<PAGE>
FILED PURSUANT TO RULE NO. 424(b)(3)
REGISTRATION NO. 333-68747
PRICING SUPPLEMENT
(To prospectus supplement dated November 23, 1999)
[LOGO Merrill Lynch]
$30,000,000
Merrill Lynch & Co., Inc.
[LOGO OF BOND INDEX NOTES]
[Domestic Master Series 1999A]
----------------
<TABLE>
<S> <C> <C> <C>
Issue: Bond Index Notes, Domestic Master Series 1999A
Principal Amount per Bond Index $20
Note:
<CAPTION>
Per Bond Index Note Total
Public Offering Price: ------------------- -----
<S> <C> <C> <C>
$20.00 $30,000,000
<CAPTION>
Per Bond Index Note Total
Underwriting Discount: ------------------- -----
<S> <C> <C> <C>
$.20 $300,000
<CAPTION>
Per Bond Index Note Total
Proceeds To Issuer Before Expenses: ------------------- -----
<S> <C> <C> <C>
$19.80 $29,700,000
Original Issue Date: December 22, 1999
Stated Maturity Date: December 23, 2002
Listing: AMEX
Trading Symbol: BNX
Fixed Income Index: Merrill Lynch U.S. Domestic Master Index
(AMEX Symbol "IDM")
<CAPTION>
Start Date End Date
Maturity Amount Calculation Period: ---------- --------
<S> <C> <C> <C>
Dec. 16, 1999 Dec. 17, 2002
Maturity Amount Payment Date: Dec. 23, 2002
<CAPTION>
Interest Payment Periods: Calculation Calculation Interest
Start Date End Date Payment Date
----------- ----------- ------------
<S> <C> <C> <C>
Dec. 16, 1999 June 16, 2000 June 22, 2000
June 16, 2000 Dec. 18, 2000 Dec. 22, 2000
Dec. 18, 2000 June 18, 2001 June 22, 2001
June 18, 2001 Dec. 18, 2001 Dec. 24, 2001
Dec. 18, 2001 June 18, 2002 June 24, 2002
June 18, 2002 Dec. 17, 2002 Dec. 23, 2002
Spread: .50% of the Principal Amount per annum (which
results in a Spread of .25% of the Principal
Amount per semi-annual Interest Payment Period)
Initial Price Return Value: 284.295
Starting Total Return Value: 825.081
Starting Price Return Value: 284.295 for the initial Interest Payment Period
</TABLE>
----------------
The date of this pricing supplement is December 16, 1999.
<PAGE>
PROSPECTUS SUPPLEMENT
(To prospectus dated May 6, 1999)
[LOGO] Merrill Lynch
Merrill Lynch & Co., Inc.
[LOGO OF BOND INDEX NOTES]
Domestic Master Series 1999A
$20 principal amount per Bond Index Note
--------------
Bond Index Notes: Maturity Amount:
. Senior unsecured debt securities of . On the maturity date for your
Merrill Lynch & Co., Inc. series of Bond Index Notes, we will
. Issued in series from time to time pay you an amount equal to a
with terms and conditions of each percentage of the principal amount
series specified in a pricing of your Bond Index Notes. We will
supplement. calculate this percentage based on
. Returns are based on the values of the change in value of the price
fixed income indices sponsored and return component of the applicable
calculated by our subsidiary, Merrill fixed income index over a period of
Lynch, Pierce, Fenner & Smith time starting on the date that is
Incorporated, and published on the four business days before the issue
American Stock Exchange. date and ending on the date that is
. Issued with maturities of no greater four business days before the
than five years from the date of maturity date. AS A RESULT, THE
original issuance. MATURITY AMOUNT MAY BE GREATER THAN
. All Bond Index Notes will be listed OR LESS THAN THE PRINCIPAL AMOUNT
on a national securities exchange or OF YOUR BOND INDEX NOTES AND MAY
on the Nasdaq Stock Market. RESULT IN A LOSS TO YOU.
Payment of Interest:
. On each interest payment date for
your series of Bond Index Notes, we
will pay you an amount of interest
determined with reference to the
index rate of interest for the
applicable fixed income index less a
fixed spread as specified in the
pricing supplement related to that
series.
Investing in Bond Index Notes involves risks, including the risk that on the
maturity date you may receive less than the principal amount of your Bond Index
Notes. For a discussion of the material risks related to an investment in Bond
Index Notes, you should review the pricing supplement related to your series of
Bond Index Notes, this prospectus supplement and the accompanying prospectus,
including the section entitled "Risk Factors" on page S-8 of this prospectus
supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
For each series of Bond Index Notes, we will specify the public offering
price, underwriting discount and the proceeds, before expenses, to Merrill
Lynch & Co., Inc. in the applicable pricing supplement delivered to you in
connection with your purchase of Bond Index Notes.
--------------
Merrill Lynch & Co.
--------------
The date of this prospectus supplement is November 23, 1999.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION--Q&A.................................................. S-4
What are Bond Index Notes?.............................................. S-4
To which fixed income index will my Bond Index Notes be linked?......... S-4
What form of interest payments will I receive on my Bond Index Notes? .. S-4
What will I receive on each interest payment date?...................... S-5
What will I receive on the maturity date?............................... S-5
Who publishes the fixed income index to which my Bond Index Notes are
linked and what does the fixed income index measure?................... S-6
How have the fixed income indices performed historically?............... S-6
What about taxes?....................................................... S-6
Will my Bond Index Notes be listed on a securities exchange?............ S-6
What are the roles of MLPF&S?........................................... S-7
Who is ML&Co.?.......................................................... S-7
Are there any risks associated with my investment?...................... S-7
RISK FACTORS.............................................................. S-8
Your Bond Index Notes are not principal-protected and you may receive
less than your principal amount at maturity............................ S-8
Your yield may be lower than the yield on a standard debt security of
comparable maturity.................................................... S-8
Changes in market interest rates are expected to have a greater effect
on the yield and trading value of your Bond Index Notes than such
changes would have on the yield and trading value of standard, non-
indexed coupon bearing debt securities of comparable maturity.......... S-8
The trading value of Bond Index Notes will depend on the value of the
applicable fixed income index.......................................... S-8
Changes in our credit ratings will affect the trading value of Bond
Index Notes............................................................ S-9
There may be an uncertain trading market for Bond Index Notes........... S-9
The rate at which interest will accrue on your Bond Index Notes during
any interest period will be determined only at the end of that period.. S-9
Potential conflicts..................................................... S-9
Uncertain tax consequences.............................................. S-10
DESCRIPTION OF BOND INDEX NOTES........................................... S-11
Payment of Interest..................................................... S-11
Maturity Amount......................................................... S-12
Hypothetical Returns.................................................... S-13
Changes to the Fixed Income Indices..................................... S-16
Events of Default and Acceleration...................................... S-16
Depositary.............................................................. S-16
Same-Day Settlement and Payment......................................... S-19
THE FIXED INCOME INDICES.................................................. S-19
Inclusion Rules and Historical Information.............................. S-21
UNITED STATES FEDERAL INCOME TAXATION..................................... S-30
General................................................................. S-30
Tax Treatment of Bond Index Notes....................................... S-31
Sale or Exchange of Bond Index Notes.................................... S-31
Wash Sale Rules......................................................... S-32
Pending Legislation..................................................... S-32
Possible Alternative Tax Treatments of an Investment in Bond Index
Notes.................................................................. S-32
Backup Withholding and Information Reporting............................ S-33
1997 Withholding Regulations............................................ S-33
ERISA CONSIDERATIONS...................................................... S-33
USE OF PROCEEDS AND HEDGING............................................... S-33
WHERE YOU CAN FIND MORE INFORMATION....................................... S-34
UNDERWRITING.............................................................. S-34
VALIDITY OF BOND INDEX NOTES.............................................. S-35
INDEX OF DEFINED TERMS.................................................... S-36
</TABLE>
S-2
<PAGE>
Prospectus
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
S-3
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus supplement and the accompanying prospectus to
help you understand the Bond Index Notes. We will issue Bond Index Notes in
separate series. All Bond Index Notes of a single series will have identical
terms and provisions. The terms and conditions of each series of Bond Index
Notes will be described in a separate final pricing supplement at the time of
the issuance of that series. The pricing supplement for each series of Bond
Index Notes will include the title and aggregate principal amount of that
series, the specific fixed income index to which that series is linked and
other information relevant to that series. You should carefully read this
prospectus supplement, the accompanying prospectus and the applicable pricing
supplement to fully understand the terms of your Bond Index Notes, the
applicable fixed income index to which those Bond Index Notes are linked and
the tax and other considerations that should be important to you in making a
decision about whether to invest in Bond Index Notes. You should also carefully
review the "Risk Factors" section included in this prospectus supplement on
page S-8 which highlights certain risks associated with an investment in Bond
Index Notes to determine whether an investment in Bond Index Notes is
appropriate for you.
References in this prospectus supplement to "ML&Co.", "we", "us" and
"our" are to Merrill Lynch & Co., Inc.
References in this prospectus supplement to "MLPF&S" are to Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
What are Bond Index Notes?
Each series of Bond Index Notes will be a series of senior debt
securities issued by ML&Co. and will not be secured by collateral. Bond Index
Notes will rank equally with all of our other unsecured and unsubordinated
debt. Each series of Bond Index Notes will mature on a specified date as set
forth in the applicable pricing supplement, which will be no greater than five
years from the date of their original issuance. We may not redeem any series of
Bond Index Notes before their stated maturity date.
We will issue Bond Index Notes in denominations of $20 and integral
multiples of $20. You may transfer your Bond Index Notes only in these
denominations. You will not have the right to receive physical certificates
evidencing your ownership except under limited circumstances. Instead, we will
issue Bond Index Notes in the form of global certificates, which will be held
by The Depository Trust Company, also known as DTC, or its nominee. Direct and
indirect participants in DTC will record your ownership of the Bond Index
Notes. For a description of the global certificates and DTC, you should refer
to the section entitled "Description of Bond Index Notes--Depositary" in this
prospectus supplement.
To which fixed income index will my Bond Index Notes be linked?
Each series of Bond Index Notes will be linked to one of the following
Merrill Lynch fixed income indices calculated and published by the Portfolio
Strategies Group of MLPF&S and published on the AMEX:
. U.S. Domestic Master Index,
. Mortgage Master Index,
. U.S. Corporate/Government Master Index,
. U.S. Corporate Master Index,
. U.S. Treasury/Agency Master Index,
. U.S. Treasury Master Index, and
. U.S. Agency Master Index.
Each fixed income index is more fully described in this prospectus
supplement under the section entitled "The Fixed Income Indices". The specific
fixed income index to which your Bond Index Notes are linked will be specified
in the applicable pricing supplement.
What form of interest payments will I receive on my Bond Index Notes?
You will not receive fixed interest payments on your Bond Index Notes. We
have
S-4
<PAGE>
designed the Bond Index Notes for investors who are willing to forego fixed
interest payments on the Bond Index Notes in exchange for (1) interest payments
which will be paid on each interest payment date and which will be based upon
an index of market rates of interest, less a fixed spread, and (2)
participation on the maturity date in any increase or decrease in the value of
the price return component of the fixed income index to which your Bond Index
Notes are linked.
What will I receive on each interest payment date?
On each interest payment date, we will pay you interest on your Bond
Index Notes in an amount equal to the Index Rate of Interest less a fixed
spread specified in the final pricing supplement related to your series of Bond
Index Notes.
For any interest period, the "Index Rate of Interest" for any fixed
income index is equal to the weighted average of the interest accrued and
interest paid on securities underlying that fixed income index less the amount
of any interest scheduled to have been paid but not paid during that interest
period on those underlying securities. For any interest period, the applicable
Index Rate of Interest for any fixed income index will be calculated as the
percentage change in value of the total return of the applicable fixed income
index less the percentage change in value of the price return component of that
fixed income index over that interest period.
With respect to any specific interest payment date for any series of Bond
Index Notes, an interest period will be the period from and including the
fourth business day immediately preceding the most recent prior interest
payment date to but excluding the fourth business day immediately preceding the
subject interest payment date, or in the case of the initial interest period,
the period from the fourth business day immediately preceding the original
issue date of that series of Bond Index Notes to but excluding the fourth
business day immediately preceding the initial interest payment date.
The interest payment dates on which interest payments will be made will
be specified in the applicable pricing supplement.
What will I receive on the maturity date?
We have designed Bond Index Notes for investors who want to benefit from
an investment in a selected broad-based fixed income sector as measured by a
total return fixed income index, without incurring the transaction costs
associated with investing in multiple fixed income securities in order to
attain a broad-based and diversified fixed income portfolio. The value of each
fixed income index takes into account both (1) interest paid on underlying
fixed income securities and (2) the price appreciation or depreciation of those
underlying fixed income securities. The price return component of Bond Index
Notes represents the price appreciation or depreciation of the underlying fixed
income securities. On the maturity date of any series of Bond Index Notes, in
addition to an interest payment for the final interest period, you will receive
a payment equal to the Maturity Amount, which will be based on the price return
component of that series.
The "Maturity Amount" for each $20 principal amount of Bond Index Notes
for any series will equal:
( Final Price Return Value )
$20 X (--------------------------)
(Initial Price Return Value)
For purposes of determining the Maturity Amount, the "Initial Price
Return Value" for any series of Bond Index Notes will equal the most recently
published value of the price return component for the applicable fixed income
index on the Bloomberg information system at 11:00 a.m., New York City time, on
the fourth business day immediately preceding the issue date. We will disclose
the Initial Price Return Value for your Bond Index Notes in the final pricing
supplement delivered to you in connection with your purchase of Bond Index
Notes.
For purposes of determining the Maturity Amount, the "Final Price Return
Value" for any series of Bond Index Notes will equal the most recently
published value of the price return component for the applicable fixed income
index on the Bloomberg information system at 11:00 a.m., New York City time, on
the fourth business day immediately preceding the maturity date of the
applicable series of Bond Index Notes.
S-5
<PAGE>
If the Final Price Return Value is greater than the Initial Price Return
Value, you will receive a Maturity Amount that is greater than the principal
amount of your Bond Index Notes. If the Final Price Return Value is less than
the Initial Price Return Value, you will receive a Maturity Amount that is less
than the principal amount of your Bond Index Notes, which would result in a
loss to you. You should refer to the section entitled "Risk Factors--Your Bond
Index Notes are not principal-protected and you may receive less than your
principal amount at maturity" in this prospectus supplement.
Who publishes the fixed income index to which my Bond Index Notes are linked
and what does the fixed income index measure?
Each fixed income index is calculated, maintained and published by the
Portfolio Strategies Group of our subsidiary MLPF&S. The fixed income indices
are designed to reflect the value of debt obligations issued by the U.S.
government, by corporate institutions in major industry sectors or both. The
fixed income indices are "total return" indices. This means that the total
return of a given fixed income index measures the return of the underlying
securities measured by that index based on the appreciation or depreciation in
the value for these underlying securities plus the interest income paid on
those underlying securities. The value of the "price return" component is
published as a separate price return index for each fixed income index. A price
return index is one component of a total return index and measures the
appreciation or depreciation in value of a fixed principal amount of the
underlying securities measured by the applicable fixed income index. The price
return component of the applicable fixed income index will be used in
determining the amount, if any, you will receive at maturity. Each fixed income
index has been calculated and published by the Portfolio Strategies Group for
at least 20 years and their respective price return components have been
calculated and published by the Portfolio Strategies Group since at least 1986.
Each fixed income index is also published on the AMEX.
An investment in Bond Index Notes does not entitle you to any ownership
interest in the underlying securities and other assets measured by any fixed
income index.
How have the fixed income indices performed historically?
We have provided historical information concerning the performance of
each fixed income index under the section entitled "The Fixed Income Indices"
in this prospectus supplement. We may provide more current information with
respect to the specific fixed income index linked to a series of Bond Index
Notes in the pricing supplement related to that series. We have provided this
historical information to help you evaluate the behavior of the fixed income
indices in various economic environments; however, the past performance of any
fixed income index does not necessarily indicate how the fixed income index
will perform in the future.
What about taxes?
The U.S. Federal income tax consequences of an investment in Bond Index
Notes are uncertain. Under the terms of Bond Index Notes, ML&Co. and you agree,
in the absence of an administrative or judicial ruling to the contrary, to
characterize a Bond Index Note for all tax purposes as an investment contract
that entitles you to receive interest payments and the Maturity Amount. Under
this characterization of Bond Index Notes, for U.S. Federal income tax
purposes, if you use the cash method of tax accounting, you will include the
interest you receive on Bond Index Notes in income only when you receive these
payments. In addition, at maturity, you generally will be required to recognize
gain or loss depending upon the Maturity Amount you receive. You should review
the discussion under the section entitled "United States Federal Income
Taxation" in this prospectus supplement.
Will my Bond Index Notes be listed on a securities exchange?
We will list each series of Bond Index Notes on a national securities
exchange or on the Nasdaq Stock Market. We will disclose the securities
exchange or automated quotation system
S-6
<PAGE>
on which your Bond Index Notes will be listed and the assigned trading symbol
in the applicable pricing supplement. You should be aware that the listing of
any series of Bond Index Notes on a securities exchange or automated quotation
system will not necessarily ensure that a liquid trading market will develop
for any series of Bond Index Notes. You should review "Risk Factors--There may
be an uncertain trading market for Bond Index Notes" in this prospectus
supplement.
What are the roles of MLPF&S?
Our subsidiary MLPF&S will be the underwriter for the offering and sale
of each series of Bond Index Notes. After the initial offering of each series
of Bond Index Notes, MLPF&S intends to buy and sell Bond Index Notes to create
a secondary market for holders of Bond Index Notes, and may stabilize or
maintain the price of Bond Index Notes during the initial distribution of Bond
Index Notes. However, MLPF&S will not be obligated to engage in any of these
market activities or continue them once it has started.
Additionally, the Portfolio Strategies Group, a group within MLPF&S, is
responsible for calculating, determining the ongoing composition of and
publishing the fixed income indices to which Bond Index Notes are linked.
MLPF&S will also be the calculation agent for purposes of calculating the
amount of interest and the Maturity Amount payable with respect to each series
of Bond Index Notes. Under certain circumstances, these various duties could
result in a conflict of interest between MLPF&S' status as our subsidiary and
its responsibilities as calculator of the fixed income indices and calculation
agent for Bond Index Notes. Please see the section entitled "Risk Factors--
Potential conflicts" in this prospectus supplement.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co., see the
section entitled "Merrill Lynch & Co., Inc." in the accompanying prospectus.
You should also read other documents we have filed with the SEC, which you can
find by referring to the section "Where You Can Find More Information" in this
prospectus supplement.
Are there any risks associated with my investment?
Yes, an investment in Bond Index Notes is subject to risk. Please refer
to the section entitled "Risk Factors" in this prospectus supplement.
S-7
<PAGE>
RISK FACTORS
Your investment in Bond Index Notes will involve risks. You should
carefully consider the following discussion of risks before deciding whether an
investment in the Bond Index Notes is suitable for you.
Your Bond Index Notes are not principal-protected and you may receive less than
your principal amount at maturity
For any series of Bond Index Notes, if the Final Price Return Value is
less than the Initial Price Return Value, the Maturity Amount paid to you will
be less than the principal amount of your Bond Index Notes. Under these
circumstances, your investment in Bond Index Notes would result in a loss to
you. This will be true even if the value of the price return component of the
fixed income index to which your Bond Index Notes are linked was higher than
the Initial Price Return Value at some time during the life of your Bond Index
Notes but later falls below the Initial Price Return Value.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
Because the Maturity Amount you receive may be less than the principal
amount of your Bond Index Notes, 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.
Changes in market interest rates are expected to have a greater effect on the
yield and trading value of your Bond Index Notes than such changes would have
on the yield and trading value of standard, non-indexed, coupon-bearing debt
securities of comparable maturity
The yield and trading value of your Bond Index Notes will be determined
by reference to the debt securities underlying the applicable fixed income
index. These underlying securities will have an average term to maturity that
is greater than the term to maturity of your Bond Index Notes. We therefore
expect that a change in market interest rates will have a greater effect on the
yield and trading value of your Bond Index Notes than such change would have on
standard, non-indexed, coupon-bearing debt securities having the same maturity
as your Bond Index Notes. In general, if you bought a standard, non-indexed,
coupon-bearing debt security with the same maturity date, the effect on the
trading value of that debt security due to a given change in market interest
rates would be less if it occurred later in the term of that debt security.
However, it is expected that the effect on the trading value of your Bond Index
Notes due to a given change in market interest rates will not be reduced as the
time remaining to maturity of your Bond Index Notes decreases.
The trading value of Bond Index Notes will depend on the value of the
applicable fixed income index
We expect that the trading value of any series of Bond Index Notes will
depend substantially on the amount by which the value of the price return
component for the applicable fixed income index exceeds or does not exceed the
Initial Price Return Value. If you choose to sell your Bond Index Notes when
the value of the applicable price return component exceeds the Initial Price
Return Value, you may receive substantially less than the amount that would be
payable at maturity because of, among other factors, the expectation that the
value of the applicable fixed income index will continue to fluctuate until the
Final Price Return Value for that series is determined. If before the maturity
date you choose to sell your Bond Index Notes when the value of the applicable
price return component is below, or not sufficiently above, the Initial Price
Return Value, you may receive less than the principal amount of your Bond Index
Notes, which would result in a loss to you.
Changes in the level of U.S. interest rates are expected to affect the
value of the indices. We expect that changes in U.S. interest rates will affect
the value of the price return component of the fixed income index to which your
Bond Index Notes are linked and the value of any of the fixed income indices.
In general, if U.S. interest rates increase, we expect that the value of the
fixed income indices will decrease, and
S-8
<PAGE>
conversely, if U.S. interest rates decrease, we expect the value of the fixed
income indices will increase. However, in certain circumstances, a decrease in
interest rates may reduce the yield associated with the underlying assets of
any fixed income index and consequently may lower the value of that index. For
example, a decrease in interest rates may increase the prepayment risk
associated with certain mortgage assets underlying the Mortgage Master Index
and may reduce the value of the Mortgage Master Index. In addition, any changes
in U.S. interest rates may also affect the U.S. economy and, in turn, the value
of any fixed income index.
Changes in credit ratings of the underlying issuers will affect the value
of the indices. Real or anticipated changes in the credit ratings of the
companies or government agencies whose securities comprise the underlying asset
class of any fixed income index may affect the value of that fixed income index
and, in turn, the trading value of Bond Index Notes.
Changes in our credit ratings will affect the trading value of Bond Index Notes
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 Bond Index Notes. However, because your return
on your Bond Index Notes is dependent upon other factors in addition to our
ability to pay our obligations under Bond Index Notes, such as the increases or
decreases in the value of the applicable price return component, an improvement
in our credit ratings will not reduce the other investment risks related to
Bond Index Notes.
There may be an uncertain trading market for Bond Index Notes
We will list each series of Bond Index Notes on a national securities
exchange or on the Nasdaq Stock Market. However, you cannot assume that a
trading market will develop for any such series of the Bond Index Notes. 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 any
series of Bond Index Notes will depend on our financial performance, and other
factors like the increase or decrease in the value of the applicable fixed
income index over the life of the Bond Index Notes.
If the trading market for Bond Index Notes is limited, there may be a
limited number of buyers for your Bond Index Notes if you do not wish to hold
your investment until maturity. This may affect the price you receive.
The rate at which interest will accrue on your Bond Index Notes during any
interest period will be determined only at the end of that period
Because we will calculate the rate at which interest accrues on your Bond
Index Notes during any interest period on the fourth business day immediately
preceding the applicable interest payment date, the rate at which interest will
accrue during any interest period will be determined only at the end of that
period. As a result, if you sell your Bond Index Notes on any day prior to the
day on which the interest rate is determined for an interest period, the price
you obtain will not necessarily reflect the interest payment that you would
have received had you held your Bond Index Notes until the next interest
payment date. Because of this uncertainty throughout most of an interest period
as to the rate at which interest will accrue on Bond Index Notes during that
interest period, the prices at which Bond Index Notes are traded on the AMEX
are expected to reflect estimated interest accruals to the date of the
applicable trades, and no other accrued interest will be paid or received in
connection with such transactions.
Potential conflicts
Our subsidiary MLPF&S has multiple responsibilities in connection with
Bond Index Notes. MLPF&S is the calculation agent for Bond Index Notes and is
required to carry out its duties as calculation agent for Bond Index Notes 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.
S-9
<PAGE>
Additionally, the Portfolio Strategies Group, a group within MLPF&S, is
responsible for calculating, determining the ongoing composition of and
publishing the fixed income indices to which Bond Index Notes are linked.
Because the Portfolio Strategies Group is part of MLPF&S, a subsidiary of ours,
a conflict of interest could arise.
We expect that, from time to time, we will enter into arrangements with
one or more of our subsidiaries to hedge the market risks associated with our
payment obligations under Bond Index Notes. Each subsidiary would expect to
make a profit in connection with any arrangement of this kind. We will not seek
competitive bids for any arrangement from unaffiliated parties.
Uncertain tax consequences
You should consider the tax consequences of investing in Bond Index
Notes, aspects of which are uncertain. See "United States Federal Income
Taxation" in this prospectus supplement.
S-10
<PAGE>
DESCRIPTION OF BOND INDEX NOTES
Bond Index Notes may be issued in various series as senior unsecured debt
securities under ML&Co.'s 1983 Indenture, which is more fully described in the
accompanying prospectus. Each series of Bond Index Notes will mature on a
specified date as set forth in the applicable pricing supplement, which will be
no later than five years from the date of their original issuance.
Bond Index Notes will not be subject to redemption by ML&Co. or at the
option of any beneficial owner before their stated maturity date. Upon the
occurrence of an Event of Default with respect to a series of Bond Index Notes,
beneficial owners of that series of Bond Index Notes may accelerate the
maturity of Bond Index Notes, 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 Bond Index Notes in denominations of $20 and integral
multiples of $20.
Bond Index Notes will not have the benefit of any sinking fund.
The stated maturity date, the applicable fixed income index and the other
terms and conditions of each series of Bond Index Notes will be set forth in
the final pricing supplement.
Payment of Interest
On each interest payment date specified in the applicable pricing
supplement, a beneficial owner of a Bond Index Note will be entitled to an
interest payment in an amount equal to the Index Rate of Interest less a fixed
spread specified in the final pricing supplement (the "Spread"). The "Index
Rate of Interest" for any fixed income index is equal to the weighted average
of the interest accrued and interest paid on the securities underlying that
fixed income index less the amount of any interest scheduled to have been paid
but not paid during that interest period on those underlying securities. For
any interest period, the applicable Index Rate of Interest for any fixed income
index will be calculated as the percentage change in value of the total return
of the applicable fixed income index less the percentage change in value of the
price return component of that fixed income index over that interest period.
For each interest period, each interest payment will equal:
<TABLE>
<C> <S> <C> <C>
[ ( Ending Total Return Value ) ( Ending Price Return Value ) ]
$20 X [ (---------------------------- - 1 ) - (--------------------------- - 1 ) - Spread ]
[ ( Starting Total Return Value ) (Starting Price Return Value ) ]
</TABLE>
Determination of the Interest Income
For any series of Bond Index Notes, for purposes of determining the
amount of interest payable on the initial interest payment date, the "Starting
Total Return Value" will equal the value of the total return index for the
applicable fixed income index most recently published on the Bloomberg
information system at 11:00 a.m., New York City time, on the fourth Business
Day immediately preceding the original issue date for that series. For purposes
of determining the amount of interest payable on any other interest payment
date, the Starting Total Return Value for any series of Bond Index Notes will
equal the Ending Total Return Value used in connection with the calculation of
interest for the immediately preceding interest payment date.
For purposes of determining the amount of interest payable on any
interest payment date, the "Ending Total Return Value" for any series of Bond
Index Notes will equal the value of the total return index for the applicable
fixed income index most recently published for that series on the Bloomberg
information system at 11:00 a.m., New York City time, on the fourth Business
Day immediately preceding the applicable interest payment date.
S-11
<PAGE>
For purposes of determining the amount of interest payable on the initial
interest payment date, the "Starting Price Return Value" will equal the value
of the price return index for the applicable fixed income index most recently
published on the Bloomberg information system at 11:00 a.m., New York City
time, on the fourth Business Day immediately preceding the issue date. For
purposes of determining the amount of interest payable on any other interest
payment date, the Starting Price Return Value for any series of Bond Index
Notes will equal the Ending Price Return Value used in connection with the
calculation of interest for the immediately preceding interest payment date.
The price return index level on any day is determined by reference to the
prices (exclusive of accrued interest) of the securities comprising the
applicable index on that day, as determined by the Portfolio Strategies Group
of MLPF&S.
For purposes of determining the amount of interest payable on any
interest payment date, the "Ending Price Return Value" for any series of Bond
Index Notes will equal the value of the price return index for the applicable
fixed income index most recently published for such series on the Bloomberg
information system at 11:00 a.m., New York City time, on the fourth Business
Day immediately preceding the applicable interest payment date.
With respect to any specific interest payment date for any series of Bond
Index Notes, an interest period will be the period from and including the
fourth Business Day immediately preceding the most recent prior interest
payment date to but excluding the fourth Business Day immediately preceding the
subject interest payment date or, in the case of the initial interest period,
the period from the fourth Business Day immediately preceding the original
issue date of that series of Bond Index Notes to but excluding the fourth
Business Day immediately preceding the initial interest payment date.
Interest payments on the Bond Index Notes will be payable to their
holders as they appear on the books and records of ML&Co. on the relevant
record dates, which will be the Business Day immediately preceding the
applicable interest payment date. In the event the Bond Index Notes do not
remain in book-entry form, the relevant record date will be the fifteenth
calendar day, whether or not a Business Day, immediately preceding the
applicable interest payment date. In the event that any interest payment date
or the maturity date is not a Business Day, interest or the Maturity Amount, as
the case may be, payable on that date will be made on the next succeeding day
which is a Business Day, without any interest or other payment with respect to
such delay, in each case with the same force and effect as if made on the
scheduled payment date.
A "Business Day" shall mean 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.
The Spread will be a fixed percentage which will reduce the interest
payable on the Bond Index Notes. The Spread related to any series of Bond Index
Notes will be specified in the final pricing supplement relating to that
series.
Maturity Amount
On the maturity date of any series of Bond Index Notes, in addition to an
interest payment for the final interest period, a beneficial owner of a Bond
Index Note will receive a payment equal to the Maturity Amount. If the Final
Price Return Value is greater than the Initial Price Return Value, a beneficial
owner of a Bond Index Note will receive a Maturity Amount that is greater than
the principal amount of its Bond Index Note. If the Final Price Return Value is
less than the Initial Price Return Value, a beneficial owner of a Bond Index
Note will receive a Maturity Amount that is less than the principal amount of
its Bond Index Note, which would result in a loss to that beneficial owner.
S-12
<PAGE>
Determination of the Maturity Amount
The Maturity Amount for each $20 principal amount of Bond Index Note for
any series will equal:
( Final Price Return Value )
$20 X ( -------------------------- )
( Initial Price Return Value )
For purposes of determining the Maturity Amount, the Initial Price
Return Value for any series of Bond Index Notes will equal the most recently
published value of the price return component for the applicable fixed income
index on the Bloomberg information system at 11:00 a.m., New York City time,
on the fourth Business Day immediately preceding the issue date. The Initial
Price Return Value for any series of Bond Index Notes will be set forth in the
applicable pricing supplement.
For purposes of determining the Maturity Amount, the Final Price Return
Value for any series of Bond Index Notes will equal the most recently
published value of the price return component for the applicable fixed income
index on the Bloomberg information system at 11:00 a.m., New York City time,
on the fourth Business Day immediately preceding the maturity date of the
applicable series of Bond Index Notes.
All determinations made by the calculation agent for Bond Index Notes
shall be at its sole discretion and, absent a determination by such
calculation agent of a manifest error, shall be conclusive for all purposes
and binding on ML&Co. and beneficial owners of Bond Index Notes.
Hypothetical Returns
The hypothetical returns calculated on the following pages are for
purposes of illustration only. The actual Maturity Amount and interest
payments for a Bond Index Note will depend entirely on the actual Spread, the
price return component and total return index value for the applicable fixed
income index and the relevant period. The actual Maturity Amount may be less
than the principal amount of your Bond Index Notes, which would result in a
loss to you.
The following examples assume a hypothetical Bond Index Note having an
original issue date of December 6, 1999, a stated maturity date of December 6,
2002, annual interest payments and a Spread of 0.50%. The following examples
also assume a Bond Index Note is held from the original issue date until the
stated maturity date.
The specific terms of your Bond Index Note may differ. The actual terms
of each series of Bond Index Notes will be set forth in the applicable pricing
supplement.
S-13
<PAGE>
Example One
<TABLE>
<CAPTION>
Maturity Amount
Total Return Price Return Annual Interest per $20
Date Index Index Percentage principal amount
-------- ------------ ------------ --------------- ----------------
<S> <C> <C> <C> <C>
11/30/99 825.000 300.000 -- --
11/30/00 890.000 303.000 6.38% --
11/30/01 945.000 301.000 6.34% --
12/02/02 1018.000 304.000 6.23% $20.27
</TABLE>
Interest Calculations:
<TABLE>
<C> <S> <C> <C>
[ ( Ending Total Return Value ) ( Ending Price Return Value ) ]
$20 X [ (---------------------------- - 1 ) - (--------------------------- - 1 ) - Spread ]
[ ( Starting Total Return Value ) (Starting Price Return Value ) ]
</TABLE>
First Interest Payment Date:12/6/00
( 890 ) ( 303 )
6.38% = ( --- - 1 ) - ( --- - 1 ) - 0.50%
( 825 ) ( 300 )
Interest payable on 12/6/00 for each $20 principal amount = $1.28
Second Interest Payment Date:12/6/01
( 945 ) ( 301 )
6.34% = ( --- - 1 ) - ( --- - 1 ) - 0.50%
( 890 ) ( 303 )
Interest payable on 12/6/01 for each $20 principal amount = $1.27
Third Interest Payment Date:12/6/02
( 1018 ) ( 304 )
6.23% = ( ---- - 1 ) - ( --- - 1 ) - 0.50%
( 945 ) ( 301 )
Interest payable on 12/6/02 for each $20 principal amount = $1.25
Maturity Amount Calculation:
( Final Price Return Value )
$20 X (---------------------------- )
( Initial Price Return Value )
Maturity Date:12/6/02
( 304 )
101.33% = ( --- )
( 300 )
Maturity Amount payable at the maturity date per $20 principal
amount = $20.27
Total amount payable per $20 principal amount = $24.07
Annualized Rate of Return: 6.70%
S-14
<PAGE>
Example Two
<TABLE>
<CAPTION>
Maturity Amount
Total Return Price Return Annual Interest per $20
Date Index Index Percentage principal amount
-------- ------------ ------------ --------------- ----------------
<S> <C> <C> <C> <C>
11/30/99 825.000 300.000 -- --
11/30/00 852.000 289.000 6.44% --
11/30/01 895.000 283.000 6.62% --
12/02/02 935.000 274.000 7.15% $18.27
</TABLE>
Interest Calculations:
<TABLE>
<C> <S> <C> <C>
[ ( Ending Total Return Value ) ( Ending Price Return Value ) ]
$20 X [ (---------------------------- - 1 ) - (--------------------------- - 1 ) - Spread ]
[ ( Starting Total Return Value ) (Starting Price Return Value ) ]
</TABLE>
First Interest Payment Date:12/6/00
( 852 ) ( 289 )
6.44% = ( --- - 1 ) - ( --- - 1 ) - 0.50%
( 825 ) ( 300 )
Total interest payable on 12/6/00 per $20 principal amount = $1.29
Second Interest Payment Date:12/6/01
( 895 ) ( 283 )
6.62% = ( --- - 1 ) - ( --- - 1 ) - 0.50%
( 852 ) ( 289 )
Total interest payable on 12/6/01 per $20 principal amount = $1.32
Third Interest Payment Date:12/6/02
( 935 ) ( 274 )
7.15% = ( --- - 1 ) - ( --- - 1 ) - 0.50%
( 895 ) ( 283 )
Total interest payable on 12/6/02 per $20 principal amount = $1.43
Maturity Amount Calculation:
( Final Price Return Value )
$20 X ( -------------------------- )
( Initial Price Return Value )
Maturity Date:12/6/02
( 274 )
91.33% = ( --- )
( 300 )
Maturity Amount payable at the maturity date per $20 principal
amount = $18.27
Total amount payable per $20 principal amount = $22.31
Annualized Rate of Return: 4.13%
S-15
<PAGE>
Changes to the Fixed Income Indices
ML&Co. has agreed to use its reasonable efforts to cause MLPF&S, through
its Portfolio Strategies Group, to continue to calculate and publish the fixed
income indices for as long as Bond Index Notes remain outstanding.
From time to time, the Portfolio Strategies Group has changed, and may in
the future change, the methodology used to calculate and maintain the fixed
income indices in order to better reflect the value of the applicable fixed
income sector. The inclusion rules governing the characteristics of the
securities included in each fixed income index are set forth in the section
"The Fixed Income Indices--Inclusion Rules and Historical Information".
Investors in Bond Index Notes should be aware that any changes or modifications
in the methodology used to calculate the fixed income indices or the
discontinuance of and substitution for the fixed income indices may adversely
affect the value or Maturity Amount of any series of Bond Index Notes payable
at maturity.
Events of Default and Acceleration
In case an Event of Default with respect to any Bond Index Notes has
occurred and is continuing, the amount payable to a beneficial owner of a Bond
Index Note upon any acceleration permitted by the Bond Index Notes, with
respect to each $20 principal amount of Bond Index Notes, will be equal to (1)
accrued but unpaid interest on the Bond Index Notes plus (2) the Maturity
Amount, in each case, calculated as though the date of early repayment was the
stated maturity date of the Bond Index Notes; provided, however, that the
Spread will be applied to the values used to calculate the accrued but unpaid
interest on the Bond Index Notes as if Bond Index Notes had not been
accelerated and had remained outstanding to the stated maturity date. See
"Description of Bond Index Notes--Maturity Amount" in this prospectus
supplement. If a bankruptcy proceeding is commenced in respect of ML&Co., the
claim of the beneficial owner of a Bond Index Note may be limited, under
Section 502(b)(2) of Title 11 of the United States Code, to the principal
amount of the Bond Index Notes plus an additional amount of contingent interest
calculated as though the date of the commencement of the proceeding were the
maturity date of Bond Index Notes.
In case of a default in payment on any Bond Index Notes, whether at the
maturity date or upon acceleration, from and after the maturity date or the
date of acceleration, as the case may be, Bond Index Notes will bear interest,
payable upon demand of their beneficial owners, at the London inter-bank
offered rate for one-month deposits as of the date of the final pricing
supplement as determined by ML&Co. (the "Default Rate"), to the extent that
payment of interest is legally enforceable, on the unpaid amount due and
payable on that date in accordance with the terms of Bond Index Notes to the
date payment of that amount has been made or duly provided for.
Depositary
Description of the Global Securities
Upon issuance, each series of Bond Index Notes will be represented by one
or more fully registered global securities. Each 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 Bond Index Notes 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 Bond Index Notes represented by the global security for all
purposes under the 1983 Indenture. Except as provided below, the beneficial
owners of Bond
S-16
<PAGE>
Index Notes represented by a global security will not be entitled to have Bond
Index Notes represented by a global security registered in their names, will
not receive or be entitled to receive physical delivery of Bond Index Notes in
definitive form and will not be considered the owners or holders of Bond Index
Notes, 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 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 action, and those participants would authorize
beneficial owners owning through those participants to give or take 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 Bond Index Notes. Bond Index
Notes will be issued as fully registered securities registered in the name of
Cede & Co., DTC's nominee. One or more fully registered global securities will
be issued for each series of Bond Index Notes in the aggregate principal amount
of that series, 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 the DTC's system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
direct participant, either directly or indirectly. The rules applicable to DTC
and its participants are on file with the SEC.
Purchases of Bond Index Notes under DTC's system must be made by or
through direct participants, which will receive a credit for Bond Index Notes
on DTC's records. The ownership interest of each beneficial owner is in turn to
be recorded on the records of direct participants and indirect participants.
Beneficial owners will not receive written confirmation from DTC of their
purchase, but beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the direct participants or indirect participants through which
the beneficial owner entered into the transaction. Transfers of ownership
interests in Bond Index Notes are to be accomplished by entries made on the
books of participants acting on behalf of beneficial owners.
To facilitate subsequent transfers, all Bond Index Notes deposited with
DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of Bond Index Notes 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 Bond Index Notes; DTC's records reflect only the
identity of the direct participants to
S-17
<PAGE>
whose accounts such Bond Index Notes are credited, which may or may not be the
beneficial owners. The participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to Bond
Index Notes. 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
Bond Index Notes are credited on the record date.
Principal, premium, if any, and/or interest, if any, payments on Bond
Index Notes 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 each 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
those payments to direct participants will be the responsibility of DTC, and
disbursement of payments to the beneficial owners will 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 any series of Bond Index Notes,
the global securities representing these Bond Index Notes will be exchangeable
for Bond Index Notes in definitive form of like tenor and of an equal aggregate
principal amount, in denominations of $20 and integral multiples of $20. The
definitive Bond Index Notes 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 Bond Index Notes at any time by giving reasonable notice to ML&Co.
or the trustee. Under these circumstances, in the event that a successor
depositary is not obtained, Bond Index Note 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, Bond
Index Note 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.
S-18
<PAGE>
Same-Day Settlement and Payment
Settlement for Bond Index Notes will be made by the underwriter in
immediately available funds. All payments on Bond Index Notes will be made by
ML&Co. in immediately available funds so long as the Bond Index Notes are
maintained in book-entry form.
THE FIXED INCOME INDICES
The Portfolio Strategies Group of our subsidiary MLPF&S calculates,
maintains and publishes approximately 800 separate fixed income indices
designed to track changing values of various classes of fixed income assets.
Each series of Bond Index Notes will be indexed to one of seven of these fixed
income indices. Each of these seven indices is published on the AMEX. For
purposes of determining the Maturity Amount or the amount of interest payable
on Bond Index Notes, the value of each of these seven indices will be based on
the applicable fixed income index values published by Bloomberg at the end of
each trading day. Each fixed income index is designed to reflect the value of
debt obligations issued in various sectors of the U.S. domestic fixed income
securities market. For example, the U.S. Domestic Master Index currently
reflects the performance of approximately $5 trillion of the outstanding debt
of the U.S. treasury note and bond, U.S. agency, mortgage pass-through and U.S.
investment grade corporate bond markets.
The fixed income indices are broad-based indices weighted by issue size
(calculated by multiplying the total face value of the security currently
outstanding by its bid price, plus accrued interest). Each fixed income index
has inclusion rules designed to ensure a reasonable level of liquidity in the
underlying securities and to minimize the number of issues in a particular
fixed income index while capturing the majority of the capitalization of a
given market.
The name of each fixed income index, the AMEX trading symbol of each
fixed income index, the year in which the fixed income index began being
calculated and published, general terms of the securities underlying each fixed
income index and the market value of each fixed income index is set forth
below.
<TABLE>
<CAPTION>
Market Value
AMEX Year Underlying Securities as of
Index Name Symbol Commenced as of 10/31/99 10/31/99
---------- ------ --------- ------------------------- -------------
<C> <S> <C> <C> <C>
U.S. Domestic Master IDM 1975 4,957 issues, 6.81% YTM, $5.4 Trillion
Index 5.296 years modified
duration
Mortgage Master IGM 1975 450 issues, 7.249% YTM, $1.8 Trillion
Index 4.811 years modified
duration
U.S.Corporate/ ICG 1972 4,507 issues, 6.597% YTM, $3.6 Trillion
Government 5.528 years modified
Master Index duration
U.S. Corporate IGD 1972 3,532 issues, 7.397% YTM, $1.1 Trillion
Master Index 6.137 years modified
duration
U.S.Treasury/ IGG 1972 975 issues, 6.243% YTM, $2.5 Trillion
Agency Master 5.259 years modified
Index duration
U.S. Treasury ITM 1977 151 issues, 6.161% yield, $2.0 Trillion
Master Index 5.355 years modified
duration
U.S. Agency IGN 1977 824 issues, 6.603% yield $467 Billion
Master Index 4.839 years duration
</TABLE>
S-19
<PAGE>
Rebalancing of the fixed income indices
Securities included in the fixed income indices are held constant
throughout any given month. Qualifying securities are determined on the last
calendar day of each month based on security characteristics on that date.
Accordingly, on December 31st of each year, MLPF&S selects lists of qualifying
securities for each fixed income index for the following month of January. On
January 31st of each year, MLPF&S selects lists of qualifying securities for
each fixed income index for the following month of February. MLPF&S repeats
this selection process on the last calendar day of each month. Those issues
that meet the criteria for a fixed income index on a month-end selection date
remain in the fixed income index throughout the following month.
. New issues must settle on or before the rebalancing date to be
included in the fixed income index for the applicable month. For
example, the September 1999 U.S. Treasury Two-year auction took place
on the 29th and settled on September 30, 1999, thereby qualifying for
inclusion in the U.S. Treasury Master Index in October. However, the
October 1999 Two-year auction which took place on the 27th did not
settle until November 1 and therefore did not qualify for the
November 1999 index.
. Issues that meet the maturity requirements of a fixed income index on
the selection date are included, and remain in the index throughout
the month regardless of whether they subsequently fall short of the
maturity guidelines during the month. For example, the U.S. Treasury
5.75% due October 31, 2000 had exactly one year remaining term to
maturity (the minimum maturity requirement for the fixed income
indices) on October 31, 1999 and was included in the U.S. Treasury
Master Index for the full month of November 1999.
. Issues that meet the rating requirements of a fixed income index on
the selection date are included, and remain in a fixed income index
throughout the month regardless of whether their rating falls outside
of the required range as a result of an upgrade or downgrade during
the month. For example, an issue that is rated BBB on January 31st,
but is downgraded to BB on February 1st, will be part of the
Investment Grade Corporate Master Index for February, and then will
move to the High Yield Master Index in March. For purposes of fixed
income index selection criteria, ratings are based on a composite of
Moody's Investors Service Inc. and Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc.
. Bonds that are called during a month are removed from each fixed
income index at month-end at the call price.
. The principal amounts of fixed income in each fixed income index are
held constant throughout the month. Increases and decreases in issue
size that take place during the month as a result of partial
redemptions or re-opening of issues are captured at the next month-
end rebalancing.
Calculating total returns between any two dates
Returns between any two dates can then be derived from the beginning of
period and end of period fixed income index value/1/ in the following fashion:
IV1
TRR = --- - 1
IV/0/
where:
TRR is the total rate of return from T/0/ to T/1/
IV/n/ is the total rate of return index value on day n
- --------
/1/Since fixed income index values represent closing levels, period returns
will include market movement on the end of period date but exclude market
movement on the beginning of period date. Therefore, to capture the returns
for the month of November, the November 30th fixed income index value is
divided by the October 31st fixed income index value.
S-20
<PAGE>
The Portfolio Strategies Group is contemplating a change in the method of
calculating the fixed income index values. Currently, Merrill Lynch fixed
income index values are derived by linking daily return percentages of the
securities underlying the applicable fixed income index. Under the new
contemplated methodology, fixed income index values will be calculated on a
month-to-date basis, with daily fixed income index values derived by applying
each days' month to date return percentage to the fixed income index value at
the beginning of the month. For each fixed income index, the Portfolio
Strategies Group has quantified the impact of this change in the calculation
methodology. Based on these calculations, the Portfolio Strategies Group has
determined that for the ten months ended October 31, 1999 the difference in the
year to date total return for any of the fixed income indices relating to the
Bond Index Notes would have been no greater than approximately three one
hundredths of one percent.
Reinvestment assumptions
Cash flows that occur during the month are assumed to be removed from the
index portfolio. MLPF&S does not make any assumptions regarding reinvestment to
the end of the month. Currently, this methodology of calculating portfolio
returns on an "ex-cash" basis is effectively the same as assuming that all cash
flows are reinvested back into the index on a daily basis.
Pricing
Each of the above fixed income indices are calculated by the Portfolio
Strategies Group. Price levels of the underlying securities reflect the
Portfolio Strategies Group's determination of the appropriate bid-side price
for the applicable securities. All securities comprising the fixed income
indices are priced at approximately 3:00 p.m., New York City time, each trading
day. The prices of the underlying securities comprising the fixed income
indices are determined based on the prices of such securities and other similar
securities obtained from publicly-available information and MLPF&S' trading
personnel. In addition to using these prices in calculating the fixed income
indices, MLPF&S disseminates these prices to their customers, including mutual
funds, custodians and institutions who use these prices to determine the value
of their positions. When the Portfolio Strategies Group is not able to
determine the price of an underlying security comprising any of the fixed
income indices, it will use a security price from a third party vendor or other
valuation methodology that, in the best judgement of the Portfolio Strategies
Group, will provide the most accurate bid-side price. The resulting fixed
income index values are published by Bloomberg at the end of each trading day.
Inclusion Rules and Historical Information
The following sections set forth the inclusion rules and historical
values of the total return index and the price return index for each fixed
income index on the last Business Day of each calendar quarter from March 1991
to December 31, 1997 and the last Business Day of each calendar month from
January 31, 1998 to October 31, 1999.
These inclusion rules are effective as of July 31, 1999 and are subject
to change after that date. There can be no assurance that any changes to these
inclusion rules made from time to time will not affect the Maturity Amount
which may be payable to holders of Bond Index Notes at maturity or otherwise.
The historical experience of each fixed income index should not be taken
as an indication of future performance and no assurance can be given that the
value of any fixed income index will not decline and as a result reduce the
Maturity Amount which may be payable to holders of Bond Index Notes at maturity
or otherwise.
ML&Co. may include more current historical information with respect to
the specific fixed income index linked to a series of Bond Index Notes in the
applicable pricing supplement.
S-21
<PAGE>
U.S. Domestic Master Index
. The U.S. Domestic Master Index is computed daily and can be viewed on
Bloomberg at D0A0<INDEX><GO>.
. Comprised of the Mortgage Master Index and the U.S.
Corporate/Government Master Index.
. The U.S. Domestic Master Index is published on the AMEX under the
symbol "IDM".
U.S. Domestic Master Index--Historical Information
<TABLE>
<CAPTION>
Total Price Total Price
Return Return Return Return
Date Index Index Date Index Index
- -------- ------- ------- -------- ------- -------
<S> <C> <C> <S> <C> <C>
03/31/91 435.718 275.456 06/30/97 716.032 289.496
06/30/91 443.012 274.165 09/30/97 739.978 294.128
09/30/91 468.083 283.680 12/31/97 761.727 297.734
12/31/91 491.918 292.203 01/31/98 771.822 300.023
03/31/92 485.675 282.875 02/28/98 771.174 298.235
06/30/92 505.683 289.080 03/31/98 774.081 297.653
09/30/92 527.938 296.344 04/30/98 777.846 297.510
12/31/92 529.200 291.785 05/31/98 785.557 298.827
03/31/93 551.269 298.781 06/30/98 792.404 299.850
06/30/93 566.010 301.835 07/31/98 794.110 298.866
09/30/93 581.653 305.300 08/31/98 806.901 302.057
12/31/93 582.248 300.778 09/30/98 825.853 307.569
03/31/94 566.148 287.796 10/31/98 822.281 304.628
06/30/94 560.142 279.766 11/30/98 826.195 304.504
09/30/94 563.295 276.287 12/31/98 829.288 304.051
12/31/94 565.802 272.332 01/31/99 835.161 304.638
03/31/95 594.081 280.714 02/28/99 819.144 297.350
06/30/95 630.649 292.747 03/31/99 824.443 297.640
09/30/95 642.796 293.213 04/30/99 827.411 297.161
12/31/95 670.592 300.718 05/31/99 819.466 292.717
03/31/96 658.763 290.480 06/30/99 816.829 290.205
06/30/96 661.903 286.831 07/31/99 813.582 287.437
09/30/96 674.092 287.014 08/31/99 813.145 285.672
12/31/96 694.660 290.727 09/30/99 822.608 287.423
03/31/97 690.815 284.192 10/31/99 825.099 286.664
</TABLE>
S-22
<PAGE>
Mortgage Master Index
. The Mortgage Master Index is computed daily and can be viewed on
Bloomberg at M0A0<INDEX><GO>.
. The Mortgage Master Index is published on the AMEX under the symbol
"IGM".
. Single family 30 year, 15 year and balloon mortgages are included.
. GNMA II, mobile home and GPM mortgages are excluded.
. A "generic" security must have at least $100 million current face
outstanding. Individual pools are aggregated into generic securities
based on issuer, type (i.e. 30 year, 15 year), coupon and year of
issue.
Mortgage Master Index--Historical Information
<TABLE>
<CAPTION>
Total Price Total Price
Return Return Return Return
Date Index Index Date Index Index
- -------- ------- ------- -------- ------- -------
<S> <C> <C> <S> <C> <C>
03/31/91 462.155 263.351 06/30/97 753.230 276.721
06/30/91 470.919 262.477 09/30/97 775.328 279.939
09/30/91 496.836 271.049 12/31/97 793.248 281.609
12/31/91 519.045 277.492 01/31/98 801.122 282.842
03/31/92 514.709 269.797 02/28/98 803.662 282.190
06/30/92 537.179 276.840 03/31/98 806.778 281.720
09/30/92 553.129 280.157 04/30/98 811.703 281.961
12/31/92 557.073 277.801 05/31/98 817.627 282.602
03/31/93 573.292 281.514 06/30/98 820.835 282.259
06/30/93 584.832 283.371 07/31/98 825.154 282.265
09/30/93 590.403 282.402 08/31/98 832.554 283.316
12/31/93 597.669 282.068 09/30/98 842.733 285.323
03/31/94 583.923 271.885 10/31/98 841.667 283.493
06/30/94 579.965 265.268 11/30/98 846.422 283.631
09/30/94 585.195 262.675 12/31/98 850.291 283.513
12/31/94 588.102 258.724 01/31/99 856.031 284.058
03/31/95 619.448 267.263 02/28/99 852.217 281.404
06/30/95 652.267 276.274 03/31/99 858.086 281.906
09/30/95 666.290 277.211 04/30/99 861.835 281.643
12/31/95 688.318 281.465 05/31/99 856.125 278.306
03/31/96 685.497 275.529 06/30/99 852.973 275.746
06/30/96 689.779 272.301 07/31/99 847.410 272.381
09/30/96 704.462 273.025 08/31/99 847.385 270.772
12/31/96 725.592 276.271 09/30/99 861.622 273.737
03/31/97 725.919 271.502 10/31/99 866.239 273.609
</TABLE>
S-23
<PAGE>
U.S. Corporate/Government Master Index
. The U.S. Corporate/Government Master Index is computed daily by
MLPF&S. The U.S. Corporate/Government Master Index can be viewed on
Bloomberg at B0A0<INDEX><GO>.
. The U.S. Corporate/Government Master Index is published on the AMEX
under the symbol "ICG".
. Comprised of the U.S. Corporate Master Index and the Government
Master Index.
U.S. Corporate/Government Master Index--Historical Information
<TABLE>
<CAPTION>
Total Price Total Price
Return Return Return Return
Date Index Index Date Index Index
- -------- ------- ------- -------- ------- -------
<S> <C> <C> <S> <C> <C>
03/31/91 482.373 120.618 06/30/97 794.997 126.787
06/30/91 490.040 119.992 09/30/97 822.864 129.033
09/30/91 518.087 124.258 12/31/97 849.033 130.927
12/31/91 545.662 128.278 01/31/98 861.367 132.100
03/31/92 537.806 123.974 02/28/98 859.305 131.125
06/30/92 559.487 126.507 03/31/98 862.507 130.855
09/30/92 587.166 130.322 04/30/98 866.288 130.723
12/31/92 587.588 127.992 05/31/98 875.750 131.411
03/31/93 614.859 131.571 06/30/98 885.017 132.098
06/30/93 632.818 133.096 07/31/98 885.857 131.496
09/30/93 654.517 135.355 08/31/98 902.613 133.259
12/31/93 652.550 132.694 09/30/98 927.811 136.276
03/31/94 633.394 126.626 10/31/98 922.683 134.805
06/30/94 625.798 122.931 11/30/98 926.757 134.703
09/30/94 628.551 121.284 12/31/98 929.915 134.445
12/31/94 631.238 119.579 01/31/99 936.626 134.705
03/31/95 662.033 123.165 02/28/99 913.032 130.679
06/30/95 704.844 128.854 03/31/99 918.780 130.763
09/30/95 717.837 128.973 04/30/99 921.788 130.515
12/31/95 751.552 132.758 05/31/99 911.760 128.389
03/31/96 734.497 127.596 06/30/99 909.013 127.322
06/30/96 737.593 125.954 07/31/99 906.413 126.257
09/30/96 750.338 125.934 08/31/99 905.720 125.468
12/31/96 773.396 127.617 09/30/99 914.072 125.955
03/31/97 767.320 124.491 10/31/99 915.832 125.493
</TABLE>
S-24
<PAGE>
U.S. Corporate Master Index
. The U.S. Corporate Master Index is computed daily by MLPF&S. The U.S.
Corporate Master Index can be viewed on Bloomberg at C0A0<INDEX><GO>.
. The U.S. Corporate Master Index is published on the AMEX under the
symbol "IGD".
. U.S. domestic market securities including "yankees", global bonds and
medium-term notes.
. Equal to or greater than one year remaining term to final maturity.
. At least $150 million face value outstanding.
. U.S. dollar denominated.
. Underlying securities must have a fixed coupon schedule. Step-up
coupons are included provided the coupon schedule is fixed at issue.
Structured notes and other forms of variable coupon securities are
excluded.
. Private placements are excluded. Securities issued under Rule 144A of
the Securities Act of 1933 with registration rights are included in
the U.S. Corporate Master Index only after they are exchanged for
registered securities.
. Taxable securities issued by municipalities are included in the U.S.
Corporate Master Index.
. Credit rating must be investment grade (BBB3 or above) based on a
composite of Moody's and S&P. The calculation of composite rating is
based on an averaging that is biased to the lower of the two ratings.
For example:
Baa3/BB+ = BB1 composite rating
Baa2/BB+ = BBB3 composite rating
Baa3/BB- = BB2 composite rating
If a bond is rated by only one of the services, the rating will equal
that individual rating. Issues that are not rated by either Moody's
or S&P are excluded.
. Title II securities, inflation-linked securities, equipment trust
certificates and convertible bonds are excluded. Capital trust
preferred securities are included in the U.S. Corporate Master Index.
S-25
<PAGE>
U.S. Corporate Master Index--Historical Information
<TABLE>
<CAPTION>
Total Price Total Price
Return Return Return Return
Date Index Index Date Index Index
- -------- ------- ------- -------- -------- -------
<S> <C> <C> <S> <C> <C>
03/31/91 499.007 123.652 06/30/97 874.889 132.790
06/30/91 509.931 123.562 09/30/97 910.162 135.670
09/30/91 540.055 127.978 12/31/97 935.573 136.980
12/31/91 568.732 131.865 01/31/98 947.913 137.985
03/31/92 565.218 128.270 02/28/98 946.468 137.053
06/30/92 589.992 131.125 03/31/98 951.167 136.854
09/30/92 619.033 134.824 04/30/98 956.027 136.781
12/31/92 620.594 132.404 05/31/98 968.118 137.685
03/31/93 652.307 136.460 06/30/98 976.465 138.102
06/30/93 672.499 138.052 07/31/98 975.670 137.175
09/30/93 698.447 140.751 08/31/98 977.060 136.582
12/31/93 697.728 138.027 09/30/98 1007.409 140.047
03/31/94 676.190 131.296 10/31/98 995.784 137.623
06/30/94 666.633 126.964 11/30/98 1011.138 138.970
09/30/94 670.188 125.143 12/31/98 1017.157 138.990
12/31/94 674.409 123.374 01/31/99 1027.553 139.625
03/31/95 711.868 127.651 02/28/99 1001.244 135.353
06/30/95 763.910 134.429 03/31/99 1010.344 135.730
09/30/95 780.317 134.774 04/30/99 1013.847 135.453
12/31/95 819.745 139.004 05/31/99 999.178 132.702
03/31/96 799.456 133.127 06/30/99 994.250 131.294
06/30/96 802.627 131.196 07/31/99 988.438 129.737
09/30/96 818.307 131.270 08/31/99 985.897 128.635
12/31/96 847.544 133.478 09/30/99 997.078 129.346
03/31/97 840.276 129.913 10/31/99 1000.177 128.949
</TABLE>
S-26
<PAGE>
U.S. Treasury/Agency Master Index
. The U.S. Treasury/Agency Master Index is computed daily and can be
viewed on Bloomberg at G0A0<INDEX><GO>.
. The U.S. Treasury/Agency Master Index is published on the AMEX under
the symbol "IGG".
. Comprised of the U.S. Treasury Master Index and the U.S. Agency
Master Index.
U.S. Treasury/Agency Master Index--Historical Information
<TABLE>
<CAPTION>
Total Price Total Price
Return Return Return Return
Date Index Index Date Index Index
- -------- ------- ------- -------- ------- -------
<S> <C> <C> <S> <C> <C>
03/31/91 487.521 121.580 06/30/97 788.359 126.976
06/30/91 494.400 120.786 09/30/97 814.631 129.061
09/30/91 522.423 125.073 12/31/97 841.702 131.194
12/31/91 550.247 129.193 01/31/98 854.345 132.448
03/31/92 540.898 124.602 02/28/98 852.019 131.439
06/30/92 562.105 127.075 03/31/98 854.789 131.137
09/30/92 589.953 130.985 04/30/98 858.297 130.982
12/31/92 590.043 128.646 05/31/98 867.079 131.601
03/31/93 616.566 132.138 06/30/98 876.953 132.408
06/30/93 634.245 133.667 07/31/98 878.415 131.920
09/30/93 655.132 135.826 08/31/98 901.308 134.645
12/31/93 652.755 133.143 09/30/98 925.326 137.546
03/31/94 633.956 127.195 10/31/98 922.442 136.419
06/30/94 626.790 123.639 11/30/98 922.404 135.734
09/30/94 629.359 122.018 12/31/98 924.573 135.357
12/31/94 631.668 120.306 01/31/99 930.072 135.468
03/31/95 661.200 123.743 02/28/99 906.807 131.462
06/30/95 702.281 129.203 03/31/99 911.388 131.421
09/30/95 714.557 129.255 04/30/99 914.292 131.179
12/31/95 747.318 132.965 05/31/99 905.853 129.285
03/31/96 730.842 127.937 06/30/99 903.933 128.349
06/30/96 733.998 126.359 07/31/99 902.599 127.483
09/30/96 746.174 126.310 08/31/99 902.597 126.808
12/31/96 767.967 127.866 09/30/99 910.103 127.210
03/31/97 762.109 124.821 10/31/99 911.393 126.711
</TABLE>
S-27
<PAGE>
U.S. Treasury Master Index
. The U.S. Treasury Master Index is computed daily and can be viewed on
Bloomberg at G0Q0<INDEX><GO>.
. The U.S. Treasury Master Index is published on the AMEX under the
symbol "ITM".
. Equal to or greater than one year remaining term to final maturity.
. At least $1 billion face value outstanding.
. U.S. Treasury STRIPs are not included in the U.S. Treasury Master
Index, however, the outstanding face value of the underlying notes
and bonds from which these securities are created are not reduced by
the amount stripped.
. Inflation-linked U.S. Treasury securities are excluded.
U.S. Treasury Master Index--Historical Information
<TABLE>
<CAPTION>
Total Price Total Price
Return Return Return Return
Date Index Index Date Index Index
- -------- ------- ------- -------- ------- -------
<S> <C> <C> <S> <C> <C>
03/31/91 373.768 120.771 06/30/97 603.312 126.256
06/30/91 378.955 119.962 09/30/97 623.613 128.372
09/30/91 400.509 124.253 12/31/97 644.518 130.537
12/31/91 422.014 128.413 01/31/98 654.327 131.811
03/31/92 414.551 123.773 02/28/98 652.427 130.783
06/30/92 430.800 126.236 03/31/98 654.447 130.469
09/30/92 452.496 130.235 04/30/98 657.073 130.300
12/31/92 452.438 127.913 05/31/98 663.853 130.928
03/31/93 473.003 131.478 06/30/98 671.599 131.765
06/30/93 486.646 133.035 07/31/98 672.662 131.269
09/30/93 502.660 135.204 08/31/98 691.068 134.149
12/31/93 500.527 132.489 09/30/98 710.075 137.152
03/31/94 485.666 126.516 10/31/98 707.798 136.019
06/30/94 480.125 122.973 11/30/98 707.827 135.345
09/30/94 482.048 121.356 12/31/98 709.187 134.911
12/31/94 483.764 119.648 01/31/99 713.458 135.030
03/31/95 506.319 123.061 02/28/99 694.662 130.853
06/30/95 538.015 128.554 03/31/99 698.046 130.793
09/30/95 547.477 128.626 04/30/99 700.206 130.536
12/31/95 573.017 132.430 05/31/99 693.484 128.600
03/31/96 559.723 127.280 06/30/99 692.072 127.673
06/30/96 562.009 125.684 07/31/99 691.335 126.861
09/30/96 571.259 125.624 08/31/99 691.424 126.200
12/31/96 587.965 127.182 09/30/99 696.812 126.529
03/31/97 583.244 124.113 10/31/99 697.710 126.013
</TABLE>
S-28
<PAGE>
U.S. Agency Master Index
. The U.S. Agency Master Index is computed daily and can be viewed on
Bloomberg at G0P0<INDEX><GO>.
. The U.S. Agency Master Index is published on the AMEX under the
symbol "IGN".
. Equal to or greater than one year remaining term to final maturity.
. At least $150 million face value outstanding.
. U.S. dollar denominated.
. Inflation-linked securities are excluded.
. Securities must have a fixed coupon schedule. Step-up coupons are
included provided the coupon schedule is fixed at issue. Structured
notes and other forms of variable coupon securities are excluded.
. Medium-term notes are included.
U.S. Agency Master Index--Historical Information
<TABLE>
<CAPTION>
Total Price Total Price
Return Return Return Return
Date Index Index Date Index Index
- -------- ------- ------- -------- ------- -------
<S> <C> <C> <S> <C> <C>
03/31/91 368.163 116.362 06/30/97 599.345 120.496
06/30/91 373.898 115.737 09/30/97 617.835 122.154
09/30/91 394.555 119.620 12/31/97 637.044 123.872
12/31/91 414.336 123.103 01/31/98 645.705 124.877
03/31/92 409.277 119.242 02/28/98 644.755 124.088
06/30/92 425.202 121.521 03/31/98 647.541 123.893
09/30/92 443.497 124.389 04/30/98 650.591 123.831
12/31/92 444.444 122.144 05/31/98 656.896 124.347
03/31/93 462.799 124.806 06/30/98 663.266 124.913
06/30/93 475.480 126.002 07/31/98 664.703 124.510
09/30/93 491.188 127.869 08/31/98 677.000 126.156
12/31/93 490.864 125.642 09/30/98 691.744 128.267
03/31/94 478.237 120.414 10/31/98 689.940 127.269
06/30/94 473.155 117.083 11/30/98 689.604 126.584
09/30/94 475.378 115.573 12/31/98 692.850 126.527
12/31/94 477.512 113.985 01/31/99 696.680 126.592
03/31/95 500.360 117.293 02/28/99 684.121 123.749
06/30/95 529.659 122.008 03/31/99 688.189 123.803
09/30/95 538.670 121.953 04/30/99 690.690 123.653
12/31/95 560.530 124.757 05/31/99 685.494 122.089
03/31/96 552.417 120.925 06/30/99 683.793 121.188
06/30/96 555.701 119.598 07/31/99 681.597 120.170
09/30/96 565.491 119.636 08/31/99 681.185 119.490
12/31/96 581.830 121.024 09/30/99 668.526 120.189
03/31/97 579.229 118.452 10/31/99 669.891 119.796
</TABLE>
S-29
<PAGE>
UNITED STATES FEDERAL INCOME TAXATION
The following discussion is based upon the opinion of Brown & Wood LLP,
counsel to ML&Co. ("Tax Counsel"). As the law applicable to the U.S. Federal
income taxation of instruments such as Bond Index Notes is technical and
complex, the discussion below necessarily represents only a general summary.
The following summary 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. It deals
only with Bond Index Notes 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, persons holding Bond Index Notes as a hedge against currency risks,
as a position in a "straddle" or as part of a "hedging" or "conversion"
transaction for tax purposes, or persons whose functional currency is not the
United States dollar. It also does not deal with holders other than original
purchasers (except where otherwise specifically noted). Persons considering the
purchase of Bond Index Notes should consult their own tax advisors concerning
the application of United States Federal income tax laws to their particular
situations as well as any consequences of the purchase, ownership and
disposition of Bond Index Notes arising under the laws of any other taxing
jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Bond
Index Note that is for United States Federal income tax purposes (i) a citizen
or residents of the United States, (ii) a corporation or a partnership
(including an entity treated as a corporation or a partnership for United
States Federal income tax purposes) created or organized in or under the laws
of the United States, any state thereof or the District of Columbia (unless, in
the case of a partnership, Treasury regulations are adopted that provide
otherwise), (iii) an estate whose income is subject to United States Federal
income tax regardless of its source (iv) 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 (v) any other person whose income or
gain in respect of a Bond Index Note is effectively connected with the conduct
of a United States trade or business. Certain trusts not described in clause
(iv) above in existence on August 20, 1996 that elect to be treated as a United
States person will also be a U.S. Holder for purposes of the following
discussion. As used herein, the term "non-U.S. Holder" means a beneficial owner
of a Bond Index Note that is not a U.S. Holder.
Bond Index Notes are not being marketed to persons that are non-U.S.
Holders and, consequently, the following discussion does not discuss the tax
consequences that might be relevant to non-U.S. Holders. Moreover, in order to
protect ML&Co. from potential adverse consequences, non-U.S. Holders will be
subject to withholding payments made on Bond Index Notes held by such non-U.S.
Holders at a rate of 30%. In determining a holder's status, the United States
entity otherwise required to withhold taxes may rely on an IRS Form W-8, an IRS
Form W-9, or a holder's certification of its non-foreign status signed under
penalty of perjury. Non-U.S. Holders should consult their tax advisors as to
the specific U.S. Federal income tax consequences of the purchase, ownership,
and disposition of Bond Index Notes.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization and treatment,
for U.S. Federal income tax purposes, of Bond Index Notes or securities with
terms substantially the same as Bond Index Notes. Accordingly, the proper U.S.
Federal income tax characterization and treatment of Bond Index Notes is
uncertain. Pursuant to the terms of Bond Index Notes, ML&Co. and every holder
of a Bond Index Note agree (in the absence of an administrative determination
or judicial ruling to the contrary) to characterize a Bond Index Note for all
tax purposes as an investment contract. In the opinion of Tax Counsel, such
characterization and tax treatment of Bond Index Notes, although not the only
reasonable characterization and tax treatment, is based on reasonable
interpretations of law currently in effect and, even if successfully challenged
by the Internal Revenue Service, also known as the IRS, will not result in the
imposition of penalties. The treatment of Bond Index Notes
S-30
<PAGE>
described above is not, however, binding on the IRS or the courts. No
statutory, judicial or administrative authority directly addresses the
characterization of Bond Index Notes or instruments similar to Bond Index Notes
for U.S. Federal income tax purposes, and no ruling is being requested from the
IRS with respect to Bond Index Notes. Due to the absence of authorities that
directly address instruments that are similar to Bond Index Notes, significant
aspects of the U.S. Federal income tax consequences of an investment in Bond
Index Notes are not certain, and no assurance can be given that the IRS or the
courts will agree with the characterization described above. Accordingly,
prospective purchasers are urged to consult their tax advisors regarding the
U.S. Federal income tax consequences of an investment in Bond Index Notes
(including alternative characterizations of Bond Index Notes) and with respect
to any tax consequences arising under the laws of any state, local or foreign
taxing jurisdiction. Unless otherwise stated, the following discussions are
based on the assumption that the treatment described above is accepted for U.S.
Federal income tax purposes.
Tax Treatment of Bond Index Notes
Interest payable with respect to Bond Index Notes should generally be
includible in income by a U.S. Holder as ordinary income at the time such
payments are accrued or received (in accordance with the U.S. Holder's regular
method of tax accounting).
Upon maturity of Bond Index Notes, a U.S. Holder generally should be
required to recognize taxable gain or loss in an amount equal to the difference
between the Maturity Amount and the principal amount of Bond Index Notes. U.S.
Holders should note that it is uncertain whether any gain or loss recognized
upon maturity of Bond Index Notes would be capital gain or loss or ordinary
income or loss. The distinction between capital gain or loss and ordinary
income or loss is potentially significant in several respects. For example,
limitations apply to a U.S. Holder's ability to offset capital losses against
ordinary income. In addition, if any loss recognized upon maturity of Bond
Index Notes is properly treated as ordinary loss, it is possible that the
deductibility of any such loss by a U.S. Holder who is an individual could be
subject to the limitations applicable to miscellaneous itemized deductions
provided for under Section 67(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). In general, Section 67(a) of the Code provides that an
individual may only deduct miscellaneous itemized deductions for a particular
taxable year to the extent that the aggregate amount of the individual's
miscellaneous itemized deductions for such taxable year exceed two percent of
the individual's adjusted gross income for such taxable year (although, the
miscellaneous itemized deductions allowable to high-income individuals are
generally subject to further limitations). Moreover, miscellaneous itemized
deductions are not allowable in computing the U.S. Federal alternative minimum
tax imposed by Section 55 of the Code. U.S. Holders should consult their tax
advisors with respect to the treatment of gain or loss on a Bond Index Note.
Section 163(d) of the Code limits an individual's deduction for
investment interest (generally interest paid or accrued on indebtedness
properly allocable to property held for investment) for any taxable year to an
amount not in excess of the individual's net investment income for the taxable
year. Based upon the treatment of Bond Index Notes described above, income from
Bond Index Notes should not qualify as "investment income" for these purposes.
Sale or Exchange of Bond Index Notes
Upon a sale or exchange of a Bond Index Note prior to the maturity of
Bond Index Notes, a U.S. Holder would recognize taxable gain or loss equal to
the difference between the amount realized on such sale or exchange and such
U.S. Holder's tax basis in Bond Index Notes sold or exchanged. Any such gain or
loss would generally be long-term or short-term capital gain or loss, as the
case may be, depending upon the U.S. Holder's holding period for Bond Index
Notes. Since the amount of interest payable on each interest payment date will
not be determined until the end of the applicable interest payment period,
unlike in the case of a typical debt instrument, no amount realized by a U.S.
Holder on the sale or exchange of a Bond Index Note prior to the maturity of
Bond Index Notes should be treated as a payment of accrued and unpaid interest.
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Wash Sale Rules
In general, under Section 1091 of the Code, a taxpayer is not permitted
to currently deduct any loss sustained from the sale or other disposition of
securities if the taxpayer acquires securities that are substantially identical
to the securities sold or disposed of within 30 days before or after the date
of the sale or disposition. It is possible that if a U.S. Holder of a
particular issue of Bond Index Notes realizes a loss upon the sale or maturity
of such Bond Index Notes and acquires another issue of Bond Index Notes having
the same applicable Index as Bond Index Notes giving rise to the loss within 30
days before or after the date of the sale or maturity of Bond Index Notes
giving rise to the loss, the IRS could assert that Section 1091 of the Code
should prevent the U.S. Holder from currently deducting the loss. In the
opinion of Tax Counsel, Section 1091 of the Code should not prevent a U.S.
Holder from currently deducting losses in such cases. However, since there is
no authority directly addressing the issue, prospective investors in Bond Index
Notes should consult their own tax advisors regarding the potential application
of Section 1091 of the Code to their investment in Bond Index Notes.
Pending Legislation
The Taxpayer Refund and Relief Act of 1999 (the "Act") contains a
provision (the "Constructive Ownership Law"), which would treat a taxpayer
owning certain types of derivative positions in property as having
"constructive ownership" of that property, with the result that all or a
portion of any long-term capital gain recognized by such taxpayer with respect
to the derivative position would be recharacterized as ordinary income. It is
unclear whether the Constructive Ownership Law, as currently drafted, could
apply to a Bond Index Note. If the Constructive Ownership Law were to apply to
a Bond Index Note, the effect on a U.S. Holder of a Bond Index Note would be to
treat all or a portion of any long-term capital gain recognized by such U.S.
Holder on the sale or maturity of Bond Index Notes as ordinary income. In
addition, the Constructive Ownership Law would impose an interest charge on the
gain that was recharacterized on the sale or maturity of Bond Index Notes. In
general, the Constructive Ownership Law will be effective for transactions
entered into after July 11, 1999. It is anticipated that President Clinton will
sign the Act into law in the near future. U.S. Holders should consult their tax
advisors regarding the potential application of the Constructive Ownership Law
to the purchase, ownership and disposition of a Bond Index Note.
Possible Alternative Tax Treatments of an Investment in Bond Index Notes
Due to the absence of authorities that directly address the proper
characterization of Bond Index Notes, no assurance can be given that the IRS
will accept, or that a court will uphold, the characterization and tax
treatment described above. Other alternative U.S. Federal income
characterizations or treatments of Bond Index Notes are possible which could
affect the timing and the character of the income or loss with respect to Bond
Index Notes. For instance, the IRS could possibly assert that Treasury
regulations governing contingent payment debt instruments (the "Contingent
Payment Regulations") should apply to Bond Index Notes. In general, if the IRS
were successful in making such an assertion, a U.S. Holder would be required to
accrue as original issue discount, subject to the adjustments described below,
income at a "comparable yield" on the issue price, regardless of the U.S.
Holder's regular method of tax accounting. It is possible that the amount of
original issue discount that a U.S. Holder would be required to accrue during a
period could exceed the amount of the interest payment received by the U.S.
Holder attributable to that period. In addition, the Contingent Payment
Regulations would require that a projected payment schedule, which results in
such "comparable yield", be determined, and that adjustments to income accruals
be made to account for differences between actual payments and projected
amounts (including upon receipt of the Maturity Amount). Furthermore, any gain
realized with respect to a Bond Index Note would generally be treated as
ordinary income, and any loss realized would generally be treated as ordinary
loss to the extent of the U.S. Holder's prior ordinary income inclusions (which
were not previously reversed) with respect to Bond Index Notes. In addition to
the foregoing,
S-32
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other alternative characterizations or treatments of Bond Index Notes are
possible, which may also affect the timing and character of income or loss
required to be recognized with respect to Bond Index Notes. Accordingly,
prospective purchasers are urged to consult their tax advisors regarding the
U.S. Federal income tax consequences of an investment in a Bond Index Note.
Backup Withholding and Information Reporting
Interest payments on Bond Index Notes will be reported to beneficial
owners on an IRS Form 1099- MISC, which form will mailed to such beneficial
owners on January 31 following each applicable calendar year.
A beneficial owner of a Bond Index Note may be subject to information
reporting and to backup withholding at a rate of 31% of certain amounts paid to
the beneficial owner unless such beneficial owner provides proof of an
applicable exemption or a correct taxpayer identification number, and otherwise
complies with applicable requirements of the backup withholding rules.
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.
1997 Withholding Regulations
On October 6, 1997, the Treasury Department issued regulations (the "1997
Regulations") which make certain modifications to the backup withholding and
information reporting rules described above. The 1997 Regulations attempt to
unify certification requirements and modify reliance standards. The 1997
Regulations will generally be effective for payments made after December 31,
2000, subject to certain transitional rules. Prospective investors are urged to
consult their own tax advisors regarding the 1997 Regulations.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and Section 4975 of the Code prohibit various transactions between certain
parties and the assets of employee benefit plans, unless an exemption is
available; governmental plans may be subject to similar prohibitions. Because
transactions between a plan and ML&Co. may be prohibited absent an exemption,
each fiduciary, by its purchase of any Bond Index Notes on behalf of any plan,
represents on behalf of itself and the plan, that the acquisition, holding and
any subsequent disposition of Bond Index Notes will not result in a violation
of ERISA, the Code or any other applicable law or regulation.
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of Bond Index Notes 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 make periodic interest
payments under Bond Index Notes and to pay the Maturity Amount.
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<PAGE>
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 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 have filed a registration statement on Form S-3 with the SEC covering
Bond Index Notes and other securities. For further information on ML&Co. and
the Bond Index Notes, you should refer to our registration statement and its
exhibits. The prospectus of ML&Co. accompanying this prospectus supplement
summarizes material provisions of contracts and other documents that we refer
you to. Because the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
You should rely only on the information contained or incorporated by
reference in the pricing supplement applicable to your series of Bond Index
Notes, 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 the pricing
supplement applicable to your series of Bond Index Notes, in this prospectus
supplement and in the accompanying prospectus is accurate as of the date on the
front cover of the applicable pricing supplement only. Our business, financial
condition and results of operations may have changed since that date.
UNDERWRITING
MLPF&S, the underwriter, will agree, subject to the terms and conditions
of the underwriting agreement and a terms agreement, to purchase from ML&Co.
the aggregate principal amount of each series of Bond Index Notes. The
underwriting agreement provides that the obligations of the underwriter are
subject to certain conditions and that the underwriter will be obligated to
purchase all Bond Index Notes if any are purchased.
The underwriter has advised ML&Co. that it proposes to initially offer
all or part of each series of Bond Index Notes directly to the public at the
offering prices to be set forth on the cover page of the applicable pricing
supplement. After the initial public offering with respect to any series of
Bond Index Notes, the public offering price may be changed. The underwriter
will offer Bond Index Notes subject to receipt and acceptance and subject to
the underwriter's right to reject any order in whole or in part.
On the date of the initial public offering of the applicable series of
Bond Index Notes the underwriter will receive a discount per Bond Index Note
set forth in the applicable pricing supplement. After the initial public
offering of such Bond Index Notes, the public offering price, the concession
and the discount allowed to dealers may be changed.
The underwriting of Bond Index Notes will conform to the requirements set
forth in the applicable sections of Rule 2720 of the Conduct Rules of the NASD.
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<PAGE>
In connection with any offering, the underwriter is permitted to engage
in certain transactions that stabilize the price of Bond Index Notes. These
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of Bond Index Notes.
If the underwriter creates a short position in Bond Index Notes of any
series in connection with an offering, i.e., if it sells more Bond Index Notes
of that series than are set forth on the cover page of the applicable pricing
supplement, the underwriter may reduce that short position by purchasing Bond
Index Notes of that series 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
these 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 Bond Index Notes. In addition, neither
ML&Co. nor the underwriter makes any representation that the underwriter will
engage in these transactions or that these 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 Bond
Index Notes. 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 BOND INDEX NOTES
The validity of Bond Index Notes will be passed upon for ML&Co. and the
underwriter by Brown & Wood LLP, New York, New York.
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Act........................................................................ S-32
Business Day............................................................... S-12
Code....................................................................... S-31
Constructive Ownership Law................................................. S-32
Contingent Payment Regulations............................................. S-32
Default Rate............................................................... S-16
Depositary................................................................. S-16
DTC........................................................................ S-4
Ending Price Return Value.................................................. S-12
Ending Total Return Value.................................................. S-11
ERISA...................................................................... S-33
Final Price Return Value................................................... S-5
Index Rate of Interest..................................................... S-5
Initial Price Return Value................................................. S-5
IRS........................................................................ S-30
Maturity Amount............................................................ S-5
ML&Co. .................................................................... S-4
MLPF&S..................................................................... S-4
1997 Regulations........................................................... S-33
Non-U.S. Holder............................................................ S-30
Spread..................................................................... S-11
Starting Price Return Value................................................ S-12
Starting Total Return Value................................................ S-11
Tax Counsel................................................................ S-30
U.S. Holder................................................................ S-30
</TABLE>
S-36
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Merrill Lynch & Co., Inc.
[LOGO OF BOND INDEX NOTES]
[Domestic Master Series 1999A]
----------------------------------
PROSPECTUS SUPPLEMENT
----------------------------------
Merrill Lynch & Co.
November 23, 1999
