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RULE NO. 424(b)(3)
REGISTRATION NO. 333-59997
PRICING SUPPLEMENT
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(To prospectus supplement dated February 17, 1999 and prospectus dated July 30,
1998)
$20,687,000
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series B
0.25% Callable and Exchangeable Stock Portfolio-Linked Notes due April 27, 2006
Linked to the performance of the common stock of
Pfizer Inc., Sepracor Inc. and Warner-Lambert Co.
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<S> <C>
The notes: Payment formula:
. Issue price for each note equals . For each $1,000 principal amount of
$1,094.39, plus accrued interest, the notes you own, the amount you will
if any, from April 27, 1999. receive at maturity will equal the
greater of:
. We will pay you interest on the notes
semi-annually at a rate per year . the sum of the products, for each
equal to 0.25%. of the portfolio securities, of the
average market price of the common
. We may redeem all of the notes, at stock for each of the portfolio
our option, or you may exchange any securities and the applicable share
number of notes you own at your option, multipliers determined as described
before their maturity for an amount in this pricing supplement; provided,
in U.S. Dollars based on the formula however, that if the amount you
described in this prospectus receive at maturity is based on this
supplement. formula, you will not receive accrued
interest from and including October 27,
. At maturity, for each note you own, 2005 through the maturity date; or
we will pay you an amount in U.S.
dollars based on the formula . $1,000 plus accrued and unpaid interest
described in this pricing supplement. through but excluding the maturity date.
. The notes have been approved for . The share multipliers and the calculation
listing on the American Stock Exchange of the market prices of the portfolio
under the trading symbol "MLD.A". securities may be subject to adjustment
from time to time.
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Investing in the notes involves risks.
See "Risk Factors" beginning on page PS-6 of this pricing supplement.
Neither the SEC nor any state securities commission has approved these
securities or passed upon the adequacy or accuracy of this pricing supplement or
the accompanying prospectus supplement and prospectus. Any representation to
the contrary is a criminal offense.
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Merrill Lynch & Co.
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The date of this pricing supplement is April 15, 1999.
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Terms of the notes:
Aggregate principal amount.................... $20,687,000
Issuer........................................ Merrill Lynch & Co., Inc.
References to "ML&Co." are to
Merrill Lynch & Co., Inc.
Maturity date................................. April 27, 2006.
Interest rate................................. 0.25% per year. Interest on the
note will be computed on the
basis of a 360-day year of
twelve 30-day months.
Interest payment dates........................ April 27 and October 27,
commencing October 27, 1999.
Specified currency............................ U.S. dollars.
Principal amount.............................. $1,000 per note.
Issue price................................... $1,094.39 per note.
Pricing date.................................. April 22, 1999.
Original issue date........................... April 27, 1999.
CUSIP......................................... 59018S 2T0
Form of notes................................. Book-entry only.
Denominations................................. We will issue and sell the notes
in denominations of $1,000 and
integral multiples of $1,000
only.
Trustee....................................... The Chase Manhattan Bank.
Portfolio securities.......................... The Pfizer Inc. common stock,
the Sepracor Inc. common stock
and the Warner-Lambert Co.
common stock are referred to
collectively as the portfolio
securities.
Amount payable at maturity.................... At maturity, whether as a result
of acceleration or otherwise,
you will receive for each $1,000
principal amount of the notes,
an amount in U.S. dollars equal
to the greater of:
. the sum of the products, for
each of the portfolio
securities, of the applicable
share multiplier multiplied
by the applicable average
market price of each of the
portfolio securities for the
five scheduled Trading Days
ending on and including the
third
PS-2
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scheduled Trading Day
immediately prior to
maturity; provided, however,
that if the payment at
maturity is based on this
formula, you will not receive
accrued interest from and
including October 27, 2005
through the maturity date; or
. $1,000 plus accrued and
unpaid interest through but
excluding the maturity date.
ML&Co. redemption............................. We may redeem all of the notes,
at any time, on a Business Day
beginning on April 28, 2002,
upon not more than 30 nor fewer
than 15 calendar days notice to
you. Any date on which we give
you notice that we are redeeming
the notes is referred to as a
redemption notice date.
If we redeem the notes, for each
$1,000 principal amount of the
notes you own, we will pay you
an amount in U.S. dollars equal
to the greater of:
. the sum of the products, for
each of the portfolio
securities, of the applicable
share multiplier multiplied
by the applicable average
market price of each of the
portfolio securities for the
five Trading Days immediately
following the applicable
redemption notice date;
provided, however, that if
the amount you receive is
based on this formula, you
will not receive accrued
interest from and including
the immediately preceding
interest payment date through
the date of redemption; or
. $1,000 plus accrued and
unpaid interest on your notes
through but excluding the
date of redemption.
If we redeem the notes, you are
precluded from exercising the
holder exchange right as of the
redemption notice date.
Holder exchange right......................... At any time beginning June 30,
1999 and ending 15 scheduled
Trading Days before the maturity
date, upon written notice to the
calculation agent and the
trustee, you may exchange your
notes for an amount in U.S.
dollars equal to the Exchange
Amount. Any date on which you
give us notice to cause us to
exchange your notes is referred
to as the exchange notice date.
If the calculation agent
receives your notice after 3:00
p.m. on any Trading Day, the
calculation agent will consider
your notice as received on the
following Trading Day.
If you choose to exercise your
holder exchange right, ML&Co.
may no longer redeem the notes
as of the
PS-3
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applicable exchange notice date.
Exchange Amount............................... For each $1,000 principal amount
of the notes you exchange, the
Exchange Amount will equal an
amount in U.S. dollars equal to
the sum of the products, for
each of the portfolio
securities, of the applicable
share multiplier multiplied by
the applicable market price of
each of the portfolio securities
on the Business Day following
the day the calculation agent
receives written notice of your
intention to exchange your
notes; provided, however, you
will not receive accrued
interest from and including the
immediately preceding interest
payment date through the date of
exchange.
Share multipliers............................. Initially the share multipliers
equal:
. 2.2352 in the case of the
Pfizer Inc. common stock,
. 2.8383 in the case of the
Sepracor Inc. common stock,
and
. 4.1433 in the case of Warner-
Lambert Co. common stock.
The initial share multiplier
relating to each portfolio
security is equal to the product
of 0.86, the exchange ratio, and
an initial number of shares for
each portfolio security, based
on the initial price of such
portfolio security, included in
the calculation of an initial
portfolio value so that each
portfolio security represents an
approximately equal percentage
of the portfolio as described in
the section entitled "The
Portfolio". The initial price of
each portfolio security used to
calculate the initial share
multiplier relating to each such
portfolio security was
determined by the calculation
agent. The respective share
multipliers and the calculation
of the market prices of
portfolio securities will remain
constant for the term of the
notes unless adjusted for
certain corporate events
described in the section
entitled "Dilution and
Reorganization Adjustments".
Market price.................................. For any date of determination on
any Trading Day, the market
price means the official closing
price, in the afternoon session,
as applicable, of one share of
any portfolio security as
reported by the principal
exchange on which each of the
portfolio securities is traded
on that date.
If the official closing price is
not available for any reason,
including, without limitation,
the occurrence of a
PS-4
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Market Disruption Event, the
market price for any portfolio
security for any date will be
the arithmetic mean, as
determined by the calculation
agent, of the bid prices for the
security obtained from as many
dealers in the security, but not
exceeding three, as have made
the bid prices available to the
calculation agent after 3:00
p.m., local time in the
principal market, on such date.
Trading Day................................... A day on which the New York
Stock Exchange, the AMEX and the
NASDAQ Stock Market are open for
trading, as determined by the
calculation agent.
Business Day.................................. Any day other than a Saturday or
Sunday that is neither a legal
holiday nor a day on which
banking institutions are
authorized or required by law or
regulation to close in The City
of New York.
Calculation agent............................ Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
References to "MLPF&S" are to
Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
All determinations made by the
calculation agent shall be at
the sole discretion of the
calculation agent and, absent
manifest error, shall be
conclusive for all purposes and
binding on ML&Co. and beneficial
owners of the notes.
All percentages resulting from
any calculation on the notes
will be rounded to the nearest
one hundred-thousandth of a
percentage point, with five one-
millionths of a percentage point
rounded upwards, e.g., 9.876545%
(or .09876545) would be rounded
to 9.87655% (or .0987655), and
all dollar amounts used in or
resulting from such calculation
will be rounded to the nearest
cent with one-half cent being
rounded upwards.
PS-5
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RISK FACTORS
Your investment in the notes will involve certain risks, including risks
not associated with similar investments in a conventional debt security. You
should consider carefully the following discussion of risks before you decide
that an investment in the notes is suitable for you.
The notes are subject to redemption before their maturity
We may elect to redeem all of the notes on any Business Day beginning on
April 28, 2002, upon not more than 30 nor fewer than 15 calendar days notice to
you. In the event that we elect to redeem the notes, you may receive an amount
that is less than the amount to which you would otherwise have been entitled had
you held the notes until maturity.
Your yield may be lower than the yield on a standard debt security of comparable
maturity
The amount we pay you at maturity may be less than the return you could
earn on other investments. The terms of the notes differ from the terms of
ordinary debt securities because the amount payable at maturity in excess of the
principal amount is based substantially on the appreciation in price, if any, of
the portfolio securities on five Trading Days shortly before the stated maturity
date. Your yield may be less than the yield you would earn if you bought a
standard senior non-callable debt security of ML&Co, with the same stated
maturity date. Your investment may not reflect the full opportunity cost to you
when you consider the effect of factors that affect the time value of money.
Your return on the notes will not reflect the payment of dividends
The calculation of the market price of the portfolio security and any
amounts payable to you at maturity or upon any redemption or exchange, as the
case may be, does not take into consideration the value of cash dividends, if
any, paid on the portfolio securities, other than as described in the section
entitled "Dilution and Reorganization Adjustments". Your return will not be the
same as the return you could earn by owning the portfolio securities directly
and receiving the dividends, if any, paid on that stock.
There may be an uncertain trading market for the notes
The notes have been approved for listing on the AMEX under the symbol
"MLD.A", subject to official notice of issuance. There is no historical
information to indicate how the notes will trade in the secondary market.
Listing the notes on the AMEX does not necessarily ensure that a liquid trading
market will develop for the notes. The development of a liquid trading market
for the notes will depend on our financial performance and other factors such as
the appreciation, if any, in the price of the portfolio securities. In
addition, it is unlikely that the secondary market price of the notes will
correlate exactly with the value of the portfolio securities.
If the trading market for the notes is limited, there may be a limited
number of buyers when you decide to sell your notes if you do not wish to hold
your investment until the maturity date. This may affect the price you receive
upon such sale.
PS-6
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There are many factors affecting trading value of the notes
The value of the portfolio securities and a number of other factors will
affect the trading value of the notes. Some of these factors are interrelated in
complex ways; as a result, the effect of any one factor may offset or magnify
the effect of another factor. The following paragraphs describe the expected
impact on the trading value of the notes given a change in a specific factor,
assuming all other conditions remain constant.
. Value of the portfolio securities. The market value of the notes
will depend substantially on the value of the portfolio securities.
In general, the value of the notes will decrease as the value of the
portfolio securities decreases and the value of the notes will
increase as the value of the portfolio securities increases. However,
as the value of the portfolio securities increase or decrease, the
value of the notes is not expected to increase or decrease at the
same rate as the change in value of the portfolio securities. You
should understand that for each $1,000 principal amount of the notes
that you own, you will not receive more than $1,000 on the maturity
date unless the market price of the portfolio securities has
appreciated by more than 16.28% from the original issue date to the
period in which the calculation agent calculates the amount payable
at maturity on the notes. Additionally, political, economic and other
developments that can affect the capital markets generally and the
market segment of which Pfizer Inc., Sepracor Inc. and Warner-Lambert
Co. are a part, and over which we have no control, may affect the
value of the portfolio securities and, consequently, may also affect
the value of the notes.
. Interest rates. In general, we anticipate that if U.S. interest
rates increase, the trading value of the notes will decrease, and
conversely, if U.S. interest rates decrease, the trading value of the
notes will increase. Generally, fluctuations in interest rates will
affect the U.S. economy and, in turn, the value of the portfolio
securities. Rising interest rates may lower the value of the
portfolio security and, as a result, the value of the notes. Falling
interest rates may increase the value of the portfolio securities
and, as a result, may increase the value of the notes.
. Volatility of the portfolio securities. Volatility is the term
used to describe the size and frequency of market price and/or
fluctuations. Generally, if the volatility of the portfolio
securities increases, we expect that the trading value of the notes
will increase and if the volatility of the portfolio securities
decreases, we expect that the trading value of the notes will
decrease.
. Time remaining to maturity. We believe that before the maturity
date the notes will trade at a value above that which would be
expected based on the value of the portfolio securities. Generally,
as the time remaining to maturity decreases, the value of the notes
will approach the amount that would be payable at maturity based on
the then-current value of the portfolio securities. As a result, as
the time remaining to maturity decreases, any premium attributed to
the trading value of the notes will diminish, decreasing the trading
value of the notes, as applicable.
. Dividend yields. Generally, if the dividend yield, if any, on a
portfolio security increases, we expect that the value of the notes
will decrease, and conversely, if the dividend yield, if any, on a
portfolio security decreases, we expect that the value of the notes
will increase.
PS-7
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. Changes in our credit ratings. Our credit ratings are an
assessment of our ability to pay our obligations. Consequently, real
or anticipated changes in our credit ratings may affect the trading
value of the notes. However, because your return on your notes is
dependent upon factors in addition to our ability to pay our
obligations under the notes, such as the percentage increase in the
value of the portfolio security, an improvement in our credit ratings
will not reduce the investment risks related to the notes.
It is important for you to understand that a decrease in the trading value
of the notes resulting from the effect of one of the factors specified above,
such as an increase in interest rates, may offset some or all of any increase in
the trading value of the notes attributable to another factor, such as an
increase in the value of the portfolio securities.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the notes of a given change in most of the
factors listed above will be less if it occurs later in the term of the notes
than if it occurs earlier in the term of the notes.
The amount payable at maturity is not subject to adjustment for all corporate
events
The amount that you are entitled to receive on the maturity date or upon
earlier redemption or exchange of the notes is subject to adjustment for the
specified corporate events affecting Pfizer Inc., Sepracor Inc. or Warner-
Lambert Co. and their common stock described in the section entitled "Dilution
and Reorganization Adjustments". However, these adjustments do not cover all
corporate events that could affect the market price of the portfolio securities.
The occurrence of any other event not described under "Dilution and
Reorganization Adjustments" may adversely affect the determination of the market
price and the trading value of the notes.
No affiliation between ML&Co. and the issuers of the portfolio securities
We are not affiliated with the issuers of the portfolio securities, and
they have no obligations with respect to the notes or amounts to be paid to you,
including any obligation to take the needs of ML&Co. or of beneficial owners of
the notes into consideration for any reason. The issuers of the portfolio
securities will not receive any of the proceeds of the offering of the notes
made hereby and are not responsible for, and have not participated in, the
determination or calculation of the amount receivable by beneficial owners of
the notes on the maturity date. In addition, the issuers of the portfolio
securities are not involved with the administration or trading of the notes and
have no obligations with respect to the amount receivable by beneficial owners
of the notes.
As a holder of the notes, you have no stockholder rights with respect to the
portfolio securities
You will not be entitled to any rights with respect to the portfolio
securities including, without limitation, the right to receive dividends or
other distributions, if any, on, to vote or to tender or exchange the portfolio
securities in any tender or exchange offer by the issuers of the portfolio
securities or any third party.
Purchases and sales of the portfolio securities by us and our affiliates may
affect your return
We have entered into hedging arrangements related to the portfolio
securities with one of our affiliates in connection with our obligations under
the notes. In connection therewith, our affiliate will purchase shares of the
portfolio securities in the secondary market on or before the pricing date and
will purchase and sell shares of the portfolio securities in the secondary
market during the term of the notes.
PS-8
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We or any of our affiliates, including MLPF&S, may from time to time buy or sell
the portfolio securities for our own accounts for business reasons or in
connection with hedging our obligations under the notes. These transactions
could affect the price of the portfolio securities, including during the period
when the amount payable at maturity is determined, in a manner that would be
adverse to your investment in the notes.
Amounts payable on the notes may be limited by state law
New York State laws govern the 1993 Indenture under which the notes will be
issued. New York has certain usury laws that limit the amount of interest that
can be charged and paid on loans, which includes debt securities like the notes.
Under present New York law, the maximum rate of interest is 25% per annum on a
simple interest basis. This limit may not apply to debt securities in which
$2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
Potential conflicts of interests
The calculation agent for the notes is one of our subsidiaries. Under
certain circumstances, MLPF&S's role as our subsidiary and its responsibilities
as calculation agent for the notes could give rise to conflicts of interests
between the calculation agent and the holders of the notes. These conflicts
could occur, for instance, in connection with the calculation agent's
determination as to whether a Market Disruption Event (as defined below) has
occurred or in connection with judgments that the calculation agent would be
required to make with respect to certain anti-dilution and reorganization
adjustments to the market price of any of the portfolio securities. MLPF&S is
required to carry out its duties as calculation agent in good faith and using
its reasonable judgment. However, you should be aware that because we control
MLPF&S, potential conflicts of interest could arise.
We anticipate entering into an arrangement with one of our subsidiaries to
hedge the market risks associated with our obligation to pay the amounts due
under the notes. Our subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
Uncertain tax consequences
You should also consider the tax consequences of investing in the notes,
certain aspects of which are uncertain. See "United States Federal Income
Taxation" below.
WHERE YOU CAN FIND MORE INFORMATION
ML&Co.
We file reports, proxy statements and other information with the SEC. Our
SEC filings are also available over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more information
on the public reference
PS-9
<PAGE>
rooms and their copying charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
We will send you copies of our SEC filings, excluding exhibits, at no cost
upon request. Please address your request to Lawrence M. Egan, Jr., Corporate
Secretary's Office, Merrill Lynch & Co., Inc., 100 Church Street, 12th Floor,
New York, New York 10080-6512; telephone number (212) 602-8439.
The issuers of the portfolio securities
The issuers of the portfolio securities also file reports, proxy statements
and other information with the SEC. Information provided to or filed with the
SEC by the issuers pursuant to the Exchange Act can be located at the SEC's
facilities or accessed through the SEC's website by reference to SEC file number
103619 for Pfizer Inc., 019410 for Sepracor Inc. and 103608 for Warner-Lambert
Co. You may also inspect certain of the issuers' SEC reports and other
information at the New York Stock Exchange. In addition, information regarding
the issuers may be obtained from other sources including, but not limited to,
press releases, newspaper articles and other publicly disseminated documents.
We make no representation or warranty as to the accuracy or completeness of any
such information or reports.
DILUTION AND REORGANIZATION ADJUSTMENTS
The share multiplier with respect to any portfolio security used to
calculate the amount payable to you value on any date of determination is
subject to adjustment by the calculation agent as a result of the dilution and
reorganization adjustments described in this section.
Stock splits and reverse stock splits
If a portfolio security is subject to a stock split or reverse stock split,
then once any split has become effective, the share multiplier relating to such
portfolio security will be adjusted to equal the product of the prior share
multiplier and the number of shares which a holder of one share of common stock
of the issuer of such portfolio security before the effective date of that stock
split or reverse stock split would have owned or been entitled to receive
immediately following the applicable effective date.
Stock dividends
If a portfolio security is subject to a stock dividend, i.e., issuance of
additional shares of the portfolio security, that is given ratably to all
holders of shares of common stock of the issuer of such portfolio security, then
once such shares are trading ex-dividend, the share multiplier will be adjusted
so that the new share multiplier shall equal the prior share multiplier plus the
product of:
. the number of shares of such portfolio security issued with respect to
one share of such portfolio security, multiplied by
. the prior share multiplier.
PS-10
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Extraordinary Dividends
There will be no adjustments to the share multiplier to reflect cash
dividends or distributions paid, if any, with respect to a portfolio security
other than distributions described under clause (e) of the section entitled "--
Reorganization Events" below and Extraordinary Dividends as described below.
An "Extraordinary Dividend" means, with respect to a cash dividend or other
distribution with respect to a portfolio security to the extent such dividend or
other distribution exceeds the immediately preceding non-Extraordinary Dividend
for such portfolio security by an amount equal to at least 10% of the market
price of such portfolio security on the Trading Day preceding the ex-dividend
date for the payment of such Extraordinary Dividend. If an Extraordinary
Dividend occurs with respect to a portfolio security, the share multiplier will
be adjusted on the Trading Day preceding the payment of any dividend, the
payment of which caused an Extraordinary Dividend to be paid (the "ex-dividend
date"), so that the new share multiplier will equal the product of:
. the then-current share multiplier, multiplied by
. a fraction, the numerator of which is the closing price per share of the
common stock of the issuer of such portfolio security on the Trading Day
preceding the ex-dividend date, and the denominator of which is the
amount by which the closing price on the Trading Day preceding the ex-
dividend date exceeds the Extraordinary Dividend Amount.
The "Extraordinary Dividend Amount" with respect to an Extraordinary
Dividend for a portfolio security will equal:
. in the case of cash dividends or other distributions that constitute
quarterly dividends, the amount per share of such Extraordinary Dividend
minus the amount per share of the immediately preceding non-
Extraordinary Dividend, or
. in the case of cash dividends or other distributions that do not
constitute quarterly dividends, the amount per share of such
Extraordinary Dividend.
To the extent an Extraordinary Dividend is not paid in cash, the value of
the non-cash component will be determined by the calculation agent, whose
determination shall be conclusive. A distribution on a portfolio security
described in clause (e) of the section entitled "--Reorganization Events" below
that also constitutes an Extraordinary Dividend shall cause an adjustment to the
share multiplier pursuant only to clause (e) under the section entitled "--
Reorganization Events".
Issuance of transferable rights or warrants
If the issuer of one of the portfolio securities issues transferable rights
or warrants to all holders of such portfolio security to subscribe for or
purchase such portfolio security, including new or existing rights to purchase
such portfolio security pursuant to a shareholders rights plan or arrangement,
once a triggering event shall have occurred thereunder, at an exercise price per
share less that the closing price of one share of such portfolio security on:
. the date the exercise price of such rights or warrants is determined
and
. the expiration date of such rights or warrants,
PS-11
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then, in each case, if the expiration date of such rights or warrants precedes
the maturity date, then the share multiplier will be adjusted to equal the
product of the prior share multiplier and a fraction, the numerator of which
shall be the number of shares of such portfolio security outstanding immediately
prior to such issuance plus the number of additional shares of such portfolio
security offered for subscription or purchase pursuant to such rights or
warrants and the denominator of which shall be the number of shares of such
portfolio security outstanding immediately prior to such issuance plus the
number of additional shares of such portfolio security which the aggregate
offering price of the total number of shares of such portfolio security so
offered for subscription or purchase pursuant to such rights or warrants would
purchase at the closing price of one share of such portfolio security on the
expiration date of such rights or warrants, which shall be determined by
multiplying such total number of shares offered by the exercise price of such
rights or warrants and dividing the product so obtained by such closing price.
PS-12
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Reorganization events
If before the maturity date of the notes,
(a) there occurs any reclassification or change of any portfolio
security,
(b) the issuer of such portfolio security, or any surviving entity
or subsequent surviving entity of the issuer of such portfolio
security (a "Successor Entity"), has been subject to a merger,
combination or consolidation and is not the surviving entity,
(c) any statutory exchange of securities of any issuer of the
portfolio securities or any Successor Entity with another
corporation occurs, other than pursuant to clause (b) above,
(d) any issuer of the portfolio securities is liquidated,
(e) any issuer of the portfolio securities issues to all of its
shareholders equity securities of an issuer other than such issuer
of the portfolio securities, other than in a transaction described
in clauses (b), (c) or (d) above (a "Spin-off Event"), or
(f) a tender or exchange offer is consummated for all the
outstanding shares of any issuer of the portfolio securities (any
such event in clauses (a) through (f) a "Reorganization Event"),
the market price for any such portfolio security shall be equal to the
Reorganization Event Value.
The "Reorganization Event Value" shall be determined by the calculation
agent and shall equal:
. the Transaction Value related to the relevant Reorganization Event,
plus
. in the event described in clause (1) below only, interest on such
Transaction Value accruing from the date of the payment or delivery
of the consideration, if any, received in connection with such
Reorganization Event until the stated maturity date or upon earlier
redemption or exchange, as the case may be, at a fixed interest rate
determined on the date of such payment or delivery equal to the
interest rate that would be paid on a standard senior non-callable
debt security of ML&Co. with a term equal to the remaining term of
the notes.
"Transaction Value" means the sum of the following:
(1) for any cash received in any such Reorganization Event,
an amount equal to the amount of cash received per share of the
common stock of such portfolio security multiplied by the share
multiplier in effect on the date all of the holders of shares of
such portfolio security have agreed or have become irrevocably
obligated to exchange such shares,
(2) for any property other than cash or securities received
in any such Reorganization Event, the market value, as
determined by the calculation agent, of such property received
for each share of such portfolio security at the date of the
receipt of such property multiplied by the then current share
multiplier,
PS-13
<PAGE>
(3) for any security received in any such Reorganization
Event, an amount equal to (a) the quantity of such security
received for each share of such portfolio security multiplied by
the then current share multiplier multiplied by (b) the average
market price of such security for the five scheduled Trading
Days ending on and including the third scheduled Trading Day
immediately prior to the maturity date or date of early
redemption, as the case may be; provided, however, in the event
you elect to exchange you notes, the market price for such
security will be on the Business Day following the day the
calculation agent receives written notice of your intention to
exchange your notes, and
(4) for any security received in the case of a Spin-off
Event, in addition to the shares of such portfolio security, an
amount equal to (a) the quantity of each such security received
for each share of such portfolio security multiplied by the then
current share multiplier applicable to such portfolio security
multiplied by (b) the average market price per share of such
security for the five scheduled Trading Days ending on and
including the third scheduled Trading Day immediately prior to
the maturity date or date of early redemption, as the case may
be; provided, however, in the event you elect to exchange you
notes, the market price for such security will be on the
Business Day following the day the calculation agent receives
written notice of your intention to exchange your notes. The
share multiplier with respect to any such securities shall equal
the product of the share multiplier in effect for the relevant
portfolio security at the time of the issuance of such
securities multiplied by the number of shares of such securities
issued with respect to one share of such portfolio security. The
share multiplier of any such securities will be subject to the
same adjustments as that of the share multiplier of the
portfolio security.
"Exchange Property" means the securities, cash or any other assets
distributed in any such Reorganization Event, including, in the case of a Spin-
off Event, the share of the portfolio security with respect to which the spun-
off security was issued.
For purposes of this section, in the case of a consummated tender or
exchange offer for all Exchange Property of a particular type, Exchange Property
shall be deemed to include the amount of cash or other property paid by the
offeror in the tender or exchange offer with respect to such Exchange Property,
in an amount determined on the basis of the rate of exchange in such tender or
exchange offer. In the event of a tender or exchange offer with respect to
Exchange Property in which an offeree may elect to receive cash or other
property, Exchange Property shall be deemed to include the kind and amount of
cash and other property received by offerees who elect to receive cash.
Adjustments to the share multiplier
No adjustments to the share multiplier will be required unless such share
multiplier adjustment would require a change of at least 0.1% in the share
multiplier then in effect. The share multiplier resulting from any of the
adjustments specified above will be rounded to the nearest one thousandth with
five ten-thousandths being rounded upward.
No adjustments to the share multiplier will be required other than those
specified above. However, ML&Co. may, at its sole discretion, cause the
calculation agent to make additional adjustments to the share multiplier to
reflect changes occurring in relation to any portfolio security or any other
Exchange Property in other circumstances where ML&Co. determines that it is
appropriate to
PS-14
<PAGE>
reflect such changes. The required adjustments specified above do not cover all
events that could affect the market price or closing price, as applicable, of
such portfolio security, including, without limitation, a partial tender or
exchange offer for such portfolio security.
MLPF&S, as calculation agent, shall be solely responsible for the
determination and calculation of any adjustments to the share multiplier and of
any related determinations and calculations with respect to any distributions of
stock, other securities or other property or assets, including cash, in
connection with any corporate event described above, and its determinations and
calculations with respect thereto shall be conclusive absent manifest error.
No adjustments will be made for certain other events, such as offerings of
the common stock of the issuer of such portfolio security by the issuers of such
portfolio security for cash or in connection with acquisitions or the occurrence
of a partial tender or exchange offer for the common stock of the issuer of such
portfolio security by such issuer or any third party.
ML&Co. will, within ten Business Days following the occurrence of an event
that requires an adjustment to the share multiplier, or if ML&Co. is not aware
of such occurrence, as soon as practicable after becoming so aware, provide
written notice to the Trustee, which shall provide notice to the holders of the
notes of the occurrence of such event and, if applicable, a statement in
reasonable detail setting forth the adjusted share multiplier.
MARKET DISRUPTION EVENT
"Market Disruption Event" means:
(1) a suspension, absence (including the absence of an official
closing price, if applicable) or material limitation of trading of any
portfolio security on the NYSE, NASDAQ Stock Market or other relevant
securities exchanges for more than two hours of trading or during the one-
half hour period preceding or at the close of trading in such market, as
determined by the calculation agent in its sole discretion; or the
suspension or material limitation on the primary market for trading in
options contracts related to any portfolio security, if available, during
the one-half hour period preceding or at the close of trading in the
applicable market, in each case as determined by the calculation agent in
its sole discretion; and
(2) a determination by the calculation agent in its sole discretion
that the event described in clause (1) above materially interfered with the
ability of ML&Co. or any of its affiliates to unwind all or a material
portion of the hedge with respect to the notes.
For purposes of determining whether a Market Disruption Event has occurred:
(1) a limitation on the hours or number of days of trading will not
constitute a Market Disruption Event if it results from an announced change
in the regular business hours of the relevant exchange,
(2) a decision to permanently discontinue trading in the relevant
options contract will not constitute a Market Disruption Event,
(3) limitations pursuant to any rule or regulation enacted or
promulgated by the NYSE or NASDAQ Stock Market (or other regulatory
organization with jurisdiction over the NYSE, NASDAQ Stock Market or other
relevant securities exchanges, as applicable) on trading during
PS-15
<PAGE>
significant market fluctuations will constitute a suspension or material
limitation of trading in any portfolio security,
(4) a suspension of trading in an options contract on any portfolio
security by the primary securities market trading in such options, if
available, by reason of (a) a price change exceeding limits set by such
securities exchange or market, (b) an imbalance of orders relating to such
contracts or (c) a disparity in bid and ask quotes relating to such
contracts will constitute a suspension or material limitation of trading in
options contracts related to such portfolio security and
(5) a suspension, absence or material limitation of trading on the
primary securities market on which options contracts related to any
portfolio security are traded will not include any time when such
securities market is itself closed for trading under ordinary
circumstances.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any notes shall have occurred
and be continuing, the amount payable to a beneficial owner of a note upon any
acceleration permitted by the notes will be determined by the calculation agent
and will be equal to the principal amount of the note plus accrued but unpaid
interest thereon to but excluding the date of early repayment, if applicable,
calculated as though the date of early repayment were the stated maturity date
of the notes. If a bankruptcy proceeding is commenced in respect of ML&Co., the
claim of the beneficial owner of a note may be limited, under Section 502(b)(2)
of Title 11 of the United States Code, to the principal amount of the note plus
an additional amount of contingent interest calculated as though the date of the
commencement of the proceeding were the maturity date of the notes.
THE PORTFOLIO
General
The following information has been derived from publicly-available
documents published by Pfizer Inc., Sepracor Inc. and Warner-Lambert Co. We
make no representation or warranty as to the accuracy or completeness of the
following information:
Pfizer Corporation ("Pfizer") is a research-based, global pharmaceutical
company that develops and manufactures medicines for humans and animals and
maintains its principal executive offices in New York City, New York. The
pharmaceutical industry in which it is based is highly competitive and heavily
regulated in most of the countries in which Pfizer operates. As of December 31,
1998, Pfizer and its subsidiaries employed approximately 46,400 people in
operations throughout the world. The pharmaceutical segment includes
prescription pharmaceuticals for treating cardiovascular diseases, infectious
diseases, central nervous system disorders, diabetes, allergies and arthritis
among other disorders. The animal health division includes anti-parasitic, anti-
infective and anti-inflammatory medicines and vaccines for livestock, poultry
and companion animals. Pfizer also conducts international banking operations
through a subsidiary, Pfizer International Bank Europe based in Dublin, Ireland,
which makes loans and accepts deposits in several currencies in international
markets.
Sepracor Inc. is a specialty pharmaceutical company focused on the
development of drugs that are improved versions of widely prescribed
pharmaceutical compounds and maintains its principal
PS-16
<PAGE>
offices in Marlborough, Massachusetts. The pharmaceutical industry in which it
is based is highly competitive and heavily regulated in most of the countries in
which Sepracor operates. As of December 31, 1998, Sepracor employed 300 persons,
almost half of whom were engaged in research and development activities.
Sepracor's strategy for commercializing its products includes licensing and co-
promotion collaborations with major pharmaceutical companies and direct
marketing through one or more sales forces. Sepracor has established one
subsidiary, BioSepra, a publicly-traded developer and manufacturer of products
that aid in the purification and production of biopharmaceuticals by
pharmaceutical companies.
Warner Lambert Co. is an international pharmaceutical company that
develops, manufactures and sells pharmaceutical products, consumer health
staples and confectionery products. It maintains its principal executive offices
in Morris Plains, New Jersey. Each of the industries in which Warner Lambert
operates are highly competitive and, in addition, are subject to varying degrees
of government regulation in the countries in which it manufactures and
distributes its commodities. As of December 31, 1998, Warner Lambert employed
approximately 41,000 people throughout the world. The principal products of
Warner Lambert's pharmaceutical segment are ethical pharmaceuticals, biologicals
and capsules that serve as analgesics, anti-convulsants, anti-infectives, and
treat disorders such as diabetes and Alzheimers. Warner Lambert's consumer
health care division produces over-the-counter health staples, shaving products
and pet care items. The primary commodities produced in the confectionery
division are chewing gum, breath mints and cough tablets.
While the portfolio consists of the common stock issued by three companies
involved in the pharmaceutical industry, the portfolio is not intended to
provide an indication of the pattern of price movements of common stocks of
pharmaceutical corporations generally. See "Risk Factors General" in this
pricing supplement. Each of the portfolio securities is presently registered
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Companies with securities registered under the Exchange Act are required to file
periodically certain financial and other information specified by the SEC.
Information provided to or filed with the SEC by the portfolio securities can be
located at the SEC's facilities or through the SEC's website by reference to SEC
file number 1-03619 for Pfizer Inc., SEC file number 0-19410 for Sepracor Inc.
and SEC file number 1-03608 for Warner-Lambert Co. See "Where You Can Find More
Information". ML&Co. makes no representation or warranty as to the accuracy or
completeness of any such information or reports.
The inclusion of a portfolio security in the portfolio is not a
recommendation to buy or sell such portfolio security and neither ML&Co. nor any
of its affiliates make any representation to any purchaser of notes as to the
performance of the portfolio.
ML&Co. is not affiliated with any of the issuers of the portfolio
securities and the issuers of the portfolio securities have no obligations with
respect to the notes. This pricing supplement relates only to the notes offered
hereby and does not relate to the portfolio securities or other securities of
the issuers of the portfolio securities. All disclosures contained in this
pricing supplement regarding the issuers of the portfolio securities are derived
from the publicly available documents described in the preceding paragraph.
Neither ML&Co. nor MLPF&S has participated in the preparation of such documents
or made any due diligence inquiry with respect to the issuers of the portfolio
securities in connection with the offering of the notes. Neither ML&Co. nor
MLPF&S makes any representation that such publicly available documents or any
other publicly available information regarding the issuers of the portfolio
securities are accurate or complete. Furthermore, there can be no assurance
that all events occurring prior to the date hereof, including events that would
affect the accuracy or completeness of the publicly available documents
described in the preceding paragraph, that would affect the trading price of the
PS-17
<PAGE>
portfolio securities have been publicly disclosed. Subsequent disclosure of any
such events or the disclosure of or failure to disclose material future events
concerning the issuers of the portfolio securities could affect the amount
received at maturity with respect to the notes and therefore the trading prices
of the notes. Neither ML&Co. nor any of its affiliates make any representation
to any purchaser of the notes as to the performance of the portfolio securities.
ML&Co. or its affiliates may presently or from time to time engage in
business, directly or indirectly, with the issuers of the portfolio securities
including extending loans to, or making equity investments in, such issuers or
providing investment banking or advisory services to such issuers, including
merger and acquisition advisory services. In the course of such business,
ML&Co. or its affiliates may acquire non-public information with respect to such
issuers and, in addition, one or more affiliates of ML&Co. may publish research
reports with respect to such issuers.
Any prospective purchaser of a note should undertake an independent
investigation of the issuers of the portfolio securities as in its judgment is
appropriate to make an informed decision with respect to an investment in the
notes.
Computation of the amount payable at maturity or upon early redemption or
exchange
The amount payable at maturity or upon earlier redemption or exchange, as
the case may be, will equal the sum of the products, for each of the portfolio
securities, of the market price, as multiplied by the applicable multiplier for
each such portfolio security, in each case as determined by the calculation
agent. The securities listed in the following table are the portfolio
securities and will be used to calculate the amount payable to you. You will
not have any right to receive portfolio securities.
The following table sets forth for each portfolio security the issuer, the
primary market or securities exchange on which the portfolio security is traded,
the approximate market capitalization, the percentage of each portfolio security
in the portfolio, the initial price and the initial share multipliers:
<TABLE>
<CAPTION>
Issuer of the Primary Approximate % of Initial price Initial share
portfolio security market market capitalization portfolio multiplier
as of
April 15, 1999
- ----------------------------- ----------- -------------------------- ---------------- ---------------- ----------------
(In millions)
<S> <C> <C> <C> <C> <C>
Pfizer Inc................... NYSE $168,112 333.33 128.25 (2.5991 x 0.86)
Sepracor Inc................. NASDAQ $ 3,047 333.33 101.00 (3.3004 x 0.86)
Warner-Lambert Co............ NYSE $ 55,851 333.34 69.1875 (4.8178 x 0.86)
</TABLE>
The initial share multiplier relating to each portfolio security is equal
to the product of 0.86, the exchange ratio, and an initial number of shares for
each portfolio security, based on the initial price of such portfolio security,
included in the calculation of an initial portfolio value so that each portfolio
security represents an approximately equal percentage of the portfolio. The
initial price of each portfolio security used to calculate the initial share
multiplier relating to each such portfolio security was determined by the
calculation agent. The respective share multipliers will remain constant for
the term of the notes unless adjusted for certain corporate events as described
in "Dilution and Reorganization Adjustments".
PS-18
<PAGE>
Data on the portfolio securities
Pfizer and Warner-Lambert's common stock is principally traded on the NYSE.
Sepracor's common stock is a principally traded on NASDAQ Stock Market. The
following table sets forth the high and low closing price during 1996, 1997,
1998 and during 1999 through March 31, 1999. On April 22, 1999, the closing
price of Pfizer's common stock was $128 1/4 per share, Sepracor common stock was
$101 per share, and Warner-Lambert common stock was $69 3/16 per share. The
closing prices and dividends per share listed below were obtained from Bloomberg
Financial Markets. The historical prices of the portfolio securities should not
be taken as an indication of future performance, and no assurance can be given
that the price of the portfolio securities will not decrease. Nor can assurance
be given that the price of the portfolio securities will increase above the
issue price so that at maturity the beneficial owners of the notes will receive
cash in an amount in excess of the principal amount of the notes.
PS-19
<PAGE>
Dividends per
High Low share(1)
---- --- ---------------
Portfolio securities
- --------------------
Pfizer Inc.
1996
First Quarter............. 35 1/8 30 3/8 0.15
Second Quarter............ 37 7/8 32 5/16 0.15
Third Quarter............. 39 9/16 34 15/16 0.15
Fourth Quarter............ 45 1/4 39 3/8 0.15
1997
First Quarter............. 49 3/8 40 15/16 0.17
Second Quarter............ 61 41 11/16 0.17
Third Quarter............. 63 3/4 52 7/16 0.17
Fourth Quarter............ 77 13/16 60 1/4 0.17
1998
First Quarter............. 99 11/16 73 15/16 0.19
Second Quarter............ 118 1/4 97 9/16 0.19
Third Quarter............. 118 11/16 93 0.19
Fourth Quarter............ 126 1/8 87 1/2 0.19
1999
First Quarter............. 143 1/16 113 1/2 0.22
Sepracor Inc.
1996
First Quarter............. 19 7/8 14 1/8 -
Second Quarter............ 15 7/8 12 3/8 -
Third Quarter............. 15 7/8 10 7/8 -
Fourth Quarter............ 16 7/8 14 3/8 -
1997
First Quarter............. 26 1/2 16 1/2 -
Second Quarter............ 27 18 33/64 -
Third Quarter............. 36 1/8 19 13/16 -
Fourth Quarter............ 41 9/16 33 -
PS-20
<PAGE>
Dividends per
High Low share(1)
----------- ---------- -----------------
1998
First Quarter........... 43 5/16 35 1/8 -
Second Quarter.......... 46 3/4 36 3/4 -
Third Quarter........... 70 1/2 42 3/4 -
Fourth Quarter.......... 88 5/8 53 -
1999
First Quarter........... 139 3/8 89 7/8 -
Warner-Lambert Co.
1996
First Quarter........... 17 53/64 15 1/64 0.115
Second Quarter.......... 19 9/64 17 5/8 0.115
Third Quarter........... 22 17 3/4 0.115
Fourth Quarter.......... 26 11/64 20 45/64 0.115
1997
First Quarter........... 30 27/64 24 5/64 0.126667
Second Quarter.......... 41 27/64 28 21/64 0.126667
Third Quarter........... 48 21/64 42 0.126667
Fourth Quarter.......... 50 21/64 36 19/64 0.126667
1998
First Quarter........... 56 49/64 40 3/8 0.16
Second Quarter.......... 41 27/64 28 21/64 0.16
Third Quarter........... 83 1/8 65 1/4 0.16
Fourth Quarter.......... 81 1/4 63 13/16 0.16
1999
First Quarter........... 75 13/16 63 7/8 0.20
______________
(1) ML&Co. makes no representation as to the amount of dividends, if any,
that the issuers of the portfolio securities will pay in the future. Holders of
the notes will not be entitled to receive dividends, if any, that may be payable
on the portfolio securities.
PS-21
<PAGE>
USE OF PROCEEDS AND HEDGING
The net proceeds to be received by ML&Co. from the sale of the notes will
be used for general corporate purposes and, in part, by ML&Co. or one or more of
its affiliates in connection with hedging ML&Co.'s obligations under the notes.
See also "Use of Proceeds" in the accompanying prospectus.
In connection with ML&Co.'s obligations under the notes, ML&Co. has entered
into hedging arrangements related to the portfolio securities with an affiliate
of ML&Co. In connection therewith, such affiliate has purchased shares of the
portfolio securities in secondary market transactions at or before the time of
the pricing of the notes. ML&Co., MLPF&S and other affiliates of ML&Co. may
from time to time buy or sell the portfolio securities for their own accounts,
for business reasons or in connection with hedging ML&Co.'s obligations under
the notes. These transactions could affect the price of the portfolio
securities.
UNITED STATES FEDERAL INCOME TAXATION
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization, for United
States federal income tax purposes, of the notes or securities with terms
substantially the same as the notes. However, although the matter is not free
from doubt, under current law, each note should be treated as a debt instrument
of ML&Co. for United States federal income tax purposes. ML&Co. currently
intends to treat each note as a debt instrument of ML&Co. for United States
federal income tax purposes and, where required, intends to file information
returns with the Internal Revenue Service ("IRS") in accordance with such
treatment, in the absence of any change or clarification in the law, by
regulation or otherwise, requiring a different characterization of the notes.
Prospective investors in the notes should be aware, however, that the IRS is not
bound by ML&Co.'s characterization of the notes as indebtedness, and the IRS
could possibly take a different position as to the proper characterization of
the notes for United States federal income tax purposes. The following
discussion of the principal United States federal income tax consequences of the
purchase, ownership and disposition of the notes is based upon the assumption
that each note will be treated as a debt instrument of ML&Co. for United States
federal income tax purposes. If the notes are not in fact treated as debt
instruments of ML&Co. for United States federal income tax purposes, then the
United States federal income tax treatment of the purchase, ownership and
disposition of the notes could differ from the treatment discussed below with
the result that the timing and character of income, gain or loss recognized in
respect of a note could differ from the timing and character of income, gain or
loss recognized in respect of a note had the notes in fact been treated as debt
instruments of ML&Co. for United States federal income tax purposes.
U.S. holders
On June 11, 1996, the Treasury Department issued final regulations (the
"Final Regulations") concerning the proper United States federal income tax
treatment of contingent payment debt instruments such as the notes, which apply
to debt instruments issued on or after August 13, 1996 and, accordingly, will
apply to the notes. In general, the Final Regulations cause the timing and
character of income, gain or loss reported on a contingent payment debt
instrument to substantially differ from the timing and character of income, gain
or loss reported on a contingent payment debt instrument under general
principles of prior United States federal income tax law. Specifically, the
Final Regulations generally require a U.S. holder of such an instrument to
include future contingent and noncontingent
PS-22
<PAGE>
interest payments in income as such interest accrues based upon a projected
payment schedule. Moreover, in general, under the Final Regulations, any gain
recognized by a U.S. holder on the sale, exchange, or retirement of a contingent
payment debt instrument is treated as ordinary income, and all or a portion of
any loss realized could be treated as ordinary loss as opposed to capital loss,
depending upon the circumstances. The Final Regulations provide no definitive
guidance as to whether or not an instrument is properly characterized as a debt
instrument for United States federal income tax purposes.
In particular, solely for purposes of applying the Final Regulations to the
notes, ML&Co. has determined that the projected payment schedule for the notes
will consist of the stated interest payments on the note (other than the final
stated interest payment) and a payment at maturity equal to $1,418.19 per $1,000
of principal amount of the notes ("Projected Redemption Amount"). This
represents an estimated yield on the notes equal to 5.91% per annum, compounded
semiannually. Accordingly, during the term of the notes, a U.S. holder of a
note will be required to include in income the sum of the daily portions of
interest on the note that are deemed to accrue at this estimated yield for each
day during the taxable year, or portion of the taxable year, on which the U.S.
holder holds such note. The amount of interest that will be deemed to accrue in
any accrual period, i.e., generally each six-month period during which the notes
are outstanding, will equal the product of this estimated yield, properly
adjusted for the length of the accrual period, and the note's adjusted issue
price at the beginning of the accrual period. The daily portions of interest
will be determined by allocating to each day in the accrual period the ratable
portion of the interest that is deemed to accrue during the accrual period. In
general, for these purposes a note's adjusted issue price will equal the note's
issue price, increased by the interest previously accrued on the note and
reduced by interest payments received on the notes. As a result of the
foregoing rules, a U.S. holder will not be required to include in income the
stated interest payments received on its notes. Upon maturity of a note on
April 27, 2006, in the event that the amount payable upon maturity (the "Actual
Redemption Amount") exceeds $1,418.20 for every $1,000 note, a U.S. holder will
be required to include the excess of the Actual Redemption Amount over $1,418.20
per $1,000 (i.e., the Projected Redemption Amount) in income as ordinary
interest on the maturity date. Alternatively, in the event that the Actual
Redemption Amount is less than $1,418.20 per $1,000 of principal amount of notes
(i.e., the Projected Redemption Amount), the excess of the Projected Redemption
Amount over the Actual Redemption Amount will be treated first as an offset to
any interest otherwise includible in income by the U.S. holder with respect to
the note for the taxable year in which the maturity date occurs to the extent of
the amount of such includible interest. A U.S. holder will be permitted to
recognize and deduct, as an ordinary loss that is not subject to the limitations
applicable to miscellaneous itemized deductions, any remaining portion of the
excess of the Projected Redemption Amount over the Actual Redemption Amount that
is not treated as an interest offset pursuant to the foregoing rules. U.S.
holders purchasing a note at a price that differs from the adjusted issue price
of the note as of the purchase date (e.g., subsequent purchasers) will be
subject to special rules providing for certain adjustments to the foregoing
rules, and such U.S. holders should consult their own tax advisors concerning
these rules.
Upon the sale, redemption or exchange of a note prior to the maturity of
the note, a U.S. holder will be required to recognized taxable gain or loss in
an amount equal to the difference, if any, between the amount realized by the
U.S. holder upon such sale and the U.S. holder's adjusted tax basis in the note.
A U.S. holder's adjusted tax basis in a note generally will equal such U.S.
holder's initial investment in the note increased by any interest previously
included in income with respect to the note by the U.S. holder and reduced by
interest payments received on the note. Any such taxable gain will be treated
as ordinary income. Any such taxable loss will be treated as ordinary loss to
the extent of the U.S. holder's total interest inclusions on the note. Any
remaining loss generally will be treated as long-term or short-term capital
loss, depending upon the U.S. holder's holding period for the note. All amounts
PS-23
<PAGE>
includible in income by a U.S. holder as ordinary interest pursuant to the Final
Regulations will be treated as original issue discount.
Prospective investors in the notes should consult their own tax advisors
concerning the application of the Final Regulations to their investment in the
notes. Investors in the notes may also obtain the projected payment schedule, as
determined by ML&Co. for purposes of the application of the Final Regulations to
the notes, by submitting a written request for such information to Merrill Lynch
& Co., Inc., Attn: Darryl W. Colletti, Corporate Secretary's Office, 100
Church Street, 12th Floor, New York, New York 10080-6512.
The projected payment schedule, including both the Projected Redemption
Amount and the estimated yield on the notes, has been determined solely for
United States federal income tax purposes, i.e., for purposes of applying the
Final Regulations to the notes, and is neither a prediction nor a guarantee of
what the Actual Redemption Amount will be.
The following table sets forth the amount of interest that will be deemed
to have accrued with respect to each $1,000 principal amount of the notes during
each accrual period over the term of the notes based upon the projected payment
schedule for the notes, including both the Projected Redemption Amount and the
estimated yield equal to 5.91% per annum (compounded semiannually), as
determined by ML&Co. for purposes of applying the Final Regulations to the
notes:
Accrual Period Interest Total Interest
- -------------- Deemed to Deemed to
Accrue During Have Accrued
Accrual Period on the Notes
(per $1,000) as of the End of
Accrual Period
(per $1,000)
------------------------------------
April 27, 1999 through October 27, 1999........ $29.55 $ 29.55
October 28, 1999 through April 27, 2000........ $30.28 $ 59.83
April 28, 2000 through October 27, 2000........ $31.02 $ 90.85
October 28, 2000 through April 27, 2001........ $31.79 $122.64
April 28, 2001 through October 27, 2001........ $32.58 $155.22
October 28, 2001 through April 27, 2002........ $33.40 $188.62
April 28, 2002 through October 27, 2002........ $34.24 $222.86
October 28, 2002 through April 27, 2003........ $35.10 $257.96
April 28, 2003 through October 27, 2003........ $35.99 $293.95
October 28, 2003 through April 27, 2004........ $36.91 $330.86
April 28, 2004 through October 27, 2004........ $37.85 $368.71
October 28, 2004 through April 27, 2005........ $38.82 $407.53
April 28, 2005 through October 27, 2005........ $39.82 $447.35
October 28, 2005 through April 27, 2006........ $40.85 $488.20
_______________
Projected Redemption Amount = $1,418.20 per $1,000 principal amount of notes.
PS-24
