<PAGE>
PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-59997
PROSPECTUS SUPPLEMENT
(To prospectus dated July 30, 1998)
[LOGO] MERRILL LYNCH
PROTECTED GROWTH(SM) INVESTING
"Pursuit of Growth, Protection of Prinicpal"
7,000,000 Units
Merrill Lynch & Co., Inc.
S&P 500(R) Market Index Target-Term Securities(R)
due March 27, 2006
"MITTS(R) Securities"
$10 principal amount per unit
----------------
The MITTS Securities: Payment at Maturity:
. 100% principal protection at . On the maturity date, for each unit
maturity of the MITTS Securities you own, we
. No payments before the maturity will pay you an amount equal to the
date sum of the principal amount of each
. Senior unsecured debt securities unit and an additional amount based
of Merrill Lynch & Co., Inc. on the percentage increase, if any,
. Linked to the value of the S&P in the value of the S&P 500 Index
500 Index adjusted by an adjustment factor as
. The MITTS Securities have been described in this prospectus
approved for listing on the supplement.
American Stock Exchange under the . You will receive no less than the
trading symbol "FML". principal amount of your MITTS
. Closing date: March 26, 1999 Securities.
Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page S-8 of this prospectus supplement.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or passed upon the adequacy of this
prospectus supplement or the attached prospectus. Any representation to the
contrary is a criminal offense.
<TABLE>
<CAPTION>
Per unit Total
-------- -----
<S> <C> <C>
Public offering price................................. $10.00 $70,000,000
Underwriting discount................................. $.30 $2,100,000
Proceeds, before expenses, to Merrill Lynch & Co.,
Inc.................................................. $9.70 $67,900,000
</TABLE>
The public offering price and the underwriting discount for any single
transaction to purchase:
(a) between 100,000 units and 499,999 units will be $9.85 per unit and
$.15 per unit, respectively;
and
(b) 500,000 units or more will be $9.80 per unit and $.10 per unit,
respectively.
----------------
Merrill Lynch & Co.
----------------
The date of this prospectus supplement is March 23, 1999.
"MITTS" and "Market Index Target-Term Securities" are registered service marks
owned by Merrill Lynch & Co., Inc.
"Standard & Poor's(R)", "Standard & Poor's 500", "S&P 500(R)", "S&P(R)" and
"500", are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by Merrill Lynch Capital Services, Inc., and Merrill Lynch &
Co., Inc. is an authorized sublicensee.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION--Q&A.................................................. S-4
What are the MITTS Securities?.......................................... S-4
What will I receive at the stated maturity date of the MITTS
Securities?............................................................ S-4
Who publishes the S&P 500 Index and what does the S&P 500 Index
measure?............................................................... S-5
How has the S&P 500 Index performed historically?....................... S-6
What about taxes?....................................................... S-6
Will the MITTS Securities be listed on a stock exchange?................ S-6
What is the role of MLPF&S?............................................. S-6
Who is ML&Co.?.......................................................... S-7
Are there any risks associated with my investment?...................... S-7
RISK FACTORS.............................................................. S-8
The MITTS Securities are unlike typical equity or debt securities....... S-8
You may not earn a return on your investment............................ S-8
Your yield may be lower than the yield on a standard debt security of
comparable maturity.................................................... S-8
Your return will not reflect the return of owning the stocks included in
the S&P 500 Index...................................................... S-8
There may be an uncertain trading market for the MITTS Securities in the
future................................................................. S-8
Factors affecting trading value of the MITTS Securities................. S-9
Amounts payable on the MITTS Securities may be limited by state law..... S-10
Purchases and sales by us and our affiliates may affect your return..... S-10
Potential conflicts..................................................... S-10
RATIO OF EARNINGS TO FIXED CHARGES........................................ S-11
DESCRIPTION OF THE MITTS SECURITIES....................................... S-11
Payment at Maturity..................................................... S-11
Hypothetical Returns.................................................... S-13
Adjustments to the S&P 500 Index; Market Disruption Events.............. S-14
Discontinuance of the S&P 500 Index..................................... S-14
Events of Default and Acceleration...................................... S-15
Depositary.............................................................. S-15
Same-Day Settlement and Payment......................................... S-17
THE S&P 500 INDEX......................................................... S-18
Computation of the S&P 500 Index........................................ S-18
Historical Data on the S&P 500 Index.................................... S-20
License Agreement....................................................... S-21
UNITED STATES FEDERAL INCOME TAXATION..................................... S-22
General................................................................. S-23
U.S. Holders............................................................ S-23
Non-U.S. Holders........................................................ S-25
Backup Withholding...................................................... S-26
New Withholding Regulations............................................. S-26
USE OF PROCEEDS AND HEDGING............................................... S-26
WHERE YOU CAN FIND MORE INFORMATION....................................... S-27
UNDERWRITING.............................................................. S-27
VALIDITY OF THE MITTS SECURITIES.......................................... S-28
INDEX OF DEFINED TERMS.................................................... S-29
</TABLE>
S-2
<PAGE>
Prospectus
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION.................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 2
MERRILL LYNCH & CO., INC................................................. 3
USE OF PROCEEDS.......................................................... 3
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS............................. 4
DESCRIPTION OF DEBT SECURITIES........................................... 4
DESCRIPTION OF DEBT WARRANTS............................................. 9
DESCRIPTION OF CURRENCY WARRANTS......................................... 11
DESCRIPTION OF INDEX WARRANTS............................................ 12
DESCRIPTION OF PREFERRED STOCK........................................... 17
DESCRIPTION OF DEPOSITARY SHARES......................................... 21
DESCRIPTION OF PREFERRED STOCK WARRANTS.................................. 25
DESCRIPTION OF COMMON STOCK.............................................. 27
DESCRIPTION OF COMMON STOCK WARRANTS..................................... 30
PLAN OF DISTRIBUTION..................................................... 32
EXPERTS.................................................................. 33
</TABLE>
S-3
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from the prospectus and prospectus supplement to help you
understand the S&P 500 Market Index Target-Term Securities due March 27, 2006.
You should carefully read the accompanying prospectus and this prospectus
supplement to fully understand the terms of the MITTS Securities, the S&P 500
Index, and the tax and other considerations that are important to you in making
a decision about whether to invest in the MITTS Securities. You should
carefully review the "Risk Factors" section, which highlights certain risks
associated with an investment in the MITTS Securities, to determine whether an
investment in the MITTS Securities 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 the MITTS Securities?
The MITTS Securities are a series of senior debt securities issued by
ML&Co. and are not secured by collateral. The MITTS Securities will rank
equally with all of our other unsecured and unsubordinated debt. The MITTS
Securities will mature on March 27, 2006. We cannot redeem the MITTS Securities
at any earlier date. We will not make any payments on the MITTS Securities
until maturity.
Each unit of MITTS Securities represents $10 principal amount of MITTS
Securities. You may transfer the MITTS Securities only in whole units. You will
not have the right to receive physical certificates evidencing your ownership
except under limited circumstances. Instead, we will issue the MITTS Securities
in the form of a global certificate, 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 MITTS Securities. You should refer to the
section "Description of the MITTS Securities--Depositary" in this prospectus
supplement.
What will I receive at the stated maturity date of the MITTS Securities?
We have designed the MITTS Securities for investors who want to protect
their investment by receiving at least the principal amount of their investment
at maturity and who also want to participate in possible increases in the S&P
500 Index as reduced by the Adjustment Factor. At the stated maturity date, you
will receive a payment on the MITTS Securities equal to the sum of two amounts:
the "principal amount" and the "Supplemental Redemption Amount".
"Principal Amount"
The principal amount per unit is $10.
"Supplemental Redemption Amount"
The Supplemental Redemption Amount per unit will equal:
(Adjusted Ending Value - Starting Value)
$10 X (--------------------------------------)
( Starting Value )
but will not be less than zero.
"Starting Value" equals 1,262.14, the closing value of the S&P 500 Index
on March 23, 1999, the date the MITTS Securities were priced for initial sale
to the public.
"Adjusted Ending Value" means the average of the values of the S&P 500
Index as reduced by the application of the Adjustment Factor at the close of
the market on five business days before the maturity of the MITTS Securities.
We may calculate the Adjusted Ending Value by reference to fewer than five or
even a single day's closing value if, during the period shortly before the
stated maturity date of the MITTS Securities, there is a disruption in the
trading of the component stocks included in the S&P 500 Index or certain
futures or options relating to the S&P 500 Index.
The "Adjustment Factor" equals 2.6% per year and will be prorated based
on a 365-day year and applied each calendar day to reduce the value of the S&P
500 Index. As a result of the Adjustment Factor, the adjusted value of the S&P
500 Index used to calculate your Supplemental
S-4
<PAGE>
Redemption Amount at the stated maturity of the MITTS Securities will be
approximately 16.66% less than the actual value of the S&P 500 Index on any day
during the calculation period. For a detailed discussion of how the Adjustment
Factor will affect the value of the S&P 500 Index used to calculate your
Supplemental Redemption Amount, see "Description of the MITTS Securities--
Payment at Maturity" in this prospectus supplement.
For more specific information about the Supplemental Redemption Amount,
please see the section "Description of the MITTS Securities" in this prospectus
supplement.
We will pay you a Supplemental Redemption Amount only if the Adjusted
Ending Value is greater than the Starting Value. If the Adjusted Ending Value
is less than, or equal to, the Starting Value, the Supplemental Redemption
Amount will be zero. We will pay you the principal amount of your MITTS
Securities regardless of whether any Supplemental Redemption Amount is payable.
"Examples"
Here are two examples of Supplemental Redemption Amount calculations
assuming an Adjustment Factor of 2.6%:
Example 1--The S&P 500 Index, as adjusted, is below the Starting Value at
maturity:
Starting Value: 1,262.14
Hypothetical closing value of the S&P 500 Index at maturity: 1,388.35
Hypothetical Adjusted Ending Value: 1,157.08
<TABLE>
<S> <C> <C>
(Supplemental
(1,157.08 - 1,262.14 ) Redemption
Supplemental Redemption Amount (per unit) = $10 X (--------------------) = $0.00 Amount cannot be
( 1,262.14 ) less than zero)
</TABLE>
Total payment at maturity (per unit) = $10 + $0 = $10
Example 2--The S&P 500 Index, as adjusted, is above the Starting Value at
maturity:
Starting Value: 1,262.14
Hypothetical closing value of the S&P 500 Index at maturity: 2,145.64
Hypothetical Adjusted Ending Value: 1,788.21
<TABLE>
<S> <C> <C>
(1,788.21 - 1,262.14)
Supplemental Redemption Amount (per unit) = $10 X (-------------------) = $4.17
( 1,262.14 )
</TABLE>
Total payment at maturity (per unit) = $10 + $4.17 = $14.17
Who publishes the S&P 500 Index and what does the S&P 500 Index measure?
The S&P 500 Index is published by Standard & Poor's, a division of The
McGraw-Hill Companies, Inc., and is intended to provide an indication of the
pattern of common stock price movement. The value of the S&P 500 Index is based
on the relative value of the aggregate market value of the common stocks of 500
companies as of a particular time compared to the aggregate average market
value of the common stocks of 500 similar companies during the base period of
the years 1941 through 1943. The market value for the common stock of a company
is the product of the market price per share of the common stock and the number
of outstanding shares of common stock. As of March 22, 1999, the 500 companies
included in the S&P 500 Index represented approximately 78% of
S-5
<PAGE>
the aggregate market value of common stocks traded on the New York Stock
Exchange; however, these 500 companies are not the 500 largest companies listed
on the NYSE and not all of these 500 companies are listed on the NYSE. As of
March 22, 1999, the aggregate market value of the 500 companies included in the
S&P 500 Index represented approximately 79% of the aggregate market value of
United States domestic, public companies. Standard & Poor's chooses companies
for inclusion in the S&P 500 Index with the aim of achieving a distribution by
broad industry groupings that approximates the distribution of these groupings
in the common stock population of the NYSE, which Standard & Poor's uses as an
assumed model for the composition of the total market.
Please note that an investment in the MITTS Securities does not entitle
you to any ownership interest in the stocks of the companies included in the
S&P 500 Index.
How has the S&P 500 Index performed historically?
We have included tables showing the year-end closing value of the S&P 500
Index for each year from 1947 through 1998 and the month-end closing value of
the S&P 500 Index from January 1990 through February 1999 in the section "The
S&P 500 Index--Historical Data on the S&P 500 Index", in this prospectus
supplement. We have provided this historical information to help you evaluate
the behavior of the S&P 500 Index in various economic environments; however,
past performance of the S&P 500 Index is not necessarily indicative of how the
S&P 500 Index will perform in the future.
What about taxes?
Each year, you will be required to pay taxes on ordinary income from the
MITTS Securities over their term based upon an estimated yield for the MITTS
Securities, even though you will not receive any payments from us until
maturity. We have determined this estimated yield, in accordance with
regulations issued by the U.S. Treasury Department, solely in order for you to
figure the amount of taxes that you will owe each year as a result of owning a
MITTS Security. This estimated yield is neither a prediction nor a guarantee of
what the actual Supplemental Redemption Amount will be, or that the actual
Supplemental Redemption Amount will even exceed zero. We have determined that
this estimated yield will equal 6.13% per annum, compounded semiannually.
Based upon this estimated yield, if you pay your taxes on a calendar year
basis and if you buy a MITTS Security for $10 and hold the MITTS Security until
maturity, you will be required to pay taxes on the following amounts of
ordinary income from the MITTS Securities each year: $0.4757 in 1999, $0.6530
in 2000, $0.6927 in 2001, $0.7358 in 2002, $0.7804 in 2003, $0.8313 in 2004,
$0.8819 in 2005 and $0.2157 in 2006. However, in 2006, the amount of ordinary
income that you will be required to pay taxes on from owning each MITTS
Security may be greater or less than $0.2157, depending upon the Supplemental
Redemption Amount, if any, you receive. Also, if the Supplemental Redemption
Amount is less than $5.2665, you may have a loss which you could deduct against
other income you may have in 2006, but under current tax regulations, you would
neither be required nor allowed to amend your tax returns for prior years. For
further information, see "United States Federal Income Taxation" in this
prospectus supplement.
Will the MITTS Securities be listed on a stock exchange?
The MITTS Securities will be listed on the AMEX under the trading symbol
"FML", subject to official notice of issuance. You should be aware that the
listing of the MITTS Securities on the AMEX will not necessarily ensure that a
liquid trading market will be available for the MITTS Securities. You should
review "Risk Factors--There may be an uncertain trading market for the MITTS
Securities in the future".
What is the role of MLPF&S?
Our subsidiary, MLPF&S, is the underwriter for the offering and sale of
the MITTS Securities. After the initial offering, MLPF&S intends to buy and
sell MITTS Securities to create a secondary market for holders of the MITTS
Securities, and may stabilize or maintain the market price of the MITTS
Securities during the initial distribution of the MITTS Securities. However,
MLPF&S will not be obligated to engage in any of these market activities or
continue them once it has started.
S-6
<PAGE>
MLPF&S will also be our agent for purposes of calculating, among other
things, the Adjusted Ending Value and the Supplemental Redemption Amount. Under
certain circumstances, these duties could result in a conflict of interest
between MLPF&S's status as a subsidiary of ML&Co. and its responsibilities as
calculation agent.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiary
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co. see the
section "Merrill Lynch & Co., Inc." in the accompanying prospectus. You should
also read the 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 the MITTS Securities is subject to risk. Please
refer to the section "Risk Factors" in this prospectus supplement.
S-7
<PAGE>
RISK FACTORS
Your investment in the MITTS Securities will involve certain risks. You
should carefully consider the following discussion of risks before deciding
whether an investment in the MITTS Securities is suitable for you.
The MITTS Securities are unlike typical equity or debt securities
The MITTS Securities combine features of equity and debt instruments. For
example, like an equity instrument, your return will be based on the
appreciation of common stocks as reflected in the value of the S&P 500 Index as
adjusted by the Adjustment Factor. However, as a holder of the MITTS
Securities, you will not be entitled to receive dividends that would be payable
on the stocks included in the S&P 500 Index as if you made a direct investment
in those stocks. In addition, like a debt instrument, you will receive the
principal amount of your MITTS Securities on the maturity date. However, the
terms of the MITTS Securities differ from the terms of ordinary debt securities
in that the Supplemental Redemption Amount payable on the maturity date is not
a fixed amount, but is based on the value of the S&P 500 Index, as adjusted by
the Adjustment Factor.
You may not earn a return on your investment
You should be aware that if the Adjusted Ending Value does not exceed the
Starting Value at the stated maturity, the Supplemental Redemption Amount will
be zero. This will be true even if the value of the S&P 500 Index, as reduced
by the Adjustment Factor, was higher than the Starting Value at some time
during the life of the MITTS Securities but later falls below the Starting
Value. If the Supplemental Redemption Amount is zero, we will pay you only the
principal amount of your MITTS Securities.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The amount we pay you at maturity may be less than the return you could
earn on other investments. Your yield may be less than the yield you would earn
if you bought a standard senior non-callable Merrill Lynch & Co., Inc. debt
security with the same maturity date. Your investment may not reflect the full
opportunity cost to you when you take into account factors that affect the time
value of money.
Your return will not reflect the return of owning the stocks included in the
S&P 500 Index
Your return will not reflect the return you would realize if you actually
owned the stocks included in the S&P 500 Index and received the dividends paid
on those stocks because of the reduction caused by the Adjustment Factor and
because the S&P 500 Index is calculated by reference to the prices of the
common stocks included in the S&P 500 Index without taking into consideration
the value of dividends paid on those stocks.
There may be an uncertain trading market for the MITTS Securities in the future
The MITTS Securities have been approved for listing on the AMEX under the
trading symbol "FML", subject to official notice of issuance. While there have
been a number of issuances of Market Index Target-Term Securities, trading
volumes have varied historically from one transaction to another and it is
therefore impossible to predict how the MITTS Securities will trade. You cannot
assume that a trading market will develop for the MITTS Securities. If such a
trading market does develop, there can be no assurance that there will be
liquidity in the trading market. The development of a trading market for the
MITTS Securities will depend on our financial performance, and other factors
such as the increase, if any, of the value of the S&P 500 Index.
If the trading market for the MITTS Securities is limited, there may be a
limited number of buyers when you decide to sell your MITTS Securities if you
do not wish to hold your investment until maturity. This may affect the price
you receive.
S-8
<PAGE>
Factors affecting trading value of the MITTS Securities
We believe that the trading value of the MITTS Securities will be
affected by the value of the S&P 500 Index and by a number of other factors.
Some of these factors are interrelated in complex ways; as a result, the effect
of any one factor may be offset or magnified by the effect of another factor.
The following paragraphs describe the expected impact on the trading value of
the MITTS Securities given a change in a specific factor, assuming all other
conditions remain constant.
. S&P 500 Index Value. We expect that the trading value of the MITTS
Securities will depend substantially on the amount by which the S&P 500
Index, as reduced by the Adjustment Factor, exceeds or does not exceed
the Starting Value. If you choose to sell your MITTS Securities when the
value of the S&P 500 Index, as reduced by the Adjustment Factor, exceeds
the Starting Value, you may receive substantially less than the amount
that would be payable at maturity based on that value because of the
expectation that the S&P 500 Index will continue to fluctuate until the
Adjusted Ending Value is determined. If you choose to sell your MITTS
Securities when the value of the S&P 500 Index is below, or not
sufficiently above, the Starting Value, you may receive less than the $10
principal amount per unit of MITTS Securities. In general, rising U.S.
dividend rates, i.e., dividends per share, may increase the value of the
S&P 500 Index while falling U.S. dividend rates may decrease the value of
the S&P 500 Index. Political, economic and other developments that affect
the stocks included in the S&P 500 Index may also affect the value of the
S&P 500 Index and the value of the MITTS Securities.
. Interest Rates. Because the MITTS Securities repay, at a minimum, the
principal amount at maturity, we expect that changes in interest rates
will affect the trading value of the MITTS Securities. In general, if
U.S. interest rates increase, we expect that the trading value of the
MITTS Securities will decrease and, conversely, if U.S. interest rates
decrease, we expect the trading value of the MITTS Securities will
increase. Interest rates may also affect the U.S. economy and, in turn,
the value of the S&P 500 Index. Rising interest rates may lower the value
of the S&P 500 Index and, thus, the MITTS Securities. Falling interest
rates may increase the value of the S&P 500 Index and, thus, may increase
the value of the MITTS Securities.
. Volatility of the S&P 500 Index. Volatility is the term used to describe
the size and frequency of market fluctuations. Generally if the
volatility of the S&P 500 Index increases, we expect that the trading
value of the MITTS Securities will increase and, conversely, if the
volatility of the S&P 500 Index decreases, we expect that the trading
value of the MITTS Securities will decrease.
. Time Remaining to Maturity. We anticipate that before their maturity, the
MITTS Securities may trade at a value above that which would be expected
based on the level of interest rates and the S&P 500 Index. This
difference would reflect a "time premium" due to expectations concerning
the value of the S&P 500 Index during the period before the stated
maturity of the MITTS Securities. However, as the time remaining to the
stated maturity of the MITTS Securities decreases, we expect that this
time premium will decrease, lowering the trading value of the MITTS
Securities.
. Dividend Yields. Generally if dividend yields on the stocks included in
the S&P 500 Index increase, we expect that the value of the MITTS
Securities will decrease and, conversely, if dividend yields on the stock
included in the S&P 500 Index decrease, we expect that the value of the
MITTS Securities will increase.
. 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 MITTS
Securities. However, because your return on your MITTS Securities is
dependent upon factors in addition to our ability to pay our obligations
under the MITTS Securities, such as the percentage increase in the value
of the S&P 500 Index at maturity, an improvement in our credit ratings
will not reduce other investment risks related to the MITTS Securities.
It is important for you to understand that the impact 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 MITTS Securities
attributable to another factor, such as an increase in the S&P 500 Index value.
S-9
<PAGE>
In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of the MITTS Securities of a given change
in most of the factors listed above will be less if it occurs later in the term
of the MITTS Securities than if it occurs earlier in the term of the MITTS
Securities. However, we expect that the effect on the trading value of the
MITTS Securities of a given increase or decrease in the value of the S&P 500
Index will be greater if it occurs later in the term of the MITTS Securities
than if it occurs earlier in the term of the MITTS Securities.
Amounts payable on the MITTS Securities may be limited by state law
New York State law governs the indenture under which the MITTS Securities
will be issued. New York has usury laws that limit the amount of interest that
can be charged and paid on loans, which includes debt securities like the MITTS
Securities. Under present New York law, the maximum rate of interest is 25% per
annum on a simple interest basis. This limit may not apply to debt securities
in which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws
that regulate the amount of interest that may be charged to and paid by a
borrower. We will promise, for the benefit of the holders of the MITTS
Securities, to the extent permitted by law, not to voluntarily claim the
benefits of any laws concerning usurious rates of interest.
Purchases and sales by us and our affiliates may affect your return
We and our other affiliates may from time to time buy or sell the stocks
included in the S&P 500 Index for our own accounts, for business reasons or in
connection with hedging our obligations under the MITTS Securities. These
transactions could affect the price of these stocks and the value of the S&P
500 Index in a manner that would be adverse to your investment in the MITTS
Securities.
Potential conflicts
The calculation agent is our subsidiary. Under certain circumstances,
MLPF&S's role as our subsidiary and its responsibilities as calculation agent
for the MITTS Securities could give rise to conflicts of interests. These
conflicts could occur, for instance, in connection with the calculation agent's
determination as to whether a Market Disruption Event has occurred, or in
connection with judgments that it would be required to make in the event of a
discontinuance of the S&P 500 Index. See "Description of the MITTS Securities--
Adjustments to the S&P 500 Index; Market Disruption Events" and "--
Discontinuance of the S&P 500 Index" in this prospectus supplement. MLPF&S is
required to carry out its duties as calculation agent in good faith and using
its reasonable judgment. However, you should be aware that because we control
MLPF&S, potential conflicts of interest could arise.
We have entered into an arrangement with our subsidiary to hedge the
market risks associated with our obligation to pay the Supplemental Redemption
Amount. Our subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for such an arrangement from
unaffiliated parties.
S-10
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, we acquired the outstanding shares of Midland Walwyn Inc., in a
transaction accounted for as a pooling-of-interests. The following information
for the fiscal years 1994 through 1997 has been restated as if the two entities
had always been combined.
The following table sets forth our historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday
in December
------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(a).................. 1.2 1.2 1.2 1.2 1.1
</TABLE>
- --------
(a) The effect of combining Midland Walwyn did not change the ratios reported
for the fiscal years 1994 through 1997.
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges, excluding capitalized interest and preferred security
dividend requirements. "Fixed charges" consist of interest costs, the interest
factor in rentals, amortization of debt issuance costs, preferred security
dividend requirements of subsidiaries, and capitalized interest.
DESCRIPTION OF THE MITTS SECURITIES
ML&Co. will issue the S&P 500 Market Index Target-Term Securities due
March 27, 2006, which are referred to in this prospectus supplement as the
"MITTS Securities" as a series of senior debt securities under the 1983
Indenture, which is more fully described in the accompanying prospectus. The
MITTS Securities will mature on March 27, 2006.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of the MITTS Security plus the Supplemental Redemption Amount,
if any, there will be no other payment of interest, periodic or otherwise. See
"Payment at Maturity" below.
The MITTS Securities are not subject to redemption by ML&Co. or at the
option of any beneficial owner before maturity. If an Event of Default occurs
with respect to the MITTS Securities, beneficial owners of the MITTS Securities
may accelerate the maturity of the MITTS Securities, as described under
"Description of the MITTS Securities--Events of Default and Acceleration" in
this prospectus supplement and "Description of Debt Securities--General--Events
of Default" in the accompanying prospectus.
ML&Co. will issue the MITTS Securities in denominations of whole units.
The MITTS Securities do not have the benefit of any sinking fund.
Payment at Maturity
At the stated maturity date, a beneficial owner of a MITTS Security will
be entitled to receive the principal amount plus the Supplemental Redemption
Amount, if any, all as provided below. If the Adjusted Ending Value does not
exceed the Starting Value, a beneficial owner of a MITTS Security will be
entitled to receive only the principal amount.
S-11
<PAGE>
"Determination of the Supplemental Redemption Amount"
The Supplemental Redemption Amount for a MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<S> <C>
(Adjusted Ending Value - Starting Value)
principal amount of the MITTS Security ($10 per unit) X (--------------------------------------)
( Starting Value )
</TABLE>
"provided", "however", that in no event will the Supplemental Redemption Amount
be less than zero.
The "Starting Value" equals 1,262.14, the closing value of the S&P 500
Index on March 23, 1999, the date the MITTS Securities were priced for initial
sale to the public (the "Pricing Date").
The "Adjusted Ending Value" will be determined by the calculation agent
and will equal the average or arithmetic mean of the closing values of the S&P
500 Index, as reduced by the application of the Adjustment Factor on each
Calculation Day, determined on each of the first five Calculation Days during
the Calculation Period. If there are fewer than five Calculation Days, then the
Adjusted Ending Value will equal the average or arithmetic mean of the closing
values of the S&P 500 Index on those Calculation Days as reduced by the
application of the Adjustment Factor on each Calculation Day. If there is only
one Calculation Day, then the Adjusted Ending Value will equal the closing
value of the S&P 500 Index on that Calculation Day as reduced by the
application of the Adjustment Factor on that Calculation Day. If no Calculation
Days occur during the Calculation Period, then the Adjusted Ending Value will
equal the closing value of the S&P 500 Index determined on the last scheduled
Index Business Day in the Calculation Period as reduced by the application of
the Adjustment Factor on that Calculation Day, regardless of the occurrence of
a Market Disruption Event on that day.
The "Adjustment Factor" equals 2.6% and will be prorated based on a 365-
day year and applied each calendar day during the term of the MITTS Securities
to reduce the value of the S&P 500 Index. As a result of the Adjustment Factor,
the adjusted value of the S&P 500 Index used to calculate your Supplemental
Redemption Amount at the stated maturity of the MITTS Securities will be
approximately 16.66% less than the actual value of the S&P 500 Index on any day
during the Calculation Period.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day before the maturity date to and including the
second scheduled Index Business Day before the maturity date.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
An "Index Business Day" is a day on which the NYSE and the AMEX are open
for trading and the S&P 500 Index or any Successor Index, as defined on page S-
14, is calculated and published.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes and
binding on ML&Co. and beneficial owners of the MITTS Securities.
S-12
<PAGE>
Hypothetical Returns
The following table illustrates, for a range of hypothetical closing
values of the S&P 500 Index during the Calculation Period:
. the Adjusted Ending Value used to calculate the Supplemental
Redemption Amount;
. the percentage change from the Starting Value to the Adjusted Ending
Value;
. the total amount payable per unit of MITTS Securities;
. the total rate of return on the MITTS Securities;
. the pretax annualized rate of return on the MITTS Securities; and
. the pretax annualized rate of return of the stocks included in the S&P
500 Index, which includes an assumed aggregate dividend yield of 1.27%
per annum, as more fully described below.
<TABLE>
<CAPTION>
Hypothetical Percentage Change Pretax Pretax Annualized
Closing Value of From the Total Amount Annualized Rate of Return
the S&P 500 Index Starting Value Payable at Maturity Total Rate of Rate of of Stocks
During the Adjusted to the Adjusted per Unit of Return on the Return on the Included in the
Calculation Period Ending Value(1) Ending Value MITTS Securities MITTS Securities MITTS Securities(2) S&P 500 Index(2)(3)
- ------------------ --------------- ----------------- ------------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
631.07 525.94 -58.33% $10.00 0.00% 0.00% -8.39%
757.28 631.13 -49.99% $10.00 0.00% 0.00% -5.91%
883.50 736.32 -41.66% $10.00 0.00% 0.00% -3.77%
1,009.71 841.51 -33.33% $10.00 0.00% 0.00% -1.90%
1,135.93 946.70 -24.99% $10.00 0.00% 0.00% -0.24%
1,262.14(4) 1,051.89 -16.66% $10.00 0.00% 0.00% 1.27%
1,388.35 1,157.08 -8.32% $10.00 0.00% 0.00% 2.64%
1,514.57 1,262.27 0.01% $10.00 0.01% 0.00% 3.91%
1,640.78 1,367.46 8.34% $10.83 8.34% 1.15% 5.08%
1,767.00 1,472.65 16.68% $11.67 16.68% 2.21% 6.17%
1,893.21 1,577.83 25.01% $12.50 25.01% 3.21% 7.20%
2,019.42 1,683.02 33.35% $13.33 33.35% 4.15% 8.16%
2,145.64 1,788.21 41.68% $14.17 41.68% 5.03% 9.07%
2,271.85 1,893.40 50.02% $15.00 50.02% 5.87% 9.93%
2,398.07 1,998.59 58.35% $15.83 58.35% 6.67% 10.75%
2,524.28 2,103.78 66.68% $16.67 66.68% 7.42% 11.53%
2,650.49 2,208.97 75.02% $17.50 75.02% 8.15% 12.27%
2,776.71 2,314.16 83.35% $18.34 83.35% 8.84% 12.99%
2,902.92 2,419.35 91.69% $19.17 91.69% 9.50% 13.67%
3,029.14 2,524.54 100.02% $20.00 100.02% 10.14% 14.33%
3,155.35 2,629.72 108.35% $20.84 108.35% 10.75% 14.97%
</TABLE>
- --------
(1) The Adjusted Ending Values in this column are approximately 16.66% less
than the hypothetical closing values of the S&P 500 Index during the
Calculation Period as a result of the application of the annual Adjustment
Factor of 2.6% over the term of the MITTS Securities.
(2) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(3) This rate of return assumes:
(a) a dividend yield of 1.27% per annum, paid quarterly from the date of
initial delivery of MITTS Securities, applied to the value of the S&P
500 Index at the end of each quarter assuming this value increases or
decreases linearly from the Starting Value to the hypothetical closing
value of the S&P 500 Index during the Calculation Period;
(b) no transaction fees or expenses;
(c) an investment term equal to the term of the MITTS Securities; and
(d) a final closing value of the S&P 500 Index equal to the hypothetical
closing value of the S&P 500 Index during the Calculation Period.
(4) The Starting Value of the S&P 500 Index.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the total and pretax
annualized rate of return resulting therefrom will depend entirely
S-13
<PAGE>
on the actual Adjusted Ending Value determined by the calculation agent as
provided in this prospectus supplement. Historical data regarding the S&P 500
Index is included in this prospectus supplement under "The S&P 500 Index--
Historical Data on the S&P 500 Index".
Adjustments to the S&P 500 Index; Market Disruption Events
If at any time the method of calculating the S&P 500 Index, or its value,
is changed in any material respect, or if the S&P 500 Index is in any other way
modified so that the S&P 500 Index does not, in the opinion of the calculation
agent, fairly represent the value of the S&P 500 Index had these changes or
modifications not been made, then, from and after that time, the calculation
agent shall, at the close of business in New York, New York, on each date that
the closing value with respect to the Adjusted Ending Value is to be
calculated, make any adjustments as, in the good faith judgment of the
calculation agent, may be necessary in order to arrive at a calculation of a
value of a stock index comparable to the S&P 500 Index as if the changes or
modifications had not been made, and calculate a closing value with reference
to the S&P 500 Index, as adjusted. Accordingly, if the method of calculating
the S&P 500 Index is modified so that the value of the S&P 500 Index is a
fraction or a multiple of what it would have been if it had not been modified,
for example, due to a split in the S&P 500 Index, then the calculation agent
shall adjust the S&P 500 Index in order to arrive at a value of the S&P 500
Index as if it had not been modified, for example, as if the split had not
occurred.
"Market Disruption Event" means either of the following events; as
determined by the calculation agent:
(a) the suspension or material limitation on trading for more than two
hours of trading, or during the one-half hour period preceding the
close of trading on the applicable exchange, in 20% or more of the
stocks which then comprise the S&P 500 Index; or
(b) the suspension or material limitation, in each case, for more than
two hours of trading, whether by reason of movements in price
otherwise exceeding levels permitted by the relevant exchange or
otherwise, in
(A) futures contracts related to the S&P 500 Index, or options on
those futures contracts, which are traded on any major U.S.
exchange or
(B) option contracts related to the S&P 500 Index which are traded on
any major U.S. exchange.
A limitation on the hours in a trading day and/or number of days of
trading will not constitute a Market Disruption Event if it results from an
announced change in the regular business hours of the relevant exchange.
For the purpose of clause (a) above, any limitations on trading during
significant market fluctuations under NYSE Rule 80A, or any applicable rule or
regulation enacted or promulgated by the NYSE or any other self regulatory
organization or the SEC of similar scope as determined by the calculation
agent, will be considered "material".
Discontinuance of the S&P 500 Index
If Standard & Poor's discontinues publication of the S&P 500 Index and
S&P or another entity publishes a successor or substitute index that the
calculation agent determines, in its sole discretion, to be comparable to the
S&P 500 Index (a "Successor Index"), then, upon the calculation agent's
notification of that determination to the trustee and ML&Co., the calculation
agent will substitute the Successor Index as calculated by Standard & Poor's or
any other entity for the S&P 500 Index. Upon any selection by the calculation
agent of a Successor Index, ML&Co. shall cause notice to be given to holders of
the MITTS Securities.
If Standard & Poor's discontinues publication of the S&P 500 Index and a
Successor Index is not selected by the calculation agent or is no longer
published on any of the Calculation Days, the value to be
S-14
<PAGE>
substituted for the S&P 500 Index for any Calculation Day used to calculate the
Supplemental Redemption Amount at maturity will be a value computed by the
calculation agent for each Calculation Day in accordance with the procedures
last used to calculate the S&P 500 Index before the discontinuance. If a
Successor Index is selected or the calculation agent calculates a value as a
substitute for the S&P 500 Index as described below, that Successor Index or
value shall be substituted for the S&P 500 Index for all purposes, including
for purposes of determining whether a Market Disruption Event exists. If the
calculation agent calculates a value as a substitute for the S&P 500 Index,
"Index Calculation Day" shall mean any day on which the calculation agent is
able to calculate that value.
If Standard & Poor's discontinues publication of the S&P 500 Index before
the period during which the Supplemental Redemption Amount is to be determined
and the calculation agent determines that no Successor Index is available at
that time, then on each Business Day until the earlier to occur of the
determination of the Adjusted Ending Value and a determination by the
calculation agent that a Successor Index is available, the calculation agent
shall determine the value that would be used in computing the Supplemental
Redemption Amount as described in the preceding paragraph as if that day were a
Calculation Day. The calculation agent will cause notice of each such value to
be published not less often than once each month in "The Wall Street Journal" or
another newspaper of general circulation, and for this information to be made
available by telephone. Despite these alternative arrangements, discontinuance
of the publication of the S&P 500 Index may adversely affect trading in the
MITTS Securities.
Events of Default and Acceleration
In case an Event of Default with respect to any MITTS Securities occurs
and is continuing, the amount payable to a beneficial owner of a MITTS Security
upon any acceleration permitted by the MITTS Securities, with respect to each
$10 principal amount of the MITTS Securities, will be equal to the principal
amount and the Supplemental Redemption Amount, if any, calculated as though the
date of early repayment were the stated maturity date of the MITTS Securities.
See "Description of the MITTS Securities--Payment at Maturity" in this
prospectus supplement. If a bankruptcy proceeding is commenced in respect of
ML&Co., the claim of the beneficial owner of a MITTS Security may be limited,
under Section 502(b)(2) of Title 11 of the United States Code, to the principal
amount of the MITTS Security plus an additional amount of contingent interest
calculated as though the date of the commencement of the proceeding were the
maturity date of the MITTS Securities.
In case of default in payment of the MITTS Securities, whether at the
stated maturity or upon acceleration, from and after the maturity date the
MITTS Securities shall bear interest, payable upon demand of the beneficial
owners, at the rate of 6.13% per annum, to the extent that payment of such
interest shall be legally enforceable, on the unpaid amount due and payable on
that date in accordance with the terms of the MITTS Securities to the date
payment of the amount has been made or duly provided for.
Depositary
Upon issuance, all MITTS Securities will be represented by one or more
fully registered global securities. Each such global security will be deposited
with, or on behalf of, DTC (DTC, together with any successor thereto, being a
"depositary"), as depositary, registered in the name of Cede & Co., DTC's
partnership nominee. Unless and until it is exchanged in whole or in part for
MITTS Securities in definitive form, no global security may be transferred
except as a whole by the depositary to a nominee of the depositary or by a
nominee of the depositary to the depositary or another nominee of the
depositary or by the depositary or any nominee to a successor of the depositary
or a nominee of that successor.
So long as DTC, or its nominee, is a registered owner of a global
security, DTC or its nominee, as the case may be, will be considered the sole
owner or holder of the MITTS Securities represented by the global security for
all purposes under the 1983 Indenture. Except as provided below, the beneficial
owners of the MITTS Securities represented by a global security will not be
entitled to have the MITTS Securities represented by a global security
registered in their names, will not receive or be entitled to receive physical
delivery of the MITTS Securities in definitive form and will not be considered
the owners or holders of the
S-15
<PAGE>
MITTS Securities including for purposes of receiving any reports delivered by
ML&Co. or the trustee under the 1983 Indenture. Accordingly, each person owning
a beneficial interest in a global security must rely on the procedures of DTC
and, if that person is not a participant of DTC, on the procedures of the
participant through which that person owns its interest, to exercise any rights
of a holder under the 1983 Indenture. ML&Co. understands that under existing
industry practices, in the event that ML&Co. requests any action of holders or
that an owner of a beneficial interest in a global security desires to give or
take any action which a holder is entitled to give or take under the 1983
Indenture, DTC would authorize the participants holding the relevant beneficial
interests to give or take that action, and those participants would authorize
beneficial owners owning through those participants to give or take that action
or would otherwise act upon the instructions of beneficial owners. Conveyance
of notices and other communications by DTC to participants, by participants to
indirect participants and by participants and indirect participants to
beneficial owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the MITTS Securities,
the global securities will be exchangeable for MITTS Securities in definitive
form of like tenor and of an equal aggregate principal amount, in denominations
of $10 and integral multiples of $10. The definitive MITTS Securities will be
registered in the name or names as the depositary shall instruct the trustee.
It is expected that instructions may be based upon directions received by the
depositary from participants with respect to ownership of beneficial interests
in the global securities.
The following is based on information furnished by DTC:
DTC will act as securities depositary for the MITTS Securities. The MITTS
Securities will be issued as fully registered securities registered in the name
of Cede & Co. (DTC's partnership nominee). One or more fully registered global
securities will be issued for the MITTS Securities in the aggregate principal
amount of such issue, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC holds securities that its participants
deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants of DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. DTC is owned
by a number of its direct participants and by the NYSE, the AMEX, and the
National Association of Securities Dealers, Inc. Access to 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 MITTS Securities under DTC's system must be made by or
through direct participants, which will receive a credit for the MITTS
Securities on DTC's records. The ownership interest of each beneficial owner is
in turn to be recorded on the records of direct and indirect participants.
Beneficial owners will not receive written confirmation from DTC of their
purchase, but beneficial owners are expected to receive
S-16
<PAGE>
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect participants through
which such beneficial owner entered into the transaction. Transfers of
ownership interests in the MITTS Securities are to be accomplished by entries
made on the books of participants acting on behalf of beneficial owners.
To facilitate subsequent transfers, all MITTS Securities deposited with
DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of MITTS Securities with DTC and their registration in the name of Cede
& Co. effect no change in beneficial ownership. DTC has no knowledge of the
actual beneficial owners of the MITTS Securities; DTC's records reflect only
the identity of the direct participants to whose accounts such MITTS Securities
are credited, which may or may not be the beneficial owners. The participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the MITTS
Securities. Under its usual procedures, DTC mails an omnibus proxy to ML&Co. as
soon as possible after the applicable record date. The omnibus proxy assigns
Cede & Co.'s consenting or voting rights to those direct participants
identified in a listing attached to the omnibus proxy to whose accounts the
MITTS Securities are credited on the record date.
Principal, premium, if any, and/or interest, if any, payments made in
cash on the MITTS Securities will be made in immediately available funds to
DTC. DTC's practice is to credit direct participants' accounts on the
applicable payment date in accordance with their respective holdings shown on
the depositary's records unless DTC has reason to believe that it will not
receive payment on such 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 such 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 such payments to direct participants
shall be the responsibility of DTC, and disbursement of such payments to the
beneficial owners shall be the responsibility of direct participants and
indirect participants.
DTC may discontinue providing its services as securities depositary with
respect to the MITTS Securities at any time by giving reasonable notice to
ML&Co. or the Trustee. Under such circumstances, in the event that a successor
securities depositary is not obtained, MITTS Security certificates are required
to be printed and delivered.
ML&Co. may decide to discontinue use of the system of book-entry
transfers through DTC or a successor securities depositary. In that event,
MITTS Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that ML&Co. believes to be reliable, but ML&Co. takes no
responsibility for its accuracy.
Same-Day Settlement and Payment
Settlement for the MITTS Securities will be made by the underwriter in
immediately available funds. ML&Co. will make all payments of principal and the
Supplemental Redemption Amount, if any, in immediately available funds so long
as the MITTS Securities are maintained in book-entry form.
S-17
<PAGE>
THE S&P 500 INDEX
The S&P 500 Index is published by Standard & Poor's, and is intended to
provide an indication of the pattern of common stock price movement. The
calculation of the value of the S&P 500 Index, discussed below in further
detail, is based on the relative value of the aggregate market value of the
common stocks of 500 companies as of a particular time compared to the
aggregate average market value of the common stocks of 500 similar companies
during the base period of the years 1941 through 1943. As of March 22, 1999,
the 500 companies included in the S&P 500 Index represented approximately 78%
of the aggregate market value of common stocks traded on the NYSE; however,
these 500 companies are not the 500 largest companies listed on the NYSE and
not all of these 500 companies are listed on the NYSE. As of March 22, 1999,
the aggregate market value of the 500 companies included in the S&P 500 Index
represented approximately 79% of the aggregate market value of United States
domestic, public companies. Standard & Poor's chooses companies for inclusion
in the S&P 500 Index with the aim of achieving a distribution by broad industry
groupings that approximates the distribution of these groupings in the common
stock population of the NYSE, which Standard & Poor's uses as an assumed model
for the composition of the total market. Relevant criteria employed by Standard
& Poor's include the viability of the particular company, the extent to which
that company represents the industry group to which it is assigned, the extent
to which the market price of that company's common stock is generally
responsive to changes in the affairs of the respective industry and the market
value and trading activity of the common stock of that company. Four main
groups of companies comprise the S&P 500 Index, with the number of companies
currently included in each group indicated in parentheses: Industrials (380),
Utilities (39), Transportation (10) and Financial (71). Standard & Poor's may
from time to time, in its sole discretion, add companies to, or delete
companies from, the S&P 500 Index to achieve the objectives stated above.
The S&P 500 Index does not reflect the payment of dividends on the stocks
included in the S&P 500 Index. Because of this, and due to the application of
the Adjustment Factor, the return on the MITTS Securities will not be the same
that you would receive if you were to purchase these stocks and hold them for a
period equal to the term of the MITTS Securities.
Computation of the S&P 500 Index
Standard & Poor's currently computes the S&P 500 Index as of a particular
time as follows:
(a) the product of the market price per share and the number of then
outstanding shares of each component stock is determined as of that
time (referred to as the market value of that stock);
(b) the market values of all component stocks as of that time are
aggregated;
(c) the mean average of the market values as of each week in the base
period of the years 1941 through 1943 of the common stock of each
company in a group of 500 substantially similar companies is
determined;
(d) the mean average market values of all these common stocks over the
base period are aggregated (the aggregate amount being referred to
as the base value);
(e) the current aggregate market value of all component stocks is
divided by the base value; and
(f) the resulting quotient, expressed in decimals, is multiplied by ten.
While Standard & Poor's currently employs the above methodology to
calculate the S&P 500 Index, no assurance can be given that Standard & Poor's
will not modify or change this methodology in a manner that may affect the
Supplemental Redemption Amount, if any, payable to beneficial owners of MITTS
Securities upon maturity or otherwise.
Standard & Poor's adjusts the foregoing formula to offset the effects of
changes in the market value of a component stock that are determined by
Standard & Poor's to be arbitrary or not due to true market fluctuations. Such
changes may result from causes such as
S-18
<PAGE>
. the issuance of stock dividends,
. the granting to shareholders of rights to purchase additional shares
of stock,
. the purchase of shares by employees pursuant to employee benefit
plans,
. certain consolidations and acquisitions,
. the granting to shareholders of rights to purchase other securities
of ML&Co.,
. the substitution by Standard & Poor's of particular component stocks
in the S&P 500 Index, and
. other reasons.
In these cases, Standard & Poor's first recalculates the aggregate market value
of all component stocks, after taking account of the new market price per share
of the particular component stock or the new number of outstanding shares
thereof or both, as the case may be, and then determines the new base value in
accordance with the following formula:
new base value
old base value X ------------------- = new market value
old market value
The result is that the base value is adjusted in proportion to any change
in the aggregate market value of all component stocks resulting from the causes
referred to above to the extent necessary to negate the effects of these causes
upon the S&P 500 Index.
S-19
<PAGE>
Historical Data on the S&P 500 Index
The following table sets forth the closing values of the S&P 500 Index on
the last business day of each year from 1947 through 1998, as published by
Standard & Poor's. The historical experience of the S&P 500 Index should not be
taken as an indication of future performance, and no assurance can be given
that the value of the S&P 500 Index will not decline and thereby reduce or
eliminate the Supplemental Redemption Amount which may be payable to holders of
the MITTS Securities at the maturity date.
Year-End Value of the S&P 500 Index
<TABLE>
<CAPTION>
Closing
Year Value
- ---- --------
<S> <C>
1947................................................................... 15.30
1948................................................................... 15.20
1949................................................................... 16.76
1950................................................................... 20.41
1951................................................................... 23.77
1952................................................................... 26.57
1953................................................................... 24.81
1954................................................................... 35.98
1955................................................................... 45.48
1956................................................................... 46.67
1957................................................................... 39.99
1958................................................................... 55.21
1959................................................................... 59.89
1960................................................................... 58.11
1961................................................................... 71.55
1962................................................................... 63.10
1963................................................................... 75.02
1964................................................................... 84.75
1965................................................................... 92.43
1966................................................................... 80.33
1967................................................................... 96.47
1968................................................................... 103.86
1969................................................................... 92.06
1970................................................................... 92.15
1971................................................................... 102.09
1972................................................................... 118.05
1973................................................................... 97.55
1974................................................................... 68.56
1975................................................................... 90.19
1976................................................................... 107.46
1977................................................................... 95.10
1978................................................................... 96.11
1979................................................................... 107.94
1980................................................................... 135.76
1981................................................................... 122.55
1982................................................................... 140.64
1983................................................................... 164.93
1984................................................................... 167.24
1985................................................................... 211.28
1986................................................................... 242.17
1987................................................................... 247.08
1988................................................................... 277.72
1989................................................................... 353.40
1990................................................................... 330.22
1991................................................................... 417.09
1992................................................................... 435.71
1993................................................................... 466.45
1994................................................................... 459.27
1995................................................................... 615.93
1996................................................................... 740.74
1997................................................................... 970.43
1998................................................................... 1,229.23
</TABLE>
S-20
<PAGE>
The following table sets forth the value of the S&P 500 Index at the end
of each month, in the period from January 1990 through February 1999. These
historical data on the S&P 500 Index are not necessarily indicative of the
future performance of the S&P 500 Index or what the value of the MITTS
Securities may be. Any historical upward or downward trend in the value of the
S&P 500 Index during any period set forth below is not any indication that the
S&P 500 Index is more or less likely to increase or decrease at any time during
the term of the MITTS Securities.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January................. 329.08 343.93 408.78 438.78 481.61 470.42 636.02 786.16 980.28 1,279.64
February................ 331.89 367.07 412.70 443.38 467.14 487.39 640.43 790.82 1,049.34 1,238.33
March................... 339.94 375.22 403.69 451.67 445.77 500.71 645.50 757.12 1,101.75 --
April................... 330.80 375.34 414.95 440.19 450.91 514.71 654.17 801.34 1,111.75 --
May..................... 361.23 389.83 415.35 450.19 456.51 533.40 669.12 848.28 1,090.82 --
June.................... 358.02 371.16 408.14 450.53 444.27 544.75 670.63 885.14 1,133.84 --
July.................... 356.15 387.81 424.22 448.13 458.26 562.06 639.95 954.29 1,120.67 --
August.................. 322.56 395.43 414.03 463.56 475.50 561.88 651.99 899.47 957.28 --
September............... 306.05 387.86 417.80 458.93 462.71 584.41 687.31 947.28 1,017.01 --
October................. 304.00 392.45 418.68 467.83 472.35 581.50 705.27 914.62 1,098.67 --
November................ 322.22 375.22 431.35 461.79 453.69 605.37 757.02 955.40 1,163.63 --
December................ 330.22 417.09 435.71 466.45 459.27 615.93 740.74 970.43 1,229.23 --
</TABLE>
The following graph sets forth the historical performance of the S&P 500
Index at the end of each month from January 1990 through February 1999. Past
movements of the S&P 500 Index are not necessarily indicative of the future S&P
500 Index values. On March 23, 1999 the closing value of the S&P 500 Index was
1,262.14.
[The graph sets forth the performance of the S&P 500 Index from January 1990
through February 1999. The vertical axis has a range of numbers from 0 to 1,400
in increments of 200. The horizontal axis has a range of dates from January 1990
through February 1999 in increments of one month.]
This graph is for historical information only and should not be used or
interpreted as a forecast or indication of future stock market performance,
interest rate levels, or variable returns applicable to the MITTS Securities.
License Agreement
Standard & Poor's does not guarantee the accuracy and/or the completeness
of the S&P 500 Index or any data included therein. Standard & Poor's makes no
warranty, express or implied, as to results to be obtained by ML&Co., MLPF&S,
holders of the MITTS Securities, or any other person or entity from the use
S-21
<PAGE>
of the S&P 500 Index or any data included therein in connection with the rights
licensed under the license agreement described in this prospectus supplement or
for any other use. Standard & Poor's makes no express or implied warranties,
and hereby expressly disclaims all warranties of merchantability or fitness for
a particular purpose with respect to the S&P 500 Index or any data included
therein. Without limiting any of the above, in no event shall Standard & Poor's
have any liability for any special, punitive, indirect or consequential damage,
including lost profits, even if notified of the possibility of these damages.
Standard & Poor's and Merrill Lynch Capital Services, Inc. have entered
into a non-exclusive license agreement providing for the license to Merrill
Lynch Capital Services, Inc., in exchange for a fee, of the right to use
indices owned and published by Standard & Poor's in connection with certain
securities, including the MITTS Securities, and ML&Co. is an authorized
sublicensee thereof.
The license agreement between Standard & Poor's and Merrill Lynch Capital
Services, Inc. provides that the following language must be stated in this
prospectus supplement:
"The MITTS Securities are not sponsored, endorsed, sold or promoted by
Standard & Poor's. Standard & Poor's makes no representation or warranty,
express or implied, to the holders of the MITTS Securities or any member of the
public regarding the advisability of investing in securities generally or in
the MITTS Securities particularly or the ability of the S&P 500 Index to track
general stock market performance. Standard & Poor's only relationship to
Merrill Lynch Capital Services, Inc. and ML&Co. (other than transactions
entered into in the ordinary course of business) is the licensing of certain
servicemarks and trade names of Standard & Poor's and of the S&P 500 Index
which is determined, composed and calculated by Standard & Poor's without
regard to ML&Co. or the MITTS Securities. Standard & Poor's has no obligation
to take the needs of ML&Co. or the holders of the MITTS Securities into
consideration in determining, composing or calculating the S&P 500 Index.
Standard & Poor's is not responsible for and has not participated in the
determination of the timing of the sale of the MITTS Securities, prices at
which the MITTS Securities are to initially be sold, or quantities of the MITTS
Securities to be issued or in the determination or calculation of the equation
by which the MITTS Securities are to be converted into cash. Standard & Poor's
has no obligation or liability in connection with the administration, marketing
or trading of the MITTS Securities."
All disclosures contained in this prospectus supplement regarding the
above S&P 500 Index, including its make-up, method of calculation and changes
in its components, are derived from publicly available information prepared by
Standard & Poor's. ML&Co. and MLPF&S do not assume any responsibility for the
accuracy or completeness of this information.
UNITED STATES FEDERAL INCOME TAXATION
Set forth in full below is the opinion of Brown & Wood LLP, counsel to
ML&Co., as to certain United States Federal income tax consequences of the
purchase, ownership and disposition of the MITTS Securities. Such opinion is
based upon laws, regulations, rulings and decisions now in effect, all of which
are subject to change (including retroactive changes in effective dates) or
possible differing interpretations. The discussion below deals only with MITTS
Securities held as capital assets and does not purport to deal with persons in
special tax situations, such as financial institutions, insurance companies,
regulated investment companies, dealers in securities or currencies, tax-exempt
entities, persons holding MITTS Securities in a tax-deferred or tax-advantaged
account, or persons holding MITTS Securities as a hedge against currency risks,
as a position in a "straddle" or as part of a "hedging" or "conversion"
transaction for tax purposes. It also does not deal with holders other than
original purchasers (except where otherwise specifically noted herein). The
following discussion also assumes that the issue price of the MITTS Securities,
as determined for United States Federal income tax purposes, equals the
principal amount thereof. Persons considering the purchase of the MITTS
Securities should consult their own tax advisors concerning the application of
the United States Federal income tax laws to their particular situations as
well as any consequences of the purchase, ownership and disposition of the
MITTS Securities arising under the laws of any other taxing jurisdiction.
S-22
<PAGE>
As used herein, the term "U.S. Holder" means a beneficial owner of a
MITTS Security that is for United States Federal income tax purposes (a) a
citizen or resident of the United States, (b) a corporation, partnership or
other entity treated as a corporation or a partnership created or organized in
or under the laws of the United States, any state thereof or the District of
Columbia (other than a partnership that is not treated as a United States
person under any applicable Treasury regulations), (c) an estate the income of
which is subject to United States Federal income taxation regardless of its
source, (d) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust, or (e) any other person whose income or gain in respect of a MITTS
Security is effectively connected with the conduct of a United States trade or
business. Notwithstanding clause (d) the preceding sentence, to the extent
provided in Treasury regulations, certain trusts in existence on August 20,
1996, and treated as United States persons prior to such date that elect to
continue to be treated as United States persons will also be a U.S. Holder. As
used herein, the term "non-U.S. Holder" means a beneficial owner of a MITTS
Security that is not a U.S. Holder.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization, for United
States Federal income tax purposes, of the MITTS Securities or securities with
terms substantially the same as the MITTS Securities. However, although the
matter is not free from doubt, under current law, each MITTS Security should be
treated as a debt instrument of ML&Co. for United States Federal income tax
purposes. ML&Co. currently intends to treat each MITTS Security as a debt
instrument of ML&Co. for United States Federal income tax purposes and, where
required, intends to file information returns with the Internal Revenue Service
in accordance with such treatment, in the absence of any change or
clarification in the law, by regulation or otherwise, requiring a different
characterization of the MITTS Securities. Prospective investors in the MITTS
Securities should be aware, however, that the IRS is not bound by ML&Co.'s
characterization of the MITTS Securities as indebtedness, and the IRS could
possibly take a different position as to the proper characterization of the
MITTS Securities for United States Federal income tax purposes. The following
discussion of the principal United States Federal income tax consequences of
the purchase, ownership and disposition of the MITTS Securities is based upon
the assumption that each MITTS Security will be treated as a debt instrument of
ML&Co. for United States Federal income tax purposes. If the MITTS Securities
are not in fact treated as debt instruments of ML&Co. for United States Federal
income tax purposes, then the United States Federal income tax treatment of the
purchase, ownership and disposition of the MITTS Securities could differ from
the treatment discussed below with the result that the timing and character of
income, gain or loss recognized in respect of a MITTS Security could differ
from the timing and character of income, gain or loss recognized in respect of
a MITTS Security had the MITTS Securities in fact been treated as debt
instruments of ML&Co. for United States Federal income tax purposes.
U.S. Holders
On June 11, 1996, the Treasury Department issued final regulations (the
"Final Regulations") concerning the proper United States Federal income tax
treatment of contingent payment debt instruments such as the MITTS Securities,
which apply to debt instruments issued on or after August 13, 1996 and,
accordingly, will apply to the MITTS Securities. In general, the Final
Regulations cause the timing and character of income, gain or loss reported on
a contingent payment debt instrument to substantially differ from the timing
and character of income, gain or loss reported on a contingent payment debt
instrument under general principles of prior United States Federal income tax
law. Specifically, the Final Regulations generally require a U.S. Holder of
such an instrument to include future contingent and noncontingent interest
payments in income as such interest accrues based upon a projected payment
schedule. Moreover, in general, under the Final Regulations, any gain
recognized by a U.S. Holder on the sale, exchange, or retirement of a
contingent payment debt instrument is treated as ordinary income, and all or a
portion of any loss realized could be treated as ordinary loss as opposed to
capital loss (depending upon the circumstances). The Final Regulations provide
no definitive guidance as to whether or not an instrument is properly
characterized as a debt instrument for United States Federal income tax
purposes.
S-23
<PAGE>
In particular, solely for purposes of applying the Final Regulations to
the MITTS Securities, ML&Co. has determined that the projected payment schedule
for the MITTS Securities will consist of payment on the maturity date of the
principal amount thereof and a projected Supplemental Redemption Amount equal
to $5.2665 per unit (the "Projected Supplemental Redemption Amount"). This
represents an estimated yield on the MITTS Securities equal to 6.13% per annum
(compounded semiannually). Accordingly, during the term of the MITTS
Securities, a U.S. Holder of a MITTS Security will be required to include in
income the sum of the daily portions of interest on the MITTS Security that are
deemed to accrue at this estimated yield for each day during the taxable year
(or portion of the taxable year) on which the U.S. Holder holds such MITTS
Security. The amount of interest that will be deemed to accrue in any accrual
period (i.e., generally each six-month period during which the MITTS Securities
are outstanding) will equal the product of this estimated yield (properly
adjusted for the length of the accrual period) and the MITTS Security's
adjusted issue price (as defined below) at the beginning of the accrual period.
The daily portions of interest will be determined by allocating to each day in
the accrual period the ratable portion of the interest that is deemed to accrue
during the accrual period. In general, for these purposes a MITTS Security's
adjusted issue price will equal the MITTS Security's issue price (i.e., $10),
increased by the interest previously accrued on the MITTS Security. At maturity
of a MITTS Security, in the event that the actual Supplemental Redemption
Amount, if any, exceeds $5.2665 per unit (i.e., the Projected Supplemental
Redemption Amount), a U.S. Holder will be required to include the excess of the
actual Supplemental Redemption Amount over $5.2665 per unit (i.e., the
Projected Supplemental Redemption Amount) in income as ordinary interest on the
maturity date. Alternatively, in the event that the actual Supplemental
Redemption Amount, if any, is less than $5.2665 per unit (i.e., the Projected
Supplemental Redemption Amount), the excess of $5.2665 per unit (i.e., the
Projected Supplemental Redemption Amount) over the actual Supplemental
Redemption Amount will be treated first as an offset to any interest otherwise
includible in income by the U.S. Holder with respect to the MITTS Security for
the taxable year in which the maturity date occurs to the extent of the amount
of such includible interest. 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
$5.2665 per unit (i.e., the Projected Supplemental Redemption Amount) over the
actual Supplemental Redemption Amount that is not treated as an interest offset
pursuant to the foregoing rules. U.S. Holders purchasing a MITTS Security at a
price that differs from the adjusted issue price of the MITTS Security as of
the purchase date (e.g., subsequent purchasers) will be subject to 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 or exchange of a MITTS Security prior to the maturity date,
a U.S. Holder will be required to recognize taxable gain or loss in an amount
equal to the difference, if any, between the amount realized by the U.S. Holder
upon such sale or exchange and the U.S. Holder's adjusted tax basis in the
MITTS Security as of the date of disposition. A U.S. Holder's adjusted tax
basis in a MITTS Security generally will equal such U.S. Holder's initial
investment in the MITTS Security increased by any interest previously included
in income with respect to the MITTS Security by the U.S. Holder. Any such
taxable gain will be treated as ordinary income. Any such taxable loss will be
treated as ordinary loss to the extent of the U.S. Holder's total interest
inclusions on the MITTS Security. Any remaining loss generally will be treated
as long-term or short-term capital loss (depending upon the U.S. Holder's
holding period for the MITTS Security). All amounts includible in income by a
U.S. Holder as ordinary interest pursuant to the Final Regulations will be
treated as original issue discount.
All prospective investors in the MITTS Securities should consult their own
tax advisors concerning the application of the Final Regulations to their
investment in the MITTS Securities. Investors in the MITTS Securities may also
obtain the projected payment schedule, as determined by ML&Co. for purposes of
the application of the Final Regulations to the MITTS Securities, by submitting
a written request for such information to Merrill Lynch & Co., Inc., Attn:
Darryl W. Colletti, Corporate Secretary's Office, 100 Church Street, 12th
Floor, New York, New York 10080-6512.
The projected payment schedule (including both the Projected Supplemental
Redemption Amount and the estimated yield on the MITTS Securities) has been
determined solely for United States Federal income tax
S-24
<PAGE>
purposes (i.e., for purposes of applying the Final Regulations to the MITTS
Securities), and is neither a prediction nor a guarantee of what the actual
Supplemental Redemption Amount will be, or that the actual Supplemental
Redemption Amount will even exceed zero.
The following table sets forth the amount of interest that would be
deemed to have accrued with respect to each unit of the MITTS Securities during
each accrual period over an assumed term of approximately seven years for the
MITTS Securities based upon a hypothetical projected payment schedule for the
MITTS Securities, including both the Projected Supplemental Redemption Amount
and the estimated yield equal to 6.13% per annum, compounded semiannually, as
determined by ML&Co. for purposes of illustrating the application of the Final
Regulations to the MITTS Securities:
<TABLE>
<CAPTION>
Total Interest
Deemed to Have
Interest Deemed to Accrued on the MITTS
Accrue During Securities as of End
Accrual Period of Accrual Period
Accrual Period (per unit) (per unit)
-------------- ------------------ --------------------
<S> <C> <C>
March 26, 1999 through September 27, 1999............... $0.3108 $0.3108
September 28, 1999 through March 27, 2000............... $0.3160 $0.6268
March 28, 2000 through September 27, 2000............... $0.3257 $0.9525
September 28, 2000, through March 27, 2001.............. $0.3357 $1.2882
March 28, 2001 through September 27, 2001............... $0.3460 $1.6342
September 28, 2001 through March 27, 2002............... $0.3566 $1.9908
March 28, 2002 through September 27, 2002............... $0.3675 $2.3583
September 28, 2002 through March 27, 2003............... $0.3788 $2.7371
March 28, 2003 through September 27, 2003............... $0.3904 $3.1275
September 28, 2003 through March 27, 2004............... $0.4023 $3.5298
March 28, 2004 through September 27, 2004............... $0.4147 $3.9445
September 28, 2004 through March 27, 2005............... $0.4274 $4.3719
March 28, 2005 through September 27, 2005............... $0.4405 $4.8124
September 28, 2005, through March 27, 2006.............. $0.4541 $5.2665
</TABLE>
- --------
Projected Supplemental Redemption Amount = $5.2665 per unit.
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States Federal income
taxes on payments of principal, premium (if any) or interest (including
original issue discount, if any) on a MITTS Security, unless such non-U.S.
Holder is a direct or indirect 10% or greater shareholder of ML&Co., a
controlled foreign corporation related to ML&Co. or a bank receiving interest
described in section 881(c)(3)(A) of the Internal Revenue Code of 1986, as
amended. However, income allocable to non-U.S. Holders will generally be
subject to annual tax reporting on IRS Form 1042S. For a non-U.S. Holder to
qualify for the exemption from taxation, the last United States payor in the
chain of payment prior to payment to a non-U.S. Holder (the "Withholding
Agent") must have received in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a statement
that (a) is signed by the beneficial owner of the MITTS Security under
penalties of perjury, (b) certifies that such owner is not a U.S. Holder and
(c) provides the name and address of the beneficial owner. The statement may be
made on an IRS Form W-8 or a substantially similar form, and the beneficial
owner must inform the Withholding Agent of any change in the information on the
statement within 30 days of such change. If a MITTS Security is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide a signed statement to the Withholding
Agent. However, in such case, the signed statement must be accompanied by a
copy of the IRS Form W-8 or the substitute form provided by the beneficial
owner to the organization or institution.
Under current law, a MITTS Security will not be includible in the estate
of a non-U.S. Holder unless the individual is a direct or indirect 10% or
greater shareholder of ML&Co. or, at the time of such individual's
S-25
<PAGE>
death, payments in respect of such MITTS Security would have been effectively
connected with the conduct by such individual of a trade or business in the
United States.
Backup Withholding
Backup withholding of United States Federal income tax at a rate of 31%
may apply to payments made in respect of the MITTS Securities to registered
owners who are not "exempt recipients" and who fail to provide certain
identifying information (such as the registered owner's taxpayer identification
number) in the required manner. Generally, individuals are not exempt
recipients, whereas corporations and certain other entities generally are
exempt recipients. Payments made in respect of the MITTS Securities to a U.S.
Holder must be reported to the IRS, unless the U.S. Holder is an exempt
recipient or establishes an exemption. Compliance with the identification
procedures described in the preceding section would establish an exemption from
backup withholding for those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a MITTS Security to (or through) a broker,
the broker must withhold 31% of the entire purchase price, unless either (a)
the broker determines that the seller is a corporation or other exempt
recipient or (b) the seller provides, in the required manner, certain
identifying information and, in the case of a non-U.S. Holder, certifies that
such seller is a non-U.S. Holder (and certain other conditions are met). Such a
sale must also be reported by the broker to the IRS, unless either (a) the
broker determines that the seller is an exempt recipient or (b) the seller
certifies its non-U.S. status (and certain other conditions are met).
Certification of the registered owner's non-U.S. status would be made normally
on an IRS Form W-8 under penalties of perjury, although in certain cases it may
be possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to
a beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
New Withholding Regulations
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the backup withholding
and information reporting rules described above. The New Regulations will
generally be effective for payments made after December 31, 1999, subject to
certain transition rules. Prospective investors are urged to consult their own
tax advisors regarding the New Regulations.
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the MITTS Securities will be used as
described under "Use of Proceeds" in the accompanying prospectus and to hedge
market risks of ML&Co. associated with its obligation to pay the principal
amount and the Supplemental Redemption Amount.
S-26
<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 by visiting
the SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information about the public reference rooms. You may also inspect our SEC
reports and other information at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
We will send you copies of our SEC filings, excluding exhibits, at no
cost upon request. Please address your request to Lawrence M. Egan, Jr.,
Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100 Church Street,
12th Floor, New York, New York 10080-6512; telephone number (212) 602-8439.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriter has not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriter is not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus
supplement and the accompanying prospectus is accurate as of the date on the
front cover of this prospectus supplement only. Our business, financial
condition and results of operations may have changed since that date.
UNDERWRITING
MLPF&S, as underwriter for the offering, has agreed, subject to the terms
and conditions of the underwriting agreement and a terms agreement, to purchase
from ML&Co. $70,000,000 aggregate principal amount of MITTS Securities. The
underwriting agreement provides that the obligations of the underwriter are
subject to certain conditions precedent and that the underwriter will be
obligated to purchase all of the MITTS Securities if any are purchased.
The underwriter has advised ML&Co. that it proposes initially to offer
all or part of the MITTS Securities directly to the public at the offering
prices set forth on the cover page of this prospectus supplement. After the
initial public offering, the public offering price may be changed. The
underwriter is offering the MITTS Securities subject to receipt and acceptance
and subject to the underwriter's right to reject any order in whole or in part.
In addition to the commissions payable at the time of the original sale
of the MITTS Securities, the underwriter will pay a commission on each of up to
six anniversary dates of the issuance of the MITTS Securities to brokers whose
clients purchased the units in the initial distribution and who continue to
hold their MITTS Securities.
The underwriting of the MITTS Securities will conform to the requirements
set forth in the applicable sections of Rule 2720 of the Conduct Rules of the
NASD.
The underwriter is permitted to engage in certain transactions that
stabilize the price of the MITTS Securities. These transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
MITTS Securities.
S-27
<PAGE>
If the underwriter creates a short position in the MITTS Securities in
connection with the offering, i.e., if it sells more units of the MITTS
Securities than are set forth on the cover page of this prospectus supplement,
the underwriter may reduce that short position by purchasing units of the MITTS
Securities in the open market. In general, purchases of a security for the
purpose of stabilization or to reduce a short position could cause the price of
the security to be higher than it might be in the absence of such purchases.
Neither ML&Co. nor the underwriter makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the MITTS Securities. In addition, neither ML&Co. nor
the underwriter makes any representation that the underwriter will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The underwriter may use this prospectus supplement and the accompanying
prospectus for offers and sales related to market-making transactions in the
MITTS Securities. The underwriter may act as principal or agent in these
transactions, and the sales will be made at prices related to prevailing market
prices at the time of sale.
VALIDITY OF THE MITTS SECURITIES
The validity of the MITTS Securities will be passed upon for ML&Co. and
for the underwriter by Brown & Wood LLP, New York, New York.
S-28
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Adjusted Ending Value...................................................... S-4
Adjustment Factor.......................................................... S-4
Calculation Day............................................................ S-12
Calculation Period......................................................... S-12
Final Regulations.......................................................... S-23
Index Business Day......................................................... S-12
Index Calculation Day...................................................... S-15
Market Disruption Events................................................... S-14
MITTS Securities........................................................... S-4
ML&Co. .................................................................... S-4
MLPF&S..................................................................... S-4
New Regulations............................................................ S-26
Non-U.S. Holder............................................................ S-23
Pricing Date............................................................... S-12
Projected Supplemental Redemption Amount................................... S-24
Starting Value............................................................. S-4
Successor Index............................................................ S-14
Supplemental Redemption Amount............................................. S-4
U.S. Holder................................................................ S-23
Withholding Agent.......................................................... S-25
</TABLE>
S-29
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
7,000,000 Units
Merrill Lynch & Co., Inc.
S&P 500(R) Market Index Target-Term Securities(R)
due March 27, 2006
"MITTS(R) Securities"
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
Merrill Lynch & Co.
March 23, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
