts; a leading
dealer in options and in corporate and municipal securities; a leading
investment banking firm that provides advice to, and raises capital for, its
clients; an underwriter of selected insurance products; and a distributor of
investment products of the Merrill Lynch Asset Management group. Other
subsidiaries provide financial services on a global basis similar to those of
MLPF&S and are engaged in such other activities as international banking,
lending, and providing other investment and financing services. Merrill Lynch
International Incorporated, through subsidiaries and affiliates, provides
investment, financing, and related services outside the United States and
Canada. The Company's asset management and investment management activities are
conducted through the Merrill Lynch Asset Management group and Merrill Lynch
Mercury Asset Management, which together constitute one of the largest asset
management organizations in the world. Merrill Lynch Government Securities Inc.
is a primary dealer in obligations issued or guaranteed by the U.S. Government
and its agencies and its government-sponsored agencies. Merrill Lynch Capital
Services, Inc., Merrill Lynch Derivative Products AG, and Merrill Lynch
International are the Company's primary derivative product dealers and enter
into interest rate, currency, and other over-the-counter derivative
transactions as intermediaries and as principals. The Company's operations in
insurance services consist of the underwriting and sale of life insurance and
annuity products. Banking, trust, and mortgage lending operations conducted
through subsidiaries of the Company include issuing certificates of deposit,
offering money market deposit accounts, making and purchasing secured loans,
providing currency exchange facilities and other related services, and
furnishing trust, employee benefit, and custodial services.
The principal executive office of the Company is located at World
Financial Center, North Tower, 250 Vesey Street, New York, New York 10281; its
telephone number is (212) 449-1000.
USE OF PROCEEDS
The proceeds to be received by the Trust from the sale of the Trust
Preferred Securities and the Trust Common Securities will be used by the Trust
to purchase Partnership Preferred Securities, and will be applied by the
Partnership to invest in Debentures and other permitted investments. See
"Description of the Partnership Preferred Securities -- Partnership
Investments". The Company and the subsidiaries of the Company which are the
issuers of the Debentures will use the proceeds from the sale of such
Debentures to the Partnership of $ primarily for general corporate
purposes. Such general corporate purposes may include the funding of
investments in, or extensions of credit to, its subsidiaries, the funding of
assets of the Company and its subsidiaries, the lengthening of the average
maturity of the Company's borrowings, and the financing of acquisitions.
Pending such applications, the net proceeds will be applied to the reduction of
short-term indebtedness or temporarily invested. Management of the Company
expects that it will, on a recurrent basis, engage in additional financings as
the need arises to finance the growth of the Company, through acquisitions or
otherwise, or to lengthen the average maturity of its borrowings. To the extent
that Trust Preferred Securities being purchased for resale by MLPF&S are not
resold, the aggregate proceeds to the Company and its subsidiaries would be
reduced.
11
<PAGE>
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:
<TABLE>
<CAPTION>
YEAR ENDED LAST FRIDAY SIX MONTHS
IN DECEMBER ENDED
------------------------ JUNE 26,
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>
The ratio of earnings to fixed charges for the nine-month period ended
September 25, 1998 is not available as of the date of this prospectus.
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.
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MERRILL LYNCH PREFERRED CAPITAL TRUST V
Merrill Lynch Preferred Capital Trust V is a statutory business trust
formed under the Delaware Business Trust Act, as amended (the "Trust Act"),
pursuant to a declaration of trust and the filing of a certificate of trust
with the Secretary of State of the State of Delaware on January 8, 1998; such
declaration will be amended and restated in its entirety (as so amended and
restated, the "declaration") substantially in the form filed as an exhibit to
the registration statement of which this prospectus forms a part. The
declaration will be qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). Upon issuance of the Trust
Preferred Securities, the purchasers thereof will own all the Trust Preferred
Securities. See "Description of the Trust Preferred Securities". The Company
will acquire Trust Common Securities in an amount equal to at least 3% of the
total capital of the Trust. The Trust will use all the proceeds derived from
the issuance of the Trust Securities to purchase the Partnership Preferred
Securities from the Partnership and, accordingly, the assets of the Trust will
consist solely of the Partnership Preferred Securities. The Trust exists for
the exclusive purpose of (i) issuing the Trust Securities representing
undivided beneficial ownership interests in the assets of the Trust, (ii)
investing the gross proceeds of the Trust Securities in the Partnership
Preferred Securities, and (iii) engaging in only those other activities
necessary or incidental thereto.
Pursuant to the declaration, there will initially be four trustees (the
"trustees") for the Trust. Two of the trustees will be individuals who are
employees or officers of or who are affiliated with the Company (the "Regular
Trustees"). The third trustee will be a financial institution that is
unaffiliated with the Company and is indenture trustee for purposes of
compliance with the provisions of the Trust Indenture Act (the "Property
Trustee"). The fourth trustee will be an entity that maintains its principal
place of business in the State of Delaware (the "Delaware Trustee"). Initially,
The Chase Manhattan Bank, a New York banking corporation, will act as Property
Trustee, and its affiliate, Chase Manhattan Bank Delaware, a Delaware
corporation, will act as Delaware Trustee until, in each case, removed or
replaced by the holder of the Trust Common Securities. For purposes of
compliance with the Trust Indenture Act, The Chase Manhattan Bank will also act
as trustee under the Trust Guarantee (the "Trust Guarantee Trustee"), as
Property Trustee under the declaration and as trustee under the indenture
applicable to the Company Debenture.
The Property Trustee will hold title to the Partnership Preferred
Securities for the benefit of the holders of the Trust Securities, and the
Property Trustee will have the power to exercise all rights, powers and
privileges with respect to the Partnership Preferred Securities under the
Amended and Restated Agreement of Limited Partnership to be entered into by the
Company and the Trust (the "Limited Partnership Agreement") as the holder of
the Partnership Preferred Securities. In addition, the Property Trustee will
maintain exclusive control of a segregated non-interest bearing bank account
(the "Property Account") to hold all payments made in respect of the
Partnership Preferred Securities for the benefit of the holders of the Trust
Securities. The Trust Guarantee Trustee will hold the Trust Guarantee for the
benefit of the holders of the Trust Preferred Securities. The Company, as the
holder of all the Trust Common Securities, will have the right to appoint,
remove or replace any of the trustees and to increase or decrease the number of
trustees, provided that at least one trustee shall be a Delaware Trustee, at
least one trustee shall be the Property Trustee and at least one trustee shall
be a Regular Trustee. The Company will pay all fees and expenses related to the
organization and operations of the Trust (including any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States or any other domestic taxing authority upon
the Trust) and the offering of the Trust Preferred Securities and be
responsible for all debts and obligations of the Trust (other than with respect
to the Trust Securities).
For so long as the Trust Preferred Securities remain outstanding, the
Company will covenant (i) to maintain directly 100% ownership of the Trust
Common Securities, (ii) to cause the Trust to remain a statutory business trust
and not to voluntarily dissolve, wind-up, liquidate or be terminated, except as
permitted by the Declaration of the Trust and (iii) to use its commercially
reasonable efforts to ensure that the Trust will not be (A) an "investment
company" for purposes of the 1940 Act or (B) classified as other than a grantor
trust for United States federal income tax purposes.
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<PAGE>
The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, are as set forth in
the declaration and the Trust Act. See "Description of the Trust Preferred
Securities". The declaration and the Trust Guarantee also incorporate by
reference the terms of the Trust Indenture Act.
The location of the principal executive office of the Trust is c/o
Merrill Lynch & Co., Inc., World Financial Center, North Tower, 250 Vesey
Street, New York, New York 10281, and its telephone number is (212) 449-1000.
MERRILL LYNCH PREFERRED FUNDING V, L.P.
Merrill Lynch Preferred Funding V, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act, as amended (the "Partnership Act"), on January 8, 1998 for the
exclusive purposes of purchasing certain eligible debt securities of the
Company and wholly-owned subsidiaries of the Company (the "Affiliate Investment
Instruments") with the proceeds from the sale of Partnership Preferred
Securities to the Trust and a capital contribution from the Company in exchange
for the general partner interest in the Partnership. Pursuant to the
certificate of limited partnership, as amended, and the Limited Partnership
Agreement, the Company is the sole general partner of the Partnership (in such
capacity the "General Partner"). Upon the issuance of the Partnership Preferred
Securities, which securities represent limited partner interests in the
Partnership, the Trust will be the sole limited partner of the Partnership.
Contemporaneously with the issuance of the Partnership Preferred Securities,
the General Partner will contribute capital to the Partnership in an amount
sufficient to establish its initial capital account at an amount equal to at
least 15% of the total capital of the Partnership.
The Partnership is managed by the General Partner and exists for the sole
purpose of (i) issuing its partnership interests, (ii) investing the proceeds
thereof in Affiliate Investment Instruments and Eligible Debt Securities and
(iii) engaging in only those other activities necessary or incidental thereto.
To the extent that aggregate payments to the Partnership on the Affiliate
Investment Instruments and on Eligible Debt Securities exceed distributions
accumulated or payable with respect to the Partnership Preferred Securities,
the Partnership may at times have excess funds which shall be allocated to and
may, in the General Partner's sole discretion, be distributed to the General
Partner.
For so long as the Partnership Preferred Securities remain outstanding,
the General Partner will covenant in the Limited Partnership Agreement (i) to
remain the sole general partner of the Partnership and to maintain directly
100% ownership of the General Partner's interest in the Partnership, which
interest will at all times represent at least 1% of the total capital of the
Partnership, (ii) to cause the Partnership to remain a limited partnership and
not to voluntarily dissolve, liquidate, wind-up or be terminated, except as
permitted by the Limited Partnership Agreement and (iii) to use its
commercially reasonable efforts to ensure that the Partnership will not be (A)
an "investment company" for purposes of the 1940 Act or (B) an association or a
publicly traded partnership taxable as a corporation for United States federal
income tax purposes. The Company or the then General Partner may transfer its
obligations as General Partner to a wholly-owned direct or indirect subsidiary
of the Company provided that (i) such successor entity expressly accepts such
transfer of the obligations as General Partner and (ii) prior to such transfer,
the Company has received an opinion of nationally recognized independent
counsel to the Partnership experienced in such matters to the effect that (A)
the Partnership will be treated as a partnership for United States federal
income tax purposes, (B) such transfer would not cause the Trust to be
classified as an association taxable as a corporation for United States federal
income tax purposes, (C) following such transfer, the Company and such
successor entity will be in compliance with the 1940 Act without registering
thereunder as an investment company, and (D) such transfer will not adversely
affect the limited liability of the holders of the Partnership Preferred
Securities.
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<PAGE>
The rights of the holders of the Partnership Preferred Securities,
including economic rights, rights to information and voting rights, are set
forth in the Limited Partnership Agreement and the Partnership Act. See
"Description of the Partnership Preferred Securities".
The Limited Partnership Agreement provides that the General Partner will
have liability for the fees and expenses of the Partnership (including any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States or any other domestic
taxing authority upon the Partnership) and be responsible for all debts and
obligations of the Partnership (other than with respect to the Partnership
Preferred Securities). Under Delaware law, assuming a limited partner in a
Delaware limited partnership such as the Partnership (i.e., a holder of the
Partnership Preferred Securities) does not participate in the control of the
business of the limited partnership, such limited partner will not be
personally liable for the debts, obligations and liabilities of such limited
partnership, whether arising in contract, tort or otherwise, solely by reason
of being a limited partner of such limited partnership (subject to any
obligation such limited partner may have to repay any funds that may have been
wrongfully distributed to it). The Partnership's business and affairs will be
conducted by the General Partner.
The location of the principal executive offices of the Partnership is c/o
Merrill Lynch & Co., Inc., World Financial Center, North Tower, 250 Vesey
Street, New York, New York 10281 and its telephone number is (212) 449-1000.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be issued pursuant to the terms of
the declaration. The declaration will be qualified as an indenture under the
Trust Indenture Act. The Property Trustee, The Chase Manhattan Bank, will act
as trustee for the Trust Preferred Securities under the declaration for
purposes of compliance with the provisions of the Trust Indenture Act. The
terms of the Trust Preferred Securities will include those stated in the
declaration and those made part of the declaration by the Trust Indenture Act.
The following summary of the material terms and provisions of the Trust
Preferred Securities does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the declaration, a copy of which is
filed as an exhibit to the registration statement of which this prospectus is a
part, the Trust Act and the Trust Indenture Act.
GENERAL
The Trust Preferred Securities will be issued in fully registered form
without coupons. Trust Preferred Securities will not be issued in bearer form.
See "-- Book-Entry Only Issuance -- The Depository Trust Company".
The declaration authorizes the Regular Trustees of the Trust to issue the
Trust Securities, which represent undivided beneficial ownership interests in
the assets of the Trust. Title to the Partnership Preferred Securities will be
held by the Property Trustee for the benefit of the holders of the Trust
Securities. The declaration does not permit the Trust to acquire any assets
other than the Partnership Preferred Securities or the issuance by the Trust of
any securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. The payment of distributions out of money held by
the Trust, and payments out of money held by the Trust upon redemption of the
Trust Preferred Securities or liquidation of the Trust, are guaranteed by the
Company to the extent described under "Description of the Trust Guarantee". The
Trust Guarantee will be held by The Chase Manhattan Bank, the Trust Guarantee
Trustee, for the benefit of the holders of the Trust Preferred Securities. The
Trust Guarantee does not cover payment of distributions when the Trust does not
have sufficient available funds to pay such distributions. In such event,
holders of Trust Preferred Securities will have the remedies described below
under "-- Trust Enforcement Events".
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<PAGE>
DISTRIBUTIONS
The distribution rate on Trust Preferred Securities will be fixed at a
rate per annum of % of the stated liquidation amount of $25 per Trust
Preferred Security and will be paid if, as and when the Trust has funds
available for payment. Distributions not paid on the scheduled payment date
will accumulate and compound quarterly at a rate per annum equal to %. The
term "distribution" as used herein includes any such compounded amounts unless
otherwise stated or the context otherwise requires. The amount of distributions
payable for any period will be computed on the basis of a 360-day year of
twelve 30-day months.
Distributions on the Trust Preferred Securities will be cumulative, will
accumulate from the date of initial issuance and will be payable quarterly in
arrears on each March 30, June 30, September 30 and December 30, commencing
December 30, 1998, if, as and when available for payment, by the Property
Trustee, except as otherwise described below. If distributions are not paid
when scheduled, the accumulated distributions shall be paid to the holders of
record of Trust Preferred Securities as they appear on the books and records of
the Trust on the record date with respect to the payment date for the Trust
Preferred Securities which corresponds to the payment date fixed by the
Partnership with respect to the payment of cumulative distributions on the
Partnership Preferred Securities.
Distributions on the Trust Preferred Securities will be made to the
extent that the Trust has funds available for the payment of such distributions
in the Property Account. Amounts available to the Trust for distribution to the
holders of the Trust Preferred Securities will be limited to payments received
by the Trust from the Partnership with respect to the Partnership Preferred
Securities or from the Company on the Partnership Guarantee or the Trust
Guarantee. Distributions on the Partnership Preferred Securities will be paid
only if, as and when declared in the sole discretion of the Company, as the
General Partner of the Partnership. Pursuant to the Limited Partnership
Agreement, the General Partner is not obligated to declare distributions on the
Partnership Preferred Securities at any time, including upon or following a
Partnership Enforcement Event. See "Description of Partnership Preferred
Securities -- Partnership Enforcement Events".
The assets of the Partnership will consist only of Affiliate Investment
Instruments (which initially will be the Debentures) and Eligible Debt
Securities. To the extent that the issuers (and, where applicable, the Company,
as guarantor) of the securities in which the Partnership invests defer or fail
to make any payment in respect of such securities (or, if applicable, such
guarantees), the Partnership will not have sufficient funds to pay and will not
declare or pay distributions on the Partnership Preferred Securities. If the
Partnership does not declare and pay distributions on the Partnership Preferred
Securities out of funds legally available for distribution, the Trust will not
have sufficient funds to make distributions on the Trust Preferred Securities,
in which event the Trust Guarantee will not apply to such distributions until
the Trust has sufficient funds available therefor. See "Description of the
Partnership Preferred Securities -- Distributions" and "Description of the
Trust Guarantee". In addition, as described under "Risk Factors -- Insufficient
Income or Assets Available to Partnership", the Partnership may not have
sufficient funds to pay current or liquidating distributions on the Partnership
Preferred Securities if (i) at any time that the Partnership is receiving
current payments in respect of the securities held by the Partnership
(including the Debentures), the General Partner, in its sole discretion, does
not declare distributions on the Partnership Preferred Securities and the
Partnership receives insufficient amounts to pay the additional compounded
distributions that will accumulate in respect of the Partnership Preferred
Securities, (ii) the Partnership reinvests the proceeds received in respect of
the Debentures upon their retirement or at their maturities in Affiliate
Investment Instruments that do not generate income in an amount that is
sufficient to pay full distributions in respect of the Partnership Preferred
Securities or (iii) the Partnership invests in debt securities of Investment
Affiliates that are not guaranteed by the Company and that cannot be liquidated
by the Partnership for an amount sufficient to pay such distributions in full.
Distributions on the Trust Preferred Securities will be payable to the
holders thereof as they appear on the books and records of the Trust on the
relevant record dates, which will be one Business
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<PAGE>
Day (as defined herein) prior to the relevant payment dates. Such distributions
will be paid through the Property Trustee who will hold amounts received in
respect of the Partnership Preferred Securities in the Property Account for the
benefit of the holders of the Trust Securities. Subject to any applicable laws
and regulations and the provisions of the declaration, each such payment will
be made as described under "-- Book-Entry Only Issuance -- The Depository Trust
Company" below. In the event that the Trust Preferred Securities do not remain
in book-entry only form, the relevant record dates shall be the 15th day of the
month of the relevant payment dates. In the event that any date on which
distributions are payable on the Trust Preferred Securities is not a Business
Day, payment of the distribution payable on such date will be made on the next
succeeding day which is a Business Day (without any interest or other payment
in respect of the distribution subject to such delay) except that, if such
Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date. A "Business Day" shall mean any day
other than a day on which banking institutions in The City of New York are
authorized or required by law to close.
TRUST ENFORCEMENT EVENTS
The occurrence, at any time, of (i) arrearages on distributions on the
Trust Preferred Securities that shall exist for six consecutive quarterly
distribution periods, (ii) a default by the Company in respect of any of its
obligations under the Trust Guarantee or (iii) a Partnership Enforcement Event
under the Limited Partnership Agreement, will constitute an enforcement event
under the declaration with respect to the Trust Securities (a "Trust
Enforcement Event"); provided, that pursuant to the declaration, the holder of
the Trust Common Securities will be deemed to have waived any Trust Enforcement
Event with respect to the Trust Common Securities until all Trust Enforcement
Events with respect to the Trust Preferred Securities have been cured, waived
or otherwise eliminated. Until such Trust Enforcement Events with respect to
the Trust Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf
of the holders of the Trust Preferred Securities and only the holders of the
Trust Preferred Securities will have the right to direct the Property Trustee
with respect to certain matters under the declaration and, in the case of a
Partnership Enforcement Event, the Special Representative with respect to
certain matters under the Limited Partnership Agreement. See "Description of
the Partnership Preferred Securities -- Partnership Enforcement Events" for a
description of the events which will trigger the occurrence of a Partnership
Enforcement Event.
Upon the occurrence of a Trust Enforcement Event, (a) the Property
Trustee, as the holder of the Partnership Preferred Securities, shall have the
right to enforce the terms of the Partnership Preferred Securities, including
the right to direct the Special Representative to enforce (i) the Partnership's
creditors' rights and other rights with respect to the Affiliate Investment
Instruments and the Investment Guarantees, (ii) the rights of the holders of
the Partnership Preferred Securities under the Partnership Guarantee and (iii)
the rights of the holders of the Partnership Preferred Securities to receive
distributions (only if and to the extent declared out of funds legally
available therefor) on the Partnership Preferred Securities, and (b) the Trust
Guarantee Trustee shall have the right to enforce the terms of the Trust
Guarantee, including the right to enforce the covenant restricting certain
payments by the Company and Finance Subsidiaries.
If the Property Trustee fails to enforce its rights under the Partnership
Preferred Securities after a holder of Trust Preferred Securities has made a
written request, such holder of record of Trust Preferred Securities may
directly institute a legal proceeding against the Partnership and the Special
Representative to enforce the Property Trustee's rights under the Partnership
Preferred Securities without first instituting any legal proceeding against the
Property Trustee, the Trust or any other person or entity. In addition, for so
long as the Trust holds any Partnership Preferred Securities, if the Special
Representative fails to enforce its rights on behalf of the Partnership under
the Affiliate Investment Instruments after a holder of Trust Preferred
Securities has made a written request, a holder of record of Trust Preferred
Securities may on behalf of the Partnership directly institute a legal
proceeding against the Investment Affiliates under the Affiliate Investment
Instruments, without first instituting any legal proceeding against the
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Property Trustee, the Trust, the Special Representative or the Partnership. In
any event, for so long as the Trust is the holder of any Partnership Preferred
Securities, if a Trust Enforcement Event has occurred and is continuing and
such event is attributable to the failure of an Investment Affiliate to make
any required payment when due on any Affiliate Investment Instrument or the
failure of the Company to make any required payment when due on any Investment
Guarantee, then a holder of Trust Preferred Securities may on behalf of the
Partnership directly institute a proceeding against such Investment Affiliate
with respect to such Affiliate Investment Instrument or against the Company
with respect to any such Investment Guarantee, in each case for enforcement of
payment.
Under no circumstances, however, shall the Special Representative have
authority to cause the General Partner to declare distributions on the
Partnership Preferred Securities. As a result, although the Special
Representative may be able to enforce the Partnership's creditors' rights to
accelerate and receive payments in respect of the Affiliate Investment
Instruments and the Investment Guarantees, the Partnership would be entitled to
reinvest such payments in additional Affiliate Investment Instruments, subject
to satisfying the reinvestment criteria described under "Description of the
Partnership Preferred Securities -- Partnership Investments", and Eligible Debt
Securities, rather than declaring and making distributions on the Partnership
Preferred Securities.
The Company and the Trust are each required to file annually with the
Property Trustee an officer's certificate as to its compliance with all
conditions and covenants under the declaration.
MANDATORY REDEMPTION
The Partnership Preferred Securities may be redeemed by the Partnership
at the option of the General Partner, in whole or in part, at any time on or
after , 2008 or at any time in certain circumstances upon the occurrence of
a Partnership Special Event. Upon such redemption of the Partnership Preferred
Securities (either at the option of the General Partner or pursuant to a
Partnership Special Event), the proceeds from such repayment shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the Partnership Preferred Securities so redeemed at
an amount per Trust Security equal to $25 plus accumulated and unpaid
distributions thereon; provided, that holders of the Trust Securities shall be
given not less than 30 nor more than 60 days notice of such redemption. See
"Description of the Partnership Preferred Securities -- General" and "--
Optional Redemption".
TRUST SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If, at any time, a Trust Tax Event or a Trust Investment Company Event
(each as hereinafter defined, and each, a "Trust Special Event") shall occur
and be continuing, the Regular Trustees shall, unless the Partnership Preferred
Securities are redeemed in the limited circumstances described below, within 90
days following the occurrence of such Trust Special Event elect to either (i)
dissolve the Trust upon not less than 30 nor more than 60 days notice with the
result that, after satisfaction of creditors of the Trust, if any, Partnership
Preferred Securities would be distributed on a pro rata basis to the holders of
the Trust Preferred Securities and the Trust Common Securities in liquidation
of such holders' interests in the Trust; provided, however, that if at the time
there is available to the Trust the opportunity to eliminate, within such 90-
day period, the Trust Special Event by taking some ministerial action, such as
filing a form or making an election, or pursuing some other similar reasonable
measure which in the sole judgment of the Company has or will cause no adverse
effect on the Trust, the Partnership, the Company or the holders of the Trust
Securities and will involve no material cost, the Trust will pursue such
measure in lieu of dissolution or (ii) cause the Trust Preferred Securities to
remain outstanding, provided that in the case of this clause (ii), the Company
shall pay any and all expenses incurred by or payable by the Trust attributable
to the Trust Special Event. Furthermore, if in the case of the occurrence of a
Trust Tax Event, the Regular Trustees have received an opinion (a "Trust
Redemption Tax Opinion") of nationally recognized independent tax counsel
experienced in such matters that there is more than an insubstantial risk that
interest payable by one or more of the Investment Affiliates with respect to
the Debentures issued by such Investment Affiliate is not, or will not be,
deductible by such Investment
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<PAGE>
Affiliate for United States federal income tax purposes even if the Partnership
Preferred Securities were distributed to the holders of the Trust Securities in
liquidation of such holders' interests in the Trust as described above, then
the General Partner shall have the right, within 90 days following the
occurrence of such Trust Tax Event, to elect to cause the Partnership to redeem
the Partnership Preferred Securities in whole (but not in part) for cash upon
not less than 30 nor more than 60 days notice and promptly following such
redemption, the Trust Preferred Securities and Trust Common Securities will be
redeemed by the Trust at the Redemption Price.
"Trust Tax Event" means that the Company shall have requested and
received and shall have delivered to the Regular Trustees an opinion of
nationally recognized independent tax counsel experienced in such matters (a
"Trust Dissolution Tax Opinion") to the effect that there has been (a) an
amendment to, change in or announced proposed change in the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, (b) a judicial decision interpreting,
applying, or clarifying such laws or regulations, (c) an administrative
pronouncement or action that represents an official position (including a
clarification of an official position) of the governmental authority or
regulatory body making such administrative pronouncement or taking such action,
or (d) a threatened challenge asserted in connection with an audit of the
Company or any of its subsidiaries, the Partnership, or the Trust, or a
threatened challenge asserted in writing against any other taxpayer that has
raised capital through the issuance of securities that are substantially
similar to the Debentures, the Partnership Preferred Securities, or the Trust
Preferred Securities, which amendment or change is adopted or which proposed
change, decision or pronouncement is announced or which action, clarification
or challenge occurs on or after the date of this Prospectus (collectively a
"Tax Action"), which Tax Action relates to any of the items described in (i)
through (iii) below, and that following the occurrence of such Tax Action there
is more than an insubstantial risk that (i) the Trust is, or will be, subject
to United States federal income tax with respect to income accrued or received
on the Partnership Preferred Securities, (ii) the Trust is, or will be, subject
to more than a de minimis amount of other taxes, duties or other governmental
charges or (iii) interest payable by an Investment Affiliate with respect to
the Affiliate Investment Instrument issued by such Investment Affiliate is not,
or will not be, deductible by such Investment Affiliate for United States
federal income tax purposes.
Recently, the Internal Revenue Service ("IRS") asserted that the interest
payable on a security issued in circumstances with certain similarities to the
issuance of the Debentures issued by the Investment Affiliates to the
Partnership was not deductible for United States federal income tax purposes.
The taxpayer in that case has filed a petition in the United States Tax Court
challenging the IRS's position on this matter. If this matter were to be
litigated and the Tax Court were to sustain the IRS's position on this matter,
such judicial decision could constitute a Trust Tax Event, which could result
in an early redemption of the Trust Preferred Securities.
"Trust Investment Company Event" means that the Company shall have
requested and received and shall have delivered to the Regular Trustees an
opinion of nationally recognized independent legal counsel experienced in such
matters to the effect that as a result of the occurrence on or after the date
hereof of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or
will be considered an "investment company" which is required to be registered
under the 1940 Act.
If the Partnership Preferred Securities are distributed to the holders of
the Trust Preferred Securities, the Company will use its best efforts to cause
the Partnership Preferred Securities to be listed on the NYSE or on such other
national securities exchange or similar organization as the Trust Preferred
Securities are then listed or quoted.
On the date fixed for any distribution of Partnership Preferred
Securities, upon dissolution of the Trust, (i) the Trust Preferred Securities
and the Trust Common Securities will no longer be deemed to be outstanding and
(ii) certificates representing Trust Securities will be deemed to represent the
Partnership Preferred Securities having a liquidation preference equal to the
stated liquidation amount of such Trust Securities until such certificates are
presented to the Company or its agent for transfer or reissuance.
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There can be no assurance as to the market price for the Partnership
Preferred Securities which may be distributed in exchange for Trust Preferred
Securities if a dissolution and liquidation of the Trust were to occur.
Accordingly, the Partnership Preferred Securities which an investor may
subsequently receive on dissolution and liquidation of the Trust may trade at a
discount to the price of the Trust Preferred Securities exchanged.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Trust
Preferred Securities unless all accumulated and unpaid distributions have been
paid on all Trust Preferred Securities for all quarterly distribution periods
terminating on or prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Trust Preferred
Securities (which notice will be irrevocable), and if the Company has paid to
the Property Trustee a sufficient amount of cash in connection with the related
redemption of the Partnership Preferred Securities, then, by 12:00 noon, New
York City time, on the redemption date, the Trust will irrevocably deposit with
DTC funds sufficient to pay the amount payable on redemption of all book-entry
certificates and will give DTC irrevocable instructions and authority to pay
such amount to holders of the Trust Preferred Securities. See "-- Book-Entry
Only Issuance -- The Depository Trust Company". If notice of redemption shall
have been given and funds are deposited as required, then upon the date of such
deposit, all rights of holders of such Trust Preferred Securities so called for
redemption will cease, except the right of the holders of such Trust Preferred
Securities to receive the Redemption Price (the "Redemption Price"), but
without interest on such Redemption Price. In the event that any date fixed for
redemption of Trust Preferred Securities is not a Business Day, then payment of
the amount payable on such date will be made on the next succeeding day which
is a Business Day (without any interest or other payment in respect of the
amount payable subject to such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of Trust Preferred Securities is improperly withheld or refused and not
paid either by the Trust or by the Company pursuant to the Trust Guarantee
described under "Description of the Trust Guarantee", distributions on such
Trust Preferred Securities will continue to accumulate from the original
redemption date to the date of payment.
In the event that fewer than all of the outstanding Trust Preferred
Securities are to be redeemed, the Trust Preferred Securities will be redeemed
in accordance with the procedures of DTC. See "-- Book-Entry Only Issuance --
The Depository Trust Company". In the event that the Trust Preferred
Securities do not remain in book-entry only form and fewer than all of the
outstanding Trust Preferred Securities are to be redeemed, the Trust Preferred
Securities shall be redeemed on a pro rata basis or pursuant to the rules of
any securities exchange on which the Trust Preferred Securities are listed.
Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Company or its
subsidiaries may at any time and from time to time purchase outstanding Trust
Preferred Securities by tender, in the open market or by private agreement.
SUBORDINATION OF TRUST COMMON SECURITIES
Payment of amounts upon liquidation of the Trust Securities shall be made
pro rata based on the liquidation amount of the Trust Securities; provided,
however, that upon (i) the occurrence of an Investment Event of Default by an
Investment Affiliate (including the Company) in respect of any Affiliate
Investment Instrument or (ii) default by the Company on any of its obligations
under any Guarantee, the holders of the Trust Preferred Securities will have a
preference over the holders of the Trust Common Securities with respect to
payments upon liquidation of the Trust.
In the case of any Trust Enforcement Event, the holder of Trust Common
Securities will be deemed to have waived any such Trust Enforcement Event until
all such Trust Enforcement Events with respect to the Trust Preferred
Securities have been cured, waived or otherwise eliminated. Until all Trust
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Enforcement Events with respect to the Trust Preferred Securities have been so
cured, waived or otherwise eliminated, the Property Trustee shall act solely on
behalf of the holders of the Trust Preferred Securities and not on behalf of
the holder of the Trust Common Securities, and only the holders of the Trust
Preferred Securities will have the right to direct the Property Trustee to act
on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Trust Liquidation"), the
holders of the Trust Preferred Securities will be entitled to receive out of
the assets of the Trust, after satisfaction of liabilities to creditors,
distributions in cash or other immediately available funds in an amount equal
to the aggregate of the stated liquidation amount of $25 per Trust Preferred
Security plus accumulated and unpaid distributions thereon to the date of
payment (the "Trust Liquidation Distribution"), unless, in connection with such
Trust Liquidation, Partnership Preferred Securities have been distributed on a
pro rata basis to the holders of the Trust Securities.
If, upon any such Trust Liquidation, the Trust Liquidation Distribution
can be paid only in part because the Trust has insufficient assets available to
pay in full the aggregate Trust Liquidation Distribution, then the amounts
payable directly by the Trust on the Trust Preferred Securities shall be paid
on a pro rata basis. The holders of the Trust Common Securities will be
entitled to receive distributions upon any such liquidation pro rata
with the holders of the Trust Preferred Securities, except in the limited
circumstances described above under "-- Subordination of Trust Common
Securities".
Pursuant to the declaration, the Trust shall terminate (i) upon the
bankruptcy of the Company, (ii) upon the filing of a certificate of dissolution
or the equivalent with respect to the Company, the filing of a certificate of
cancellation with respect to the Trust after having obtained the consent of at
least a majority in liquidation amount of the Trust Securities, voting together
as a single class, to file such certificate of cancellation, or the revocation
of the charter of the Company and the expiration of 90 days after the date of
revocation without a reinstatement thereof, (iii) upon the distribution of all
of the Partnership Preferred Securities upon the occurrence of a Trust Special
Event, (iv) upon the entry of a decree of a judicial dissolution of the Company
or the Trust, or (v) upon the redemption of all the Trust Securities.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act
and under "Description of the Trust Guarantee -- Amendments and Assignment",
and as otherwise required by law and the declaration, the holders of the Trust
Preferred Securities will have no voting rights.
Subject to the requirement of the Property Trustee obtaining a tax
opinion as set forth in the last sentence of this paragraph, the holders of a
majority in liquidation amount of the Trust Preferred Securities have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Property Trustee, or direct the exercise of any trust
or power conferred upon the Property Trustee under the declaration, including
the right to direct the Property Trustee, as holder of the Partnership
Preferred Securities, to (i) exercise the remedies available to it under the
Limited Partnership Agreement as a holder of the Partnership Preferred
Securities, including the right to direct the Special Representative to
exercise its rights in the manner described above under "-- Trust Enforcement
Events" and (ii) consent to any amendment, modification, or termination of the
Limited Partnership Agreement or the Partnership Preferred Securities where
such consent shall be required; provided, however, that where a consent or
action under the Limited Partnership Agreement would require the consent or act
of the holders of more than a majority of the aggregate liquidation preference
of Partnership Preferred Securities affected thereby, only the holders of the
percentage of the aggregate stated liquidation amount of the Trust Securities
which is at least equal to the percentage required under the Limited
Partnership Agreement may direct the Property Trustee to give such consent or
take such action on behalf of the Trust. See "Description of the Partnership
Preferred Securities -- Voting Rights". The Property Trustee shall notify all
holders of the Trust Preferred Securities of any notice of any Partnership
Enforcement
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Event received from the General Partner with respect to the Partnership
Preferred Securities and the Affiliate Investment Instruments. Such notice
shall state that such Partnership Enforcement Event also constitutes a Trust
Enforcement Event. Except with respect to directing the time, method, and place
of conducting a proceeding for a remedy as described above, the Property
Trustee shall be under no obligation to take any of the actions described in
clauses (i) or (ii) above unless the Property Trustee has obtained an opinion
of independent tax counsel to the effect that as a result of such action, the
Trust will not fail to be classified as a grantor trust for United States
federal income tax purposes and that after such action each holder of Trust
Securities will continue to be treated as owning an undivided beneficial
ownership interest in the Partnership Preferred Securities.
A waiver of a Partnership Enforcement Event with respect to the
Partnership Preferred Securities held by the Property Trustee will constitute a
waiver of the corresponding Trust Enforcement Event.
Any required approval or direction of holders of Trust Preferred
Securities may be given at a separate meeting of holders of Trust Preferred
Securities convened for such purpose, at a meeting of all of the holders of
Trust Securities or pursuant to written consent. The Regular Trustees will
cause a notice of any meeting at which holders of Trust Preferred Securities
are entitled to vote, or of any matter upon which action by written consent of
such holders is to be taken, to be mailed to each holder of record of Trust
Preferred Securities. Each such notice will include a statement setting forth
the following information: (i) the date of such meeting or the date by which
such action is to be taken; (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Trust
Preferred Securities will be required for the Trust to redeem and cancel Trust
Preferred Securities or distribute Partnership Preferred Securities in
accordance with the declaration.
Notwithstanding that holders of Trust Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Trust Securities that are beneficially owned at such time by the Company or any
entity directly or indirectly controlled by, or under direct or indirect common
control with, the Company, except for Trust Preferred Securities purchased or
acquired by the Company or its affiliates in connection with transactions
effected by or for the account of customers of the Company or any of its
subsidiaries or in connection with the distribution or trading of such Trust
Preferred Securities, shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if such Trust Securities were
not outstanding; provided, however, that persons (other than affiliates of the
Company) to whom the Company or any of its subsidiaries have pledged Trust
Preferred Securities may vote or consent with respect to such pledged Trust
Preferred Securities pursuant to the terms of such pledge.
The procedures by which holders of Trust Preferred Securities represented
by the global certificates may exercise their voting rights are described
below. See "-- Book-Entry Only Issuance -- The Depository Trust Company".
Holders of the Trust Preferred Securities will have no rights to appoint
or remove the Regular Trustees, who may be appointed, removed or replaced
solely by the Company, as the holder of all of the Trust Common Securities.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other entity, except as
described below. The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the holders of the Trust Securities, the
Property Trustee or the Delaware Trustee consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State
of the United States; provided, that (i) if the Trust is not the survivor, such
successor entity either (x) expressly assumes all of the obligations of the
Trust under the Trust Securities or (y) substitutes
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for the Trust Preferred Securities other securities having substantially the
same terms as the Trust Preferred Securities (the "Successor Securities"), so
long as the Successor Securities rank the same as the Trust Securities rank
with respect to distributions, assets and payments, (ii) the Company expressly
acknowledges a trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the holder of the Partnership Preferred
Securities, (iii) the Trust Preferred Securities or any Successor Securities
are listed, or any Successor Securities will be listed upon notification of
issuance, on any national securities exchange or with another organization on
which the Trust Preferred Securities are then listed or quoted, (iv) such
merger, consolidation, amalgamation or replacement does not cause the Trust
Preferred Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the
rights, preferences and privileges of the holders of the Trust Preferred
Securities (including any Successor Securities) in any material respect, (vi)
such successor entity has a purpose substantially identical to that of the
Trust, (vii) the Company guarantees the obligations of such successor entity
under the Successor Securities to the same extent as provided by the Trust
Guarantee and (viii) prior to such merger, consolidation, amalgamation or
replacement, the Company has received an opinion of a nationally recognized
independent counsel to the Trust experienced in such matters to the effect
that: (A) such merger, consolidation, amalgamation or replacement will not
adversely affect the rights, preferences and privileges of the holders of the
Trust Preferred Securities (including any Successor Securities) in any material
respect (other than with respect to any dilution of the holders' interest in
the new entity), (B) following such merger, consolidation, amalgamation or
replacement, neither the Trust nor such successor entity will be required to
register as an investment company under the 1940 Act, (C) following such
merger, consolidation, amalgamation or replacement, the Trust (or such
successor trust) will not be classified as an association or a publicly traded
partnership taxable as a corporation for United States federal income tax
purposes and (D) following such merger, consolidation, amalgamation or
replacement, the Partnership will not be classified as an association or a
publicly traded partnership taxable as a corporation for United States federal
income tax purposes. Notwithstanding the foregoing, the Trust shall not, except
with the consent of holders of 100% in liquidation amount of the Trust
Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if such consolidation,
amalgamation, merger or replacement would cause the Trust or the successor
entity to be classified as an association or a publicly traded partnership
taxable as a corporation for United States federal income tax purposes.
MODIFICATION OF THE DECLARATION
The declaration may be modified and amended if approved by a majority of
the Regular Trustees (and in certain circumstances the Property Trustee and the
Delaware Trustee), provided, that if any proposed amendment provides for, or
the Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the declaration or otherwise or (ii)
the dissolution, winding-up or termination of the Trust other than pursuant to
the terms of the declaration, then the holders of the Trust Securities voting
together as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of at least a majority in liquidation amount of the Trust Securities
affected thereby; provided, further that if any amendment or proposal referred
to in clause (i) above would adversely affect only the Trust Preferred
Securities or the Trust Common Securities, then only the affected class will be
entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of a majority in liquidation
amount of such class of Trust Securities.
The declaration may be amended without the consent of the holders of the
Trust Securities to (i) cure any ambiguity, (ii) correct or supplement any
provision in the declaration that may be defective or inconsistent with any
other provision of the declaration, (iii) add to the covenants, restrictions or
obligations of the Sponsor, (iv) conform to any change in the 1940 Act, the
Trust Indenture Act or the rules or regulations of either such Act and (v)
modify, eliminate and add to any provision of the declaration to such extent as
may be necessary or desirable; provided that no such amendment shall have a
material adverse effect on the rights, preferences or privileges of the holders
of the Trust Securities.
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Notwithstanding the foregoing, no amendment or modification may be made
to the declaration if such amendment or modification would (i) cause the Trust
to fail to be classified as a grantor trust for United States federal income
tax purposes, (ii) cause the Partnership to be classified as an association or
publicly traded partnership taxable as a corporation for such purposes, (iii)
reduce or otherwise adversely affect the powers of the Property Trustee or (iv)
cause the Trust or the Partnership to be deemed an "investment company" which
is required to be registered under the 1940 Act.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depository
(the "Depository") for the Trust Preferred Securities and, to the extent
distributed to the holders of Trust Preferred Securities, the Partnership
Preferred Securities. The Trust Preferred Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (DTC's
nominee). One or more fully-registered global Trust Preferred Securities
certificates ("Global Certificates"), representing the total aggregate number
of Trust Preferred Securities, will be issued and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities that its participants ("Participants") deposit with
DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. DTC is owned
by a number of its Participants and by The New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of Trust Preferred Securities within the DTC system must be
made by or through Participants, which will receive a credit for the Trust
Preferred Securities on DTC's records. The ownership interest of each actual
purchaser of Trust Preferred Securities ("Beneficial Owner") is in turn to be
recorded on the Participants' and Indirect Participants' records. Beneficial
Owners will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Participants or Indirect Participants through which the Beneficial
Owners purchased Trust Preferred Securities. Transfers of ownership interests
in the Trust Preferred Securities are to be accomplished by entries made on the
books of Participants and Indirect Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Trust Preferred Securities, except in the event that use
of the book-entry system for the Trust Preferred Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Trust
Preferred Securities; DTC's records reflect only the identity of the
Participants to whose accounts such Trust Preferred Securities are credited,
which may or may not be the Beneficial Owners. The Participants and Indirect
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Trust Preferred Securities represented thereby
for all purposes under the declaration and the Trust Preferred Securities. No
beneficial owner of an interest in a Global Certificate will be able to
transfer that interest except in accordance with DTC's applicable procedures,
in addition to those provided for under the declaration.
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DTC has advised the Company that it will take any action permitted to be
taken by a holder of Trust Preferred Securities (including the presentation of
Trust Preferred Securities for exchange as described below) only at the
direction of one or more Participants to whose account the DTC interests in the
Global Certificates are credited and only in respect of such portion of the
aggregate liquidation amount of Trust Preferred Securities as to which such
Participant or Participants has or have given such direction. Also, if there is
a Trust Enforcement Event under the Trust Preferred Securities, DTC will
exchange the Global Certificates for Certificated Securities, which it will
distribute to its Participants in accordance with its customary procedures.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices in respect of the Trust Preferred Securities held in
book-entry form will be sent to Cede & Co. If less than all of the Trust
Preferred Securities are being redeemed, DTC will determine the amount of the
interest of each Participant to be redeemed in accordance with its procedures.
Although voting with respect to the Trust Preferred Securities is
limited, in those cases where a vote is required, neither DTC nor Cede & Co.
will itself consent or vote with respect to Trust Preferred Securities. Under
its usual procedures, DTC would mail an Omnibus Proxy to the Trust as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Participants to whose accounts the Trust
Preferred Securities are allocated on the record date (identified in a listing
attached to the Omnibus Proxy).
Distributions on the Trust Preferred Securities held in book-entry form
will be made to DTC in immediately available funds. DTC's practice is to credit
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe
that it will not receive payments on such payment date. Payments by
Participants and Indirect Participants to Beneficial Owners will be governed by
standing instructions and customary practices and will be the responsibility of
such Participants and Indirect Participants and not of DTC, the Trust or the
Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of any distributions to DTC is the
responsibility of the Trust, disbursement of such payments to Participants is
the responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Participants and Indirect Participants.
Except as described, a Beneficial Owner of an interest in a Global
Certificate will not be entitled to receive physical delivery of Trust
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Trust Preferred Securities.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Certificates among Participants
of DTC, DTC is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Company nor the Trust will have any responsibility for the performance by DTC
or its Participants or Indirect Participants under the rules and procedures
governing DTC. DTC may discontinue providing its services as securities
depository with respect to the Trust Preferred Securities at any time by giving
notice to the Trust. Under such circumstances, in the event that a successor
securities depository is not obtained, Trust Preferred Security certificates
are required to be printed and delivered to the Property Trustee. Additionally,
the Trust (with the consent of the Company) may decide to discontinue use of
the system of book-entry transfers through DTC or any successor depository. In
that event, certificates for the Trust Preferred Securities will be printed and
delivered to the Property Trustee. In each of the above circumstances, the
Company will appoint a paying agent with respect to the Trust Preferred
Securities.
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The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Trust
Preferred Securities as represented by a Global Certificate.
PAYMENT
Payments in respect of the Trust Preferred Securities represented by the
Global Certificates shall be made to DTC, which shall credit the relevant
accounts at DTC on the scheduled payment dates or, in the case of certificated
securities, if any, such payments shall be made by check mailed to the address
of the holder entitled thereto as such address shall appear on the register.
The Paying Agent shall be permitted to resign as Paying Agent upon 30 days
written notice to the Regular Trustees. In the event that The Chase Manhattan
Bank shall no longer be the Paying Agent, the Regular Trustees shall appoint a
successor to act as Paying Agent (which shall be a bank or trust company).
REGISTRAR, TRANSFER AGENT, AND PAYING AGENT
The Property Trustee will act as Registrar, Transfer Agent and Paying
Agent for the Trust Preferred Securities.
Registration of transfers of Trust Preferred Securities will be effected
without charge by or on behalf of the Trust, but upon payment (with the giving
of such indemnity as the Trust or the Company may require) in respect of any
tax or other government charges which may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Trust Preferred Securities after such Trust Preferred Securities
have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect
to the Trust Securities, undertakes to perform only such duties as are
specifically set forth in the declaration and, after default, shall exercise
the same degree of care as a prudent individual would exercise in the conduct
of his or her own affairs. Subject to such provisions, the Property Trustee is
under no obligation to exercise any of the powers vested in it by the
declaration at the request of any holder of Trust Preferred Securities, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The holders of Trust Preferred
Securities will not be required to offer such indemnity in the event such
holders, by exercising their voting rights, direct the Property Trustee to take
any action following a Trust Enforcement Event.
GOVERNING LAW
The declaration and the Trust Preferred Securities will be governed by,
and construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the affairs
of and to operate the Trust in such a way that the Trust will not be deemed to
be an "investment company" required to be registered under the 1940 Act or
characterized as other than a grantor trust for United States federal income
tax purposes. In this connection, the Regular Trustees are authorized to take
any action, not inconsistent with applicable law, the certificate of trust or
the declaration that the Regular Trustees determine in their discretion to be
necessary or desirable for such purposes as long as such action does not
adversely affect the interests of the holders of the Trust Preferred
Securities.
Holders of the Trust Preferred Securities have no preemptive rights.
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DESCRIPTION OF THE TRUST GUARANTEE
Set forth below is a summary of information concerning the Trust
Guarantee which will be executed and delivered by the Company for the benefit
of the holders from time to time of Trust Preferred Securities. The summary
does not purport to be complete and is subject in all respects to the
provisions of, and is qualified in its entirety by reference to, the Trust
Guarantee, which is filed as an exhibit to the registration statement of which
this prospectus is a part. The Trust Guarantee incorporates by reference the
terms of, and will be qualified as an indenture under, the Trust Indenture Act.
The Chase Manhattan Bank, as the Trust Guarantee Trustee, will hold the Trust
Guarantee for the benefit of the holders of the Trust Preferred Securities and
will act as indenture trustee for the purposes of compliance with the Trust
Indenture Act.
GENERAL
Pursuant to the Trust Guarantee, the Company will irrevocably agree, on a
subordinated basis and to the extent set forth therein, to pay in full to the
holders of the Trust Preferred Securities (except to the extent paid by the
Trust), as and when due, regardless of any defense, right of set off or
counterclaim which the Trust may have or assert, the following payments (the
"Trust Guarantee Payments"), without duplication: (i) any accumulated and
unpaid distributions on the Trust Preferred Securities to the extent the Trust
has funds available therefor, (ii) the Redemption Price with respect to any
Trust Preferred Securities called for redemption by the Trust, to the extent
the Trust has funds available therefor and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Trust (other than in
connection with the distribution of Partnership Preferred Securities to the
holders of Trust Preferred Securities or the redemption of all of the Trust
Preferred Securities), the lesser of (a) the aggregate of the liquidation
amount and all accumulated and unpaid distributions on the Trust Preferred
Securities and (b) the amount of assets of the Trust remaining available for
distribution to holders of Trust Preferred Securities upon the liquidation of
the Trust. The Company's obligation to make a Trust Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of Trust Preferred Securities or by causing the Trust to pay such
amounts to such holders.
The Trust Guarantee will be a guarantee on a subordinated basis with
respect to the Trust Preferred Securities from the time of issuance of such
Trust Preferred Securities but will only apply to any payment of distributions
or Redemption Price, or to payments upon the dissolution, winding-up or
termination of the Trust, to the extent the Trust shall have funds available
therefor. If the Partnership fails to declare distributions on Partnership
Preferred Securities, the Trust would lack available funds for the payment of
distributions or amounts payable on redemption of the Trust Preferred
Securities or otherwise, and in such event holders of the Trust Preferred
Securities would not be able to rely upon the Trust Guarantee for payment of
such amounts. Instead, holders of the Trust Preferred Securities will have the
remedies described herein under "Description of the Trust Preferred
Securities -- Trust Enforcement Events", including the right to direct the
Trust Guarantee Trustee to enforce the covenant restricting certain payments by
the Company and Finance Subsidiaries. See "-- Covenants of the Company" below.
The Guarantees, when taken together with the Company Debenture and the
Company's obligations to pay all fees and expenses of the Trust and the
Partnership, constitute a guarantee to the extent set forth herein by the
Company of the distribution, redemption and liquidation payments payable to the
holders of the Trust Preferred Securities. The Guarantees do not apply,
however, to current distributions by the Partnership unless and until such
distributions are declared by the Partnership out of funds legally available
for payment or to liquidating distributions unless there are assets available
for payment in the Partnership, each as more fully described under "Risk
Factors -- Insufficient Income or Assets Available to Partnership".
COVENANTS OF THE COMPANY
The Company will covenant in the Trust Guarantee that, if (a) for any
distribution period, full distributions on a cumulative basis on any Trust
Preferred Securities have not been paid, (b) an
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Investment Event of Default by any Investment Affiliate in respect of any
Affiliate Investment Instrument has occurred and is continuing or (c) the
Company is in default of its obligations under the Trust Guarantee, the
Partnership Guarantee or any Investment Guarantee, then, during such period (i)
the Company shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock or comparable equity interest (except for
(x) dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, its capital stock, and conversions or
exchanges of common stock of one class into common stock of another class, (y)
redemptions or purchases of any rights pursuant to the Rights Agreement and the
issuance of preferred stock pursuant to such rights and (z) purchases or
acquisitions by the Company or its affiliates in connection with transactions
effected by or for the account of customers of the Company or any of its
subsidiaries or in connection with the distribution or trading of such capital
stock or comparable equity interest) and (ii) the Company shall not make,
permit any Finance Subsidiary to make, or make any payments that would enable
any Finance Subsidiary to make, any payment of any dividends on, any
distribution with respect to, or any redemption, purchase or other acquisition
of, or any liquidation payment with respect to, any preferred security or
comparable equity interest of any Finance Subsidiary.
EVENTS OF DEFAULT; ENFORCEMENT OF TRUST GUARANTEE
An event of default under the Trust Guarantee will occur upon the failure
of the Company to perform any of its payment or other obligations thereunder.
The holders of a majority in liquidation amount of the Trust Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trust Guarantee Trustee or to
direct the exercise of any trust or power conferred upon the Trust Guarantee
Trustee under the Trust Guarantee. If the Trust Guarantee Trustee fails to
enforce its rights under the Trust Guarantee after a holder of Trust Preferred
Securities has made a written request, such holder may institute a legal
proceeding directly against the Company to enforce the Trust Guarantee
Trustee's rights under the Trust Guarantee, without first instituting a legal
proceeding against the Trust, the Trust Guarantee Trustee or any other person
or entity. In any event, if the Company has failed to make a guarantee payment
under the Trust Guarantee, a holder of Trust Preferred Securities may directly
institute a proceeding in such holder's own name against the Company for
enforcement of the Trust Guarantee for such payment.
STATUS OF THE TRUST GUARANTEE; SUBORDINATION
The Trust Guarantee will constitute an unsecured obligation of the
Company and will rank subordinate and junior in right of payment to all other
liabilities of the Company and will rank pari passu with the most senior
preferred stock, if any, issued from time to time by the Company, with similar
guarantees issued by the Company in connection with the $275,000,000 aggregate
liquidation amount of 7 3/4% Trust Originated Preferred Securities issued by
Merrill Lynch Preferred Capital Trust I, the $300,000,000 aggregate liquidation
amount of 8% Trust Originated Preferred Securities issued by Merrill Lynch
Preferred Capital Trust II, the $750,000,000 aggregate liquidation amount of 7%
Trust Originated Preferred Securities issued by Merrill Lynch Preferred Capital
Trust III, the $400,000,000 aggregate liquidation amount of 7.12% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred Capital Trust
IV and with any guarantee now or hereafter entered into by the Company in
respect of any preferred stock of any other Finance Subsidiary. "Finance
Subsidiary" means Merrill Lynch Preferred Capital Trust I, Merrill Lynch
Preferred Capital Trust II, Merrill Lynch Preferred Capital Trust III, Merrill
Lynch Preferred Capital Trust IV and any other wholly-owned subsidiary of the
Company the principal purpose of which is to raise capital for the Company by
issuing securities that are guaranteed by the Company and the proceeds of which
are loaned to or invested in the Company or one or more of its affiliates.
Accordingly, the rights of the holders of Trust Preferred Securities to receive
payments under the Trust Guarantee will be subject to the rights of the holders
of any obligations of the Company that are senior in priority to the
obligations under the Trust Guarantee. Furthermore, the holders of obligations
of the Company that are senior to the obligations under the Trust Guarantee
(including, but not limited to,
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obligations constituting Senior Indebtedness) will be entitled to the same
rights upon payment default or dissolution, liquidation and reorganization in
respect of the Trust Guarantee that inure to the holders of Senior Indebtedness
as against the holders of the Company Debenture. The terms of the Trust
Preferred Securities provide that each holder of Trust Preferred Securities, by
acceptance thereof, agrees to the subordination provisions and other terms of
the Trust Guarantee.
The Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may directly institute a legal
proceeding against the Company to enforce its rights under the Trust Guarantee
without instituting a legal proceeding against any other person or entity).
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely
affect the rights of holders of Trust Preferred Securities (in which case no
vote will be required), the Trust Guarantee may be amended only with the prior
approval of the holders of at least a majority in liquidation amount of all the
outstanding Trust Preferred Securities. The manner of obtaining any such
approval of holders of the Trust Preferred Securities will be as set forth
under "Description of the Trust Preferred Securities -- Voting Rights". All
guarantees and agreements contained in the Trust Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the holders of the Trust Preferred Securities
then outstanding. Except in connection with permitted merger or consolidation
of the Company with or into another entity or permitted sale, transfer or lease
of the Company's assets to another entity in which the surviving corporation
(if other than the Company) assumes the Company's obligations under the Trust
Guarantee, the Company may not assign its rights or delegate its obligations
under the Trust Guarantee without the prior approval of the holders of at least
a majority of the aggregate stated liquidation amount of the Trust Preferred
Securities then outstanding.
TERMINATION OF THE TRUST GUARANTEE
The Trust Guarantee will terminate as to each holder of Trust Preferred
Securities upon (i) full payment of the Redemption Price of all Trust Preferred
Securities, (ii) distribution of the Partnership Preferred Securities held by
the Trust to the holders of the Trust Preferred Securities or (iii) full
payment of the amounts payable in accordance with the Declaration upon
liquidation of the Trust. The Trust Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any holder of Trust
Preferred Securities must restore payment of any sum paid under such Trust
Preferred Securities or such Trust Guarantee.
INFORMATION CONCERNING THE TRUST GUARANTEE TRUSTEE
The Trust Guarantee Trustee, prior to the occurrence of a default with
respect to the Trust Guarantee, undertakes to perform only such duties as are
specifically set forth in the Trust Guarantee and, after default with respect
to the Trust Guarantee, shall exercise the same degree of care as a prudent man
would exercise in the conduct of his own affairs. Subject to such provision,
the Trust Guarantee Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Guarantee at the request of any holder of
Trust Preferred Securities unless it is offered reasonable indemnity against
the costs, expenses and liabilities that might be incurred thereby.
GOVERNING LAW
The Trust Guarantee will be governed by, and construed in accordance
with, the internal laws of the State of New York.
DESCRIPTION OF THE PARTNERSHIP PREFERRED SECURITIES
GENERAL
All of the partnership interests in the Partnership, other than the
Partnership Preferred Securities acquired by the Trust, are owned directly by
the Company. Initially, the Company will be the sole General Partner of the
Partnership. The Limited Partnership Agreement authorizes and creates the
Partnership Preferred Securities, which represent limited partner interests in
the Partnership. The limited
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partner interests represented by the Partnership Preferred Securities will have
a preference with respect to distributions and amounts payable on redemption or
liquidation over the General Partner's interest in the Partnership. Except as
otherwise described herein or provided in the Limited Partnership Agreement,
the Limited Partnership Agreement does not permit the issuance of any
additional partnership interests, or the incurrence of any indebtedness by the
Partnership.
The summary of certain material terms and provisions of the Partnership
Preferred Securities set forth below does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the Limited
Partnership Agreement, which is filed as an exhibit to the registration
statement of which this prospectus is a part, and the Partnership Act.
DISTRIBUTIONS
Holders of Partnership Preferred Securities will be entitled to receive
cumulative cash distributions, if, as and when declared by the General Partner
in its sole discretion out of assets of the Partnership legally available for
payment. The distributions payable on each Partnership Preferred Security will
be fixed at a rate per annum of % of the stated liquidation preference of $25
per Partnership Preferred Security. Distributions not paid on the scheduled
payment date will accumulate and compound quarterly at the rate per annum equal
to %. The amount of distributions payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months.
Distributions on the Partnership Preferred Securities will be payable
quarterly in arrears on March 30, June 30, September 30, and December 30 of
each year, commencing December 30, 1998. If distributions are not declared and
paid when scheduled, the accumulated distributions shall be paid to the holders
of record of Partnership Preferred Securities as they appear on the books and
records of the Partnership on the record date with respect to the payment date
for the Partnership Preferred Securities.
The Partnership's earnings available for distribution to the holders of
the Partnership Preferred Securities will be limited to payments made on the
Affiliate Investment Instruments and Investment Guarantees and payments on
Eligible Debt Securities in which the Partnership has invested from time to
time. See "-- Partnership Investments". To the extent that the issuers (and,
where applicable, the Company, as guarantor) of the securities in which the
Partnership invests fail to make any payment in respect of such securities (or,
if applicable, such guarantees), the Partnership will not have sufficient funds
to pay and will not declare or pay distributions on the Partnership Preferred
Securities, in which event the Partnership Guarantee will not apply to such
distributions until the Partnership has sufficient funds available therefor.
See "Description of the Partnership Guarantee". In addition, distributions on
the Partnership Preferred Securities may be declared and paid only as
determined in the sole discretion of the General Partner of the Partnership. If
the Partnership fails to declare and pay distributions on the Partnership
Preferred Securities out of funds legally available for distribution, the Trust
will not have sufficient funds to make distributions on the Trust Preferred
Securities, in which event the Trust Guarantee will not apply to such
distributions until the Trust has sufficient funds available therefor. In
addition, as described under "Risk Factors -- Insufficient Income or Assets
Available to Partnership", the Partnership may not have sufficient funds to pay
current or liquidating distributions on the Partnership Preferred Securities if
(i) at any time that the Partnership is receiving current payments in respect
of the securities held by the Partnership (including the Debentures), the
General Partner, in its sole discretion, does not declare distributions on the
Partnership Preferred Securities and the Partnership receives insufficient
amounts to pay the additional compounded distributions that will accumulate in
respect of the Partnership Preferred Securities, (ii) the Partnership reinvests
the proceeds received in respect of the Debentures upon their retirement or at
their maturities in Affiliate Investment Instruments that do not generate
income in an amount that is sufficient to pay full distributions in respect of
the Partnership Preferred Securities or (iii) the Partnership invests in debt
securities of Investment Affiliates that are not guaranteed by the Company and
that cannot be liquidated by the Partnership for an amount sufficient to pay
such distributions in full.
Distributions on the Partnership Preferred Securities will be payable to
the holders thereof as they appear on the books and records of the Partnership
on the relevant record dates, which, as long as the Trust Preferred Securities
remain (or, in the event that the Trust is liquidated in connection with a
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Trust Special Event, as long as the Partnership Preferred Securities remain) in
book-entry only form, will be one Business Day prior to the relevant payment
dates. In the event the Trust Preferred Securities (or in the event that the
Trust is liquidated in connection with a Trust Special Event, the Partnership
Preferred Securities) shall not continue to remain in book-entry only form, the
relevant record dates shall be the 15th day of the month of the relevant
payment dates. In the event that any date on which distributions are payable on
the Partnership Preferred Securities is not a Business Day, then payment of the
distribution payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay) except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date.
PARTNERSHIP ENFORCEMENT EVENTS
If one or more of the following events shall occur and be continuing
(each a "Partnership Enforcement Event"): (i) arrearages on distributions on
the Partnership Preferred Securities shall exist for six consecutive quarterly
distribution periods, (ii) the Company is in default on any of its obligations
under the Partnership Guarantee or any Investment Guarantee or (iii) an
Investment Event of Default occurs and is continuing on any Affiliate
Investment Instrument, then the Property Trustee, for so long as the
Partnership Preferred Securities are held by the Property Trustee, will have
the right, or holders of the Partnership Preferred Securities will be entitled
by the vote of a majority in aggregate liquidation preference of such holders
(a) under the Limited Partnership Agreement to enforce the terms of the
Partnership Preferred Securities, including the right to appoint and authorize
a special representative of the Partnership and the limited partners (a
"Special Representative") to enforce (1) the Partnership's creditors' rights
and other rights with respect to the Affiliate Investment Instruments and the
Investment Guarantees, (2) the rights of the holders of the Partnership
Preferred Securities under the Partnership Guarantee and (3) the rights of the
holders of the Partnership Preferred Securities to receive distributions (only
if and to the extent declared out of funds legally available therefor) on the
Partnership Preferred Securities, and (b) under the Partnership Guarantee to
enforce the terms of the Partnership Guarantee, including the right to enforce
the covenant restricting certain payments by the Company and Finance
Subsidiaries.
If the Special Representative fails to enforce its rights under the
Affiliate Investment Instruments after a holder of Partnership Preferred
Securities has made a written request, such holder of record of Partnership
Preferred Securities may directly institute a legal proceeding against the
Company to enforce the rights of the Special Representative and the Partnership
under the Affiliate Investment Instruments without first instituting any legal
proceeding against the Special Representative, the Partnership or any other
person or entity. In any event, if a Partnership Enforcement Event has occurred
and is continuing and such event is attributable to the failure of an
Investment Affiliate to make any required payment when due on any Affiliate
Investment Instrument, then a holder of Partnership Preferred Securities may on
behalf of the Partnership directly institute a proceeding against such
Investment Affiliate with respect to such Affiliate Investment Instrument for
enforcement of payment. A holder of Partnership Preferred Securities may also
bring a direct action against the Company to enforce such holder's right under
the Partnership Guarantee. See "Description of the Partnership Guarantee --
Events of Default; Enforcement of Partnership Guarantee".
Under no circumstances, however, shall the Special Representative have
authority to cause the General Partner to declare distributions on the
Partnership Preferred Securities. As a result, although the Special
Representative may be able to enforce the Partnership's creditors' rights to
accelerate and receive payments in respect of the Affiliate Investment
Instruments and the Investment Guarantees, the Partnership would be entitled to
reinvest such payments in additional Affiliate Investment Instruments, subject
to satisfying the reinvestment criteria described under "-- Partnership
Investments", and Eligible Debt Securities, rather than declaring and making
distributions on the Partnership Preferred Securities. The Special
Representative shall not, by virtue of acting in such capacity, be admitted as
a general partner in the Partnership or otherwise be deemed to be a general
partner in the Partnership and shall have no liability for the debts,
obligations or liabilities of the Partnership.
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PARTNERSHIP INVESTMENTS
Approximately 99% of the proceeds from the issuance of the Partnership
Preferred Securities and the General Partner's contemporaneous capital
contribution (the "Initial Partnership Proceeds") will be used by the
Partnership to purchase the Debentures and the remaining 1% of the Initial
Partnership Proceeds will be used to purchase Eligible Debt Securities. The
purchase of the Debentures by the Partnership will occur contemporaneously with
the issuance of the Partnership Preferred Securities.
The initial Affiliate Investment Instruments purchased by the Partnership
will consist of two or more debt instruments (the "Debentures"). The Company
anticipates that approximately 85% of the Initial Partnership Proceeds will be
used to purchase a Debenture of the Company (the "Company Debenture"), and
approximately 14% of the Initial Partnership Proceeds will be used to purchase
Debentures of one or more eligible controlled affiliates of the Company (the
"Affiliate Debentures"). Each Debenture is expected to have a term of 20 years
and to provide for interest payable on March 30, June 30, September 30 and
December 30 of each year, commencing December 30, 1998, at market rates for
such Debentures. The Debentures will be general unsecured debt obligations of
the relevant issuer, except that the Company Debenture will rank subordinate
and junior to all Senior Indebtedness of the Company.
The payment of interest on each of the Debentures may be deferred at any
time, and from time to time, by the relevant issuer for a period not exceeding
six consecutive quarters. If an issuer were to so defer the payment of
interest, interest would continue to accrue and compound at the stated interest
rate on such Debenture. The Debentures will contain covenants appropriate for
unsecured debt securities issued or guaranteed by similar borrowers pursuant to
a public offering or private placement under Rule 144A of the Securities Act of
a comparable debt security, including a limitation on consolidation, merger and
sale or conveyance of assets. The Debentures will contain redemption provisions
that correspond to the redemption provisions applicable to the Partnership
Preferred Securities, including an option to redeem the Debentures by the
relevant issuer, in whole or in part, from time to time, on or after ,
2008, and following the occurrence of a Partnership Special Event, in each
case, in the same manner described under "-- Optional Redemption" and "--
Partnership Special Event Redemption". The Debentures, and any other Affiliate
Investment Instruments that are debt instruments acquired by the Partnership in
the future, will also contain customary events of default (the "Investment
Events of Default"), including events of default for defaults in payments on
such securities when due (provided that no default shall occur upon a valid
deferral of an interest payment by an issuer), defaults in the performance of
the relevant issuer's obligations under its Debenture or Affiliate Investment
Instruments, as the case may be, and certain bankruptcy, insolvency or
reorganization events (subject to customary exceptions and grace periods).
The payment of interest and principal when due and other payment terms of
the Debentures (other than the Company Debenture), will be guaranteed to the
extent described herein (each, an "Investment Guarantee") by the Company for
the benefit of the holders of Partnership Preferred Securities. See "--
Investment Guarantees".
Approximately 1% of the Initial Partnership Proceeds will be invested in
Eligible Debt Securities. "Eligible Debt Securities" means cash or book-entry
securities, negotiable instruments, or other securities of entities not
affiliated with the Company which evidence any of the following: (a) any
security issued or guaranteed as to principal or interest by the United States,
or by a person controlled or supervised by and acting as an instrumentality of
the Government of the United States pursuant to authority granted by the
Congress of the United States, or any certificate of deposit for any of the
foregoing; (b) commercial paper issued pursuant to Section 3(a)(3) of the
Securities Act and having, at the time of the investment or contractual
commitment to invest therein, a rating from each of Standard & Poor's Ratings
Services, a division of the McGraw-Hill Companies, Inc. ("S&P") and Moody's
Investors Service, Inc. ("Moody's") in the highest investment rating category
granted by such rating agency and having a maturity not in excess of nine
months; (c) demand deposits, time deposits and
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certificates of deposit which are fully insured by the Federal Deposit
Insurance Corporation ("FDIC"); (d) repurchase obligations with respect to any
security that is a direct obligation of, or fully guaranteed by, the Government
of the United States of America or any agency or instrumentality thereof, the
obligations of which are backed by the full faith and credit of the United
States of America, in either case entered into with a depository institution or
trust company which is an Eligible Institution (as defined herein) and the
deposits of which are insured by the FDIC; and (e) any other security which is
identified as a permitted investment of a finance subsidiary pursuant to Rule
3a-5 under the 1940 Act at the time it is acquired by the Partnership.
"Eligible Institution" means (a) a depository institution organized under
the laws of the United States or any one of the states thereof or the District
of Columbia (or any domestic branch of a foreign bank), (1) (i) which has
either (A) a long-term unsecured debt rating of AA or better by S&P and Aa or
better by Moody's or (B) a short-term unsecured debt rating or a certificate of
deposit rating of A-1+ by S&P and P-1 by Moody's and (ii) whose deposits are
insured by the FDIC or (2) (i) the parent of which has a long-term or short-
term unsecured debt rating which signifies investment grade and (ii) whose
deposits are insured by the FDIC.
The Partnership may, from time to time and subject to the restrictions
described below, reinvest payments received with respect to the Affiliate
Investment Instruments (including the Debentures) and the Eligible Debt
Securities in additional Affiliate Investment Instruments and Eligible Debt
Securities. As of the date of this Prospectus, the Company, as the General
Partner, does not intend to cause the Partnership to reinvest regularly
scheduled, periodic payments of interest or dividends received by the
Partnership in the manner described below, although there can be no assurance
that the General Partner's intention in respect of such reinvestments will not
change in the future.
The fairness of specific terms of all Affiliate Investment Instruments
(including the Debentures) will be passed upon by a nationally recognized
accounting firm, bank or investment banking firm that does not (and whose
directors, officers, employees and affiliates do not) have a direct or indirect
material equity interest in the Company or any of its subsidiaries (the
"Independent Financial Advisor").
The Partnership may reinvest in additional Affiliate Investment
Instruments only if certain procedures and criteria are satisfied with respect
to each such Affiliate Investment Instrument, including the satisfaction of the
following conditions: (i) the Partnership did not hold debt securities of the
issuer of the proposed Affiliate Investment Instrument within the three-year
period ending on the date of such proposed investment; (ii) there was never a
default on any debt obligation of, or arrearages of dividends on preferred
stock issued by, the issuer of the proposed Affiliate Investment Instrument
that was previously or is currently owned by the Partnership; (iii) the
applicable terms and provisions with respect to the proposed Affiliate
Investment Instrument have been determined by the Independent Financial Advisor
to be at least as favorable as terms which could be obtained by the Partnership
in a public offering or private placement under Rule 144A of the Securities Act
of a comparable security issued by the relevant Investment Affiliate and
guarantees, if any, included therein; and (iv) the requesting Investment
Affiliate shall not be deemed to be an investment company by reason of Section
3(a) or 3(b) of the 1940 Act or is otherwise an eligible recipient of funds
directly or indirectly from the Trust pursuant to an order issued by the
Commission. The term "Investment Affiliate" means the Company or any
corporation, partnership, limited liability company or other entity (other than
the Partnership or the Trust) that is controlled by the Company. If the
Partnership is unable to reinvest payments and proceeds from Affiliate
Investment Instruments in additional Affiliate Investment Instruments meeting
the above criteria, the Partnership may only invest such funds in Eligible Debt
Securities (subject to restrictions of applicable law, including the 1940 Act).
INVESTMENT GUARANTEES
General
The Company will agree to execute and deliver an Investment Guarantee, on
a subordinated basis, for the benefit of the holders of Partnership Preferred
Securities with respect to each Debenture
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issued by an Investment Affiliate (other than the Company Debenture) to the
extent set forth below. The Investment Guarantees shall be enforceable
regardless of any defense, right of set-off or counterclaim that the Company
may have or assert. The Investment Guarantees will be full and unconditional
guarantees, to the extent set forth therein, with respect to the applicable
Debentures from the time of issuance. To the extent that, as described above,
the Partnership invests in additional Affiliate Investment Instruments, the
determination as to whether such Affiliate Investment Instrument will contain
an Investment Guarantee will be made at the date of its issuance and will be
based, among other things, upon its approval by the Independent Financial
Advisor in accordance with the reinvestment criteria described above.
The Investment Guarantees will constitute guarantees of payment and not
of collection (that is, the guaranteed party may directly institute a legal
proceeding against the Company to enforce its rights under the applicable
Investment Guarantee without instituting a legal proceeding against any other
person or entity). If no Special Representative has been appointed to enforce
any Investment Guarantee, the General Partner has the right to enforce such
Investment Guarantee on behalf of the holders of the Partnership Preferred
Securities. The holders of not less than a majority in aggregate liquidation
preference of the Partnership Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available in
respect of any Investment Guarantee, including the giving of directions to the
General Partner or the Special Representative, as the case may be. If the
General Partner or the Special Representative fails to enforce any Investment
Guarantee as above provided, any holder of Trust Preferred Securities may
institute its own legal proceeding to enforce such Investment Guarantee. No
Investment Guarantee will be discharged except by payment in full of all
amounts guaranteed by such Investment Guarantee (without duplication of amounts
theretofore paid by the relevant Investment Affiliate).
Amendments and Assignment
Except with respect to any changes that do not adversely affect the
rights of holders of Partnership Preferred Securities (in which case no consent
will be required), the Investment Guarantees may be amended only with the prior
approval of the holders of not less than a majority in liquidation preference
of the outstanding Partnership Preferred Securities, provided that for so long
as the Property Trustee of the Trust is the holder of the Partnership Preferred
Securities, such amendment will not be effective without the prior written
approval of a majority in liquidation amount of the outstanding Trust Preferred
Securities. All guarantees and agreements contained in the Investment
Guarantees shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
Partnership Preferred Securities. Except in connection with any permitted
merger or consolidation of the Company with or into another entity or any
permitted sale, transfer or lease of the Company's assets to another entity in
which the surviving corporation (if other than the Company) assumes the
Company's obligations under the Investment Guarantees, the Company may not
assign its rights or delegate its obligations under the Investment Guarantees
without the prior approval of the holders of at least a majority of the
aggregate stated liquidation preference of the Partnership Preferred Securities
then outstanding.
Status of the Investment Guarantees
The Company's obligations under the Investment Guarantees will constitute
unsecured obligations of the Company and will rank subordinate and junior in
right of payment to all other liabilities of the Company and will rank pari
passu with the most senior preferred stock, if any, issued from time to time by
the Company, with similar guarantees issued by the Company in connection with
the $275,000,000 aggregate liquidation amount of 7 3/4% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust I, the
$300,000,000 aggregate liquidation amount of 8% Trust Originated Preferred
Securities issued by Merrill Lynch Preferred Capital Trust II, the $750,000,000
aggregate liquidation amount of 7% Trust Originated Preferred Securities issued
by Merrill Lynch Preferred Capital Trust III, the $400,000,000 aggregate
liquidation amount of 7.12% Trust Originated Preferred Securities issued by
Merrill Lynch Preferred Capital Trust IV and with any guarantee now or
hereafter entered into by the Company in respect of any preferred stock of any
other Finance Subsidiary. Accordingly, the rights of the holders of the
Debentures to receive payments under the Investment
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Guarantees will be subject to the rights of the holders of any obligations that
are senior in priority to the obligations under the Investment Guarantees.
Furthermore, the holders of obligations of the Company that are senior to the
obligations under the Investment Guarantees (including, but not limited to,
obligations constituting Senior Indebtedness) will be entitled to the same
rights upon payment default or dissolution, liquidation and reorganization in
respect of the Investment Guarantees that inure to the holders of Senior
Indebtedness as against the holders of the Company Debenture. The terms of the
Debentures provide that each holder of Debentures, by acceptance thereof,
agrees to the subordination provisions and other terms of the Investment
Guarantees.
Governing Law
The Investment Guarantees will be governed by and construed in accordance
with the internal laws of the State of New York.
OPTIONAL REDEMPTION
The Partnership Preferred Securities are redeemable, at the option of the
General Partner, in whole or in part, from time to time, on or after ,
2008, upon not less than 30 nor more than 60 days notice, at an amount per
Partnership Preferred Security equal to $25 plus accumulated and unpaid
distributions thereon. If the Partnership redeems Partnership Preferred
Securities in accordance with the terms thereof, Trust Securities will be
mandatorily redeemed at the Redemption Price. If a partial redemption would
result in the delisting of the Trust Preferred Securities (or, if the Trust is
liquidated in connection with a Trust Special Event, or if a partial redemption
would result in the delisting of the Partnership Preferred Securities), the
Partnership may only redeem the Partnership Preferred Securities in whole.
PARTNERSHIP SPECIAL EVENT REDEMPTION
If, at any time, a Partnership Tax Event or a Partnership Investment
Company Event (each as hereinafter defined, and each a "Partnership Special
Event") shall occur and be continuing, the General Partner shall, within 90
days following the occurrence of such Partnership Special Event, elect to
either (i) redeem the Partnership Preferred Securities in whole (but not in
part), upon not less than 30 or more than 60 days notice at the Redemption
Price, provided that, if at the time there is available to the Partnership the
opportunity to eliminate, within such 90-day period, the Partnership Special
Event by taking some ministerial action, such as filing a form or making an
election, or pursuing some other similar reasonable such measure that in the
sole judgment of the Company has or will cause no adverse effect on the
Partnership, the Trust or the Company, the General Partner will pursue such
measure in lieu of redemption; or (ii) cause the Partnership Preferred
Securities to remain outstanding, provided that in the case of this clause
(ii), the General Partner shall pay any and all costs and expenses incurred by
or payable by the Partnership attributable to the Partnership Special Event.
"Partnership Tax Event" means that the General Partner shall have
requested and received an opinion of nationally recognized independent tax
counsel experienced in such matters to the effect that there has been a Tax
Action which affects any of the events described in (i) through (iii) below and
that there is more than an insubstantial risk that (i) the Partnership is, or
will be, subject to United States federal income tax with respect to income
accrued or received on the Affiliate Investment Instruments or the Eligible
Debt Securities, (ii) the Partnership is, or will be, subject to more than a de
minimis amount of other taxes, duties or other governmental charges or (iii)
interest payable by an Investment Affiliate with respect to the Affiliate
Investment Instrument issued by such Investment Affiliate to the Partnership is
not, or will not be, deductible by such Investment Affiliate for United States
federal income tax purposes.
Recently, the IRS asserted that the interest payable on a security issued
in circumstances with certain similarities to the issuance of the Debentures
issued by the Investment Affiliates to the Partnership was not deductible for
United States federal income tax purposes. The taxpayer in that case has filed
a petition in the United States Tax Court challenging the IRS's position on
this matter. If this matter were
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to be litigated and the Tax Court were to sustain the IRS's position on this
matter, such judicial decision could constitute a Partnership Tax Event, which
could result in an early redemption of the Partnership Preferred Securities.
"Partnership Investment Company Event" means that the General Partner
shall have requested and received an opinion of nationally recognized
independent legal counsel experienced in such matters to the effect that as a
result of the occurrence on or after the date hereof of a Change in 1940 Act
Law, the Partnership is or will be considered an "investment company" which is
required to be registered under the 1940 Act.
REDEMPTION PROCEDURES
The Partnership may not redeem fewer than all the outstanding Partnership
Preferred Securities unless all accumulated and unpaid distributions have been
paid on all Partnership Preferred Securities for all quarterly distribution
periods terminating on or prior to the date of redemption.
If the Partnership gives a notice of redemption in respect of Partnership
Preferred Securities (which notice will be irrevocable) then, by 12:00 noon,
New York City time, on the redemption date, the Partnership (i) if the
Partnership Preferred Securities are in book entry form with DTC, will deposit
irrevocably with DTC funds sufficient to pay the applicable Redemption Price
and will give DTC irrevocable instructions and authority to pay the Redemption
Price in respect of the Partnership Preferred Securities held through DTC in
global form or (ii) if the Partnership Preferred Securities are held in
certificated form, will deposit with the paying agent for the Partnership
Preferred Securities funds sufficient to pay such amount in respect of any
Partnership Preferred Securities in certificated form and will give such paying
agent irrevocable instructions and authority to pay such amounts to the holders
of Partnership Preferred Securities upon surrender of their certificates. See
"Description of the Trust Preferred Securities -- Book-Entry Only Issuance --
The Depository Trust Company".
If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit, all rights of holders of such
Partnership Preferred Securities so called for redemption will cease, except
the right of the holders of such Partnership Preferred Securities to receive
the Redemption Price, but without interest on such Redemption Price. In the
event that any date fixed for redemption of Partnership Preferred Securities is
not a Business Day, then payment of the Redemption Price payable on such date
will be made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay) except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date fixed for redemption. In the event that payment of the
Redemption Price in respect of Partnership Preferred Securities is improperly
withheld or refused and not paid either by the Partnership or by the Company
pursuant to the Partnership Guarantee described under "Description of the
Partnership Guarantee," distributions on such Partnership Preferred Securities
will continue to accumulate, from the original redemption date to the date of
payment.
Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Company or any of its
subsidiaries may at any time and from time to time purchase outstanding
Partnership Preferred Securities by tender, in the open market or by private
agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution, winding-up or
termination of the Partnership, the holders of the Partnership Preferred
Securities at the time will be entitled to receive out of the assets of the
Partnership available for distribution to partners after satisfaction of
liabilities of creditors as required by the Partnership Act, before any
distribution of assets is made to the General Partner, an amount equal to, in
the case of holders of Partnership Preferred Securities, the aggregate of the
stated liquidation preference of $25 per Partnership Preferred Security plus
accumulated and unpaid distributions thereon to the date of payment (such
amount being the "Partnership Liquidation Distribution").
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Pursuant to the Limited Partnership Agreement, the Partnership shall be
dissolved and its affairs shall be wound up: (i) upon the bankruptcy of the
General Partner, (ii) upon the assignment by the General Partner of its entire
interest in the Partnership when the assignee is not admitted to the
Partnership as a general partner of the Partnership in accordance with the
Limited Partnership Agreement, or the filing of a certificate of dissolution or
its equivalent with respect to the General Partner, or the revocation of the
General Partner's charter and the expiration of 90 days after the date of
notice to the General Partner of revocation without a reinstatement of its
charter, or if any other event occurs that causes the General Partner to cease
to be a general partner of the Partnership under the Partnership Act, unless
the business of the Partnership is continued in accordance with the Partnership
Act, (iii) if the Partnership has redeemed or otherwise purchased all the
Partnership Preferred Securities, (iv) upon the entry of a decree of judicial
dissolution or (v) upon the written consent of all partners of the Partnership.
VOTING RIGHTS
Except as provided below and under "Description of the Partnership
Guarantee -- Amendments and Assignment" and as otherwise required by law and
the Limited Partnership Agreement, the holders of the Partnership Preferred
Securities will have no voting rights.
Not later than 30 days after any Partnership Enforcement Event occurs,
the General Partner will convene a meeting for the purpose of appointing a
Special Representative. If the General Partner fails to convene such meeting
within such 30-day period, the holders of 10% in liquidation preference of the
outstanding Partnership Preferred Securities will be entitled to convene such
meeting. The provisions of the Limited Partnership Agreement relating to the
convening and conduct of the meetings of the partners will apply with respect
to any such meeting. In the event that, at any such meeting, holders of less
than a majority in aggregate liquidation preference of Partnership Preferred
Securities entitled to vote for the appointment of a Special Representative
vote for such appointment, no Special Representative shall be appointed. Any
Special Representative appointed shall cease to be a Special Representative of
the Partnership and the limited partners if (1) the Partnership (or the Company
pursuant to the Partnership Guarantee) shall have paid in full all accumulated
and unpaid distributions on the Partnership Preferred Securities, (2) such
Investment Event of Default, as the case may be, shall have been cured, and (3)
the Company is in compliance with all its obligations under the Partnership
Guarantee and the Company, in its capacity as the General Partner, shall
continue the business of the Partnership without dissolution. Notwithstanding
the appointment of any such Special Representative, the Company shall continue
as General Partner and shall retain all rights under the Limited Partnership
Agreement, including the right to declare, in its sole discretion, the payment
of distributions on the Partnership Preferred Securities for which the failure
of such declaration would not constitute a default under the Limited
Partnership Agreement.
If any proposed amendment to the Limited Partnership Agreement provides
for, or the General Partner otherwise proposes to effect, (i) any action that
would adversely affect the powers, preferences or special rights of the
Partnership Preferred Securities, whether by way of amendment to the Limited
Partnership Agreement or otherwise (including, without limitation, the
authorization or issuance of any limited partner interests in the Partnership
ranking, as to participation in the profits or distributions or in the assets
of the Partnership, senior to the Partnership Preferred Securities), or (ii)
the dissolution, winding-up or termination of the Partnership, other than (x)
in connection with the occurrence of a Partnership Special Event or (y) as
described under "Merger, Consolidation or Amalgamation of the Partnership"
below, then the holders of outstanding Partnership Preferred Securities will be
entitled to vote on such amendment or proposal of the General Partner (but not
on any other amendment or proposal) as a class, and such amendment or proposal
shall not be effective except with the approval of the holders of a majority in
liquidation preference of such outstanding Partnership Preferred Securities
having a right to vote on the matter; provided, however, that if the Property
Trustee on behalf of the Trust is the holder of the Partnership Preferred
Securities, any such amendment or proposal not excepted by clauses (x) and (y)
above shall not be effective without the prior or concurrent approval of the
holders of a majority in liquidation amount of the outstanding Trust Preferred
Securities having a right to vote on such matters.
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The General Partner shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available, (ii) waive any Investment
Event of Default that is waivable under the Affiliate Investment Instruments,
(iii) exercise any right to rescind or annul a declaration that the principal
of any Affiliate Investment Instruments shall be due and payable, (iv) waive
the breach of the covenant by the Company to restrict certain payments by the
Company, or (v) consent to any amendment, modification or termination of any
Affiliate Investment Instrument, where such consent shall be required from the
investor, without, in each case, obtaining the prior approval of the holders of
at least a majority in liquidation preference of the Partnership Preferred
Securities; provided, however, that if the Property Trustee on behalf of the
Trust is the holder of the Partnership Preferred Securities, such waiver,
consent or amendment or other action shall not be effective without the prior
or concurrent approval of at least a majority in liquidation amount of the
outstanding Trust Preferred Securities having a right to vote on such matters.
The General Partner shall not revoke any action previously authorized or
approved by a vote of the holders of the Partnership Preferred Securities
without the approval of such revocation by a majority in liquidation preference
of the outstanding Partnership Preferred Securities. The General Partner shall
notify all holders of the Partnership Preferred Securities of any notice of an
Investment Event of Default received with respect to any Affiliate Investment
Instrument.
Any required approval of holders of Partnership Preferred Securities may
be given at a separate meeting of holders of Partnership Preferred Securities
convened for such purpose, at a meeting of all of the partners in the
Partnership or pursuant to written consent. The Partnership will cause a notice
of any meeting at which holders of Partnership Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of such
holders is to be taken, to be mailed to each holder of record of Partnership
Preferred Securities. Each such notice will include a statement setting forth
(i) the date of such meeting or the date by which such action is to be taken,
(ii) a description of any resolution proposed for adoption at such meeting on
which such holders are entitled to vote or of such matters upon which written
consent is sought and (iii) instruction for the delivery of proxies or
consents.
No vote or consent of the holders of Partnership Preferred Securities
will be required for the Partnership to redeem and cancel Partnership Preferred
Securities in accordance with the Limited Partnership Agreement.
Notwithstanding that holders of Partnership Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Partnership Preferred Securities at such time that are beneficially
owned by the Company or by any entity directly or indirectly controlled by, or
under direct or indirect common control with, the Company, except for
Partnership Preferred Securities purchased or acquired by the Company or its
affiliates in connection with transactions effected by or for the account of
customers of the Company or any of its subsidiaries or in connection with the
distribution or trading of such Partnership Preferred Securities; shall not be
entitled to vote or consent and shall, for purposes of such vote or consent, be
treated as if they were not outstanding, provided, however, that persons (other
than affiliates of the Company) to whom the Company or any of its subsidiaries
have pledged Partnership Preferred Securities may vote or consent with respect
to such pledged Partnership Preferred Securities pursuant to the terms of such
pledge.
Holders of the Partnership Preferred Securities will have no rights to
remove or replace the General Partner.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE PARTNERSHIP
The Partnership may not consolidate, amalgamate, merge with or into, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other body, except as
described below. The Partnership may, without the consent of the holders of the
Partnership Preferred Securities, consolidate, amalgamate, merge with or into,
or be replaced by a limited partnership, limited liability company or trust
organized as such under the laws of any state of the United States of America,
provided that (i) such successor entity either (x) expressly assumes all of the
obligations of the Partnership under the Partnership Preferred Securities or
(y) substitutes for the
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Partnership Preferred Securities other securities having substantially the same
terms as the Partnership Preferred Securities (the "Partnership Successor
Securities") so long as the Partnership Successor Securities are not junior to
any other equity securities of the successor entity, with respect to
participation in the profits and distributions, and in the assets, of the
successor entity, (ii) the Investment Affiliates expressly acknowledge such
successor entity as the holder of the Affiliate Investment Instruments, (iii)
the Partnership Preferred Securities or any Partnership Successor Securities
are listed, or any Partnership Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Partnership Preferred Securities, if so listed, are
then listed, (iv) such merger, consolidation, amalgamation or replacement does
not cause the Trust Preferred Securities (or, in the event that the Trust is
liquidated in connection with a Trust Special Event, the Partnership Preferred
Securities (including any Partnership Successor Securities)) to be downgraded
by any nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the
powers, preferences and other special rights of the holders of the Trust
Preferred Securities or Partnership Preferred Securities (including any
Partnership Successor Securities) in any material respect (other than, in the
case of the Partnership Preferred Securities, with respect to any dilution of
the holders' interest in the new resulting entity), (vi) such successor entity
has a purpose substantially identical to that of the Partnership, (vii) prior
to such merger, consolidation, amalgamation or replacement, the Company has
received an opinion of nationally recognized independent counsel to the
Partnership experienced in such matters to the effect that (A) such successor
entity will be treated as a partnership for United States federal income tax
purposes, (B) such merger, consolidation, amalgamation or replacement would not
cause the Trust to be classified as an association taxable as a corporation for
United States federal income tax purposes, (C) following such merger,
consolidation, amalgamation or replacement, the Company and such successor
entity will be in compliance with the 1940 Act without registering thereunder
as an investment company, and (D) such merger, consolidation, amalgamation or
replacement will not adversely affect the limited liability of the holders of
the Partnership Preferred Securities and (viii) the Company guarantees the
obligations of such successor entity under the Partnership Successor Securities
at least to the extent provided by the Partnership Guarantee.
BOOK-ENTRY AND SETTLEMENT
If the Partnership Preferred Securities are distributed to holders of
Trust Preferred Securities in connection with the involuntary or voluntary
dissolution, winding-up or liquidation of the Trust as a result of the
occurrence of a Trust Special Event, the Partnership Preferred Securities will
be issued in the form of one or more global certificates (each a "Global
Partnership Security") registered in the name of DTC as the depository or its
nominee. For a description of DTC and the specific terms of the Depository
arrangements, see "Description of the Trust Preferred Securities -- Book-Entry
Only Issuance -- The Depository Trust Company". As of the date of this
Prospectus, the description therein of DTC's book-entry system and DTC's
practices as they relate to purchases, transfers, notices and payments with
respect to the Trust Preferred Securities apply in all material respects to any
Partnership Preferred Securities represented by one or more Global Partnership
Securities.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
The General Partner will act as registrar, transfer agent and paying
agent for the Partnership Preferred Securities for so long as the Partnership
Preferred Securities are held by the Trust or, if the Trust is liquidated in
connection with a Trust Special Event, for so long as the Partnership Preferred
Securities remain in book-entry only form. In the event the Partnership
Preferred Securities are distributed in connection with a Trust Special Event
and the book-entry system for the Partnership Preferred Securities is
discontinued, it is anticipated that The Chase Manhattan Bank or one of its
affiliates will act as registrar, transfer agent and paying agent for the
Partnership Preferred Securities.
Registration of transfers of Partnership Preferred Securities will be
effected without charge by or on behalf of the Partnership, but upon payment
(with the giving of such indemnity as the Partnership or the General Partner
may require) in respect of any tax or other governmental charges that may be
imposed in relation to it.
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The Partnership will not be required to register or cause to be
registered the transfer of Partnership Preferred Securities after such
Partnership Preferred Securities have been called for redemption.
MISCELLANEOUS
The General Partner is authorized and directed to conduct its affairs and
to operate the Partnership in such a way that (i) the Partnership will not be
deemed to be an "investment company" required to be registered under the 1940
Act or characterized as an association taxable as a corporation for United
States federal income tax purposes, (ii) the Affiliate Investment Instruments
will be treated as indebtedness of the issuer of such debt instruments for
United States federal income tax purposes and (iii) the Partnership will not be
treated as an association or as a "publicly traded partnership" (within the
meaning of Section 7704 of the Code) taxable as a corporation. In this
connection, the General Partner is authorized to take any action, not
inconsistent with applicable law, the certificate of limited partnership of the
Partnership or the Limited Partnership Agreement, that the General Partner
determines in its discretion to be necessary or desirable for such purposes as
long as such action does not adversely affect the interests of the holders of
the Partnership Preferred Securities.
DESCRIPTION OF THE PARTNERSHIP GUARANTEE
Set forth below is a summary of information concerning the Partnership
Guarantee (the "Partnership Guarantee") that will be executed and delivered by
the Company for the benefit of the holders from time to time of Partnership
Preferred Securities. The summary does not purport to be complete and is
subject in all respects to the provisions of, and is qualified in its entirety
by reference to, the Partnership Guarantee, which is filed as an exhibit to the
registration statement of which this prospectus is a part. The General Partner
will hold the Partnership Guarantee for the benefit of the holders of the
Partnership Preferred Securities.
GENERAL
Pursuant to the Partnership Guarantee, the Company will irrevocably
agree, on a subordinated basis to the extent set forth therein, to pay in full
to the holders of the Partnership Preferred Securities (without duplication of
amounts theretofore paid by the Partnership), as and when due, regardless of
any defense, right of set-off or counterclaim that the Partnership may have or
assert, the following payments (the "Partnership Guarantee Payments"): (i) any
accumulated and unpaid distributions that have theretofore been declared on the
Partnership Preferred Securities out of funds legally available therefor, (ii)
the redemption price with respect to any Partnership Preferred Securities
called for redemption by the Partnership out of funds legally available
therefor, and (iii) upon a liquidation of the Partnership, the lesser of (a)
the aggregate of the liquidation preference and all accumulated and unpaid
distributions on the Partnership Preferred Securities to the date of payment
and (b) the amount of assets of the Partnership, after satisfaction of all
liabilities, remaining available for distribution to holders of Partnership
Preferred Securities in liquidation of the Partnership. The Company's
obligation to make a Partnership Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of Partnership
Preferred Securities or by causing the Partnership to pay such amounts to such
holders.
The Partnership Guarantee will be a guarantee on a subordinated basis
with respect to the Partnership Preferred Securities from the time of issuance
of such Partnership Preferred Securities but will not apply to any payment of
distributions or Redemption Price, or to payments upon the dissolution,
winding-up or termination of the Trust, except to the extent the Partnership
shall have funds available therefor. If Investment Affiliates (including, where
applicable, the Company, as guarantor) of the Affiliate Investment Instruments
in which the Partnership invests fail to make any payment in respect of such
securities (or, if applicable, guarantees), the Partnership may not declare or
pay dividends on the Partnership Preferred Securities. In such event, holders
of the Partnership Preferred Securities would not be able to rely upon the
Partnership Guarantee for payment of such amounts. Instead, holders of the
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Partnership Preferred Securities will have the remedies described herein under
"Description of the Partnership Preferred Securities -- Partnership Enforcement
Events", including the right to direct the General Partner or the Special
Representative, as the case may be, to enforce the covenant restricting certain
payments by the Company and Finance Subsidiaries. See "-- Covenants of the
Company" below.
The Guarantees, when taken together with the Company Debenture and the
Company's obligations to pay all fees and expenses of the Trust and the
Partnership, constitute a guarantee to the extent set forth herein by the
Company of the distribution, redemption and liquidation payments payable to the
holders of the Trust Preferred Securities. The Guarantees do not apply,
however, to current distributions by the Partnership unless and until such
distributions are declared by the Partnership out of funds legally available
for payment or to liquidating distributions unless there are assets available
for payment in the Partnership, each as more fully described under "Risk
Factors -- Insufficient Income or Assets Available to Partnership".
COVENANTS OF THE COMPANY
The Company will covenant in the Partnership Guarantee that if (a) for
any distribution period, full distributions on a cumulative basis on any
Partnership Preferred Securities have not been paid or declared and set apart
for payment, (b) an Investment Event of Default by any Investment Affiliate in
respect of any Affiliate Investment Instrument has occurred and is continuing
or (c) the Company is in default of its obligations under the Trust Guarantee,
the Partnership Guarantee or any Investment Guarantee, then, during such period
(i) the Company shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock or comparable equity interest (except for
(x) dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, its capital stock, and conversions or
exchanges of common stock of one class into common stock of another class, (y)
redemptions or purchases of any rights pursuant to the Rights Agreement and the
issuance of preferred stock pursuant to such rights and (z) purchases or
acquisitions by the Company or its affiliates in connection with transactions
effected by or for the account of customers of the Company or any of its
subsidiaries or in connection with the distribution or trading of such capital
stock or comparable equity interest) and (ii) the Company shall not make,
permit any Finance Subsidiary to make, or make any payments that would enable
any Finance Subsidiary to make, any payment of any dividends on, any
distribution with respect to, or any redemption, purchase or other acquisition
of, or any liquidation payment with respect to, any preferred security or
comparable equity interest of any Finance Subsidiary.
EVENTS OF DEFAULT; ENFORCEMENT OF PARTNERSHIP GUARANTEE
An event of default under the Partnership Guarantee will occur upon the
failure of the Company to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the Partnership
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Special
Representative in respect of the Partnership Guarantee or to direct the
exercise of any trust or power conferred upon the Special Representative under
the Partnership Guarantee. If the Special Representative fails to enforce its
rights under the Partnership Guarantee, after a holder of Partnership Preferred
Securities has made a written request, such holder of Partnership Preferred
Securities may institute a legal proceeding directly against the Company to
enforce the Special Representative's rights under the Partnership Guarantee
without first instituting a legal proceeding against the Partnership, the
Special Representative or any other person or entity. Notwithstanding the
foregoing, if the Company has failed to make a guarantee payment, a holder of
Partnership Preferred Securities may directly institute a proceeding against
the Company for enforcement of the Partnership Guarantee for such payment.
STATUS OF THE PARTNERSHIP GUARANTEE; SUBORDINATION
The Partnership Guarantee will constitute an unsecured obligation of the
Company and will rank subordinate and junior in right of payment to all other
liabilities of the Company and will rank pari passu
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with the most senior preferred stock issued from time to time by the Company,
with similar guarantees issued by the Company in connection with the
$275,000,000 aggregate liquidation amount of 7 3/4% Trust Originated Preferred
Securities issued by Merrill Lynch Preferred Capital Trust I, the $300,000,000
aggregate liquidation amount of 8% Trust Originated Preferred Securities issued
by Merrill Lynch Preferred Capital Trust II, the $750,000,000 aggregate
liquidation amount of 7% Trust Originated Preferred Securities issued by
Merrill Lynch Preferred Capital Trust III, the $400,000,000 aggregate
liquidation amount of 7.12% Trust Originated Preferred Securities issued by
Merrill Lynch Preferred Capital Trust IV and with any guarantee now or
hereafter entered into by the Company in respect of any preferred stock of any
other Finance Subsidiary. Accordingly, the rights of the holders of Partnership
Preferred Securities to receive payments under the Partnership Guarantee will
be subject to the rights of the holders of any obligations of the Company that
are senior in priority to the obligations under the Partnership Guarantee.
Furthermore, the holders of obligations of the Company that are senior to the
obligations under the Partnership Guarantee (including, but not limited to,
obligations constituting Senior Indebtedness) will be entitled to the same
rights upon payment default or dissolution, liquidation and reorganization in
respect of the Partnership Guarantee that inure to the holders of Senior
Indebtedness as against the holders of the Company Debenture. The Limited
Partnership Agreement provides that each holder of Partnership Preferred
Securities, by acceptance thereof, agrees to the subordination provisions and
other terms of the Partnership Guarantee.
The Partnership Guarantee will constitute a guarantee of payment and not
of collection (that is, the guaranteed party may directly institute a legal
proceeding against the Company to enforce its rights under the Partnership
Guarantee without instituting a legal proceeding against any other person or
entity).
The Partnership Guarantee will be deposited with the General Partner to
be held for the benefit of the holders of the Partnership Preferred Securities.
In the event of the appointment of a Special Representative to, among other
things, enforce the Partnership Guarantee, the Special Representative may take
possession of the Partnership Guarantee for such purpose. If no Special
Representative has been appointed to enforce the Partnership Guarantee, the
General Partner has the right to enforce the Partnership Guarantee on behalf of
the holders of the Partnership Preferred Securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not adversely affect the
rights of holders of Partnership Preferred Securities (in which case no consent
will be required), the Partnership Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation preference
of the outstanding Partnership Preferred Securities. All guarantees and
agreements contained in the Partnership Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of the Company and shall inure
to the benefit of the holders of the Partnership Preferred Securities then
outstanding. Except in connection with any permitted merger or consolidation of
the Company with or into another entity or any permitted sale, transfer or
lease of the Company's assets to another entity in which the surviving
corporation (if other than the Company) assumes the Company's obligations under
the Partnership Guarantee, the Company may not assign its rights or delegate
its obligations under the Partnership Guarantee without the prior approval of
the holders of at least a majority of the aggregate stated liquidation
preference of the Partnership Preferred Securities then outstanding.
TERMINATION OF THE PARTNERSHIP GUARANTEE
The Partnership Guarantee will terminate and be of no further force and
effect as to the Partnership Preferred Securities upon (i) full payment of the
redemption price of all Partnership Preferred Securities or (ii) full payment
of the amounts payable in accordance with the Limited Partnership Agreement
upon liquidation of the Partnership. The Partnership Guarantee will continue to
be effective or will be reinstated, as the case may be, if at any time any
holder of Partnership Preferred Securities must in accordance with the
Partnership Act restore payment of any sums paid under the Partnership
Preferred Securities or the Partnership Guarantee. The Partnership Act provides
that a limited partner of a limited partnership who wrongfully receives a
distribution may be liable to the limited partnership for the amount of such
distribution.
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GOVERNING LAW
The Partnership Guarantee will be governed by and construed in accordance
with the internal laws of the State of New York.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
In the opinion of Brown & Wood LLP, tax counsel to the Company, the Trust
and the Partnership ("Tax Counsel"), the following summary accurately describes
the material United States federal income tax consequences that may be relevant
to the purchase, ownership and disposition of Trust Preferred Securities.
Unless otherwise stated, this summary deals only with Trust Preferred
Securities held as capital assets by United States Persons (defined herein) who
purchase the Trust Preferred Securities upon original issuance. As used herein,
a "United States Person" means a person that is a citizen or resident of the
United States, a corporation or a partnership (including an entity treated as a
corporation or partnership for United States federal income tax purposes)
created or organized in or under the laws of the United States, any state
thereof or the District of Columbia (unless, in the case of a partnership,
Treasury regulations are adopted that provide otherwise), or an estate or trust
as defined in section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended (the "Code"). The tax treatment of a holder may vary depending on its
particular situation. This summary does not address all the tax consequences
that may be relevant to holders who may be subject to special tax treatment,
such as banks, real estate investment trusts, regulated investment companies,
insurance companies, dealers in securities or currencies, tax-exempt investors,
or foreign investors. This summary does not include any description of any
alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the Trust
Preferred Securities. This summary is based on the Code, the Treasury
regulations promulgated thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis.
The Trust Preferred Securities are not being marketed to persons that are
not United States Persons ("non-United States Persons") and, consequently, the
following discussion does not discuss the tax consequences that might be
relevant to non-United States Persons. Moreover, in order to protect the Trust
and the Partnership from potential adverse consequences, non-United States
Persons will be subject to withholding on distributions on the Trust Preferred
Securities held by such non-United States Persons at a rate of 30%. In
determining a holder's status, the United States entity otherwise required to
withhold taxes may rely on an IRS form W-8, an IRS form W-9, or a holder's
certification of its non-foreign status signed under penalty of perjury. NON-
UNITED STATES PERSONS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND
DISPOSITION OF TRUST PREFERRED SECURITIES.
Tax Counsel has advised that there is no authority directly on point
dealing with securities such as the Trust Preferred Securities or transactions
of the type described herein and that the opinions of Tax Counsel are not
binding on the IRS or the courts, either of which could take a contrary
position. No rulings have been or will be sought from the IRS. Accordingly,
there can be no assurance that the IRS will not challenge the opinions
expressed herein or that a court would not sustain such a challenge.
Nevertheless, Tax Counsel has advised that it is of the view that, if
challenged, the opinions expressed herein would be sustained by a court with
jurisdiction in a properly presented case.
HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TRUST
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION
OF THE TRUST PREFERRED SECURITIES OR REDEMPTION OF THE PARTNERSHIP PREFERRED
SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS SEE "DESCRIPTION OF THE
TRUST PREFERRED SECURITIES -- TRUST SPECIAL
43
<PAGE>
EVENT REDEMPTION OR DISTRIBUTION" AND "DESCRIPTION OF THE PARTNERSHIP PREFERRED
SECURITIES -- PARTNERSHIP SPECIAL EVENT REDEMPTION" RESPECTIVELY.
CLASSIFICATION OF THE TRUST
Tax Counsel is of the opinion that, under current law, and based on
certain representations, facts and assumptions set forth in such opinion, the
Trust will be classified for United States federal income tax purposes as a
grantor trust and not as an association taxable as a corporation. Accordingly,
for United States federal income tax purposes, each holder of Trust Preferred
Securities will be considered the owner of an undivided interest in the
Partnership Preferred Securities held by the Trust, and each holder will be
required to include in its gross income its distributive share of income
attributable to the Partnership, which generally will be equal to such holder's
allocable share of amounts accrued on the Partnership Preferred Securities. No
amount included in income with respect to the Trust Preferred Securities will
be eligible for the corporate dividends-received deduction.
CLASSIFICATION OF THE PARTNERSHIP
Tax Counsel is of the opinion that, under current law, and based on
certain representations, facts and assumptions set forth in such opinion, the
Partnership will be classified for United States federal income tax purposes as
a partnership and not as an association or publicly traded partnership taxable
as a corporation.
Tax Counsel's opinion is based on certain factual assumptions relating to
the organization and operation of the Partnership and is conditioned upon
certain representations made by the General Partner and the Partnership as to
factual matters, such as the organization and the operation of the Partnership
and the type and frequency of investments made by the Partnership.
The General Partner has represented that it intends to operate the
Partnership in a manner such that it will continue to constitute a partnership
for all future taxable periods in which any Partnership Preferred Securities
remain outstanding. In particular, pursuant to the Limited Partnership
Agreement, the General Partner is prohibited from taking any action that would
cause the Partnership to constitute a "publicly traded partnership" taxable as
a corporation under section 7704(a) of the Code. Accordingly, it is expected
that the Partnership will continue to qualify as a partnership, and therefore
will not constitute a publicly traded partnership taxable as a corporation, for
all taxable years in which the Partnership Preferred Securities remain
outstanding.
CLASSIFICATION OF THE DEBENTURES
The Partnership, the Company, the relevant Investment Affiliates and the
holders of the Trust Securities (by acceptance of a beneficial interest in a
Trust Security) will agree to treat the Debentures as indebtedness of the
relevant issuer for all United States tax purposes. In connection with the
issuance of the Debentures, Tax Counsel will issue its opinion that, under
current law, and based on certain representations, facts and assumptions set
forth in such opinion, the Debentures will be classified as indebtedness of the
relevant issuer for United States federal income tax purposes.
INCOME AND DEDUCTIONS
A holder's distributive share of income attributable to the Partnership
generally will be substantially equal to the amount of the cash distributions
that accumulate with respect to the Trust Preferred Securities. Accordingly, if
quarterly distributions on the Trust Preferred Securities are paid currently,
the amount of income recognized by a holder during a taxable year generally
will be substantially equal to the cash distributions received by the holder
with respect to its Trust Preferred Securities.
The nature and timing of the income that is allocated to holders of Trust
Preferred Securities will, however, depend on the United States federal income
tax characterization of the investments held by
44
<PAGE>
the Partnership during the period in question. Because the Partnership will be
an accrual basis taxpayer for United States federal income tax purposes, income
will accrue on the Trust Preferred Securities and will be allocated to holders
of Trust Preferred Securities on a daily accrual basis, generally at a rate
that is expected to be equal to (and that will not be greater than) the
distribution rate on the Trust Preferred Securities, regardless of the holders'
method of accounting. Actual cash distributions on the Trust Preferred
Securities will not, however, be separately reported as taxable income to the
holders at the time they are received.
If distributions on the Partnership Preferred Securities are not made
currently, the corresponding distributions on the Trust Preferred Securities
will not be made currently. Because the Partnership is an accrual basis
taxpayer it can be expected that during a period in which interest payments on
the Debentures or distributions on the Partnership Preferred Securities are
deferred (for whatever reason), holders will generally recognize income in
advance of their receipt of any cash distributions with respect to their Trust
Preferred Securities. The amount of income that will be allocated to holders of
Trust Preferred Securities during any such deferral period will equal their pro
rata share of the amount of distributions accruing on the Partnership Preferred
Securities during such deferral period.
The Partnership does not presently intend to make an election under
Section 754 of the Code. Accordingly, a subsequent purchaser of Trust Preferred
Securities will not be permitted to adjust the tax basis in his allocable share
of the Partnership's assets so as to reflect any difference between his
purchase price for the Trust Preferred Securities and his share of the
Partnership's underlying tax basis in its assets. As a result, a holder of
Trust Preferred Securities may be required to report a larger or smaller amount
of income from holding the Trust Preferred Securities than would otherwise be
appropriate based upon the holder's purchase price for the Trust Preferred
Securities.
RECEIPT OF PARTNERSHIP PREFERRED SECURITIES UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description
of the Trust Preferred Securities -- Trust Special Event Redemption or
Distribution", Partnership Preferred Securities may be distributed to holders
of Trust Preferred Securities in exchange for their Trust Preferred Securities
and in liquidation of the Trust. Unless the liquidation of the Trust occurs as
a result of the Trust being subject to United States federal income tax with
respect to income accrued or received on the Partnership Preferred Securities,
such a distribution to holders would, for United States federal income tax
purposes, be treated as a nontaxable event to each holder, each holder would
receive an aggregate tax basis in the Partnership Preferred Securities equal to
such holder's aggregate tax basis in its Trust Preferred Securities, and a
holder's holding period in the Partnership Preferred Securities so received in
liquidation of the Trust would include the period during which the Trust
Preferred Securities were held by such holder. If, however, the liquidation of
the Trust were to occur because the Trust is subject to United States federal
income tax with respect to income accrued or received on the Partnership
Preferred Securities, the distribution of Partnership Preferred Securities to
holders by the Trust would likely be a taxable event to each holder, and a
holder would recognize gain or loss as if the holder had exchanged its Trust
Preferred Securities for the Partnership Preferred Securities it received upon
the liquidation of the Trust. Such gain or loss would be equal to the
difference between the holder's aggregate tax basis in its Trust Preferred
Securities surrendered in the exchange and the aggregate fair market value of
the Partnership Preferred Securities received in the exchange.
REDEMPTION OF TRUST PREFERRED SECURITIES FOR CASH
Under certain circumstances, as described under the caption "Description
of the Trust Preferred Securities -- Mandatory Redemption", "Description of the
Trust Preferred Securities -- Trust Special Event Redemption or Distribution"
and "Description of the Partnership Preferred Securities -- Partnership Special
Event Redemption", the General Partner may cause the Partnership to redeem the
Partnership Preferred Securities for cash, in which event the Trust shall
simultaneously apply the proceeds of such redemption to redeem the Trust
Preferred Securities. Under current law, such a redemption would constitute,
for United States federal income tax purposes, a taxable disposition, and a
holder would recognize gain or loss as if it sold the holder's proportionate
interest in the redeemed
45
<PAGE>
Partnership Preferred Securities for an amount of cash equal to the proceeds
received upon redemption. See "-- Disposition of Trust Preferred Securities".
DISPOSITION OF TRUST PREFERRED SECURITIES
A holder that sells Trust Preferred Securities will recognize gain or
loss equal to the difference between the amount realized on the sale of the
Trust Preferred Securities and the holder's adjusted tax basis in such Trust
Preferred Securities. Such gain or loss will be a capital gain or loss and will
be a long-term capital gain or loss if the Trust Preferred Securities have been
held for more than one year at the time of the sale. A holder will be required
to include accumulated but unpaid distributions on the Partnership Preferred
Securities through the date of disposition in income as ordinary income, and to
add such amount to the adjusted tax basis of its Trust Preferred Securities.
A holder's tax basis in its Trust Preferred Securities generally will
equal (i) the amount paid by such holder for its Trust Preferred Securities,
(ii) increased by the amount includible in income by such holder with respect
to its Trust Preferred Securities, and (iii) reduced by the amount of cash or
other property distributed to such holder with respect to its Trust Preferred
Securities. A holder who acquires Trust Preferred Securities at different
prices may be required to maintain a single aggregate adjusted tax basis in all
of his Trust Preferred Securities and, upon sale or other disposition of some
of such Trust Preferred Securities, to allocate a pro rata portion of such
aggregate tax basis to the Trust Preferred Securities sold (rather than
maintaining a separate tax basis in each Trust Preferred Security for purposes
of computing gain or loss on a sale of that Trust Preferred Security).
OTHER PARTNERSHIP PROVISIONS
Section 708. Under Section 708 of the Code, the Partnership will be
deemed to terminate for United States federal income tax purposes if 50% or
more of the capital and profits interests in the Trust are sold or exchanged
within a 12-month period. Pursuant to final Treasury regulations issued on May
9, 1997, if such a deemed termination were to occur, the Partnership would be
considered to have contributed its assets to a new partnership in return for
partnership interests therein and then to have distributed those new
partnership interests to the partners of the old partnership in liquidation
thereof.
Section 701. The Department of Treasury has promulgated regulations under
Section 701 of the Code that generally permit it to recast a transaction or
disregard a partnership if a partnership is formed or availed of in connection
with a transaction a principal purpose of which is to reduce substantially the
present value of the partners' aggregate federal tax liability in a manner that
is inconsistent with the intent of the partnership provisions of the Code or to
treat a partnership as an aggregate of its partners as appropriate to carry out
the purpose of any provision of the Code or the Treasury regulations
thereunder. The Partnership has been formed for, and will engage in, activities
typical for partnerships. Although there is no precedent that applies to the
transactions contemplated herein, Tax Counsel believes that the Partnership is
not of the type intended to fall within the scope of these regulations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Income on the Trust Preferred Securities will be reported to holders on
an IRS Form 1099, which form should be mailed to holders of Trust Preferred
Securities by January 31 following each calendar year. Payments made on and
proceeds from the sale of Trust Preferred Securities may be subject to a "back-
up" withholding tax of 31% unless the holder complies with certain
identification requirements. Any withheld amount generally will be allowed as a
credit against the holder's United States federal income tax, provided the
required information is timely filed with the IRS.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the back-up withholding
and information reporting rules described
46
<PAGE>
above. The New Regulations attempt to unify certification requirements and
modify reliance standards. The New Regulations will generally be effective for
payments made after December 31, 1999, subject to certain transition rules.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement
(the "Purchase Agreement"), the Trust has agreed to sell to each of the
underwriters named below, and each of the underwriters, for whom MLPF&S and
(the "underwriters") are acting as representatives (the
"Representatives"), has severally agreed to purchase the number of Trust
Preferred Securities set forth opposite its name below. In the Purchase
Agreement, the several underwriters have agreed, subject to the terms and
conditions set forth therein, to purchase all the Trust Preferred Securities
offered hereby if any of the Trust Preferred Securities are purchased. In the
event of default by an underwriter, the Purchase Agreement provides that, in
certain circumstances, the purchase commitments of the non-defaulting
underwriters may be increased or the Purchase Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF TRUST
UNDERWRITERS PREFERRED SECURITIES
------------ --------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
----------
Total..............................................
==========
</TABLE>
The underwriters propose to offer the Trust Preferred Securities to the
public at the public offering price set forth on the cover page of this
prospectus, and, to certain dealers at such price less a concession not in
excess of $ per Trust Preferred Security; provided, that such concession for
sales of 10,000 or more Trust Preferred Securities to any single purchaser will
be $ per Trust Preferred Security. The underwriters may allow, and such
dealers may reallow, a discount not in excess of $ per Trust Preferred
Security to certain brokers and dealers. After the Trust Preferred Securities
are released for sale to the public, the offering price, concession and
discount may be changed. Proceeds to be received by the Company will be net of
the underwriting discount and expenses payable by the Company.
In view of the fact that the proceeds of the sale of the Trust Preferred
Securities will ultimately be used to purchase the investment instruments of
the Company and its subsidiaries, the Purchase Agreement provides that the
Company will pay as compensation (the "underwriters' compensation") to the
underwriters, an amount in immediately available funds of $ per Trust
Preferred Security (or $ in the aggregate) for the accounts of the several
underwriters; provided that, such compensation for sales of 10,000 or more
Trust Preferred Securities to any single purchaser will be $ per Trust
Preferred Security. Therefore, to the extent of such sales, the actual amount
of underwriters' compensation will be less than the aggregate amount specified
in the preceding sentence.
Application will be made to list the Trust Preferred Securities on the
NYSE. Trading of the Trust Preferred Securities on the NYSE is expected to
commence within a 30-day period after the initial delivery of the Trust
Preferred Securities. The Representatives have advised the Trust that they
intend to make a market in the Trust Preferred Securities prior to the
commencement of trading on the NYSE. The Representatives will have no
obligation to make a market in the Trust Preferred Securities, however, and may
cease market making activities, if commenced, at any time.
Prior to this offering there has been no public market for the Trust
Preferred Securities. In order to meet one of the requirements for listing the
Trust Preferred Securities on the NYSE, the underwriters will undertake to sell
lots of 100 or more Trust Preferred Securities to a minimum of 400 beneficial
47
<PAGE>
holders, that there will be at least one million units of Trust Preferred
Securities outstanding and that the Trust Preferred Securities will have a
minimum market value of $4,000,000.
The Trust, the Company, and the Partnership have agreed to indemnify the
underwriters against, or contribute to payments that the underwriters may be
required to make in respect of, certain liabilities, including liabilities
under the Securities Act.
Because MLPF&S, one of the underwriters in the offering, is an affiliate
of the Company and a member of the National Association of Securities Dealers,
Inc. (the "NASD"), the offering of Trust Preferred Securities will be conducted
pursuant to the applicable sections of Rule 2810 of the Conduct Rules of the
NASD. The underwriters may not confirm sales to any discretionary account
without the prior specific written approval of the customer.
Certain of the underwriters and their affiliates engage in transactions
with, and perform services for, the Company in the ordinary course of business
and have engaged, and may in the future engage, in commercial banking and
investment banking transactions with the Company.
In connection with the offering, the underwriters are permitted to engage
in certain transactions that stabilize the market price of the Trust Preferred
Securities. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the market price of the Trust Preferred
Securities. If an underwriter creates a short position in the Trust Preferred
Securities in connection with the offering, i.e., if it sells more Trust
Preferred Securities than are set forth on the cover page of this prospectus,
the underwriter may reduce that short position by purchasing Trust Preferred
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.
The underwriters may also impose a penalty bid on certain underwriters
and selling group members. This means that if an underwriter purchases Trust
Preferred Securities in the open market to reduce the underwriter's short
position or to stabilize the price of the Trust Preferred Securities, they may
reclaim the amount of the selling concession from the underwriters and selling
group members who sold those Trust Preferred Securities as part of the
offering. The imposition of a penalty bid might have an effect on the price of
a security to the extent that it were to discourage resales of the security.
Neither the Company nor any of the underwriters 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 Trust Preferred
Securities. In addition, neither the Company nor any of the underwriters makes
any representation that the underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
MLPF&S may use this prospectus for offers and sales related to market-
making transactions in the Trust Preferred Securities. MLPF&S 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.
48
<PAGE>
LEGAL MATTERS
Certain matters of Delaware law relating to the legality of the Trust
Preferred Securities, the validity of the Trust Agreement, the formation of the
Trust and the Partnership and the legality under state law of the Trust
Preferred Securities and the Partnership Preferred Securities are being passed
upon by Skadden, Arps, Slate, Meagher & Flom (Delaware), special Delaware
counsel to the Trust, the Partnership and the Company. The legality under state
law of the Trust Guarantee, the Partnership Guarantee, the Company Debenture
and the Investment Guarantees with respect to the Affiliate Debentures will be
passed upon on behalf of the Trust, the Partnership and the Company by Brown &
Wood LLP, New York, New York. The validity of the Trust Preferred Securities,
the Partnership Preferred Securities and the Trust Guarantee and the
Partnership Guarantee will be passed upon on behalf of the underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, counsel to the
underwriters.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included in the Company's 1997
Annual Report on Form 10-K, and incorporated by reference in this prospectus,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports incorporated by reference herein. The Selected Financial Data
under the captions "Operating Results", "Financial Position" and "Common Share
Data" for each of the five years in the period ended December 26, 1997 included
in the 1997 Annual Report on Form 10-K and incorporated by reference herein,
has been derived from consolidated financial statements audited by Deloitte &
Touche LLP, as set forth in their reports included or incorporated by reference
herein. Such consolidated financial statements and related financial statement
schedules, and such Selected Financial Data incorporated by reference in this
prospectus and the registration statement of which this prospectus is a part,
have been incorporated herein by reference in reliance upon such reports of
Deloitte & Touche LLP given upon their authority as experts in accounting and
auditing. The balance sheets of Merrill Lynch Preferred Funding V, L.P. and
Merrill Lynch Preferred Capital Trust V as of June 26, 1998 included in this
prospectus have also been audited by Deloitte & Touche LLP and have been
included in reliance upon such reports of Deloitte & Touche LLP given upon
their authority as experts in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the Quarterly Reports on Form 10-Q of the Company which are
incorporated herein by reference, Deloitte & Touche LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their reports included in such Quarterly
Reports on Form 10-Q and incorporated by reference herein, they did not audit
and they do not express an opinion on such interim financial information.
Accordingly, the degree of reliance on their reports on such information should
be restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche LLP are not subject to the liability provisions of Section 11
of the Act for any such report on unaudited interim financial information
because any such report is not a "report" or a "part" of the registration
statement prepared or certified by an accountant within the meaning of Sections
7 and 11 of the Act.
49
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Affiliate Debentures................................................... 32
Affiliate Investment Instruments....................................... 14
Beneficial Owner....................................................... 24
Business Day........................................................... 17
Change in 1940 Act Law................................................. 19
Code................................................................... 43
Company................................................................ 1
Company Debenture...................................................... 32
Debentures............................................................. 32
Declaration............................................................ 13
Delaware Trustee....................................................... 13
Depository............................................................. 24
DTC.................................................................... 6
Eligible Institution................................................... 33
Eligible Debt Securities............................................... 32
Exchange Act........................................................... 3
FDIC................................................................... 33
Finance Subsidiary..................................................... 28
General Partner........................................................ 14
Global Certificates.................................................... 24
Global Partnership Security............................................ 39
Guarantees............................................................. 8
Independent Financial Advisor.......................................... 33
Indirect Participants.................................................. 24
Initial Partnership Proceeds........................................... 32
Investment Affiliate................................................... 33
Investment Events of Default........................................... 32
Investment Guarantee................................................... 32
IRS.................................................................... 19
Limited Partnership Agreement.......................................... 13
Merrill Lynch.......................................................... 4
MLPF&S................................................................. 11
Moody's................................................................ 32
NASD................................................................... 48
New Regulations........................................................ 46
1940 Act............................................................... 6
Non-United States Persons.............................................. 43
NYSE................................................................... 1
Participants........................................................... 24
Partnership............................................................ 4
Partnership Act........................................................ 14
Partnership Enforcement Event.......................................... 31
Partnership Guarantee.................................................. 40
Partnership Guarantee Payments......................................... 40
Partnership Investment Company Event................................... 36
Partnership Liquidation Distribution................................... 36
Partnership Preferred Securities....................................... 4
Partnership Special Event.............................................. 35
Partnership Successor Securities....................................... 39
Partnership Tax Event.................................................. 35
Property Account....................................................... 13
Property Trustee....................................................... 13
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Purchase Agreement..................................................... 47
Redemption Price....................................................... 20
Regular Trustees....................................................... 13
Representatives........................................................ 47
Rights Agreement....................................................... 5
SEC.................................................................... 3
S&P.................................................................... 32
Securities Act......................................................... 3
Senior Indebtedness.................................................... 9
Special Event.......................................................... 8
Special Representative................................................. 31
Successor Securities................................................... 23
Tax Action............................................................. 19
Tax Counsel............................................................ 43
TOPrS.................................................................. 1
Trust.................................................................. 4
Trust Act.............................................................. 13
Trust Common Securities................................................ 7
Trust Dissolution Tax Opinion.......................................... 19
Trust Enforcement Event................................................ 17
Trust Guarantee........................................................ 5
Trust Guarantee Payments............................................... 27
Trust Guarantee Trustee................................................ 13
Trust Indenture Act.................................................... 13
Trust Investment Company Event......................................... 19
Trust Liquidation...................................................... 21
Trust Liquidation Distribution......................................... 21
Trust Preferred Securities............................................. 4
Trust Redemption Tax Opinion........................................... 18
Trust Securities....................................................... 6
Trust Special Event.................................................... 18
Trust Tax Event........................................................ 19
Trustees............................................................... 13
Underwriters........................................................... 47
Underwriters' Compensation............................................. 47
United States Person................................................... 43
</TABLE>
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
MERRILL LYNCH PREFERRED FUNDING V, L.P.
Independent Auditors' Report......................................... F-2
Balance Sheet........................................................ F-3
Notes to Balance Sheet............................................... F-3
MERRILL LYNCH PREFERRED CAPITAL TRUST V
Independent Auditors' Report......................................... F-4
Balance Sheet........................................................ F-5
Notes to Balance Sheet............................................... F-5
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the General Partner and Initial Limited Partner of
Merrill Lynch Preferred Funding V, L.P.
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Funding V, L.P. (the "Partnership") as of June 26, 1998. This balance sheet is
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of the Partnership as of June 26,
1998, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
October 23, 1998
New York, New York
F-2
<PAGE>
BALANCE SHEET OF
MERRILL LYNCH PREFERRED FUNDING V, L.P.
BALANCE SHEET
JUNE 26, 1998
<TABLE>
<S> <C>
Assets........................................................... $ --
=====
Partnership Securities
Limited partner interest....................................... $ 85
General partner interest....................................... 15
-----
$ 100
Less: Receivables from partners for subscribed partnership inter-
ests............................................................ (100)
-----
--
=====
</TABLE>
NOTES TO BALANCE SHEET OF MERRILL LYNCH PREFERRED FUNDING V, L.P.
Merrill Lynch Preferred Funding V, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act on January 8, 1998 for the exclusive purposes of purchasing
certain eligible debt instruments of Merrill Lynch & Co., Inc. (the "Company")
and wholly owned subsidiaries of the Company (the "Affiliate Investment
Instruments") with the proceeds from the sale of Partnership Preferred
Securities (the "Partnership Preferred Securities") to Merrill Lynch Preferred
Capital Trust V (the "Trust") and a capital contribution from the Company in
exchange for the general partnership interest in the Partnership (collectively,
the "Partnership Proceeds").
The Partnership Preferred Securities will be redeemable for cash, at the
option of the Partnership, in whole or in part, from time to time, after a
certain date to be determined. Except as provided in the Limited Partnership
Agreement and Partnership Preferred Securities Guarantee Agreement, and as
otherwise provided by law, the holders of the Partnership Preferred Securities
will have no voting rights.
The Partnership Proceeds will be used initially to purchase debt
instruments from the Company and certain domestic wholly owned subsidiaries of
the Company, retaining 1% in unaffiliated debt securities. The Partnership
shall have a perpetual existence subject to certain termination events. The
Company serves as the sole general partner of the Partnership. The Company, in
its capacity as General Partner of the Partnership, has agreed to pay all fees
and expenses related to the organization and operations of the Partnership
(including any taxes, duties, assessments or government charges of whatever
nature (other than withholding taxes) imposed by the United States or any other
domestic taxing authority upon the Partnership) and the offering of the
Partnership Preferred Securities and be responsible for all debts and other
obligations of the Partnership (other than with respect to the Partnership
Preferred Securities). The General Partner has agreed to indemnify certain
officers and agents of the Partnership.
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of Merrill Lynch Preferred Capital Trust V
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Capital Trust V (the "Trust") as of June 26, 1998. This balance sheet is the
responsibility of the Trust's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of the Trust as of June 26, 1998,
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
October 23, 1998
New York, New York
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BALANCE SHEET OF
MERRILL LYNCH PREFERRED CAPITAL TRUST V
BALANCE SHEET
JUNE 26, 1998
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Assets................................................................ $0
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Trust securities...................................................... $0
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NOTES TO BALANCE SHEET OF MERRILL LYNCH PREFERRED CAPITAL TRUST V
Merrill Lynch Preferred Capital Trust V (the "Trust") is a statutory
business trust formed on January 8, 1998 under the laws of the State of
Delaware for the exclusive purposes of (i) issuing the Trust Originated
Preferred Securities (the "Trust Preferred Securities") and the Trust Common
Securities (together with the Trust Preferred Securities, the "Trust
Securities") representing undivided beneficial ownership interests in the
assets of the Trust, (ii) purchasing Partnership Preferred Securities (the
"Partnership Preferred Securities") representing the limited partnership
interests of Merrill Lynch Preferred Funding V, L.P. (the "Partnership") with
the proceeds from the sale of the Trust Securities, and (iii) engaging in only
those other activities necessary or incidental thereto. The Trust has a
perpetual existence, subject to certain termination events as provided in the
Declaration of Trust under which it was formed. Subsequent to June 26, 1998,
the Trust intends to issue and sell its Trust Preferred Securities in a public
offering and to issue and sell its Trust Common Securities to Merrill Lynch &
Co., Inc. (the "Company"). No Trust Preferred Securities have been issued as of
June 26, 1998.
The proceeds from the Trust's sale of the Trust Securities will be used
to purchase the Partnership Preferred Securities from the Partnership. The
Partnership Preferred Securities will be redeemable for cash, at the option of
the Partnership, in whole or in part, from time to time, after a certain date
to be determined. Upon any redemption of the Partnership Preferred Securities,
the Trust Preferred Securities will be redeemed, in whole or in part, as
applicable. Holders of the Trust Preferred Securities will have limited voting
rights and will not be entitled to vote to appoint, remove or replace, or to
increase or decrease the number of, Trustees, which voting rights are vested
exclusively in the holder of the Trust Common Securities.
The Company will be obligated to pay compensation to the underwriters of
the offering of the Trust Preferred Securities. The company will pay all fees
and expenses related to the organization and operations of the Trust (including
any taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) imposed by the United States or any other
domestic taxing authority upon the Trust) and the offering of the Trust
Preferred Securities and be responsible for all debts and other obligations of
the Trust (other than the Trust Securities). The Company has also agreed to
indemnify the trustees and certain other persons.
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[LOGO]
MERRILL LYNCH PREFERRED CAPITAL TRUST V
12,000,000
TRUST PREFERRED SECURITIES
% TRUST ORIGINATED PREFERRED SECURITIES SM ("TOPRS SM")
(LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
MERRILL LYNCH & CO., INC.
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PROSPECTUS
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MERRILL LYNCH & CO.
OCTOBER 23, 1998
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