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RULE NO. 424(b)(5)
REGISTRATION NO. 333-68747
Subject to Completion
Preliminary Prospectus Supplement dated June 1, 1999
PROSPECTUS SUPPLEMENT [LOGO] Merrill Lynch
(To prospectus dated May 6, 1999) PROTECTED GROWTH (SM) INVESTING
Pursuit of Growth, Protection of Principal
2,500,000 Units
Merrill Lynch & Co., Inc.
Russell 2000(R) Market Index Target-Term Securities
due July , 2006
"MITTS(R) Securities"
$10 principal amount per unit
--------------
The MITTS Securities: Payment at maturity:
. 100% principal protection at . On the maturity date, for each unit
maturity. of the MITTS Securities you own, we
will pay you an amount equal to the
. No payments before the maturity date. sum of the principal amount of each
unit and an additional amount based
. Senior unsecured debt securities of on the percentage increase, if any,
Merrill Lynch & Co., Inc. in the value of the Russell 2000
Index reduced by an annual
. Linked to the value of the Russell adjustment factor expected to be
2000 Index*, an index designed to between 2.4% and 2.9%.
track the price performance of the
common stock of 2,000 corporations . At maturity, you will receive no
with small capitalizations relative to less than the principal amount of
other stocks in the U.S. equity your MITTS Securities.
market.
. The MITTS Securities have been
approved for listing on the American
Stock Exchange under the trading
symbol "RSM".
. Closing date: July , 1999.
Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page S-8 of this prospectus supplement.
--------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or passed upon the adequacy of this
prospectus supplement or the attached prospectus. Any representation to the
contrary is a criminal offense.
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Per unit Total
-------- -----
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Public offering price............................... $10.00 $25,000,000
Underwriting discount............................... $ $
Proceeds, before expenses, to Merrill Lynch & Co.,
Inc. .............................................. $ $
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The public offering price and the underwriting discount for any single
transaction to purchase:
(a) between 100,000 units and 499,999 units will be $ per unit and
$ per unit, respectively;
and
(b) 500,000 units or more will be $ per unit and $ per unit,
respectively.
--------------
Merrill Lynch & Co.
--------------
The date of this prospectus supplement is July , 1999.
"MITTS" and "Market Index Target-Term Securities" are registered service marks
of Merrill Lynch & Co., Inc.
*The use of, and reference to, the terms "Russell 2000" and "Russell 2000
Index" in this prospectus supplement has been consented to by Frank Russell
Company.
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TABLE OF CONTENTS
Prospectus Supplement
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Page
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SUMMARY INFORMATION--Q&A.................................................. S-4
What are the MITTS Securities?.......................................... S-4
What will I receive at the stated maturity date of the MITTS
Securities?............................................................ S-4
Who publishes the Russell 2000 Index and what does the Russell 2000
Index measure?......................................................... S-6
How has the Russell 2000 Index performed historically?.................. S-6
What about taxes?....................................................... S-6
Will the MITTS Securities be listed on a stock exchange?................ S-6
What is the role of MLPF&S?............................................. S-6
Who is ML&Co.?.......................................................... S-7
Are there any risks associated with my investment?...................... S-7
RISK FACTORS.............................................................. S-8
You may not earn a return on your investment............................ S-8
Your yield may be lower than the yield on a standard debt security of
comparable maturity.................................................... S-8
Your return will not reflect the return of owning the stocks included in
the Russell 2000 Index................................................. S-8
There may be an uncertain trading market for the MITTS Securities....... S-8
Many factors affect the trading value of the MITTS Securities; these
factors interrelate in complex ways and the effect of any one factor
may offset or magnify the effect of another factor..................... S-8
Amounts payable on the MITTS Securities may be limited by state law..... S-10
Purchases and sales by us and our affiliates may affect your return..... S-10
Potential conflicts of interests........................................ S-10
There are uncertain tax consequences associated with an investment in
the MITTS Securities................................................... S-10
DESCRIPTION OF THE MITTS SECURITIES....................................... S-11
Payment at maturity..................................................... S-11
Hypothetical returns.................................................... S-12
Adjustments to the Russell 2000 Index; Market Disruption Events......... S-13
Discontinuance of the Russell 2000 Index................................ S-14
Events of Default and Acceleration...................................... S-15
Depositary.............................................................. S-15
Same-Day Settlement and Payment......................................... S-17
THE INDEX................................................................. S-18
Selection of stocks underlying the index................................ S-18
Historical data on the index............................................ S-20
UNITED STATES FEDERAL INCOME TAXATION..................................... S-22
General................................................................. S-22
U.S. Holders............................................................ S-23
Hypothetical table...................................................... S-24
Non-U.S. Holders........................................................ S-25
Backup withholding...................................................... S-26
New withholding regulations............................................. S-26
USE OF PROCEEDS AND HEDGING............................................... S-26
WHERE YOU CAN FIND MORE INFORMATION....................................... S-26
UNDERWRITING.............................................................. S-27
VALIDITY OF THE MITTS SECURITIES.......................................... S-27
INDEX OF DEFINED TERMS.................................................... S-28
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S-2
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Prospectus
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Page
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MERRILL LYNCH & CO., INC................................................. 2
USE OF PROCEEDS.......................................................... 2
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 3
THE SECURITIES........................................................... 3
DESCRIPTION OF DEBT SECURITIES........................................... 4
DESCRIPTION OF DEBT WARRANTS............................................. 10
DESCRIPTION OF CURRENCY WARRANTS......................................... 12
DESCRIPTION OF INDEX WARRANTS............................................ 14
DESCRIPTION OF PREFERRED STOCK........................................... 19
DESCRIPTION OF DEPOSITARY SHARES......................................... 24
DESCRIPTION OF PREFERRED STOCK WARRANTS.................................. 28
DESCRIPTION OF COMMON STOCK.............................................. 30
DESCRIPTION OF COMMON STOCK WARRANTS..................................... 33
PLAN OF DISTRIBUTION..................................................... 35
WHERE YOU CAN FIND MORE INFORMATION...................................... 36
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........................ 36
EXPERTS.................................................................. 37
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S-3
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SUMMARY INFORMATION--Q&A
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This summary includes questions and should refer to the section "Description of the
answers that highlight selected information from the MITTS Securities--Depositary" in this prospectus
prospectus and prospectus supplement to help you supplement.
understand the Russell 2000 Market Index Target-
Term Securities due July , 2006. You should What will I receive at the stated maturity date of
carefully read the accompanying prospectus and this the MITTS Securities?
prospectus supplement to fully understand the terms
of the MITTS Securities, the Russell 2000 Index, We have designed the MITTS Securities for
and the tax and other considerations that are investors who want to protect their investment by
important to you in making a decision about whether receiving at least the principal amount of their
to invest in the MITTS Securities. You should investment at maturity and who also want to
carefully review the "Risk Factors" section, which participate in possible increases in the Russell 2000
highlights certain risks associated with an Index as reduced by the Adjustment Factor. At the
investment in the MITTS Securities, to determine stated maturity date, you will receive a payment on
whether an investment in the MITTS Securities is the MITTS Securities equal to the sum of two
appropriate for you. amounts: the "principal amount" and the
"Supplemental Redemption Amount".
Principal amount
The principal amount per unit is $10.
References in this prospectus supplement to
"ML&Co.", "we", "us" and "our" are to Merrill Supplemental Redemption Amount
Lynch & Co., Inc.
The Supplemental Redemption Amount per unit will equal:
References in this prospectus supplement to
"MLPF&S" are to Merrill Lynch, Pierce, Fenner & (Adjusted Ending Value - Starting Value)
Smith Incorporated. $10 X (--------------------------------------- )
( Starting Value )
What are the MITTS Securities?
but will not be less than zero.
The MITTS Securities are a series of senior
debt securities issued by ML&Co. and are not
secured by collateral. The MITTS Securities will
rank equally with all of our other unsecured and
unsubordinated debt. The MITTS Securities will "Starting Value" will equal the closing
mature on July , 2006. We cannot redeem the value of the Russell 2000 Index on the date the
MITTS Securities at any earlier date. We will not MITTS Securities are priced for initial sale to the
make any payments on the MITTS Securities until public, the "Pricing Date". We will disclose the
maturity. Starting Value in the final prospectus supplement
delivered to you in connection with sales of the
MITTS Securities.
Each unit of MITTS Securities represents
$10 principal amount of MITTS Securities. You
may transfer the MITTS Securities only in whole "Adjusted Ending Value" means the
units. You will not have the right to receive physical average of the values of the Russell 2000 Index at
certificates evidencing your ownership except under the close of the market on five business days before
limited circumstances. Instead, we will issue the the maturity of the MITTS Securities as reduced on
MITTS Securities in the form of a global certificate, each day by the application of the Adjustment
which will be held by The Depository Trust Factor. We may calculate the Adjusted Ending
Company, also known as DTC, or its nominee. Value by reference to fewer than five or even a
Direct and indirect participants in DTC will record single day's closing value if, during the period
your ownership of the MITTS Securities. You shortly before the stated maturity date of the MITTS
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S-4
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Securities, there is a disruption in the trading of a to you in connection with sales of the MITTS
sufficient number of the component stocks included Securities. For a detailed discussion of how the
in the Russell 2000 Index or certain futures or Adjustment Factor will affect the value of the
options relating to the Russell 2000 Index. Russell 2000 Index used to calculate your
Supplemental Redemption Amount, see
The "Adjustment Factor" will be a fixed "Description of the MITTS Securities--Payment at
percentage which is expected to be between 2.4% maturity" in this prospectus supplement.
and 2.9% per year and will be prorated based on a
365-day year and applied over the entire term of the For more specific information about the
MITTS Securities on each calendar day to reduce Supplemental Redemption Amount, please see the
the closing values of the Russell 2000 Index used to section "Description of the MITTS Securities" in
calculate the Supplemental Redemption Amount this prospectus supplement.
during the Calculation Period. As a result of the
cumulative effect of this reduction, the values used We will pay you a Supplemental
to calculate your Supplemental Redemption Amount Redemption Amount only if the Adjusted Ending
during the Calculation Period at the stated maturity Value is greater than the Starting Value. If the
of the MITTS Securities will be approximately Adjusted Ending Value is less than, or equal to,
15.48% to 18.39% less than the actual closing value the Starting Value, the Supplemental Redemption
of the Russell 2000 Index on each day during the Amount will be zero. We will pay you the principal
Calculation Period. We will determine the amount of your MITTS Securities regardless of
Adjustment Factor on the Pricing Date, and it will whether any Supplemental Redemption Amount is
appear in the final prospectus supplement delivered payable.
</TABLE>
Examples
Here are two examples of Supplemental Redemption Amount calculations
assuming an investment term of seven years and an Adjustment Factor of
2.65% per year (the midpoint of the expected range of 2.4% and 2.9%):
Example 1--The Russell 2000 Index, as adjusted, is below the Starting Value
at maturity:
Hypothetical Starting Value: 437.46
Hypothetical closing value of the Russell 2000 Index at maturity: 481.21
Hypothetical Adjusted Ending Value: 399.67
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(Supplemental
Redemption
( 399.67 - 437.46) Amount cannot
Supplemental Redemption Amount (per unit) = $10 X ( ---------------) = $0.00 be less than zero)
( 437.46 )
</TABLE>
Total payment at maturity (per unit) = $10 + $0 = $10
Example 2--The Russell 2000 Index, as adjusted, is above the Starting Value
at maturity:
Hypothetical Starting Value: 437.46
Hypothetical closing value of the Russell 2000 Index at maturity: 787.43
Hypothetical Adjusted Ending Value: 654.00
(654.00 - 437.46)
Supplemental Redemption Amount (per unit) = $10 X (---------------) = $4.95
( 437.46 )
Total payment at maturity (per unit) = $10 + $4.95 = $14.95
S-5
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Who publishes the Russell 2000 Index and what any payments from us until maturity. We have
does the Russell 2000 Index measure? determined this estimated yield, in accordance with
regulations issued by the U.S. Treasury Department,
The Russell 2000 Index is published by solely in order for you to figure the amount of taxes
Frank Russell Company ("FRC") and is designed to that you will owe each year as a result of owning a
track the performance of 2,000 common stocks of MITTS Security. This estimated yield is neither a
corporations with small capitalizations relative to prediction nor a guarantee of what the actual
other stocks in the U.S. equity market. Market Supplemental Redemption Amount will be, or that
capitalization is the value of a corporation's stock in the actual Supplemental Redemption Amount will
the public market determined by multiplying the even exceed zero. We have determined that this
number of outstanding shares by the current price of estimated yield will equal % per annum,
a share. As of April 30, 1999, the market compounded semiannually.
capitalization of the stocks in the Russell 2000 Index
ranged from approximately $12.2 million to $13.2 Based upon this estimated yield, if you pay
billion, with the average market capitalization being your taxes on a calendar year basis and if you buy a
$593.7 million. The corporations in the Russell 2000 MITTS Security for $10 and hold the MITTS
Index are domiciled in the U.S. and its territories Security until maturity, you will be required to pay
and their stocks are traded on the NYSE, on the taxes on the following amounts of ordinary income
AMEX, or in the over-the-counter market. from the MITTS Securities each year: $ in 1999,
$ in 2000, $ in 2001, $ in 2002, $ in 2003,
Please note that an investment in the $ in 2004, $ in 2005 and $ in 2006.
MITTS Securities does not entitle you to any However, in 2006, the amount of ordinary income
ownership interest in the stocks of the companies that you will be required to pay taxes on from
included in the Russell 2000 Index. owning each MITTS Security may be greater or less
than $ , depending upon the Supplemental
How has the Russell 2000 Index performed Redemption Amount, if any, you receive. Also, if
historically? the Supplemental Redemption Amount is less than
$ , you may have a loss which you could deduct
We have provided a table showing the against other income you may have in 2006, but
closing values of the Russell 2000 Index on the last under current tax regulations, you would neither be
business day of each quarter from 1979 to the required nor allowed to amend your tax returns for
present, as published by FRC. prior years. For further information, see "United
States Federal Income Taxation" in this prospectus
You can find this table in the section "The supplement.
index--Historical data on the index" in this
prospectus supplement. We have provided this Will the MITTS Securities be listed on a stock
historical information to help you evaluate the exchange?
behavior of the Russell 2000 Index in various
economic environments; however, past performance The MITTS Securities will be listed on the
of the Russell 2000 Index is not necessarily AMEX under the trading symbol "RSM", subject
indicative of how the index will perform in the to official notice of issuance. You should be aware
future. that the listing of the MITTS Securities on the
AMEX will not necessarily ensure that a liquid
What about taxes? trading market will be available for the MITTS
Securities. You should review "Risk Factors--There
Each year, you will be required to pay taxes may be an uncertain trading market for the MITTS
on ordinary income from the MITTS Securities over Securities".
their term based upon an estimated yield for the
MITTS Securities, even though you will not receive What is the role of MLPF&S?
Our subsidiary, MLPF&S, is the
underwriter for the offering and sale of the MITTS
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S-6
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Securities. After the initial offering, MLPF&S companies that provide investment, financing,
intends to buy and sell MITTS Securities to create a insurance and related services on a global basis. For
secondary market for holders of the MITTS information about ML&Co. see the section "Merrill
Securities, and may stabilize or maintain the market Lynch & Co., Inc." in the accompanying
price of the MITTS Securities during the initial prospectus. You should also read the other
distribution of the MITTS Securities. However, documents we have filed with the SEC, which you
MLPF&S will not be obligated to engage in any of can find by referring to the section "Where You
these market activities or continue them once it has Can Find More Information" in this prospectus
started. supplement.
MLPF&S will also be our agent for Are there any risks associated with my
purposes of calculating, among other things, the investment?
Adjusted Ending Value and the Supplemental
Redemption Amount. Under certain circumstances, Yes, an investment in the MITTS Securities
these duties could result in a conflict of interest is subject to risk. Please refer to the section "Risk
between MLPF&S' status as a subsidiary of Factors" in this prospectus supplement.
ML&Co. and its responsibilities as calculation agent.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding
company with various subsidiary and affiliated
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S-7
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RISK FACTORS
Your investment in the MITTS Securities will involve certain risks. You
should carefully consider the following discussion of risks before deciding
whether an investment in the MITTS Securities is suitable for you.
You may not earn a return on your investment
You should be aware that if the Adjusted Ending Value does not exceed the
Starting Value at the stated maturity date, the Supplemental Redemption Amount
will be zero. This will be true even if the value of the Russell 2000 Index, as
reduced by the Adjustment Factor over the term of the MITTS Securities, was
higher than the Starting Value at some time during the life of the MITTS
Securities but later falls below the Starting Value. If the Supplemental
Redemption Amount is zero, we will pay you only the principal amount of your
MITTS Securities.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The amount we pay you at maturity may be less than the return you could
earn on other investments. Your yield may be less than the yield you would earn
if you bought a standard senior non-callable debt security of ML&Co. with the
same maturity date. Your investment may not reflect the full opportunity cost
to you when you take into account factors that affect the time value of money.
Your return will not reflect the return of owning the stocks included in the
Russell 2000 Index
FRC calculates the value of the Russell 2000 Index by reference to the
prices of the common stocks included in the index without taking into
consideration the value of the dividends paid on those stocks. The return on
your MITTS Securities will not reflect the return you would realize if you
actually owned the stocks included in the Russell 2000 Index and received the
dividends paid on those stocks because of the cumulative effect of the
reduction caused by the Adjustment Factor and because the value of the Russell
2000 Index is calculated by reference to the prices of the stocks included in
the Russell 2000 Index without taking into consideration the value of dividends
paid on those stocks.
There may be an uncertain trading market for the MITTS Securities
The MITTS Securities have been approved for listing on the AMEX under the
trading symbol "RSM", subject to official notice of issuance. While there have
been a number of issuances of series of Market Index Target-Term Securities,
trading volumes have varied historically from one series to another and it is
therefore impossible to predict how the MITTS Securities will trade. You cannot
assume that a trading market will develop for the MITTS Securities. If a
trading market does develop, there can be no assurance that there will be
liquidity in the trading market. The development of a trading market for the
MITTS Securities will depend on our financial performance, and other factors
such as the increase, if any, of the value of the Russell 2000 Index.
If the trading market for the MITTS Securities is limited, there may be a
limited number of buyers for your MITTS Securities if you do not wish to hold
your investment until maturity. This may affect the price you receive.
Many factors affect the trading value of the MITTS Securities; these factors
interrelate in complex ways and the effect of any one factor may offset or
magnify the effect of another factor
The trading value of the MITTS Securities will be affected by factors
that interrelate in complex ways. It is important for you to understand that
the effect of one factor may offset the increase in the trading value of the
MITTS Securities caused by another factor and that the effect of one factor may
exacerbate the decrease in the trading value of the MITTS Securities caused by
another factor. For example, an increase in interest rates
S-8
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may offset some or all of any increase in the trading value of the MITTS
Securities attributable to another factor, such as an increase in the value of
the index. The following paragraphs describe the expected impact on the market
value of the MITTS Securities given a change in a specific factor, assuming all
other conditions remain constant.
The value of the Russell 2000 Index is expected to affect the trading
value of the MITTS Securities. We expect that the market value of the MITTS
Securities will depend substantially on the amount by which the Russell 2000
Index, as reduced by the Adjustment Factor over the term of the MITTS
Securities, exceeds the Starting Value. If you choose to sell your MITTS
Securities when the value of the Russell 2000 Index, as reduced by the
Adjustment Factor over the term of the MITTS Securities, exceeds the Starting
Value, you may receive substantially less than the amount that would be payable
at maturity based on that value because of the expectation that the Russell
2000 Index will continue to fluctuate until the Adjusted Ending Value is
determined. If you choose to sell your MITTS Securities when the value of the
Russell 2000 Index is below, or not sufficiently above, the Starting Value, you
may receive less than the $10 principal amount per unit of MITTS Securities. In
general, rising U.S. dividend rates or dividends per share may increase the
value of the Russell 2000 Index while falling U.S. dividend rates may decrease
the value of the Russell 2000 Index.
Changes in the levels of interest rates are expected to affect the
trading value of the MITTS Securities. Because we will pay, at a minimum, the
principal amount per unit of MITTS Securities at maturity, we expect that
changes in U.S. interest rates will affect the trading value of the MITTS
Securities. In general, if U.S. interest rates increase, we expect that the
trading value of the MITTS Securities will decrease and, conversely, if U.S.
interest rates decrease, we expect the trading value of the MITTS Securities
will increase. Rising U.S. interest rates may lower the value of the Russell
2000 Index and, thus, the MITTS Securities. Falling U.S. interest rates may
increase the value of the Russell 2000 Index and, thus, may increase the value
of the MITTS Securities.
Changes in the volatility of the Russell 2000 Index are expected to
affect the trading value of the MITTS Securities. Volatility is the term used
to describe the size and frequency of price and/or market fluctuations.
Generally, if the volatility of the Russell 2000 Index increases, we expect
that the trading value of the MITTS Securities will increase and, conversely,
if the volatility of the Russell 2000 Index decreases, we expect that the
trading value of the MITTS Securities will decrease.
As the time remaining to maturity of the MITTS Securities decreases, the
"time premium" associated with the MITTS Securities will decrease. We
anticipate that before their maturity, the MITTS Securities may trade at a
value above that which would be expected based on the level of interest rates
and the Russell 2000 Index. This difference would reflect a "time premium" due
to expectations concerning the value of the Russell 2000 Index during the
period before the stated maturity of the MITTS Securities. However, as the time
remaining to the stated maturity of the MITTS Securities decreases, we expect
that this time premium will decrease, lowering the trading value of the MITTS
Securities.
Changes in dividend yields of the stocks included in the index are
expected to affect the trading value of the MITTS Securities. Generally if
dividend yields on the stocks included in the Russell 2000 Index increase, we
expect that the value of the MITTS Securities will decrease and, conversely, if
dividend yields on the stocks included in the Russell 2000 Index decrease, we
expect that the value of the MITTS Securities will increase.
Changes in our credit ratings may affect the trading value of the MITTS
Securities. Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
may affect the trading value of the MITTS Securities. However, because your
return on your MITTS Securities is dependent upon factors in addition to our
ability to pay our obligations under the MITTS Securities, such as the
percentage increase in the value of the Russell 2000 Index at maturity, an
improvement in our credit ratings will not reduce the investment risks related
to the MITTS Securities.
S-9
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In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of the MITTS Securities of a given change
in most of the factors listed above will be less if it occurs later in the term
of the MITTS Securities than if it occurs earlier in the term of the MITTS
Securities. However, we expect that the effect on the trading value of the
MITTS Securities of a given increase in the value of the Russell 2000 Index
will be greater if it occurs later in the term of the MITTS Securities than if
it occurs earlier in the term of the MITTS Securities.
Amounts payable on the MITTS Securities may be limited by state law
New York State law governs the 1983 Indenture under which the MITTS
Securities will be issued. New York has usury laws that limit the amount of
interest that can be charged and paid on loans, which include debt securities
like the MITTS Securities. Under present New York law, the maximum rate of
interest is 25% per annum on a simple interest basis. This limit may not apply
to debt securities in which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws
that regulate the amount of interest that may be charged to and paid by a
borrower. We will promise, for the benefit of the holders of the MITTS
Securities, to the extent permitted by law, not to voluntarily claim the
benefits of any laws concerning usurious rates of interest.
Purchases and sales by us and our affiliates may affect your return
We and our other affiliates may from time to time buy or sell the stocks
included in the Russell 2000 Index or futures or options in the index for our
own accounts, for business reasons or in connection with hedging our
obligations under the MITTS Securities. These transactions could affect the
price of these stocks and, in turn, the value of the Russell 2000 Index in a
manner that would be adverse to your investment in the MITTS Securities.
Potential conflicts of interests
Our subsidiary, MLPF&S, is our agent for the purposes of calculating the
Adjusted Ending Value and the Supplemental Redemption Amount payable to you at
maturity. Under certain circumstances, MLPF&S' role as our subsidiary and its
responsibilities as calculation agent for the MITTS Securities could give rise
to conflicts of interests. These conflicts could occur, for instance, in
connection with the calculation agent's determination as to whether the value
of the Russell 2000 Index can be calculated on a particular trading day, or in
connection with judgments that it would be required to make in the event of a
discontinuance of the Russell 2000 Index. See "Description of the MITTS
Securities--Adjustments to the Russell 2000 Index; Market Disruption Events"
and "--Discontinuance of the Russell 2000 Index" in this prospectus supplement.
MLPF&S is required to carry out its duties as calculation agent in good faith
and using its reasonable judgment. However, you should be aware that because we
control MLPF&S, potential conflicts of interest could arise.
We have entered into an arrangement with our subsidiary to hedge the
market risks associated with our obligation to pay the Supplemental Redemption
Amount. Our subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for such an arrangement from
unaffiliated parties.
There are uncertain tax consequences associated with an investment in the MITTS
Securities
You should also consider the tax consequences of investing in the MITTS
Securities, aspects of which are uncertain. See "United States Federal Income
Taxation".
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DESCRIPTION OF THE MITTS SECURITIES
ML&Co. will issue the MITTS Securities as a series of senior debt
securities under the 1983 Indenture, which is more fully described in the
accompanying prospectus. The MITTS Securities will mature on July , 2006.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of the MITTS Security plus the Supplemental Redemption Amount,
if any, there will be no other payment of interest, periodic or otherwise. See
"--Payment at maturity".
The MITTS Securities are not subject to redemption by ML&Co. or at the
option of any beneficial owner before maturity. If an Event of Default occurs
with respect to the MITTS Securities, beneficial owners of the MITTS Securities
may accelerate the maturity of the MITTS Securities, as described under "--
Events of Default and Acceleration" in this prospectus supplement and
"Description of Debt Securities--Events of Default" in the accompanying
prospectus.
ML&Co. will issue the MITTS Securities in denominations of whole units of
$10.00 per unit.
The MITTS Securities do not have the benefit of any sinking fund.
Payment at maturity
At maturity, a beneficial owner of a MITTS Security will be entitled to
receive the principal amount of that MITTS Security plus a Supplemental
Redemption Amount, if any, all as provided below. If the Supplemental
Redemption Amount is not greater than zero, you will be entitled to receive
only the principal amount of your MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
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<S> <C>
(Adjusted Ending Value - Starting Value )
principal amount of each MITTS Security ($10 per unit) X ( --------------------------------------)
( Starting Value )
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" will equal the closing value of the Russell 2000
Index on the Pricing Date. We will disclose the Starting Value in the final
prospectus supplement delivered to you in connection with sales of the MITTS
Securities.
The "Adjusted Ending Value" will be determined by the calculation agent
and will equal the average or arithmetic mean of the closing values of the
Russell 2000 Index, as reduced by the application of the Adjustment Factor on
each Calculation Day, determined on each of the first five Calculation Days
during the Calculation Period. If there are fewer than five Calculation Days,
then the Adjusted Ending Value will equal the average or arithmetic mean of the
closing values of the Russell 2000 Index on those Calculation Days as reduced
by the application of the Adjustment Factor on each Calculation Day. If there
is only one Calculation Day, then the Adjusted Ending Value will equal the
closing value of the Russell 2000 Index on that Calculation Day as reduced by
the application of the Adjustment Factor on that Calculation Day. If no
Calculation Days occur during the Calculation Period, then the Adjusted Ending
Value will equal the closing value of the Russell 2000 Index determined on the
last scheduled Index Business Day in the Calculation Period as reduced by the
application of the Adjustment Factor on that Calculation Day, regardless of the
occurrence of a Market Disruption Event on that day.
S-11
<PAGE>
The "Adjustment Factor" will be a fixed percentage which is expected to
be between 2.4% and 2.9% and will be applied over the entire term of the MITTS
Securities. On each calendar day during the term of the MITTS Securities, we
will apply this percentage on a pro-rated basis based on a 365-day year to
reduce the value used to calculate the Supplemental Redemption Amount on each
Calculation Day during the Calculation Period. As a result of the cumulative
effect of this reduction, the values used to calculate the Supplemental
Redemption Amount during the Calculation Period will be approximately 15.48%
to 18.39% less than the actual closing value of the Russell 2000 Index on each
Calculation Day during the Calculation Period.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day before the maturity date to and including the
second scheduled Index Business Day before the maturity date.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
An "Index Business Day" is a day on which the NYSE and the AMEX are open
for trading and the Russell 2000 Index or any successor index is calculated
and published.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes
and binding on ML&Co. and beneficial owners of the MITTS Securities.
Hypothetical returns
The following table illustrates, for a range of hypothetical closing
values of the Russell 2000 Index during the Calculation Period:
.the percentage change from the Starting Value to the hypothetical
closing value,
.the Adjusted Ending Value used to calculate the Supplemental Redemption
Amount,
.the total amount payable at maturity for each unit of MITTS Securities,
.the total rate of return to beneficial owners of the MITTS Securities,
.the pretax annualized rate of return to beneficial owners of the MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
included in the Russell 2000 Index, which includes an assumed
aggregate dividend yield of 1.35% per annum, as more fully described
below.
For the purposes of calculating this table, we have assumed a
hypothetical Adjustment Factor of 2.65% per annum, the midpoint of the
expected range of 2.4% to 2.9%.
S-12
<PAGE>
<TABLE>
<CAPTION>
Pretax
annualized
Hypothetical Percentage change rate of return
closing value of from the Total amount Pretax of stocks
the Russell 2000 Starting Value payable at maturity Total rate of annualized rate of included in the
Index during the to the hypothetical Adjusted per unit of return on the return on the Russell 2000
Calculation Period closing value Ending Value(1) MITTS Securities MITTS Securities MITTS Securities(2) Index(2)(3)
- ------------------ -------------------- --------------- ------------------- ---------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
87.49 -80% 72.67 $10.00 0.00% 0.00% -20.23%
174.98 -60% 145.34 $10.00 0.00% 0.00% -11.31%
262.48 -40% 218.00 $10.00 0.00% 0.00% -5.83%
349.97 -20% 290.67 $10.00 0.00% 0.00% -1.83%
437.46(4) 0% 363.34 $10.00 0.00% 0.00% 1.35%
524.95 20% 436.01 $10.00 0.00% 0.00% 4.00%
612.44 40% 508.67 $11.63 16.28% 2.16% 6.26%
699.94 60% 581.34 $13.29 32.89% 4.10% 8.25%
787.43 80% 654.01 $14.95 49.50% 5.82% 10.03%
874.92 100% 726.68 $16.61 66.11% 7.38% 11.63%
962.41 120% 799.34 $18.27 82.72% 8.79% 13.09%
1,049.90 140% 872.01 $19.93 99.34% 10.09% 14.44%
1,137.40 160% 944.68 $21.59 115.95% 11.30% 15.69%
1,224.89 180% 1,017.35 $23.26 132.56% 12.42% 16.85%
1,312.38 200% 1,090.01 $24.92 149.17% 13.47% 17.94%
</TABLE>
- --------
(1) The Adjusted Ending Values specified in this column are approximately
16.94% less than the hypothetical closing values of the Russell 2000 Index
as a result of the cumulative effect of the application of a hypothetical
Adjustment Factor of 2.65% per annum, the midpoint of an expected range
between 2.4 % and 2.9%, over the term of the MITTS Securities.
(2) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(3) This rate of return assumes:
(a) a constant dividend yield of 1.35% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of
the Russell 2000 Index at the end of each quarter assuming this value
increases or decreases linearly from the Starting Value to the
applicable hypothetical closing value;
(b) no transaction fees or expenses in connection with purchasing and
holding stocks included in the index;
(c) a seven-year investment term; and
(d) a final closing value of the Russell 2000 Index equal to the
hypothetical closing value.
(4) This is the hypothetical Starting Value of the Russell 2000 Index for
purposes of this table. The actual Starting Value will equal the closing
value of the index on the Pricing Date.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rates of return will depend entirely on the actual Adjusted
Ending Value determined by the calculation agent as provided in this prospectus
supplement.
Adjustments to the Russell 2000 Index; Market Disruption Events
If at any time FRC changes its method of calculating the Russell 2000
Index, or the value of the index changes, in any material respect, or if the
Russell 2000 Index is in any other way modified so that the Russell 2000 Index
does not, in the opinion of the calculation agent, fairly represent the value
of the Russell 2000 Index had any changes or modifications not been made, then,
from and after that time, the calculation agent shall, at the close of business
in New York, New York, on each date that the closing value with respect to the
Russell 2000 Index is to be calculated, make any adjustments as, in the good
faith judgment of the calculation agent, may be necessary in order to arrive at
a calculation of a value of a stock index comparable to the Russell
S-13
<PAGE>
2000 Index as if no changes or modifications had been made, and calculate the
closing value with reference to the Russell 2000 Index, as adjusted.
Accordingly, if the method of calculating the Russell 2000 Index is modified so
that the value of the Russell 2000 Index is a fraction or a multiple of what it
would have been if it had not been modified, e.g., due to a split, then the
calculation agent shall adjust the Russell 2000 Index in order to arrive at a
value of the Russell 2000 Index as if it had not been modified, e.g., as if the
split had not occurred.
"Market Disruption Event" means either of the following events as
determined by the calculation agent:
(a) the suspension or material limitation on trading for more than two
hours of trading, or during the one-half hour period preceding the
close of trading on the applicable exchange, in 20% or more of the
stocks which then comprise the Russell 2000 Index; or
(b) the suspension or material limitation, in each case, for more than
two hours of trading, or during the one-half hour period preceding
the close of trading on the applicable exchange, whether by reason
of movements in price otherwise exceeding levels permitted by the
relevant exchange or otherwise, in option contracts or futures
contracts related to the Russell 2000 Index, or any successor index,
traded on any major U.S. exchange.
For the purpose of the above definition:
(1) a limitation on the hours in a trading day and/or number of days of
trading will not constitute a Market Disruption Event if it results
from an announced change in the regular business hours of the
relevant exchange and
(2) for the purpose of clause (a) above, any limitations on trading
during significant market fluctuations under NYSE Rule 80A, or any
applicable rule or regulation enacted or promulgated by the NYSE or
any other self regulatory organization or the SEC of similar scope
as determined by the calculation agent, will be considered
"material".
Discontinuance of the Russell 2000 Index
If FRC discontinues publication of the index and FRC or another entity
publishes a successor or substitute index that the calculation agent
determines, in its sole discretion, to be comparable to the index (a "successor
index"), then, upon the calculation agent's notification of its determination
to the trustee and ML&Co., the calculation agent will substitute the successor
index as calculated by FRC or another entity for the index and calculate the
closing value as described above under "--Payment at maturity". Upon any
selection by the calculation agent of a successor index, ML&Co. shall promptly
give notice to the beneficial owners of the MITTS Securities by publication in
a United States newspaper with a national circulation.
In the event that the FRC discontinues publication of the Russell 2000
Index and:
.the calculation agent does not select a successor index, or
.the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the Russell 2000
Index in accordance with the procedures last used to calculate the Russell 2000
Index before any discontinuance. If a successor index is selected or the
calculation agent calculates a value as a substitute for the index as described
below, the successor index or value shall be substituted for the index for all
purposes, including for purposes of determining whether a Market Disruption
Event exists.
If FRC discontinues publication of the Russell 2000 Index before the
period during which the Supplemental Redemption Amount is to be determined and
the calculation agent determines that no successor index is available at that
time, then on each Business Day until the earlier to occur of:
S-14
<PAGE>
.the determination of the Adjusted Ending Value and
.a determination by the calculation agent that a successor index is
available,
the calculation agent will determine the value that would be used in computing
the Supplemental Redemption Amount as described in the preceding paragraph as
if that day were a Calculation Day. The calculation agent will cause notice of
each value to be published not less often than once each month in The Wall
Street Journal or another newspaper of general circulation, and arrange for
information with respect to these value to be made available by telephone.
A "Business Day" is any day on which the NYSE and the AMEX are open for
trading.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Russell 2000 Index may adversely affect trading in the MITTS
Securities.
Events of Default and Acceleration
In case an Event of Default with respect to any MITTS Securities occurs
and is continuing, the amount payable to a beneficial owner of a MITTS Security
upon any acceleration permitted by the MITTS Securities, with respect to each
$10 principal amount of the MITTS Securities, will be equal to the principal
amount and the Supplemental Redemption Amount, if any, calculated as though the
date of early repayment were the stated maturity date of the MITTS Securities,
provided, however, that the Adjustment Factor will be applied to the values
used to calculate the Supplemental Redemption Amount as if the MITTS Securities
had not been accelerated and had remained outstanding to the stated maturity
date. See "--Payment at maturity" in this prospectus supplement. If a
bankruptcy proceeding is commenced in respect of ML&Co., the claim of the
beneficial owner of a MITTS Security may be limited, under Section 502(b)(2) of
Title 11 of the United States Code, to the principal amount of the MITTS
Security plus an additional amount of contingent interest calculated as though
the date of the commencement of the proceeding were the maturity date of the
MITTS Securities.
In case of default in payment of the MITTS Securities, whether at the
stated maturity or upon acceleration, from and after the maturity date the
MITTS Securities shall bear interest, payable upon demand of the beneficial
owners, at the rate of % per annum, to the extent that payment of such
interest shall be legally enforceable, on the unpaid amount due and payable on
that date in accordance with the terms of the MITTS Securities to the date
payment of the amount has been made or duly provided for.
Depositary
Description of the Global Securities
Upon issuance, all MITTS Securities will be represented by one or more
fully registered global securities. Each such global security will be deposited
with, or on behalf of, DTC (DTC, together with any successor thereto, being a
"depositary"), as depositary, registered in the name of Cede & Co., DTC's
partnership nominee. Unless and until it is exchanged in whole or in part for
MITTS Securities in definitive form, no global security may be transferred
except as a whole by the depositary to a nominee of the depositary or by a
nominee of the depositary to the depositary or another nominee of the
depositary or by the depositary or any nominee to a successor of the depositary
or a nominee of that successor.
So long as DTC, or its nominee, is a registered owner of a global
security, DTC or its nominee, as the case may be, will be considered the sole
owner or holder of the MITTS Securities represented by the global security for
all purposes under the 1983 Indenture. Except as provided below, the beneficial
owners of the MITTS Securities represented by a global security will not be
entitled to have the MITTS Securities represented by a global security
registered in their names, will not receive or be entitled to receive physical
delivery of the MITTS Securities in definitive form and will not be considered
the owners or holders of the MITTS Securities including for purposes of
receiving any reports delivered by ML&Co. or the trustee under the 1983
Indenture. Accordingly, each person owning a beneficial interest in a global
security must rely on the procedures of DTC and, if that person is not a
participant of DTC, on the procedures of the participant through
S-15
<PAGE>
which that person owns its interest, to exercise any rights of a holder under
the 1983 Indenture. ML&Co. understands that under existing industry practices,
in the event that ML&Co. requests any action of holders or that an owner of a
beneficial interest in a global security desires to give or take any action
which a holder is entitled to give or take under the 1983 Indenture, DTC would
authorize the participants holding the relevant beneficial interests to give or
take that action, and those participants would authorize beneficial owners
owning through those participants to give or take that action or would
otherwise act upon the instructions of beneficial owners. Conveyance of notices
and other communications by DTC to participants, by participants to indirect
participants and by participants and indirect participants to beneficial owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC will act as securities depositary for the MITTS Securities. The MITTS
Securities will be issued as fully registered securities registered in the name
of Cede & Co., DTC's partnership nominee. One or more fully registered global
securities will be issued for the MITTS Securities in the aggregate principal
amount of such issue, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC holds securities that its participants
deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants of DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. DTC is owned
by a number of its direct participants and by the NYSE, the AMEX, and the
National Association of Securities Dealers, Inc. Access to DTC's system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the SEC.
Purchases of the MITTS Securities under DTC's system must be made by or
through direct participants, which will receive a credit for the MITTS
Securities on DTC's records. The ownership interest of each beneficial owner is
in turn to be recorded on the records of direct and indirect participants.
Beneficial owners will not receive written confirmation from DTC of their
purchase, but beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the direct or indirect participants through which such
beneficial owner entered into the transaction. Transfers of ownership interests
in the MITTS Securities are to be accomplished by entries made on the books of
participants acting on behalf of beneficial owners.
To facilitate subsequent transfers, all MITTS Securities deposited with
DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of MITTS Securities with DTC and their registration in the name of Cede
& Co. effect no change in beneficial ownership. DTC has no knowledge of the
actual beneficial owners of the MITTS Securities; DTC's records reflect only
the identity of the direct participants to whose accounts such MITTS Securities
are credited, which may or may not be the beneficial owners. The participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
S-16
<PAGE>
Neither DTC nor Cede & Co. will consent or vote with respect to the
MITTS Securities. Under its usual procedures, DTC mails an omnibus proxy to
ML&Co. as soon as possible after the applicable record date. The omnibus proxy
assigns Cede & Co.'s consenting or voting rights to those direct participants
identified in a listing attached to the omnibus proxy to whose accounts the
MITTS Securities are credited on the record date.
Principal, premium, if any, and/or interest, if any, payments made in
cash on the MITTS Securities will be made in immediately available funds to
DTC. DTC's practice is to credit direct participants' accounts on the
applicable payment date in accordance with their respective holdings shown on
the depositary's records unless DTC has reason to believe that it will not
receive payment on that date. Payments by participants to beneficial owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in "street name", and will be the responsibility of that
participant and not of DTC, the trustee or ML&Co., subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal, premium, if any, and/or interest, if any, to DTC is the
responsibility of ML&Co. or the trustee, disbursement of these payments to
direct participants shall be the responsibility of DTC, and disbursement these
payments to the beneficial owners shall be the responsibility of direct
participants and indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the MITTS Securities,
the global securities will be exchangeable for MITTS Securities in definitive
form of like tenor and of an equal aggregate principal amount, in
denominations of $10 and integral multiples of $10. The definitive MITTS
Securities will be registered in the name or names as the depositary shall
instruct the trustee. It is expected that instructions may be based upon
directions received by the depositary from participants with respect to
ownership of beneficial interests in the global securities.
DTC may discontinue providing its services as securities depositary with
respect to the MITTS Securities at any time by giving reasonable notice to
ML&Co. or the Trustee. Under such circumstances, in the event that a successor
securities depositary is not obtained, MITTS Security certificates are
required to be printed and delivered.
ML&Co. may decide to discontinue use of the system of book-entry
transfers through DTC or a successor securities depositary. In that event,
MITTS Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that ML&Co. believes to be reliable, but ML&Co. takes no
responsibility for its accuracy.
Same-Day Settlement and Payment
Settlement for the MITTS Securities will be made by the underwriter in
immediately available funds. ML&Co. will make all payments of principal and
the Supplemental Redemption Amount, if any, in immediately available funds so
long as the MITTS Securities are maintained in book-entry form.
S-17
<PAGE>
THE INDEX
Unless otherwise stated, all information in this prospectus on the index
is derived from FRC or other publicly available sources. This information
reflects the policies of FRC as stated in these sources and these policies are
subject to change by FRC. FRC is under no obligation to continue to publish the
index and may discontinue publication of the index at any time.
The index is an index calculated, published and disseminated by FRC, and
measures the composite price performance of stocks of 2,000 companies domiciled
in the U.S. and its territories. All 2,000 stocks are traded on either the NYSE
or the AMEX or in the over-the-counter market and form a part of the
Russell 3000(R) Index. The Russell 3000(R) Index is composed of the 3,000
largest U.S. companies as determined by market capitalization and represents
approximately 98% of the investable U.S. equity market.
The index consists of the smallest 2,000 companies included in the
Russell 3000(R) Index and represents approximately 7.22% of the total market
capitalization of the Russell 3000(R) Index as of April 30, 1999. The index is
designed to track the performance of the small capitalization segment of the
U.S. equity market.
Selection of stocks underlying the index
Only common stocks belonging to corporations domiciled in the U.S. and
its territories are eligible for inclusion in the Russell 3000 Index and the
index. Stocks traded on U.S. exchanges but domiciled in other countries are
excluded. Preferred stock, convertible preferred stock, participating preferred
stock, paired shares, warrants and rights are also excluded. Trust receipts,
Royalty Trusts, limited liability companies, OTC Bulletin Board companies, pink
sheets, closed-end mutual funds, and limited partnerships that are traded on
U.S. exchanges, are also ineligible for inclusion. Real Estate Investment
Trusts and Beneficial Trusts are eligible for inclusion, however. Generally,
only one class of securities of a company is allowed in the Russell 3000 Index,
although exceptions to this general rule have been made where FRC has
determined that each class of securities acts independent of the other.
The primary criteria used to determine the initial list of securities
eligible for the Russell 3000 Index is total market capitalization, which is
defined as the price of the shares times the total number of shares
outstanding. Based on closing values on May 31 of each year, FRC reconstitutes
the composition of the Russell 3000 Index using the then existing market
capitalizations of eligible companies. As of June 30 of each year, the index is
adjusted to reflect the reconstitution of the Russell 3000 Index for that year.
Real-time dissemination of the index began on January 1, 1987.
As a capitalization-weighted index, the Russell 2000 Index reflects
changes in the capitalization, or market value, of the component stocks
relative to the capitalization on a base date. The current index value is
calculated by adding the market values of the index's component stocks, which
are derived by multiplying the price of each stock by the number of shares
outstanding, to arrive at the total market capitalization of the 2,000 stocks.
The total market capitalization is then divided by a divisor, which represents
the "adjusted" capitalization of the index on the base date of December 31,
1986. To calculate the index, last sale prices will be used for exchange-traded
and NASDAQ stocks. If a component stock is not open for trading, the most
recently traded price for that security will be used in calculating the index.
In order to provide continuity for the index's value, the divisor is adjusted
periodically to reflect events including changes in the number of common shares
outstanding for component stocks, company additions or deletions, corporate
restructurings and other capitalization changes.
The value of the index is reported on the AMEX under the symbol "RTY", on
Bloomberg under the symbol "RTY" and on Reuters under the symbol ".RUT".
S-18
<PAGE>
All disclosure contained in this prospectus supplement regarding the
index, or its publisher, is derived from publicly available information. All
copyrights and other intellectual property rights relating to the index are
owned by FRC. FRC has no relationship with ML&Co. or the MITTS Securities; it
does not sponsor, endorse, authorize, sell or promote the MITTS Securities,
and has no obligation or liability in connection with the administration,
marketing or trading of the MITTS Securities.
Below is a breakdown of the component stocks of the index by industry
group as of April 30, 1999:
<TABLE>
<CAPTION>
Percentage of
Number of Index Market
Industry Companies Capitalization
-------- --------- --------------
<S> <C> <C>
Financial Services, including REITS............... 426 23.8
Consumer Discretionary and Services............... 369 18.7
Technology........................................ 235 14.2
Materials and Processing.......................... 198 8.9
Health Care....................................... 180 8.8
Utilities......................................... 98 8.4
Producer Durable.................................. 142 6.8
Auto and Transportation........................... 84 4.3
Other Energy...................................... 68 2.8
Consumer Staples.................................. 48 2.3
Other............................................. 17 0.8
Integrated Oils................................... 6 0.3
===== ====
Total......................................... 1,871 100*
</TABLE>
- --------
Source: FRC.
* Total value may not add up to 100 due to rounding.
As of April 30, 1999, the ten largest holdings in the index represented
5.9% of the aggregate market capitalization of the index. Twenty-three of the
stocks in the index were also components of the S&P 500 Index. These 23 stocks
represented 1% of the Russell 2000 Index market capitalization. The dividend
yield on the index as of June 1, 1999 was 1.35%.
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<PAGE>
Historical data on the index
The following table sets forth the closing level of the index at the end
of each quarter, in the period from March 1979 through March 1999. All
historical data presented in the following table relating to periods prior to
January 1, 1987, the date FRC commenced real-time dissemination of the index,
are presented as if the index had existed during these periods and these
closing levels have been calculated hypothetically on the same basis that the
index is calculated. All historical data presented in the following table
relating to periods after January 1, 1987 are based on actual data from the
index. These historical data on the index are not necessarily indicative of the
future performance of the index or what the value of the MITTS Securities may
be. Any historical upward or downward trend in the closing level of the index
during any period set forth below is not any indication that the index is more
or less likely to decline at any time during the term of the MITTS Securities.
<TABLE>
<CAPTION>
March June September December
------ ------ --------- --------
<S> <C> <C> <C> <C>
1979........................................... 46.94 49.62 54.68 55.91
1980........................................... 48.27 57.47 69.94 74.80
1981........................................... 80.25 82.56 67.55 73.67
1982........................................... 66.21 64.67 70.84 88.90
1983........................................... 103.77 124.17 117.43 112.27
1984........................................... 104.10 100.30 105.17 101.49
1985........................................... 114.92 118.38 112.65 129.87
1986........................................... 147.63 154.23 134.73 135.00
1987........................................... 166.79 164.75 170.81 120.42
1988........................................... 142.15 151.30 149.09 147.36
1989........................................... 157.90 167.43 178.21 168.31
1990........................................... 163.64 169.12 126.74 132.20
1991........................................... 171.01 167.61 180.16 189.94
1992........................................... 203.69 188.64 192.92 221.01
1993........................................... 229.21 233.35 252.95 258.59
1994........................................... 251.06 240.29 256.12 250.36
1995........................................... 260.77 283.63 310.38 315.97
1996........................................... 330.77 346.61 346.38 362.61
1997........................................... 342.56 396.37 453.82 437.02
1998........................................... 480.68 457.39 363.59 429.60
1999........................................... 397.63
</TABLE>
The closing value of the index on June 1, 1999 was 437.46.
S-20
<PAGE>
The following graph sets forth the historical performance of the index at
the end of each quarter from March 1979 through March 1999. Past movements of
the index are not necessarily indicative of the future index values.
[THE GRAPH APPEARING HERE SETS FORTH THE HISTORICAL QUARTER-END CLOSING VALUES
OF THE INDEX FROM MARCH 1979 THROUGH MARCH 1999. THE VERTICAL AXIS HAS A RANGE
OF NUMBERS FROM 0 TO 500 IN INCREMENTS OF 50. THE HORIZONTAL AXIS HAS A RANGE OF
DATES FROM MARCH 1979 TO MARCH 1999 IN INCREMENTS OF 12 MONTHS.]
Source: Prepared by ML&Co. from data obtained from FRC.
The index is a trademark of FRC and has been licensed for use by ML&Co.
The MITTS Securities are not sponsored, endorsed, sold or promoted by FRC and
FRC makes no representation regarding the advisability of investing in the
MITTS Securities.
The MITTS Securities are not sponsored, endorsed, sold or promoted by
FRC. FRC makes no representation or warranty, express or implied, to the owners
of the MITTS Securities or any member of the public regarding the advisability
of investing in securities generally or in the MITTS Securities particularly or
the ability of the index to track general stock market performance or a segment
of the same. FRC's publication of the index in no way suggests or implies an
opinion by FRC as to the advisability of investment in any or all of the
securities upon which the index is based. FRC's only relationship to ML&Co. is
the licensing of certain trademarks, and trade names of FRC and of the index
which is determined, composed and calculated by FRC without regard to ML&Co. or
the MITTS Securities. FRC is not responsible for and has not reviewed the MITTS
Securities or any associated literature or publications and FRC makes no
representation or warranty express or implied as to their accuracy or
completeness, or otherwise. FRC reserves the right, at any time and without
notice, to alter, amend, terminate or in any way change the index. FRC has no
obligation or liability in connection with the administration, marketing or
trading of the MITTS Securities.
FRC DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX
OR ANY DATA INCLUDED THEREIN AND FRC SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. FRC MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY ML&CO., INVESTORS, OWNERS OF THE MITTS
SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA
INCLUDED THEREIN. FRC MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL FRC HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
S-21
<PAGE>
UNITED STATES FEDERAL INCOME TAXATION
Set forth in full below is the opinion of Brown & Wood LLP, counsel to
ML&Co., as to certain United States Federal income tax consequences of the
purchase, ownership and disposition of the MITTS Securities. Such opinion is
based upon laws, regulations, rulings and decisions now in effect, all of which
are subject to change (including retroactive changes in effective dates) or
possible differing interpretations. The discussion below deals only with MITTS
Securities held as capital assets and does not purport to deal with persons in
special tax situations, such as financial institutions, insurance companies,
regulated investment companies, dealers in securities or currencies, tax-exempt
entities, persons holding MITTS Securities in a tax-deferred or tax-advantaged
account, or persons holding MITTS Securities as a hedge against currency risks,
as a position in a "straddle" or as part of a "hedging" or "conversion"
transaction for tax purposes. It also does not deal with holders other than
original purchasers (except where otherwise specifically noted herein). The
following discussion also assumes that the issue price of the MITTS Securities,
as determined for United States Federal income tax purposes, equals the
principal amount thereof. Persons considering the purchase of the MITTS
Securities should consult their own tax advisors concerning the application of
the United States Federal income tax laws to their particular situations as
well as any consequences of the purchase, ownership and disposition of the
MITTS Securities arising under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a
MITTS Security that is for United States Federal income tax purposes (a) a
citizen or resident of the United States, (b) a corporation, partnership or
other entity treated as a corporation or a partnership created or organized in
or under the laws of the United States, any state thereof or the District of
Columbia (other than a partnership that is not treated as a United States
person under any applicable Treasury regulations), (c) an estate the income of
which is subject to United States Federal income taxation regardless of its
source, (d) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust, or (e) any other person whose income or gain in respect of a MITTS
Security is effectively connected with the conduct of a United States trade or
business. Notwithstanding clause (d) the preceding sentence, to the extent
provided in Treasury regulations, certain trusts in existence on August 20,
1996, and treated as United States persons prior to such date that elect to
continue to be treated as United States persons will also be a U.S. Holder. As
used herein, the term "non-U.S. Holder" means a beneficial owner of a MITTS
Security that is not a U.S. Holder.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization, for United
States Federal income tax purposes, of the MITTS Securities or securities with
terms substantially the same as the MITTS Securities. However, although the
matter is not free from doubt, under current law, each MITTS Security should be
treated as a debt instrument of ML&Co. for United States Federal income tax
purposes. ML&Co. currently intends to treat each MITTS Security as a debt
instrument of ML&Co. for United States Federal income tax purposes and, where
required, intends to file information returns with the Internal Revenue Service
in accordance with such treatment, in the absence of any change or
clarification in the law, by regulation or otherwise, requiring a different
characterization of the MITTS Securities. Prospective investors in the MITTS
Securities should be aware, however, that the IRS is not bound by ML&Co.'s
characterization of the MITTS Securities as indebtedness, and the IRS could
possibly take a different position as to the proper characterization of the
MITTS Securities for United States Federal income tax purposes. The following
discussion of the principal United States Federal income tax consequences of
the purchase, ownership and disposition of the MITTS Securities is based upon
the assumption that each MITTS Security will be treated as a debt instrument of
ML&Co. for United States Federal income tax purposes. If the MITTS Securities
are not in fact treated as debt instruments of ML&Co. for United States Federal
income tax purposes, then the United States Federal income tax treatment of the
purchase, ownership and disposition of the MITTS Securities could differ from
the treatment discussed below with the result that the timing and character of
income, gain or loss recognized in respect of a MITTS Security could differ
from the timing and character of
S-22
<PAGE>
income, gain or loss recognized in respect of a MITTS Security had the MITTS
Securities in fact been treated as debt instruments of ML&Co. for United States
Federal income tax purposes.
U.S. Holders
On June 11, 1996, the Treasury Department issued final regulations (the
"Final Regulations") concerning the proper United States Federal income tax
treatment of contingent payment debt instruments such as the MITTS Securities,
which apply to debt instruments issued on or after August 13, 1996 and,
accordingly, will apply to the MITTS Securities. In general, the Final
Regulations cause the timing and character of income, gain or loss reported on
a contingent payment debt instrument to substantially differ from the timing
and character of income, gain or loss reported on a contingent payment debt
instrument under general principles of prior United States Federal income tax
law. Specifically, the Final Regulations generally require a U.S. Holder of
such an instrument to include future contingent and noncontingent interest
payments in income as such interest accrues based upon a projected payment
schedule. Moreover, in general, under the Final Regulations, any gain
recognized by a U.S. Holder on the sale, exchange, or retirement of a
contingent payment debt instrument is treated as ordinary income, and all or a
portion of any loss realized could be treated as ordinary loss as opposed to
capital loss (depending upon the circumstances). The Final Regulations provide
no definitive guidance as to whether or not an instrument is properly
characterized as a debt instrument for United States Federal income tax
purposes.
In particular, solely for purposes of applying the Final Regulations to
the MITTS Securities, ML&Co. has determined that the projected payment schedule
for the MITTS Securities will consist of payment on the maturity date of the
principal amount thereof and a projected Supplemental Redemption Amount equal
to $ per unit (the "Projected Supplemental Redemption Amount"). This
represents an estimated yield on the MITTS Securities equal to % per annum,
compounded semiannually. Accordingly, during the term of the MITTS Securities,
a U.S. Holder of a MITTS Security will be required to include in income the sum
of the daily portions of interest on the MITTS Security that are deemed to
accrue at this estimated yield for each day during the taxable year (or portion
of the taxable year) on which the U.S. Holder holds such MITTS Security. The
amount of interest that will be deemed to accrue in any accrual period (i.e.,
generally each six-month period during which the MITTS Securities are
outstanding) will equal the product of this estimated yield (properly adjusted
for the length of the accrual period) and the MITTS Security's adjusted issue
price (as defined below) at the beginning of the accrual period. The daily
portions of interest will be determined by allocating to each day in the
accrual period the ratable portion of the interest that is deemed to accrue
during the accrual period. In general, for these purposes a MITTS Security's
adjusted issue price will equal the MITTS Security's issue price (i.e., $10),
increased by the interest previously accrued on the MITTS Security. At maturity
of a MITTS Security, in the event that the actual Supplemental Redemption
Amount, if any, exceeds $ per unit (i.e., the Projected Supplemental
Redemption Amount), a U.S. Holder will be required to include the excess of the
actual Supplemental Redemption Amount over $ per unit (i.e., the Projected
Supplemental Redemption Amount) in income as ordinary interest on the maturity
date. Alternatively, in the event that the actual Supplemental Redemption
Amount, if any, is less than $ per unit (i.e., the Projected Supplemental
Redemption Amount), the excess of $ per unit (i.e., the Projected
Supplemental Redemption Amount) over the actual Supplemental Redemption Amount
will be treated first as an offset to any interest otherwise includible in
income by the U.S. Holder with respect to the MITTS Security for the taxable
year in which the maturity date occurs to the extent of the amount of such
includible interest. Further, a U.S. Holder will be permitted to recognize and
deduct, as an ordinary loss that is not subject to the limitations applicable
to miscellaneous itemized deductions, any remaining portion of the Projected
Supplemental Redemption Amount (i.e. $ per unit) in excess of the actual
Supplemental Redemption Amount that is not treated as an interest offset
pursuant to the foregoing rules.
Upon the sale or exchange of a MITTS Security prior to the maturity date,
a U.S. Holder will be required to recognize taxable gain or loss in an amount
equal to the difference, if any, between the amount realized by the U.S. Holder
upon such sale or exchange and the U.S. Holder's adjusted tax basis in the
MITTS
S-23
<PAGE>
Security as of the date of disposition. A U.S. Holder's adjusted tax basis in a
MITTS Security generally will equal such U.S. Holder's initial investment in
the MITTS Security increased by any interest previously included in income with
respect to the MITTS Security by the U.S. Holder. Any such taxable gain will be
treated as ordinary income. Any such taxable loss will be treated as ordinary
loss to the extent of the U.S. Holder's total interest inclusions on the MITTS
Security. Any remaining loss generally will be treated as long-term or short-
term capital loss (depending upon the U.S. Holder's holding period for the
MITTS Security). All amounts includible in income by a U.S. Holder as ordinary
interest pursuant to the Final Regulations will be treated as original issue
discount.
Prospective investors in the MITTS Securities should be aware that if a
significant percentage of the total aggregate amount of the MITTS Securities
originally issued are sold at a discount from the principal amount thereof,
which is not expected to be the case, then the issue price of the MITTS
Securities, as determined for United States Federal income tax purposes, may be
less than the principal amount of the MITTS Securities. In that event, if a
U.S. Holder purchases a MITTS Security in connection with the original issuance
thereof for an amount equal to the principal amount thereof, the amount of the
difference between the principal amount of the MITTS Securities and the issue
price thereof generally should be allocated by the U.S. Holder to daily
portions of interest that are deemed to accrue on each relevant date as an
offset to that interest on each relevant date. In addition, on each relevant
date, the U.S. Holder's adjusted tax basis in the MITTS Security will be
reduced by the amount treated as an interest offset pursuant to the foregoing
rule. Alternatively, in the event that the issue price of the MITTS Securities,
as determined for United States Federal income tax purposes, equals the
principal amount thereof and a U.S. Holder purchases a MITTS Security in
connection with the original issuance thereof for an amount that is less than
the principal amount thereof, the amount of the difference between the
principal amount of the MITTS Security and the amount paid by the U.S. Holder
to purchase the MITTS Security generally would be allocated by the U.S. Holder
to daily portions of interest that are deemed to accrue on each relevant date
as additional ordinary interest includible in income by the U.S. Holder on each
relevant date. In that event, on each relevant date, the U.S. Holder's adjusted
tax basis in the MITTS Securities will be increased by the amount treated as
additional ordinary interest income. In addition, U.S. Holders purchasing a
MITTS Security at a price that differs from the adjusted issue price of the
MITTS Security as of the purchase date (e.g., subsequent purchasers) will be
subject to rules providing for certain adjustments to the foregoing rules and
these U.S. Holders should consult their own tax advisors concerning these
rules.
All prospective investors in the MITTS Securities should consult their
own tax advisors concerning the application of the Final Regulations to their
investment in the MITTS Securities. Investors in the MITTS Securities may also
obtain the projected payment schedule, as determined by ML&Co. for purposes of
the application of the Final Regulations to the MITTS Securities, by submitting
a written request for such information to Merrill Lynch & Co., Inc., Attn:
Darryl W. Colletti, Corporate Secretary's Office, 100 Church Street, 12th
Floor, New York, New York 10080-6512.
The projected payment schedule (including both the Projected Supplemental
Redemption Amount and the estimated yield on the MITTS Securities) has been
determined solely for United States Federal income tax purposes (i.e., for
purposes of applying the Final Regulations to the MITTS Securities), and is
neither a prediction nor a guarantee of what the actual Supplemental Redemption
Amount will be, or that the actual Supplemental Redemption Amount will even
exceed zero.
Hypothetical table
The following table sets forth the amount of interest that would be
deemed to have accrued with respect to each unit of the MITTS Securities during
each accrual period over an assumed term of approximately seven years for the
MITTS Securities based upon a hypothetical projected payment schedule for the
MITTS Securities (including both a hypothetical Projected Supplemental
Redemption Amount and a hypothetical estimated yield equal to 6.47% per annum
(compounded semiannually)) as determined by ML&Co. for
S-24
<PAGE>
purposes of illustrating the application of the Final Regulations to the MITTS
Securities as if the MITTS Securities had been issued on June 1, 1999. The
following table is for illustrative purposes only. The actual projected payment
schedule for the MITTS Securities (including both the actual Projected
Supplemental Redemption Amount and the actual estimated yield) will be
determined by ML&Co. on the date the MITTS Securities are priced for initial
sale to the public and will depend upon actual market interest rates (and thus
ML&Co.'s borrowing costs for debt instruments with comparable maturities) as of
that date. The actual projected payment schedule for the MITTS Securities
(including both the actual Project Supplemental Redemption Amount and the
actual estimated yield) and the actual tax accrual table will be set forth in
the final prospectus supplement delivered to investors in connection with the
sale of the MITTS Securities:
<TABLE>
<CAPTION>
Total interest
deemed to have
Interest deemed to accrued on the MITTS
accrue during Securities as of end
accrual period of accrual period
Accrual Period (per unit) (per unit)
-------------- ------------------ --------------------
<S> <C> <C>
June 1, 1999 through December 1,
1999................................. $0.3244 $0.3244
December 2, 1999 through June 1, 2000
..................................... $0.3340 $0.6584
June 2, 2000 through December 1, 2000
..................................... $0.3448 $1.0032
December 2, 2000 through June 1, 2001
..................................... $0.3559 $1.3591
June 2, 2001 through December 1, 2001
..................................... $0.3675 $1.7266
December 2, 2001 through June 1, 2002
..................................... $0.3794 $2.1060
June 2, 2002 through December 1, 2002
..................................... $0.3916 $2.4976
December 2, 2002 through June 1, 2003
..................................... $0.4043 $2.9019
June 2, 2003 through December 1, 2003
..................................... $0.4174 $3.3193
December 2, 2003 through June 1, 2004
..................................... $0.4309 $3.7502
June 2, 2004 through December 1, 2004
..................................... $0.4448 $4.1950
December 2, 2004 through June 1, 2005
..................................... $0.4592 $4.6542
June 2, 2005 through December 1, 2005
..................................... $0.4740 $5.1282
December 2, 2005 through June 1,
2006................................. $0.4894 $5.6176
</TABLE>
- --------
Hypothetical Projected Supplemental Redemption Amount = $5.6176 per unit.
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States Federal income
taxes on payments of principal, premium (if any) or interest (including
original issue discount, if any) on a MITTS Security, unless such non-U.S.
Holder is a direct or indirect 10% or greater shareholder of ML&Co., a
controlled foreign corporation related to ML&Co. or a bank receiving interest
described in section 881(c)(3)(A) of the Internal Revenue Code of 1986, as
amended. However, income allocable to non-U.S. Holders will generally be
subject to annual tax reporting on IRS Form 1042S. For a non-U.S. Holder to
qualify for the exemption from taxation, the last United States payor in the
chain of payment prior to payment to a non-U.S. Holder (the "Withholding
Agent") must have received in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a statement
that (a) is signed by the beneficial owner of the MITTS Security under
penalties of perjury, (b) certifies that such owner is not a U.S. Holder and
(c) provides the name and address of the beneficial owner. The statement may be
made on an IRS Form W-8 or a substantially similar form, and the beneficial
owner must inform the Withholding Agent of any change in the information on the
statement within 30 days of such change. If a MITTS Security is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide a signed statement to the Withholding
Agent. However, in such case, the signed statement must be accompanied by a
copy of the IRS Form W-8 or the substitute form provided by the beneficial
owner to the organization or institution.
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<PAGE>
Under current law, a MITTS Security will not be includible in the estate
of a non-U.S. Holder unless the individual is a direct or indirect 10% or
greater shareholder of ML&Co. or, at the time of such individual's death,
payments in respect of such MITTS Security would have been effectively
connected with the conduct by such individual of a trade or business in the
United States.
Backup withholding
Backup withholding of United States Federal income tax at a rate of 31%
may apply to payments made in respect of the MITTS Securities to registered
owners who are not "exempt recipients" and who fail to provide certain
identifying information (such as the registered owner's taxpayer identification
number) in the required manner. Generally, individuals are not exempt
recipients, whereas corporations and certain other entities generally are
exempt recipients. Payments made in respect of the MITTS Securities to a U.S.
Holder must be reported to the IRS, unless the U.S. Holder is an exempt
recipient or establishes an exemption. Compliance with the identification
procedures described in the preceding section would establish an exemption from
backup withholding for those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a MITTS Security to (or through) a broker,
the broker must withhold 31% of the entire purchase price, unless either (a)
the broker determines that the seller is a corporation or other exempt
recipient or (b) the seller provides, in the required manner, certain
identifying information and, in the case of a non-U.S. Holder, certifies that
such seller is a non-U.S. Holder (and certain other conditions are met). Such a
sale must also be reported by the broker to the IRS, unless either (a) the
broker determines that the seller is an exempt recipient or (b) the seller
certifies its non-U.S. status (and certain other conditions are met).
Certification of the registered owner's non-U.S. status would be made normally
on an IRS Form W-8 under penalties of perjury, although in certain cases it may
be possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to
a beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
New withholding regulations
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the backup withholding
and information reporting rules described above. The New Regulations will
generally be effective for payments made after December 31, 2000, subject to
certain transition rules. Prospective investors are urged to consult their own
tax advisors regarding the New Regulations.
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the MITTS Securities will be used as
described under "Use of Proceeds" in the accompanying prospectus and to hedge
market risks of ML&Co. associated with its obligation to pay the principal
amount and the Supplemental Redemption Amount.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with 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 by visiting
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 further
information about the public reference rooms. You may also inspect our SEC
reports and other information at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
We will send you copies of our SEC filings, excluding exhibits, at no
cost upon request. Please address your request to Lawrence M. Egan, Jr.,
Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100 Church Street,
12th Floor, New York, New York 10080-6512; telephone number (212) 602-8439.
S-26
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriter has 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
underwriter is 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
supplement and the accompanying prospectus is accurate as of the date on the
front cover of this prospectus supplement only. Our business, financial
condition and results of operations may have changed since that date.
UNDERWRITING
MLPF&S, as underwriter for the offering, has agreed, subject to the terms
and conditions of the underwriting agreement and a terms agreement, to purchase
from ML&Co. $ aggregate principal amount of MITTS Securities. The
underwriting agreement provides that the obligations of the underwriter are
subject to certain conditions precedent and that the underwriter will be
obligated to purchase all of the MITTS Securities if any are purchased.
The underwriter has advised ML&Co. that it proposes initially to offer
all or part of the MITTS Securities directly to the public at the offering
prices set forth on the cover page of this prospectus supplement. After the
initial public offering, the public offering price may be changed. The
underwriter is offering the MITTS Securities subject to receipt and acceptance
and subject to the underwriter's right to reject any order in whole or in part.
In addition to the commissions payable at the time of the original sale
of the MITTS Securities, the underwriter will pay a commission on each of up to
six anniversary dates of the issuance of the MITTS Securities to brokers whose
clients purchased the units in the initial distribution and who continue to
hold their MITTS Securities.
The underwriting of the MITTS Securities will conform to the requirements
set forth in the applicable sections of Rule 2720 of the Conduct Rules of the
NASD.
The underwriter is permitted to engage in certain transactions that
stabilize the price of the MITTS Securities. These transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
MITTS Securities.
If the underwriter creates a short position in the MITTS Securities in
connection with the offering, i.e., if it sells more units of the MITTS
Securities than are set forth on the cover page of this prospectus supplement,
the underwriter may reduce that short position by purchasing units of the MITTS
Securities in the open market. In general, purchases of a security for the
purpose of stabilization or to reduce a short position could cause the price of
the security to be higher than it might be in the absence of such purchases.
Neither ML&Co. nor the underwriter makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the MITTS Securities. In addition, neither ML&Co. nor
the underwriter makes any representation that the underwriter will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The underwriter may use this prospectus supplement and the accompanying
prospectus for offers and sales related to market-making transactions in the
MITTS Securities. The underwriter may act as principal or agent in these
transactions, and the sales will be made at prices related to prevailing market
prices at the time of sale.
VALIDITY OF THE MITTS SECURITIES
The validity of the MITTS Securities will be passed upon for ML&Co. and
for the underwriter by Brown & Wood LLP, New York, New York.
S-27
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Adjusted Ending Value...................................................... S-4
Adjustment Factor.......................................................... S-5
Business Day............................................................... S-15
Calculation Day............................................................ S-12
Calculation Period......................................................... S-12
Depositary................................................................. S-15
Final Regulations.......................................................... S-23
FRC........................................................................ S-6
Index Business Day......................................................... S-12
Market Disruption Event.................................................... S-14
ML&Co. .................................................................... S-4
MLPF&S..................................................................... S-4
New Regulations............................................................ S-26
Non-U.S. Holder............................................................ S-22
Pricing Date............................................................... S-4
Principal Amount........................................................... S-4
Projected Supplemental Redemption Amount................................... S-23
Starting Value............................................................. S-4
Successor Index............................................................ S-14
Supplemental Redemption Amount............................................. S-4
U.S. Holder................................................................ S-22
Withholding Agent.......................................................... S-25
</TABLE>
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<PAGE>
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[LOGO]
2,500,000 Units
Merrill Lynch & Co., Inc.
Russell 2000(R) Market Index Target-Term Securities(R)
due July , 2006
"MITTS(R) Securities"
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
Merrill Lynch & Co.
July , 1999
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