<PAGE>
RULE NO. 424(b)(3)
REGISTRATION NO. 333-59997
PRICING SUPPLEMENT
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(To prospectus supplement and prospectus dated July 30, 1998)
$85,000,000
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series B
1% Callable and Exchangeable Stock-Linked Notes due February 8, 2006
(Linked to the performance of the Common Stock of The Kroger Co.)
----------------------
General: . $85,000,000 aggregate principal amount.
. Issue price per note equals $1,000, plus accrued interest
. from February 8, 1999.
. We will pay interest on the notes at a rate per year equal
to 1%.
. The notes are callable by ML&Co. or redeemable by the
holders of the notes before their maturity.
Payment at Maturity: At maturity, for each $1,000 principal amount of the
note you own, we will pay you an amount equal to the
greater of:
. the product of the exchange ratio and the average
market price of the Kroger common stock for the five
trading days ending on and including the third
trading day prior to maturity; provided, however,
that if the payment at maturity is based on this
formula, no interest will accrue on the notes from
and including August 8, 2005 through the maturity
date; or
. $1,000 plus accrued and unpaid interest on the notes
through but excluding the maturity date.
. The exchange ratio, which is the product of 12.6232
and the share multiplier, is initially equal to
12.6232.
The notes have been approved for listing on the American Stock Exchange
under the trading symbol "MKR.A", subject to official notice of issuance.
Before you decide to invest in the notes, carefully read this pricing
supplement and the accompanying prospectus supplement and prospectus, the risk
factors beginning on page PS-5 of this pricing supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved these securities or passed upon the adequacy
or accuracy of this pricing supplement or the accompanying prospectus supplement
and prospectus. Any representation to the contrary is a criminal offense.
The notes will be ready for delivery in book-entry form only through The
Depository Trust Company, Cedelbank and Euroclear on or about February 8, 1999.
----------------------
Merrill Lynch & Co.
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The date of this pricing supplement is February 1, 1999.
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<TABLE>
<CAPTION>
Terms of the notes:
<S> <C>
Aggregate principal amount................... $ 85,000,000.
Maturity date................................ February 8, 2006.
Interest rate................................ 1% per year.
Interest payment dates....................... February 8 and August 8, commencing August 8, 1999.
Specified currency........................... U.S. dollars.
Issue price.................................. $1,000 per note.
Pricing date................................. February 1, 1999.
Original issue date.......................... February 8, 1999.
CUSIP........................................ 59018SZ23.
Common Code.................................. 9462147.
ISIN......................................... US59018SZ233.
Form of notes................................ Book-entry only.
Denominations................................ We will issue and sell the notes in denominations of
$1,000 and integral multiples of $1,000 only.
Amount payable at maturity................... At maturity, whether as a result of acceleration or
otherwise, for each $1,000 principal amount of the notes
you own, we will pay you the Maturity Amount.
Maturity Amount.............................. For each $1,000 principal amount of the notes, an amount
equal to the greater of:
. the product of the Exchange Ratio and the average
Market Price of the Kroger Common Stock for the five
Trading Days ending on and including the third Trading
Day prior to maturity; provided, however, that if the
payment at maturity is based on this formula, no
interest will accrue on the notes from and including
August 8, 2005 through the Maturity Date; or
. $1,000 plus accrued and unpaid interest on the notes
through but excluding the Maturity Date.
ML&Co. redemption............................ We may redeem the notes, in whole only, at any time,
beginning on February 8, 2002, upon not more than 30 or
less than 15 scheduled Trading Days' notice to you. Any
date on which we give you notice that we are redeeming
the notes is referred to as the "Redemption Notice Date".
</TABLE>
PS-2
<PAGE>
<TABLE>
<S> <C>
If we redeem the notes, for each $1,000 principal amount
of the notes you own, we will pay you the ML&Co.
Redemption Amount.
ML&Co. Redemption Amount..................... For each $1,000 principal amount of the notes, an amount
equal to the greater of:
. the product of the Exchange Ratio and the average
Market Price of the Kroger Common Stock for the five
Trading Days immediately following the Redemption Notice
Date; provided, however, that if the ML&Co. Redemption
Amount is based on this formula, no interest will accrue
on the notes from and including the immediately
preceding Interest Payment Date through the date of
redemption; or
. $1,000 plus accrued and unpaid interest on the notes
through but excluding the date of redemption.
Holder exchange right........................ At any time beginning April 14, 1999 and ending 15
scheduled Trading Days before the Maturity Date, upon
not more than 30 or less than five scheduled Trading
Days' written notice to the Calculation Agent, you may
cause us to redeem the notes for the Holder Exchange
Amount.
Holder Exchange Amount....................... The Holder Exchange Amount is an amount equal to the
product of:
. the Exchange Ratio, and
. the Market Price of the Kroger Common Stock on the
Business Day following the day the Calculation Agent
receives written notice of your intention to exchange
your notes;
provided, however, no interest will accrue on the notes
from and including the immediately preceding Interest
Payment Date through the date of exchange.
Exchange Ratio............................... The Exchange Ratio is equal to the product of 12.6232
and the Share Multiplier.
Share Multiplier............................. The Share Multiplier will initially be set at 1.0, but
will be subject to adjustment upon the occurrence of
certain corporate events described in the section
entitled "Dilution and Reorganization Adjustments" in
this pricing supplement.
Market Price................................. The Market Price for any date of determination means the
official closing price, in the afternoon session, as
applicable, of one share of Kroger Common Stock as
reported by the principal exchange on which Kroger
Common Stock is traded on such date.
</TABLE>
PS-3
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<TABLE>
<S> <C>
If the official closing price is not available for any
reason, including, without limitation, the occurrence of
a Market Disruption Event, the Market Price for the
security for any date shall be the mean, as determined
by the Calculation Agent, of the bid prices for the
security obtained from as many dealers in the security,
but not exceeding three, as will make the bid prices
available to the Calculation Agent after 3:00 p.m.,
local time in such principal market, on such date.
Trading Day.................................. A day on which the New York Stock Exchange, the AMEX and
the Nasdaq Stock Market are open for trading, as
determined by the Calculation Agent.
Business Day................................. Any day other than a Saturday or Sunday that is neither
a legal holiday nor a day on which banking institutions
are authorized or required by law or regulation to close
in The City of New York.
Calculation Agent............................ Merrill Lynch, Pierce, Fenner & Smith Incorporated.
References to "MLPF&S" refer to Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
For potential conflicts of interest that may exist
between the Calculation Agent and the holders of the
notes, see the section entitled "Risk Factors" in this
pricing supplement . All determinations made by the
Calculation Agent shall be at the sole discretion of the
Calculation Agent and, absent a manifest error, shall be
conclusive for all purposes and binding on ML&Co. and
beneficial owners of the notes.
All percentages resulting from any calculation on the
notes will be rounded to the nearest one
hundred-thousandth of a percentage point, with five
one-millionths of a percentage point rounded upwards,
e.g., 9.876545% (or .09876545) would be rounded to
9.87655% (or .0987655), and all dollar amounts used in
or resulting from such calculation will be rounded to
the nearest cent with one-half cent being rounded
upwards.
</TABLE>
PS-4
<PAGE>
RISK FACTORS
Your investment in the notes will involve certain risks, including risks
not associated with similar investments in a conventional debt security. You
should consider carefully the following discussion of risks before you decide
that an investment in the notes is suitable for you.
The notes are subject to redemption before their maturity
We may elect to redeem all of the notes on any Business Day beginning on
February 8, 2002, upon not more than 30 or less than 15 scheduled Trading Days'
notice to you. In the event that we elect to redeem the notes, you may receive
an amount that is less than the Maturity Amount to which you would otherwise
would have been entitled had you held the notes until maturity.
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. The terms of the notes differ from the terms of
ordinary debt securities because the amount payable at maturity is not a fixed
amount but is based on the appreciation in price, if any, of Kroger Common Stock
on five, or, under certain circumstances, fewer than five, Trading Days shortly
before the stated maturity date. Your yield may be less than the yield you
would earn if you bought a standard senior non-callable debt security of ours
with the same stated maturity date. Your investment may not reflect the full
opportunity cost to you when you consider the effect of factors that affect the
time value of money.
Your return on the notes will not reflect the payment of dividends
The calculation of the Market Price, the Maturity Amount or any redemption
amount does not take into consideration the value of cash dividends, if any,
paid on the Kroger Common Stock, other than an Extraordinary Dividend. Your
return will not be the same as the return you could earn by owning Kroger Common
Stock directly and receiving the dividends, if any, paid on that stock.
Uncertain trading market
The notes have been approved for listing on the AMEX under the symbol
"MKR.A", subject to official notice of issuance. There is no historical
information to indicate how the notes will trade in the secondary market.
Listing the notes on the AMEX does not necessarily ensure that a liquid trading
market will develop for the notes. The development of a liquid trading market
for the notes will depend on our financial performance and other factors such as
the appreciation, if any, in the price of the Kroger Common Stock. In addition,
it is unlikely that the secondary market price of the notes will correlate
exactly with the value of Kroger Common Stock.
If the trading market for the notes is limited, there may be a limited
number of buyers when you decide to sell your notes if you do not wish to hold
your investment until the maturity date. This may affect the price you receive
upon such sale.
Factors affecting trading value of the notes
The trading value of the notes will be affected by the value of the Kroger
Common Stock and by a number of other factors. Some of these factors are
interrelated in complex ways; as a result, the effect of any one factor may be
magnified or mitigated by the effect of another factor. The following
paragraphs
PS-5
<PAGE>
describe the expected effect on the trading value of the notes given
a change in a specific factor, assuming all other conditions remain constant.
. Value of Kroger Common Stock. The market value of the notes will depend
substantially on the value of the Kroger Common Stock. In general, the value
of the notes will decrease as the value of the Kroger Common Stock decreases
and the value of the notes will increase as the value of the Kroger Common
Stock increases. However, as the value of the Common Stock increases or
decreases, the value of the notes is not expected to increase or decrease at
the same rate as the change in value of the Kroger Common Stock. You should
understand that for each $1,000 principal amount of the notes that you own,
you will not receive more than $1,000 on the maturity date unless the market
price of Kroger Common Stock has appreciated more than 21% from the original
issue date to the period in which the Calculation Agent calculates the amount
payable at maturity on the notes. Additionally, political, economic and other
developments that can affect the capital markets generally and the market
segment of which Kroger is a part, and over which we have no control, that
affect the value of the Kroger Common Stock will also affect the value of the
notes.
. Interest rates. In general, we anticipate that if U.S. interest rates
increase, the trading value of the notes will decrease, and conversely, if
U.S. interest rates decrease, the trading value of the notes will increase.
Generally, fluctuations in interest rates will affect the U.S. economy and,
in turn, the value of the Kroger Common Stock. Rising interest rates may
lower the value of the Kroger Common Stock and, as a result, the value of the
notes. Falling interest rates may increase the value of the Kroger Common
Stock and, as a result, may increase the value of the notes.
. Volatility of the Kroger Common Stock. Volatility is the term used to
describe the size and frequency of market fluctuations. Generally, if the
volatility of the Kroger Common Stock increases, we expect that the trading
value of the notes will increase and if the volatility of the Kroger Common
Stock decreases, we expect that the trading value of the notes will decrease.
The pending merger between Kroger and Fred Meyer, Inc. increased the
volatility in Kroger Common Stock. During October 1998, when Kroger and Fred
Meyer announced their merger plans, the price of Kroger Common Stock
increased from $45-3/8 on October 8, 1998 to $55-1/2 on October 30, 1998. In
the event the merger is not consummated, the price of Kroger Common Stock may
fall to, or below, its price prior to the merger announcement.
. Time remaining to maturity. We believe that before the maturity date the
notes will trade at a value above that which would be expected based on the
value of the Kroger Common Stock. Generally, as the time remaining to
maturity decreases, the value of the notes will approach the Redemption
Amount that would be payable at maturity based on the then current value of
the Kroger Common Stock. As a result, as the time remaining to maturity
decreases, any premium attributed to the trading value of the notes will
diminish, decreasing the trading value of the notes, as applicable.
. Dividend yields. Generally, if the dividend yield, if any, on the Kroger
Common Stock increases, we expect that the value of the notes will decrease,
and conversely, if the dividend yield, if any, on the Kroger Common Stock
decreases, we expect that the value of the notes will increase.
. ML&Co.'s credit ratings. Real or anticipated changes in our credit ratings
may affect the trading value of the notes.
It is important for you to understand that a decrease in the trading value
of the notes resulting from the effect of one of the factors specified above,
such as an increase in interest rates, may offset some or all of any increase in
the trading value of the notes attributable to another factor, such as an
increase in the value of the Kroger Common Stock.
PS-6
<PAGE>
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the notes of a given change in most of the
factors listed above will be less if it occurs later in the term of the notes
than if it occurs earlier in the term of the notes.
The Maturity Amount is not subject to adjustment for all corporate events
The Maturity Amount that you are entitled to receive on the maturity date
of the notes is subject to adjustment for the specified corporate events
affecting Kroger and Kroger Common Stock described in the section entitled
"Dilution and Reorganization Events." However, such adjustments do not cover
all corporate events that could affect the Market Price of Kroger Common Stock,
including without limitation, the occurrence of a partial tender or exchange
offer for Kroger Common Stock by Kroger management or any third party. The
occurrence any such other event may adversely affect the determination of the
Market Price and the trading value of the notes.
No affiliation between ML&Co. and Kroger
We are not affiliated with Kroger, and Kroger has no obligations with
respect to the notes or amounts to be paid to you, including any obligation to
take the needs of ML&Co. or of beneficial owners of the notes into consideration
for any reason. Kroger will not receive any of the proceeds of the offering of
the notes made hereby and is not responsible for, and has not participated in,
the determination or calculation of the amount receivable by beneficial owners
of the notes on the maturity date. In addition, Kroger is not involved with the
administration or trading of the notes and has no obligations with respect to
the amount receivable by beneficial owners of the notes.
No stockholder rights
Under no circumstances will you be entitled to receive Kroger Common Stock
under the terms of the notes. You will not be entitled to any rights with
respect to the Kroger Common Stock including, without limitation, the right to
receive dividends or other distributions, if any, on, to vote or to tender or
exchange Kroger Common Stock in any tender or exchange offer by Kroger or any
third party.
Purchases and sales of Kroger Common Stock
We have entered into hedging arrangements related to the Kroger Common
Stock with one of our affiliates in connection with our obligations under the
notes. In connection therewith, our affiliate will purchase shares of Kroger
Common Stock in the secondary market on or before the Pricing Date and will
purchase and sell shares of Kroger Common Stock in the secondary market during
the term of the notes. We or any of our affiliates, including MLPF&S, may from
time to time buy or sell the Kroger Common Stock for our own accounts for
business reasons or in connection with hedging our obligations under the notes.
These transactions could affect the price of the Kroger Common Stock, including
during the period when the Maturity Amount is determined.
State law limits on interest paid
New York State laws govern the 1993 Indenture, as hereinafter defined. New
York has certain usury laws that limit the amount of interest that can be
charged and paid on loans, which includes debt securities like the notes. 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.
PS-7
<PAGE>
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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
Potential conflicts
The calculation agent is one of our subsidiaries. Under certain
circumstances, MLPF&S's role as our subsidiary and its responsibilities as
calculation agent could give rise to conflicts of interests between the
calculation agent and the holders of the notes. Such conflicts could occur, for
instance, in connection with the calculation agent's determination as to whether
a Market Disruption Event has occurred or in connection with judgments that the
calculation agent would be required to make with respect to certain antidilution
and reorganization adjustments to the Market Price. 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 the calculation
agent, potential conflicts of interest could arise.
We have entered into an arrangement with one of our subsidiaries to hedge
the market risks associated with our obligation to pay the Redemption Amount.
Our subsidiary expects to make a profit in connection with such arrangement. We
did not seek competitive bids for such an arrangement from unaffiliated parties.
Uncertain tax consequences
You should also consider the tax consequences of investing in the notes,
certain aspects of which are uncertain. See "United States Federal Income
Taxation" below.
WHERE YOU CAN FIND MORE INFORMATION
ML&Co.
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 at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more information
on the public reference rooms and their copying charges. 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.
The Kroger Co.
Kroger also files reports, proxy statements and other information with the
SEC. Information provided to or filed with the SEC by Kroger pursuant to the
Exchange Act can be located at the SEC's facilities or accessed through the
SEC's website by reference to SEC file number 1-13098. You may also inspect
Kroger's SEC reports and other information at the New York Stock Exchange. In
addition, information regarding Kroger may be obtained from other sources
including, but not limited to, press releases, newspaper articles and other
publicly disseminated documents. We make no representation or warranty as to
the accuracy or completeness of any such information or reports.
PS-8
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DEPOSITARY
Investors may elect to hold interests in the global notes through either
The Depository Trust Company (otherwise known as DTC) or any successor to it
(the "Depositary") (in the United States) or Cedelbank ("Cedelbank"), and Morgan
Guaranty Trust Company of New York, Brussels Office, as operator of the
Euroclear System ("Euroclear"), if they are participants in such systems, or
indirectly through organizations which are participants in such systems.
Cedelbank and Euroclear will hold interests on behalf of their participants
through customers' securities accounts in Cedelbank's and Euroclear's names on
the books of their respective depositaries, which in turn will hold such
interests in customers' securities accounts in the depositaries' names on the
books of the Depositary. Citibank, N.A. will act as depositary for Cedelbank
and The Chase Manhattan Bank will act as depositary for Euroclear (in such
capacities, the "U.S. Depositaries").
DTC has advised us that management of DTC is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates, including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems". DTC has informed direct and indirect
participants and other members of the financial community (the "Industry") that
it has developed and is implementing a program so that its Systems, as the same
relate to the timely payment of distributions (including principal and interest
payments) to securityholders, book-entry deliveries, and settlement of trades
within DTC ("Depositary Services"), continue to function appropriately. This
program includes a technical assessment and a remediation plan, each of which is
complete. Additionally, DTC's plan includes a testing phase, which is expected
to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their agents, as
well as DTC's direct and indirect participants, third party vendors from whom
DTC licenses software and hardware, and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the information in the preceding two paragraphs with
respect to DTC has been provided to the Industry for informational purposes only
and is not intended to serve as a representation, warranty, or contract
modification of any kind.
Cedelbank advises that it is incorporated under the laws of Luxembourg as a
professional depositary. Cedelbank holds securities for its participating
organizations ("Cedel Participants") and facilitates the clearance and
settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Cedelbank provides
to Cedel Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedelbank interfaces with domestic
markets in several countries. As a professional depositary, Cedelbank is
subject to regulation by the Luxembourg Monetary Institute. Cedel Participants
are recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters. Indirect
access to Cedelbank is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Cedel Participant either directly or indirectly.
PS-9
<PAGE>
Distributions with respect to the notes held beneficially through Cedelbank
will be credited to cash accounts of Cedel Participants in accordance with its
rules and procedures, to the extent received by the U.S. Depositary for
Cedelbank.
Euroclear advises that it was created in 1968 to hold securities for
participants of Euroclear ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to notes held beneficially through Euroclear
will be credited to the cash accounts of Euroclear Participants in accordance
with the Terms and Conditions, to the extent received by the U.S. Depositary for
Euroclear.
GLOBAL CLEARANCE AND SETTLEMENT PROCEDURES
Initial settlement for the notes will be made in immediately available
funds. Secondary market trading between DTC participants will occur in the
ordinary way in accordance with the Depositary's rules and will be settled in
immediately available funds using the Depositary's Same-Day Funds Settlement
System. Secondary market trading between Cedel Participants and/or Euroclear
Participants will occur in the ordinary way in accordance with the applicable
rules and operating procedures of Cedelbank and Euroclear and will be settled
using the procedures applicable to conventional eurobonds in immediately
available funds.
Cross-market transfers between persons holding directly or indirectly
through the Depositary on the one hand, and directly or indirectly through Cedel
or Euroclear Participants, on the other, will be effected in the Depositary in
accordance with the Depositary's rules on behalf of the relevant European
PS-10
<PAGE>
international clearing system by its U.S. Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its U.S.
Depositary to take action to effect final settlement on its behalf by delivering
or receiving notes in the Depositary, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
the Depositary. Cedel Participants and Euroclear Participants may not deliver
instructions directly to the Depositary.
Because of time-zone differences, credits of notes received in Cedelbank or
Euroclear as a result of a transaction with a DTC participant will be made
during subsequent securities settlement processing and will be credited the
business day following the Depositary settlement date. Such credits or any
transactions in such notes settled during such processing will be reported to
the relevant Euroclear or Cedel Participants on such business day. Cash
received in Cedelbank or Euroclear as a result of sales of notes by or through a
Cedel Participant or a Euroclear Participant to a DTC participant will be
received with value on the Depositary settlement date but will be available in
the relevant Cedelbank or Euroclear cash account only as of the business day
following settlement in the Depositary.
Although the Depositary, Cedelbank and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of notes among
participants of the Depositary, Cedelbank and Euroclear, they are under no
obligation to perform or continue to perform such procedures and such procedures
may be discontinued at any time.
DILUTION AND REORGANIZATION ADJUSTMENTS
The Share Multiplier used to calculate the Exchange Ratio on any date of
determination is subject to adjustment by the Calculation Agent as a result of
the dilution and reorganization adjustments described in this section.
Stock Splits and Reverse Stock Splits
If Kroger Common Stock is subject to a stock split or reverse stock split,
then once such split has become effective, the Share Multiplier will be adjusted
to equal the product of the prior Share Multiplier and the number of shares
which a holder of one share of Kroger Common Stock prior to the effective date
of such stock split or reverse stock split would have owned or been entitled to
receive immediately following such effective date.
Stock Dividends
If Kroger Common Stock is subject to a stock dividend, i.e., issuance of
additional shares of Kroger Common Stock, that is given ratably to all holders
of shares of Kroger Common Stock, then once such shares are trading ex-dividend,
the Share Multiplier will be adjusted so that the new Share Multiplier shall
equal the prior Share Multiplier plus the product of (a) the number of shares of
Kroger Common Stock issued with respect to one share of Kroger Common Stock and
(b) the prior Share Multiplier.
Extraordinary Dividends
There will be no adjustments to the Share Multiplier to reflect cash
dividends or distributions paid, if any, with respect to Kroger Common Stock
other than distributions described under clause (e) of the section entitled "--
Reorganization Events" below and Extraordinary Dividends as described below.
PS-11
<PAGE>
An "Extraordinary Dividend" means, with respect to any consecutive 12-month
period, all cash dividends or other distributions with respect to Kroger Common
Stock to the extent such dividends exceed on a per share basis 10% of the
average closing price per share of Kroger Common Stock during such period, less
any such dividends for which a prior adjustment was previously made. If an
Extraordinary Dividend occurs with respect to Kroger Common Stock, the Share
Multiplier will be adjusted on the Trading Day preceding the payment of any
dividend, the payment of which caused an Extraordinary Dividend to be paid (the
"ex-dividend date"), so that the new Share Multiplier will equal the product of:
. the then current Share Multiplier, and
. a fraction, the numerator of which is the closing price per share of
Kroger Common Stock on the Trading Day preceding the ex-dividend date,
and the denominator of which is the amount by which the closing price
on the Trading Day preceding the ex-dividend date exceeds the
Extraordinary Dividend Amount.
The "Extraordinary Dividend Amount" with respect to an Extraordinary
Dividend for Kroger Common Stock will equal
. in the case of cash dividends or other distributions that constitute
quarterly dividends, the amount per share of such Extraordinary
Dividend minus the amount per share of the immediately preceding non-
Extraordinary Dividend, or
. in the case of cash dividends or other distributions that do not
constitute quarterly dividends, the amount per share of such
Extraordinary Dividend.
To the extent an Extraordinary Dividend is not paid in cash, the value of
the non-cash component will be determined by the Calculation Agent, whose
determination shall be conclusive. A distribution on the Kroger Common Stock
described in clause (e) of the section entitled "--Reorganization Events" below
that also constitutes an Extraordinary Dividend shall cause an adjustment to the
Share Multiplier pursuant only to clause (e) under the section entitled "--
Reorganization Events".
Issuance of Transferable Rights or Warrants
If Kroger issues transferable rights or warrants to all holders of Kroger
Common Stock to subscribe for or purchase Kroger Common Stock, including new or
existing rights to purchase Kroger Common Stock pursuant to a shareholders
rights plan or arrangement, once a triggering event shall have occurred
thereunder, at an exercise price per share less that the closing price of one
share of Kroger Common Stock on:
. the date the exercise price of such rights or warrants is determined
and
. the expiration date of such rights or warrants,
then, in each case, if the expiration date of such rights or warrants precedes
the maturity date, then the Share Multiplier will be adjusted to equal the
product of the prior Share Multiplier and a fraction, the numerator of which
shall be the number of shares of Kroger Common Stock outstanding immediately
prior to such issuance plus the number of additional shares of Kroger Common
Stock offered for subscription or purchase pursuant to such rights or warrants
and the denominator of which shall be the number of shares of Kroger Common
Stock outstanding immediately prior to such issuance plus the number of
additional shares of Kroger Common Stock which the aggregate offering price of
the total
PS-12
<PAGE>
number of shares of Kroger Common Stock so offered for subscription or purchase
pursuant to such rights or warrants would purchase at the closing price of one
share of Kroger Common Stock on the expiration date of such rights or warrants,
which shall be determined by multiplying such total number of shares offered by
the exercise price of such rights or warrants and dividing the product so
obtained by such closing price.
Reorganization Events
If before the maturity date of the notes,
(a) there occurs any reclassification or change of Kroger Common Stock,
(b) Kroger, or any surviving entity or subsequent surviving entity of
Kroger (a "Successor Entity"), has been subject to a merger,
combination or consolidation and is not the surviving entity,
(c) any statutory exchange of securities of Kroger or any Successor Entity
with another corporation occurs, other than pursuant to clause (b)
above,
(d) Kroger is liquidated,
(e) Kroger issues to all of its shareholders equity securities of an
issuer other than Kroger, other than in a transaction described in
clauses (b), (c) or (d) above (a "Spin-off Event"), or
(f) a tender or exchange offer is consummated for all the outstanding
shares of Kroger (any such event in clauses (a) through (f) a
"Reorganization Event"),
the Market Price shall equal to the Reorganization Event Value.
The "Reorganization Event Value" shall be determined by the Calculation
Agent and shall equal (i) the Transaction Value related to the relevant
Reorganization Event, plus (ii) interest on such Transaction Value accruing from
the date of the payment or delivery of the consideration, if any, received in
connection with such Reorganization Event until the stated maturity date at a
fixed interest rate determined on the date of such payment or delivery equal to
the interest rate that would be paid on a standard senior non-callable debt
security of ML&Co. with a term equal to the remaining term of the notes.
"Transaction Value" means:
. for any cash received in any such Reorganization Event, an amount
equal to the amount of cash received per share of Kroger Common Stock
multiplied by the Share Multiplier in effect on the date all of the
holders of shares of Kroger Common Stock have agreed or have become
irrevocably obligated to exchange such shares,
. for any property other than cash or securities received in any such
Reorganization Event, the market value, as determined by the
Calculation Agent, of such Exchange Property received for each share
of Kroger Common Stock at the date of the receipt of such Exchange
Property multiplied by the then current Share Multiplier and
. for any security received in any such Reorganization Event, an amount
equal to the closing price per share of such security on the fifth
Trading Day prior to the maturity date
PS-13
<PAGE>
multiplied by the quantity of such security received for each share
of Kroger Common Stock multiplied by the then current Share
Multiplier.
"Exchange Property" means the securities, cash or any other assets
distributed in any such Reorganization Event, including, in the case of a Spin-
off Event, the share of Kroger Common Stock with respect to which the spun-off
security was issued.
For purposes of this section, in the case of a consummated tender or
exchange offer for all Exchange Property of a particular type, Exchange Property
shall be deemed to include the amount of cash or other property paid by the
offeror in the tender or exchange offer with respect to such Exchange Property,
in an amount determined on the basis of the rate of exchange in such tender or
exchange offer. In the event of a tender or exchange offer with respect to
Exchange Property in which an offeree may elect to receive cash or other
property, Exchange Property shall be deemed to include the kind and amount of
cash and other property received by offerees who elect to receive cash.
Adjustments to the Share Multiplier
No adjustments to the Share Multiplier will be required unless such Share
Multiplier adjustment would require a change of at least 0.1% in the Share
Multiplier then in effect. The Share Multiplier resulting from any of the
adjustments specified above will be rounded to the nearest one thousandth with
five ten-thousandths being rounded upward.
No adjustments to the Share Multiplier will be required other than those
specified above. However, ML&Co. may, at its sole discretion, cause the
Calculation Agent to make additional adjustments to the Share Multiplier to
reflect changes occurring in relation to Kroger Common Stock or any other
Exchange Property in other circumstances where ML&Co. determines that it is
appropriate to reflect such changes. The required adjustments specified above
do not cover all events that could affect the closing price of the Kroger Common
Stock, including, without limitation, a partial tender or exchange offer for
Kroger Common Stock.
MLPF&S, as Calculation Agent, shall be solely responsible for the
determination and calculation of any adjustments to the Share Multiplier and of
any related determinations and calculations with respect to any distributions of
stock, other securities or other property or assets, including cash, in
connection with any corporate event described above, and its determinations and
calculations with respect thereto shall be conclusive.
No adjustments will be made for certain other events, such as offerings of
Kroger Common Stock by Kroger for cash or in connection with acquisitions or the
occurrence of a partial tender or exchange offer for the Kroger Common Stock by
Kroger or any third party.
ML&Co. will, within ten Business Days following the occurrence of an event
that requires an adjustment to the Share Ratio, or if ML&Co. is not aware of
such occurrence, as soon as practicable after becoming so aware, provide written
notice to the Trustee, which shall provide notice to the holders of the notes of
the occurrence of such event and, if applicable, a statement in reasonable
detail setting forth the adjusted Share Multiplier.
PS-14
<PAGE>
MARKET DISRUPTION EVENT
"Market Disruption Event" means:
(1) a suspension, absence (including the absence of an official
closing price) or material limitation of trading of the Kroger Common Stock
on the NYSE for more than two hours of trading or during the one-half hour
period preceding or at the close of trading in such market, as determined
by the Calculation Agent in its sole discretion; and
(2) a determination by the Calculation Agent in its sole discretion
that the event described in clause (1) above materially interfered with the
ability of ML&Co. or any of its affiliates to unwind all or a material
portion of the hedge with respect to the notes.
For purposes of determining whether a Market Disruption Event has occurred:
(1) a limitation on the hours 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) limitations pursuant to any
rule or regulation enacted or promulgated by the NYSE, or other regulatory
organization with jurisdiction over the NYSE, on trading during significant
market fluctuations will constitute a suspension or material limitation of
trading in the Kroger Common Stock.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any notes shall have occurred
and be continuing, the amount payable to a beneficial owner of a note upon any
acceleration permitted by the notes will be determined by the Calculation Agent
and will be equal to the principal amount of the note plus accrued but unpaid
interest thereon to but excluding the date of early repayment, if applicable,
calculated as though the date of early repayment were the stated maturity date
of the notes. If a bankruptcy proceeding is commenced in respect of ML&Co., the
claim of the beneficial owner of a note may be limited, under Section 502(b)(2)
of Title 11 of the United States Code, to the principal amount of the note plus
an additional amount of contingent interest calculated as though the date of the
commencement of the proceeding were the maturity date of the notes.
THE KROGER COMMON STOCK
The Kroger Co. is the nation's largest supermarket operator measured by
total sales for 1997 and maintains its principal executive offices in
Cincinnati, Ohio. The retail food business in which it is engaged is highly
competitive. As of December 27, 1997, Kroger had approximately 212,000 full and
part-time employees and operated 1,392 supermarkets in 24 states. On October
19, 1998, Kroger and Fred Meyer, Inc. ("Fred Meyer") announced a strategic
merger that will create the nation's largest supermarket company. The combined
company will be named The Kroger Co. and will be headquartered in Cincinnati,
Ohio. Under the terms of the merger agreement, Fred Meyer shareholders will
receive one newly issued share of Kroger Common Stock for each share of Fred
Meyer common stock. After the merger, Kroger's current shareholders will own
approximately 62% of the combined company. The merger is subject to the
approval of the Kroger and Fred Meyer shareholders, government approvals and
customary closing conditions.
No assurance can be given that merger will occur. ML&Co makes no
representation as to the effect of such merger on Kroger's business or financial
performance if it does occur.
PS-15
<PAGE>
Information provided to or filed with the SEC by Kroger and Fred Meyer can
be located at the SEC's facilities or through the SEC's website by reference to
SEC file number 1-13098 for Kroger and SEC file number 1-13339 for Fred Meyer.
See "Where You Can Find More Information." ML&Co. makes no representation or
warranty as to the accuracy or completeness of any such information or reports.
ML&Co. is not affiliated with Kroger or Fred Meyer and neither Kroger nor
Fred Meyer has any obligations with respect to the notes. This pricing
supplement relates only to the notes offered hereby and does not relate to the
Kroger Common Stock or other securities of Kroger. All disclosures contained in
this pricing supplement regarding Kroger are derived from the publicly available
documents described in the preceding paragraph. Neither ML&Co. nor MLPF&S has
participated in the preparation of such documents or made any due diligence
inquiry with respect to Kroger in connection with the offering of the notes.
Neither ML&Co. nor MLPF&S makes any representation that such publicly available
documents or any other publicly available information regarding Kroger are
accurate or complete. Furthermore, there can be no assurance that all events
occurring prior to the date hereof, including events that would affect the
accuracy or completeness of the publicly available documents described in the
preceding paragraph, that would affect the trading price of Kroger Common Stock
have been publicly disclosed. Subsequent disclosure of any such events or the
disclosure of or failure to disclose material future events concerning Kroger
could affect the amount received at maturity with respect to the notes and
therefore the trading prices of the notes. Neither ML&Co. nor any of its
affiliates make any representation to any purchaser of the notes as to the
performance of the Kroger Common Stock.
ML&Co. or its affiliates may presently or from time to time engage in
business, directly or indirectly, with Kroger including extending loans to, or
making equity investments in, Kroger or providing investment banking or advisory
services to Kroger, including merger and acquisition advisory services. In the
course of such business, ML&Co. or its affiliates may acquire non-public
information with respect to Kroger and, in addition, one or more affiliates of
ML&Co. may publish research reports with respect to Kroger.
Any prospective purchaser of a note should undertake an independent
investigation of Kroger or Fred Meyer as in its judgment is appropriate to make
an informed decision with respect to an investment in the notes.
DATA ON THE KROGER COMMON STOCK
The Kroger Common Stock is principally traded on the NYSE. The following
table sets forth the high and low Closing Price during 1996, 1997, 1998 and
during 1999 through January 29, 1999. On February 1, 1999, the Closing Price of
the Kroger Common Stock was $65-1/4 per share. The Closing Prices and Dividends
Per Share listed below were obtained from Bloomberg Financial Markets. The
historical prices of Kroger Common Stock should not be taken as an indication of
future performance, and no assurance can be given that the price of Kroger
Common Stock will not decrease so that the beneficial owners of the notes will
receive at maturity cash in an amount that is less than the principal amount of
the notes. Nor can assurance be given that the price of Kroger Common Stock
will increase above the issue price so that at maturity the beneficial owners of
the notes will receive cash in an amount in excess of the principal amount of
the notes.
PS-16
<PAGE>
<TABLE>
<CAPTION>
Dividends Per
High Low Share(1)
-------------- -------------- -----------------
The Kroger Co.
1996
<S> <C> <C> <C>
First Quarter........................................ $ 20-1/4 $ 17-1/8 $0
Second Quarter....................................... 21-3/4 18-7/8 0
Third Quarter........................................ 22-1/2 18-7/8 0
Fourth Quarter....................................... 23-11/16 20-5/8 0
1997
First Quarter........................................ 28 22-13/16 0
Second Quarter....................................... 29 24-1/16 0
Third Quarter........................................ 30-9/16 28-5/16 0
Fourth Quarter....................................... 36-7/8 30-3/16 0
1998
First Quarter........................................ 46-3/16 34-7/16 0
Second Quarter....................................... 47-1/16 40-5/16 0
Third Quarter........................................ 52-1/16 42-11/16 0
Fourth Quarter....................................... 60-1/2 45-3/8 0
1999
First Quarter (through January 29, 1999)............. 63-1/2 56-1/4 0
</TABLE>
______________
(1) ML&Co. makes no representation as to the amount of dividends, if any, that
Kroger will pay in the future. holders of the notes will not be entitled to
receive dividends, if any, that may be payable on the Kroger Common Stock.
USE OF PROCEEDS AND HEDGING
The net proceeds to be received by ML&Co. from the sale of the notes will
be used for general corporate purposes and, in part, by ML&Co. or one or more of
its affiliates in connection with hedging ML&Co.'s obligations under the notes.
See also "Use of Proceeds" in the accompanying prospectus.
In connection with ML&Co.'s obligations under the notes, ML&Co. has entered
into hedging arrangements related to the Kroger Common Stock with an affiliate
of ML&Co. In connection therewith, such affiliate has purchased shares of the
Kroger Common Stock in secondary market transactions at or before the time of
the pricing of the notes. ML&Co., MLPF&S and other affiliates of ML&Co. may
from time to time buy or sell the Kroger Common Stock for their own accounts,
for business reasons or in connection with hedging ML&Co.'s obligations under
the notes. These transactions could affect the price of the Kroger Common
Stock.
PS-17
<PAGE>
UNITED STATES FEDERAL INCOME TAXATION
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 notes or securities with terms
substantially the same as the notes. However, although the matter is not free
from doubt, under current law, each note should be treated as a debt instrument
of ML&Co. for United States federal income tax purposes. ML&Co. currently
intends to treat each note 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 ("IRS") in accordance with such
treatment, in the absence of any change or clarification in the law, by
regulation or otherwise, requiring a different characterization of the notes.
Prospective investors in the notes should be aware, however, that the IRS is not
bound by ML&Co.'s characterization of the notes as indebtedness, and the IRS
could possibly take a different position as to the proper characterization of
the notes 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 notes is based upon the assumption
that each note will be treated as a debt instrument of ML&Co. for United States
federal income tax purposes. If the notes 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 notes 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 note could differ from the timing and character of income, gain or
loss recognized in respect of a note had the notes 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 notes, which apply
to debt instruments issued on or after August 13, 1996 and, accordingly, will
apply to the notes. 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
notes, ML&Co. has determined that the projected payment schedule for the notes
will consist of the stated interest payments on the note and a payment at
maturity equal to $1,412.31 per $1,000 of principal amount of the notes
("Projected Redemption Amount"). This represents an estimated yield on the
notes equal to 5.80% per annum, compounded semiannually. Accordingly, during
the term of the notes, a U.S. holder of a note will be required to include in
income the sum of the daily portions of interest on the note 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 note. The amount of
interest that will be deemed to accrue in any accrual period, i.e., generally
each six-month period during which the notes are outstanding, will equal the
PS-18
<PAGE>
product of this estimated yield, properly adjusted for the length of the accrual
period, and the note's adjusted issue price 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 note's
adjusted issue price will equal the note's issue price, increased by the
interest previously accrued on the note and reduced by interest payments
received on the notes. As a result of the foregoing rules, a U.S. holder will
not be required to include in income the stated interest payments received on
its notes. Upon maturity of a note on February 8, 2006, in the event that the
amount payable upon maturity (the "Actual Redemption Amount") exceeds $1,412.31
for every $1,000 note redeemed, a U.S. holder will be required to include the
excess over $1,412.31 per $1,000 (i.e., the Projected Redemption Amount) in
income as ordinary interest on the maturity date. Alternatively, in the event
that the Actual Redemption Amount is less than $1,412.31 per $1,000 of principal
amount of notes (i.e., the Projected Redemption Amount), the excess of the
Projected Redemption Amount over the Actual 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 note for the taxable year in which the maturity,
redemption or exchange date occurs to the extent of the amount of such
includible interest. A U.S. holder will be permitted to recognize and deduct,
as an ordinary loss that is not subject to the limitations applicable to
miscellaneous itemized deductions, any remaining portion of the excess of the
Projected Redemption Amount over the Actual Redemption Amount that is not
treated as an interest offset pursuant to the foregoing rules. U.S. holders
purchasing a note at a price that differs from the adjusted issue price of the
note as of the purchase date (e.g., subsequent purchasers) will be subject to
special rules providing for certain adjustments to the foregoing rules, and such
U.S. holders should consult their own tax advisors concerning these rules.
Upon the sale, redemption or exchange of a note prior to the maturity of
the note, a U.S. holder will be required to recognized 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 and the U.S. holder's adjusted tax basis in the note.
A U.S. holder's adjusted tax basis in a note generally will equal such U.S.
holder's initial investment in the note increased by any interest previously
included in income with respect to the note by the U.S. holder and reduced by
interest payments received on the note. 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 note. 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 note. 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 notes should consult their own tax advisors
concerning the application of the Final Regulations to their investment in the
notes. Investors in the notes may also obtain the projected payment schedule, as
determined by ML&Co. for purposes of the application of the Final Regulations to
the notes, 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 Redemption
Amount and the estimated yield on the notes, has been determined solely for
United States federal income tax purposes, i.e., for purposes of applying the
Final Regulations to the notes, and is neither a prediction nor a guarantee of
what the Actual Redemption Amount will be.
The following table sets forth the amount of interest that will be deemed
to have accrued with respect to each $1,000 principal amount of the notes during
each accrual period over the term of the notes based upon the projected payment
schedule for the notes, including both the Projected Redemption
PS-19
<PAGE>
Amount and the estimated yield equal to 5.80% per annum (compounded
semiannually), as determined by ML&Co. for purposes of applying the Final
Regulations to the notes:
<TABLE>
<CAPTION>
Accrual Period Total Interest
Deemed to
Have Accrued
Interest Deemed on the Notes
to as of the End
Accrue During of
Accrual Period Accrual Period
(per $1,000) (per $1,000)
------------------ ----------------
<S> <C> <C>
February 8, 1999 through August 8, 1999.......................... $29.00 $ 29.00
August 8, 1999 through February 8, 2000.......................... $29.70 $ 58.70
February 8, 2000 through August 8, 2000.......................... $30.41 $ 89.11
August 8, 2000 through February 8, 2001.......................... $31.15 $120.26
February 8, 2001 through August 8, 2001.......................... $31.91 $152.17
August 8, 2001 through February 8, 2002.......................... $32.69 $184.86
February 8, 2002 through August 8, 2002.......................... $33.49 $218.35
August 8, 2002 through February 8, 2003.......................... $34.32 $252.67
February 8, 2003 through August 8, 2003.......................... $35.17 $287.84
August 8, 2003 through February 8, 2004.......................... $36.04 $323.88
February 8, 2004 through August 8, 2004.......................... $36.94 $360.82
August 8, 2004 through February 8, 2005.......................... $37.87 $398.69
February 8, 2005 through August 8, 2005.......................... $38.82 $437.51
August 8, 2005 through February 8, 2006.......................... $39.80 $477.31
</TABLE>
_______________
Projected Redemption Amount = $1,412.31 per $1,000 principal amount of notes.
PS-20
