Z
[LOGO] Merrill Lynch
PROTECTED GROWTH(SM) INVESTING
PROSPECTUS Pursuit of Growth, Protection of Principal
- ----------
Merrill Lynch & Co., Inc.
Nikkei 225 Market Index Target-Term Securities(R)
due August 4, 2006
"MITTS(R) Securities"
$10 principal amount per unit
---------------
This prospectus is to be used by Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, our wholly-owned subsidiary, when making
offers and sales related to market-making transactions in the MITTS
Securities.
<TABLE>
<CAPTION>
<S> <C>
THE MITTS SECURITIES: PAYMENT AT MATURITY:
o 100% principal protection at maturity. o On the maturity date, for each unit of
o No payments before the maturity date. the MITTS Securities you own, we will pay
o Senior unsecured debt securities of you an amount equal to the sum of the
Merrill Lynch & Co., Inc. principal amount of each unit and an
o Linked to the value of the Nikkei 225 additional amount based on the percentage
Index. increase, if any, in the value of the
o The MITTS Securities are listed on the Nikkei 225 Index, multiplied by a
American Stock Exchange under the trading participation rate of 120%.
symbol "NKM". o At maturity, you will receive no less
o Closing date: August 4, 1999. than the principal amount of your MITTS
Securities.
</TABLE>
Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page 6 of this prospectus.
---------------
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
The sale price of the MITTS Securities will be the prevailing market
price at the time of sale.
---------------
Merrill Lynch & Co.
---------------
The date of this prospectus is February 23, 2000.
"MITTS" and "Market Index Target-Term Securities" are registered service
marks and "Protected Growth" is a service mark of Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY INFORMATION-Q&A................................................. 3
RISK FACTORS............................................................ 6
MERRILL LYNCH & CO., INC................................................ 10
RATIO OF EARNINGS TO FIXED CHARGES...................................... 11
DESCRIPTION OF THE MITTS SECURITIES..................................... 12
THE NIKKEI 225 INDEX.................................................... 19
OTHER TERMS............................................................. 20
PROJECTED PAYMENT SCHEDULE.............................................. 24
ERISA CONSIDERATIONS.................................................... 25
WHERE YOU CAN FIND MORE INFORMATION..................................... 25
INCORPORATION OF INFORMATION WE FILE WITH THE SEC....................... 25
PLAN OF DISTRIBUTION.................................................... 26
EXPERTS................................................................. 26
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Nikkei 225 Market
Index Target-Term Securities(R) due August 4, 2006. You should carefully read
this prospectus to fully understand the terms of the MITTS Securities, the
Nikkei Stock Average (the "Nikkei 225 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 to "ML&Co.", "we", "us" and "our" are
to Merrill Lynch & Co., Inc.
References in this prospectus 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 rank equally
with all of our other unsecured and unsubordinated debt. The MITTS Securities
will mature on August 4, 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 have issued the
MITTS Securities in the form of a global certificate, which is 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.
What will I receive on 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 Nikkei 225 Index, an index measuring the composite price performance of
selected Japanese stocks. On 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:
{Ending Value - Starting Value}
$10 x {-----------------------------}x Participation Rate
{ Starting Value }
but will not be less than zero.
The "Ending Value" means the average of the values of the Nikkei 225
Index at the close of the market on five business days shortly before the
maturity of the MITTS Securities. We may calculate the Ending Value by
reference to fewer than five or even by reference to a single day's closing
value if, during the period prior to the stated maturity date of the MITTS
Securities, there is a disruption in the trading of the component stocks
comprising the Nikkei 225 Index or certain future or option contracts relating
to the Nikkei 225 Index.
The "Starting Value" equals 17,869.92, the closing value of the
Nikkei 225 Index on July 29, 1999, the date the MITTS Securities were priced
for initial sale to the public.
The "Participation Rate" equals 120%.
For more specific information about the Supplemental Redemption
Amount, please see the section "Description of the MITTS Securities" in this
prospectus.
We will pay you a Supplemental Redemption Amount only if the Ending
Value is greater than the Starting Value. If the 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 the MITTS Securities regardless of
whether any Supplemental Redemption Amount is payable.
<PAGE>
- -----------------------------------------------------------------------------
Examples
Here are two examples of Supplemental Redemption Amount calculations:
Example 1--The Nikkei 225 Index is below the Starting Value at maturity:
Starting Value: 17,869.92
Hypothetical Ending Value: 16,976.42
<TABLE>
<CAPTION>
<S> <C> <C>
( 16,976.42-17,869.92 ) (Supplemental
Supplemental Redemption Amount (per unit)= $10 x (---------------------) x 120% = $0.00 Redemption Amount
( 17,869.92 ) cannot be less than zero)
</TABLE>
Total payment at maturity (per unit) = $10 + $0 = $10
Example 2--The Nikkei 225 Index is above the Starting Value at maturity:
Starting Value: 17,869.92
Hypothetical Ending Value: 32,165.86
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(32,165.86 - 17,869.92)
Supplemental Redemption Amount (per unit) = $10 x (---------------------) x 120% = $9.60
( 17,869.92 )
</TABLE>
Total payment at maturity (per unit) = $10 + $9.60 = $19.60
- -----------------------------------------------------------------------------
<PAGE>
Who publishes the Nikkei 225 Index and what does the Nikkei 225 Index measure?
The Nikkei 225 Index is a stock index published by Nihon Keizai
Shimbun, Inc. ("NKS") that measures the composite price performance of
selected Japanese stocks. The Nikkei 225 Index is currently based on 225
common stocks traded on the Tokyo Stock Exchange (the "TSE") and represents a
broad cross section of Japanese industry. All 225 underlying stocks (the
"Underlying Stocks") are stocks listed in the First Section of the TSE and
are, therefore, among the most actively traded stocks on the TSE. The Nikkei
225 Index is a modified, price-weighted index, which means an Underlying
Stock's weight in the Nikkei 225 Index is based on its price per share rather
than the total market capitalization of the issuer.
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 Nikkei 225 Index.
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are listed on the AMEX under the symbol "NKM".
You should be aware that the listing of the MITTS Securities on the AMEX does
not necessarily ensure that a liquid trading market is available for the MITTS
Securities. You should review the section entitled "Risk Factors--There may be
an uncertain trading market for the MITTS Securities" in this prospectus.
What is the role of MLPF&S?
Our subsidiary, MLPF&S, was the underwriter for the initial offering
and sale of the MITTS Securities. MLPF&S intends to buy and sell MITTS
Securities to create a secondary market for holders of the MITTS Securities.
However, MLPF&S will not be obligated to engage in any of these market
activities.
MLPF&S is also our agent for purposes of calculating, among other
things, the Ending Value and the Supplemental Redemption Amount. Under certain
circumstances, these duties could result in a conflict of interest between
MLPF&S' status as our subsidiary and its responsibilities as calculation
agent.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various
subsidiaries and affiliated companies that provide investment, financing,
insurance and related services on a global basis. For information about ML&Co.
see the section "Merrill Lynch & Co., Inc." in this prospectus. You should
also read the other documents ML&Co. has filed with the SEC, which you can
find by referring to the section entitled "Where You Can Find More
Information" in this prospectus.
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.
<PAGE>
RISK FACTORS
Your investment in the MITTS Securities will involve risks. You
should carefully consider the following discussion of risks before investing
in the MITTS Securities In addition, you should reach an investment decision
with regard to the MITTS Securities only after consulting with your legal and
tax advisers and considering the suitability of the MITTS Securities in the
light of your particular circumstances.
You may not earn a return on your investment
You should be aware that if the Ending Value does not exceed the
Starting Value on the stated maturity date, the Supplemental Redemption Amount
will be zero. This will be true even if the value of the Nikkei 225 Index 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.
If the Ending Value exceeds the Starting Value, then the
Participation Rate will enhance the amount of the Supplemental Redemption
Amount received at maturity. However, if the Ending Value does not exceed the
Starting Value, you will receive only the principal amount of your MITTS
Securities.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The amount we pay you at maturity may be less than the return you
could earn on other investments. Your yield may be less than the yield you
would earn if you bought a standard senior non-callable debt security of
Merrill Lynch & Co., Inc. with the same stated 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 Nikkei 225 Index
Your return will not reflect the return you would realize if you
actually owned the stocks underlying the Nikkei 225 Index and received the
dividends paid on those stocks because NKS calculates the Nikkei 225 Index by
reference to the prices of the common stocks comprising the Nikkei 225 Index
without taking into consideration the value of dividends paid on those stocks.
Your return will not be adjusted for changes in currency exchange rates
Although the stocks included in the Nikkei 225 Index are traded in
Japanese yen and the MITTS Securities are denominated in U.S. dollars, we will
not adjust the amount payable at maturity for the currency exchange rate in
effect at the maturity of the MITTS Securities. Any amount in addition to the
principal amount of each unit payable to you at maturity is based solely upon
the percentage increase in the Nikkei 225 Index. Changes in exchange rates,
however, may reflect changes in the Japanese economy which in turn may affect
the value of the Nikkei 225 Index and the MITTS Securities.
There may be an uncertain trading market for the MITTS Securities
The MITTS Securities are listed on the AMEX under the trading symbol
"NKM". You cannot assume that a trading market exists for the MITTS
Securities. If a trading market does exist, there can be no assurance that
there will be liquidity in the trading market. The existence of a trading
market for the MITTS Securities will depend on our financial performance and
other factors such as the increase, if any, in the value of the Nikkei 225
Index.
If the trading market for the MITTS Securities is limited, there may
be a limited number of buyers for your MITTS Securities if you do not wish to
hold your investment until maturity. This may affect the price you receive.
Many factors affect the trading value of the MITTS Securities; these factors
interrelate in complex ways and the effect of any one factor may offset or
magnify the effect of another factor
The trading value of the MITTS Securities will be affected by factors
that interrelate in complex ways. It is important for you to understand that
the effect of one factor may offset the increase in the trading value of the
MITTS Securities caused by another factor and that the effect of one factor
may exacerbate the decrease in the trading value of the MITTS Securities
caused by another factor. For example, an increase in U.S. 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 value of
the Nikkei 225 Index. The following paragraphs describe the expected impact on
the market value of the MITTS Securities given a change in a specific factor,
assuming all other conditions remain constant.
The value of the Nikkei 225 Index is expected to affect the trading
value of the MITTS Securities. We expect that the market value of the MITTS
Securities will depend substantially on the amount, if any, by which the
Nikkei 225 Index exceeds the Starting Value. If you choose to sell your MITTS
Securities when the value of the Nikkei 225 Index exceeds the Starting Value,
you may receive substantially less than the amount that would be payable at
maturity based on this value because of the expectation that the Nikkei 225
Index will continue to fluctuate until the Ending Value is determined. If you
choose to sell your MITTS Securities when the value of the Nikkei 225 Index is
below, or not sufficiently above, the Starting Value, you may receive less
than the $10 principal amount per unit of your MITTS Securities. In general,
rising Japanese dividend rates, or dividends per share, may increase the value
of the Nikkei 225 Index while falling Japanese dividend rates may decrease the
value of the Nikkei 225 Index. Political, economic and other developments that
affect the stocks underlying the Nikkei 225 Index may also affect the value of
the Nikkei 225 Index and, indirectly, the value of the MITTS Securities.
Changes in the levels of interest rates are expected to affect the
trading value of the MITTS Securities. Because we will pay, at a minimum, the
principal amount per unit of MITTS Securities at maturity, we expect that
changes in 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 that the trading value of the MITTS
Securities will increase. In general, if interest rates in Japan increase, we
expect that the trading value of the MITTS Securities will increase. If
interest rates in Japan decrease, we expect that the trading value of the
MITTS Securities will decrease. The level of interest rates in Japan may also
affect the Japanese economy and, in turn, the value of the Nikkei 225 Index.
Rising interest rates may lower the value of the Nikkei 225 Index and, thus,
the MITTS Securities. Falling interest rates may increase the value of the
Nikkei 225 Index and, thus, may increase the value of the MITTS Securities.
Changes in the volatility of the Nikkei 225 Index are expected to
affect the trading value of the MITTS Securities. Volatility is the term used
to describe the size and frequency of price and/or market fluctuations. In
general, if the volatility of the Nikkei 225 Index increases, we expect that
the trading value of the MITTS Securities will increase and, conversely, if
the volatility of the Nikkei 225 Index decreases, we expect that the trading
value of the MITTS Securities will decrease.
Volatility of the Japanese yen/U.S. dollar exchange rate. The
Japanese yen/U.S. dollar rate is a foreign exchange spot rate that measures
the relative values of two currencies, the Japanese yen and the U.S. dollar
(the "JPY/USD Rate"). The JPY/USD Rate increases when the U.S. dollar
appreciates relative to the Japanese yen. The JPY/USD Rate is expressed as a
rate that reflects the amount of Japanese yen that can be purchased for one
U.S. dollar. Volatility is the term used to describe the size and frequency of
price and/or market fluctuations. In general, if the volatility of the JPY/USD
Rate increases, we expect that the trading value of the MITTS Securities will
increase and, conversely, if the volatility of the JPY/USD Rate decreases, we
expect that the trading value of the MITTS Securities will decrease.
Correlation Between the JPY/USD Rate and the Nikkei 225 Index.
Correlation is the term used to describe the relationship between the
percentage changes in the JPY/USD Rate and the percentage changes in the
Nikkei 225 Index. In general, if the correlation between the JPY/USD Rate and
the Nikkei 225 Index increases, we expect that the trading value of the MITTS
Securities will increase and, conversely, if the correlation between the
JPY/USD Rate and the Nikkei 225 Index decreases, we expect that the trading
value of the MITTS Securities will decrease.
As the time remaining to maturity of the MITTS Securities decreases,
the "time premium" associated with the MITTS Securities will decrease. We
anticipate that before their maturity, the MITTS Securities may trade at a
value above that which would be expected based on the level of interest rates
and the value of the Nikkei 225 Index. This difference will reflect a "time
premium" due to expectations concerning the value of the Nikkei 225 Index
during the period before the stated maturity of the MITTS Securities. However,
as the time remaining to the stated maturity of the MITTS Securities
decreases, we expect that this time premium will decrease, lowering the
trading value of the MITTS Securities.
Changes in dividend yields of the stocks included in the Nikkei 225
Index are expected to affect the trading value of the MITTS Securities. In
general, if dividend yields on the stocks included in the Nikkei 225 Index
increase, we expect that the value of the MITTS Securities will decrease and,
conversely, if dividend yields on these stocks decrease, we expect that the
value of the MITTS Securities will increase.
Changes in our credit ratings may affect the trading value of the
MITTS Securities. Our credit ratings are an assessment of our ability to pay
our obligations. Consequently, real or anticipated changes in our credit
ratings may affect the trading value of the MITTS Securities. However, because
your return on your MITTS Securities is dependent upon factors in addition to
our ability to pay our obligations under the MITTS Securities, such as the
percentage increase in the value of the Nikkei 225 Index at maturity, an
improvement in our credit ratings will not reduce the other investment risks
related to the MITTS Securities.
In general, assuming all relevant factors are held constant, we
expect that the effect on the trading value of the MITTS Securities of a given
change in most of the factors listed above will be less if it occurs later in
the term of the MITTS Securities than if it occurs earlier in the term of the
MITTS Securities. However, we expect that the effect on the trading value of
the MITTS Securities of a given increase in the value of the Nikkei 225 Index
will be greater if it occurs later in the term of the MITTS Securities than if
it occurs earlier in the term of the MITTS Securities.
Amounts payable on the MITTS Securities may be limited by state law
New York State law governs the 1983 Indenture under which the MITTS
Securities were issued. New York has certain usury laws that limit the amount
of interest that can be charged and paid on loans, which includes debt
securities like the 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 MITTS Securities holders, to
the extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
Risks associated with the Japanese securities markets
The Underlying Stocks that constitute the Nikkei 225 Index have been
issued by Japanese companies. You should be aware that investments in
securities indexed to the value of Japanese equity securities involve certain
risks. The Japanese securities markets may be more volatile than U.S. or other
securities markets and may be affected by market developments in different
ways than U.S. or other securities markets. Direct or indirect government
intervention to stabilize the Japanese securities markets and
cross-shareholdings in Japanese companies on those markets may affect prices
and volume of trading on those markets. Also, there is generally less publicly
available information about Japanese companies than about those U.S. companies
that are subject to the reporting requirements of the SEC, and Japanese
companies are subject to accounting, auditing and financial reporting
standards and requirements that differ from those applicable to U.S. reporting
companies.
Securities prices in Japan are subject to political, economic,
financial and social factors that apply in Japan. These factors, which could
negatively affect the Japanese securities markets, include the possibility of
recent or future changes in the Japanese government's economic and fiscal
policies, the possible imposition of, or changes in, currency exchange laws or
other Japanese laws or restrictions applicable to Japanese companies or
investments in Japanese equity securities and the possibility of fluctuations
in the rate of exchange between currencies. Moreover, the Japanese economy may
differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resources and self-sufficiency.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell the stocks
underlying the Nikkei 225 Index or future or option contracts in the Nikkei
225 Index for our own accounts for business reasons or in connection with
hedging our obligations under the MITTS Securities. These transactions could
affect the price of these stocks and, in turn, the value of the Nikkei 225
Index in a manner that would be adverse to your investment in the MITTS
Securities.
Potential conflicts
Our subsidiary, MLPF&S, is our agent for the purposes of calculating
the Ending Value and the Supplemental Redemption Amount payable to you at
maturity. Under certain circumstances, MLPF&S' role as our subsidiary and its
responsibilities as calculation agent for the MITTS Securities could give rise
to conflicts of interests. These conflicts could occur, for instance, in
connection with its determination as to whether the value of the Nikkei 225
Index can be calculated on a particular trading day, or in connection with
judgments that it would be required to make in the event of a discontinuance
of the Nikkei 225 Index. See the sections entitled "Description of the MITTS
Securities--Adjustments to the Nikkei 225 Index; Market Disruption Events" and
"--Discontinuance of the Nikkei 225 Index" in this prospectus. 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 one of our subsidiaries to
hedge the market risks associated with our obligation to pay amounts due at
maturity on the MITTS Securities. This subsidiary expects to make a profit in
connection with this arrangement. We did not seek competitive bids for this
arrangement from unaffiliated parties.
<PAGE>
MERRILL LYNCH & CO., INC.
We are a holding company that, through our U.S. and non-U.S.
subsidiaries and affiliates such as Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Merrill Lynch Government Securities Inc., Merrill Lynch Capital
Services, Inc., Merrill Lynch International, Merrill Lynch Capital Markets
Bank Ltd., Merrill Lynch Asset Management L.P. and Merrill Lynch Mercury Asset
Management, provides investment, financing, advisory, insurance, and related
products on a global basis, including:
o securities brokerage, trading and underwriting;
o investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
o asset management and other investment advisory and
recordkeeping services;
o trading and brokerage of swaps, options, forwards, futures and
other derivatives;
o securities clearance services;
o equity, debt and economic research;
o banking, trust and lending services, including mortgage lending
and related services; and
o insurance sales and underwriting services.
We provide these products and services to a wide array of clients, including
individual investors, small businesses, corporations, governments,
governmental agencies and financial institutions.
Our principal executive office is located at World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281; our telephone number
is (212) 449-1000.
If you want to find more information about us, please see the
sections entitled "Where You Can Find More Information" and "Incorporation of
Information We File with the SEC" in this prospectus.
ML&Co. is the issuer of the MITTS Securities described in this
prospectus.
<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>
For the Nine
Year Ended Last Friday in December Months Ended
1994 1995 1996 1997 1998 September 24, 1999
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(a)............ 1.2 1.2 1.2 1.2 1.1 1.3
- ----------
(a) The effect of combining Midland Walwyn did not change the ratios reported
for the fiscal years 1994 through 1997.
</TABLE>
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 of subsidiaries. "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.
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On August 4, 1999, ML&Co. issued an aggregate principal amount of
$75,000,000 or 7,500,000 units of the MITTS Securities. The MITTS Securities
were issued as a series of senior debt securities under the 1983 Indenture,
which is more fully described in this prospectus.
The MITTS Securities will mature on August 4, 2006.
While at maturity a beneficial owner of a MITTS Security will receive
the sum of the principal amount of each MITTS Security plus the Supplemental
Redemption Amount, if any, there will be no other payment of interest,
periodic or otherwise. See the section entitled "--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 "--Events of Default and Acceleration" and "Other Terms--Events of
Default" in this prospectus.
ML&Co. issued the MITTS Securities in denominations of whole units of
$10.00 per unit.
The MITTS Securities do not have the benefit of any sinking fund.
Payment at maturity
At maturity, a beneficial owner of a MITTS Security will be entitled
to receive the principal amount of that MITTS Security plus a Supplemental
Redemption Amount, if any, all as provided below. If the Ending Value does not
exceed the Starting Value, you will be entitled to receive only the principal
amount of your MITTS Securities.
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>
<CAPTION>
<S> <C> <C> <C>
(Ending Value - Starting Value)
Principal amount of the MITTS Security ($10 per unit) x (-----------------------------) x Participation Rate
( Starting Value )
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" equals 17,869.92, the closing value of the
Nikkei 225 Index on July 29, 1999, the date the MITTS Securities were priced
for initial sale to the public.
The "Ending Value" will be determined by the calculation agent and
will equal the average or arithmetic mean of the closing values of the Nikkei
225 Index determined on each of the first five Calculation Days during the
Calculation Period. If there are fewer than five Calculation Days, then the
Ending Value will equal the average or arithmetic mean of the closing values
of the Nikkei 225 Index on those Calculation Days, and if there is only one
Calculation Day, then the Ending Value will equal the closing value of the
Nikkei 225 Index on that Calculation Day. If no Calculation Days occur during
the Calculation Period, then the Ending Value will equal the closing value of
the Nikkei 225 Index determined on the last scheduled Index Business Day in
the Calculation Period, regardless of the occurrence of a Market Disruption
Event on that day.
The "Participation Rate" equals 120%.
The "Calculation Period" means the period from and including the
seventh scheduled Index Business Day prior to the maturity date to and
including the second scheduled Index Business Day prior to the maturity date.
A "Calculation Day" means any Index Business Day during the
Calculation Period on which a Market Disruption Event has not occurred.
An "Index Business Day" means a day on which the New York Stock
Exchange and the AMEX are open for trading and the Nikkei 225 Index or any
successor index is calculated and published.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes
and binding on ML&Co. and the holders and beneficial owners of the MITTS
Securities.
Hypothetical returns
The following table illustrates, for a range of hypothetical Ending
Values of the Nikkei 225 Index during the Calculation Period, assuming an
initial investment of $10 per unit and an investment term from August 4, 1999
to August 4, 2006:
o the percentage change from the Starting Value to the
hypothetical Ending Value,
o the total amount payable at maturity for each unit of MITTS
Securities,
o the total rate of return to beneficial owners of the MITTS
Securities,
o the pretax annualized rate of return to beneficial owners of
MITTS Securities, and
o the pretax annualized rate of return of an investment in the
stocks included in the Nikkei 225 Index, which includes an
assumed aggregate dividend yield of .70% per annum, as more
fully described below.
<TABLE>
<CAPTION>
Total amount Pretax annualized
Percentage Change payable at Pretax rate of return
Hypothetical from the maturity per Total rate of annualized rate of stocks
Ending Value Starting Value to unit of the return on the of return on the underlying the
during the the hypothetical MITTS MITTS MITTS Nikkei 225
Calculation Period Ending Value Securities(1) Securities(1) Securities(1)(2) Index(2)(3)
<S> <C> <C> <C> <C> <C>
3,573.98 -80% 10.00 0.00% 0.00% -20.95%
7,147.97 -60% 10.00 0.00% 0.00% -11.97%
10,721.95 -40% 10.00 0.00% 0.00% -6.48%
14,295.94 -20% 10.00 0.00% 0.00% -2.47%
17,869.92(4) 0% 10.00 0.00% 0.00% 0.70%
21,443.90 20% 12.40 24.00% 3.09% 3.33%
25,017.89 40% 14.80 48.00% 5.68% 5.59%
28,591.87 60% 17.20 72.00% 7.89% 7.57%
32,165.86 80% 19.60 96.00% 9.84% 9.33%
35,739.84 100% 22.00 120.00% 11.58% 10.92%
39,313.82 120% 24.40 144.00% 13.15% 12.37%
42,887.81 140% 26.80 168.00% 14.58% 13.70%
46,461.79 160% 29.20 192.00% 15.90% 14.94%
50,035.78 180% 31.60 216.00% 17.12% 16.09%
53,609.76 200% 34.00 240.00% 18.25% 17.16%
</TABLE>
- ----------------
(1) The table assumes a Participation Rate of 120%.
(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 percentage change in the aggregate price of the Underlying Stocks
that equals the percentage change in the Nikkei 225 Index from the
Starting Value to the relevant hypothetical Ending Value;
(b) a constant dividend yield of .70% per annum, paid quarterly from the
date of initial delivery of the MITTS Securities, applied to the
value of the Nikkei 225 Index at the end of each quarter assuming
this value increases or decreases linearly from the Starting Value
to the applicable hypothetical Ending Value;
(c) no transaction fees or expenses in connection with purchasing and
holding stocks included in the Nikkei 225 Index; and
(d) an investment term from August 4, 1999 to August 4, 2006.
(4) This is the Starting Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the resulting total
and pretax annualized rate of return will depend entirely on the actual Ending
Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Nikkei 225 Index; Market Disruption Events
If at any time NKS changes its method of calculating the Nikkei 225
Index, or the value of the Nikkei 225 Index changes, in any material respect,
or if the Nikkei 225 Index is in any other way modified so that the Nikkei 225
Index does not, in the opinion of the calculation agent, fairly represent the
value of the Nikkei 225 Index had those 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
of the Nikkei 225 Index is to be calculated, make any adjustments as, in the
good faith judgment of the calculation agent, may be necessary in order to
arrive at a calculation of a value of a stock index comparable to the Nikkei
225 Index as if those changes or modifications had not been made, and
calculate the closing value with reference to the Nikkei 225 Index, as so
adjusted. Accordingly, if the method of calculating the Nikkei 225 Index is
modified so that the value of the Nikkei 225 Index is a fraction or a multiple
of what it would have been if it had not been modified, e.g., due to a split,
then the calculation agent shall adjust the Nikkei 225 Index in order to
arrive at a value of the Nikkei 225 Index as if it had not been modified,
e.g., as if a split had not occurred.
"Market Disruption Event" means either of the following events, as
determined by the calculation agent:
(a) a suspension, material limitation or absence of trading on the
TSE of 20% or more of the Underlying Stocks which then
comprise the Nikkei 225 Index or a successor index during the
one-half hour period preceding the close of trading on the
applicable exchange; or
(b) the suspension or material limitation on the Singapore
International Monetary Exchange, Ltd. (the "SIMEX"), the Osaka
Securities Exchange (the "OSE") or any other major futures or
securities market from trading in futures or options contracts
related to the Nikkei 225 Index or a successor index during
the one-half hour period preceding the close of trading on the
applicable exchange.
For the purposes of determining whether a Market Disruption Event has
occurred:
(1) a limitation on the hours or number of days of trading will
not constitute a Market Disruption Event if it results from an
announced change in the regular business hours of the relevant
exchange;
(2) a decision to permanently discontinue trading in the relevant
future or option contract will not constitute a Market
Disruption Event;
(3) a suspension in trading in a future or option contract on the
Nikkei 225 Index by a major securities market by reason of (a)
a price change violating limits set by that securities market,
(b) an imbalance of orders relating to those contracts or (c)
a disparity in bid and ask quotes relating to those contracts
will constitute a suspension or material limitation of trading
in futures or options contracts related to the Nikkei 225
Index; and
(4) an absence of trading on the TSE will not include any time
when the TSE is closed for trading under ordinary
circumstances.
While ML&Co. understands that circumstances have occurred in the past
that would have been deemed Market Disruption Events, ML&Co. cannot predict
the likelihood of a Market Disruption Event occurring in the future.
Discontinuance of the Nikkei 225 Index
If NKS discontinues publication of the Nikkei 225 Index and NKS or
another entity publishes a successor or substitute index that the calculation
agent determines, in its sole discretion, to be comparable to the Nikkei 225
Index (a "successor index"), then, upon the calculation agent's notification
of any determination to the trustee and ML&Co., the calculation agent will
substitute the successor index as calculated by NKS or any other entity for
the Nikkei 225 Index and calculate the closing value as described above under
"--Payment at maturity". Upon any selection by the calculation agent of a
successor index, ML&Co. shall cause notice to be given to holders of the MITTS
Securities.
In the event that NKS discontinues publication of the Nikkei 225
Index and:
o the calculation agent does not select a successor index, or
o the successor index is no longer published on any of the
Calculation Days,
the calculation agent will compute a substitute value for the Nikkei 225 Index
in accordance with the procedures last used to calculate the Nikkei 225 Index
before any discontinuance. If a successor index is selected or the calculation
agent calculates a value as a substitute for the Nikkei 225 Index as described
below, the successor index or value will be used as a substitute for the
Nikkei 225 Index for all purposes, including for purposes of determining
whether a Market Disruption Event exists.
If the NKS discontinues publication of the Nikkei 225 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:
o the determination of the Ending Value and
o a determination by the calculation agent that a successor index
is available,
the calculation agent will determine the value that would be used in computing
the Supplemental Redemption Amount as described in the preceding paragraph as
if that day were a Calculation Day. The calculation agent will cause notice of
each value to be published not less often than once each month in The Wall
Street Journal or another newspaper of general circulation, and arrange for
information with respect to these values to be made available by telephone.
A "Business Day" is any day on which the NYSE and the AMEX are open
for trading.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Nikkei 225 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 has
occurred 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, 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
the section entitled "--Payment at maturity" in this prospectus. 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 was the maturity date of the
MITTS Securities.
In case of default in payment of the MITTS Securities, whether at
their stated maturity or upon acceleration, from and after the maturity date
the MITTS Securities will bear interest, payable upon demand of their
beneficial owners, at the rate of 7% per annum to the extent that payment of
any interest is 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 that amount has been made or duly provided for.
Depositary
Description of the Global Securities
The MITTS Securities currently are represented by one or more fully
registered global securities. Each global security was deposited with, or on
behalf of, DTC (DTC, together with any successor, being a "depositary"), as
depositary, registered in the name of Cede & Co., DTC's partnership nominee.
Unless and until it is exchanged in whole or in part for MITTS Securities in
definitive form, no global security may be transferred except as a whole by
the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or by the
depositary or any nominee to a successor of the depositary or a nominee of
that successor.
So long as DTC, or its nominee, is a registered owner of a global
security, DTC or its nominee, as the case may be, will be considered the sole
owner or holder of the MITTS Securities represented by the global security for
all purposes under the 1983 Indenture. Except as provided below, the
beneficial owners of the MITTS Securities represented by a global security
will not be entitled to have the MITTS Securities represented by a global
security registered in their names, will not receive or be entitled to receive
physical delivery of the MITTS Securities in definitive form and will not be
considered the owners or holders of the MITTS Securities including for
purposes of receiving any reports delivered by ML&Co. or the trustee under the
1983 Indenture. Accordingly, each person owning a beneficial interest in a
global security must rely on the procedures of DTC and, if that person is not
a participant of DTC, on the procedures of the participant through which that
person owns its interest, to exercise any rights of a holder under the 1983
Indenture. ML&Co. understands that under existing industry practices, in the
event that ML&Co. requests any action of holders or that an owner of a
beneficial interest in a global security desires to give or take any action
which a holder is entitled to give or take under the 1983 Indenture, DTC would
authorize the participants holding the relevant beneficial interests to give
or take that action, and those participants would authorize beneficial owners
owning through those participants to give or take that action or would
otherwise act upon the instructions of beneficial owners. Conveyance of
notices and other communications by DTC to participants, by participants to
indirect participants and by participants and indirect participants to
beneficial owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC is the securities depositary for the MITTS Securities. The MITTS
Securities were issued as fully registered securities registered in the name
of Cede & Co., DTC's partnership nominee. One or more fully registered global
securities were issued for the MITTS Securities in the aggregate principal
amount of such issue, and were deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC holds securities that its participants
deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct participants of DTC include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. DTC is owned by a number of its direct participants and by the
NYSE, the AMEX, and the National Association of Securities Dealers, Inc.
Access to DTC's system is also available to others such as securities brokers
and dealers, banks and trust companies that clear through or maintain a
custodial relationship with a direct participant, either directly or
indirectly. The rules applicable to DTC and its participants are on file with
the SEC.
Purchases of THE MITTS Securities under DTC's system must be made by
or through direct participants, which will receive a credit for the MITTS
Securities on DTC's records. The ownership interest of each beneficial owner
is in turn to be recorded on the records of direct and indirect participants.
Beneficial owners will not receive written confirmation from DTC of their
purchase, but beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the direct or indirect participants through which the
beneficial owner entered into the transaction. Transfers of ownership
interests in the MITTS Securities are to be made by entries 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 that date. Payments by participants to beneficial owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in "street name", and will be the responsibility of that
participant and not of DTC, the trustee or ML&Co., subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal, premium, if any, and/or interest, if any, to DTC is the
responsibility of ML&Co. or the trustee, disbursement of those payments to
direct participants will be the responsibility of DTC, and disbursement of
those payments to the beneficial owners will be the responsibility of direct
participants and indirect participants.
Exchange for Certificated Securities
If:
o 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,
o ML&Co. executes and delivers to the trustee a company order to
the effect that the global securities shall be exchangeable, or
o an Event of Default under the 1983 Indenture has occurred and
is continuing with respect to the MITTS Securities,
the global securities will be exchangeable for MITTS Securities in definitive
form of like tenor and of an equal aggregate principal amount, in
denominations of $10 and integral multiples of $10. The definitive MITTS
Securities will be registered in the name or names as the depositary shall
instruct the trustee. It is expected that instructions may be based upon
directions received by the depositary from participants with respect to
ownership of beneficial interests in the global securities.
DTC may discontinue providing its services as securities depositary
with respect to the MITTS Securities at any time by giving reasonable notice
to ML&Co. or the trustee. Under these 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.
Payment
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.
THE NIKKEI 225 INDEX
All disclosure contained in this prospectus regarding the Nikkei 225
Index, including, without limitation, its make-up, method of calculation and
changes in its components, unless otherwise stated, has been derived from the
Stock Market Indices Data Book published by NKS and other publicly available
sources. The information reflects the policies of NKS as stated in these
sources; and the policies are subject to change at the discretion of NKS.
The Nikkei 225 Index is a stock index calculated, published and
disseminated by NKS that measures the composite price performance of selected
Japanese stocks. The Nikkei 225 Index is currently based on 225 Underlying
Stocks trading on the TSE and represents a broad cross-section of Japanese
industry. All 225 of the stocks underlying the Nikkei 225 Index are stocks
listed in the First Section of the TSE. Stocks listed in the First Section are
among the most actively traded stocks on the TSE. Futures and options
contracts on the Nikkei 225 Index are traded on the SIMEX, the OSE and the
Chicago Mercantile Exchange.
The value of the Nikkei 225 Index is reported on the AMEX under the
symbol "N225", on Bloomberg under the symbol "NKY" and on Reuters under the
symbol ".N225".
The Nikkei 225 Index is a modified, price-weighted index. Each
stock's weight in the Nikkei 225 Index is based on its price per share rather
than the total market capitalization of the issuer. NKS calculates the Nikkei
225 Index by: multiplying the per share price of each Underlying Stock by the
corresponding weighting factor for that Underlying Stock (a "Weight Factor"),
calculating the sum of all these products and dividing that sum by a divisor.
Each Weight Factor is computed by dividing (Y)50 by the par value of the
relevant Underlying Stock, so that the share price of each Underlying Stock
when multiplied by its Weight Factor corresponds to a share price based on a
uniform par value of (Y)50. Each Weight Factor represents the number of shares
of the related Underlying Stock which are included in one trading unit of the
Nikkei 225 Index. The stock prices used in the calculation of the Nikkei 225
Index are those reported by a primary market for the Underlying Stocks, which
is currently the TSE. The level of the Nikkei 225 Index is calculated once per
minute during TSE trading hours.
The divisor was initially set in 1949 at 225. In order to maintain
continuity in the level of the Nikkei 225 Index in the event of certain changes
due to non-market factors affecting the Underlying Stocks, such as the addition
or deletion of stocks, substitution of stocks, stock dividends, stock splits or
distributions of assets to stockholders, the divisor used in calculating the
Nikkei 225 Index is adjusted in a manner designed to prevent any instantaneous
change or discontinuity in the level of the Nikkei 225 Index. The divisor
remains at the new value until a further adjustment is necessary as the result
of another change. As a result of each change affecting any Underlying Stock,
the divisor is adjusted in such a way that the sum of all share prices
immediately after the change multiplied by the applicable Weight Factor and
divided by the new divisor, the level of the Nikkei 225 Index immediately after
the change, will equal the level of the Nikkei 225 Index immediately prior to
the change.
Underlying Stocks may be deleted or added by NKS. However, to
maintain continuity in the Nikkei 225 Index, the policy of NKS is generally
not to alter the composition of the Underlying Stocks except when an
Underlying Stock is deleted in accordance with the following criteria. Any
stock becoming ineligible for listing in the First Section of the TSE due to
any of the following reasons will be deleted from the Underlying Stocks:
bankruptcy of the issuer; merger of the issuer into, or acquisition of the
issuer by, another company; delisting of the stock or transfer of the stock to
the "Seiri-Post" because of excess debt of the issuer or because of any other
reason; or transfer of the stock to the Second Section of the TSE. Upon
deletion of a stock form the Nikkei 225 Index, NKS will select, in accordance
with certain criteria established by it, a replacement for the deleted
Underlying Stock. In an exceptional case, a newly listed stock in the First
Section of the TSE that is recognized by NKS to be representative of a market
may be added to the Underlying Stocks. As a result, an existing Underlying
Stock with low trading volume and not representative of a market will be
deleted.
NKS is under no obligation to continue the calculation and
dissemination of the Nikkei 225 Index. The MITTS Securities are not sponsored,
endorsed, sold or promoted by NKS. No inference should be drawn from the
information contained in this prospectus that NKS makes any representation or
warranty, implied or express, to ML&Co., the holder of the MITTS Securities
into consideration in determining, composing or calculating the Nikkei 225
Index. NKS is not responsible for, and has not participated in the
determination of the timing of, prices for, or quantities of, the MITTS
Securities issued or in the determination or calculation of the equation by
which the MITTS Securities are to be settled in cash. NKS has no obligation or
liability in connection with the administration or marketing of the MITTS
Securities.
The use of and reference to the Nikkei 225 Index in connection with
the MITTS Securities have been consented to by NKS, the publisher of the
Nikkei 225 Index.
None of ML&Co., the calculation agent and MLPF&S accepts any
responsibility for the calculation, maintenance or publication of the Nikkei
225 Index or any successor index. NKS disclaims all responsibility for any
errors or omissions in the calculation and dissemination of the Nikkei 225
Index or the manner in which the Nikkei 225 Index is applied in determining
any Starting Values or Ending Values or any Supplemental Redemption Amount
upon maturity of the MITTS Securities.
The Tokyo Stock Exchange
The TSE is one of the world's largest securities exchanges in terms
of market capitalization. Trading hours are currently from 9:00 A.M. to 11:00
A.M. and from 12:30 P.M. to 3:00 P.M., Tokyo time, Monday through Friday.
Due to the time zone difference, on any normal trading day the TSE
will close prior to the opening of business in New York City on the same
calendar day. Therefore, the closing level of the Nikkei 225 Index on a
trading day will generally be available in the United States by the opening of
business on the same calendar day.
The TSE has adopted certain measures, including daily price floors
and ceilings on individual stocks, intended to prevent any extreme short-term
price fluctuations resulting from order imbalances. In general, any stock
listed on the TSE cannot be traded at a price lower than the applicable price
floor or higher than the applicable price ceiling. These price floors and
ceilings are expressed in absolute Japanese yen, rather than percentage limits
based on the closing price of the stock on the previous trading day. In
addition, when there is a major order imbalance in a listed stock, the TSE
posts a "special bid quote" or a "special asked quote" for that stock at a
specified higher or lower price level than the stock's last sale price in
order to solicit counter-orders and balance supply and demand for the stock.
Prospective investors should also be aware that the TSE may suspend the
trading of individual stocks in certain limited and extraordinary
circumstances, including, for example, unusual trading activity in that stock.
As a result, changes in the Nikkei 225 Index may be limited by price
limitations or special quotes, or by suspension of trading, on individual
stocks which comprise the Nikkei 225 Index, and these limitations may, in
turn, adversely affect the value of the MITTS Securities.
OTHER TERMS
The MITTS Securities were issued as a series of senior debt
securities under the 1983 Indenture, dated as of April 1, 1983, as amended and
restated, between ML&Co. and The Chase Manhattan Bank, as trustee. A copy of
the 1983 Indenture is filed as an exhibit to the registration statement
relating to the MITTS Securities of which this prospectus is a part. The
following summaries of the material provisions of the 1983 Indenture are not
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the 1983 Indenture, including the definitions of terms in
the 1983 Indenture.
Series of senior debt securities may from time to time be issued
under the 1983 Indenture, without limitation as to aggregate principal amount,
in one or more series and upon terms as ML&Co. may establish under the
provisions of the 1983 Indenture.
The 1983 Indenture and the MITTS Securities are governed by and
construed in accordance with the laws of the State of New York.
ML&Co. may issue senior debt securities with terms different from
those of senior debt securities previously issued, and issue additional senior
debt securities of a previously issued series of senior debt securities.
The senior debt securities are unsecured and rank equally with all
other unsecured and unsubordinated indebtedness of ML&Co. However, because
ML&Co. is a holding company, the rights of ML&Co. and its creditors, including
the holders of senior debt securities, to participate in any distribution of
the assets of any subsidiary upon its liquidation or reorganization or
otherwise are necessarily subject to the prior claims of creditors of the
subsidiary, except to the extent that claims of ML&Co. itself as a creditor of
the subsidiary may be recognized. In addition, dividends, loans and advances
from certain subsidiaries, including MLPF&S, to ML&Co. are restricted by net
capital requirements under the Exchange Act, and under rules of exchanges and
other regulatory bodies.
Limitations upon liens
ML&Co. may not, and may not permit any majority-owned subsidiary to,
create, assume, incur or permit to exist any indebtedness for borrowed money
secured by a pledge, lien or other encumbrance, other than those liens
specifically permitted by the 1983 Indenture, on the Voting Stock owned
directly or indirectly by ML&Co. of any majority-owned subsidiary, other than
a majority-owned subsidiary which, at the time of the incurrence of the
secured indebtedness, has a net worth of less than $3,000,000, unless the
outstanding senior debt securities are secured equally and ratably with the
secured indebtedness.
"Voting Stock" is defined in the 1983 Indenture as the stock of the
class or classes having general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation provided that, for the purposes of the 1983 Indenture, stock that
carries only the right to vote conditionally on the occurrence of an event is
not considered voting stock whether or not the event has happened.
Limitation on disposition of Voting Stock of, and merger and sale of assets
by, MLPF&S
ML&Co. may not sell, transfer or otherwise dispose of any Voting
Stock of MLPF&S or permit MLPF&S to issue, sell or otherwise dispose of any of
its Voting Stock, unless, after giving effect to any such transaction, MLPF&S
remains a Controlled Subsidiary.
"Controlled Subsidiary" is defined in the 1983 Indenture to mean a
corporation more than 80% of the outstanding shares of Voting Stock of which
are owned directly or indirectly by ML&Co.
In addition, ML&Co. may not permit MLPF&S to:
o merge or consolidate, unless the surviving company is a
Controlled Subsidiary, or
o convey or transfer its properties and assets substantially as
an entirety, except to one or more Controlled Subsidiaries.
Merger and consolidation
ML&Co. may consolidate or merge with or into any other corporation
and ML&Co. may sell, lease or convey all or substantially all of its assets to
any corporation, provided that:
o the resulting corporation, if other than ML&Co., is a
corporation organized and existing under the laws of the United
States of America or any U.S. state and assumes all of ML&Co.'s
obligations to:
o pay any amounts due and payable or deliverable with respect
to all the Senior Debt Securities; and
o perform and observe all of ML&Co.'s obligations under the
1983 Indenture, and
o ML&Co. or the successor corporation, as the case may be, is
not, immediately after any consolidation or merger, in default
under the 1983 Indenture.
Modification and waiver
ML&Co. and the trustee may modify and amend the 1983 Indenture with
the consent of holders of at least 66 2/3% in principal amount of each
outstanding series of debt securities affected. However, without the consent
of each holder of any outstanding debt security affected, no amendment or
modification to any Indenture may:
o change the stated maturity date of the principal of, or any
installment of interest or Additional Amounts payable on, any
senior debt security or any premium payable on redemption, or
change the redemption price;
o reduce the principal amount of, or the interest or Additional
Amounts payable on, any senior debt security or reduce the
amount of principal which could be declared due and payable
before the stated maturity date;
o change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior
debt security;
o impair the right to institute suit for the enforcement of any
payment on or with respect to any senior debt security;
o reduce the percentage in principal amount of the outstanding
senior debt securities of any series, the consent of whose
holders is required to modify or amend the 1983 Indenture; or
o modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any past
default to less than a majority.
No modification or amendment of ML&Co.'s Subordinated Indenture or
any Subsequent Indenture for subordinated debt securities may adversely affect
the rights of any holder of ML&Co.'s senior indebtedness without the consent
of each holder affected. The holders of at least a majority in principal
amount of outstanding senior debt securities of any series may, with respect
to that series, waive past defaults under the Indenture and waive compliance
by ML&Co. with provisions in the 1983 Indenture, except as described under
"--Events of Default" below.
Events of Default
Each of the following will be an Event of Default with respect to
senior debt securities of any series:
o default in the payment of any interest or Additional Amounts
payable when due and continuing for 30 days;
o default in the payment of any principal or premium when due;
o default in the deposit of any sinking fund payment, when due;
o default in the performance of any other obligation of ML&Co.
contained in the 1983 Indenture for the benefit of that series
or in the senior debt securities of that series, continuing for
60 days after written notice as provided in the 1983 Indenture;
o specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
o any other Event of Default provided with respect to senior debt
securities of that series which are not inconsistent with the
1983 Indenture.
If an Event of Default occurs and is continuing for any series of
senior debt securities, other than as a result of the bankruptcy, insolvency
or reorganization of ML&Co., the trustee or the holders of at least 25% in
principal amount of the outstanding senior debt securities of that series may
declare all amounts, or any lesser amount provided for in the senior debt
securities, due and payable or deliverable immediately. At any time after a
declaration of acceleration has been made with respect to senior debt
securities of any series but before the trustee has obtained a judgment or
decree for payment of money, the holders of a majority in principal amount of
the outstanding senior debt securities of that series may rescind any
declaration of acceleration and its consequences, if all payments due, other
than those due as a result of acceleration, have been made and all Events of
Default have been remedied or waived.
The holders of a majority in principal amount or aggregate issue
price of the outstanding debt securities of any series of debt securities may
waive any Event of Default with respect to that series, except a default:
o in the payment of any amounts due and payable or deliverable
under the debt securities of that series; or
o in respect of an obligation or provision of any indenture which
cannot be modified under the terms of that indenture without
the consent of each holder of each series of debt securities
affected.
The holders of a majority in principal amount of the outstanding
senior debt securities of a series may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or
exercising any trust or power conferred on the trustee with respect to those
senior debt securities, provided that any direction shall not be in conflict
with any rule of law or the 1983 Indenture. Before proceeding to exercise any
right or power under the 1983 Indenture at the direction of the holders, the
trustee shall be entitled to receive from the holders reasonable security or
indemnification against the costs, expenses and liabilities which might be
incurred by it in complying with any direction.
The MITTS Securities and other series of senior debt securities
issued under the 1983 Indenture do not have the benefit of any cross-default
provisions with other indebtedness of ML&Co.
ML&Co. is required to furnish to the trustee annually a statement as
to the fulfillment by ML&Co. of all of its obligations under the 1983
Indenture.
PROJECTED PAYMENT SCHEDULE
Solely for purposes of applying the regulations issued on June 11,
1996 by the Treasury Department (the "Final Regulations") concerning the
proper United States Federal income tax treatment of contingent payment debt
instruments such as the MITTS Securities, we have 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 $6.1915 per unit. This represents an estimated
yield on the MITTS Securities equal to 7% per annum, compounded semiannually.
The projected payment schedule, including both the projected
Supplemental Redemption Amount and the estimated yield on the MITTS
Securities, has been determined solely for United States Federal income tax
purposes, i.e., for purposes of applying the Final Regulations to the MITTS
Securities, and is neither a prediction nor a guarantee of what the actual
Supplemental Redemption Amount will be, or that the actual Supplemental
Redemption Amount will even exceed zero.
The following table sets forth the amount of interest that will be
deemed to have accrued with respect to each unit of the MITTS Securities
during each accrual period over the term of the MITTS Securities based upon a
projected payment schedule for the MITTS Securities, including both the
projected Supplemental Redemption Amount and the estimated yield equal to 7%
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
Accrued on MITTS
Interest Deemed Securities as of
to Accrue During End of Accrual
Accrual Period Period
Accrual Period (per unit) (per unit)
<S> <C> <C>
August 4, 1999 through February 4, 2000..................................... $0.3529 $0.3529
February 5, 2000 through August 4, 2000..................................... $0.3624 $0.7153
August 5, 2000 through February 4, 2001..................................... $0.3750 $1.0903
February 5, 2001 through August 4, 2001..................................... $0.3882 $1.4785
August 5, 2001 through February 4, 2002..................................... $0.4017 $1.8802
February 5, 2002 through August 4, 2002..................................... $0.4158 $2.2960
August 5, 2002 through February 4, 2003..................................... $0.4304 $2.7264
February 5, 2003 through August 4, 2003..................................... $0.4454 $3.1718
August 5, 2003 through February 4, 2004..................................... $0.4610 $3.6328
February 5, 2004 through August 4, 2004..................................... $0.4772 $4.1100
August 5, 2004 through February 4, 2005..................................... $0.4938 $4.6038
February 5, 2005 through August 4, 2005..................................... $0.5112 $5.1150
August 5, 2005 through February 4, 2006..................................... $0.5290 $5.6440
February 5, 2006 through August 4, 2006..................................... $0.5475 $6.1915
- -----------
Projected Supplemental Redemption Amount = $6.1915 per unit.
</TABLE>
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: Ann Marie Corsale, Corporate Secretary's Office, 222 Broadway,
17th Floor, New York, New York 10038.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Internal Revenue Code, as amended (the
"Code") prohibit various transactions between certain parties and the assets
of employee benefit plans, unless an exemption is available; governmental
plans may be subject to similar prohibitions. Because transactions between a
plan and ML&Co. may be prohibited absent an exemption, each fiduciary, by its
purchase of any MITTS Security on behalf of any plan, represents on behalf of
itself and the plan, that the acquisition, holding and any subsequent
disposition of the MITTS Security will not result in a violation of ERISA, the
Code or any other applicable law or regulation.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC.
Our SEC filings are also available over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more information
on the public reference rooms and their copy charges. You may also inspect our
SEC reports and other information at the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC
covering the MITTS Securities and other securities. For further information on
ML&Co. and the MITTS Securities, you should refer to our registration
statement and its exhibits. This prospectus summarizes material provisions of
contracts and other documents that we refer you to. Because this prospectus
may not contain all the information that you may find important, you should
review the full text of these documents. We have included copies of these
documents as exhibits to our registration statement of which this prospectus
is a part.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you
to those documents; and
o information that we file with the SEC will automatically update
and supersede this incorporated information.
We incorporate by reference the documents listed below which were
filed with the SEC under the Exchange Act:
o annual report on Form 10-K for the year ended December 25,
1998;
o quarterly reports on Form 10-Q for the periods ended March 26,
1999, June 25, 1999 and September 24, 1999; and
o current reports on Form 8-K dated December 28, 1998, January
19, 1999, February 17, 1999, February 18, 1999, February 22,
1999, February 23, 1999, March 26, 1999, April 13, 1999, April
19, 1999, May 26, 1999, May 28, 1999, May 28, 1999, June 1,
1999, June 25, 1999, July 12, 1999, July 13, 1999, July 21,
1999, August 4, 1999, August 4, 1999, September 20, 1999,
October 12, 1999, October 27, 1999, December 22, 1999, December
22, 1999 and January 25, 2000.
We also incorporate by reference each of the following documents that
we will file with the SEC after the date of this prospectus until this
offering is completed:
o reports filed under Sections 13(a) and (c) of the Exchange Act;
o definitive proxy or information statements filed under Section
14 of the Exchange Act in connection with any subsequent
stockholders' meeting; and
o any reports filed under Section 15(d) of the Exchange Act.
You should rely only on information contained or incorporated by
reference in this prospectus. We have not, and MLPF&S 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 MLPF&S 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
is accurate as of the date of this prospectus only. Our business, financial
condition and results of operations may have changed since that date.
You may request a copy of any filings referred to above, excluding
exhibits, at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 222
Broadway, New York, New York 10038; telephone: (212) 670-0425.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales
of the MITTS Securities and is to be used by MLPF&S when making offers and
sales related to market-making transactions in the MITTS Securities.
MLPF&S may act as principal or agent in these market-making
transactions.
The MITTS Securities may be offered on the AMEX or off the exchange
in negotiated transactions or otherwise.
The distribution 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.
EXPERTS
The consolidated financial statements and the related financial
statement schedule incorporated in this prospectus by reference from the
annual report on Form 10-K of Merrill Lynch & Co., Inc. and subsidiaries have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports (which express an unqualified opinion and which report on the
consolidated financial statements includes an explanatory paragraph for the
change in accounting method for certain internal-use software development
costs), which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
With respect to unaudited interim financial information for the
periods included in the quarterly reports on Form 10-Q which are incorporated
herein by reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their reports included in such quarterly reports on Form
10-Q and incorporated by reference herein, they did not audit and they do not
express an opinion on such interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted
in light of the limited nature of the review procedures applied. Deloitte &
Touche LLP is not subject to the liability provisions of Section 11 of the
Securities Act of 1933, as amended, for any such report on unaudited interim
financial information because any such report is not a "report" or a "part" of
the registration statement prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Securities Act.
