<PAGE>
As Filed with the Securities and Exchange Commission on December 27, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
and
POST-EFFECTIVE AMENDMENTS
under
THE SECURITIES ACT OF 1933
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<TABLE>
<S> <C> <C>
MERRILL LYNCH & CO., INC. DELAWARE 13-2740599
(Exact name of registrant as specified in charter) (State of incorporation) (I.R.S. employer
identification number)
MERRILL LYNCH PREFERRED FUNDING VI, L.P. DELAWARE 13-4034253
(Exact name of registrant as specified in (State of organization) (I.R.S. employer
certificate of limited partnership) identification number)
MERRILL LYNCH PREFERRED CAPITAL TRUST VI DELAWARE 13-7174482
(Exact name of registrant as specified in (State of organization) (I.R.S. employer
certificate of trust) identification number)
</TABLE>
4 World Financial Center
North Tower
New York, New York 10080
(212)449-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
MARK B. GOLDFUS, ESQ.
General Counsel
Corporate Law
Merrill Lynch & Co., Inc.
222 Broadway
New York, New York 10038
(212)670-0180
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
NORMAN D. SLONAKER, DONALD R. CRAWSHAW, ESQ. RICHARD T. PRINS, ESQ.
ESQ. Sullivan & Cromwell Skadden, Arps, Slate,
Brown & Wood LLP 125 Broad Street Meagher & Flom LLP
One World Trade Center New York, New York 10004 Four Times Square
New York, New York New York, New York 10036
10048 --------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement as determined
by market conditions.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed maximum Proposed
Title of each class Amount to be aggregate maximum aggregate Amount of
of securities to be registered(1) registered(2)(3) price per unit(4) offering price(4) registration fee
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt Securities and Warrants(5)...... --
Preferred Stock, par value $1.00 per
share(5)............................ --
Depositary Shares representing
Preferred Stock(6).................. --
Common Stock, par value $1.33 1/3 per
share (including preferred share
purchase rights)(7)(8).............. --
Trust Originated Preferred Securities
of Merrill Lynch Preferred Capital
Trust VI (the "Trust") (the "Trust
Preferred Securities").............. $20,000,000,000 N/A $20,000,000,000 $5,000,000
Partnership Preferred Securities of
Merrill Lynch Preferred Funding VI,
L.P. (the "Partnership") (the
"Partnership Preferred
Securities")(9)..................... --
Guarantees of Merrill Lynch & Co.,
Inc. with respect to Trust Preferred
Securities.......................... --
Guarantees of Merrill Lynch & Co.,
Inc. with respect to Partnership
Preferred Securities................ --
Guarantees of Merrill Lynch & Co.,
Inc. with respect to certain
debentures of its wholly owned
subsidiaries (the "Affiliate
Debentures")........................ --
Subordinated Debentures of Merrill
Lynch & Co., Inc. to be issued with
respect to Trust Originated
Preferred Securities................ --
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Totals............................. $20,000,000,000 -- $20,000,000,000 $5,000,000
</TABLE>
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(Footnotes on next page)
<PAGE>
(Footnotes from previous page)
--------
(1) This Registration Statement also registers delayed delivery contracts
which may be issued by Merrill Lynch & Co., Inc. (the "Company") under
which the counterparty may be required to purchase Debt Securities,
Preferred Stock, Depositary Shares and/or Warrants. Such contracts would
be issued with the Debt Securities, Preferred Stock, Depositary Shares
and/or Warrants covered hereby. In addition, securities registered
hereunder may be sold separately, together or as units with other
securities registered hereunder.
(2) Such amount shall be increased, if any Debt Securities are issued at an
original issue discount, by an amount such that the net proceeds to be
received by the Company shall be equal to the above amount to be
registered. Any offering of securities denominated other than in U.S.
dollars will be treated as the equivalent in U.S. dollars based on the
official exchange rate applicable to the purchase of such securities from
the Company. Pursuant to Rule 429 under the Securities Act of 1933, as
amended (the "Securities Act"), the Prospectus included in this
Registration Statement also relates to the remaining unsold securities
which were previously registered by the Registrants under Registration
Statement No. 333-38792 on Form S-3. The following registration
statements, each having the original effective date indicated
parenthetically, are amended hereby (the number of such post-effective
amendments applicable to a registration statement being also indicated
parenthetically), all as follows: 2-78338 (July 23, 1982-No. 27); 2-83477
(May 9, 1983-No. 26); 2-89519 (February 23, 1984-No. 25); 2-96315 (March
20, 1985-No. 23); 33-03079 (February 6, 1986-No. 22); 33-03602 (April 15,
1986-No. 19); 33-05125 (April 28, 1986-No. 11); 33-09910 (November 5,
1986-No. 20); 33-16165 (August 11, 1987-No. 19); 33-17965 (November 5,
1987-No. 17); 33-19820 (January 29, 1988-No. 17); 33-23605 (August 16,
1988-No. 16); 33-27512 (March 20, 1989-No. 15); 33-27594 (March 20, 1989-
No. 16); 33-35456 (August 10, 1990-No. 16); 33-38879 (February 12, 1991-
No. 15); 33-42041 (August 16, 1991-No. 15); 33-45327 (February 12, 1992-
No. 14); 33-54218 (November 19, 1992-No. 13); 33-49947 (August 25, 1993-
No. 12); 33-51489 (January 14, 1994-No. 11); 33-52647 (March 22, 1994-No.
10); 33-61559 (August 23, 1995-No. 7); 33-65135 (January 12, 1996-No. 12);
333-13649 (November 25, 1996-No. 4); 333-25255 (April 30, 1997-No. 6);
333-28537 (June 13, 1997-No. 5); 333-44173 (January 28, 1998-No. 4); 333-
59997 (July 30, 1998-No. 3); 333-68747 (May 6, 1999-No. 2); and 333-38792
(June 15, 2000-No. 1). Each such post-effective amendment shall hereafter
become effective concurrently with the effectiveness of this Registration
Statement in accordance with Section 8(c) of the Securities Act.
(3) This Registration Statement also registers, where required, an
indeterminate amount of securities to be sold by Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated in market-making
transactions.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457. The proposed maximum offering price per unit will be
determined from time to time by the Registrants in connection with the
issuance of securities registered hereunder or previously registered under
the Securities Act. No separate consideration will be received for Common
Stock, Preferred Stock, Debt Securities or Warrants that are issued upon
conversion or exchange of Debt Securities, Preferred Stock, Depositary
Shares or Warrants, nor will any separate consideration be received for
the Guarantees or the Subordinated Debentures registered hereunder. The
Subordinated Debentures and the Affiliate Debentures will be purchased by
the Partnership with proceeds of the sale of the Partnership Preferred
Securities, together with a capital contribution from the Company.
(5) There is also registered hereunder such indeterminate amount of Debt
Securities and an indeterminate number of shares of Preferred Stock as may
from time to time be issued upon conversion, exercise or exchange of Debt
Securities, Preferred Stock or Warrants registered hereunder.
(6) To be represented by Depositary Receipts representing an interest in all
or a specified portion of a share of Preferred Stock.
(7) The aggregate amount of Common Stock of the Company registered hereunder
is limited to that which is permissible under Rule 415(a)(4) under the
Securities Act. There is also registered hereunder such indeterminate
number of shares of Common Stock as may from time to time be issued upon
conversion, exercise or exchange of Debt Securities, Preferred Stock or
Warrants registered hereunder.
(8) Prior to the occurrence of certain events, the preferred share purchase
Rights will not be evidenced separately from the Common Stock. The value
attributable to such Rights, if any, is reflected in the market price of
the Common Stock.
(9) The Partnership Preferred Securities will be purchased by the Trust with
the proceeds of the sale of the Trust Preferred Securities, together with
the proceeds received from the Company in respect of the common securities
to be issued by the Trust. No separate consideration will be received for
the Partnership Preferred Securities.
----------------
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until this Registration Statement shall
become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
EXPLANATORY NOTE
This registration statement contains:
(a) a prospectus to be used by Merrill Lynch & Co., Inc., or ML&Co., in
connection with offerings of its:
. debt securities;
. warrants;
. common stock;
. preferred stock; and
. depositary shares;
(b) a prospectus to be used by ML&Co. in connection with offerings of its
Structured Yield Product Exchangeable for Stock SM;
(c) a prospectus to be used in connection with offerings of:
. the preferred securities of Merrill Lynch Preferred Capital Trust VI
("Trust");
. the preferred securities of Merrill Lynch Preferred Funding VI, L.P.
("Partnership");
. the subordinated debentures of ML&Co.; and
. the guarantees of ML&Co. of:
. the preferred securities of Trust;
. the preferred securities of Partnership; and
. specified debentures issued by ML&Co.'s affiliates;
(d) a prospectus supplement to be used by ML&Co. in connection with
offerings of its medium-term notes; and
(e) prospectuses to be used by ML&Co.'s wholly-owned subsidiary, Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated in connection
with market-making transactions in ML&Co. securities.
SM Service mark of Merrill Lynch & Co., Inc.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
-----------
[LOGO]
Merrill Lynch & Co., Inc.
Debt Securities, Warrants, Preferred Stock,
Depositary Shares and Common Stock
We may offer from time to time in one or more series, together or separately:
. debt securities;
. warrants;
. common stock;
. preferred stock; and
. depositary shares.
When we offer securities, we will provide you with a prospectus supplement or
term sheet describing the terms of the specific issue of securities including
the offering price of the securities.
------------
You should read this prospectus and the prospectus supplement or the term
sheet relating to the specific issue of securities carefully before you invest.
------------
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 date of this prospectus is .
<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 LP and Mercury Asset Management Ltd, provides
investment, financing, advisory, insurance, and related products on a global
basis, including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related record keeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of all the
securities offered under this prospectus.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the securities for
general corporate purposes, unless otherwise specified in the prospectus
supplement or term sheet relating to a specific issue of securities. Our
general corporate purposes may include financing the activities of our
subsidiaries, financing our assets and those of our subsidiaries, lengthening
the average maturity of our borrowings and financing acquisitions. Until we use
the net proceeds from the sale of any of our securities for general corporate
purposes, we will use the net proceeds to reduce our short-term indebtedness or
for temporary investments. We expect that we will, on a recurrent basis, engage
in additional financings as the need arises to finance our growth, through
acquisitions or otherwise, or to lengthen the average maturity of our
borrowings. To the extent that securities being purchased for resale by our
subsidiary Merrill Lynch, Pierce, Fenner & Smith Incorporated, referred to in
this prospectus as MLPF&S, are not resold, the aggregate proceeds that we and
our subsidiaries would receive would be reduced.
2
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog") through
an exchange offer followed by a merger of a wholly-owned subsidiary of ML&Co.
with and into Herzog. The merger was accounted for as a pooling-of-interests
under generally accepted accounting principles in the United States of America
and is not expected to have a significant impact on the results of operations,
financial position and cash flows of ML&Co. The following information for the
fiscal years 1996 through 1999 has been restated by the management of ML&Co. to
give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges and
ratios of earnings to combined fixed charges and preferred stock dividends for
the periods indicated:
<TABLE>
<CAPTION>
For the Nine
Year Ended Last Friday in December Months Ended
---------------------------------- September
1995 1996 1997 1998 1999 29, 2000
------ ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges....................... 1.2 1.2 1.2 1.1 1.3 1.3
Ratio of earnings to combined
fixed
charges and preferred stock
dividends..................... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
THE SECURITIES
ML&Co. intends to sell its securities from time to time. These securities
may include the following, in each case, as specified by ML&Co. at the time of
offering:
. common stock;
. preferred stock which may be:
. convertible into preferred stock or common stock;
. exchangeable for debt securities, preferred stock or depositary
shares representing preferred stock.
. depositary shares representing preferred stock;
. debt securities, comprising senior debt securities and subordinated debt
securities, each of which may be convertible into common stock or
preferred stock;
. warrants to purchase debt securities;
. warrants to purchase shares of common stock;
. warrants to purchase shares of preferred stock;
. warrants entitling the holders to receive from ML&Co. a payment or
delivery determined by reference to decreases or increases in the level
of an index or portfolio ("Index Warrants") based on:
. one or more equity or debt securities;
. any statistical measure of economic or financial performance such as
a currency or a consumer price or mortgage index; or
3
<PAGE>
. the price or value of any commodity or any other item or index; and
. warrants to receive from ML&Co. the cash value in U.S. dollars of the
right to purchase ("Currency Call Warrants") or to sell ("Currency Put
Warrants" and, together with the Currency Call Warrants, the "Currency
Warrants") specified foreign currencies or units of two or more
specified foreign currencies.
We may offer the securities independently or together with other securities
and the securities may be attached to, or separate from other securities. We
will offer the securities to the public on terms determined by market
conditions at the time of sale and set forth in a prospectus supplement or term
sheet relating to the specific issue of securities.
ML&Co. will offer up to $ aggregate public offering price of the
securities or its equivalent in foreign currencies or units of two or more
currencies, based on the applicable exchange rate at the time of offering, as
shall be designated by ML&Co. at the time of offering, subject to reduction on
account of the sale of other securities under the registration statement of
which this prospectus is a part.
DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in a prospectus supplement, the senior debt
securities are to be issued under an indenture (the "1983 Indenture"), dated as
of April 1, 1983, as amended and restated through the date of this prospectus
and as it may be further amended in the future, between ML&Co. and The Chase
Manhattan Bank, as trustee, or issued under an indenture (the "1993
Indenture"), dated as of October 1, 1993, as amended through the date of this
prospectus and as it may be further amended in the future, between ML&Co. and
The Chase Manhattan Bank, as trustee (each, a "Senior Debt Trustee"). The 1983
Indenture and the 1993 Indenture are referred to as the "Senior Indentures".
Unless otherwise specified in a prospectus supplement, the subordinated debt
securities are to be issued under an indenture (the "Subordinated Indenture"),
between ML&Co. and The Chase Manhattan Bank, as trustee (the "Subordinated Debt
Trustee"). The Senior Debt Securities and Subordinated Debt Securities may also
be issued under one or more other indentures (each, a "Subsequent Indenture")
and have one or more other trustees (each, a "Subsequent Trustee"). Any
Subsequent Indenture relating to senior debt securities will have terms and
conditions identical in all material respects to the above-referenced Senior
Indentures and any Subsequent Indenture relating to subordinated debt
securities will have terms and conditions identical in all material respects to
the above-referenced Subordinated Indenture, including, but not limited to, the
applicable terms and conditions described below. Any Subsequent Indenture
relating to a series of debt securities, and the applicable trustee, will be
identified in the applicable prospectus supplement or term sheet. A copy of
each indenture is filed, or, in the case of a Subsequent Indenture, will be
filed, as an exhibit to the registration statement relating to the securities.
The following summaries of the material provisions of the indentures are not
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the respective indentures, including the definitions of
terms.
Terms of the Debt Securities
ML&Co. may issue the debt securities from time to time, without limitation
as to aggregate principal amount and in one or more series. ML&Co. may issue
debt securities upon the satisfaction of conditions, including the delivery to
the applicable Trustee of a resolution of the Board of Directors of ML&Co., or
a committee of the Board of Directors, or a certificate of an officer of ML&Co.
who has been authorized by the Board of Directors to take that kind of action,
which fixes or establishes the terms of the debt securities being issued. Any
resolution or officer's certificate approving the issuance of any issue of debt
securities will include the terms of that issue of debt securities, including:
. the aggregate principal amount and whether there is any limit upon the
aggregate principal amount that ML&Co. may subsequently issue;
. the stated maturity date;
4
<PAGE>
. the principal amount payable whether at maturity or upon earlier
acceleration, and whether the principal amount will be determined with
reference to an index, formula or other method;
. any fixed or variable interest rate or rates per annum and any
contingencies relating to changes in any applicable interest rate;
. any interest payment dates;
. any provisions for redemption, the redemption price and any remarketing
arrangements;
. any sinking fund requirements;
. whether the debt securities are denominated or payable in United States
dollars or a foreign currency or units of two or more foreign
currencies;
. the form in which ML&Co. will issue the debt securities, whether
registered, bearer or both, and any restrictions applicable to the
exchange of one form for another and to the offer, sale and delivery of
the debt securities in either form;
. whether and under what circumstances ML&Co. will pay additional amounts
("Additional Amounts") under any debt securities held by a person who is
not a U.S. person for specified taxes, assessments or other governmental
charges and whether ML&Co. has the option to redeem the affected debt
securities rather than pay any Additional Amounts;
. whether the debt securities are to be issued in global form;
. the title and series designation;
. the minimum denominations;
. whether, and the terms and conditions relating to when, ML&Co. may
satisfy all or part of its obligations with regard to payment upon
maturity, or any redemption or required repurchase or in connection with
any exchange provisions by delivering to the holders of the debt
securities, other securities, which may or may not be issued by or be
obligations of ML&Co., or a combination of cash, other securities and/or
property ("Maturity Consideration");
. any additions or deletions in the terms of the debt securities with
respect to the Events of Default set forth in the respective indentures;
. the terms, if any, upon which the debt securities are convertible into
common stock or preferred stock of ML&Co. and the terms and conditions
upon which any conversion will be effected, including the initial
conversion price or rate, the conversion period and any other provisions
in addition to or instead of those described in this prospectus;
. whether, and the terms and conditions relating to when, holders may
transfer the debt securities separately from warrants if the debt
securities and warrants are issued together; and
. any other terms of the debt securities which are not inconsistent with
the provisions of the applicable indenture.
Please see the accompanying prospectus supplement or the terms sheet you
have received or will receive for the terms of the specific debt securities
being offered. ML&Co. may deliver this prospectus before or concurrently with
the delivery of a terms sheet. ML&Co. may issue debt securities under the
indentures upon the exercise of warrants to purchase debt securities. See
"Description of Debt Warrants". Nothing in the indentures or in the terms of
the debt securities will prohibit the issuance of securities representing
subordinated indebtedness that is senior or junior to the subordinated debt
securities.
Prospective purchasers of debt securities should be aware that special U.S.
Federal income tax, accounting and other considerations may be applicable to
instruments such as the debt securities. The prospectus supplement relating to
an issue of debt securities will describe these considerations, if they apply.
5
<PAGE>
ML&Co. will issue each series of debt securities, as described in the
prospectus supplement, in fully registered form without coupons, and/or in
bearer form with or without coupons, and in denominations set forth in the
prospectus supplement. There will be no service charge for any registration of
transfer of registered debt securities or exchange of debt securities, but
ML&Co. may require payment of a sum sufficient to cover any tax or other
governmental charges imposed in connection with any registration of transfer or
exchange. Each indenture provides that ML&Co. may issue debt securities in
global form. If any series of debt securities is issued in global form, the
applicable prospectus supplement will describe the circumstances, if any, under
which beneficial owners of interests in any of those global debt securities may
exchange their interests for debt securities of that series and of like tenor
and principal amount in any authorized form and denomination.
The provisions of the indentures permit ML&Co. , without the consent of
holders of any debt securities, to issue additional debt securities with terms
different from those of debt securities previously issued and to reopen a
previous series of debt securities and issue additional debt securities of that
series.
The senior debt securities will be unsecured and will rank equally with all
other unsecured and unsubordinated indebtedness of ML&Co. The subordinated debt
securities will be unsecured and will be subordinated to all existing and
future senior indebtedness of ML&Co. Because ML&Co. is a holding company, the
right of ML&Co. and its creditors, including the holders of the debt
securities, to participate in any distribution of the assets of any subsidiary
upon its liquidation or reorganization or otherwise is necessarily subject to
the prior claims of creditors of the subsidiary, except to the extent that a
bankruptcy court may recognize the claims of ML&Co. itself as a creditor of the
subsidiary. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to ML&Co. are restricted by net capital
requirements under the Securities Exchange Act of 1934, as amended, and under
rules of certain exchanges and other regulatory bodies.
ML&Co. will pay or deliver principal and any premium, Additional Amounts,
Maturity Consideration and interest in the manner, at the places and subject to
the restrictions set forth in the applicable indenture, the debt securities and
the applicable prospectus supplement. However, at its option, ML&Co. may pay
any interest and any Additional Amounts by check mailed to the holders of
registered debt securities at their registered addresses.
Holders may present debt securities for exchange, and registered debt
securities for registration of transfer, in the manner, at the places and
subject to the restrictions set forth in the applicable indenture, the debt
securities and the applicable prospectus supplement. Holders may transfer debt
securities in bearer form and the coupons, if any, pertaining to the debt
securities by delivery. There will be no service charge for any registration of
transfer or exchange of debt securities, but ML&Co. may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection with a transfer or exchange.
Unless otherwise indicated in the applicable prospectus supplement, ML&Co.
will issue the debt securities under the indentures. If so specified in a
prospectus supplement, ML&Co. may issue subordinated debt securities under a
separate indenture which provides for a single issue of zero coupon convertible
subordinated debt securities, a form of which is filed as an exhibit to the
registration statement of which this prospectus is a part. If ML&Co. issues
debt securities under any indenture, the applicable prospectus supplement will
set forth the terms of the debt securities and will identify the applicable
indenture and trustee.
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:
. 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:
6
<PAGE>
. pay or deliver the principal of, and any premium, Additional
Amounts, Maturity Consideration or interest on, the debt securities;
and
. perform and observe all of ML&Co.'s other obligations under the
indentures, and
. ML&Co. or any successor corporation, as the case may be, is not,
immediately after any consolidation or merger, in default under the
indentures.
Modification and Waiver
Each indenture may be modified and amended by ML&Co. and the applicable
trustee with the consent of holders of at least 66 2/3% in principal amount or
aggregate issue price of each series of debt securities affected. However,
without the consent of each holder of any debt security affected, no amendment
or modification to any indenture may:
. change the stated maturity of the principal or Maturity Consideration
of, or any installment of interest or Additional Amounts on, any debt
security or any premium payable on redemption, or change the redemption
price;
. reduce the principal amount of, or the interest or Additional Amounts
payable on, or reduce the amount or change the type of Maturity
Consideration deliverable on, any debt security or reduce the amount of
principal or Maturity Consideration which could be declared due and
payable before the stated maturity;
. change the place or currency of any delivery or payment of principal or
Maturity Consideration of, or any premium, interest or Additional
Amounts on any debt security;
. impair the right to institute suit for the enforcement of any delivery
or payment on any debt security;
. reduce the percentage in principal amount or aggregate issue price of
the outstanding debt securities of any series, the consent of whose
holders is required to modify or amend the applicable indenture; or
. modify the foregoing requirements or reduce the percentage in principal
amount or aggregate issue price of outstanding debt securities necessary
to waive any past default to less than a majority.
No modification or amendment of the 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 or aggregate
issue price of the outstanding debt securities of any series may, with respect
to that series, waive past defaults under the applicable indenture and waive
compliance by ML&Co. with certain provisions of that indenture, except as
described under "--Events of Default".
Events of Default
Each of the following will be an Event of Default with respect to each
series of debt securities issued under each indenture:
. default in the payment of any interest or Additional Amounts when due,
and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the delivery or payment of the Maturity Consideration when
due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the applicable indenture for the benefit of that series or in the
debt securities of that series, and continuing for 60 days after written
notice as provided in the applicable indenture;
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. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. any other Event of Default provided with respect to debt securities of
that series.
If an Event of Default occurs and is continuing for any series of debt
securities, the applicable trustee or the holders of at least 25% in principal
amount or aggregate issue price of the outstanding debt securities of that
series may declare all amounts, or any lesser amount provided for in the debt
securities of that series, due and payable or deliverable immediately. At any
time after the applicable trustee or the holders have made a declaration of
acceleration with respect to the debt securities of any series but before the
applicable trustee has obtained a judgment or decree for payment of money due,
the holders of a majority in principal amount or aggregate issue price of the
outstanding debt securities of that series may rescind any declaration of
acceleration and its consequences, provided that all payments and/or deliveries
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 may waive an Event of Default
with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation of ML&Co. contained in, or a 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 or aggregate issue price of
the outstanding debt securities of a series may direct the time, method and
place of conducting any proceeding for any remedy available to the applicable
trustee or exercising any trust or power conferred on the trustee with respect
to debt securities of that series, provided that any direction is not in
conflict with any rule of law or the applicable indenture. Subject to the
provisions of each indenture relating to the duties of the appropriate trustee,
before proceeding to exercise any right or power under an indenture at the
direction of the holders, the applicable trustee is entitled to receive from
those holders reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in complying with any direction.
Unless otherwise stated in the applicable prospectus supplement, any series
of debt securities issued under any indenture will not have the benefit of any
cross-default provisions with other indebtedness of ML&Co.
ML&Co. will be required to furnish to each trustee annually a statement as
to the fulfillment by ML&Co. of all of its obligations under the applicable
indenture.
Special Terms Relating to the Senior Debt Securities
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 any lien specifically permitted
by the Senior Indentures, 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 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 Senior Indentures 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 Senior Indentures, 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.
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Limitations 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 the transaction, MLPF&S remains a
Controlled Subsidiary.
"Controlled Subsidiary" is defined in the Senior Indentures 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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
Special Terms Relating to the Subordinated Debt Securities
Upon any distribution of assets of ML&Co. resulting from any dissolution,
winding up, liquidation or reorganization, payments on subordinated debt
securities are subordinated to the extent provided in the Subordinated
Indenture in right of payment to the prior payment in full of all senior
indebtedness, but the obligation of ML&Co. to make payments on the subordinated
debt securities will not otherwise be affected. ML&Co. may not make any payment
on subordinated debt securities at any time when there is a default in the
payment or delivery of any amounts due on any senior indebtedness, including
payment of any sinking fund. Because the subordinated debt securities are
subordinated in right of payment to any senior indebtedness, in the event of a
distribution of assets upon insolvency, some creditors of ML&Co. may recover
more, ratably, than holders of subordinated debt securities. Holders of
subordinated debt securities will be subrogated to the rights of holders of
senior indebtedness to the extent of payments made on senior indebtedness upon
any distribution of assets in any proceedings in respect of subordinated debt
securities.
As of September 29, 2000, a total of approximately $80 billion of ML&Co.'s
indebtedness was senior indebtedness.
Special Terms Relating to Convertible Debt Securities
The following provisions will apply to debt securities that will be
convertible into common stock or preferred stock of ML&Co. unless otherwise
provided in the prospectus supplement relating to the specific issue of debt
securities.
The holder of any convertible debt securities will have the right,
exercisable at any time during the time period specified in the applicable
prospectus supplement, unless previously redeemed, to convert convertible debt
securities into shares of common stock or preferred stock of ML&Co. as
specified in the prospectus supplement, at the conversion rate per principal
amount of convertible debt securities set forth in the applicable prospectus
supplement. In the case of convertible debt securities called for redemption,
conversion rights will expire at the close of business on the date fixed for
the redemption specified in the applicable prospectus supplement, except that,
in the case of redemption at the option of the holder, if applicable, the
conversion right will terminate upon receipt of written notice of the exercise
of the option.
For each series of convertible debt securities, the conversion price or rate
will be subject to adjustment as contemplated in the applicable indenture.
Unless otherwise provided in the applicable prospectus supplement, these
adjustments may occur as a result of:
. the issuance of shares of ML&Co. common stock as a dividend;
. subdivisions and combinations of ML&Co. common stock;
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. the issuance to all holders of ML&Co. common stock of rights or warrants
entitling holders to subscribe for or purchase shares of ML&Co. common
stock at a price per share less than the current market price per share;
and
. the distribution to all holders of ML&Co. common stock of:
. shares of ML&Co. capital stock other than common stock;
. evidences of indebtedness of ML&Co. or assets other than cash
dividends paid from retained earnings and dividends payable in
common stock referred to above; or
. subscription rights or warrants other than those referred to above.
In any case, no adjustment of the conversion price or rate will be required
unless an adjustment would require a cumulative increase or decrease of at
least 1% in such price or rate. ML&Co. will not issue any fractional shares of
ML&Co. common stock upon conversion, but, instead, ML&Co. will pay a cash
adjustment. If indicated in the applicable prospectus supplement, convertible
debt securities convertible into common stock of ML&Co. which are surrendered
for conversion between the record date for an interest payment, if any, and the
interest payment date, other than convertible debt securities called for
redemption on a redemption date during that period, must be accompanied by
payment of an amount equal to interest which the registered holder is entitled
to receive.
ML&Co. will determine the adjustment provisions for convertible debt
securities at the time of issuance of each series of convertible debt
securities. These adjustment provisions will be described in the applicable
prospectus supplement.
Except as set forth in the applicable prospectus supplement, any convertible
debt securities called for redemption, unless surrendered for conversion on or
before the close of business on the redemption date, are subject to being
purchased from the holder of the convertible debt securities by one or more
investment banking firms or other purchasers who may agree with ML&Co. to
purchase convertible debt securities and convert them into common stock or
preferred stock of ML&Co., as the case may be.
Governing Law
The indentures and the debt securities will be governed by, and construed in
accordance with, the laws of the State of New York.
DESCRIPTION OF DEBT WARRANTS
ML&Co. may issue warrants for the purchase of debt securities ("Debt
Warrants"). The Debt Warrants are to be issued under debt warrant agreements to
be entered into between ML&Co. and a bank or trust company, as debt warrant
agent as set forth in the prospectus supplement relating to the specific issue
of Debt Warrants being offered. We have filed a copy of the form of debt
warrant agreement, including the form of warrant certificates representing the
Debt Warrants, reflecting the alternative provisions to be included in the debt
warrant agreements that will be entered into with respect to particular
offerings of Debt Warrants, as an exhibit to the registration statement of
which this prospectus is a part. The following summaries of the material
provisions of the debt warrant agreement and the debt warrant certificates are
not complete and are subject to, and are qualified in their entirety by
reference to, all the provisions of the debt warrant agreement and the debt
warrant certificates, respectively, including the definitions of terms.
Terms of the Debt Warrants
The applicable prospectus supplement will describe the terms of the specific
issue of Debt Warrants being offered, the debt warrant agreement relating to
the Debt Warrants and the debt warrant certificates representing the Debt
Warrants, including the following:
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. the designation and aggregate principal amount of the debt securities
that the holder of a Debt Warrant may purchase upon exercise of the Debt
Warrant and the price at which the purchase may be made;
. the designation and terms of any debt securities issued with or
purchasable upon exercise of the Debt Warrants, including whether the
debt securities will be senior debt securities or subordinated debt
securities and under which indenture the debt securities will be issued;
. the procedures and conditions relating to the exercise of the Debt
Warrants;
. the number of Debt Warrants issued with each debt security;
. any date on and after which the Debt Warrants and any related debt
securities are separately transferable;
. the date on which the right to exercise the Debt Warrants begins and
expires;
. whether the Debt Warrants represented by the debt warrant certificates
will be issued in registered or bearer form, and, if registered, where
they may be transferred and registered;
. any circumstances which will cause the Debt Warrants to be deemed to be
automatically exercised;
. the identity of the debt warrant agent; and
. any other terms of the Debt Warrants which are not inconsistent with the
provisions of the debt warrant agreement.
Holders may exchange debt warrant certificates for new debt warrant
certificates of different denominations. Holders may exercise Debt Warrants at
the corporate trust office of the debt warrant agent or any other office
indicated in the applicable prospectus supplement. Before the exercise of their
Debt Warrants, holders of Debt Warrants will not have any of the rights of
holders of the debt securities that may be purchased upon exercise of the Debt
Warrants and will not be entitled to payment or delivery of any amounts which
may be due on the debt securities purchasable upon exercise of the Debt
Warrants.
Prospective purchasers of Debt Warrants should be aware that special U.S.
Federal income tax, accounting and other considerations may be applicable to
instruments such as Debt Warrants and to the debt securities purchasable upon
exercise of the Debt Warrants. The prospectus supplement relating to any issue
of Debt Warrants will describe these considerations.
Ranking
The Debt Warrants are unsecured contractual obligations of ML&Co. and will
rank equally with its other unsecured contractual obligations and with its
unsecured and unsubordinated debt. Because ML&Co. is a holding company, the
right of ML&Co. and its creditors, including the debt warrantholders, to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that a bankruptcy
court may recognize claims of ML&Co. itself as a creditor of the subsidiary. 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 certain exchanges and other regulatory bodies.
Book-Entry Procedures
Except as may otherwise be provided in the applicable prospectus supplement,
the Debt Warrants will be issued in the form of global debt warrant
certificates, registered in the name of a depositary or its nominee.
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Except as may otherwise be provided in the applicable prospectus supplement,
beneficial owners will not be entitled to receive definitive certificates
representing Debt Warrants unless the depositary is unwilling or unable to
continue as depositary or ML&Co. decides to have the Debt Warrants represented
by definitive certificates. A beneficial owner's interest in a Debt Warrant
will be recorded on or through the records of the brokerage firm or other
entity that maintains the beneficial owner's account. In turn, the total number
of Debt Warrants held by an individual brokerage firm for its clients will be
maintained on the records of the depositary in the name of the brokerage firm
or its agent. Transfer of ownership of any Debt Warrant will be effected only
through the selling beneficial owner's brokerage firm.
Exercise of Debt Warrants
Each Debt Warrant will entitle the holder to purchase for cash a principal
amount of debt securities at the exercise price set forth in, or determined in
the manner set forth in, the applicable prospectus supplement. Holders may
exercise Debt Warrants at any time up to the close of business on the
expiration date set forth in the applicable prospectus supplement. After the
close of business on the expiration date, unexercised Debt Warrants will become
void.
Holders may exercise Debt Warrants in the manner described in the applicable
prospectus supplement. Upon receipt of payment and properly completed and duly
executed debt warrant certificate at the corporate trust office of the debt
warrant agent or any other office indicated in the applicable prospectus
supplement, ML&Co. will, as soon as practicable, forward the debt securities
purchased. If less than all of the Debt Warrants represented by any debt
warrant certificate are exercised, a new debt warrant certificate will be
issued for the remaining amount of Debt Warrants.
Listing
ML&Co. may list an issue of Debt Warrants on a national securities exchange.
Any listing will be specified in the applicable prospectus supplement.
DESCRIPTION OF CURRENCY WARRANTS
ML&Co. may issue Currency Warrants either in the form of:
. Currency Put Warrants entitling the holders to receive from ML&Co. the
cash settlement value in U.S. dollars of the right to sell a specified
amount of a specified foreign currency or currency units for a specified
amount of U.S. dollars, or
. Currency Call Warrants entitling the holders to receive from ML&Co. the
cash settlement value in U.S. dollars of the right to purchase a
specified amount of a specified foreign currency or units of two or more
currencies for a specified amount of U.S. dollars.
ML&Co. may issue the Currency Warrants under a currency put warrant
agreement or a currency call warrant agreement, as applicable, to be entered
into between ML&Co. and a bank or trust company, as currency warrant agent as
set forth in the applicable prospectus supplement relating to Currency Warrants
being offered. Copies of the forms of currency put warrant agreement and
currency call warrant agreement, including the forms of certificates
representing the Currency Put Warrants and Currency Call Warrants, reflecting
the provisions to be included in the currency warrant agreements that will be
entered into with respect to particular offerings of Currency Warrants, are
filed as exhibits to the registration statement of which this prospectus is a
part. The following summaries of the material provisions of the currency
warrant agreements and the currency warrant certificates are not complete and
are subject to, and are qualified in their entirety by reference to, all the
provisions of the currency warrant agreements and the currency warrant
certificates, respectively, including the definitions of terms.
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Terms of the Currency Warrants
The applicable prospectus supplement will describe the terms of the specific
issue of Currency Warrants being offered, the currency warrant agreement
relating to the Currency Warrants and the currency warrant certificates
representing the Currency Warrants, including the following:
. whether the Currency Warrants are Currency Put Warrants, Currency Call
Warrants, or both;
. the formula for determining the cash settlement value of each Currency
Warrant;
. the procedures and conditions relating to the exercise of the Currency
Warrants;
. any circumstances other than those described below under "--Exercise of
Currency Warrants" and "--Listing"that will cause the Currency Warrants
to be deemed to be automatically exercised;
. any minimum number of Currency Warrants which must be exercised at any
one time, other than upon automatic exercise;
. the date on which the right to exercise the Currency Warrants begins and
expires;
. the identity of the currency warrant agent; and
. any other terms of the Currency Warrants that are not inconsistent with
the provisions of the applicable currency warrant agreement.
Prospective purchasers of Currency Warrants should be aware that special
U.S. Federal income tax, accounting and other considerations may be applicable
to instruments such as Currency Warrants. The prospectus supplement relating to
any issue of Currency Warrants will describe these considerations, if they
apply.
Ranking
The Currency Warrants are unsecured contractual obligations of ML&Co. and
will rank equally with its other unsecured contractual obligations and with its
unsecured and unsubordinated debt. Because ML&Co. is a holding company, the
right of ML&Co. and its creditors, including the currency warrantholders, to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that a bankruptcy
court may recognize claims of ML&Co. itself as a creditor of the subsidiary. 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 certain exchanges and other regulatory bodies.
Book-Entry Procedures
Except as may otherwise be provided in the applicable prospectus supplement,
the Currency Warrants will be issued in the form of global currency warrant
certificates, registered in the name of a depositary or its nominee. In that
case, beneficial owners will not be entitled to receive definitive certificates
representing Currency Warrants unless the depositary is unwilling or unable to
continue as depositary or ML&Co. decides to have the Currency Warrants
represented by definitive certificates. A beneficial owner's interest in a
Currency Warrant will be recorded on or through the records of the brokerage
firm or other entity that maintains a beneficial owner's account. In turn, the
total number of Currency Warrants held by an individual brokerage firm for its
clients will be maintained on the records of the depositary in the name of the
brokerage firm or its agent. Transfer of ownership of any Currency Warrant will
be effected only through the selling beneficial owner's brokerage firm.
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Exercise of Currency Warrants
Each Currency Warrant will entitle the holder to the cash settlement value
of that Currency Warrant on the applicable exercise date as described in the
applicable prospectus supplement. If a Currency Warrant has more than one
exercise date and is not exercised before the time specified in the applicable
prospectus supplement, on the fifth business day preceding the expiration date,
the Currency Warrants will be deemed automatically exercised.
Listing
ML&Co. will apply to list each issue of Currency Warrants on a national
securities exchange. In the event that the Currency Warrants are delisted from,
or permanently suspended from trading on, any exchange, the expiration date for
the exercise of the Currency Warrants will be the date the delisting or trading
suspension becomes effective and Currency Warrants not previously exercised
will be deemed automatically exercised on the business day immediately
preceding the expiration date. Under the applicable currency warrant agreement,
ML&Co. will agree not to seek delisting of the Currency Warrants, or suspension
of their trading, on any exchange.
DESCRIPTION OF INDEX WARRANTS
ML&Co. may issue from time to time Index Warrants consisting of index put
warrants or index call warrants. Subject to applicable law, ML&Co. will pay or
deliver consideration on each Index Warrant in an amount determined by
reference to the level or value of an index such as:
. an equity or debt security, or a portfolio or basket of indices or
securities, which may include the price or yield of securities;
. any statistical measure of economic or financial performance, which may
include any currency or consumer price, or mortgage index; or
. the price or value of any commodity or any other item or index or any
combination.
The payment or delivery of any consideration on any index put warrant will
be determined by the decrease in the level or value of the applicable index and
the payment or delivery of any consideration on any index call warrant will be
determined by the increase in the level or value of the applicable Index.
Method of Issuance
Index Warrants issued without a Minimum Expiration Value will be issued
under one or more index warrant agreements to be entered into between ML&Co.
and a bank or trust company, as index warrant agent, all as described in the
prospectus supplement relating to the specific issue of Index Warrants. The
index warrant agent will act solely as the agent of ML&Co. under the applicable
index warrant agreement and will not assume any obligation or relationship of
agency or trust for or with any index warrantholders. A single bank or trust
company may act as index warrant agent for more than one issue of Index
Warrants.
Index Warrants issued with a Minimum Expiration Value will be issued under
one or more index warrant trust indentures to be entered into between ML&Co.
and a corporation or other person permitted by the Trust Indenture Act of 1939,
as amended from time to time, to act as index warrant trustee, all as described
in the prospectus supplement relating to the Index Warrants. Any index warrant
trust indenture will be qualified under the Trust Indenture Act. To the extent
allowed by the Trust Indenture Act, a single qualified corporation may act as
index warrant trustee for more than one issue of Index Warrants.
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ML&Co. has filed forms of index warrant agreement and index warrant trust
indenture and the related global index warrant certificates as exhibits to the
registration statement of which this prospectus is a part. The summaries set
forth in this section of the material provisions of the index warrant
agreement, the index warrant trust indenture and global index warrant
certificates are not complete, are subject to, and are qualified in their
entirety by reference to, all the provisions of the index warrant agreement,
the index warrant trust indenture and global index warrant certificates,
respectively.
Unless otherwise specified in the accompanying prospectus supplement,
payments, if any, upon exercise of the Index Warrants will be made in U.S.
dollars. The Index Warrants will be offered on terms to be determined at the
time of sale. ML&Co. will have the right to reopen a previous issue of Index
Warrants and to issue additional Index Warrants of that issue without the
consent of any index warrantholder.
Terms of the Index Warrants
The applicable prospectus supplement will describe the specific issue of
Index Warrants being offered, the indenture or agreement under which the Index
Warrants will be issued, as the case may be, and the index warrant certificates
representing the Index Warrants, including the following:
. whether the Index Warrants to be issued will be Index Put Warrants,
Index Call Warrants or both;
. the aggregate number and initial public offering price or purchase
price;
. the applicable index;
. whether the Index Warrants will be deemed automatically exercised as of
a specified date or whether the Index Warrants may be exercised during a
period and the date on which the right to exercise the Index Warrants
commences and expires;
. the manner in which the Index Warrants may be exercised and any
restrictions on, or other special provisions relating to, the exercise
of the Index Warrants;
. any minimum number of the Index Warrants exercisable at any one time;
. any maximum number of the Index Warrants that may, subject to ML&Co.'s
election, be exercised by all index warrantholders, or by any person or
entity, on any day;
. any provisions permitting an index warrantholder to condition an
exercise notice on the absence of certain specified changes in the level
of the applicable index after the exercise date, any provisions
permitting ML&Co. to suspend exercise of the Index Warrants based on
market conditions or other circumstances and any other special provision
relating to the exercise of the Index Warrants;
. any provisions for the automatic exercise of the Index Warrants other
than at the expiration date;
. any provisions permitting ML&Co. to cancel the Index Warrants upon the
occurrence of certain events;
. any additional circumstances that would constitute an Event of Default
under the Index Warrants;
. the method of determining:
. the payment or delivery, if any, to be made in connection with the
exercise or deemed exercise of the Index Warrants (the "Settlement
Value");
. the minimum payment or delivery, if any, to be made upon expiration
of the Index Warrants (the "Minimum Expiration Value");
. the payment or delivery to be made upon the exercise of any right
which ML&Co. may have to cancel the Index Warrants; and
. the value of the index;
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. in the case of Index Warrants relating to an index for which the trading
prices of underlying securities, commodities or rates are expressed in a
foreign currency, the method of converting amounts in the relevant
foreign currency or currencies into U.S. dollars, or any other currency
or composite currency in which the Index Warrants are payable;
. any method of providing for a substitute index or otherwise determining
the payment or delivery to be made in connection with the exercise of
the Index Warrants if the index changes or ceases to be made available
by its publisher;
. any time or times at which ML&Co. will make payment or delivery on the
Index Warrants following exercise or automatic exercise;
. any provisions for issuing the Index Warrants in other than book-entry
form;
. if the Index Warrants are not issued in book-entry form, any place or
places at which ML&Co. will make payment or delivery on cancellation and
any Minimum Expiration Value of the Index Warrants;
. any circumstances that will cause the Index Warrants to be deemed to be
automatically exercised;
. any material risk factors relating to the Index Warrants;
. the identity of the Index Warrant Agent; and
. any other terms of the Index Warrants which are not inconsistent with
the provisions of the index warrant agreement.
Prospective purchasers of Index Warrants should be aware that special U.S.
Federal income tax, accounting and other considerations may be applicable to
instruments such as the Index Warrants. The prospectus supplement relating to
any issue of Index Warrants will describe these considerations, if they apply.
Ranking
The Index Warrants are unsecured contractual obligations of ML&Co. and will
rank equally with its other unsecured contractual obligations and with its
unsecured and unsubordinated debt. Because ML&Co. is a holding company, the
right of ML&Co. and its creditors, including the index warrantholders, to
participate in any distribution of the assets of any subsidiary upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that a bankruptcy
court may recognize claims of ML&Co. itself as a creditor of the subsidiary. 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 certain exchanges and other regulatory bodies.
Payment and Delivery
If specified, and under the circumstances described in the prospectus
supplement:
. ML&Co. will pay or deliver to each index warrantholder an amount equal
to the greater of the applicable Settlement Value and a Minimum
Expiration Value of the Index Warrants;
. upon cancellation of the Index Warrants by ML&Co. which may occur upon
specified events, ML&Co. will pay or deliver to each index warrantholder
an amount specified in the prospectus supplement; and
. following the occurrence of an extraordinary event, the Settlement Value
of an Index Warrant may, at the option of ML&Co., be determined on a
different basis, including in connection with automatic exercise at
expiration.
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Unless otherwise specified in the related prospectus supplement, the Index
Warrants will be deemed to be automatically exercised upon expiration or any
earlier date that may be specified. Upon any automatic exercise, ML&Co. will
deliver or pay to each index warrantholder an amount equal to the Settlement
Value of the Index Warrants, except that holders of Index Warrants having a
Minimum Expiration Value will be entitled to receive a payment or delivery
equal to the greater of the Settlement Value and the applicable Minimum
Expiration Value. The Minimum Expiration Value may be either a predetermined
payment or delivery or a payment or delivery that varies during the term of the
Index Warrants in accordance with a schedule or formula. Any Minimum Expiration
Value applicable to an issue of Index Warrants, as well as any additional
circumstances resulting in the automatic exercise of the Index Warrants, will
be specified in the applicable prospectus supplement.
Cancellation or Postponement
If so specified in the applicable prospectus supplement, ML&Co. may cancel
the Index Warrants. In addition, ML&Co. may delay or postpone the exercise or
valuation of, or payment or delivery for, the Index Warrants upon the
occurrence of an extraordinary event. Any extraordinary events relating to an
issue of Index Warrants will be described in the applicable prospectus
supplement. Upon cancellation, the related index warrantholders will be
entitled to receive only the applicable payment or delivery on cancellation
specified in the applicable prospectus supplement. The amount payable or
deliverable upon cancellation may be either a predetermined amount or an amount
that varies during the term of the Index Warrants in accordance with a schedule
or formula.
Waiver of Default
If ML&Co. defaults with respect to any of its obligations under any Index
Warrants issued with a Minimum Expiration Value under an index warrant trust
indenture, the index warrantholders of a majority in interest of all
outstanding Index Warrants may waive a default, except a default:
. in the payment or delivery of the Settlement Value, Minimum Expiration
Value or payment or delivery of any amount upon cancellation of the
Index Warrants; or
. in respect of a covenant or provision of the applicable index warrant
trust indenture which cannot be modified or amended without the consent
of each index warrantholder of each outstanding Index Warrant affected.
Modification
ML&Co. and the index warrant agent or index warrant trustee, as the case may
be, may amend any index warrant agreement or index warrant indenture and the
terms of the related Index Warrants by a supplemental agreement or supplemental
indenture (each, a "Supplemental Agreement"), without the consent of the
holders of any Index Warrants, for the purpose of:
. curing any ambiguity, or of curing, correcting or supplementing any
defective or inconsistent provision, or of making any other provisions
with respect to matters or questions arising under the index warrant
agreement or index warrant trust indenture, as the case may be, which
are not inconsistent with the provisions of the respective agreement or
indenture or of the Index Warrants;
. evidencing the succession to ML&Co. and the assumption by the successor
of ML&Co.'s covenants contained in the index warrant agreement or the
index warrant trust indenture, as the case may be, and the Index
Warrants;
. appointing a successor depositary;
. evidencing and providing for the acceptance of appointment by a
successor index warrant agent or index warrant trustee with respect to
the Index Warrants, as the case may be;
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. adding to the covenants of ML&Co., for the benefit of the index
warrantholders or surrendering any right or power conferred upon ML&Co.
under the index warrant agreement or index warrant trust indenture, as
the case may be;
. issuing Index Warrants in definitive form; or
. amending the index warrant agreement or index warrant trust indenture,
as the case may be, in any manner which ML&Co. may deem to be necessary
or desirable and which will not materially and adversely affect the
interests of the index warrantholders.
ML&Co. and the index warrant agent may also amend any index warrant
agreement or index warrant trust indenture, as the case may be, and the terms
of the related Index Warrants, by a Supplemental Agreement, with the consent of
the index warrantholders holding not less than 66 2/3% in number of the then
outstanding unexercised Index Warrants affected by the amendment, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the index warrant agreement or index warrant trust
indenture, as the case may be, or of modifying in any manner the rights of the
index warrantholders. However, without the consent of each index warrantholder
affected, no amendment may be made that:
. changes the determination, or any aspects of the determination, of the
Settlement Value or any payment or delivery to be made on cancellation,
or any Minimum Expiration Value of the Index Warrants so as to reduce
the payment or delivery to be made upon exercise or deemed exercise,
. shortens the period of time during which the Index Warrants may be
exercised, or otherwise materially and adversely affects the exercise
rights of the index warrantholders, or
. reduces the number of outstanding Index Warrants, the consent of whose
holders is required for amendment of the index warrant agreement, the
index warrant trust indenture or the terms of the related Index
Warrants.
Events of Default
Specified events in bankruptcy, insolvency or reorganization of ML&Co. will
constitute Events of Default with respect to Index Warrants having a Minimum
Expiration Value which are issued under an index warrant trust indenture. Upon
the occurrence of an Event of Default, the holders of 25% of unexercised Index
Warrants may elect to receive a settlement payment or delivery for any
unexercised Index Warrants. Any settlement payment or delivery will immediately
become due to the index warrantholders upon any election. Assuming ML&Co. is
able to satisfy its obligations when due under the Index Warrants, the
settlement payment or delivery will be an amount equal to the market value of
the Index Warrants as of the date ML&Co. is notified of the intended
liquidation. The market value of the Index Warrants will be determined by a
nationally recognized securities broker-dealer unaffiliated with ML&Co. and
mutually selected by ML&Co. and the index warrant trustee.
Merger, Consolidation, Sale, Lease or Other Dispositions
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:
. 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:
. pay or deliver the Settlement Value, any Minimum Expiration Value or
any consideration payable or deliverable upon cancellation, if
applicable with respect to all the unexercised Index Warrants; and
. perform and observe all of the obligations and conditions of the
index warrant agreement or index warrant trust indenture, as the
case may be, to be performed or observed by ML&Co.; and
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. ML&Co. or the successor corporation, as the case may be, is not,
immediately after any merger or consolidation, in default under the
index warrant agreement or index warrant trust indenture, as the case
may be.
Enforceability of Rights by Index Warrantholders
Any index warrantholder may, without the consent of the related index
warrant agent, enforce by appropriate legal action, in and for its own behalf,
its right to exercise, and receive payment or delivery for, its Index Warrants.
Book-Entry Procedures
Except as may otherwise be provided in the applicable prospectus supplement,
the Index Warrants will be issued in book-entry form and represented by global
Index Warrants, registered in the name of a depositary or its nominee. In that
case, index warrantholders will not be entitled to receive definitive
certificates representing Index Warrants, unless the depositary is unwilling or
unable to continue as depositary or ML&Co. decides to have the Index Warrants
represented by definitive certificates. A beneficial owner's interest in an
Index Warrant represented by a global Index Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains the
beneficial owner's account. In turn, the total number of Index Warrants held by
an individual brokerage firm or other entity for its clients will be maintained
on the records of the depositary in the name of the brokerage firm or other
entity or its agent. Transfer of ownership of any Index Warrant will be
effected only through the selling beneficial owner's brokerage firm.
Listing
ML&Co. may list an issue of Index Warrants on a national securities
exchange. Any listing will be specified in the applicable prospectus
supplement.
DESCRIPTION OF PREFERRED STOCK
The following description sets forth certain general terms of preferred
stock which ML&Co. may issue. The terms of any series of the preferred stock
will be described in the applicable prospectus supplement relating to the
preferred stock being offered. The description set forth below and in any
prospectus supplement is not complete, and is subject to, and qualified in its
entirety by reference to, ML&Co.'s restated certificate of incorporation, as
amended, which is filed as an exhibit to the registration statement of which
this prospectus is a part, and the certificate of designations relating to each
particular series of the preferred stock, which was or will be filed with the
SEC at or before the issuance of the series of preferred stock.
Terms of the Preferred Stock
Under ML&Co.'s restated certificate of incorporation, ML&Co. is authorized
to issue up to 25,000,000 shares of preferred stock, par value $1.00 per share.
The Board of Directors of ML&Co. has the authority, without approval of the
stockholders, to issue all of the shares of preferred stock which are currently
authorized in one or more series and to fix the number of shares and the
rights, preferences, privileges, qualifications, restrictions and limitations
of each series. As of September 29, 2000, ML&Co. had 24,957,500 shares of
preferred stock available for issuance.
ML&Co. has authorized the issuance of shares of Series A junior preferred
stock, par value $1.00 per share, of ML&Co. upon exercise of preferred share
purchase rights associated with each share of common stock outstanding. See
"Description of Common Stock--Rights to Purchase Series A Junior Preferred
Stock".
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In addition, as described under "Description of Depositary Shares", ML&Co.,
at its option, instead of offering full shares of any series of preferred
stock, may offer depositary shares evidenced by depositary receipts, each
representing a fraction of a share of the particular series of preferred stock
issued and deposited with a depositary. The fraction of a share of preferred
stock which each depositary share represents will be set forth in the
prospectus supplement relating to the depositary shares.
The applicable prospectus supplement will describe the terms of each series
of preferred stock, including, where applicable, the following:
. the designation, stated value, liquidation preference and number of
shares offered;
. the offering price or prices;
. the dividend rate or rates, or method of calculation, the dividend
periods, the date on which dividends shall be payable and whether
dividends are cumulative or noncumulative and, if cumulative, the dates
from which dividends begin to cumulate;
. any redemption or sinking fund provisions;
. any conversion or exchange provisions;
. any voting rights;
. whether the preferred stock will be issued in certificated or book-entry
form;
. whether the preferred stock will be listed on a national securities
exchange;
. information with respect to any book-entry procedures; and
. any additional rights, preferences, privileges, limitations and
restrictions of the preferred stock which are not inconsistent with the
provisions of the certificate of incorporation.
The preferred stock will be, when issued against payment, fully paid and
nonassessable. Holders will have no preemptive rights to subscribe for any
additional securities which ML&Co. may issue. Unless otherwise specified in the
applicable prospectus supplement, the shares of each series of preferred stock
will rank equally with all other outstanding series of preferred stock issued
by ML&Co. as to payment of dividends, other than with respect to cumulation of
dividends, and as to the distribution of assets upon liquidation, dissolution,
or winding up of ML&Co. As of September 29, 2000, there were 42,500 shares of
ML&Co.'s 9% Cumulative Preferred Stock, Series A (the "9% Preferred Stock")
represented by 17,000,000 depositary shares and one Special Voting Share
outstanding. See "--Outstanding Preferred Stock". Each series of preferred
stock will rank senior to the common stock, and any other stock of ML&Co. that
is expressly made junior to that series of preferred stock.
Unless otherwise specified in the applicable prospectus supplement,
Citibank, N.A., will be the transfer agent, dividend disbursing agent and
registrar for the shares of the preferred stock.
Because ML&Co. is a holding company, its rights and the rights of holders of
its securities, including the holders of preferred stock, to participate in the
distribution of assets of any subsidiary of ML&Co. upon its liquidation or
recapitalization will be subject to the prior claims of the subsidiary's
creditors and preferred stockholders, except to the extent ML&Co. may itself be
a creditor with recognized claims against the subsidiary or a holder of
preferred stock of the subsidiary.
Dividends and Distributions
Holders of shares of the preferred stock will be entitled to receive, as, if
and when declared by the Board of Directors of ML&Co., or a duly authorized
committee of the Board of Directors, out of funds legally available for the
payment of dividends, cash dividends at the rate set forth in, or calculated in
accordance with the formula set forth in, the prospectus supplement relating to
the preferred stock being offered.
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Dividends on the preferred stock may be cumulative or noncumulative as
provided in the applicable prospectus supplement. Dividends on the cumulative
preferred stock will accumulate from the date of original issue and will be
payable quarterly in arrears on the dates specified in the applicable
prospectus supplement. If any date so specified as a dividend payment date is
not a business day, declared dividends on the preferred stock will be paid on
the immediately succeeding business day, without interest. The applicable
prospectus supplement will set forth the applicable dividend period with
respect to a dividend payment date. If the Board of Directors of ML&Co. or a
duly authorized committee of the Board of Directors, fails to declare a
dividend on any series of noncumulative preferred stock for any dividend
period, ML&Co. will have no obligation to pay a dividend for that period,
whether or not dividends on that series of noncumulative preferred stock are
declared for any future dividend period. Unless otherwise specified in the
applicable prospectus supplement, dividends on the preferred stock will be
payable to record holders as they appear on the stock books of ML&Co. on each
record date, not more than 30 nor less than 15 days preceding the applicable
payment date, as shall be fixed by the Board of Directors of ML&Co. or a duly
authorized committee of the Board of Directors.
No dividends will be declared or paid or set apart for payment on the
preferred stock of any series ranking, as to dividends, equally with or junior
to any other series of preferred stock for any period unless dividends have
been or are contemporaneously declared and paid or declared and a sum
sufficient for the payment of those dividends has been set apart for,
. in the case of cumulative preferred stock, all dividend periods
terminating on or before the date of payment of full cumulative
dividends, or
. in the case of noncumulative preferred stock, the immediately preceding
dividend period.
When dividends are not paid in full upon any series of preferred stock, and
any other preferred stock ranking equally as to dividends with that series of
preferred stock, all dividends declared upon shares of that series of preferred
stock and any other preferred stock ranking equally as to dividends will be
declared pro rata so that the amount of dividends declared per share on that
series of preferred stock and any other preferred stock ranking equally as to
dividends will in all cases bear to each other the same ratio that accrued
dividends per share on the shares of that series of preferred stock and the
other preferred stock bear to each other. In the case of noncumulative
preferred stock, any accrued dividends described in the immediately preceding
paragraph will not include any cumulation in respect of unpaid dividends for
prior dividend periods.
Except as provided in the immediately preceding paragraph, unless full
dividends on all outstanding shares of any series of preferred stock have been
declared and paid,
. in the case of a series of cumulative preferred stock, for all past
dividend periods, or
. in the case of noncumulative preferred stock, for the immediately
preceding dividend period,
then:
. ML&Co. may not declare dividends or pay or set aside for payment or
other distribution on any of its capital stock ranking junior to or
equally with that series of preferred stock as to dividends or upon
liquidation, other than dividends or distributions paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of, the
common stock of ML&Co. or other capital stock of ML&Co. ranking junior
to that series of preferred stock as to dividends and upon liquidation,
and
. other than in connection with the distribution or trading of any of its
capital stock, ML&Co. may not redeem, purchase or otherwise acquire any
of its capital stock ranking junior to or equally with that series of
preferred stock as to dividends or upon liquidation, for any
consideration or any moneys paid to or made available for a sinking fund
for the redemption of any shares of any of its capital stock, except by
conversion or exchange for capital stock of ML&Co. ranking junior to
that series of preferred stock as to dividends and upon liquidation.
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Unless otherwise specified in the applicable prospectus supplement, the
amount of dividends payable for any period shorter than a full dividend period
shall be computed on the basis of twelve 30-day months, a 360-day year and the
actual number of days elapsed in any period of less than one month.
As of September 29, 2000, subsidiaries of ML&Co. had outstanding
approximately $2.7 billion of perpetual Trust Originated Preferred
Securities SM ("TOPrS"). In connection with the issuance of the TOPrS, ML&Co.
has agreed, among other things, that if full distributions on the TOPrS have
not been paid or set apart for payment or if ML&Co. is in default of their
related guarantee obligations, ML&Co., with certain exceptions, will not
declare or pay dividends, make distributions with respect to, or redeem,
purchase or acquire, or make a liquidation payment with respect to any of its
capital stock, including the preferred stock.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of
ML&Co., the holders of the preferred stock will have preference and priority
over the common stock of ML&Co. and any other class of stock of ML&Co. ranking
junior to the preferred stock upon liquidation, dissolution or winding up, for
payments out of or distributions of the assets of ML&Co. or proceeds from any
liquidation, whether from capital or surplus, of the amount per share set forth
in the applicable prospectus supplement plus all accrued and unpaid dividends,
whether or not earned or declared, to the date of final distribution to such
holders. After any liquidating payment, the holders of preferred stock will be
entitled to no other payments. If, in the case of any liquidation, dissolution
or winding up of ML&Co., the assets of ML&Co. or the proceeds from any
liquidation should be insufficient to make the full liquidation payment in the
amount per share set forth in the applicable prospectus supplement relating to
a series of preferred stock, plus all accrued and unpaid dividends on that
preferred stock, and liquidating payments on any other preferred stock ranking
as to liquidation, dissolution or winding up equally with that preferred stock,
then any assets and proceeds will be distributed among the holders of the
preferred stock and any other preferred stock ratably in accordance with the
respective amounts which would be payable on those shares of preferred stock
and any other preferred stock if all amounts payable were paid in full. In the
case of noncumulative preferred stock, accrued and unpaid dividends will not
include cumulation of unpaid dividends from prior dividend periods. A
consolidation or merger of ML&Co. with one or more corporations will not be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of ML&Co.
Redemption
If specified in the prospectus supplement relating to a series of preferred
stock being offered, ML&Co. may, at its option, at any time or from time to
time on not less than 30 nor more than 60 days notice, redeem that series of
preferred stock in whole or in part at the redemption prices and on the dates
set forth in the applicable prospectus supplement.
If less than all outstanding shares of a series of preferred stock are to be
redeemed, the selection of the shares to be redeemed shall be determined by lot
or pro rata as may be determined by the Board of Directors of ML&Co. or a duly
authorized committee of the Board of Directors to be equitable. From and after
the redemption date, unless ML&Co. is in default in providing for the payment
of the redemption price, dividends shall cease to accrue on the shares of that
series of preferred stock called for redemption and all rights of the holders
shall cease, other than the right to receive the redemption price.
Voting Rights
Unless otherwise described in the applicable prospectus supplement, holders
of the preferred stock will have no voting rights except as set forth below or
as otherwise required by law.
SM Service mark of Merrill Lynch & Co., Inc.
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Whenever dividends payable on the preferred stock are in arrears for a
number of dividend periods, whether or not consecutive, which in the aggregate
is equivalent to six calendar quarters, the holders of outstanding shares of
the preferred stock, voting as a class with holders of shares of all other
series of preferred stock ranking equally with the preferred stock either as to
dividends or the distribution of assets upon liquidation, dissolution or
winding up and upon which like voting rights have been conferred and are
exercisable, will be entitled to vote for the election of two additional
directors on the terms set forth below. These voting rights will continue, in
the case of any series of cumulative preferred stock, until all past dividends
accumulated on shares of cumulative preferred stock are paid in full and, in
the case of noncumulative preferred stock, until all dividends on shares of
noncumulative preferred stock are paid in full for at least one calendar year.
Upon payment in full of these dividends, the voting rights will terminate
except as expressly provided by law. These voting rights are subject to re-
vesting in the event of each and every subsequent default in the payment of
dividends. Holders of all series of preferred stock which are granted these
voting rights and which rank equally with the preferred stock will vote as a
class, and, unless otherwise specified in the applicable prospectus supplement,
each holder of shares of the preferred stock will have one vote for each share
of stock held and each other series will have the number of votes, if any, for
each share of stock held as may be granted to them. In the event that the
holders of shares of the preferred stock are entitled to vote as described in
this paragraph, the Board of Directors of ML&Co. will be increased by two
directors, and the holders of the preferred stock will have the exclusive right
as members of that class, as outlined above, to elect two directors at the next
annual meeting of stockholders.
Upon termination of the right of the holders of the preferred stock to vote
for directors as discussed in the preceding paragraph, the term of office of
all directors then in office elected by those holders will terminate
immediately. Whenever the term of office of the directors elected by those
holders ends and the related special voting rights expire, the number of
directors will automatically be decreased to the number of directors as would
otherwise prevail.
So long as any shares of preferred stock remain outstanding, ML&Co. shall
not, without the affirmative vote or consent of the holders of at least two-
thirds of the shares of the preferred stock outstanding at the time, voting as
a class with all other series of preferred stock ranking equally with the
preferred stock either as to dividends or the distribution of assets upon
liquidation, dissolution or winding up and upon which like voting rights have
been conferred and are exercisable, given in person or by proxy, either in
writing or at a meeting:
. authorize, create or issue, or increase the authorized or issued amount
of, any class or series of stock ranking senior to the preferred stock
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of ML&Co.; or
. amend, alter or repeal, whether by merger, consolidation or otherwise,
the provisions of ML&Co.'s restated certificate of incorporation or the
certificate of designations of the preferred stock so as to materially
and adversely affect any right, preference, privilege or voting power of
the preferred stock or the holders of the preferred stock;
provided, however, that any increase in the amount of authorized preferred
stock or the creation and issuance, or an increase in the authorized or issued
amount, of other series of preferred stock, or any increase in the amount of
authorized shares of preferred stock, in each case ranking equally with or
junior to the preferred stock with respect to the payment of dividends and the
distribution of assets upon liquidation, dissolution or winding of ML&Co. up
will not be deemed to materially and adversely affect these rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if all outstanding shares of
preferred stock have been redeemed or sufficient funds have been deposited in
trust to effect such a redemption which is scheduled to be consummated within
three months after the time that such rights would otherwise be exercisable.
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Conversion or Exchange Rights
The prospectus supplement relating to a series of preferred stock that is
convertible or exchangeable will state the terms on which shares of that series
are convertible or exchangeable into common stock, another series of preferred
stock or debt securities.
Outstanding Preferred Stock
At September 29, 2000, there were 42,500 shares of 9% Preferred Stock
represented by 17,000,000 depositary shares and one Special Voting Share
outstanding.
9% Preferred Stock
The 9% Preferred Stock has preference over ML&Co.'s common stock and the
Series A junior preferred stock issuable under the Rights Plan described under
"Description of Common Stock" with respect to the payment of dividends and the
distribution of assets in the event of liquidation, dissolution or winding up
of ML&Co. Holders of the 9% Preferred Stock do not have any preemptive rights
to subscribe for any additional securities which may be issued by ML&Co.
Dividends on the 9% Preferred Stock are cumulative and payable quarterly at the
rate per annum of 9% of the $10,000 liquidation preference per share. Holders
of the 9% Preferred Stock have no voting rights except as set forth above under
"--Voting Rights" above. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of ML&Co., the holders of outstanding
shares of 9% Preferred Stock are entitled to receive out of assets of ML&Co.
available for distribution to stockholders a distribution of $10,000 per share,
plus accumulated and unpaid dividends, if any. The 9% Preferred Stock is not
redeemable before December 30, 2004. On and after that date, the 9% Preferred
Stock is redeemable at the option of ML&Co., in whole at any time or from time
to time in part, upon not less than 30 nor more than 60 days notice, at a
redemption price of $10,000 per share, plus accumulated and unpaid dividends,
if any.
Special Voting Share
In connection with the acquisition of Midland Walwyn Inc. by ML&Co. in
August 1998, ML&Co. issued a single share of preferred stock with special
voting rights (the "Special Voting Share"), under the terms of a Voting and
Exchange Trust Agreement entered into by Merrill Lynch & Co., Canada Ltd. ("ML
Canada"), ML&Co. and Montreal Trust Company of Canada, as trustee (the "Voting
Trust Agreement"). The Special Voting Share possesses a number of votes equal
to the number of exchangeable shares of ML Canada (the "Exchangeable Shares")
issued and outstanding from time to time that are not owned by ML&Co. or its
affiliates, which votes may be exercised for the election of directors and on
all other matters submitted to a vote of ML&Co.'s stockholders. The holders of
ML&Co.'s common stock and the holder of the Special Voting Share vote together
as a class on all matters. See "Description of Common Stock--Voting Rights".
The Special Voting Share was issued to the trustee under the Voting Trust
Agreement. The holder of the Special Voting Share is not entitled to receive
dividends, and, in the event of any liquidation, dissolution or winding up of
ML&Co., will receive an amount equal to the par value of the Special Voting
Share. When the Special Voting Share has no votes attached to it because there
are no Exchangeable Shares outstanding not owned by ML&Co. or any of its
affiliates, the Special Voting Share will cease to have any rights.
DESCRIPTION OF DEPOSITARY SHARES
ML&Co. may issue depositary receipts evidencing depositary shares, each of
which will represent a fraction of a share of preferred stock. ML&Co. will
deposit shares of preferred stock of each class or series represented by
depositary shares under deposit agreements to be entered into among ML&Co., a
bank or trust company, as depositary, and the holders from time to time of the
depositary receipts. A copy of the form of deposit agreement, including the
form of certificates representing the depositary receipts, is filed as an
exhibit to the registration statement of which this prospectus is a part. The
following summaries of the material
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provisions of the deposit agreements and the depositary receipt certificates
are not complete, are subject to, and are qualified in their entirety by
reference to, all the provisions of the deposit agreement and the depositary
receipt certificates, respectively, including the definitions of terms.
Terms of the Depositary Shares
Depositary receipts issued under the applicable deposit agreement will
evidence the depositary shares. Immediately following the issuance and delivery
of the preferred stock by ML&Co. to the depositary, ML&Co. will cause the
depositary to issue, on behalf of ML&Co., the depositary receipts. Subject to
the terms of the applicable deposit agreement, each holder of a depositary
receipt will be entitled, in proportion to the fraction of a share of preferred
stock represented by the applicable depositary shares, to all the rights and
preferences of the preferred stock being represented, including dividend,
voting, conversion, redemption and liquidation rights, all as will be set forth
in the prospectus supplement relating to the depositary shares being offered.
The depositary shares will have the dividend, liquidation, redemption,
voting and conversion or exchange rights set forth below unless otherwise
specified in the applicable prospectus supplement. The applicable prospectus
supplement will describe the terms of the specific issue of the depositary
shares being offered, the deposit agreement relating to the depositary shares
and the depositary receipts evidencing the depositary shares, including the
following:
. the designation, stated value and liquidation preference of the
depositary shares and the number of shares offered;
. the offering price or prices;
. the dividend rate or rates, or method of calculation, the dividend
periods, the dates on which dividends will be payable and whether
dividends are cumulative or noncumulative and, if cumulative, the dates
from which dividends will begin to cumulate;
. any redemption or sinking fund provisions;
. any conversion or exchange provisions;
. any material risk factors relating to the depositary shares;
. the identity of the depositary; and
. any other terms of the depositary shares which are not inconsistent with
the provisions of the deposit agreement.
Book-Entry Procedures
Except as may otherwise be provided in the applicable prospectus supplement,
the depositary shares will be evidenced by global depositary receipts,
registered in the name of a depositary or its nominee. In that case, beneficial
owners will not be entitled to receive depositary receipts evidencing their
depositary shares unless the depositary is unwilling or unable to continue as
depositary or ML&Co. decides to have the depositary shares represented by
separate depositary receipts. A beneficial owner's interest in depositary
shares will be recorded on or through the records of the brokerage firm or
other entity that maintains the beneficial owner's account. In turn, the total
number of depositary shares held by an individual brokerage firm for its
clients will be maintained on the records of the depositary in the name of the
brokerage firm or its agent. Transfer of ownership of depositary shares will be
effected only through the selling beneficial owner's brokerage firm.
Dividends and Other Distributions
The depositary will distribute all cash dividends or other cash
distributions received in respect of the preferred stock to the record holders
of depositary receipts in proportion to the number of depositary shares owned
by those holders, subject to the obligations of holders to file proofs,
certificates and other information and to pay certain charges and expenses to
the depositary.
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In the event of a distribution in respect of the preferred stock other than
in cash, the depositary will distribute property it receives to the record
holders of the depositary shares, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to the depositary, unless the depositary, after consultation with
ML&Co., determines that it is not feasible to make the distribution, in which
case the depositary may, with the approval of ML&Co., sell any property and
distribute the net proceeds from the sale to the holders.
Withdrawal of Stock
Unless the related depositary shares have been previously called for
redemption, upon surrender of the depositary receipts at the corporate trust
office of the depositary, the holder of the depositary shares will be entitled
to delivery, at the corporate trust office of the depositary to or upon his or
her order, of the number of whole shares of the preferred stock and any money
or other property represented by the depositary shares. If the depositary
receipts delivered by the holder evidence a number of depositary shares in
excess of the number of depositary shares representing the number of whole
shares of preferred stock to be withdrawn, the depositary will deliver to the
holder at the same time a new depositary receipt evidencing the excess number
of depositary shares. In no event will the depositary deliver fractional shares
of preferred stock upon surrender of depositary receipts.
Redemption of Depositary Shares
Whenever ML&Co. redeems shares of preferred stock held by the depositary,
the depositary will redeem as of the same redemption date the number of
depositary shares representing shares of the preferred stock so redeemed,
provided ML&Co. has paid in full to the depositary the redemption price of the
preferred stock to be redeemed plus an amount equal to any accumulated and
unpaid dividends on the preferred stock to the date fixed for redemption. The
redemption price per depositary share will be equal to the redemption price and
any other amounts per share payable with respect to the preferred stock
multiplied by the fraction of a share of preferred stock represented by one
depositary share. If less than all the depositary shares are to be redeemed,
the depositary shares to be redeemed will be selected by the lot or pro rata as
may be determined by the depositary.
After the date fixed for redemption, depositary shares called for redemption
will no longer be deemed to be outstanding and all rights of the holders of
depositary shares called for redemption will cease, except the right to receive
any moneys payable upon redemption and any money or other property to which the
holders of the depositary shares were entitled upon redemption upon surrender
to the depositary of the depositary receipts evidencing the depositary shares.
Voting the Preferred Stock
Upon receipt of notice of any meeting at which the holders of the preferred
stock are entitled to vote, the depositary will mail the information contained
in the notice of meeting to the record holders of the depositary receipts
relating to that preferred stock. The record date for the depositary receipts
relating to the preferred stock will be the same date as the record date for
the preferred stock. Each record holder of the depositary shares on the record
date will be entitled to instruct the depositary as to the exercise of the
voting rights pertaining to the amount of preferred stock represented by that
holder's depositary shares. The depositary will endeavor, insofar as
practicable, to vote the amount of preferred stock represented by the
depositary shares in accordance with those instructions, and ML&Co. will agree
to take all reasonable action which may be deemed necessary by the depositary
in order to enable the depositary to do so. The depositary will not vote any
shares of preferred stock except to the extent it receives specific
instructions from the holders of depositary shares representing that number of
shares of preferred stock.
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Exchange of Preferred Stock
Whenever ML&Co. exchanges all of the shares of a series of preferred stock
held by the depositary for debt securities, common stock or other shares of
preferred stock, the depositary will exchange as of the same exchange date the
number of depositary shares representing all of the shares of the preferred
stock so exchanged for debt securities, common stock or other shares of
preferred stock, provided ML&Co. has issued and deposited with the depositary,
debt securities, common stock or other shares of preferred stock, as
applicable, for all of the shares of the preferred stock to be exchanged. The
exchange rate per depositary share will be equal to the exchange rate per share
of preferred stock multiplied by the fraction of a share of preferred stock
represented by one depositary share, plus all money and other property, if any,
represented by those depositary shares, including all amounts paid by ML&Co. in
respect of dividends which on the exchange date have accumulated on the shares
of preferred stock to be so exchanged and have not already been paid.
Conversion of Preferred Stock
The depositary shares are not convertible or exchangeable into common stock
or any other securities or property of ML&Co. Nevertheless, if so specified in
the applicable prospectus supplement, each depositary receipt may be
surrendered by its holder to the depositary with written instructions to the
depositary to instruct ML&Co. to cause conversion or exchange of the preferred
stock represented by the depositary shares evidenced by that depositary receipt
into whole shares of common stock, other shares of preferred stock or debt
securities of ML&Co. ML&Co. has agreed that upon the receipt of any
instructions to convert or exchange any depositary shares and the payment of
any fees or other amounts applicable to any conversion or exchange, it will
convert or exchange the depositary shares using the same procedures as those
provided for delivery of preferred stock to effect conversions or exchange. If
the depositary shares represented by a depositary receipt are converted in part
only, a new depositary receipt or receipts will be issued for any depositary
shares not converted or exchanged.
Amendment and Termination of the Deposit Agreement
The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may at any time be amended by agreement
between ML&Co. and the depositary. However, any amendment that materially and
adversely alters the rights of the holders of depositary receipts will not be
effective unless it has been approved by the holders of at least a majority of
the depositary shares then outstanding. No amendment to the form of depositary
receipt or any provision of the deposit agreement relating to or affecting
rights to receive dividends or distributions or voting, redemption or
conversion rights will be effective unless approved by the holders of at least
two-thirds of the depositary shares then outstanding.
ML&Co. may terminate the deposit agreement at any time upon 60 days prior
written notice to the depositary, in which case the depositary will deliver to
the record holders, upon surrender of the depositary receipts, the number of
whole or fractional shares of preferred stock as is represented by those
depositary receipts. The deposit agreement will automatically terminate if:
. all outstanding depositary shares have been redeemed,
. all shares of preferred stock deposited with the depositary in
accordance with the terms of the deposit agreement and all money and
other property relating to those shares of preferred stock have been
withdrawn in accordance with the terms of the deposit agreement, or
. there has been a final distribution in respect of the preferred stock in
connection with any liquidation, dissolution or winding up of ML&Co. and
the distribution has been distributed to the holders of depositary
receipts.
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Charges of Depositary
ML&Co. will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. ML&Co. will
pay the fees and expenses of the depositary in connection with the performance
of its duties under the deposit agreement. Holders of depositary receipts will
pay transfer and other taxes and governmental charges and any other charges
that are expressly provided in the deposit agreement to be for their accounts.
The depositary may refuse to effect any transfer of a depositary receipt or any
withdrawals of preferred stock evidenced by a depositary receipt until all
taxes and charges with respect to the depositary receipt or preferred stock are
paid by their holders.
Resignation and Removal of Depositary
The depositary may resign at any time by delivering to ML&Co. notice of its
election to do so, and ML&Co. may remove the depositary at any time. Any
resignation or removal of the depositary will take effect upon ML&Co.'s
appointment of a successor depositary, which must be appointed within 60 days
after delivery of the notice of resignation or removal and must be a bank or
trust company having its principal office in the United States and having a
combined capital and surplus of at least $50,000,000.
Notices
The depositary will forward to holders of depositary receipts all reports
and communications received from ML&Co. and the depositary and which ML&Co. is
required to furnish to holders of the related underlying preferred stock. The
depositary will also, promptly after its receipt, transmit to the holders of
depositary receipts, copies of all notices and reports required by law, the
rules of any national securities exchange or ML&Co.'s restated certificate of
incorporation to be furnished to the record holders of depositary receipts.
Limitation of Liability
Neither the depositary nor ML&Co. will assume any obligation or be subject
to any liability under the deposit agreement to holders of depositary receipts
other than for negligence, willful misconduct or bad faith.
The depositary will not be obligated to prosecute or defend any legal
proceeding in respect of any depositary shares or any shares of preferred stock
unless it is furnished with satisfactory indemnification. ML&Co. and the
depositary may rely on written advice of counsel or accountants, or information
provided by persons presenting shares of preferred stock for deposit, holders
of depositary receipts or other persons believed to be competent and on
documents believed to be genuine. Neither the depositary nor ML&Co. will be
liable if it is prevented from or delayed, by law, by provision of ML&Co.'s
restated certificate of incorporation or any circumstances beyond its control,
in performing its obligations under the deposit agreement.
DESCRIPTION OF PREFERRED STOCK WARRANTS
ML&Co. may issue warrants for the purchase of preferred stock ("Preferred
Stock Warrants"). Each series of Preferred Stock Warrants is to be issued under
a preferred stock warrant agreement to be entered into between ML&Co. and a
bank or trust company, as preferred stock warrant agent, as described in the
applicable prospectus supplement relating to the Preferred Stock Warrants being
offered. A copy of the form of preferred stock warrant agreement, including the
form of warrant certificates representing the Preferred Stock Warrants, is
filed as an exhibit to the registration statement of which this prospectus is a
part. The following summaries of the material provisions of the preferred stock
warrant agreement and preferred stock warrant certificates are not complete and
are subject to and are qualified in their entirety by reference to, all the
provisions of the preferred stock warrant agreement and the preferred stock
warrant certificates, respectively, including the definitions of terms.
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Terms of the Preferred Stock Warrants
The applicable prospectus supplement will describe the terms of the specific
issue of Preferred Stock Warrants being offered, the preferred stock warrant
agreement relating to the Preferred Stock Warrants and the preferred stock
warrant certificates representing the Preferred Stock Warrants, including the
following:
. the offering price or prices;
. designation, aggregate number and terms of the series of preferred stock
that may be purchased upon exercise of the Preferred Stock Warrants and
the minimum number of Preferred Stock Warrants that are exercisable;
. any designation and terms of the securities with which the Preferred
Stock Warrants are being offered and the number of Preferred Stock
Warrants being offered with each Security;
. any date on and after which the Preferred Stock Warrants and the related
securities will be transferable separately;
. the number and stated values of the series of preferred stock that may
be purchased upon exercise of each Preferred Stock Warrant and the price
at which the shares of preferred stock of that series may be purchased
upon exercise, and events or conditions under which the number of shares
that may be purchased may be adjusted;
. the date on which the right to exercise the Preferred Stock Warrants
will begin and the date on which the right to exercise will expire;
. any circumstances that will cause the Preferred Stock Warrants to be
deemed to be automatically exercised;
. any material risk factors relating to the Preferred Stock Warrants;
. the identity of the preferred stock warrant agent; and
. any other terms of the Preferred Stock Warrants which are not
inconsistent with the provisions of the preferred stock warrant
agreement.
Holders may exchange preferred stock warrant certificates for new preferred
stock warrant certificates of different denominations, may, if in registered
form, present for registration of transfer, and exercise the Preferred Stock
Warrants at the corporate trust office of the preferred stock warrant agent or
any other office indicated in the applicable prospectus supplement. Before the
exercise of any Preferred Stock Warrant, a holder will not have the rights of a
holder of shares of the preferred stock that may be purchased upon exercise of
the Preferred Stock Warrant, including the right to receive payment of
dividends, if any, on the underlying preferred stock or the right to vote the
underlying preferred stock.
Prospective purchasers of Preferred Stock Warrants should be aware that
special U.S. Federal income tax, accounting and other considerations may be
applicable to instruments such as Preferred Stock Warrants. The prospectus
supplement relating to any issue of Preferred Stock Warrants will describe
these considerations.
Book-Entry Procedures
Except as may otherwise be provided in the applicable prospectus supplement,
the Preferred Stock Warrants will be issued in the form of global preferred
stock warrant certificates, registered in the name of a depositary or its
nominee. In that case, beneficial owners will not be entitled to receive
definitive certificates representing Preferred Stock Warrants unless the
depositary is unwilling or unable to continue as depositary, specified events
of bankruptcy or insolvency occur with respect to ML&Co. or ML&Co. decides to
have the Preferred Stock Warrants represented by definitive certificates. A
beneficial owner's interest in a Preferred Stock Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains the
beneficial owner's account. In turn, the total number of Preferred Stock
Warrants held by an individual brokerage firm for its clients will be
maintained on the records of the depositary in the name of the brokerage firm
or its agent. Transfer of ownership of any Preferred Stock Warrant will be
effected only through the selling beneficial owner's brokerage firm.
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Exercise of Preferred Stock Warrants
Each Preferred Stock Warrant will entitle its holder to purchase a number of
shares of preferred stock at the exercise price described in the applicable
prospectus supplement. After the close of business on the date the right to
exercise the Preferred Stock Warrants expires, or any later date if extended by
ML&Co., unexercised Preferred Stock Warrants will become void.
Holders may exercise the Preferred Stock Warrants in the manner set forth in
the applicable prospectus supplement. Upon receipt of payment and a properly
completed and duly executed preferred stock warrant certificate at the
corporate trust office of the preferred stock warrant agent or any other office
indicated in the applicable prospectus supplement, ML&Co. will, as soon as
practicable, issue and deliver the shares of preferred stock purchased upon
exercise. If less than all of the Preferred Stock Warrants represented by any
preferred stock warrant certificate are exercised, ML&Co. will issue a new
preferred stock warrant certificate for the remaining number of Preferred Stock
Warrants.
Listing
ML&Co. may list an issue of Preferred Stock Warrants on a national
securities exchange. Any listing will be specified in the applicable prospectus
supplement.
Modifications
ML&Co. and the preferred stock warrant agent may amend any preferred stock
warrant agreement and the terms of the related Preferred Stock Warrants,
without the consent of the holders of the Preferred Stock Warrants, for the
purpose of curing any ambiguity, or of curing, correcting or supplementing any
defective or inconsistent provision, or in any other manner which ML&Co. may
deem necessary or desirable and which will not materially and adversely affect
the interests of the preferred stock warrantholders.
ML&Co. and the preferred stock warrant agent also may amend any preferred
stock warrant agreement and the terms of the related Preferred Stock Warrants,
with the consent of the holders of not less than a majority in number of the
then outstanding unexercised Preferred Stock Warrants affected by the
amendment. However, without the consent of each of the preferred stock
warrantholders affected, no amendment will be effective that:
. shortens the period of time during which the Preferred Stock Warrants
may be exercised;
. otherwise materially and adversely affects the exercise rights of the
preferred stock warrantholders; or
. reduces the number of outstanding Preferred Stock Warrants the consent
of whose holders is required to approve an amendment of the preferred
stock warrant agreement or the terms of the related Preferred Stock
Warrants.
Enforceability of Rights by Preferred Stock Warrantholders
Any preferred stock warrantholder may, without the consent of the related
preferred stock warrant agent, enforce by appropriate legal action, in and of
its own behalf, its right to exercise its Preferred Stock Warrants.
DESCRIPTION OF COMMON STOCK
The following description sets forth the general terms of common stock which
ML&Co. may issue. The description set forth below and in any prospectus
supplement is not complete, is subject to, and is qualified in its entirety by
reference to, ML&Co's restated certificate of incorporation which is filed as
an exhibit to the registration statement of which this prospectus is a part.
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Terms of the Common Stock
Under ML&Co.'s restated certificate of incorporation, ML&Co. is authorized
to issue up to 1,000,000,000 shares of common stock, par value $1.33 1/3 per
share. As of December 1, 2000, there were 806,487,749 shares of common stock
and 4,752,366 Exchangeable Shares outstanding. The Exchangeable Shares are
exchangeable at any time into common stock on a one-for-one basis and entitle
holders to dividend, voting and other rights equivalent to common stock. The
common stock is traded on the New York Stock Exchange under the symbol "MER"
and also on the Chicago Stock Exchange, the Pacific Exchange, the Paris Bourse,
the London Stock Exchange and the Tokyo Stock Exchange.
The common stock has the dividend, voting, liquidation and preemptive rights
set forth below unless otherwise specified in the prospectus supplement being
used to offer the common stock. The applicable prospectus supplement will
describe the terms of the common stock including, where applicable, the
following:
. the number of shares to be offered;
. the offering price or prices;
. to the extent permitted by applicable law, whether the common stock will
be issued in certificated or book-entry form;
. information with respect to any book-entry procedures; and
. any additional terms of the common stock which are not inconsistent with
the provisions of ML&Co.'s restated certificate of incorporation.
The common stock will be, when issued against payment therefor, fully paid
and nonassessable. Holders of the common stock will have no preemptive rights
to subscribe for any additional securities which may be issued by ML&Co. The
rights of holders of common stock will be subject to, and may be adversely
affected by, the rights of holders of any preferred stock that has been issued
and may be issued in the future. As of September 29, 2000, 17,000,000
depositary shares, each representing a one-four-hundredth interest in a share
of 9% Preferred Stock, and one Special Voting Share were outstanding. See
"Description of Preferred Stock--Outstanding Preferred Stock" for a description
of that preferred stock. The Board of Directors of ML&Co. may issue additional
shares of preferred stock to obtain additional financing, in connection with
acquisitions, to officers, directors and employees of ML&Co. and its
subsidiaries pursuant to benefit plans or otherwise and for other proper
corporate purposes.
ML&Co. is the principal transfer agent for the common stock.
Because ML&Co. is a holding company, its rights, and the rights of holders
of its securities, including the holders of common stock, to participate in the
distribution of assets of any subsidiary of ML&Co. upon the subsidiary's
liquidation or recapitalization will be subject to the prior claims of the
subsidiary's creditors and preferred stockholders, except to the extent ML&Co.
may itself be a creditor with recognized claims against the subsidiary or a
holder of preferred stock of the subsidiary.
Dividends
ML&Co. may pay dividends on the common stock out of funds legally available
for the payment of dividends as, if and when declared by the Board of Directors
of ML&Co. or a duly authorized committee of the Board of Directors.
As of September 29, 2000, subsidiaries of ML&Co. had outstanding
approximately $2.7 billion of perpetual TOPrS. In connection with the issuance
of the TOPrS, ML&Co. has agreed, among other things, that if full distributions
on the TOPrS have not been paid or set apart for payment or ML&Co. is in
default of its related guarantee obligations, ML&Co., with certain exceptions,
will not declare or pay dividends, make distributions with respect to, or
redeem, purchase or acquire, or make a liquidation payment with respect to any
of its capital stock, including the common stock.
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Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution, or winding up
of ML&Co., the holders of its common stock will be entitled to receive, after
payment of all of its debts, liabilities and of all sums to which holders of
any preferred stock may be entitled, all of the remaining assets of ML&Co.
Voting Rights
Except as described under "Description of Preferred Stock--Outstanding
Preferred Stock", the holders of the common stock currently possess exclusive
voting rights in ML&Co. The Board of Directors of ML&Co. may, however, give
voting power to any preferred stock which may be issued in the future. Each
holder of common stock is entitled to one vote per share with respect to all
matters. There is no cumulative voting in the election of directors. Actions
requiring approval of stockholders generally require approval by a majority
vote of outstanding shares.
The Board of Directors of ML&Co. is currently comprised of 13 directors,
divided into three classes, the precise number of members to be fixed from
time to time by the Board of Directors. The directors of the class elected at
each annual election hold office for a term of three years, with the term of
each class expiring at successive annual meetings of stockholders.
Rights to Purchase Series A Junior Preferred Stock
Under the Amended and Restated Rights Agreement, adopted on December 2,
1997 (the "Rights Agreement"), preferred purchase rights were distributed to
holders of common stock. The preferred purchase rights are attached to each
outstanding share of common stock and will attach to all subsequently issued
shares, including common stock that may be offered by ML&Co. pursuant to an
applicable prospectus supplement. The preferred purchase rights entitle the
holder to purchase fractions of a share ("Units") of Series A junior preferred
stock at an exercise price of $300 per Unit, subject to adjustment from time
to time as provided in the Rights Agreement. The exercise price and the number
of Units issuable are subject to adjustment to prevent dilution.
The preferred purchase rights will separate from the common stock ten days
following the earlier of:
. an announcement of an acquisition by a person or group of 15% or more of
the outstanding common stock of ML&Co.; or
. the commencement of a tender or exchange offer for 15% or more of the
shares of common stock of ML&Co. outstanding.
If, after the preferred purchase rights have separated from the common
stock,
. ML&Co. is the surviving corporation in a merger with an acquiring party,
. a person becomes the beneficial owner of 15% or more of the common
stock,
. an acquiring party engages in one or more defined "self-dealing"
transactions, or
. an event occurs which results in such acquiring party's ownership
interest being increased by more than 1%,
then, in each case, each holder of a preferred purchase right will have the
right to purchase Units of Series A junior preferred stock having a value
equal to two times the exercise price of the preferred purchase right. In
addition, preferred purchase rights held by or transferred in certain
circumstances by an acquiring party may immediately become void.
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In the event that, at any time,
. ML&Co. is acquired in a merger or other business combination transaction
and ML&Co. is not the surviving corporation,
. any person consolidates or merges with ML&Co. and all or part of
ML&Co.'s common stock is converted or exchanged for securities, cash or
property of any other person or
. 50% or more of ML&Co.'s assets or earning power is sold or transferred,
each holder of a right will have the right to purchase common stock of the
acquiring party having a value equal to two times the exercise price of the
preferred purchase right.
The preferred purchase rights expire on December 2, 2007. The preferred
purchase rights are redeemable at the option of a majority of the independent
directors of ML&Co. at $.01 per right at any time until the tenth day following
an announcement of the acquisition of 15% or more of the common stock.
The foregoing provisions of the Rights Agreement may have the effect of
delaying, deferring or preventing a change in control of ML&Co.
The certificate of designations of the Series A junior preferred stock
provides that the holders of Units of the Series A junior preferred stock will
be entitled to receive quarterly dividends in an amount to be determined in
accordance with the formula set forth in the certificate of designations. These
dividend rights are cumulative. The Series A junior preferred stock rank junior
in right of payment of dividends to the 9% Preferred Stock and to all other
preferred stock issued by ML&Co., unless the terms of any other preferred stock
provide otherwise. The holders of Units of the Series A junior preferred stock
will have one vote per Unit on all matters submitted to the stockholders of
ML&Co., subject to adjustment. If at any time dividends on any Units of the
Series A junior preferred stock are in arrears for a number of periods, whether
or not consecutive, which in the aggregate is equivalent to six calendar
quarters, then during that period of default, the holders of all Units, voting
separately as a class, will have the right to elect two directors to the Board
of Directors of ML&Co. Additionally, whenever quarterly dividends or other
dividends or distributions payable on the Series A junior preferred stock are
in arrears, ML&Co. shall not, among other things, declare or pay dividends on
or make any other distributions on, or redeem or purchase or otherwise acquire
for consideration any shares or capital stock of ML&Co. which ranks junior in
right of payment to the Series A junior preferred stock, including the common
stock. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of ML&Co., the holders of outstanding Units of the Series A junior
preferred stock will be entitled to receive a distribution in an amount to be
determined in accordance with the formula set forth in the certificate of
designations before the payment of any distribution to the holders of common
stock. The Units of Series A junior preferred stock are not redeemable. As of
the date of this prospectus, there are no shares of Series A junior preferred
stock outstanding.
Material Charter Provisions
ML&Co.'s restated certificate of incorporation provides that, except under
specified circumstances, ML&Co. may not merge or consolidate with any one or
more corporations, joint-stock associations or non-stock corporations; sell,
lease or exchange all or substantially all of its property and assets or
dissolve without the affirmative vote of two-thirds of the entire Board of
Directors of ML&Co. and the holders of a majority of the outstanding shares of
common stock entitled to vote. Additionally, ML&Co.'s restated certificate of
incorporation provides that specified business combinations involving ML&Co.
and an interested stockholder or an affiliate or associate of that stockholder
must be approved by 80% of the voting power of the outstanding shares of
capital stock of ML&Co. entitled to vote generally in the election of
directors. The vote of 80% of the voting power of the voting stock referred to
in the immediately preceding sentence is required for amendment of these
provisions. ML&Co.'s restated certificate of incorporation also provides that
only the Board of Directors of ML&Co. has the authority to call special
stockholder meetings.
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The foregoing provisions of ML&Co.'s restated certificate of incorporation
may have the effect of delaying, deferring or preventing a change in control of
ML&Co.
DESCRIPTION OF COMMON STOCK WARRANTS
ML&Co. may issue warrants for the purchase of common stock ("Common Stock
Warrants"). Each series of Common Stock Warrants will be issued under a common
stock warrant agreement to be entered into between ML&Co. and a bank or trust
company, as common stock warrant agent, all as set forth in the applicable
prospectus supplement. A copy of the form of common stock warrant agreement,
including the form of warrant certificates representing the Common Stock
Warrants, reflecting the provisions to be included in the common stock warrant
agreements that will be entered into with respect to particular offerings of
Common Stock Warrants, is filed as an exhibit to the registration statement of
which this prospectus is a part. The following summaries of the material
provisions of the common stock warrant agreement and common stock warrant
certificates are not complete, are subject to, and are qualified in their
entirety by reference to, all of the provisions of the common stock warrant
agreement and the common stock warrant certificates, including the definitions
of terms.
Terms of the Common Stock Warrants
The applicable prospectus supplement will describe the terms of the Common
Stock Warrants being offered, the common stock warrant agreement relating to
the Common Stock Warrants and the common stock warrant certificates, including
the following:
. the offering price or prices;
. the aggregate number of shares of common stock that may be purchased
upon exercise of the Common Stock Warrants and minimum number of
Common Stock Warrants that are exercisable;
. the number of securities, if any, with which the Common Stock
Warrants are being offered and the number of the Common Stock
Warrants being offered with each security;
. the date on and after which the Common Stock Warrants and the
related securities, if any, will be transferable separately;
. the number of shares of common stock purchasable upon exercise of
each Common Stock Warrant, the price at which the common stock may
be purchased, and events or conditions under which the number of
shares purchasable may be adjusted;
. the date on which the right to exercise the Common Stock Warrants
will begin and the date on which the right to exercise will expire;
. the circumstances, if any, which will cause the Common Stock
Warrants to be deemed to be automatically exercised;
. any material risk factors relating to the Common Stock Warrants;
. the identity of the common stock warrant agent; and
. any other terms of the Common Stock Warrants which are not
inconsistent with the provisions of the common stock warrant
agreement.
Holders may exchange common stock warrant certificates for new common stock
warrant certificates of different denominations, if in registered form, may
present for registration of transfer, and may exercise the Common Stock
Warrants, at the corporate trust office of the common stock warrant agent or
any other office indicated in the applicable prospectus supplement. Before the
exercise of any Common Stock Warrants to
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purchase common stock, holders of the Common Stock Warrants will not have any
rights of holders of common stock purchasable upon exercise of the Common Stock
Warrants, including the right to receive payments of dividends, if any, on the
common stock purchasable upon any exercise or the right to vote the underlying
common stock.
Prospective purchasers of Common Stock Warrants should be aware that special
U.S. Federal income tax, accounting and other considerations may be applicable
to instruments such as Common Stock Warrants. The prospectus supplement
relating to any issue of Common Stock Warrants will describe these
considerations.
Book-Entry Procedures
Except as may otherwise be provided in the applicable prospectus supplement,
the Common Stock Warrants will be issued in the form of global common stock
warrant certificates, registered in the name of a depositary or its nominee. In
that case, beneficial owners will not be entitled to receive definitive
certificates representing Common Stock Warrants unless the depositary is
unwilling or unable to continue as depositary, certain specified events of
bankruptcy or insolvency occur with respect to ML&Co. or ML&Co. decides to have
the Common Stock Warrants represented by definitive certificates. A beneficial
owner's interest in a Common Stock Warrant will be recorded on or through the
records of the brokerage firm or other entity that maintains a beneficial
owner's account. In turn, the total number of Common Stock Warrants held by an
individual brokerage firm for its clients will be maintained on the records of
the depositary in the name of the brokerage firm or its agent. Transfer of
ownership of any Common Stock Warrant will be effected only through the selling
beneficial owner's brokerage firm.
Exercise of Common Stock Warrants
Each Common Stock Warrant will entitle its holder to purchase a specific
number of shares of common stock at the exercise price described in the
applicable prospectus supplement. After the close of business on the date the
right to exercise the Common Stock Warrants expires, or any later date if
extended by ML&Co., unexercised Common Stock Warrants will become void.
Common Stock Warrants may be exercised as set forth in the applicable
prospectus supplement. Upon receipt of payment and a properly completed and
duly executed common stock warrant certificate at the corporate trust office of
the common stock warrant agent or any other office indicated in the applicable
prospectus supplement, ML&Co. will, as soon as practicable, issue and deliver
the shares of common stock purchased upon exercise. If less than all of the
Common Stock Warrants represented by any common stock warrant certificate are
exercised, a new common stock warrant certificate will be issued for the
remaining Common Stock Warrants.
Listing
ML&Co. may list an issue of Common Stock Warrants on a national securities
exchange. Any listing will be specified in the applicable prospectus
supplement.
Modifications
ML&Co. and the common stock warrant agent may amend any common stock warrant
agreement and the terms of the related Common Stock Warrants, without the
consent of the holders of the Common Stock Warrants, for the purpose of curing
any ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision, or in any other manner which ML&Co. may deem necessary
or desirable and which will not materially and adversely affect the interests
of the common stock warrantholders.
ML&Co. and the common stock warrant agent also may amend any common stock
warrant agreement and the terms of the related Common Stock Warrants, with the
consent of the holders of not less than a majority in
35
<PAGE>
number of the then outstanding unexercised Common Stock Warrants affected by
amendment. However, without the consent of each of the common stock
warrantholders affected, no amendment will be effective that:
. shortens the period of time during which the Common Stock Warrants may
be exercised;
. otherwise materially and adversely affects the exercise rights of the
common stock warrantholders; or
. reduces the number of outstanding Common Stock Warrants the consent of
whose holders is required to approve an amendment of the common stock
warrant agreement or the terms of the related Common Stock Warrants.
Enforceability of Rights by common stock warrantholders
Any common stock warrantholder may, without the consent of the related
common stock warrant agent, enforce by appropriate legal action, in and for its
own behalf, its right to exercise its Common Stock Warrant.
PLAN OF DISTRIBUTION
ML&Co. may sell securities:
. to the public through MLPF&S, or through a group of underwriters managed
or co-managed by, one or more underwriters, including MLPF&S,
. through MLPF&S as agent, or
. directly to purchasers.
The prospectus supplement with respect to the securities of a particular
series describes the terms of the offering of the securities, including the
name of the agent or the name or names of any underwriters, the public offering
or purchase price, any discounts and commissions to be allowed or paid to the
agent or underwriters, all other items constituting underwriting compensation,
any discounts and commissions to be allowed or paid to dealers and any
exchanges on which the securities will be listed. Only the agents or
underwriters so named in the prospectus supplement are agents or underwriters
in connection with the securities being offered. Under certain circumstances,
ML&Co. may repurchase securities and reoffer them to the public as set forth
above. ML&Co. may also arrange for repurchases and resales of the securities by
dealers.
If so indicated in the prospectus supplement, ML&Co. will authorize
underwriters to solicit offers by certain institutions to purchase debt
securities from ML&Co. pursuant to delayed delivery contracts providing for
payment and delivery on the date stated in the prospectus supplement. Each
contract will be for an amount not less than, and, unless ML&Co. otherwise
agrees, the aggregate principal amount of debt securities sold pursuant to the
contracts shall not be more than, the respective amounts stated in the
prospectus supplement. Institutions with whom the contracts, when authorized,
may be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions, and other
institutions, but shall in all cases be subject to the approval of ML&Co.
Delayed delivery contracts will not be subject to any conditions except that
the purchase by an institution of the debt securities covered under that
contract shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which that institution is subject.
ML&Co. has agreed to indemnify any agent or underwriters against certain
civil liabilities, including liabilities under the Securities Act or contribute
to payments any agent or underwriters may be required to make.
The distribution of securities will conform to the requirements set forth in
the applicable sections of Rule 2720 of the Conduct Rules of the National
Association of Securities Dealers, Inc.
36
<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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an
active link. 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 have filed a registration statement on Form S-3 with the SEC covering the
securities and other securities. For further information on ML&Co. and the
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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29, 2000, July
18, 2000, August 2, 2000, August 4, 2000, September 13, 2000, October 6,
2000, October 17, 2000, November 1, 2000, November 20, 2000 and December
6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Section 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. 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 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 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.
37
<PAGE>
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, 17th Floor, New York, New York 10038, Telephone (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial
information because 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 of 1933, as amended.
38
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer and sale is not permitted. +
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
[LOGO]
Merrill Lynch & Co., Inc.
Structured Yield Product Exchangeable for Stock SM
STRYPES SM
------------
Offering of the STRYPES: Distributions at Maturity:
. We will offer from time . On the stated maturity
to time our STRYPES, date of each series of
which are senior debt STRYPES, or any earlier
securities of ML&Co. date described in the
that are exchangeable applicable prospectus
into the common stock or supplement, we will pay
other securities of an and discharge the
unaffiliated company. STRYPES by delivering to
you a number of shares
. We will offer the of common stock or other
STRYPES in series and on securities of an
terms determined by unaffiliated company or
market conditions at the property determined in
time of sale. We will accordance with a
describe these terms in payment formula all as
the prospectus described in the
supplement used to offer prospectus supplement.
the specific series of
STRYPES. . Instead of delivering
shares of common stock
. Each series of STRYPES or other securities or
may be listed on a property, we may deliver
national securities cash, or a combination
exchange described in of cash and the common
the prospectus stock or other
supplement. securities, with an
equal value.
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 date of this prospectus is , .
SMService mark of Merrill Lynch & Co., Inc.
<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 LP and Mercury Asset Management Ltd, provides
investment, financing, advisory, insurance, and related products on a global
basis, including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the STRYPES for general
corporate purposes, unless otherwise specified in the prospectus supplement
relating to a specific issue of STRYPES. Our general corporate purposes may
include financing the activities of our subsidiaries, financing our assets and
those of our subsidiaries, lengthening the average maturity of our borrowings
and financing acquisitions. Until we use the net proceeds from the sale of any
of our securities for general corporate purposes, we will use the net proceeds
to reduce our short-term indebtedness or for temporary investments. We expect
that we will, on a recurrent basis, engage in additional financings as the need
arises to finance our growth, through acquisitions or otherwise, or to lengthen
the average maturity of our borrowings. To the extent that STRYPES being
purchased for resale by our subsidiary Merrill Lynch, Pierce, Fenner & Smith
Incorporated, referred to in this prospectus as MLPF&S, are not resold, the
aggregate proceeds that we and our subsidiaries would receive would be reduced.
2
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog") through
an exchange offer followed by a merger of a wholly-owned subsidiary of ML&Co.
with and into Herzog. The merger was accounted for as a pooling-of-interests
under generally accepted accounting principles in the United States of America
and is not expected to have a significant impact on the results of operations,
financial position and cash flows of ML&Co. The following information for the
fiscal years 1996 through 1999 has been restated by the management of ML&Co. to
give effect to the merger.
The following tables sets forth our ratios of earnings to fixed charges for
the periods indicated:
<TABLE>
<CAPTION>
For the Nine
Year Ended Last Friday in December Months Ended
---------------------------------- September
1995 1996 1997 1998 1999 29, 2000
------ ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges........... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
DESCRIPTION OF THE STRYPES
Each issue of STRYPES will be a series of senior debt securities of ML&Co.
to be issued under an indenture (the "1983 Indenture"), dated as of April 1,
1983, as amended and restated, between ML&Co. and The Chase Manhattan Bank, as
trustee. For each series of STRYPES, ML&Co. and the trustee will enter into a
supplemental indenture which will further amend and supplement the 1983
Indenture. Any supplemental indenture relating to a specific series of STRYPES
and the 1983 Indenture are collectively referred to as the indenture. The
following summary of the material provisions of the indenture is not complete
and is qualified in its entirety by reference to the indenture.
Terms of the STRYPES
The supplemental indenture will provide that ML&Co. may issue STRYPES of the
related series from time to time under the indenture, up to a specified
aggregate issue price, upon the satisfaction of certain conditions before
issuance. The supplemental indenture will establish the terms of the related
series of STRYPES, including:
. the issue price per STRYPES;
. the date on which the STRYPES will mature;
. the consideration deliverable or payable with respect to each STRYPES,
whether at maturity or upon earlier acceleration, and the formula or
other method by which the amount of any consideration deliverable or
payable will be determined;
3
<PAGE>
. any fixed or variable rate or rates per annum;
. the interest payment dates;
. any provisions for redemption, the redemption price and any remarketing
arrangements;
. any sinking fund requirements;
. whether the STRYPES are denominated or provide for payment in United
States dollars or a foreign currency or units of two or more foreign
currencies;
. whether and under what circumstances ML&Co. will pay additional amounts
("Additional Amounts") under any STRYPES held by a person who is not a
U.S. person for specified taxes, assessments or other governmental
charges and whether ML&Co. has the option to redeem the affected STRYPES
rather than pay any Additional Amounts;
. the title and series designation;
. whether the STRYPES are to be issued in global form;
. the obligation of ML&Co. to pay and discharge the STRYPES at maturity by
delivery of a number of shares of common stock or other securities or
property (the "Underlying Securities") of an unaffiliated corporation or
cash or a combination of cash and Underlying Securities with an equal
value;
. the formula or other method by which the consideration deliverable or
payable at maturity of the STRYPES or any earlier date will be
determined and the terms and conditions upon which any payment and
discharge of the STRYPES will be effected.
The terms of the specific series of STRYPES being offered will be described
in the applicable prospectus supplement.
Under the indenture, ML&Co., without the consent of holders of any STRYPES,
is permitted to issue STRYPES with terms different from those of STRYPES
previously issued and to reopen a previous series of STRYPES and issue
additional STRYPES of that series.
Issue price and interest, premium and Additional Amounts, if any, and
Underlying Securities will be payable or deliverable in the manner, at the
places and subject to the restrictions set forth in the indenture, the
applicable supplemental indenture, the form of the STRYPES and the applicable
prospectus supplement, provided that payment of any interest and any Additional
Amounts may be made at the option of ML&Co. by check mailed to the holders of
registered STRYPES at their registered addresses.
Holders may present the STRYPES for exchange, and may present registered
STRYPES for registration of transfer, in the manner, at the places and subject
to the restrictions set forth in the indenture, the applicable supplemental
indentures the form of the STRYPES and the applicable prospectus supplement.
There will be no service charge for any registration of transfer or exchange of
STRYPES, but ML&Co. may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection with a transfer or exchange.
Ranking
The STRYPES will be unsecured obligations and will rank equally with all
other unsecured and unsubordinated indebtedness of ML&Co. Because ML&Co. is a
holding company, the rights of ML&Co. and its creditors, including the holders
of the STRYPES, to participate in any distribution of the assets of any
subsidiary upon its liquidation or reorganization or otherwise is necessarily
subject to the prior claims of creditors of the subsidiary, except to the
extent that a bankruptcy court may recognize the claims of ML&Co. itself as a
creditor of the subsidiary. In addition, dividends, loans and advances from
certain subsidiaries,
4
<PAGE>
including MLPF&S, to ML&Co. are restricted by net capital requirements under
the Securities Exchange Act of 1934 and under rules of exchanges and other
regulatory bodies.
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:
. 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:
. pay or deliver the Underlying Securities, cash with an equal value
or a combination of both in respect of, any interest and Additional
Amounts on, and any other amounts payable with respect to, the
STRYPES of each series; and
. perform and observe all of ML&Co.'s obligations under the indenture,
and
. ML&Co. or the successor corporation, as the case may be, is not,
immediately after any consolidation or merger, in default under the
indenture.
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 any liens
specifically permitted by the 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 incurrence of the secured indebtedness,
has a net worth of less than $3,000,000, unless the outstanding STRYPES are
secured equally and ratably with the secured indebtedness.
"Voting Stock" is defined in the 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 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.
Limitations 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 the transaction, MLPF&S remains a
Controlled Subsidiary.
"Controlled Subsidiary" is defined in the 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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
Events of Default
Unless otherwise specified in a prospectus supplement, each of the
following will be an Event of Default under the indenture with respect to each
series of STRYPES:
. failure to pay and discharge the STRYPES of that series with the
Underlying Securities or, if ML&Co. so elects, to pay an equivalent
amount in cash instead of Underlying Securities when due;
5
<PAGE>
. failure to pay the redemption price or any redemption premium with
respect to any STRYPES of that series when due;
. failure to deposit any sinking fund payment, when and as due by the
terms of any STRYPES of that series;
. failure to pay any interest on or any Additional Amounts in respect of
any STRYPES of that series when due, and continuing for 30 days;
. failure to perform any other obligation of ML&Co. contained in the
indenture for the benefit of that series or in the STRYPES of that
series, continuing for 60 days after written notice has been given to
ML&Co. by the trustee, or to ML&Co. and the trustee by the holders of at
least 10% of the aggregate issue price of the outstanding STRYPES of
that series, as provided in the indenture;
. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. any other Event of Default provided with respect to STRYPES of that
series.
Unless otherwise specified in a prospectus supplement, if an Event of
Default occurs and is continuing for any series of STRYPES, the trustee or the
holders of at least 25% in aggregate issue price of the outstanding STRYPES of
that series, by notice as provided in the indenture, may declare an amount
equal to the aggregate issue price of all the STRYPES of that series, the
accrued interest on the STRYPES and all Additional Amounts payable with respect
to the STRYPES of that series immediately due and payable in cash. The trustee
or the holders of at least 25% in aggregate issue price of the outstanding
STRYPES may declare these amounts due immediately as described in the preceding
sentence without any other declaration or other action by the trustee or any
holder. At any time after a declaration of acceleration, but before the trustee
has obtained a judgment or decree based on acceleration, the holders of a
majority of the aggregate issue price of the outstanding STRYPES of that series
may, under certain circumstances, rescind and annul any acceleration if all
Events of Default, other than the non-payment of the amount equal to the
aggregate issue price of all the STRYPES of that series due by reason of
acceleration, have been cured or waived as provided in the indenture. See
"Modification and Waiver" below.
The holders of a majority in aggregate issue price of the outstanding
STRYPES 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
power conferred on the trustee with respect to the STRYPES of that series,
provided that any direction is not in conflict with any rule of law or the
indenture. Subject to the provisions of the indenture relating to the duties of
the trustee, in case an Event of Default shall occur and be continuing, the
trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request or direction of any of the holders of
STRYPES of any series, unless the holders of that series shall have offered to
the trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with any request or
direction.
Unless otherwise described in the applicable prospectus supplement, the
STRYPES and other series of senior debt securities issued under the indenture
will not have the benefit of any cross-default provisions with other
indebtedness of ML&Co.
ML&Co. will be required to furnish to the trustee annually a statement as to
the fulfillment by ML& Co. of its obligations under the indenture.
Modification and Waiver
Unless otherwise specified in a prospectus supplement, ML&Co. and the
trustee may modify and amend provisions in the indenture affecting a series of
STRYPES with the consent of holders of at least 66 2/3% in
6
<PAGE>
aggregate issue price of the series of STRYPES affected. However, without the
consent of each holder of any STRYPES affected, no amendment or modification to
any indenture may:
. change the maturity date or the stated maturity date or any installment
of interest or Additional Amounts on any STRYPES or any premium payable
on redemption, or change the redemption price,
. reduce the amount of Underlying Securities payable with respect to any
STRYPES or reduce the amount of cash, or cash and Underlying Securities,
payable instead of Underlying Securities,
. reduce the amount of interest or Additional Amounts payable on any
STRYPES or reduce the amount of cash payable with respect to any STRYPES
upon acceleration,
. change the place or currency of payment of interest or Additional
Amounts on, or any amount of cash payable with respect to, any STRYPES,
. impair the right to institute suit for the enforcement of any payment on
any STRYPES, including the payment of Underlying Securities with respect
to any STRYPES,
. reduce the percentage of the aggregate issue price of outstanding
STRYPES of that series, the consent of whose holders is required to
modify or amend the indenture,
. reduce the percentage of the aggregate issue price of outstanding
STRYPES of that series necessary for waiver of compliance with certain
provisions of the indenture or for waiver of certain defaults or
. modify the provisions with respect to modification and waiver.
Except as provided in the indenture, no modification of or amendment to the
indenture may adversely affect the rights of a holder of any other senior debt
security without the consent of each holder affected.
The holders of a majority of the aggregate issue price of each series of
STRYPES may waive compliance by ML&Co. with certain restrictive provisions of
the indenture. Any past default with respect to any series of STRYPES may be
waived by the holders of a majority in aggregate issue price of the outstanding
STRYPES of any series may waive any past default with respect to that series,
except a default:
. in the payment of the Underlying Securities or any other amounts due and
payable or deliverable under the STRYPES of that series; or
. in respect of an obligation of ML & Co. contained in, or a provision of,
the indenture which cannot be modified under the terms of that indenture
without the consent of each holder of each outstanding series of STRYPES
affected.
Governing Law
The indenture and the STRYPES will be governed by, and construed in
accordance with, the laws of the State of New York.
PLAN OF DISTRIBUTION
ML&Co. may sell STRYPES to the public solely through MLPF&S or through a
syndicate of underwriters of which MLPF&S is a member. The accompanying
prospectus supplement describes the terms of the STRYPES being offered,
including the public offering or purchase price, any discounts and commissions
to be allowed or paid, all other items constituting underwriting compensation,
the discounts and commissions to be allowed or paid to dealers, if any, and the
exchanges, if any, on which the STRYPES will be listed. Under certain
circumstances, ML&Co. may repurchase STRYPES and reoffer them to the public as
set forth above. ML&Co. may also arrange for repurchases and resales of the
STRYPES by dealers.
The underwriting of STRYPES will conform to the requirements set forth in
the applicable sections of Rule 2720 of the Conduct Rules of the National
Association of Securities Dealers, Inc.
7
<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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an
active link. 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 have filed a registration statement on Form S-3 with the SEC covering the
STRYPES and other securities. For further information on ML&Co. and the
STRYPES, 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 the prospectus may not contain all the information
that you may find important, you should review the full text of these
documents. We have included copies of these documents as exhibits to our
registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29, 2000, July
18, 2000, August 2, 2000, August 4, 2000, September 13, 2000, October 6,
2000, October 17, 2000, November 1, 2000, November 20, 2000 and December
6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. 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 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 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.
8
<PAGE>
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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial
information because 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 of 1933, as amended.
9
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
[LOGO]
% Trust Originated Preferred Securities
Merrill Lynch Preferred Capital Trust VI
Liquidation Amount $25 per TOPrS
guaranteed to the extent described in this prospectus by
Merrill Lynch & Co., Inc.
-----------
The TOPrS: Distributions on
the TOPrS:
. TOPrS represent
preferred ownership . Each TOPrS pays a
interests in the quarterly
assets of ML Trust. distribution at the
The sole assets of rate of %, or $
ML Trust will be the per TOPrS per year,
partnership if ML Partnership
preferred securities pays distributions
of ML Partnership on the partnership
which represent preferred
preferred ownership securities.
interests in the
assets of ML . If ML Trust and ML
Partnership. Partnership redeem
the TOPrS and the
. The sole assets of partnership
ML Partnership will preferred
be the debentures securities, you will
issued by ML&Co. and receive $25 plus
its affiliates and accumulated
cash and other distributions for
permitted securities each TOPrS you own.
described in this
prospectus. . If ML Trust redeems
the TOPrS or is
. The TOPrS and the liquidated, but ML
partnership Partnership does not
preferred securities redeem the
do not have any partnership
stated maturity. preferred
securities, you will
. ML Trust will apply receive the
to have the TOPrS partnership
trade on the New preferred securities
York Stock Exchange rather than cash.
starting within 30
days after the TOPrS . ML&Co. will
are issued. guarantee the TOPrS
to the extent
. Closing Date: described in this
prospectus.
Investing in the TOPrS involves risks.
Please see "Risk Factors" on page 6.
<TABLE>
<CAPTION>
Per TOPrS Total
--------- -----
<S> <C> <C>
Public offering price............................. $25.00 $
Proceeds to ML Trust.............................. $25.00 $
</TABLE>
If you purchase the TOPrS and settlement occurs after , 20 , you will
be required to pay accumulated distributions on the aggregate liquidation
amount of your TOPrS at a rate of % per year from that date. Expenses of the
offering and underwriting commissions of $ per TOPrS, or $ per TOPrS for
sales of more than 10,000 TOPrS to a single purchaser, will be paid by ML&Co.
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.
-----------
Merrill Lynch & Co.
-----------
The date of this prospectus is , .
SM "TOPrS" and "Trust Originated Preferred Securities" are service marks owned
by Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary Information--Q&A.................................................. 3
Risk Factors.............................................................. 6
Merrill Lynch & Co., Inc. ................................................ 10
Use of Proceeds........................................................... 10
Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed
Charges and Preferred
Stock Dividends of Merrill Lynch & Co., Inc.............................. 11
Merrill Lynch Preferred Capital Trust VI.................................. 12
Merrill Lynch Preferred Funding VI, L.P. ................................. 14
Description of the TOPrS.................................................. 16
Description of the Trust Guarantee........................................ 29
Description of the Partnership Preferred Securities....................... 33
Description of the Partnership Guarantee.................................. 46
United States Federal Income Taxation..................................... 49
Underwriting.............................................................. 54
Where You Can Find More Information....................................... 55
Incorporation of Information We File with the SEC......................... 56
Legal Matters............................................................. 57
Experts................................................................... 57
Index of Defined Terms.................................................... 58
Index to Financial Statements............................................. F-1
</TABLE>
2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from the prospectus to help you understand the TOPrS. This summary
may not contain all the information that may be important to you. You should
carefully read this prospectus to fully understand the terms of the TOPrS, as
well as the tax and other considerations that should be important to you in
making a decision about whether to invest in the TOPrS. You should pay special
attention to the "Risk Factors" section to determine whether an investment in
the TOPrS is appropriate for you.
In this prospectus:
. references to "ML&Co.", "we", "us" and "our" are to Merrill Lynch & Co.,
Inc.,
. references to "ML Trust " are to Merrill Lynch Capital Preferred Trust
VI, and
. references to "ML Partnership " are to Merrill Lynch Preferred Funding
VI, L.P.
What are the TOPrS?
Each TOPrS is a preferred interest in the assets of ML Trust. We will own
all of the common securities of ML Trust. The sole assets of ML Trust will be
the partnership preferred securities issued by ML Partnership, which represent
preferred ownership interests in the assets of ML Partnership. ML Partnership
will use substantially all of the proceeds from the sale of its partnership
preferred securities and our capital contribution as general partner of ML
Partnership to purchase debentures from us and one or more of our affiliates.
What is the ML Trust?
ML Trust is a business trust established under Delaware law that exists for
the sole purpose of issuing the TOPrS and investing the proceeds and engaging
in incidental activities.
What is ML Partnership?
ML Partnership is a limited partnership established under Delaware law. The
assets of ML Partnership will be:
. the debentures issued by us and our affiliates; and
. cash and securities not issued by us or our affiliates.
We are the general partner of ML Partnership.
What distributions will I receive on the TOPrS?
The TOPrS provide for a quarterly cash distribution at the rate of % or
$ per year for each TOPrS you own. Distributions are payable on
each , , and , beginning , . Distributions will
accumulate from the date ML Trust originally issues the TOPrS. Because the sole
assets of ML Trust will be the partnership preferred securities of ML
Partnership and substantially all of ML Partnership's assets will be the
debentures issued by us and our affiliates, ML Trust's ability to pay
distributions on the TOPrS is ultimately dependent upon our and our affiliates'
ability to make interest payments on those debentures. If we or our affiliates
exercise our right to defer making an interest payment on our debentures then
held by ML Partnership, ML Partnership will not be able to pay any
distributions on its preferred partnership securities and ML Trust will not be
able to pay quarterly distributions to you until we resume making interest
payments on those debentures.
In addition, ML Partnership is required to pay dividends on its partnership
preferred securities only if they are declared by us as general partner of ML
Partnership. As a result, you may not receive any distributions on your TOPrS
if ML Trust does not receive dividends on the partnership preferred securities.
What are the debentures?
The debentures are long term loans made by ML Partnership to us or our
affiliates from time to time. These debentures will be substantially all of ML
Partnership's assets. The debentures that we issue to ML Partnership will be
subordinated unsecured obligations of ours and will rank equally with all of
our other subordinated unsecured
3
<PAGE>
obligations. The debentures issued by our affiliates to ML Partnership will be
unsecured obligations of our affiliates and we will guarantee those obligations
on a subordinated basis. We and our affiliates may exercise our right to defer
interest payments on the debentures for a period of not more than six
consecutive calendar quarters.
Can the TOPrS be redeemed?
Yes. If ML Partnership redeems the partnership preferred securities, each
TOPrS will be redeemed for $25 plus any accumulated and unpaid distributions to
the date of redemption. ML Partnership can redeem the partnership preferred
securities in whole or in part from time to time on or after .
The trustees of ML Trust can elect to liquidate ML Trust and distribute the
partnership preferred securities to you if at any time the specified changes in
U.S. tax law or U.S. investment company law described in this prospectus occur.
Additionally, we, as general partner of ML Partnership, have the right to
redeem the partnership preferred securities and you will receive cash from the
subsequent automatic redemption of the TOPrS if at any time the specified
changes in U.S. tax law or U.S. investment company law described in this
prospectus occur.
Neither the partnership preferred securities nor the TOPrS can be redeemed
at any time at the option of their holders. Neither the TOPrS nor the
partnership preferred securities have any scheduled maturity.
Are there any risks associated with my investment?
Yes, an investment in the TOPrS is subject to risk. Please refer to the
section entitled "Risk Factors" in this prospectus for a description of these
risks.
What happens if ML Trust doesn't pay distributions on the TOPrS?
If you have not received a distribution on the TOPrS for six consecutive
calendar quarters, during that period until all scheduled quarterly
distributions are paid or set aside for payment to you, we may not declare or
pay dividends on, acquire, or make a liquidation payment with respect to, any
of our outstanding capital stock. In addition, we will not permit any of our
finance subsidiaries to make any dividend payment on, any distribution with
respect to, any acquisition of or any liquidation payment with respect to, any
of their outstanding preferred securities.
This limitation prevents us from paying cash or other dividends to the
shareholders of our capital stock if payments are not being made on the TOPrS,
any debenture issued by us or our affiliates and held by ML Partnership or the
guarantees. However, these provisions will not restrict:
. our ability to pay dividends or distributions on our capital stock in
shares of, or options, warrants or rights to subscribe for or purchase
shares of our capital stock;
. our ability to convert or exchange our common stock of one class into
our common stock of another class;
. our ability to redeem or purchase any rights under a rights agreement
described in this prospectus or issue preferred stock under those
rights; and
. the ability of us and our affiliates to purchase our capital stock in
connection with transactions for the account of customers of ours or our
affiliates or in connection with the distribution or trading of our
capital stock.
What are the guarantees?
We will guarantee, to the extent described in this prospectus:
. declared distributions by ML Partnership to ML Trust and distribution of
quarterly payments on the TOPrS by ML Trust to you to the extent ML
Trust receives distributions on the partnership preferred securities;
. the redemption amount due to you if ML Trust redeems the TOPrS;
. the liquidation amount of the TOPrS if ML Trust is liquidated; and
4
<PAGE>
. interest payments on debentures issued by our affiliates and held by ML
Partnership.
However, these guarantees do not apply to either:
. current distributions on the partnership preferred securities unless and
until ML Partnership declares distributions out of funds legally
available for payment; or
. liquidating distributions on the partnership preferred securities unless
ML Partnership has assets available for payment.
If ML Partnership does not declare distributions on the partnership
preferred securities, ML Trust will not have sufficient funds to pay
distributions on the TOPrS. In that case, you will have no right to receive
those distributions because our guarantee does not cover the non-payment of
distributions on the partnership preferred securities unless the distributions
are declared.
Our obligations under the guarantees are subordinate and junior in right of
payment to all other of our liabilities and rank equally with our most senior
preferred stock and similar guarantees of ours with respect to previous and
future issues of TOPrS and other preferred stock by any other of our finance
subsidiaries.
What happens if ML Trust is liquidated?
If ML Trust is liquidated, other than in connection with any change in U.S.
tax or investment company law described above, for each TOPrS you own, you will
be entitled to receive $25 plus any accumulated and unpaid distributions per
TOPrS.
Do I have voting rights?
Generally, you will not have any voting rights, except under the limited
circumstances described below. The holders of a majority of the TOPrS, however,
subject to certain requirements, have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the property
trustee, or direct the exercise of any trust or power conferred upon the
property trustee.
In what form will the TOPrS be issued?
The TOPrS will be issued in the form of a global certificate or certificates
registered in the name of Cede & Co., as nominee for The Depository Trust
Company also known as DTC. This means you will not receive a certificate for
your TOPrS. Your interests in the TOPrS will be evidenced by, and transfers of
the TOPrS will be effected only through, records maintained by the participants
in DTC.
Can you tell me more about ML&Co.?
Merrill Lynch & Co., Inc. is a holding company. Our subsidiary and
affiliated companies provide investment, financing, insurance and related
products on a global basis. Our principal executive offices are located at 4
World Financial Center, New York, New York 10080. Our telephone number is (212)
449-1000. For information about us, see the section "Merrill Lynch & Co., Inc."
in this prospectus. You should also read the other documents we have filed with
the SEC, which you can find by referring to the section entitled "Where You Can
Find More Information" in this prospectus.
Will the TOPrS be listed on an exchange?
ML Trust has applied to list the TOPrS on the NYSE under the trading symbol
" ". If approved for listing, trading on the NYSE will begin within 30 days
after ML Trust issues the TOPrS. The listing of the TOPrS will not necessarily
ensure that a liquid trading market will be available for the TOPrS.
5
<PAGE>
RISK FACTORS
Your investment in the TOPrS will involve risks. You should carefully
consider the following discussion of risks before deciding whether an
investment in the TOPrS is suitable for you.
You will only receive distributions if distributions on the partnership
preferred securities are declared
ML Trust's ability to pay distributions on the TOPrS to you is dependent
upon its receipt of distributions on the partnership preferred securities. If
we or our affiliates defer or fail to make interest or principal payments on
the debentures and we fail to make guarantee payments on the guarantees, ML
Partnership will lack the funds necessary to pay distributions on the
partnership preferred securities. If ML Partnership does not pay current
distributions on the partnership preferred securities, either because we, as
the general partner, did not declare distributions to be made or because ML
Partnership lacks sufficient funds, ML Trust will not have funds to make
current distributions on the TOPrS. If ML Trust does not make payments to you
on the TOPrS, we will be restricted from, among other things, paying cash or
certain other dividends on our capital stock.
There may be tax consequences to you if we fail to pay you distributions
As a holder of the TOPrS, each of which represents a preferred ownership
interest in the assets of ML Trust, even if ML Partnership fails to pay current
distributions on the partnership preferred securities, you will be required to
accrue income, for U.S. federal income tax purposes, on the cumulative deferred
distributions and accumulated interest allocable to your proportionate share of
the partnership preferred securities held by ML Trust. As a result, you will
recognize income for U.S. federal income tax purposes in advance of the receipt
of cash and will not receive the cash from ML Trust related to that
distribution if you dispose of your TOPrS before the record date for the date
on which those distributions are made.
You may not receive full distributions if ML Partnership has insufficient
income or assets
You are subject to the risk that the quarterly or liquidating
distributions paid on the TOPrS will not match the rate paid on the assets held
by ML Partnership, including the debentures and any other securities acquired
by ML Partnership in the future.
This mismatch could occur if:
. we, as the general partner of ML Partnership, in our sole discretion,
do not declare distributions on the partnership preferred securities
or if ML Partnership receives insufficient amounts from its
investments to pay the additional compounded distributions that will
accumulate on any unpaid distributions,
. ML Partnership reinvests the proceeds received from the assets it
initially holds upon their retirement or at their maturities in other
assets which do not generate income sufficient to pay full dividends
in respect of the partnership preferred securities at a rate of %
per annum, or
. ML Partnership invests in assets that are not guaranteed by us and
that cannot be liquidated by ML Partnership for an amount sufficient
to pay any distributions on the partnership preferred securities in
full or if ML Partnership does not make any distributions.
ML Trust will not have sufficient funds available to pay you full
quarterly or liquidating distributions on the TOPrS if ML Partnership lacks
sufficient funds to make quarterly or liquidating distributions on the
partnership preferred securities in full.
6
<PAGE>
Our obligations under the guarantees and our debentures are subordinated
Our obligations under the guarantees are unsecured and will rank in
priority of payment:
. subordinate and junior in right of payment to all of our other
liabilities; and
. equally with:
. any of our most senior preferred stock issued from time to time,
and
. similar guarantees of ours with respect to previous and future
issues of TOPrS and other series of preferred stock by any of our
finance subsidiaries.
This means that our obligations under the guarantees will not be paid
unless we can satisfy in full all of our other obligations ranking senior to
the guarantees.
Our obligations under our debentures issued to ML Partnership are
subordinate and junior in right of payment to all of our senior indebtedness.
At , we had outstanding senior indebtedness aggregating
approximately $ billion which would have ranked senior to our obligations
under the guarantees and our debentures.
There are no terms in the TOPrS, the partnership preferred securities,
the guarantees or the debentures that limit our ability to incur additional
indebtedness, including indebtedness that ranks senior to the guarantees.
ML Trust's and ML Partnership's investments are not diversified
Because the investments of ML Trust and ML Partnership are not
diversified, you are subject to a greater risk that their assets will not
generate sufficient income to pay current and liquidating distributions on the
TOPrS and the partnership preferred securities than you would with a vehicle
whose investments were diversified and less exposed to the risk that non-
payment on any particular investment asset would impair its ability to pay
distributions to holders of its capital stock.
Redemption of the TOPrS or the partnership preferred securities may affect your
return
If your TOPrS are exchanged for the partnership preferred securities,
. the trading value of the partnership preferred securities may be
lower than the trading value of the TOPrS which may result in a lower
return upon your sale of the partnership preferred securities; and
. you may incur an additional tax liability in excess of what you
originally contemplated.
Your TOPrS may be redeemed for cash or you may receive the partnership
preferred securities in exchange for your TOPrS in the event that:
(1) a change in U.S. tax law occurs which causes:
. ML Trust to be subject to U.S. federal income tax on the
distributions it receives or accrues on the partnership preferred
securities;
. ML Partnership to be subject to U.S. federal income tax on the
income or interest payments it receives or accrues on the
investments it holds;
. ML Trust or ML Partnership to be subject to more than a minimal
amount of other taxes, duties or governmental charges; or
7
<PAGE>
. interest payable by us or any of our affiliates on the debentures
then held by ML Partnership to not be deductible for U.S. federal
income tax purposes; or
(2) a change in U.S. investment company law occurs which requires ML
Trust or ML Partnership to register as an investment company.
Because you may receive partnership preferred securities upon the
occurrence of one of the events described above, in connection with your
investment decision with regard to the TOPrS, you are also making an investment
decision with regard to the partnership preferred securities. You should
carefully review all the information regarding the partnership preferred
securities contained in this prospectus.
Enforcement of certain rights by or on your behalf is limited
The special representative's ability to take action on your behalf under
our guarantee of the partnership preferred securities is limited, and it is
uncertain that you would receive a distribution on the TOPrS even if the
special representative took any action or was successful in recovering funds
under our guarantee. This is because under no circumstances will the special
representative have authority to cause the general partner to declare
distributions on the partnership preferred securities. As a result, although
the special representative may be able to enforce ML Partnership's creditors'
rights to accelerate and receive payments in respect of our and our affiliates'
debenture and our guarantee of those debentures, rather than being required to
declare and make distributions on the partnership preferred securities, ML
Partnership would be entitled to reinvest those payments in additional
debentures of ours and our affiliates, subject to satisfying the reinvestment
criteria.
If at any time:
. you have not received a distribution on the TOPrS for six
consecutive calendar quarters;
. an event of default occurs and is continuing on any debenture
issued by us or our affiliates and then held by ML Partnership;
and
. we default on our obligations under our guarantee of the TOPrS
or the partnership preferred securities;
then:
. you would rely on the enforcement by the property trustee of
its rights, as a holder of the partnership preferred
securities, against us, as guarantor of the partnership
preferred securities, including the right to direct the special
representative to enforce
(1) ML Partnership's creditors' rights and other rights with
respect to our and our affiliate's debentures and our
guarantee of those debentures,
(2) the rights of the holders of the partnership preferred
securities under our guarantee of the partnership
preferred securities, and
(3) the rights of the holders of the partnership preferred
securities to receive distributions, only if and to the
extent declared out of funds legally available for
payment, on the partnership preferred securities, and
. ML Trustee under our guarantee of the TOPrS will have the right
to enforce the terms of the guarantee.
You have limited voting rights
As a holder of the TOPrS you will have limited voting rights and will not
be entitled to vote to appoint, change, or to increase or decrease the number
of trustees of ML Trust. As holder of all of ML Trust's common securities,
those rights are ours exclusively.
8
<PAGE>
There is no prior market for the TOPrS
This series of TOPrS constitutes a new issue of securities with no
established trading market. ML Trust has applied to list the TOPrS on the NYSE.
There can be no assurance that an active market for the TOPrS will develop or
be sustained in the future on the NYSE. Although the underwriters have
indicated to us that they intend to make a market in the TOPrS, as permitted by
applicable laws and regulations, they are not obligated to do so and may
discontinue any market-making activities at any time without notice.
Accordingly, there is no assurance that a trading market for the TOPrS will
exist and no assurance as to the liquidity of any trading market.
We will only sell the TOPrS to those investors for whom the TOPrS are
considered suitable in light of their particular circumstances.
9
<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 LP and Mercury Asset Management Ltd, provides
investment, financing, advisory, insurance, and related products on a global
basis, including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards,
futures and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending
and related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center,
New York, New York 10080; 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.
USE OF PROCEEDS
ML Trust will use the proceeds that it receives from the sale of the
TOPrS and its common securities to purchase the partnership preferred
securities, and those proceeds will be used by ML Partnership to invest in
debentures and other permitted investments. See "Description of the Partnership
Preferred Securities--Partnership Investments". We and our affiliates, the
issuers of the debentures, intend to use the net proceeds from the sale of the
debentures for general corporate purposes. Our general corporate purposes may
include financing the activities of our subsidiaries, financing our assets and
those of our subsidiaries, lengthening the average maturity of our borrowings
and financing acquisitions. Until we use the net proceeds from the sale of any
of our securities for general corporate purposes, we will use the net proceeds
to reduce our short-term indebtedness or for temporary investments. We expect
that we will, on a recurrent basis, engage in additional financings as the need
arises to finance our growth, through acquisitions or otherwise, or to lengthen
the average maturity of our borrowings. To the extent that TOPrS being
purchased for resale by MLPF&S are not resold, the aggregate proceeds that we
and our subsidiaries would receive would be reduced.
10
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States
of America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
and ratios of earnings to combined fixed charges and preferred stock dividends
for the periods indicated:
<TABLE>
<CAPTION>
For the Nine
Year Ended Last Friday in December Months Ended
---------------------------------- September
1995 1996 1997 1998 1999 29, 2000
------ ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges....................... 1.2 1.2 1.2 1.1 1.3 1.3
Ratio of earnings to combined
fixed
charges and preferred stock
dividends..................... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
11
<PAGE>
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
Merrill Lynch Preferred Capital Trust VI is a statutory business trust
formed under the Delaware Business Trust Act, as amended, pursuant to a
declaration of trust and the filing of a certificate of trust with the
Secretary of State of the State of Delaware on December 7, 1998; the
declaration will be amended and restated in its entirety substantially in the
form filed as an exhibit to the registration statement of which this prospectus
is a part. The declaration will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended. Upon issuance of the TOPrS, the purchasers
of the TOPrS will own all the TOPrS issued by ML Trust. See "Description of the
TOPrS". ML&Co. will acquire ML Trust's common securities in an amount equal to
at least 3% of the total capital of ML Trust. ML Trust will use all the
proceeds derived from the issuance of the TOPrS and the common securities
(collectively, the "Trust Securities") to purchase the partnership preferred
securities from ML Partnership and, accordingly, the assets of ML Trust will
consist solely of the partnership preferred securities. ML Trust exists for the
exclusive purpose of:
. issuing the Trust Securities representing undivided beneficial
ownership interests in the assets of ML Trust,
. investing the gross proceeds of the Trust Securities in the
partnership preferred securities, and
. engaging in only those other activities necessary or incidental to
the foregoing purposes.
Under the declaration, there will initially be four trustees for ML
Trust.
. Two regular trustees who will be individuals who are employees or
officers of or who are affiliated with ML&Co.
. A property trustee who will be a financial institution that is
unaffiliated with ML&Co. and is the indenture trustee for purposes
of compliance with the provisions of the Trust Indenture Act.
. The Delaware trustee who will be an entity that maintains its
principal place of business in the State of Delaware.
Initially, The Chase Manhattan Bank, a New York banking corporation, will
act as property trustee, and its affiliate, Chase Manhattan Bank Delaware, a
Delaware corporation, will act as Delaware trustee until, in each case, removed
or replaced by the holder of the common securities. For purposes of compliance
with the Trust Indenture Act, The Chase Manhattan Bank will also act as trustee
under the Trust Guarantee, as defined in this prospectus, as property trustee
under the declaration and as trustee under the indenture under which the ML&Co.
Debenture, as defined in this prospectus, is issued.
The property trustee will hold title to the partnership preferred
securities for the benefit of the holders of the Trust Securities, and the
property trustee will have the power to exercise all rights, powers and
privileges with respect to the partnership preferred securities under the
Amended and Restated Agreement of Limited Partnership to be entered into by
ML&Co. and ML Trust as the holder of the partnership preferred securities. In
addition, the property trustee will maintain exclusive control of the property
account which is a segregated non-interest bearing bank account to hold all
payments made in respect of the partnership preferred securities for the
benefit of the holders of the Trust Securities. The trust guarantee trustee
will hold the Trust Guarantee for the benefit of the holders of the TOPrS.
ML&Co., as the holder of all the common securities, will have the right to
appoint, remove or replace any of the trustees and to increase or decrease the
number of trustees, provided that at least one trustee shall be a Delaware
trustee, at least one trustee shall be the property trustee and at least one
trustee shall be a regular trustee. ML&Co. will pay all fees and expenses
related to the organization and operations of ML Trust, including any taxes,
duties, assessments or governmental charges of whatever nature imposed by the
United States or any other domestic taxing authority upon ML Trust, other
12
<PAGE>
than withholding taxes, and the offering of the TOPrS and be responsible for
all debts and obligations of ML Trust, other than those obligations with
respect to the Trust Securities.
For so long as the TOPrS remain outstanding, ML&Co. will be obligated to:
. maintain 100% direct ownership of the common securities,
. cause ML Trust to remain a statutory business trust and not to
voluntarily dissolve, wind-up, liquidate or be terminated, except as
permitted by the declaration, and
. use its commercially reasonable efforts to ensure that ML Trust will
not be
(A) an investment company for purposes of the Investment Company Act
of 1940, as amended, or
(B) classified as other than a grantor trust for United States
Federal income tax purposes.
The rights of the holders of the TOPrS, including economic rights, rights
to information and voting rights, are as set forth in the declaration and the
Delaware Trust Act. See "Description of the TOPrS". The declaration and the
Trust Guarantee also incorporate by reference the terms of the Trust Indenture
Act.
The location of the principal executive office of ML Trust is c/o Merrill
Lynch & Co., Inc., 4 World Financial Center, New York, New York 10080, and its
telephone number is (212) 449-1000.
13
<PAGE>
MERRILL LYNCH PREFERRED FUNDING VI, L.P.
Merrill Lynch Preferred Funding VI, L.P. is a limited partnership that
was formed under the Delaware Revised Uniform Limited Partnership Act, as
amended, on December 7, 1998 for the exclusive purposes of purchasing debt
securities of ML&Co. and wholly-owned subsidiaries of ML&Co. (the "Affiliate
Investment Instruments") and other permitted investments, with the proceeds
from the sale of partnership preferred securities to ML Trust and a capital
contribution from ML&Co. in exchange for the general partner interest in ML
Partnership. Under the certificate of limited partnership, as amended, and the
limited partnership agreement, ML&Co. is the sole general partner of ML
Partnership. Upon the issuance of the partnership preferred securities, which
securities represent limited partner interests in ML Partnership, ML Trust will
be the sole limited partner of ML Partnership. Contemporaneously with the
issuance of the partnership preferred securities, ML&Co. as general partner
will contribute capital to ML Partnership in an amount sufficient to establish
its initial capital account at an amount equal to at least 15% of the total
capital of ML Partnership.
ML Partnership is managed by ML&Co. as general partner and exists for the
sole purpose of:
. issuing its partnership interests,
. investing the proceeds from the sale of the partnership preferred
securities in Affiliate Investment Instruments and other eligible
debt securities, as described in this prospectus, and
. engaging in only those other activities necessary or incidental for
these purposes.
To the extent that aggregate payments to ML Partnership on its
investments exceed distributions accumulated or payable with respect to the
partnership preferred securities, ML Partnership may at times have excess funds
which shall be allocated to and may, in ML&Co.'s sole discretion, be
distributed to ML&Co.
For so long as the partnership preferred securities remain outstanding,
ML&Co. will be obligated under the limited partnership agreement:
. to remain the sole general partner of ML Partnership and to maintain
100% direct ownership of the general partner's interest in ML
Partnership, which interest will at all times represent at least 1%
of the total capital of ML Partnership,
. to cause ML Partnership to remain a limited partnership and not to
voluntarily dissolve, liquidate, wind-up or be terminated, except as
permitted by the limited partnership agreement, and
. to use its commercially reasonable efforts to ensure that ML
Partnership will not be,
. an investment company for purposes of the Investment Company Act
or
. an association or a publicly traded partnership taxable as a
corporation for United States Federal income tax purposes.
ML&Co. or the then general partner may transfer its obligations as
general partner to a wholly-owned direct or indirect subsidiary of ML&Co.
provided that:
. the successor entity expressly accepts the transfer of the
obligations as general partner, and
. before any transfer, ML&Co. has received an opinion of nationally
recognized independent counsel to ML Partnership experienced in these
matters to the effect that:
(A) ML Partnership will be treated as a partnership for United States
Federal income tax purposes;
(B) any transfer would not cause ML Trust to be classified as an
association taxable as a corporation for United States Federal
income tax purposes;
14
<PAGE>
(C) following any transfer, ML&Co. and the successor entity will be
in compliance with the Investment Company Act without being
subject to registration as an investment company; and
(D) any transfer will not adversely affect the limited liability of
the holders of the partnership preferred securities.
The rights of the holders of the partnership preferred securities,
including economic rights, rights to information and voting rights, are set
forth in the limited partnership agreement and the Delaware Limited Partnership
Act. See "Description of the Partnership Preferred Securities".
The limited partnership agreement provides that the general partner will
have liability for the fees and expenses of ML Partnership, including any
taxes, duties, assessments or governmental charges of whatever nature imposed
by the United States or any other domestic taxing authority upon ML
Partnership, other than withholding taxes, and be responsible for all debts and
obligations of ML Partnership, other than with respect to the partnership
preferred securities. Under Delaware law, assuming a limited partner in a
Delaware limited partnership such as ML Partnership, i.e., a holder of the
partnership preferred securities, does not participate in the control of the
business of the limited partnership, that limited partner will not be
personally liable for the debts, obligations and liabilities of the limited
partnership, whether arising in contract, tort or otherwise, solely by reason
of being a limited partner of the limited partnership, subject to any
obligation such limited partner may have to repay any funds that may have been
wrongfully distributed to it. ML Partnership's business and affairs will be
conducted by ML&Co. as general partner.
The location of the principal executive offices of ML Partnership is c/o
Merrill Lynch & Co., Inc., 4 World Financial Center, New York, New York 10080
and its telephone number is (212) 449-1000.
15
<PAGE>
DESCRIPTION OF THE TOPrS
The TOPrS will be issued under the terms of the declaration. The
declaration will be qualified as an indenture under the Trust Indenture Act.
The property trustee, The Chase Manhattan Bank, will act as trustee for the
TOPrS under the declaration for purposes of compliance with the provisions of
the Trust Indenture Act. The terms of the TOPrS will include those stated in
the declaration and those made part of the declaration by the Trust Indenture
Act. The following summary of the material terms and provisions of the TOPrS is
not complete and is subject to, and qualified in its entirety by reference to,
the declaration, a copy of which is filed as an exhibit to the registration
statement of which this prospectus is a part, the Delaware Trust Act and the
Trust Indenture Act.
The TOPrS will be issued in fully registered form without coupons. The
TOPrS will not be issued in bearer form. See "--Book-Entry Only Issuance--The
Depository Trust Company".
The declaration authorizes the regular trustees of ML Trust to issue the
Trust Securities, which represent undivided beneficial ownership interests in
the assets of ML Trust. Title to the partnership preferred securities will be
held by the property trustee for the benefit of the holders of the Trust
Securities.
The declaration does not permit ML Trust to:
. acquire any assets other than the partnership preferred securities,
. issue any securities other than the Trust Securities, or
. incur any indebtedness.
The payment of distributions out of money held by ML Trust, and payments out of
money held by ML Trust upon redemption of the TOPrS or liquidation of ML Trust,
are guaranteed by ML&Co. to the extent described under "Description of the
Trust Guarantee".
The Trust Guarantee will be held by The Chase Manhattan Bank, the trust
guarantee trustee, for the benefit of the holders of the TOPrS. The Trust
Guarantee does not cover payment of distributions when ML Trust does not have
sufficient available funds to pay such distributions. In any event of non-
payment, holders of the TOPrS will have the remedies described below under "--
Trust Enforcement Events".
Distributions
The distribution rate on the TOPrS will be fixed at a rate per annum of
% of the stated liquidation amount of $25 per TOPrS and will be paid if, as
and when ML Trust has funds available for distribution. Distributions not paid
on the scheduled payment date will accumulate and compound quarterly at a rate
per annum equal to %. The term "distribution" as used in this prospectus
includes any compounded amounts unless otherwise stated or the context
otherwise requires. The amount of distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the TOPrS will be cumulative, will accumulate from the
date of initial issuance and will be payable quarterly in arrears on each ,
, and , commencing , if, as and when available for payment,
by the property trustee, except as otherwise described below. If distributions
are not paid when scheduled, the accumulated distributions shall be paid to the
holders of record of the TOPrS as they appear on the books and records of ML
Trust on the record date with respect to the payment date for the TOPrS which
corresponds to the payment date fixed by ML Partnership with respect to the
payment of cumulative distributions on the partnership preferred securities.
Distributions on the TOPrS will be made to the extent that ML Trust has
funds available for the payment of the distributions in the property account.
Amounts available to ML Trust for distribution to the
16
<PAGE>
holders of the TOPrS will be limited to payments received by ML Trust from ML
Partnership with respect to the partnership preferred securities or from ML&Co.
on ML&Co.'s guarantee on the TOPrS (the "Trust Guarantee") or its guarantee on
the partnership preferred securities (the "Partnership Guarantee") as described
in this prospectus. Distributions on the partnership preferred securities will
be paid only if, as and when declared in the sole discretion of ML&Co., as the
general partner of ML Partnership. Under the limited partnership agreement,
ML&Co. is not obligated to declare distributions on the partnership preferred
securities at any time, including upon or following a Partnership Enforcement
Event. See "Description of Partnership Preferred Securities--Partnership
Enforcement Events".
The assets of ML Partnership will consist only of Affiliate Investment
Instruments, which initially will be the debentures issued by ML&Co. and
another wholly-owned subsidiary of ML&Co., and other eligible debt securities.
To the extent that the issuers and, where applicable, ML&Co., as guarantor, of
the securities in which ML Partnership invests defer or fail to make any
payment in respect of the securities or, if applicable, the guarantees, ML
Partnership will not have sufficient funds to pay and will not declare or pay
distributions on the partnership preferred securities. If ML Partnership does
not declare and pay distributions on the partnership preferred securities out
of funds legally available for distribution, ML Trust will not have sufficient
funds to make distributions on the TOPrS, in which event the Trust Guarantee
will not apply to those distributions until ML Trust has sufficient funds
available to pay those distributions. See "Description of the Partnership
Preferred Securities--Distributions" and "Description of The Trust Guarantee".
In addition, ML Partnership may not have sufficient funds to pay current or
liquidating distributions on the partnership preferred securities if:
. at any time that ML Partnership is receiving current payments in
respect of the securities held by ML Partnership, including the
debentures, ML&Co, in its sole discretion, does not declare
distributions on the partnership preferred securities and ML
Partnership receives insufficient amounts to pay the additional
compounded distributions that will accumulate in respect of the
partnership preferred securities,
. ML Partnership reinvests the proceeds received in respect of the
debentures upon their retirement or at their maturities in Affiliate
Investment Instruments that do not generate income in an amount that
is sufficient to pay full distributions in respect of the partnership
preferred securities, or
. ML Partnership invests in debt securities of Investment Affiliates,
as defined below, that are not guaranteed by ML&Co. and that cannot
be liquidated by ML Partnership for an amount sufficient to pay the
distributions in full.
Distributions on the TOPrS will be payable to their holders as they
appear on the books and records of ML Trust on the relevant record dates, which
will be one Business Day, as defined below, before the relevant payment dates.
These distributions will be paid through the property trustee who will hold
amounts received in respect of the partnership preferred securities in the
property account for the benefit of the holders of the Trust Securities.
Subject to any applicable laws and regulations and the provisions of the
declaration, each payment will be made as described under "--Book-Entry Only
Issuance--The Depository Trust Company" below. In the event that the TOPrS do
not remain in book-entry only form, the relevant record dates shall be the 15th
day of the month of the relevant payment dates. In the event that any date on
which distributions are payable on the TOPrS is not a Business Day, payment of
the distribution payable on that date will be made on the next succeeding day
which is a Business Day, without any interest or other payment in respect of
the distribution subject to delay, except that, if that Business Day falls in
the next succeeding calendar year, the relevant payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on that date. A "Business Day" shall mean any day other than a day
on which banking institutions in The City of New York are authorized or
required by law to close.
17
<PAGE>
Trust Enforcement Events
The occurrence, at any time, of:
. the non-payment of distributions on the TOPrS for six consecutive
quarterly distribution periods,
. a default by ML&Co. in respect of any of its obligations under the
Trust Guarantee, or
. a Partnership Enforcement Event under the limited partnership
agreement,
will constitute an enforcement event under the declaration with respect to the
Trust Securities (a "Trust Enforcement Event"); provided, that under the
declaration, the holder of the common securities will be deemed to have waived
any Trust Enforcement Event with respect to the common securities until all
Trust Enforcement Events with respect to the TOPrS have been cured, waived or
otherwise eliminated. Until any Trust Enforcement Event with respect to the
TOPrS have been so cured, waived or otherwise eliminated, the property trustee
will be deemed to be acting solely on behalf of the holders of the TOPrS and
only the holders of the TOPrS will have the right to direct the property
trustee with respect to certain matters under the declaration and, in the case
of a Partnership Enforcement Event, the special representative with respect to
certain matters under the limited partnership agreement. See "Description of
the Partnership Preferred Securities--Partnership Enforcement Events" for a
description of the events which will trigger the occurrence of a Partnership
Enforcement Event.
Upon the occurrence of a Trust Enforcement Event,
. the property trustee, as the holder of the partnership preferred
securities, shall have the right to enforce the terms of the
partnership preferred securities, including the right to direct the
special representative to enforce:
. ML Partnership's creditors' rights and other rights with respect
to the Affiliate Investment Instruments and ML&Co.'s guarantee of
the Affiliate Investment Instruments (the "Investment Guarantees",
and together with the Trust Guarantee and the Partnership
Guarantee, the "Guarantees"),
. the rights of the holders of the partnership preferred securities
under the Partnership Guarantee, and
. the rights of the holders of the partnership preferred securities
to receive distributions on the partnership preferred securities,
only if and to the extent declared out of funds legally available
for the payment of distributions, and
. the trust guarantee trustee shall have the right to enforce the terms
of the Trust Guarantee, including the right to enforce the restriction
on the payment of distributions by ML&Co. and its finance subsidiaries
on its securities as described in the Trust Guarantee.
If the property trustee fails to enforce its rights under the partnership
preferred securities after a holder of the TOPrS has made a written request,
that holder may directly institute a legal proceeding against ML Partnership
and the special representative to enforce the property trustee's rights under
the partnership preferred securities without first instituting any legal
proceeding against the property trustee, ML Trust or any other person or
entity. In addition, for so long as ML Trust holds any partnership preferred
securities, if the special representative fails to enforce its rights on behalf
of ML Partnership under the Affiliate Investment Instruments after a holder of
the TOPrS has made a written request, any holder may on behalf of ML
Partnership directly institute a legal proceeding against the Investment
Affiliates under the Affiliate Investment Instruments, without first
instituting any legal proceeding against the property trustee, ML Trust, the
special representative or ML Partnership. In any event, for so long as ML Trust
is the holder of any partnership preferred securities, if a Trust Enforcement
Event has occurred and is continuing and such event is attributable to the
failure of an
18
<PAGE>
Investment Affiliate to make any required payment when due on any Affiliate
Investment Instrument or the failure of ML&Co. to make any required payment
when due on any Investment Guarantee, then a holder of the TOPrS may on behalf
of ML Partnership directly institute a proceeding against the Investment
Affiliate with respect to any Affiliate Investment Instrument or against ML&Co.
with respect to any the Investment Guarantee, in each case for enforcement of
payment.
Under no circumstances, however, shall the special representative have
authority to cause ML&Co to declare distributions on the partnership preferred
securities. As a result, although the special representative may be able to
enforce ML Partnership's creditors' rights to accelerate and receive payments
in respect of the Affiliate Investment Instruments and the Investment
Guarantees, subject to satisfying the reinvestment criteria described under
"Description of the Partnership Preferred Securities--Partnership Investments",
ML Partnership would be entitled to reinvest any payments in additional
Affiliate Investment Instruments and other eligible debt securities, rather
than declaring and making distributions on the partnership preferred
securities.
ML&Co. and ML Trust are each required to file annually with the property
trustee an officer's certificate as to its compliance with all conditions and
obligations under the declaration.
Mandatory Redemption
At the option of ML&Co., ML Partnership may redeem the partnership
preferred securities, in whole or in part, at any time on or after , or at
any time in certain circumstances upon the occurrence of a Partnership Special
Event. Upon the redemption of the partnership preferred securities either at
the option of ML&Co. or under to a Partnership Special Event, the proceeds from
the repayment shall simultaneously be applied to redeem Trust Securities having
an aggregate liquidation amount equal to the partnership preferred securities
so redeemed at an amount per Trust Security equal to $25 plus accumulated and
unpaid distributions; provided, that holders of the Trust Securities shall be
given not less than 30 nor more than 60 days notice of any redemption. See
"Description of the Partnership Preferred Securities--General" and "--Optional
Redemption".
Trust Special Event Redemption or Distribution
If, at any time, a Trust Tax Event or a Trust Investment Company Event
(each as defined below, and each, a "Trust Special Event") occurs and is
continuing, the regular trustees shall, unless the partnership preferred
securities are redeemed in the limited circumstances described below, within 90
days following the occurrence of such Trust Special Event elect to either:
(1) dissolve ML Trust upon not less than 30 nor more than 60 days notice
with the result that, after satisfaction of creditors of ML Trust,
if any, partnership preferred securities would be distributed on a
pro rata basis to the holders of the TOPrS and the common securities
in liquidation of the holders' interests in ML Trust; provided,
however, that if at the time there is available to ML Trust the
opportunity to eliminate, within the 90-day period, the Trust
Special Event by taking some ministerial action, such as filing a
form or making an election, or pursuing some other similar
reasonable measure which in the sole judgment of ML&Co. has or will
cause no adverse effect on ML Trust, ML Partnership, ML&Co. or the
holders of the Trust Securities and will involve no material cost,
ML Trust will pursue that measure in lieu of dissolution or
(2) cause the TOPrS to remain outstanding, provided that in the case of
this clause (2), ML&Co. shall pay any and all expenses incurred by
or payable by ML Trust attributable to ML Trust Special Event.
Furthermore, if in the case of the occurrence of a Trust Tax Event, the regular
trustees have received an opinion of nationally recognized independent tax
counsel experienced in these matters that there is more than an insubstantial
risk that interest payable by one or more of the Investment Affiliates with
respect to the debentures issued by any Investment Affiliate is not, or will
not be, deductible by any Investment Affiliate for
19
<PAGE>
United States Federal income tax purposes even if the partnership preferred
securities were distributed to the holders of the Trust Securities in
liquidation of the holders' interests in ML Trust as described above, then
ML&Co. shall have the right, within 90 days following the occurrence of the
Trust Tax Event, to elect to cause ML Partnership to redeem the partnership
preferred securities in whole, but not in part, for cash upon not less than 30
nor more than 60 days notice and promptly following any redemption, the Trust
Securities will be redeemed by ML Trust at the redemption price.
"Trust Tax Event" means that ML&Co. shall have requested and received and
shall have delivered to the Regular Trustees an opinion of nationally
recognized independent tax counsel experienced in these matters to the effect
that there has been:
. an amendment to, change in or announced proposed change in the laws,
or any regulations under those laws of the United States or any
political subdivision or taxing authority of that jurisdiction,
. a judicial decision interpreting, applying, or clarifying these laws
or regulations,
. an administrative pronouncement or action that represents an official
position, including a clarification of an official position, of the
governmental authority or regulatory body making the administrative
pronouncement or taking any action, or
. a threatened challenge asserted in connection with an audit of ML&Co.
or any of its subsidiaries, ML Partnership, or ML Trust, or a
threatened challenge asserted in writing against any other taxpayer
that has raised capital through the issuance of securities that are
substantially similar to the debentures, the partnership preferred
securities, or the TOPrS, which amendment or change is adopted or
which proposed change, decision or pronouncement is announced or
which action, clarification or challenge occurs on or after the date
of this prospectus (collectively a "Tax Action"), which Tax Action
relates to any of the items described in (1) through (3) below, and
that following the occurrence of any Tax Action there is more than an
insubstantial risk that:
(1) ML Trust is, or will be, subject to United States Federal income
tax with respect to income accrued or received on the partnership
preferred securities,
(2) ML Trust is, or will be, subject to more than a minimal amount of
other taxes, duties or other governmental charges or
(3) interest payable by an Investment Affiliate with respect to the
Affiliate Investment Instrument issued by the Investment
Affiliate is not, or will not be, deductible by the Investment
Affiliate for United States Federal income tax purposes.
Recently, the Internal Revenue Service asserted that the interest payable
on a security issued in circumstances with certain similarities to the issuance
of the debentures issued by the Investment Affiliates to ML Partnership was not
deductible for United States Federal income tax purposes. The taxpayer in that
case has filed a petition in the United States Tax Court challenging the IRS's
position on this matter. If this matter were to be litigated and the Tax Court
were to sustain the IRS's position on this matter, the judicial decision could
constitute a Trust Tax Event, which could result in an early redemption of the
TOPrS.
"Trust Investment Company Event" means that ML&Co. shall have requested
and received and shall have delivered to the regular trustees an opinion of
nationally recognized independent legal counsel experienced in these matters to
the effect that as a result of the occurrence on or after the date of this
prospectus of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in Investment Company Act Law"), ML
Trust is or will be considered an investment company which is required to be
registered under the Investment Company Act.
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<PAGE>
If the partnership preferred securities are distributed to the holders of
the TOPrS, ML&Co. will use its best efforts to cause the partnership preferred
securities to be listed on the NYSE or on any other national securities
exchange or similar organization as the TOPrS are then listed or quoted.
On the date fixed for any distribution of partnership preferred
securities, upon dissolution of ML Trust,
. the Trust Securities will no longer be deemed to be outstanding, and
. certificates representing the Trust Securities will be deemed to
represent the partnership preferred securities having a liquidation
preference equal to the stated liquidation amount of the Trust
Securities until the certificates are presented to ML&Co. or its agent
for transfer or reissuance.
There can be no assurance as to the market price for the partnership
preferred securities which may be distributed in exchange for TOPrS if a
dissolution and liquidation of ML Trust were to occur. Accordingly, the
partnership preferred securities which an investor may subsequently receive on
dissolution and liquidation of ML Trust may trade at a discount to the price
of the TOPrS exchanged.
Redemption Procedures
ML Trust may not redeem fewer than all of the outstanding TOPrS unless
all accumulated and unpaid distributions have been paid on all TOPrS for all
quarterly distribution periods terminating on or before the date of
redemption.
If ML Trust gives a notice of redemption in respect of the TOPrS, which
notice will be irrevocable, and if ML&Co. has paid to the property trustee a
sufficient amount of cash in connection with the related redemption of the
partnership preferred securities, then, by 12:00 noon, New York City time, on
the redemption date, ML Trust will irrevocably deposit with DTC funds
sufficient to pay the amount payable on redemption of all book-entry
certificates and will give DTC irrevocable instructions and authority to pay
the redemption amount to holders of the TOPrS. See "--Book-Entry Only
Issuance--The Depository Trust Company". If notice of redemption shall have
been given and funds are deposited as required, then upon the date of deposit,
all rights of holders of any TOPrS so called for redemption will cease, except
the right of the holders of those TOPrS to receive the redemption price, but
without interest. In the event that any date fixed for redemption of the TOPrS
is not a Business Day, then payment of the amount payable on that date will be
made on the next succeeding day which is a Business Day, without any interest
or other payment in respect of the amount payable subject to delay, except
that, if that Business Day falls in the next calendar year, the payment will
be made on the immediately preceding Business Day. In the event that payment
of the redemption price in respect of the TOPrS is improperly withheld or
refused and not paid either by ML Trust or by ML&Co. under the Trust Guarantee
described under "Description of the Trust Guarantee", distributions on the
TOPrS will continue to accumulate from the original redemption date to the
date of payment.
In the event that fewer than all of the outstanding TOPrS are to be
redeemed, the TOPrS will be redeemed in accordance with the procedures of DTC.
See "--Book-Entry Only Issuance--The Depository Trust Company". In the event
that the TOPrS do not remain in book-entry only form and fewer than all of the
outstanding TOPrS are to be redeemed, the TOPrS shall be redeemed on a pro
rata basis or pursuant to the rules of any securities exchange on which the
TOPrS are listed.
Subject to the foregoing and applicable law, including, without
limitation, United States Federal securities laws, ML&Co. or its subsidiaries
may at any time and from time to time purchase outstanding TOPrS by tender, in
the open market or by private agreement.
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Subordination of the Common Securities
Payment of amounts upon liquidation of the Trust Securities shall be made
pro rata based on the liquidation amount of the Trust Securities; provided,
however, that upon:
. the occurrence of an event of default by an Investment Affiliate,
including ML&Co., under any Affiliate Investment Instrument, or
. default by ML&Co. on any of its obligations under any guarantee
described in this prospectus, the holders of the TOPrS will have a
preference over the holders of the common securities with respect to
payments upon liquidation of ML Trust.
In the case of any Trust Enforcement Event, the holder of the common
securities will be deemed to have waived the Trust Enforcement Event until all
Trust Enforcement Events with respect to the TOPrS have been cured, waived or
otherwise eliminated. Until all Trust Enforcement Events with respect to the
TOPrS have been so cured, waived or otherwise eliminated, the property trustee
shall act solely on behalf of the holders of the TOPrS and not on behalf of the
holder of the common securities, and only the holders of the TOPrS will have
the right to direct the property trustee to act on their behalf.
Liquidation Distribution Upon Dissolution
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of ML Trust, the holders of the TOPrS will be
entitled to receive out of the assets of ML Trust, after satisfaction of
liabilities to creditors, distributions in cash or other immediately available
funds in an amount equal to the aggregate of the stated liquidation amount of
$25 per TOPrS plus accumulated and unpaid distributions to the date of payment,
unless, in connection with ML Trust's liquidation, partnership preferred
securities have been distributed on a pro rata basis to the holders of the
Trust Securities.
If, upon ML Trust's liquidation, the liquidation distribution can be paid
only in part because ML Trust has insufficient assets available to pay in full
the aggregate liquidation distribution, then the amounts payable directly by ML
Trust on the TOPrS shall be paid on a pro rata basis. The holders of the common
securities will be entitled to receive distributions upon liquidation pro rata
with the holders of the TOPrS, except in the limited circumstances described
above under "--Subordination of the Common Securities".
Under to the declaration, ML Trust shall terminate:
(1) upon the bankruptcy of ML&Co.,
(2) upon the filing of a certificate of dissolution or the equivalent
with respect to ML&Co., the filing of a certificate of cancellation
with respect to ML Trust after having obtained the consent of at
least a majority in liquidation amount of the Trust Securities,
voting together as a single class, to file such certificate of
cancellation, or the revocation of the charter of ML&Co. and the
expiration of 90 days after the date of revocation without
reinstatement,
(3) upon the distribution of all of the partnership preferred securities
upon the occurrence of a Trust Special Event,
(4) upon the entry of a decree of a judicial dissolution of ML&Co. or ML
Trust, or
(5) upon the redemption of all the Trust Securities.
Voting Rights
Except as described in this prospectus, under the Delaware Trust Act, the
Trust Indenture Act and under "Description of The Trust Guarantee--Amendments
and Assignment", and as otherwise required by law and the declaration, the
holders of the TOPrS will have no voting rights.
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Subject to the requirement of the property trustee obtaining a tax
opinion as set forth in the last sentence of this paragraph, the holders of a
majority in liquidation amount of the TOPrS have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
property trustee, or direct the exercise of any trust or power conferred upon
the property trustee under the declaration, including the right to direct the
property trustee, as holder of the partnership preferred securities, to:
. exercise the remedies available to it under the limited partnership
agreement as a holder of the partnership preferred securities,
including the right to direct the special representative to exercise
its rights in the manner described above under "--Trust Enforcement
Events", and
. consent to any amendment, modification, or termination of the limited
partnership agreement or the partnership preferred securities where
consent is required; provided, however, that where a consent or
action under the limited partnership agreement would require the
consent or act of the holders of more than a majority of the
aggregate liquidation preference of partnership preferred securities
affected, only the holders of the percentage of the aggregate stated
liquidation amount of the Trust Securities which is at least equal to
the percentage required under the limited partnership agreement may
direct the property trustee to give consent or take action on behalf
of ML Trust. See "Description of the Partnership Preferred
Securities--Voting Rights".
The property trustee shall notify all holders of the TOPrS of any notice
of any Partnership Enforcement Event received from ML&Co., as general partner
with respect to the partnership preferred securities and the Affiliate
Investment Instruments. The notice shall state that the Partnership Enforcement
Event also constitutes a Trust Enforcement Event. Except with respect to
directing the time, method, and place of conducting a proceeding for a remedy
as described above, the property trustee shall be under no obligation to take
any of the actions described in immediately preceding clauses above unless the
property trustee has obtained an opinion of independent tax counsel to the
effect that as a result of that action, ML Trust will not fail to be classified
as a grantor trust for United States Federal income tax purposes and that after
that action each holder of Trust Securities will continue to be treated as
owning an undivided beneficial ownership interest in the partnership preferred
securities.
A waiver of a Partnership Enforcement Event with respect to the
partnership preferred securities held by the property trustee will constitute a
waiver of the corresponding Trust Enforcement Event.
Any required approval or direction of holders of the TOPrS may be given
at a separate meeting of holders of the TOPrS convened for that purpose, at a
meeting of all of the holders of Trust Securities or pursuant to written
consent. The regular trustees will cause a notice of any meeting at which
holders of the TOPrS are entitled to vote, or of any matter upon which action
by written consent of the holders is to be taken, to be mailed to each holder
of record of the TOPrS. Each notice will include a statement setting forth the
following information:
(1) the date of the meeting or the date by which any action is to be
taken;
(2) a description of any resolution proposed for adoption at the meeting
on which the holders are entitled to vote or of the matter upon
which written consent is sought; and
(3) instructions for the delivery of proxies or consents.
No vote or consent of the holders of the TOPrS will be required for ML Trust to
redeem and cancel the TOPrS or distribute partnership preferred securities in
accordance with the declaration.
Notwithstanding that holders of the TOPrS are entitled to vote or consent
under any of the circumstances described above, any of the Trust Securities
that are beneficially owned at that time by ML&Co. or any entity directly or
indirectly controlled by, or under direct or indirect common control with,
ML&Co., except for TOPrS purchased or acquired by ML&Co. or its affiliates in
connection with transactions effected by
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or for the account of customers of ML&Co. or any of its subsidiaries or in
connection with the distribution or trading of the TOPrS, shall not be entitled
to vote or consent and shall, for purposes of any vote or consent, be treated
as if the Trust Securities were not outstanding; provided, however, that
persons, other than affiliates of ML&Co., to whom ML&Co. or any of its
subsidiaries have pledged the TOPrS may vote or consent with respect to the
pledged TOPrS pursuant to the terms of the pledge.
The procedures by which holders of the TOPrS represented by the global
certificates may exercise their voting rights are described below. See "--Book-
Entry Only Issuance--The Depository Trust Company".
Holders of the TOPrS will have no rights to appoint or remove the
trustees, who may be appointed, removed or replaced solely by ML&Co., as the
holder of all of the common securities.
Merger, Consolidation or Amalgamation of ML Trust
ML Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other entity, except as
described below. ML Trust may, with the consent of a majority of the regular
trustees and without the consent of the holders of the Trust Securities, the
property trustee or the Delaware trustee consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State
of the United States; provided, that:
(1) if ML Trust is not the surviving entity, the successor entity
either:
. expressly assumes all of the obligations of ML Trust under the
Trust Securities, or
. substitutes for the TOPrS other securities having substantially
the same terms as the TOPrS, so long as the successor securities
rank the same as the Trust Securities rank with respect to
distributions, assets and payments,
(2) ML&Co. expressly acknowledges a trustee of the successor entity
possessing the same powers and duties as the property trustee as the
holder of the partnership preferred securities,
(3) the TOPrS or any successor securities are listed, or any successor
securities will be listed upon notification of issuance, on any
national securities exchange or with another organization on which
the TOPrS are then listed or quoted,
(4) any merger, consolidation, amalgamation or replacement does not
cause the TOPrS, including any successor securities, to be
downgraded by any nationally recognized statistical rating
organization,
(5) any merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the
holders of the TOPrS, including any successor securities, in any
material respect,
(6) the successor entity has a purpose substantially identical to that
of ML Trust,
(7) ML&Co. guarantees the obligations of the successor entity under the
successor securities to the same extent as provided by the Trust
Guarantee and
(8) before any merger, consolidation, amalgamation or replacement,
ML&Co. has received an opinion of a nationally recognized
independent counsel to ML Trust experienced in these matters to the
effect that:
. any merger, consolidation, amalgamation or replacement will not
adversely affect the rights, preferences and privileges of the
holders of the TOPrS, including any successor securities, in any
material respect, other than with respect to any dilution of the
holders' interest in the new entity,
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. following any merger, consolidation, amalgamation or replacement,
neither ML Trust nor the successor entity will be required to
register as an investment company under the Investment Company
Act,
. following any merger, consolidation, amalgamation or replacement,
ML Trust, or any successor trust, will not be classified as an
association or a publicly traded partnership taxable as a
corporation for United States Federal income tax purposes, and
. following any merger, consolidation, amalgamation or replacement,
ML Partnership will not be classified as an association or a
publicly traded partnership taxable as a corporation for United
States Federal income tax purposes.
Notwithstanding the foregoing, ML Trust shall not, except with the consent of
holders of 100% in liquidation amount of the TOPrS, consolidate, amalgamate,
merge with or into, or be replaced by any other entity or permit any other
entity to consolidate, amalgamate, merge with or into, or replace it, if any
consolidation, amalgamation, merger or replacement would cause ML Trust or the
successor entity to be classified as an association or a publicly traded
partnership taxable as a corporation for United States Federal income tax
purposes.
Modification of the Declaration
The declaration may be modified and amended if approved by a majority of
the regular trustees, and in the circumstances described in the declaration,
the property trustee and the Delaware trustee. However, if any proposed
amendment provides for, or the regular trustees otherwise propose to effect,
(1) any action that would adversely affect the powers, preferences or
special rights of the Trust Securities, whether by way of
amendment to the declaration or otherwise, or
(2) the dissolution, winding-up or termination of ML Trust other than
under the terms of the declaration,
then, in each case, the holders of the Trust Securities voting together as a
single class will be entitled to vote on the amendment or proposal and the
amendment or proposal shall not be effective except with the approval of at
least a majority in liquidation amount of the Trust Securities affected;
provided, further that if any amendment or proposal referred to in clause (2)
above would adversely affect only the TOPrS or the common securities, then only
the affected class will be entitled to vote on the amendment or proposal and
the amendment or proposal shall not be effective except with the approval of a
majority in liquidation amount of that class of Trust Securities.
The declaration may be amended without the consent of the holders of the
Trust Securities to:
. cure any ambiguity,
. correct or supplement any provision in the declaration that may be
defective or inconsistent with any other provision of the
declaration,
. add to the restrictions or obligations of the sponsor,
. conform to any change in the Investment Company Act, the Trust
Indenture Act or the rules or regulations under either law and
. modify, eliminate and add to any provision of the declaration to
the extent as may be necessary or desirable;
provided that no amendment shall have a material adverse effect on the rights,
preferences or privileges of the holders of the Trust Securities.
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Notwithstanding the foregoing, no amendment or modification may be made
to the declaration if the amendment or modification would
. cause ML Trust to fail to be classified as a grantor trust for
United States Federal income tax purposes,
. cause ML Partnership to be classified as an association or
publicly traded partnership taxable as a corporation for those
purposes,
. reduce or otherwise adversely affect the powers of the property
trustee, or
. cause ML Trust or ML Partnership to be deemed an investment
company which is required to be registered under the Investment
Company Act.
Book-Entry Only Issuance--The Depository Trust Company
Description of the Global Certificates
DTC will act as securities depository for the TOPrS and, to the extent
distributed to the holders of the TOPrS, the partnership preferred securities.
The TOPrS will be issued only as fully-registered securities registered in the
name of Cede & Co. (DTC's nominee). One or more fully-registered global
certificates, representing the total aggregate number of TOPrS, will be issued
and will be deposited with DTC.
DTC Procedures
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.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. DTC is owned
by a number of its participants and by the NYSE, the American Stock Exchange,
Inc., and the National Association of Securities Dealers, Inc. Access to the
DTC 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 participant, either directly or indirectly. The rules
applicable to DTC and its participants are on file with the SEC.
Purchases of the TOPrS within the DTC system must be made by or through
participants, which will receive a credit for the TOPrS on DTC's records. The
ownership interest of each beneficial owner of the TOPrS is in turn to be
recorded on the participants' and indirect participants' records. Beneficial
owners will not receive written confirmation from DTC of their purchases, but
beneficial owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the participants or indirect participants through which the beneficial
owners purchased TOPrS. Transfers of ownership interests in the TOPrS are to be
accomplished by entries made on the books of participants and indirect
participants acting on behalf of beneficial owners. Beneficial owners will not
receive certificates representing their ownership interests in the TOPrS,
except in the event that use of the book-entry system for the TOPrS is
discontinued.
DTC has no knowledge of the actual beneficial owners of the TOPrS; DTC's
records reflect only the identity of the participants to whose accounts the
TOPrS are credited, which may or may not be the beneficial owners. The
participants and indirect participants will remain responsible for keeping
account of their holdings on behalf of their customers.
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So long as DTC, or its nominee, is the registered owner or holder of a
global certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the TOPrS being represented for all purposes under
the declaration and the TOPrS. No beneficial owner of an interest in a global
certificate will be able to transfer that interest except in accordance with
DTC's applicable procedures, in addition to those provided for under the
declaration.
DTC has advised ML&Co. that it will take any action permitted to be taken
by a holder of the TOPrS, including the presentation of the TOPrS for exchange
as described below, only at the direction of one or more participants to whose
account the DTC interests in the global certificates are credited and only in
respect of such portion of the aggregate liquidation amount of the TOPrS as to
which the participant or participants has or have given the direction. Also, if
there is a Trust Enforcement Event under the TOPrS, DTC will exchange the
global certificates for certificated securities, which it will distribute to
its participants in accordance with its customary procedures.
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.
Redemption notices in respect of the TOPrS held in book-entry form will
be sent to Cede & Co. If less than all of the TOPrS are being redeemed, DTC
will determine the amount of the interest of each participant to be redeemed in
accordance with its procedures.
Although voting with respect to the TOPrS is limited, in those cases
where a vote is required, neither DTC nor Cede & Co. will itself consent or
vote with respect to the TOPrS. Under its usual procedures, DTC would mail an
omnibus proxy to ML Trust as soon as possible after the record date. The
omnibus proxy assigns Cede & Co.'s consenting or voting rights to those
participants to whose accounts the TOPrS are allocated on the record date
identified in a listing attached to the omnibus proxy.
Distributions on the TOPrS held in book-entry form will be made to DTC in
immediately available funds. DTC's practice is to credit participants' accounts
on the relevant payment date in accordance with their respective holdings shown
on DTC's records unless DTC has reason to believe that it will not receive
payments on the payment date. Payments by participants and indirect
participants to beneficial owners will be governed by standing instructions and
customary practices and will be the responsibility of the participants and
indirect participants and not of DTC, ML Trust or ML&Co., subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of any distributions to DTC is the responsibility of ML Trust,
disbursement of those payments to participants is the responsibility of DTC,
and disbursement of those payments to the beneficial owners is the
responsibility of participants and indirect participants.
Except as described, a beneficial owner of an interest in a global
certificate will not be entitled to receive physical delivery of the TOPrS.
Accordingly, each beneficial owner must rely on the procedures of DTC to
exercise any rights under the TOPrS.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the global certificates among participants
of DTC, DTC is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither ML&Co.
nor ML Trust will have any responsibility for the performance by DTC or its
participants or indirect participants under the rules and procedures governing
DTC. DTC may discontinue providing its services as securities depository with
respect to the TOPrS at any time by giving notice to ML Trust. Under these
circumstances, in the event that a successor securities depository is not
obtained, the TOPrS certificates are required to be printed and delivered to
the property trustee. Additionally, ML Trust, with the consent of ML&Co., may
decide to discontinue use of the system of book-entry transfers through DTC or
any successor depository. In that event, certificates for the TOPrS will be
printed and delivered to the property trustee. In each of the above
circumstances, ML&Co. will appoint a paying agent with respect to the TOPrS.
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The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. These laws
may impair the ability to transfer beneficial interests in the global TOPrS as
represented by a global certificate.
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 the accuracy of the information.
Payment
Payments in respect of the TOPrS represented by the global certificates
shall be made to DTC, which shall credit the relevant accounts at DTC on the
scheduled payment dates or, in the case of certificated securities, if any,
payments shall be made by check mailed to the address of the holder entitled to
receive the payment as the holder's address shall appear on the register. The
paying agent shall be permitted to resign as paying agent upon 30 days written
notice to the regular trustees. In the event that The Chase Manhattan Bank
shall no longer be the paying agent, the regular trustees shall appoint a
successor to act as paying Agent which shall be a bank or trust company.
Registrar, Transfer Agent, and Paying Agent
The property trustee will act as registrar, transfer Agent and paying
agent for the TOPrS.
Registration of transfers of the TOPrS will be effected without charge by
or on behalf of ML Trust, but upon payment and with the giving of any indemnity
as ML Trust or ML&Co. may require, in respect of any tax or other government
charges which may be imposed in relation to it.
ML Trust will not be required to register or cause to be registered the
transfer of the TOPrS after the TOPrS have been called for redemption.
Information Concerning the Property Trustee
The property trustee, before the occurrence of a default with respect to
the Trust Securities, undertakes to perform only the duties as are specifically
set forth in the declaration and, after default, shall exercise the same degree
of care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to these provisions, the property trustee is under no
obligation to exercise any of the powers vested in it by the declaration at the
request of any holder of the TOPrS, unless offered reasonable indemnity by the
holder against the costs, expenses and liabilities which might be incurred in
connection with the exercise of any powers. The holders of the TOPrS will not
be required to offer any indemnity in the event the holders, by exercising
their voting rights, direct the property trustee to take any action following a
Trust Enforcement Event.
Governing Law
The declaration and the TOPrS will be governed by, and construed in
accordance with, the internal laws of the State of Delaware.
Miscellaneous
The regular trustees are authorized and directed to conduct the affairs
of and to operate ML Trust in such a way that ML Trust will not be deemed to be
an investment company required to be registered under the Investment Company
Act or characterized as other than a grantor trust for United States Federal
income tax purposes. In this connection, the regular trustees are authorized to
take any action, not inconsistent with applicable law, the certificate of trust
or the declaration that the regular trustees determine in their discretion to
be necessary or desirable for those purposes as long as such action does not
adversely affect the interests of the holders of the TOPrS.
Holders of the TOPrS have no preemptive rights.
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DESCRIPTION OF THE TRUST GUARANTEE
Set forth below is a summary of material information concerning the Trust
Guarantee which will be executed and delivered by ML&Co. for the benefit of the
holders from time to time of the TOPrS. The summary is not complete and is
subject in all respects to the provisions of, and is qualified in its entirety
by reference to, the Trust Guarantee, which is filed as an exhibit to the
registration statement of which this prospectus is a part. The Trust Guarantee
incorporates by reference the terms of, and will be qualified as an indenture
under, the Trust Indenture Act. The Chase Manhattan Bank, as the trust
guarantee trustee, will hold the Trust Guarantee for the benefit of the holders
of the TOPrS and will act as indenture trustee for the purposes of compliance
with the Trust Indenture Act.
Under the Trust Guarantee, ML&Co. will irrevocably agree, on a
subordinated basis and to the extent set forth in the Trust Guarantee, to pay
in full to the holders of the TOPrS, except to the extent paid by ML Trust, as
and when due, regardless of any defense, right of set off or counterclaim which
ML Trust may have or assert, the following payments (the "Trust Guarantee
Payments"), without duplication:
. any accumulated and unpaid distributions on the TOPrS to the extent
ML Trust has funds available for distribution,
. the redemption price with respect to any TOPrS called for redemption
by ML Trust, to the extent ML Trust has funds available for payment,
and
. upon a voluntary or involuntary dissolution, winding-up or
termination of ML Trust, other than in connection with the
distribution of partnership preferred securities to the holders of
the TOPrS or the redemption of all of the TOPrS, the lesser of:
(1) the aggregate of the liquidation amount and all accumulated and
unpaid distributions on the TOPrS and
(2) the amount of assets of ML Trust remaining available for
distribution to holders of the TOPrS upon the liquidation of ML
Trust.
ML&Co.'s obligation to make a Trust Guarantee Payment may be satisfied by
direct payment of the required amounts by ML&Co. to the holders of the TOPrS or
by causing ML Trust to pay these amounts to holders.
The Trust Guarantee will be a guarantee on a subordinated basis with
respect to the TOPrS from the time of issuance of the TOPrS but will only apply
to any payment of distributions or the redemption price, or to payments upon
the dissolution, winding-up or termination of ML Trust, to the extent ML Trust
shall have funds available. If ML Partnership fails to declare distributions on
the partnership preferred securities, ML Trust would lack available funds for
the payment of distributions or amounts payable on redemption of the TOPrS or
otherwise, and in such event holders of the TOPrS would not be able to rely
upon the Trust Guarantee for payment of these amounts. Instead, holders of the
TOPrS will have the remedies described under "Description of the TOPrS--Trust
Enforcement Events", including the right to direct the trust guarantee trustee
to enforce the restriction of payments by ML&Co. and its finance subsidiaries
on its capital stock. See "--Obligations of ML&Co." below.
The Guarantees, when taken together with the debentures issued by ML&Co.
and ML&Co.'s obligations to pay all fees and expenses of ML Trust and ML
Partnership, constitute a guarantee to the extent set forth in this prospectus
by ML&Co. of the distribution, redemption and liquidation payments payable to
the holders of the TOPrS. The Guarantees do not apply, however, to current
distributions by ML Partnership unless and until these distributions are
declared by ML Partnership out of funds legally available for payment or to
liquidating distributions unless there are assets available for payment in ML
Partnership, each as more fully described under "Risk Factors--Insufficient
Income or Assets Available to Partnership".
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Obligations of ML&Co.
Under the Trust Guarantee, ML&Co. will agree that, if
. for any distribution period, full distributions on a cumulative basis
on any TOPrS have not been paid,
. an event of default by any Investment Affiliate in respect of any
Affiliate Investment Instrument has occurred and is continuing, or
. it is in default of its obligations under the Trust Guarantee, the
Partnership Guarantee or any Investment Guarantee,
then, during that period:
. it may not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation
payment with respect to, any of its capital stock or comparable
equity interest, except for:
(1) dividends or distributions in shares of, or options, warrants
or rights to subscribe for or purchase shares of, its capital
stock, and conversions or exchanges of common stock of one
class into common stock of another class,
(2) redemptions or purchases of any rights pursuant to the rights
agreement dated as of December 2, 1997 between ML&Co. and The
Chase Manhattan Bank (the "Rights Agreement") and the issuance
of preferred stock under those rights and
(3) purchases or acquisitions by ML&Co. or its affiliates in
connection with transactions effected by or for the account of
customers of ML&Co. or any of its subsidiaries or in
connection with the distribution or trading of its capital
stock or comparable equity interest; and
. it may not make, permit any finance subsidiary to make, or make any
payments that would enable any finance subsidiary to make, any
payment of any dividends on, any distribution with respect to, or any
redemption, purchase or other acquisition of, or any liquidation
payment with respect to, any preferred security or comparable equity
interest of any finance subsidiary.
Events of Default; Enforcement of Trust Guarantee
An event of default under the Trust Guarantee will occur upon the failure
of ML&Co. to perform any of its payment or other obligations set forth in the
Trust Guarantee.
The holders of a majority in liquidation amount of the TOPrS have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trust guarantee trustee or to direct the exercise of
any trust or power conferred upon the trust guarantee trustee under the trust
guarantee. If the trust guarantee trustee fails to enforce its rights under the
Trust Guarantee after a holder of the TOPrS has made a written request, the
holder may institute a legal proceeding directly against ML&Co. to enforce the
trust guarantee trustee's rights under the Trust Guarantee, without first
instituting a legal proceeding against ML Trust, the trust guarantee trustee or
any other person or entity. In any event, if ML&Co. has failed to make a
guarantee payment under the Trust Guarantee, a holder of the TOPrS may directly
institute a proceeding in the holder's own name against ML&Co. for enforcement
of the Trust Guarantee for payment.
Status of the Trust Guarantee; Subordination
The Trust Guarantee will constitute an unsecured obligation of ML&Co. and
will rank subordinate and junior in right of payment to all other liabilities
of ML&Co. and will rank equally with the most senior
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preferred stock, if any, issued from time to time by ML&Co., with similar
guarantees issued by ML&Co. in connection with:
. the $275,000,000 aggregate liquidation amount of 7 3/4% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust I,
. the $300,000,000 aggregate liquidation amount of 8% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust
II,
. the $750,000,000 aggregate liquidation amount of 7% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust
III,
. the $400,000,000 aggregate liquidation amount of 7.12% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust IV,
. the $850,000,000 aggregate liquidation amount of 7.28% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust V,
. the (Yen)10,000,000,000 aggregate liquidation amount of Trust
Originated Preferred Securities issued by Merrill Lynch Yen TOPrS
Trust I, and
. with any guarantee now or hereafter entered into by ML&Co. in respect
of any preferred stock of any other Finance Subsidiary.
"Finance Subsidiary" means Merrill Lynch Preferred Capital Trust I,
Merrill Lynch Preferred Capital Trust II, Merrill Lynch Preferred Capital Trust
III, Merrill Lynch Preferred Capital Trust IV, Merrill Lynch Preferred Capital
Trust V, Merrill Lynch Yen TOPrS Trust I and any other wholly-owned subsidiary
of ML&Co. the principal purpose of which is to raise capital for ML&Co. by
issuing securities that are guaranteed by ML&Co. and the proceeds of which are
loaned to or invested in ML&Co. or one or more of its affiliates.
Accordingly, the rights of the holders of the TOPrS to receive payments
under the Trust Guarantee will be subject to the rights of the holders of any
obligations of ML&Co. that are senior in priority to the obligations under the
Trust Guarantee. Furthermore, the holders of obligations of ML&Co. that are
senior to the obligations under the Trust Guarantee, including, but not limited
to, obligations constituting senior indebtedness of ML&Co., will be entitled to
the same rights upon payment default or dissolution, liquidation and
reorganization in respect of the Trust Guarantee that inure to the holders of
senior indebtedness as against the holders of the ML&Co. Debenture. The terms
of the TOPrS that each holder of the TOPrS, by acceptance, agrees to the
subordination provisions and other terms of the Trust Guarantee.
The Trust Guarantee will constitute a guarantee of payment and not of
collection. That is, the guaranteed party may directly institute a legal
proceeding against ML&Co. to enforce its rights under the Trust Guarantee
without instituting a legal proceeding against any other person or entity.
Amendments and Assignment
Except with respect to any changes that do not materially adversely
affect the rights of holders of the TOPrS, in which case no vote will be
required, the Trust Guarantee may be amended only with the prior approval of
the holders of at least a majority in liquidation amount of all the outstanding
TOPrS. The manner of obtaining any approval of holders of the TOPrS will be as
set forth under "Description of the TOPrS--Voting Rights". All guarantees and
agreements contained in the Trust Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of ML&Co. and shall inure to the
benefit of the holders of the TOPrS then outstanding. Except in connection with
permitted merger or consolidation of ML&Co. with or into another entity or
permitted sale, transfer or lease of ML&Co.'s assets to another entity in which
the surviving corporation, if other than ML&Co., assumes ML&Co.'s obligations
under the Trust Guarantee, ML&Co. may not assign its rights or delegate its
obligations under the Trust Guarantee without the prior approval of the holders
of at least a majority of the aggregate stated liquidation amount of the TOPrS
then outstanding.
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Termination of The Trust Guarantee
The Trust Guarantee will terminate as to each holder of the TOPrS upon:
. full payment of the redemption price of all the TOPrS,
. distribution of the partnership preferred securities held by ML Trust
to the holders of the TOPrS or
. full payment of the amounts payable in accordance with the
declaration upon liquidation of ML Trust.
The Trust Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the TOPrS must restore payment
of any sum paid under the TOPrS or the Trust Guarantee.
Information Concerning the Trust Guarantee Trustee
The trust guarantee trustee, before the occurrence of a default with
respect to the Trust Guarantee, undertakes to perform only those duties as are
specifically set forth in the Trust Guarantee and, after default with respect
to the Trust Guarantee, shall exercise the same degree of care as a prudent man
would exercise in the conduct of his own affairs. Subject to that provision,
the trust guarantee trustee is under no obligation to exercise any of the
powers vested in it by the Trust Guarantee at the request of any holder of
TOPrS unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred in connection with the exercise of those
powers.
Governing Law
The Trust Guarantee will be governed by, and construed in accordance
with, the internal laws of the State of New York.
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DESCRIPTION OF THE PARTNERSHIP PREFERRED SECURITIES
All of the partnership interests in ML Partnership, other than the
partnership preferred securities acquired by ML Trust, are owned directly by
ML&Co. Initially, ML&Co. will be the sole general partner of ML Partnership.
The limited partnership agreement authorizes and creates the partnership
preferred securities, which represent limited partner interests in ML
Partnership. The limited partner interests represented by the partnership
preferred securities will have a preference with respect to distributions and
amounts payable on redemption or liquidation over ML&Co.'s interest in ML
Partnership.
Except as otherwise described in this prospectus or provided in the
limited partnership agreement, the limited partnership agreement does not
permit ML Partnership to issue any additional partnership interests or to incur
any indebtedness.
The summary of certain material terms and provisions of the partnership
preferred securities set forth below does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the limited
partnership agreement, which is filed as an exhibit to the registration
statement of which this prospectus is a part, and the Delaware Limited
Partnership Act.
Distributions
Holders of partnership preferred securities will be entitled to receive
cumulative cash distributions, if, as and when declared by ML&Co., as general
partner, in its sole discretion out of assets of ML Partnership legally
available for payment. The distributions payable on each partnership preferred
security will be fixed at a rate per annum of % of the stated liquidation
preference of $25 per partnership preferred security. Distributions not paid on
the scheduled payment date will accumulate and compound quarterly at the rate
per annum equal to %. The amount of distributions payable for any period will
be computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the partnership preferred securities will be payable
quarterly in arrears on , , , and of each year, commencing
, . If distributions are not declared and paid when scheduled, the
accumulated distributions shall be paid to the holders of record of partnership
preferred securities as they appear on the books and records of ML Partnership
on the record date with respect to the payment date for the partnership
preferred securities.
ML Partnership's earnings available for distribution to the holders of
the partnership preferred securities will be limited to payments made on the
Affiliate Investment Instruments and Investment Guarantees and payments on
other eligible debt securities in which ML Partnership has invested from time
to time. See "--Partnership Investments". To the extent that the issuers and,
where applicable, ML&Co., as guarantor, of the securities in which ML
Partnership invests fail to make any payment in respect of the securities or,
if applicable, the guarantees, ML Partnership will not have sufficient funds to
pay and will not declare or pay distributions on the partnership preferred
securities, in which event the Partnership Guarantee will not apply to those
distributions until ML Partnership has sufficient funds available for
distribution. See "Description of the Partnership Guarantee". In addition,
distributions on the partnership preferred securities may be declared and paid
only as determined in the sole discretion of ML&Co. as general partner of ML
Partnership. If ML Partnership fails to declare and pay distributions on the
partnership preferred securities out of funds legally available for
distribution, ML Trust will not have sufficient funds to make distributions on
the TOPrS, in which event the Trust Guarantee will not apply to those
distributions until ML Trust has sufficient funds available. In addition, ML
Partnership may not have sufficient funds to pay current or liquidating
distributions on the partnership preferred securities if:
. at any time that ML Partnership is receiving current payments in
respect of the securities held by ML Partnership including the
debentures, ML&Co., in its sole discretion, does not declare
distributions on the partnership preferred securities and ML
Partnership receives insufficient
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amounts to pay the additional compounded distributions that will
accumulate in respect of the partnership preferred securities,
. ML Partnership reinvests the proceeds received in respect of the
debentures upon their retirement or at their maturities in Affiliate
Investment Instruments that do not generate income in an amount that
is sufficient to pay full distributions in respect of the partnership
preferred securities, or
. ML Partnership invests in debt securities of Investment Affiliates
that are not guaranteed by ML&Co. and that cannot be liquidated by ML
Partnership for an amount sufficient to pay any distributions in
full.
Distributions on the partnership preferred securities will be payable to
holders as they appear on the books and records of ML Partnership on the
relevant record dates, which, as long as the TOPrS remain or, in the event
that ML Trust is liquidated in connection with a Trust Special Event, as long
as the partnership preferred securities remain, in book-entry only form, will
be one Business Day before the relevant payment dates. In the event the TOPrS,
or in the event that ML Trust is liquidated in connection with a Trust Special
Event, the partnership preferred securities, shall not continue to remain in
book-entry only form, the relevant record dates shall be the 15th day of the
month of the relevant payment dates. In the event that any date on which
distributions are payable on the partnership preferred securities is not a
Business Day, then payment of the distribution payable on that date will be
made on the next succeeding day that is a Business Day and without any
interest or other payment in respect of any delay, except that, if that
Business Day is in the next succeeding calendar year, that payment shall be
made on the immediately preceding Business Day, in each case with the same
force and effect as if made on that date.
Partnership Enforcement Events
If one or more of the following events shall occur and be continuing
(each a "Partnership Enforcement Event"):
. The non-payment of distributions on the partnership preferred
securities for six consecutive quarterly periods,
. ML&Co. is in default on any of its obligations under the Partnership
Guarantee or any Investment Guarantee or
. an Investment Event of Default occurs and is continuing on any
Affiliate Investment Instrument,
then the property trustee, for so long as the partnership preferred securities
are held by the property trustee, will have the right, or holders of the
partnership preferred securities will be entitled by the vote of a majority in
aggregate liquidation preference of the holders:
. under the limited partnership agreement to enforce the terms of the
partnership preferred securities, including the right to appoint and
authorize a special representative of ML Partnership and the limited
partners to enforce:
(1) ML Partnership's creditors' rights and other rights with respect
to the Affiliate Investment Instruments and the Investment
Guarantees,
(2) the rights of the holders of the partnership preferred securities
under the Partnership Guarantee and
(3) the rights of the holders of the partnership preferred securities
to receive distributions on the partnership preferred securities,
only if and to the extent declared out of funds legally available
for distribution, and
. under the Partnership Guarantee to enforce the terms of the
Partnership Guarantee, including the right to enforce the covenant
restricting certain payments by ML&Co. and Finance Subsidiaries.
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If the special representative fails to enforce its rights under the
Affiliate Investment Instruments after a holder of partnership preferred
securities has made a written request, the holder of record of partnership
preferred securities may directly institute a legal proceeding against ML&Co.
to enforce the rights of the special representative and ML Partnership under
the Affiliate Investment Instruments without first instituting any legal
proceeding against the special representative, ML Partnership or any other
person or entity. In any event, if a Partnership Enforcement Event has occurred
and is continuing and this event is attributable to the failure of an
Investment Affiliate to make any required payment when due on any Affiliate
Investment Instrument, then a holder of partnership preferred securities may on
behalf of ML Partnership directly institute a proceeding against the Investment
Affiliate with respect to the Affiliate Investment Instrument for enforcement
of payment. A holder of partnership preferred securities may also bring a
direct action against ML&Co. to enforce the holder's right under the
Partnership Guarantee. See "Description of the Partnership Guarantee--Events of
Default; Enforcement of Partnership Guarantee".
Under no circumstances, however, shall the special representative have
authority to cause ML&Co. to declare distributions on the partnership preferred
securities. As a result, although the special representative may be able to
enforce ML Partnership's creditors' rights to accelerate and receive payments
in respect of the Affiliate Investment Instruments and the Investment
Guarantees, ML Partnership would be entitled to reinvest those payments in
additional Affiliate Investment Instruments, subject to satisfying the
reinvestment criteria described under "--Partnership Investments", and Eligible
Debt Securities, rather than declaring and making distributions on the
partnership preferred securities. The special representative shall not, by
virtue of acting in such capacity, be admitted as a general partner in ML
Partnership or otherwise be deemed to be a general partner in ML Partnership
and shall have no liability for the debts, obligations or liabilities of ML
Partnership.
Partnership Investments
ML Partnership will use approximately 99% of the proceeds from the
issuance of the partnership preferred securities and ML&Co.'s contemporaneous
capital contribution to purchase the debentures and the remaining 1% of the
initial partnership proceeds will be used to purchase Eligible Debt Securities.
ML Partnership's purchase of the debentures will occur contemporaneously with
the issuance of the partnership preferred securities.
The initial Affiliate Investment Instruments purchased by the Partnership
will consist of two or more debt instruments. ML&Co. anticipates that
approximately 85% of the Initial Partnership Proceeds will be used to purchase
a debenture of ML&Co. (the "ML&Co. Debenture"), and approximately 14% of the
initial partnership proceeds will be used to purchase debentures of one or more
eligible controlled affiliates of ML&Co. Each debenture is expected to have a
term of 20 years and to provide for interest payable on , , and
of each year, commencing , at market rates for the debentures. The
debentures will be general unsecured debt obligations of the relevant issuer,
except that the ML&Co. Debenture will rank subordinate and junior to all senior
indebtedness of ML&Co.
The payment of interest on each of the debentures may be deferred at any
time, and from time to time, by the relevant issuer for a period not exceeding
six consecutive quarters. If an issuer were to defer the payment of interest,
interest would continue to accrue and compound at the stated interest rate on
the applicable debenture. The debentures will contain covenants appropriate for
unsecured debt securities issued or guaranteed by similar borrowers pursuant to
a public offering or private placement under Rule 144A of the Securities Act of
a comparable debt security, including a limitation on consolidation, merger and
sale or conveyance of assets. The debentures will contain redemption provisions
that correspond to the redemption provisions applicable to the partnership
preferred securities, including an option to redeem the debentures by the
relevant issuer, in whole or in part, from time to time, on or after , ,
and following the occurrence of a Partnership Special Event, in each case, in
the same manner described under "Optional Redemption" and " Partnership Special
Event Redemption". The debentures, and any other Affiliate Investment
Instruments that are debt instruments acquired by ML Partnership in the future,
will also contain customary events of default, including:
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. events of default for defaults in payments on the securities when
due, provided that no default shall occur upon a valid deferral of an
interest payment by an issuer,
. defaults in the performance of the relevant issuer's obligations
under its debenture or Affiliate Investment Instruments, as the case
may be, and
. certain bankruptcy, insolvency or reorganization events, subject to
customary exceptions and grace periods.
The payment of interest and principal when due and other payment terms of
the debentures other than the ML&Co. Debenture, will be guaranteed to the
extent described in this prospectus (each, an "Investment Guarantee") by ML&Co.
for the benefit of the holders of partnership preferred securities. See "--
Investment Guarantees".
ML Partnership will invest approximately 1% of the initial partnership
proceeds in eligible debt securities. These eligible debt securities will
comprise cash or book-entry securities, negotiable instruments, or other
securities of entities not affiliated with ML&Co. which evidence any of the
following:
. any security issued or guaranteed as to principal or interest by the
United States, or by a person controlled or supervised by and acting
as an instrumentality of the Government of the United States pursuant
to authority granted by the Congress of the United States, or any
certificate of deposit for any of the foregoing;
. commercial paper issued pursuant to Section 3(a)(3) of the Securities
Act and having, at the time of the investment or contractual
commitment to invest therein, a rating from each of Standard & Poor's
Ratings Services, a division of the McGraw-Hill Companies, Inc.
("S&P") and Moody's Investors Service, Inc. ("Moody's") in the
highest investment rating category granted by such rating agency and
having a maturity not in excess of nine months;
. demand deposits, time deposits and certificates of deposit which are
fully insured by the Federal Deposit Insurance Corporation;
. repurchase obligations with respect to any security that is a direct
obligation of, or fully guaranteed by, the Government of the United
States of America or any agency or instrumentality thereof, the
obligations of which are backed by the full faith and credit of the
United States of America, in either case entered into with a
depository institution or trust company which is an Eligible
Institution and the deposits of which are insured by the FDIC; and
. any other security which is identified as a permitted investment of a
finance subsidiary pursuant to Rule 3a-5 under the Investment Company
Act at the time it is acquired by ML Partnership.
"Eligible Institution" means, a depository institution organized under
the laws of the United States or any one of the states thereof or the District
of Columbia, or any domestic branch of a foreign bank, which has either:
. a long-term unsecured debt rating of AA or better by S&P and Aa or
better by Moody's or
. a short-term unsecured debt rating or a certificate of deposit rating
of A-1+ by S&P and P-1 by Moody's,
and whose deposits are insured by the FDIC or whose the parent has a long-term
or short-term unsecured debt rating which signifies investment grade and whose
deposits are insured by the FDIC.
ML Partnership may, from time to time and subject to the restrictions
described below, reinvest payments received with respect to the Affiliate
Investment Instruments and the eligible debt securities in additional Affiliate
Investment Instruments and eligible debt securities. As of the date of this
prospectus,
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ML&Co., as the General Partner, does not intend to cause ML Partnership to
reinvest regularly scheduled, periodic payments of interest or dividends
received by ML Partnership in the manner described below, although there can be
no assurance that ML&Co.'s intention in respect of any reinvestments will not
change in the future.
The fairness of specific terms of all Affiliate Investment Instruments
will be passed upon by an independent financial advisor which will be a
nationally recognized accounting firm, bank or investment banking firm that
does not, and whose directors, officers, employees and affiliates do not, have
a direct or indirect material equity interest in ML&Co. or any of its
subsidiaries.
ML Partnership may reinvest in additional Affiliate Investment
Instruments only if certain procedures and criteria are satisfied with respect
to each Affiliate Investment Instrument, including the satisfaction of the
following conditions:
(1) ML Partnership did not hold debt securities of the issuer of the
proposed Affiliate Investment Instrument within the three-year
period ending on the date of proposed investment;
(2) there was never a default on any debt obligation of, or arrearages
of dividends on preferred stock issued by, the issuer of the
proposed Affiliate Investment Instrument that was previously or is
currently owned by ML Partnership;
(3) the applicable terms and provisions with respect to the proposed
Affiliate Investment Instrument have been determined by the
independent financial advisor to be at least as favorable as terms
which could be obtained by ML Partnership in a public offering or
private placement under Rule 144A of the Securities Act of a
comparable security issued by the relevant Investment Affiliate and
guarantees, if any; and
(4) the requesting Investment Affiliate shall not be deemed to be an
investment company by reason of Section 3(a) or 3(b) of the
Investment Company Act or is otherwise an eligible recipient of
funds directly or indirectly from ML Trust pursuant to an order
issued by the SEC.
The term "Investment Affiliate" means ML&Co. or any corporation,
partnership, limited liability company or other entity that is controlled by
ML&Co., other than ML Partnership or ML Trust. If ML Partnership is unable to
reinvest payments and proceeds from Affiliate Investment Instruments in
additional Affiliate Investment Instruments meeting the above criteria, ML
Partnership may only invest those funds in eligible debt securities, subject to
restrictions of applicable law, including the Investment Company Act.
Investment Guarantees
ML&Co. will agree to execute and deliver an Investment Guarantee, on a
subordinated basis, for the benefit of the holders of partnership preferred
securities with respect to each debenture issued by an Investment Affiliate,
other than the ML&Co. Debenture, to the extent set forth below. The Investment
Guarantees shall be enforceable regardless of any defense, right of set-off or
counterclaim that ML&Co. may have or assert. The Investment Guarantees will be
full and unconditional guarantees, to the extent set forth in this prospectus,
with respect to the applicable Debentures from the time of issuance. To the
extent that, as described above, ML Partnership invests in additional Affiliate
Investment Instruments, the determination as to whether the Affiliate
Investment Instrument will contain an Investment Guarantee will be made at the
date of its issuance and will be based, among other things, upon its approval
by the independent financial advisor in accordance with the reinvestment
criteria described above.
The Investment Guarantees will constitute guarantees of payment and not
of collection. That is, the guaranteed party may directly institute a legal
proceeding against ML&Co. to enforce its rights under the applicable Investment
Guarantee without instituting a legal proceeding against any other person or
entity. If no special representative has been appointed to enforce any
Investment Guarantee, ML&Co. as general partner has
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the right to enforce the Investment Guarantee on behalf of the holders of the
partnership preferred securities. The holders of not less than a majority in
aggregate liquidation preference of the partnership preferred securities have
the right to direct the time, method and place of conducting any proceeding for
any remedy available in respect of any Investment Guarantee, including the
giving of directions to ML&Co. as general partner or the special
representative, as the case may be. If ML&Co. or the special representative
fails to enforce any Investment Guarantee as above provided, any holder of the
TOPrS may institute its own legal proceeding to enforce that Investment
Guarantee. No Investment Guarantee will be discharged except by payment in full
of all amounts guaranteed by such Investment Guarantee, without duplication of
amounts previously paid by the relevant Investment Affiliate.
Amendments and Assignment
Except with respect to any changes that do not adversely affect the
rights of holders of partnership preferred securities, in which case no consent
will be required, the Investment Guarantees may be amended only with the prior
approval of the holders of not less than a majority in liquidation preference
of the outstanding partnership preferred securities, provided that for so long
as the property trustee of ML Trust is the holder of the partnership preferred
securities, no amendment will be effective without the prior written approval
of a majority in liquidation amount of the outstanding TOPrS. All guarantees
and agreements contained in the Investment Guarantees shall bind the
successors, assigns, receivers, trustees and representatives of ML&Co. and
shall inure to the benefit of the holders of partnership preferred securities.
Except in connection with any permitted merger or consolidation of ML&Co. with
or into another entity or any permitted sale, transfer or lease of ML&Co.'s
assets to another entity in which the surviving corporation, if other than
ML&Co., assumes ML&Co.'s obligations under the Investment Guarantees, ML&Co.
may not assign its rights or delegate its obligations under the Investment
Guarantees without the prior approval of the holders of at least a majority of
the aggregate stated liquidation preference of the partnership preferred
securities then outstanding.
Status of the Investment Guarantees
ML&Co.'s obligations under the Investment Guarantees will constitute
unsecured obligations of ML&Co. and will rank subordinate and junior in right
of payment to all other liabilities of ML&Co. and will rank equally with the
most senior preferred stock, if any, issued from time to time by ML&Co., with
similar guarantees issued by ML&Co. in connection with:
. the $275,000,000 aggregate liquidation amount of 7 3/4% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust I,
. the $300,000,000 aggregate liquidation amount of 8% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust
II,
. the $750,000,000 aggregate liquidation amount of 7% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust
III,
. the $400,000,000 aggregate liquidation amount of 7.12% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust IV,
. the $850,000,000 aggregate liquidation amount of 7.28% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust V,
. the (Yen)10,000,000,000 aggregate liquidation amount of Trust
Originated Preferred Securities issued by Merrill Lynch Yen TOPrS
Trust I, and
. with any guarantee now or hereafter entered into by ML&Co. in respect
of any preferred stock of any other Finance Subsidiary.
Accordingly, the rights of the holders of the debentures to receive
payments under the Investment Guarantees will be subject to the rights of the
holders of any obligations that are senior in priority to the obligations under
the Investment Guarantees. Furthermore, the holders of obligations of ML&Co.
that are senior to the obligations under the Investment Guarantees, including,
but not limited to, obligations constituting
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Senior Indebtedness, will be entitled to the same rights upon payment default
or dissolution, liquidation and reorganization in respect of the Investment
Guarantees that inure to the holders of senior indebtedness as against the
holders of the ML&Co. Debenture. The terms of the debentures provide that each
holder of debentures, by acceptance thereof, agrees to the subordination
provisions and other terms of the Investment Guarantees.
Governing Law
The Investment Guarantees will be governed by and construed in accordance
with the laws of the State of New York.
Optional Redemption
The partnership preferred securities are redeemable, at the option of
ML&Co., as general partner, in whole or in part, from time to time, on or
after , , upon not less than 30 nor more than 60 days notice, at an amount
per partnership preferred security equal to $25 plus accumulated and unpaid
distributions. If ML Partnership redeems partnership preferred securities in
accordance with their terms, ML Trust will redeem the Trust Securities at the
redemption price. If:
. a partial redemption would result in the delisting of the TOPrS,
. ML Trust is liquidated in connection with a Trust Special Event, or
. a partial redemption would result in the delisting of the partnership
preferred securities,
then, in each case, ML Partnership may only redeem the partnership preferred
securities in whole.
Partnership Special Event Redemption
If, at any time, a Partnership Tax Event or a Partnership Investment
Company Event (each as defined below, and each a "Partnership Special Event")
occurs and is continuing, ML&Co. shall, within 90 days following the occurrence
of such Partnership Special Event, elect to either:
. redeem the partnership preferred securities in whole, but not in
part, upon not less than 30 or more than 60 days notice at the
redemption price, provided that, if at the time there is available to
ML Partnership the opportunity to eliminate, within the 90-day
period, the Partnership Special Event by taking some ministerial
action, such as filing a form or making an election, or pursuing some
other similar reasonable measure that in the sole judgment of ML&Co.
has or will cause no adverse effect on ML Partnership, ML Trust or
ML&Co., ML&Co. will pursue that measure in lieu of redemption; or
. cause the partnership preferred securities to remain outstanding,
provided that in the case of this clause, the ML&Co. shall pay any
and all costs and expenses incurred by or payable by ML Partnership
attributable to the Partnership Special Event.
"Partnership Tax Event" means that ML&Co. shall have requested and
received an opinion of nationally recognized independent tax counsel
experienced in these matters to the effect that there has been a Tax Action
which affects any of the events described in (1) through (3) below and that
there is more than an insubstantial risk that:
(1) ML Partnership is, or will be, subject to United States Federal
income tax with respect to income accrued or received on the
Affiliate Investment Instruments or the eligible debt securities,
(2) ML Partnership is, or will be, subject to more than a minimal amount
of other taxes, duties or other governmental charges or
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(3) interest payable by an Investment Affiliate with respect to the
Affiliate Investment Instrument issued by that Investment Affiliate
to ML Partnership is not, or will not be, deductible by the
Investment Affiliate for United States Federal income tax purposes.
Recently, the IRS asserted that the interest payable on a security issued
in similar circumstances as the issuance of the debentures by the Investment
Affiliates to ML Partnership was not deductible for United States Federal
income tax purposes. The taxpayer in that case has filed a petition in the
United States Tax Court challenging the IRS's position on this matter. If this
matter were to be litigated and the Tax Court were to sustain the IRS's
position on this matter, the judicial decision could constitute a Partnership
Tax Event, which could result in an early redemption of the partnership
preferred securities.
"Partnership Investment Company Event" means that ML&Co. shall have
requested and received an opinion of nationally recognized independent legal
counsel experienced in these matters to the effect that as a result of the
occurrence on or after the date of this prospectus of a Change in Investment
Company Act Law, ML Partnership is or will be considered an investment company
which is required to be registered under the Investment Company Act.
Redemption Procedures
ML Partnership may not redeem fewer than all the outstanding partnership
preferred securities unless all accumulated and unpaid distributions have been
paid on all partnership preferred securities for all quarterly distribution
periods terminating on or before the date of redemption.
If ML Partnership gives a notice of redemption in respect of partnership
preferred securities, which notice will be irrevocable, then, by 12:00 noon,
New York City time, on the redemption date, ML Partnership:
. if the partnership preferred securities are in book entry form with
DTC, will deposit irrevocably with DTC funds sufficient to pay the
applicable redemption price and will give DTC irrevocable
instructions and authority to pay the redemption price in respect of
the partnership preferred securities held through DTC in global form,
or
. if the partnership preferred securities are held in certificated
form, will deposit with the paying agent for the partnership
preferred securities funds sufficient to pay any amount in respect of
any partnership preferred securities in certificated form and will
give the paying agent irrevocable instructions and authority to pay
these amounts to the holders of partnership preferred securities upon
surrender of their certificates.
See "Description of the TOPrS--Book-Entry Only Issuance--The Depository Trust
Company".
If notice of redemption shall have been given and funds deposited as
required, then upon the date of the deposit, all rights of holders of such
partnership preferred securities so called for redemption will cease, except
the right of the holders of such partnership preferred securities to receive
the redemption price, but without interest on that redemption price. In the
event that any date fixed for redemption of partnership preferred securities is
not a Business Day, then payment of the redemption price payable on that date
will be made on the next succeeding day that is a Business Day, and without any
interest or other payment in respect of any delay, except that, if that
Business Day falls in the next calendar year, the payment will be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on the date fixed for redemption. In the event that payment of the
redemption price in respect of partnership preferred securities is improperly
withheld or refused and not paid either by ML Partnership or by ML&Co. under
the Partnership Guarantee described under "Description of the Partnership
Guarantee," distributions on the partnership preferred securities will continue
to accumulate, from the original redemption date to the date of payment.
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Subject to the foregoing and applicable law, including, without
limitation, United States Federal securities laws, ML&Co. or any of its
subsidiaries may at any time and from time to time purchase outstanding
partnership preferred securities by tender, in the open market or by private
agreement.
Liquidation Distribution Upon Dissolution
In the event of any voluntary or involuntary dissolution, winding-up or
termination of ML Partnership, the holders of the partnership preferred
securities at the time will be entitled to receive out of the assets of ML
Partnership available for distribution to partners after satisfaction of
liabilities of creditors as required by the Delaware Partnership Act, before
any distribution of assets is made to ML&Co. as General Partner, an amount
equal to, in the case of holders of partnership preferred securities, the
aggregate of the stated liquidation preference of $25 per partnership preferred
security plus accumulated and unpaid distributions on the partnership preferred
securities to the date of payment.
Under the Limited Partnership Agreement, ML Partnership shall be
dissolved and its affairs shall be wound up:
. upon the bankruptcy of ML&Co.,
. upon the assignment by ML&Co. of its entire interest in ML
Partnership when the assignee is not admitted to ML Partnership as a
general partner of ML Partnership in accordance with the limited
partnership agreement, or the filing of a certificate of dissolution
or its equivalent with respect to ML&Co., or the revocation of
ML&Co.'s charter and the expiration of 90 days after the date of
notice to ML&Co. of revocation without a reinstatement of its
charter, or if any other event occurs that causes the General Partner
to cease to be a general partner of ML Partnership under the Delaware
Limited Partnership Act, unless the business of ML Partnership is
continued in accordance with the Delaware Limited Partnership Act,
. if ML Partnership has redeemed or otherwise purchased all the
partnership preferred securities,
. upon the entry of a decree of judicial dissolution or
. upon the written consent of all partners of ML Partnership.
Voting Rights
Except as provided below and under "Description of the Partnership
Guarantee--Amendments and Assignment" and as otherwise required by law and the
Limited Partnership Agreement, the holders of the partnership preferred
securities will have no voting rights.
Not later than 30 days after any Partnership Enforcement Event occurs,
ML&Co. will convene a meeting for the purpose of appointing a special
representative. If ML&Co. fails to convene a meeting within the 30-day period,
the holders of 10% in liquidation preference of the outstanding partnership
preferred securities will be entitled to convene a meeting. The provisions of
the limited partnership agreement relating to the convening and conduct of the
meetings of the partners will apply with respect to any meeting. In the event
that, at any meeting, holders of less than a majority in aggregate liquidation
preference of partnership preferred securities entitled to vote for the
appointment of a special representative vote for the appointment, no special
representative shall be appointed. Any special representative appointed shall
cease to be a special representative of ML Partnership and the limited partners
if:
. ML Partnership, or ML&Co. pursuant to the Partnership Guarantee,
shall have paid in full all accumulated and unpaid distributions on
the partnership preferred securities,
. any event of default under any Affiliate Investment Instruments shall
have been cured, and
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. ML&Co. is in compliance with all its obligations under the
Partnership Guarantee and ML&Co., in its capacity as the general
partner, shall continue the business of ML Partnership without
dissolution.
Notwithstanding the appointment of the special representative, ML&Co.
shall continue as General Partner and shall retain all rights under the limited
partnership agreement, including the right not to declare, in its sole
discretion, the payment of distributions on the partnership preferred
securities, for which the failure to declare distributions would not constitute
a default under the limited partnership agreement.
If any proposed amendment to the limited partnership agreement provides
for, or ML&Co. otherwise proposes to effect,
. any action that would adversely affect the powers, preferences or
special rights of the partnership preferred securities, whether by
way of amendment to the limited partnership agreement or otherwise,
including, without limitation, the authorization or issuance of any
limited partner interests in ML Partnership ranking, as to
participation in the profits or distributions or in the assets of ML
Partnership, senior to the partnership preferred securities, or
. the dissolution, winding-up or termination of ML Partnership, other
than:
(A) in connection with the occurrence of a Partnership Special
Event or
(B) as described under "Merger, Consolidation or Amalgamation of
the Partnership" below,
then the holders of outstanding partnership preferred securities will be
entitled to vote on any amendment or proposal of ML&Co., but not on any other
amendment or proposal, as a class, and no amendment or proposal shall be
effective without the approval of the holders of a majority in liquidation
preference of the outstanding partnership preferred securities having a right
to vote on the matter; provided, however, that if the property trustee on
behalf of ML Trust is the holder of the partnership preferred securities, any
amendment or proposal not excepted by clauses (A) and (B) above shall not be
effective without the prior or concurrent approval of the holders of a majority
in liquidation amount of the outstanding TOPrS having a right to vote on the
matters.
ML&Co. shall not
. direct the time, method and place of conducting any proceeding for
any remedy available,
. waive any event of default that is waivable under the Affiliate
Investment Instruments,
. exercise any right to rescind or annul a declaration that the
principal of any Affiliate Investment Instruments shall be due and
payable,
. waive the breach of the obligation by ML&Co. to restrict certain
payments by ML&Co., or
. consent to any amendment, modification or termination of any
Affiliate Investment Instrument, where such consent shall be required
from the investor,
without, in each case, obtaining the prior approval of the holders of at least
a majority in liquidation preference of the partnership preferred securities;
provided, however, that if the property trustee on behalf of ML Trust is the
holder of the partnership preferred securities, any waiver, consent or
amendment or other action shall not be effective without the prior or
concurrent approval of at least a majority in liquidation amount of the
outstanding TOPrS having a right to vote on these matters. ML&Co. shall not
revoke any action previously authorized or approved by a vote of the holders of
the partnership preferred securities without the approval of the revocation by
a majority in liquidation preference of the outstanding partnership preferred
securities. ML&Co. shall notify all holders of the partnership preferred
securities of any notice of an event of default received with respect to any
Affiliate Investment Instrument.
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Any required approval of holders of partnership preferred securities may
be given at a separate meeting of holders of partnership preferred securities
convened for that purpose, at a meeting of all of the partners in ML
Partnership or pursuant to written consent. ML Partnership will cause a notice
of any meeting at which holders of partnership preferred securities are
entitled to vote, or of any matter upon which action by written consent of the
holders is to be taken, to be mailed to each holder of record of partnership
preferred securities. Each notice will include a statement setting forth
. the date of the meeting or the date by which action is to be taken,
. a description of any resolution proposed for adoption at the meeting
on which holders are entitled to vote or of the matters upon which
written consent is sought and
. instruction for the delivery of proxies or consents.
No vote or consent of the holders of partnership preferred securities
will be required for ML Partnership to redeem and cancel partnership preferred
securities in accordance with the limited partnership agreement.
Notwithstanding that holders of partnership preferred securities are
entitled to vote or consent under any of the circumstances described above, any
of the partnership preferred securities at such time that are beneficially
owned by ML&Co. or by any entity directly or indirectly controlled by, or under
direct or indirect common control with, ML&Co., except for partnership
preferred securities purchased or acquired by ML&Co. or its affiliates in
connection with transactions effected by or for the account of customers of
ML&Co. or any of its subsidiaries or in connection with the distribution or
trading of such partnership preferred securities; shall not be entitled to vote
or consent and shall, for purposes of any vote or consent, be treated as if
they were not outstanding, provided, however, that persons, other than
affiliates of ML&Co., to whom ML&Co. or any of its subsidiaries have pledged
partnership preferred securities may vote or consent with respect to the
pledged partnership preferred securities under the terms of the pledge.
Holders of the partnership preferred securities will have no rights to
remove or replace ML&Co. as general partner.
Merger, Consolidation or Amalgamation of ML Partnership
ML Partnership may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other body, except as
described below. ML Partnership may, without the consent of the holders of the
partnership preferred securities, consolidate, amalgamate, merge with or into,
or be replaced by a limited partnership, limited liability company or trust
organized as such under the laws of any state of the United States of America,
provided that:
. the successor entity either:
(A) expressly assumes all of the obligations of ML Partnership under
the partnership preferred securities or
(B) substitutes for the partnership preferred securities other
securities having substantially the same terms as the partnership
preferred securities so long as the partnership successor
securities are not junior to any other equity securities of the
successor entity, with respect to participation in the profits
and distributions, and in the assets, of the successor entity,
. the Investment Affiliates expressly acknowledge the successor entity
as the holder of the Affiliate Investment Instruments,
. the partnership preferred securities or any partnership successor
securities are listed, or any partnership successor securities will
be listed upon notification of issuance, on any national securities
exchange or other organization on which the partnership preferred
securities, if so listed, are then listed,
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. the merger, consolidation, amalgamation or replacement does not cause
the TOPrS or, in the event that ML Trust is liquidated in connection
with a Trust Special Event, the partnership preferred securities or
any partnership successor securities, to be downgraded by any
nationally recognized statistical rating organization,
. the merger, consolidation, amalgamation or replacement does not
adversely affect the powers, preferences and other special rights of
the holders of the TOPrS or partnership preferred securities,
including any partnership successor securities, in any material
respect, other than, in the case of the partnership preferred
securities, with respect to any dilution of the holders' interest in
the new resulting entity,
. the successor entity has a purpose substantially identical to that of
ML Partnership,
. before the merger, consolidation, amalgamation or replacement, ML&Co.
has received an opinion of nationally recognized independent counsel
to ML Partnership experienced in these matters to the effect that:
(A) the successor entity will be treated as a partnership for United
States Federal income tax purposes,
(B) the merger, consolidation, amalgamation or replacement would not
cause ML Trust to be classified as an association taxable as a
corporation for United States Federal income tax purposes,
(C) following the merger, consolidation, amalgamation or replacement,
ML&Co. and such successor entity will be in compliance with the
Investment Company Act without registering as an investment
company, and
(D) the merger, consolidation, amalgamation or replacement will not
adversely affect the limited liability of the holders of the
partnership preferred securities and
. ML&Co. guarantees the obligations of the successor entity under the
partnership successor securities at least to the extent provided by
the Partnership Guarantee.
Book-Entry and Settlement
If the partnership preferred securities are distributed to holders of the
TOPrS in connection with the involuntary or voluntary dissolution, winding-up
or liquidation of ML Trust as a result of the occurrence of a Trust Special
Event, the partnership preferred securities will be issued in the form of one
or more global partnership securities registered in the name of DTC as the
depository or its nominee. For a description of DTC and the specific terms of
the Depository arrangements, see "Description of the TOPrS--Book-Entry Only
Issuance--The Depository Trust Company". As of the date of this prospectus, the
description therein of DTC's book-entry system and DTC's practices as they
relate to purchases, transfers, notices and payments with respect to the TOPrS
apply in all material respects to any partnership preferred securities
represented by one or more global partnership securities.
Registrar, Transfer Agent and Paying Agent
ML&Co. will act as registrar, transfer agent and paying agent for the
partnership preferred securities for so long as the partnership preferred
securities are held by ML Trust or, if ML Trust is liquidated in connection
with a Trust Special Event, for so long as the partnership preferred securities
remain in book-entry only form. In the event the partnership preferred
securities are distributed in connection with a Trust Special Event and the
book-entry system for the partnership preferred securities is discontinued, it
is anticipated that The Chase Manhattan Bank or one of its affiliates will act
as registrar, transfer agent and paying agent for the partnership preferred
securities.
Registration of transfers of partnership preferred securities will be
effected without charge by or on behalf of ML Partnership, but upon payment,
with the giving of such indemnity as ML Partnership or ML&Co. may require, in
respect of any tax or other governmental charges that may be imposed in
relation to it.
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ML Partnership will not be required to register or cause to be registered
the transfer of partnership preferred securities after such partnership
preferred securities have been called for redemption.
Miscellaneous
ML&Co. is authorized and directed to conduct its affairs and to operate
ML Partnership in such a way that:
. ML Partnership will not be deemed to be an investment company
required to be registered under the Investment Company Act or
characterized as an association taxable as a corporation for United
States Federal income tax purposes,
. the Affiliate Investment Instruments will be treated as indebtedness
of their respective issuers for United States Federal income tax
purposes and
. ML Partnership will not be treated as an association or as a publicly
traded partnership, within the meaning of Section 7704 of the Code,
taxable as a corporation.
In this connection, ML&Co. as general partner is authorized to take any
action, not inconsistent with applicable law, the certificate of limited
partnership of ML Partnership or the limited partnership agreement, that it
determines in its discretion to be necessary or desirable for the foregoing
purposes as long as any action does not adversely affect the interests of the
holders of the partnership preferred securities.
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DESCRIPTION OF THE PARTNERSHIP GUARANTEE
Set forth below is a summary of the material information concerning the
Partnership Guarantee (the "Partnership Guarantee") that will be executed and
delivered by ML&Co. for the benefit of the holders from time to time of
partnership preferred securities. The summary is not complete and is subject
in all respects to the provisions of, and is qualified in its entirety by
reference to, the Partnership Guarantee, which is filed as an exhibit to the
registration statement of which this prospectus is a part. ML&Co. will hold
the Partnership Guarantee for the benefit of the holders of the partnership
preferred securities.
Terms of the Partnership Guarantee
Under the Partnership Guarantee, ML&Co. will irrevocably agree, on a
subordinated basis to the extent set forth in this prospectus, to pay in full
to the holders of the partnership preferred securities, without duplication of
amounts previously paid by ML Partnership, as and when due, regardless of any
defense, right of set-off or counterclaim that ML Partnership may have or
assert, the following payments (the "Partnership Guarantee Payments"):
. any accumulated and unpaid distributions that previously have been
declared on ML Partnership preferred securities out of funds legally
available for distribution,
. the redemption price with respect to any partnership preferred
securities called for redemption by ML Partnership out of funds
legally available for that purpose, and
. upon a liquidation of ML Partnership, the lesser of:
(A) the aggregate of the liquidation preference and all
accumulated and unpaid distributions on the partnership
preferred securities to the date of payment and
(B) the amount of assets of ML Partnership, after satisfaction of
all liabilities, remaining available for distribution to
holders of partnership preferred securities in liquidation of
ML Partnership.
ML&Co.'s obligation to make a Partnership Guarantee Payment may be
satisfied by direct payment of the required amounts by ML&Co. to the holders
of partnership preferred securities or by causing ML Partnership to pay these
amounts to holders.
The Partnership Guarantee will be a guarantee on a subordinated basis
with respect to the partnership preferred securities from the time of issuance
of the partnership preferred securities but will not apply to any payment of
distributions or the redemption price, or to payments upon the dissolution,
winding-up or termination of ML Trust, except to the extent ML Partnership
shall have funds available for these purposes. If Investment Affiliates,
including, where applicable, ML&Co., as guarantor, of the Affiliate Investment
Instruments in which ML Partnership invests fail to make any payment in
respect of the securities or, if applicable, guarantees, ML Partnership may
not declare or pay dividends on the partnership preferred securities. In such
event, holders of the partnership preferred securities would not be able to
rely upon the Partnership Guarantee for payment of these amounts. Instead,
holders of the partnership preferred securities will have the remedies described
in this prospectus under "Description of the Partnership Preferred Securities--
Partnership Enforcement Events", including the right to direct ML&Co. or the
special representative, as the case may be, to enforce the covenant restricting
certain payments by ML&Co. and Finance Subsidiaries. See "--Covenants of ML&Co."
below.
The Guarantees, when taken together with the ML&Co. Debenture and
ML&Co.'s obligations to pay all fees and expenses of ML Trust and ML
Partnership, constitute a guarantee to the extent set forth in this prospectus
by ML&Co. of the distribution, redemption and liquidation payments payable to
the holders of the TOPrS. The Guarantees do not apply, however, to current
distributions by ML Partnership unless and until
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distributions are declared by ML Partnership out of funds legally available for
payment or to liquidating distributions unless there are assets available for
payment in ML Partnership.
Obligations of ML&Co.
Under the Partnership Guarantee, ML&Co. will agree that if:
. for any distribution period, full distributions on a cumulative basis
on any partnership preferred securities have not been paid or
declared and set apart for payment,
. an event of default by any Investment Affiliate in respect of any
Affiliate Investment Instrument has occurred and is continuing, or
. ML&Co. is in default of its obligations under any Guarantee,
then, during that period,
. ML&Co. may not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation
payment with respect to, any of its capital stock or comparable
equity interest, except for:
. dividends or distributions in shares of, or options, warrants or
rights to subscribe for or purchase shares of, its capital stock,
and conversions or exchanges of common stock of one class into
common stock of another class,
. redemptions or purchases of any rights under the Rights Agreement
and the issuance of preferred stock pursuant to those rights and
. purchases or acquisitions by ML&Co. or its affiliates in
connection with transactions effected by or for the account of
customers of ML&Co. or any of its subsidiaries or in connection
with the distribution or trading of such capital stock or
comparable equity interest and
. ML&Co. may not make, permit any Finance Subsidiary to make, or
make any payments that would enable any Finance Subsidiary to
make, any payment of any dividends on, any distribution with
respect to, or any redemption, purchase or other acquisition of,
or any liquidation payment with respect to, any preferred security
or comparable equity interest of any Finance Subsidiary.
Events of Default; Enforcement of Partnership Guarantee
An event of default under the Partnership Guarantee will occur upon the
failure of ML&Co. to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the partnership
preferred securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the special
representative in respect of the Partnership Guarantee or to direct the
exercise of any trust or power conferred upon the special representative under
the Partnership Guarantee. If the special representative fails to enforce its
rights under the Partnership Guarantee, after a holder of partnership preferred
securities has made a written request, such holder of partnership preferred
securities may institute a legal proceeding directly against ML&Co. to enforce
the special representative's rights under the Partnership Guarantee without
first instituting a legal proceeding against ML Partnership, the special
representative or any other person or entity. Notwithstanding the foregoing, if
ML&Co. has failed to make a guarantee payment, a holder of partnership
preferred securities may directly institute a proceeding against ML&Co. for
enforcement of the Partnership Guarantee for the payment.
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Status of the Partnership Guarantee; Subordination
The Partnership Guarantee will constitute an unsecured obligation of
ML&Co. and will rank subordinate and junior in right of payment to all other
liabilities of ML&Co. and will rank equally with the most senior preferred
stock issued from time to time by ML&Co., with similar guarantees issued by
ML&Co. in connection with
. the $275,000,000 aggregate liquidation amount of 7 3/4% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust I,
. the $300,000,000 aggregate liquidation amount of 8% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust
II,
. the $750,000,000 aggregate liquidation amount of 7% Trust Originated
Preferred Securities issued by Merrill Lynch Preferred Capital Trust
III,
. the $400,000,000 aggregate liquidation amount of 7.12% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust IV,
. the $850,000,000 aggregate liquidation amount of 7.28% Trust
Originated Preferred Securities issued by Merrill Lynch Preferred
Capital Trust V,
. the (Yen)10,000,000,000 aggregate liquidation amount of Trust
Originated Preferred Securities issued by Merrill Lynch Yen TOPrS
Trust I, and
. with any guarantee now or hereafter entered into by ML&Co. in respect
of any preferred stock of any other Finance Subsidiary.
Accordingly, the rights of the holders of partnership preferred
securities to receive payments under the Partnership Guarantee will be subject
to the rights of the holders of any obligations of ML&Co. that are senior in
priority to the obligations under the Partnership Guarantee. Furthermore, the
holders of obligations of ML&Co. that are senior to the obligations under the
Partnership Guarantee, including, but not limited to, obligations constituting
senior indebtedness, will be entitled to the same rights upon payment default
or dissolution, liquidation and reorganization in respect of the Partnership
Guarantee that inure to the holders of senior indebtedness as against the
holders of the ML&Co. Debenture. The limited partnership agreement provides
that each holder of partnership preferred securities, by their acceptance,
agrees to the subordination provisions and other terms of the Partnership
Guarantee.
The Partnership Guarantee will constitute a guarantee of payment and not
of collection. That is, the guaranteed party may directly institute a legal
proceeding against ML&Co. to enforce its rights under the Partnership Guarantee
without instituting a legal proceeding against any other person or entity.
The Partnership Guarantee will be deposited with ML&Co. to be held for
the benefit of the holders of the partnership preferred securities. In the
event of the appointment of a special representative to, among other things,
enforce the Partnership Guarantee, the special representative may take
possession of the Partnership Guarantee for that purpose. If no special
representative has been appointed to enforce the Partnership Guarantee, ML&Co.
has the right to enforce the Partnership Guarantee on behalf of the holders of
the partnership preferred securities.
Amendments and Assignment
Except with respect to any changes that do not adversely affect the
rights of holders of partnership preferred securities, in which case no consent
will be required, the Partnership Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation preference
of the outstanding partnership preferred securities. All guarantees and
agreements contained in the Partnership Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of ML&Co. and shall inure to
the benefit of
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the holders of the partnership preferred securities then outstanding. Except in
connection with any permitted merger or consolidation of ML&Co. with or into
another entity or any permitted sale, transfer or lease of ML&Co.'s assets to
another entity in which the surviving corporation, if other than ML&Co.,
assumes ML&Co.'s obligations under the Partnership Guarantee, ML&Co. may not
assign its rights or delegate its obligations under the Partnership Guarantee
without the prior approval of the holders of at least a majority of the
aggregate stated liquidation preference of the partnership preferred securities
then outstanding.
Termination of the Partnership Guarantee
The Partnership Guarantee will terminate and be of no further force and
effect as to the partnership preferred securities upon:
. full payment of the redemption price of all partnership preferred
securities, or
. full payment of the amounts payable in accordance with the Limited
Partnership Agreement upon liquidation of ML Partnership.
The Partnership Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of partnership
preferred securities must in accordance with the Delaware Limited Partnership
Act restore payment of any sums paid under the partnership preferred securities
or the Partnership Guarantee. The Delaware Limited Partnership Act provides
that a limited partner of a limited partnership who wrongfully receives a
distribution may be liable to the limited partnership for the amount of such
distribution.
Governing Law
The Partnership Guarantee will be governed by and construed in accordance
with the internal laws of the State of New York.
UNITED STATES FEDERAL INCOME TAXATION
In the opinion of Brown & Wood llp, tax counsel to ML&Co., ML Trust and
ML Partnership ("Tax Counsel"), the following summary accurately describes the
material United States Federal income tax consequences that may be relevant to
the purchase, ownership and disposition of the TOPrS. Unless otherwise stated,
this summary deals only with the TOPrS held as capital assets by United States
Persons who purchase the TOPrS upon original issuance and does not purport to
deal with persons in special tax situations, such as financial institutions,
insurance companies, regulated investment companies, dealers in securities or
currencies, persons holding the TOPrS as a hedge against currency risks or as a
position in a "straddle" for tax purposes, or persons whose functional currency
is not the United States dollar. As used in this prospectus, a "United States
Person" means a person that is for Federal United States income tax purposes a
(1) citizen or resident of the United States, (2) a corporation or a
partnership (including an entity treated as a corporation or partnership for
United States Federal income tax purposes) created or organized in or under the
laws of the United States, any state thereof or the District of Columbia
(unless, in the case of a partnership, Treasury regulations are adopted that
provide otherwise), (3) an estate whose income is subject to United States
Federal income tax regardless of its source, or (4) 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. Notwithstanding
clause (4) of the previous 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 United States Persons. Moreover, as used
herein, the term United States Person includes any holder of a TOPrS whose
income or gain in respect to its investment in a TOPrS is effectively connected
with the conduct of a U.S. trade or business. The tax treatment of a holder may
vary depending on its particular situation.
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This summary does not address all the tax consequences that may be
relevant to holders who may be subject to special tax treatment, such as banks,
real estate investment trusts, regulated investment companies, insurance
companies, dealers in securities or currencies, tax-exempt investors, or
foreign investors. This summary does not include any description of any
alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the TOPrS.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury regulations promulgated under the Code and administrative
and judicial interpretations of the Code, as of the date of this prospectus,
all of which are subject to change, possibly on a retroactive basis.
The TOPrS are not being marketed to persons that are not United States
Persons ("non-United States Persons") and, consequently, the following
discussion does not discuss the tax consequences that might be relevant to non-
United States Persons. Moreover, in order to protect ML Trust and ML
Partnership from potential adverse consequences, non-United States Persons will
be subject to withholding on distributions on the TOPrS at a rate of 30%. In
determining a holder's status, the United States entity otherwise required to
withhold taxes may rely on an IRS Form W-8BEN, an IRS Form W-8ECI, an IRS Form
W-9, or a holder's certification of its non-foreign status signed under penalty
of perjury. Non-United States Persons should consult their tax advisors as to
the specific United States Federal income tax consequences of the purchase,
ownership, and disposition of TOPrS.
Tax Counsel has advised that there is no authority directly on point
dealing with securities similar to the TOPrS or transactions of the type
described in this prospectus and that the opinions of Tax Counsel are not
binding on the IRS or the courts, either of which could take a contrary
position. No rulings have been or will be sought from the IRS. Accordingly,
there can be no assurance that the IRS will not challenge the opinions
expressed in this tax section or that a court would not sustain a challenge to
these opinions. Nevertheless, Tax Counsel has advised that it is of the view
that, if challenged, the opinions expressed in this tax section would be
sustained by a court with jurisdiction in a properly presented case.
Persons considering the purchase of the TOPrS should consult their tax
advisors with respect to the tax consequences to them of the purchase,
ownership and disposition of the TOPrS, including the tax consequences under
state, local, foreign, and other tax laws and the possible effects of changes
in United States Federal or other tax laws. For a discussion of the possible
redemption of the TOPrS or redemption of the partnership preferred securities
upon the occurrence of certain tax events see "Description of the TOPrS--Trust
Special Event Redemption or Distribution" and "Description of the Partnership
Preferred Securities--Partnership Special Event Redemption" respectively.
Classification of ML Trust
Tax Counsel is of the opinion that, under current law, and based on
certain representations made by ML Trust as well as certain facts and
assumptions with respect to the transaction described in this prospectus, ML
Trust will be classified for United States Federal income tax purposes as a
grantor trust and not as an association taxable as a corporation. Accordingly,
for United States Federal income tax purposes, each holder of the TOPrS will be
considered the owner of an undivided interest in the partnership preferred
securities held by ML Trust. As a result of this treatment, each holder of the
TOPrS will be required to include in its gross income its distributive share of
income attributable to ML Partnership. This amount will generally be equal to a
holder's allocable share of amounts accrued on the partnership preferred
securities. No amount included in income with respect to the TOPrS will be
eligible for the corporate dividends-received deduction.
Classification of the Partnership
Tax Counsel is of the opinion that under current law, and based on
certain representations made by the ML Trust as well as certain facts and
assumptions with respect to the transaction described in this prospectus, ML
Partnership will be classified for United States Federal income tax purposes as
a partnership and not as an association or publicly traded partnership taxable
as a corporation.
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Tax Counsel's opinion is based on certain factual assumptions relating to
the organization and operation of ML Partnership and is conditioned upon
certain representations made by ML&Co., as General Partner, and ML Partnership
as to factual matters, including the organization and the operation of ML
Partnership and the type and frequency of investments made by ML Partnership.
ML&Co., as General Partner, has represented that it intends to operate ML
Partnership in a manner that will enable ML Partnership to be classified as a
partnership for all future taxable periods in which any partnership preferred
securities remain outstanding. In particular, under the limited partnership
agreement, the general partner cannot take any action that would cause ML
Partnership to constitute a "publicly traded partnership" taxable as a
corporation. Accordingly, it is expected that ML Partnership will continue to
qualify as a partnership and, therefore, will not constitute a publicly traded
partnership taxable as a corporation for all taxable years in which any
partnership preferred securities remain outstanding.
Classification of the Debentures
ML Partnership, ML&Co., the relevant Investment Affiliates and the
holders of the Trust Securities (by acceptance of a beneficial interest in a
Trust Security) will agree to treat the debentures as indebtedness of the
relevant issuer for all United States Federal income tax purposes. In
connection with the issuance of the debentures, Tax Counsel will issue its
opinion that, under current law, and based on certain representations, facts
and assumptions to be set forth in such opinion, the debentures will be
classified as indebtedness of the relevant issuer for United States Federal
income tax purposes.
Income and Deductions
Because ML Trust will be classified as a grantor trust for United States
Federal income tax purposes, holders of TOPrS will be considered to own an
undivided interest in the partnership preferred securities held by ML Trust. As
a result of this treatment, a holder of TOPrS will be required to take into
income its proportionate share of income attributable to ML Partnership. A
holder's distributive share of income attributable to ML Partnership generally
will be substantially equal to the amount of the cash distributions that
accumulate with respect to the TOPrS it holds. Accordingly, if quarterly
distributions on the TOPrS are paid currently, the amount of income recognized
by a holder during a taxable year generally will be substantially equal to the
cash distributions received by the holder of the TOPrS.
The nature and timing of the income that is allocated to holders of the
TOPrS will, however, depend on the United States Federal income tax
characterization of the investments held by ML Partnership during the relevant
period. Because ML Partnership will be an accrual basis taxpayer for United
States Federal income tax purposes, income will accrue on the TOPrS and will be
allocated to holders of the TOPrS on a daily accrual basis, generally at a rate
that is expected to be equal to (and that will not be greater than) the
distribution rate on the TOPrS, regardless of the holders' method of
accounting. Actual cash distributions on the TOPrS will not, however, be
separately reported as taxable income to the holders at the time they are
received.
If distributions on the partnership preferred securities are not made
currently, the corresponding distributions on the TOPrS will not be made
currently. Because ML Partnership is an accrual basis taxpayer, it can be
expected that during a period in which interest payments on the debentures or
distributions on the partnership preferred securities are deferred (for
whatever reason), holders will generally recognize income in advance of their
receipt of any cash distributions with respect to their TOPrS. The amount of
income that will be allocated to holders of TOPrS during any such deferral
period will equal their pro rata share of the amount of distributions accruing
on the partnership preferred securities during the deferral period.
ML Partnership does not presently intend to make a Section 754 election.
Accordingly, a subsequent purchaser of the TOPrS who does not purchase the
TOPrS at initial issuance will not be permitted to adjust the tax basis in its
allocable share of ML Partnership's assets so as to reflect any difference
between its purchase price for the TOPrS and its share of ML Partnership's
underlying tax basis in its assets. As a result, a holder of the TOPrS may be
required to report a larger or smaller amount of income from holding the TOPrS
than would otherwise be appropriate based upon the holder's purchase price for
the TOPrS.
51
<PAGE>
Receipt of Partnership Preferred Securities Upon Liquidation of ML Trust
Under certain circumstances, as described under the caption "Description
of the TOPrS--Trust Special Event Redemption or Distribution", partnership
preferred securities may be distributed to holders of the TOPrS in exchange
for their TOPrS and in liquidation of ML Trust. Unless the liquidation of ML
Trust occurs as a result of ML Trust being subject to United States Federal
income tax with respect to income accrued or received on the partnership
preferred securities, a distribution to holders under these circumstances
would, for United States Federal income tax purposes, be treated as a
nontaxable event to each holder. Each holder would receive an aggregate tax
basis in the partnership preferred securities equal to the holder's aggregate
tax basis in its TOPrS with a holding period in the partnership preferred
securities so received in liquidation of ML Trust that would include the
period during which the TOPrS were held. If, however, the liquidation of ML
Trust were to occur because ML Trust is subject to United States Federal
income tax with respect to income accrued or received on the partnership
preferred securities, the distribution of partnership preferred securities to
holders by ML Trust would likely be a taxable event to each holder, and a
holder would recognize gain or loss as if the holder had exchanged its TOPrS
for the partnership preferred securities it received upon the liquidation of
ML Trust. Gain or loss to each holder would be equal to the difference between
the holder's aggregate tax basis in its TOPrS surrendered in the exchange and
the aggregate fair market value of the partnership preferred securities
received in the exchange.
Redemption of TOPrS for Cash
Under certain circumstances, as described under the caption "Description
of the TOPrS--Mandatory Redemption", "Description of the TOPrS--Trust Special
Event Redemption or Distribution" and "Description of the Partnership
Preferred Securities--Partnership Special Event Redemption", the General
Partner may cause ML Partnership to redeem the partnership preferred
securities for cash, in which event ML Trust shall simultaneously apply the
cash received to redeem the TOPrS. Under current law, this redemption of the
TOPrS would constitute, for United States Federal income tax purposes, a
taxable disposition, and a holder would recognize gain or loss as if the
holder had sold its proportionate interest in the redeemed partnership
preferred securities for an amount of cash equal to the proceeds received upon
redemption. See "--Disposition of TOPrS".
Disposition of TOPrS
A holder that sells TOPrS will recognize gain or loss equal to the
difference between the amount realized on the sale of the TOPrS and the
holder's adjusted tax basis in the TOPrS sold. Gain or loss to the seller will
be a capital gain or loss and will be a long-term capital gain or loss if the
TOPrS have been held for more than one year at the time of the sale. A holder
will be required to include accumulated but unpaid distributions on the
partnership preferred securities through the date of disposition in income as
ordinary income, and to add this amount to the adjusted tax basis of its
TOPrS.
A holder's tax basis in its TOPrS generally will equal the amount paid
by the holder for its TOPrS,
. increased by the amount includible in income by the holder with
respect to its TOPrS, and
. reduced by the amount of cash or other property distributed to the
holder with respect to its TOPrS.
A holder who acquires TOPrS at different prices may be required to maintain a
single aggregate adjusted tax basis in all of its TOPrS and, upon sale or
other disposition of some of its TOPrS, to allocate a pro rata portion of such
aggregate tax basis to the TOPrS sold, rather than maintaining a separate tax
basis in each TOPrS for purposes of computing gain or loss on a sale of that
TOPrS.
Other Partnership Provisions
Section 708. Under Section 708 of the Code, ML Partnership will be
deemed to terminate for United States Federal income tax purposes if 50% or
more of the capital and profits interests in ML Trust are sold or exchanged
within a 12-month period. Pursuant to final Treasury regulations issued on May
9, 1997, if a deemed termination under Section 708 were to occur, ML
Partnership would be considered to have contributed
52
<PAGE>
its assets to a new partnership in return for partnership interests therein and
then to have distributed those new partnership interests to the partners of the
old partnership in liquidation thereof.
Section 701. The Department of Treasury has promulgated regulations
under Section 701 of the Code that generally permit it to recast a transaction
or disregard a partnership if a partnership is formed or availed of in
connection with a transaction a principal purpose of which is to reduce
substantially the present value of the partners' aggregate Federal tax
liability in a manner that is inconsistent with the intent of the partnership
provisions of the Code or to treat a partnership as an aggregate of its
partners as appropriate to carry out the purpose of any provision of the Code
or the Treasury regulations thereunder. ML Partnership has been formed for, and
will engage in, activities typical for partnerships. Although there is no
precedent that applies to the transactions contemplated herein, Tax Counsel
believes that ML Partnership is not of the type intended to fall within the
scope of these regulations.
Information Reporting and Backup Withholding
Income on the TOPrS will be reported to holders on an IRS Form 1099,
which form should be mailed to holders of TOPrS by January 31 following each
calendar year. Payments made on and proceeds from the sale of TOPrS may be
subject to a "back-up" withholding tax of 31% unless the holder complies with
certain identification requirements. Any withheld amount generally will be
allowed as a credit against the holder's United States Federal income tax,
provided the required information is timely filed with the IRS.
New Withholding Regulations
The Treasury Department has issued new regulations (the "New
Regulations") which make certain modifications to the back-up withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
2000, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
53
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement, ML
Trust has agreed to sell to each of the underwriters named below, and each of
the underwriters, for whom MLPF&S and are acting as representatives, has
severally agreed to purchase the number of TOPrS set forth opposite its name
below. In the purchase agreement, the several underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all the TOPrS
offered by this prospectus if any of the TOPrS are purchased. In the event of
default by an underwriter, the purchase agreement provides that, in certain
circumstances, the purchase commitments of the non-defaulting underwriters may
be increased or the purchase agreement may be terminated.
<TABLE>
<CAPTION>
Underwriters Number of TOPrS
------------ ---------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
-----
Total..................................................
=====
</TABLE>
Commission and Discounts
The underwriters propose to offer the TOPrS to the public at the public
offering price set forth on the cover page of this prospectus, and, to certain
dealers at that price less a concession not in excess of $ per TOPrS;
provided, that the concession for sales of 10,000 or more TOPrS to any single
purchaser will be $ per TOPrS. The underwriters may allow, and such dealers
may reallow, a discount not in excess of $ per TOPrS to certain brokers and
dealers. After the TOPrS are released for sale to the public, the offering
price, concession and discount may be changed. Proceeds to be received by
ML&Co. will be net of the underwriting discount and expenses payable by ML&Co.
In view of the fact that the proceeds of the sale of the TOPrS will
ultimately be used to purchase the investment instruments of ML&Co. and its
subsidiaries, the purchase agreement provides that ML&Co. will pay as
compensation to the underwriters, an amount in immediately available funds of
$ per TOPrS (or $ in the aggregate) for the accounts of the several
underwriters; provided that, such compensation in respect of sales by any
underwriter of 10,000 or more TOPrS to any single purchaser will be $ per
TOPrS. Therefore, to the extent of any such sales, the actual amount of
underwriters' compensation will be less than the aggregate amount specified in
the preceding sentence.
Listing
Application will be made to list the TOPrS on the NYSE. Trading of the
TOPrS on the NYSE is expected to commence within a 30-day period after the
initial delivery of the TOPrS. The representatives have advised ML Trust that
they intend to make a market in the TOPrS prior to the commencement of trading
on the NYSE. The representatives will have no obligation to make a market in
the TOPrS, however, and may cease market making activities, if commenced, at
any time.
Before this offering there has been no public market for the TOPrS. In
order to meet one of the requirements for listing the TOPrS on the NYSE, the
underwriters will undertake to sell lots of 100 or more TOPrS to a minimum of
400 beneficial holders, that there will be at least one million units of TOPrS
outstanding and that the TOPrS will have a minimum market value of $4,000,000.
54
<PAGE>
Price Stabilization, Short Positions and Penalty Bids
In connection with the offering, the underwriters are permitted to engage
in certain transactions that stabilize the market price of the TOPrS. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the market price of the TOPrS. If the underwriters create a short
position in the TOPrS in connection with the offering, i.e., if they sell more
TOPrS than are set forth on the cover page of this prospectus, the underwriters
may reduce that short position by purchasing TOPrS in the open market. Because
the underwriters have no overallotment options with respect to the TOPrS, they
would be required to close out a short position in the TOPrS by purchasing
TOPrS in the open market. In general, purchases of a security in the open
market for the purpose of stabilization or to reduce a short position could
have the effect of raising or maintaining the market price of the security or
preventing or retarding a decline in the market price of the security.
The underwriters may also impose a penalty bid on certain underwriters
and selling group members. This means that if an underwriter purchases TOPrS in
the open market to reduce the underwriters' short position or to stabilize the
price of the TOPrS, that underwriter may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those TOPrS
as part of the offering. The imposition of a penalty bid might have an effect
on the price of a security to the extent that it were to discourage resales of
the security.
Neither ML&Co. nor any of the underwriters 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 TOPrS. In addition, neither ML&Co.
nor any of the underwriters makes any representation that the underwriters will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
Miscellaneous
ML Trust, ML&Co., and ML Partnership have agreed to indemnify the
underwriters against, or contribute to payments that the underwriters may be
required to make in respect of, certain liabilities, including liabilities
under the Securities Act.
Because MLPF&S, one of the underwriters in the offering, is an affiliate
of ML&Co. and a member of the National Association of Securities Dealers, Inc.,
the offering of TOPrS will be conducted pursuant to the applicable sections of
Rule 2810 of the Conduct Rules of the NASD. The underwriters may not confirm
sales to any discretionary account without the prior specific written approval
of the customer.
Certain of the underwriters and their affiliates engage in transactions
with, and perform services for, ML&Co. in the ordinary course of business and
have engaged, and may in the future engage, in commercial banking and
investment banking transactions with ML&Co. MLPF&S may use this prospectus for
offers and sales related to market-making transactions in the TOPrS. MLPF&S 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.
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an
active link. 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.
55
<PAGE>
We have filed a registration statement on Form S-3 with the SEC covering
the TOPrS and other securities. For further information on ML&Co. and the
TOPrS, 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file
with them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to
those documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000,
November 20, 2000 and December 6, 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 or after the date of this initial registration statement and
before the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
56
<PAGE>
LEGAL MATTERS
Certain matters of Delaware law relating to the legality of the TOPrS,
the validity of ML Trust Agreement, the formation of ML Trust and ML
Partnership and the legality under state law of the TOPrS and the partnership
preferred securities are being passed upon by Skadden, Arps, Slate, Meagher &
Flom (Delaware), special Delaware counsel to ML Trust, the Partnership and
ML&Co. The legality under state law of The Trust Guarantee, the Partnership
Guarantee, the ML&Co. Debenture and the Investment Guarantees with respect to
the Affiliate Debentures will be passed upon on behalf of ML Trust, ML
Partnership and ML&Co. by Brown & Wood LLP, New York, New York. The validity of
the TOPrS, the partnership preferred securities and the Trust Guarantee and the
Partnership Guarantee will be passed upon on behalf of the underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, counsel to the
underwriters.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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. The balance sheets of Merrill
Lynch Preferred Funding VI, L.P. and Merrill Lynch Preferred Capital Trust VI
as of December 31, 1999 included in this prospectus have also been audited by
Deloitte & Touche LLP, as stated in their reports appearing herein, and have
been so included in reliance upon such reports of Deloitte & Touche LLP given
upon their authority as experts in accounting and auditing.
57
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Terms Page No.
------------- --------
<S> <C>
Affiliate Debentures...................................................
Affiliate Investment Instruments.......................................
Business Day...........................................................
Change in Investment Company Act Law...................................
Code...................................................................
Eligible Institution...................................................
Finance Subsidiary.....................................................
Investment Affiliate...................................................
Investment Company Act.................................................
Investment Guarantee...................................................
ML&Co..................................................................
ML&Co. Debenture.......................................................
ML Partnership.........................................................
Moody's................................................................
Partnership Enforcement Event..........................................
Partnership Guarantee..................................................
Partnership Guarantee Payments.........................................
Partnership Investment Company Event...................................
Partnership Special Event..............................................
Partnership Tax Event..................................................
Rights Agreement.......................................................
S&P....................................................................
Special Event..........................................................
Tax Action.............................................................
Tax Counsel............................................................
TOPrS..................................................................
Trust Enforcement Event................................................
Trust Guarantee........................................................
Trust Guarantee Payments...............................................
Trust Investment Company Event.........................................
Trust Securities.......................................................
Trust Special Event....................................................
Trust Tax Event........................................................
United States Person...................................................
</TABLE>
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
MERRILL LYNCH PREFERRED FUNDING VI, L.P.
Independent Auditors' Report......................................... F-2
Balance Sheet as of December 31, 1999................................ F-3
Note to Balance Sheet as of December 31, 1999........................ F-3
Balance Sheet as of September 29, 2000............................... F-4
Note to Balance Sheet as of September 29, 2000....................... F-4
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
Independent Auditors' Report......................................... F-5
Balance Sheet as of December 31, 1999................................ F-6
Note to Balance Sheet as of December 31, 1999........................ F-6
Balance Sheet as of September 29, 2000............................... F-7
Note to Balance Sheet as of September 29, 2000....................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the General Partner and Initial Limited Partner of
Merrill Lynch Preferred Funding VI, L.P.
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Funding VI, L.P. (the "Partnership") as of December 31, 1999. This balance
sheet is the responsibility of the Partnership's management. Our responsibility
is to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of the Partnership as of December
31, 1999, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
New York, New York
F-2
<PAGE>
BALANCE SHEET
OF MERRILL LYNCH PREFERRED FUNDING VI, L.P.
December 31, 1999
<TABLE>
<S> <C>
Assets.................................................................. $ --
=====
Partnership Securities
Limited partner interest.............................................. $ 85
General partner interest.............................................. 15
100
Less: Receivables from partners for subscribed partnership interests.... (100)
-----
$ --
=====
</TABLE>
NOTE TO BALANCE SHEET OF MERRILL LYNCH PREFERRED FUNDING VI, L.P.
Merrill Lynch Preferred Funding VI, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act on December 7, 1998 for the exclusive purposes of purchasing
certain eligible debt instruments of Merrill Lynch & Co., Inc. ("ML&Co.") and
wholly owned subsidiaries of ML&Co. (the "Affiliate Investment Instruments")
with the proceeds from the sale of Partnership Preferred Securities (the
"Partnership Preferred Securities") to Merrill Lynch Preferred Capital Trust VI
(the "Trust") and a capital contribution from ML&Co. in exchange for the
general partnership interest in the Partnership (collectively, the "Partnership
Proceeds"). The Partnership Proceeds will be used initially to purchase debt
instruments from ML&Co. and certain domestic wholly owned subsidiaries of
ML&Co., retaining 1% in unaffiliated debt securities. The Partnership shall
have a perpetual existence subject to certain termination events.
The Partnership Preferred Securities will be redeemable for cash, at the
option of the Partnership, in whole or in part, from time to time, after a
certain date to be determined. Except as provided in the Limited Partnership
Agreement and Partnership Preferred Securities Guarantee Agreement, and as
otherwise provided by law, the holders of the Partnership Preferred Securities
will have no voting rights.
ML&Co. serves as the sole general partner of the Partnership. ML&Co., in
its capacity as General Partner of the Partnership, has agreed to pay all fees
and expenses related to the organization and operations of the Partnership
(including any taxes, duties, assessments or government charges of whatever
nature (other than withholding taxes) imposed by the United States or any other
domestic taxing authority upon the Partnership) and the offering of the
Partnership Preferred Securities and be responsible for all debts and other
obligations of the Partnership (other than with respect to the Partnership
Preferred Securities). The General Partner has agreed to indemnify certain
officers and agents of the Partnership.
F-3
<PAGE>
BALANCE SHEET
OF MERRILL LYNCH PREFERRED FUNDING VI, L.P.
September 29, 2000
(unaudited)
<TABLE>
<S> <C>
Assets.................................................................. $ --
=====
Partnership Securities
Limited partner interest.............................................. $ 85
General partner interest.............................................. 15
100
Less: Receivables from partners for subscribed partnership interests.... (100)
-----
$ --
=====
</TABLE>
NOTE TO BALANCE SHEET OF MERRILL LYNCH PREFERRED FUNDING VI, L.P.
Merrill Lynch Preferred Funding VI, L.P. (the "Partnership") is a limited
partnership that was formed under the Delaware Revised Uniform Limited
Partnership Act on December 7, 1998 for the exclusive purposes of purchasing
certain eligible debt instruments of Merrill Lynch & Co., Inc. ("ML&Co.") and
wholly owned subsidiaries of ML&Co. (the "Affiliate Investment Instruments")
with the proceeds from the sale of Partnership Preferred Securities (the
"Partnership Preferred Securities") to Merrill Lynch Preferred Capital Trust VI
(the "Trust") and a capital contribution from ML&Co. in exchange for the
general partnership interest in the Partnership (collectively, the "Partnership
Proceeds"). The Partnership Proceeds will be used initially to purchase debt
instruments from ML&Co. and certain domestic wholly owned subsidiaries of
ML&Co., retaining 1% in unaffiliated debt securities. The Partnership shall
have a perpetual existence subject to certain termination events.
The Partnership Preferred Securities will be redeemable for cash, at the
option of the Partnership, in whole or in part, from time to time, after a
certain date to be determined. Except as provided in the Limited Partnership
Agreement and Partnership Preferred Securities Guarantee Agreement, and as
otherwise provided by law, the holders of the Partnership Preferred Securities
will have no voting rights.
ML&Co. serves as the sole general partner of the Partnership. ML&Co., in
its capacity as General Partner of the Partnership, has agreed to pay all fees
and expenses related to the organization and operations of the Partnership
(including any taxes, duties, assessments or government charges of whatever
nature (other than withholding taxes) imposed by the United States or any other
domestic taxing authority upon the Partnership) and the offering of the
Partnership Preferred Securities and be responsible for all debts and other
obligations of the Partnership (other than with respect to the Partnership
Preferred Securities). The General Partner has agreed to indemnify certain
officers and agents of the Partnership.
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of
Merrill Lynch Preferred Capital Trust VI
We have audited the accompanying balance sheet of Merrill Lynch Preferred
Capital Trust VI (the "Trust") as of December 31, 1999. This balance sheet is
the responsibility of the Trust's management. Our responsibility is to express
an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of the Trust as of December 31,
1999, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
New York, New York
F-5
<PAGE>
BALANCE SHEET OF
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
December 31, 1999
<TABLE>
<S> <C>
Assets...................................................................... $ 0
===
Trust securities............................................................ $ 0
===
</TABLE>
NOTE TO BALANCE SHEET OF MERRILL LYNCH PREFERRED CAPITAL TRUST VI
Merrill Lynch Preferred Capital Trust VI (the "Trust") is a statutory
business trust formed on December 7, 1998 under the laws of the State of
Delaware for the exclusive purposes of (i) issuing the Trust Originated
Preferred Securities (the "TOPrS") and the common securities (together with the
TOPrS, the "Trust Securities") representing undivided beneficial ownership
interests in the assets of the Trust, (ii) purchasing Partnership Preferred
Securities (the "Partnership Preferred Securities") representing the limited
partnership interests of Merrill Lynch Preferred Funding VI, L.P. (the
"Partnership") with the proceeds from the sale of the Trust Securities, and
(iii) engaging in only those other activities necessary or incidental thereto.
The Trust has a perpetual existence, subject to certain termination events as
provided in the Declaration of Trust under which it was formed. Subsequent to
December 31, 1999, the Trust intends to issue and sell its TOPrS in a public
offering and to issue and sell its common securities to Merrill Lynch & Co.,
Inc. ("ML&Co"). No TOPrS have been issued as of December 31, 1999.
The proceeds from the Trust's sale of the Trust Securities will be used
to purchase the Partnership Preferred Securities from the Partnership. The
Partnership Preferred Securities will be redeemable for cash, at the option of
the Partnership, in whole or in part, from time to time, after a certain date
to be determined. Upon any redemption of the Partnership Preferred Securities,
the TOPrS will be redeemed, in whole or in part, as applicable. Holders of the
TOPrS will have limited voting rights and will not be entitled to vote to
appoint, remove or replace, or to increase or decrease the number of, trustees,
which voting rights are vested exclusively in the holder of the common
securities.
ML&Co. will be obligated to pay compensation to the underwriters of the
offering of the TOPrS. ML&Co. will pay all fees and expenses related to the
organization and operations of the Trust (including any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States or any other domestic taxing authority upon
the Trust) and the offering of the TOPrS and be responsible for all debts and
other obligations of the Trust (other than the Trust Securities). ML&Co. has
also agreed to indemnify the Trustees and certain other persons.
F-6
<PAGE>
BALANCE SHEET OF
MERRILL LYNCH PREFERRED CAPITAL TRUST VI
September 29, 2000
(unaudited)
<TABLE>
<S> <C>
Assets...................................................................... $ 0
===
Trust securities............................................................ $ 0
===
</TABLE>
NOTE TO BALANCE SHEET OF MERRILL LYNCH PREFERRED CAPITAL TRUST VI
Merrill Lynch Preferred Capital Trust VI (the "Trust") is a statutory
business trust formed on December 7, 1998 under the laws of the State of
Delaware for the exclusive purposes of (i) issuing the Trust Originated
Preferred Securities (the "TOPrS") and the common securities (together with the
TOPrS, the "Trust Securities") representing undivided beneficial ownership
interests in the assets of the Trust, (ii) purchasing Partnership Preferred
Securities (the "Partnership Preferred Securities") representing the limited
partnership interests of Merrill Lynch Preferred Funding VI, L.P. (the
"Partnership") with the proceeds from the sale of the Trust Securities, and
(iii) engaging in only those other activities necessary or incidental thereto.
The Trust has a perpetual existence, subject to certain termination events as
provided in the Declaration of Trust under which it was formed. Subsequent to
September 29, 2000, the Trust intends to issue and sell its TOPrS in a public
offering and to issue and sell its common securities to Merrill Lynch & Co.,
Inc. ("ML&Co."). No TOPrS have been issued as of September 29, 2000.
The proceeds from the Trust's sale of the Trust Securities will be used
to purchase the Partnership Preferred Securities from the Partnership. The
Partnership Preferred Securities will be redeemable for cash, at the option of
the Partnership, in whole or in part, from time to time, after a certain date
to be determined. Upon any redemption of the Partnership Preferred Securities,
the TOPrS will be redeemed, in whole or in part, as applicable. Holders of the
TOPrS will have limited voting rights and will not be entitled to vote to
appoint, remove or replace, or to increase or decrease the number of, trustees,
which voting rights are vested exclusively in the holder of the common
securities.
ML&Co. will be obligated to pay compensation to the underwriters of the
offering of the TOPrS. ML&Co. will pay all fees and expenses related to the
organization and operations of the Trust (including any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States or any other domestic taxing authority upon
the Trust) and the offering of the TOPrS and be responsible for all debts and
other obligations of the Trust (other than the Trust Securities). ML&Co. has
also agreed to indemnify the Trustees and certain other persons.
F-7
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[LOGO]
Merrill Lynch Preferred Capital Trust VI
% Trust Originated Preferred Securities
"TOPrS"
Liquidation Amount $25 per TOPrS
guaranteed to the extent described in this prospectus by
Merrill Lynch & Co., Inc.
--------------
PROSPECTUS
--------------
Merrill Lynch & Co.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus supplement is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus supplement is not an offer to sell these securities and it is not +
+soliciting an offer to buy these securities in any state where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus Supplement dated December 27, 2000
PROSPECTUS SUPPLEMENT
(To prospectus dated , 2000)
$
[LOGO]
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series B
Due Nine Months or More from Date of Issue
-----------
The notes:
. We will offer notes from time to time and specify the terms and
conditions of each issue of notes in a pricing supplement.
. The notes may bear interest at fixed or floating rates or may not bear
any interest.
. If the notes bear interest at a floating rate, the floating rate may be
based on one or more indices or formulas plus or minus a fixed amount
or multiplied by a factor.
. The notes will be senior unsecured debt securities of ML&Co.
. The notes will have stated maturities of nine months or more from the
date they are originally issued.
. We will specify whether the notes can be redeemed or repaid before
their maturity and whether they are subject to mandatory redemption,
redemption at the option of ML&Co. or repayment at the option of the
holder of the notes.
. We will pay amounts due on the notes in U.S. dollars or any other
consideration described in the applicable pricing supplement.
Investing in the notes involves risks that are described in the "Risk Factors"
section beginning on page S-3 of this prospectus supplement.
-----------
<TABLE>
<CAPTION>
Per Note Total
-------- -----
<S> <C> <C>
Public offering price.............................. 100% $
Agent's discounts and commissions.................. 0.05%-.60% $
Proceeds, before expenses, to ML&Co. .............. 99.95%-99.40% $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement, the accompanying prospectus or any pricing
supplement is truthful or complete. Any representation to the contrary is a
criminal offense.
We may sell notes to the agent referred to below as principal for resale at
varying or fixed offering prices or through the agent as agent using its
reasonable efforts on our behalf. We may also sell notes without the assistance
of the agent, whether acting as principal or as agent.
If we sell other securities referred to in the accompanying prospectus, the
amount of notes that we may offer and sell under this prospectus supplement may
be reduced.
-----------
Merrill Lynch & Co.
-----------
The date of this prospectus supplement is .
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Risk Factors............................................................... S-3
Description of the Notes................................................... S-4
United States Federal Income Taxation...................................... S-23
Plan of Distribution....................................................... S-30
Validity of the Notes...................................................... S-32
</TABLE>
Prospectus
<TABLE>
<CAPTION>
Page
----
<S> <C>
Merrill Lynch & Co., Inc. ............................................... 2
Use of Proceeds.......................................................... 2
Ratio of Earnings to Fixed Charges and Ratios of Earnings to Combined
Fixed Charges and Preferred Stock Dividends............................. 3
The Securities........................................................... 3
Description of Debt Securities........................................... 4
Description of Debt Warrants............................................. 10
Description of Currency Warrants......................................... 12
Description of Index Warrants............................................ 14
Description of Preferred Stock........................................... 19
Description of Depositary Shares......................................... 24
Description of Preferred Stock Warrants.................................. 28
Description of Common Stock.............................................. 30
Description of Common Stock Warrants..................................... 34
Plan of Distribution..................................................... 36
Where You Can Find More Information...................................... 37
Incorporation of Information We File With the SEC........................ 37
Experts.................................................................. 38
</TABLE>
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 the agent,
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
S-2
<PAGE>
RISK FACTORS
Your investment in the notes involves certain risks. In consultation with
your own financial and legal advisers, you should carefully consider, among
other matters, the following discussion of risks before deciding whether an
investment in the notes is suitable for you. The notes are not an appropriate
investment for you if you are unsophisticated with respect to their significant
components and interrelationships.
Structure Risks of Notes Indexed to Interest Rate, Currency or Other Indices or
Formulas
If you invest in notes indexed to one or more interest rate, currency or
other indices or formulas, there will be significant risks not associated with
a conventional fixed rate or floating rate debt security. These risks include
fluctuation of the indices or formulas and the possibility that you will
receive a lower, or no, amount of principal, premium or interest and at
different times than you expected. We have no control over a number of matters,
including economic, financial and political events, that are important in
determining the existence, magnitude and longevity of these risks and their
results. In addition, if an index or formula used to determine any amounts
payable in respect of the notes contains a multiplier or leverage factor, the
effect of any change in that index or formula will be magnified. In recent
years, values of certain indices and formulas have been volatile and volatility
in those and other indices and formulas may be expected in the future. However,
past experience is not necessarily indicative of what may occur in the future.
Redemption May Adversely Affect Your Return on the Notes
If your notes are redeemable at our option we may choose to redeem your
notes at times when prevailing interest rates are relatively low. In addition,
if your notes are subject to mandatory redemption, we may be required to redeem
your notes at times when prevailing interest rates are also relatively low. As
a result, you generally will not be able to reinvest the redemption proceeds in
a comparable security at an effective interest rate as high as that of the
notes.
There May Not Be Any Trading Market for Your Notes; Many Factors Affect the
Trading Market and Value of Your Notes
We cannot assure you a trading market for your notes will ever develop or
be maintained. In addition to our own creditworthiness, many other factors may
affect the trading market value of, and trading market for, your notes. These
factors include:
. the complexity and volatility of the index or formula
applicable to your notes,
. the method of calculating the principal, premium and interest
in respect of your notes,
. the time remaining to the maturity of your notes,
. the outstanding amount of your notes,
. any redemption features of your notes,
. the amount of other securities linked to the index or formula
applicable to your notes, and
. the level, direction and volatility of market interest rates
generally.
In addition, notes that are designed for specific investment objectives
or strategies often experience a more limited trading market and more price
volatility. There may be a limited number of buyers when you decide to sell
your notes. This may affect the price you receive for your notes or your
ability to sell your notes at all. You should not purchase notes unless you
understand and know you can bear all of the investment risks related to your
notes.
S-3
<PAGE>
Our Credit Ratings May Not Reflect All Risks of an Investment in the Notes
Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
will generally affect the market value of your notes. Our credit ratings,
however, may not reflect the potential impact of risks related to structure,
market or other factors discussed above on the value of your notes.
DESCRIPTION OF THE NOTES
The notes will be issued as a series of debt securities under a senior
indenture, dated as of October 1, 1993, as amended (the "1993 Indenture"),
between ML&Co. and The Chase Manhattan Bank, as trustee. The term "senior debt
securities," as used in this prospectus supplement, refers to all securities
issued and issuable from time to time under ML&Co.'s senior indentures and
includes the notes. The senior debt securities and ML&Co.'s senior indentures
are more fully described in the accompanying prospectus. The following summary
of the material provisions of the notes and of the 1993 Indenture is not
complete and is qualified in its entirety by reference to the 1993 Indenture, a
copy of which has been filed as an exhibit to the registration statement of
which this prospectus supplement and the accompanying prospectus are a part.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement, the accompanying prospectus and any
pricing supplement. Neither we nor MLPF&S has authorized any other person to
provide you with different or additional information. If anyone provides you
with different or additional information, you should not rely on it. Neither we
nor MLPF&S is making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the
information contained or incorporated by reference in this prospectus
supplement, the accompanying prospectus and any pricing supplement is accurate
only as of the date on the front cover of the applicable pricing supplement.
The following description of notes will apply unless otherwise specified
in an applicable pricing supplement.
Terms of the Notes
All senior debt securities, including the notes, issued and to be issued
under ML&Co.'s senior indentures will be unsecured general obligations of
ML&Co. and will rank equally with all other unsecured and unsubordinated
indebtedness of ML&Co. from time to time outstanding. Because ML&Co. is a
holding company, the right of ML&Co. and its creditors, including the holders
of the notes, to participate in any distribution of the assets of any
subsidiary upon its liquidation or reorganization or otherwise is necessarily
subject to the prior claims of creditors of that subsidiary, except to the
extent that a bankruptcy court may recognize the claims of ML&Co. itself as a
creditor of that subsidiary. In addition, dividends, loans and advances to
ML&Co. from certain subsidiaries, including MLPF&S, are restricted by net
capital requirements under the Securities Exchange Act of 1934, as amended, and
under rules of certain exchanges and other regulatory bodies.
ML&Co.'s senior indentures do not limit the aggregate principal amount of
senior debt securities which ML&Co. may issue. ML&Co. may issue its senior debt
securities from time to time as a single series or in two or more separate
series up to the aggregate principal amount from time to time authorized by
ML&Co. for each series. ML&Co. may, from time to time, without the consent of
the holders of the notes, provide for the issuance of notes or other senior
debt securities under its senior indentures in addition to the $ aggregate
principal amount of notes offered by this prospectus supplement. As of ,
ML&Co. had approximately $ billion aggregate principal amount of notes
issued and outstanding. The aggregate principal amount of notes which may be
offered and sold by this prospectus supplement may be reduced by the sale by
ML&Co. of other securities under the registration statement of which this
prospectus supplement and the accompanying prospectus are a part.
S-4
<PAGE>
The notes will be offered on a continuing basis and will mature on a day
nine months or more from the date of their issue (the "stated maturity date"),
as selected by the purchaser and agreed to by ML&Co., or on any date before the
stated maturity date on which the principal or an installment of principal of a
note becomes due and payable, whether by the declaration of acceleration, call
for redemption at the option of ML&Co., notice of repayment at the option of
the holder or otherwise (the stated maturity date or such prior date, as the
case may be, is referred to as, a "Maturity"). Interest-bearing notes will bear
interest at either fixed or floating rates as specified in the applicable
pricing supplement. Some notes may not bear interest. In addition, notes may be
issued at significant discounts from their principal amount payable at
Maturity.
Unless otherwise specified in the applicable pricing supplement, the
notes will be denominated in United States dollars and ML&Co. will make
payments of principal of, and premium, if any, and interest on, the notes in
United States dollars.
Interest rates offered by ML&CO. with respect to the notes may differ
depending upon, among other factors, the aggregate principal amount of notes
purchased in any single transaction. ML&Co. may offer notes with similar
variable terms but different interest rates concurrently at any time. ML&Co.
also may concurrently offer notes having different variable terms to different
investors. Interest rates, interest rate formulae and other variable terms of
the notes are subject to change by ML&Co. from time to time, but no change will
affect any note already issued or as to which ML&Co. has accepted an offer to
purchase.
Each note will be issued in fully registered book-entry form or
certificated form, in denominations of $1,000 and integral multiples of $1,000.
Notes in book-entry form may be transferred or exchanged only through a
participating member of The Depository Trust Company, also known as DTC, or any
other depository as is identified in an applicable pricing supplement. See "--
Book-Entry Notes". Registration of transfer of notes in certificated form will
be made at the corporate trust office of the trustee. There will be no service
charge for any registration of transfer or exchange of notes, but ML&Co. may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection with any transfer or exchange, other than
exchanges pursuant to the 1993 Indenture not involving any transfer.
ML&Co. will make payments of principal of, and premium and interest, if
any, on notes in book-entry form through the trustee to the depository or its
nominee. See "--Book-Entry Notes". Unless otherwise specified in the applicable
pricing supplement, a beneficial owner of notes in book-entry form that are
denominated in a currency other than United States dollars (a "Specified
Currency") electing to receive payments of principal or any premium or interest
in that Specified Currency must notify the participant of DTC through which its
interest is held on or before the applicable regular record date, in the case
of a payment of interest, and on or before the sixteenth day, whether or not a
Business Day, as defined below, before its stated maturity date, in the case of
principal or premium, of the beneficial owner's election to receive all or a
portion of any payment in a Specified Currency. The participant must notify the
depository of any election on or before the third Business Day after the
regular record date. The depository will notify the paying agent of the
election on or before the fifth Business Day after the regular record date. If
complete instructions are received by the participant and forwarded to the
depository, and forwarded by the depository to the paying agent, on or before
the relevant dates, the beneficial owner of the notes in book-entry form will
receive payments in the Specified Currency.
In the case of notes in certificated form, ML&Co. will make payment of
principal or premium, if any, due at Maturity of each note in immediately
available funds upon presentation of the note and, in the case of any repayment
on an optional repayment date, upon submission of a duly completed election
form if and as required by the provisions described below, at the corporate
trust office of the trustee in the Borough of Manhattan, The City of New York,
or at any other place as ML&Co. may designate. Payment of interest due at
Maturity of the notes in certificated form will be made to the person to whom
payment of the principal thereof will be made. Payment of interest due on notes
in certificated form other than at Maturity will be made at the corporate trust
office of the trustee or, at the option of ML&Co., may be made by check mailed
to the address
S-5
<PAGE>
of the person entitled to receive payment as the address shall appear in the
security register. Notwithstanding the immediately preceding sentence, a holder
of $1,000,000 or more in aggregate principal amount of notes in certificated
form, whether having identical or different terms and provisions will, at the
option of ML&Co., be entitled to receive interest payments, other than at
Maturity, by wire transfer of immediately available funds if appropriate wire
transfer instructions have been received in writing by the trustee not less
than 15 days prior to the applicable interest payment date. Any wire
instructions received by the trustee shall remain in effect until revoked by
the applicable holder.
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which commercial banks are authorized or
required by law, regulation or executive order to close in The City of New
York; provided, however, that, with respect to non-United States dollar-
denominated notes, the day is also not a day on which commercial banks are
authorized or required by law, regulation or executive order to close in the
Principal Financial Center, as defined below, of the country issuing the
Specified Currency or, if the Specified Currency is Euro, the day is also a day
on which the Trans-European Automated Real-time Gross Settlement Express
Transfer (TARGET) System is open; provided, further, that, with respect to
notes as to which LIBOR is an applicable Interest Rate Basis, the day is also a
London Banking Day. "London Banking Day" means a day on which commercial banks
are open for business, including dealings in the LIBOR Currency, as defined
below, in London.
"Principal Financial Center" means:
(1) the capital city of the country issuing the Specified Currency,
except that with respect to United States dollars, Australian
dollars, Canadian dollars, Deutsche marks, Dutch guilders,
Italian lire, South African rand and Swiss francs, the "Principal
Financial Center" will be The City of New York, Sydney and
Melbourne, Toronto, Frankfurt, Amsterdam, Milan, Johannesburg and
Zurich, respectively, or
(2) the capital city of the country to which the LIBOR Currency
relates, except that with respect to United States dollars,
Australian dollars, Canadian dollars, Deutsche marks, Dutch
guilders, Italian lire, Portuguese escudos, South African rand
and Swiss francs, the "Principal Financial Center" will be The
City of New York, Sydney, Toronto, Frankfurt, Amsterdam, Milan,
London, Johannesburg and Zurich, respectively.
Redemption at the Option of ML&Co.
The notes will not be subject to any sinking fund. ML&Co. may redeem the
notes at its option before their stated maturity date only if an initial
redemption date is specified in the applicable pricing supplement. If so
indicated in the applicable pricing supplement, ML&Co. may redeem the notes at
its option on any date on and after the applicable initial redemption date
specified in the applicable pricing supplement. On and after the initial
redemption date, if any, ML&Co. may redeem the related note at any time in
whole or from time to time in part at its option at the applicable redemption
price referred to below together with interest on the principal of the
applicable note payable to the redemption date, on notice given, unless
otherwise specified in the applicable pricing supplement, not more than 60 nor
less than 30 days before the redemption date. ML&Co. will redeem the notes in
increments of $1,000, provided that any remaining principal amount will be an
authorized denomination of the applicable note. Unless otherwise specified in
the applicable pricing supplement, the redemption price with respect to a note
will initially mean a percentage, the initial redemption percentage, of the
principal amount of the note to be redeemed specified in the applicable pricing
supplement and shall decline at each anniversary of the initial redemption date
by a percentage specified in the applicable pricing supplement, of the
principal amount to be redeemed until the redemption price is 100% of the
principal amount.
Repayment at the Option of the Holder
If so indicated in an applicable pricing supplement, ML&Co. will repay
the notes in whole or in part at the option of the holders of the notes on any
optional repayment date specified in the applicable pricing
S-6
<PAGE>
supplement. If no optional repayment date is indicated with respect to a note,
it will not be repayable at the option of the holder before its stated maturity
date. Any repayment in part will be in an amount equal to $1,000 or integral
multiples of $1,000, provided that any remaining principal amount will be an
authorized denomination of the applicable note. The repurchase price for any
note repurchased will be 100% of the principal amount to be repaid, together
with interest on the principal of the applicable note payable to the date of
repayment. For any note to be repaid, the trustee must receive, at its office
maintained for such purpose in the Borough of Manhattan, The City of New York,
currently the corporate trust office of the trustee, not more than 60 nor less
than 30 days before the optional repayment date, the particular note being
repaid:
. in the case of a note in certificated form, the form entitled
"Option to Elect Repayment" duly completed, or
. in the case of a note in book-entry form, instructions to that
effect from the applicable beneficial owner thereof to the
depository and forwarded by the depository.
Notices of elections from a holder to exercise the repayment option must be
received by the trustee by 5:00 p.m., New York City time, on the last day for
giving notice. Exercise of the repayment option by the holder of a note will be
irrevocable.
Only the depository may exercise the repayment option in respect of
global securities representing notes in book-entry form. Accordingly,
beneficial owners of global securities that desire to have all or any portion
of the notes in book-entry form represented by global securities repaid must
instruct the participant through which they own their interest to direct the
depository to exercise the repayment option on their behalf by forwarding the
repayment instructions to the trustee as discussed above. In order to ensure
that the instructions are received by the trustee on a particular day, the
applicable beneficial owner must so instruct the participant through which it
owns its interest before that participant's deadline for accepting instructions
for that day. Different firms may have different deadlines for accepting
instructions from their customers. Accordingly, beneficial owners of notes in
book-entry form should consult the participants through which they own their
interest for the respective deadlines. All instructions given to participants
from beneficial owners of notes in book-entry form relating to the option to
elect repayment will be irrevocable. In addition, at the time instructions are
given, each beneficial owner will cause the participant through which it owns
its interest to transfer its interest in the global security or securities
representing the related notes in book-entry form, on the depository's records,
to the trustee. See "--Book-Entry Notes".
If applicable, ML&Co. will comply with the requirements of Section 14(e)
of the Exchange Act and the rules promulgated thereunder and any other
securities laws or regulations in connection with any repayment at the option
of the holder.
ML&Co. may at any time purchase notes at any price or prices in the open
market or otherwise. Notes so purchased by ML&Co. may, at the discretion of
ML&Co., be held, resold or surrendered to the trustee for cancellation.
Interest
Each interest-bearing note will bear interest from the date of issue at
the rate per annum, in the case of a fixed rate note, or pursuant to the
interest rate formula, in the case of a floating rate note, in each case as
stated in the applicable pricing supplement until the principal of the note is
paid or made available for payment. Interest will be payable in arrears on each
interest payment date specified in the applicable pricing supplement on which
an installment of interest is due and payable and at Maturity. The first
payment of interest on any note originally issued between a regular record date
and the related interest payment date will be made on the interest payment date
immediately following the next succeeding regular record date to the holder on
the next succeeding regular record date. The regular record date will be the
fifteenth calendar day, whether or not a Business Day, immediately preceding
the related interest payment date.
S-7
<PAGE>
Fixed Rate Notes
Each fixed rate note will bear interest from, and including, the date of
issue, at the rate per annum stated on the face of the note until the principal
amount of the note is paid or made available for payment. Interest payments on
fixed rate notes will equal the amount of interest accrued from and including
the immediately preceding interest payment date in respect of which interest
has been paid or from, and including, the date of issue, if no interest has
been paid with respect to the applicable fixed rate notes, to, but excluding,
the applicable interest payment date or Maturity, as the case may be. Unless
otherwise specified in the applicable pricing supplement, interest on fixed
rate notes will be computed on the basis of a 360-day year of twelve 30-day
months.
Interest on fixed rate notes will be payable semiannually on May 15 and
November 15 of each year and at Maturity. If any interest payment date or the
Maturity of a fixed rate note falls on a day that is not a Business Day, the
related payment of principal, premium, if any, or interest will be made on the
next succeeding Business Day as if made on the date the applicable payment was
due, and no interest will accrue on the amount payable for the period from and
after the interest payment date or Maturity, as the case may be.
Floating Rate Notes
Interest on floating rate notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may be one or more
of:
. the CD Rate,
. the CMT Rate,
. the Commercial Paper Rate,
. the Eleventh District Cost of Funds Rate,
. the Federal Funds Rate,
. LIBOR,
. the Prime Rate,
. the Treasury Rate, or
. any other Interest Rate Basis or interest rate formula that is
specified in the applicable pricing supplement.
A floating rate note may bear interest with respect to two or more
Interest Rate Bases.
Each applicable pricing supplement will specify certain terms of the
floating rate note being delivered, including:
. whether the floating rate note is
. a "Regular Floating Rate Note",
. a "Inverse Floating Rate Note" or
. a "Floating Rate/Fixed Rate Note",
. the Interest Rate Basis or Bases,
. the Initial Interest Rate,
. the Interest Reset Dates,
. the interest payment dates,
S-8
<PAGE>
. the period to maturity of the instrument or obligation with respect
to which the Interest Rate Basis or Bases will be calculated (the
"Index Maturity"),
. the Maximum Interest Rate and Minimum Interest Rate, if any,
. the number of basis points to be added to or subtracted from the
related Interest Rate Basis or Bases (the "Spread"),
. the percentage of the related Interest Rate Basis or Bases by which
the Interest Rate Basis or Bases will be multiplied to determine the
applicable interest rate (the "Spread Multiplier"), and
. if one or more of the specified Interest Rate Bases is LIBOR, the
LIBOR Currency and the LIBOR Page.
The interest rate borne by the floating rate notes will be determined as
follows:
Regular Floating Rate Notes. Unless a floating rate note is designated as
a Floating Rate/Fixed Rate Note or an Inverse Floating Rate Note or as having
an Addendum attached or as having "Other Provisions" apply relating to a
different interest rate formula, it will be a "Regular Floating Rate Note" and
will bear interest at the rate determined by reference to the applicable
Interest Rate Basis or Bases:
. plus or minus the applicable Spread, if any, and/or
. multiplied by the applicable Spread Multiplier, if any.
Commencing on the first Interest Reset Date, the rate at which interest on the
Regular Floating Rate Note will be payable will be reset as of each Interest
Reset Date; provided, however, that the interest rate in effect for the period
from the date of issue to the first Interest Reset Date will be the Initial
Interest Rate.
Floating Rate/Fixed Rate Notes. If a floating rate note is designated as
a "Floating Rate/Fixed Rate Note", it will bear interest at the rate determined
by reference to the applicable Interest Rate Basis or Bases:
. plus or minus the applicable Spread, if any, and/or
. multiplied by the applicable Spread Multiplier, if any.
Commencing on the first Interest Reset Date, the rate at which interest on the
Floating Rate/Fixed Rate Note will be payable will be reset as of each Interest
Reset Date; provided, however, that:
. the interest rate in effect for the period from the date of issue to
the first Interest Reset Date will be the Initial Interest Rate, and
. the interest rate in effect commencing on, and including, the date on
which interest begins to accrue on a fixed rate basis to Maturity
will be the Fixed Interest Rate, if the rate is specified in the
applicable pricing supplement, or if no Fixed Interest Rate is
specified, the interest rate in effect on the Floating Rate/Fixed
Rate Note on the day immediately preceding the date on which interest
begins to accrue on a fixed rate basis.
Inverse Floating Rate Notes. If a floating rate note is designated as an
"Inverse Floating Rate Note" it will bear interest equal to the Fixed Interest
Rate specified in the related pricing supplement minus the rate determined by
reference to the applicable Interest Rate Basis or Bases:
. plus or minus the applicable Spread, if any, and/or
. multiplied by the applicable Spread Multiplier, if any;
provided, however, that the interest rate on the applicable Inverse Floating
Rate Note will not be less than zero percent. Commencing on the first Interest
Reset Date, the rate at which interest on the Inverse Floating Rate
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Note is payable will be reset as of each Interest Reset Date; provided,
however, that the interest rate in effect for the period from the date of issue
to the first Interest Reset Date will be the Initial Interest Rate.
The interest rate derived from an Interest Rate Basis will be determined
in accordance with the applicable provisions below. The interest rate in effect
on each day will be based on:
. if the day is an Interest Reset Date, the interest rate determined as
of the Interest Determination Date, as defined below, immediately
preceding the applicable Interest Reset Date, or
. if the day is not an Interest Reset Date, the interest rate
determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
Interest Reset Dates. The applicable pricing supplement will specify the
dates on which the interest rate on the related floating rate note will be
reset, each, an "Interest Reset Date". The Interest Reset Date will be, in the
case of floating rate notes which reset:
. daily--each Business Day;
. weekly--the Wednesday of each week, with the exception of weekly
reset Floating Rate Notes as to which the Treasury Rate is an
applicable Interest Rate Basis, which will reset the Tuesday of each
week, except as described below under "--Interest Determination
Dates";
. monthly--the third Wednesday of each month, with the exception of
monthly reset Floating Rate Notes as to which the Eleventh District
Cost of Funds Rate is an applicable Interest Rate Basis, which will
reset on the first calendar day of the month;
. quarterly--the third Wednesday of March, June, September and December
of each year;
. semiannually--the third Wednesday of the two months specified in the
applicable pricing supplement; and
. annually--the third Wednesday of the month specified in the
applicable pricing supplement;
provided, however, that with respect to Floating Rate/Fixed Rate Notes, the
rate of interest will not reset after the applicable date on which interest on
a fixed rate basis begins to accrue.
If any Interest Reset Date for any floating rate note would otherwise be
a day that is not a Business Day, the applicable Interest Reset Date will be
postponed to the next succeeding day that is a Business Day, except that in the
case of a floating rate note as to which LIBOR is an applicable Interest Rate
Basis, if the Business Day falls in the next succeeding calendar month, then
the applicable Interest Reset Date will be the immediately preceding Business
Day. In addition, in the case of a floating rate note for which the Treasury
Rate is an applicable Interest Rate Basis, if the Interest Determination Date
would otherwise fall on an Interest Reset Date, then the applicable Interest
Reset Date will be postponed to the next succeeding Business Day.
Maximum and Minimum Interest Rates. A floating rate note may also have
either or both of the following:
. a maximum numerical limitation, or ceiling, on the rate at which
interest may accrue during any interest period (a "Maximum Interest
Rate"), and
. a minimum numerical limitation, or floor, on the rate at which
interest may accrue during any period (a "Minimum Interest Rate").
The 1993 Indenture is, and any notes issued under the 1993 Indenture will
be, governed by and construed in accordance with the laws of the State of New
York. 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 securities in which
$2,500,000 or more has been invested. While ML&Co. believes that New York law
would be given effect by a
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state or federal court sitting outside of New York, state laws frequently
regulate the amount of interest that may be charged to and paid by a borrower,
including, in some cases, corporate borrowers. It is suggested that prospective
investors consult their personal advisors with respect to the applicability of
these laws. ML&Co. has agreed for the benefit of the beneficial owners of the
notes, to the extent permitted by law, not to claim voluntarily the benefits of
any laws concerning usurious rates of interest against a beneficial owner of
the notes.
Interest Payments. Each applicable pricing supplement will specify the
dates on which interest will be payable. Each floating rate note will bear
interest from the date of issue at the rates specified in the applicable
floating rate note until the principal of the applicable note is paid or
otherwise made available for payment. The interest payment dates with respect
to floating rate notes will be, in the case of floating rate notes which reset:
. daily, weekly or monthly--the third Wednesday of each month or on the
third Wednesday of March, June, September and December of each year,
as specified in the applicable pricing supplement;
. quarterly--the third Wednesday of March, June, September and December
of each year;
. semiannually--the third Wednesday of the two months of each year
specified in the applicable pricing supplement;
. annually--the third Wednesday of the month of each year specified in
the applicable pricing supplement; and
. at Maturity.
If any interest payment date for any floating rate note, other than an
interest payment date at Maturity, would otherwise be a day that is not a
Business Day, the interest payment date will be postponed to the next
succeeding day that is a Business Day except that in the case of a floating
rate note as to which LIBOR is an applicable Interest Rate Basis, if the
Business Day falls in the next succeeding calendar month, the applicable
interest payment date will be the immediately preceding Business Day. If the
Maturity of a floating rate note falls on a day that is not a Business Day, we
will make the required payment of principal, premium, if any, and interest on
the next succeeding Business Day, and no additional interest on such payment
will accrue for the period from and after the Maturity.
All percentages resulting from any calculation on floating rate notes
will be rounded to the nearest one hundred-thousandth of a percentage point,
with five one-millionths of a percentage point rounded upwards. For example,
9.876545%, or .09876545, would be rounded to 9.87655%, or .0987655. All dollar
amounts used in or resulting from any calculation on floating rate notes will
be rounded to the nearest cent with one-half cent being rounded upward.
Interest payments on floating rate notes will equal the amount of
interest accrued from and including the immediately preceding interest payment
date in respect of which interest has been paid or from and including the date
of issue, if no interest has been paid, to but excluding the related interest
payment date or Maturity.
With respect to each floating rate note, accrued interest is calculated
by multiplying its principal amount by an accrued interest factor. The accrued
interest factor is computed by adding the interest factor calculated for each
day in the period for which accrued interest is being calculated.
. In the case of notes for which the Interest Rate Basis is the CD
Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds
Rate, the Federal Funds Rate, LIBOR or the Prime Rate, the interest
factor for each day will be computed by dividing the interest rate
applicable to each day by 360.
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. In the case of notes for which the Interest Rate Basis is the CMT
Rate or the Treasury Rate, the interest factor for each day will be
computed by dividing the interest rate applicable to each day by the
actual number of days in the year.
. The interest factor for notes for which the interest rate is
calculated with reference to two or more Interest Rate Bases will be
calculated in each period in the same manner as if only one of the
applicable Interest Rate Bases applied.
Interest Determination Dates. The interest rate applicable to each
interest reset period commencing on the Interest Reset Date with respect to
that interest reset period will be the rate determined as of the applicable
"Interest Determination Date".
. The Interest Determination Date with respect to the Federal Funds
Rate and the Prime Rate will be the Business Day immediately
preceding the related Interest Reset Date.
. The Interest Determination Date with respect to the CD Rate, the CMT
Rate and the Commercial Paper Rate will be the second Business Day
preceding the related Interest Reset Date.
. The Interest Determination Date with respect to the Eleventh District
Cost of Funds Rate will be the last working day of the month
immediately preceding the related Interest Reset Date on which the
Federal Home Loan Bank of San Francisco publishes the Index, as
defined below.
. The Interest Determination Date with respect to LIBOR will be the
second London Banking Day preceding the related Interest Reset Date.
. The Interest Determination Date with respect to the Treasury Rate
will be the day in the week in which the related Interest Reset Date
falls on which day Treasury Bills, as defined below, are normally
auctioned. Treasury Bills are normally sold at auction on Monday of
each week, unless that day is a legal holiday, in which case the
auction is normally held on the following Tuesday, except that the
auction may be held on the preceding Friday; provided, however, that
if an auction is held on the Friday of the week preceding the
Interest Reset Date, the related Interest Determination Date will be
the preceding Friday.
. The Interest Determination Date pertaining to a floating rate note
the interest rate of which is determined with reference to two or
more Interest Rate Bases will be the latest Business Day which is at
least two Business Days before the related Interest Reset Date for
the applicable floating rate note on which each Interest Reset Basis
is determinable. Each Interest Rate Basis will be determined on the
Interest Determination Date, and the applicable interest rate will
take effect on the related Interest Reset Date.
Calculation Date. MLPF&S will be the calculation agent. Upon the request
of the holder of any floating rate note, the calculation agent will provide the
interest rate then in effect and, if determined, the interest rate that will
become effective as a result of a determination made for the next Interest
Reset Date with respect to that floating rate note. Unless otherwise specified
in the applicable pricing supplement, the calculation date, if applicable,
pertaining to any Interest Determination Date will be the earlier of:
. the tenth calendar day after the applicable Interest Determination
Date, or, if the tenth calendar day is not a Business Day, the next
succeeding Business Day, or
. the Business Day preceding the applicable Interest Payment Date or
Maturity, as the case may be.
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CD Rate. "CD Rate" means:
(1) the rate on the particular Interest Determination Date for
negotiable United States dollar certificates of deposit having
the Index Maturity specified in the applicable pricing supplement
as published in H.15(519), as defined below, under the caption
"CDs (secondary market)", or
(2) if the rate referred to in clause (1) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date for negotiable
United States dollar certificates of deposit of the particular
Index Maturity as published in H.15 Daily Update, as defined
below, or other recognized electronic source used for the purpose
of displaying the applicable rate, under the caption "CDs
(secondary market)", or
(3) if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date calculated by
the calculation agent as the arithmetic mean of the secondary
market offered rates as of 10:00 A.M., New York City time, on
that Interest Determination Date, of three leading non-bank
dealers in negotiable United States dollar certificates of
deposit in The City of New York, which may include the agent or
its affiliates, selected by the calculation agent for negotiable
United States dollar certificates of deposit of major United
States money market banks for negotiable United States
certificates of deposit with a remaining maturity closest to the
particular Index Maturity in an amount that is representative for
a single transaction in that market at that time, or
(4) if the dealers selected by the calculation agent are not quoting
as mentioned in clause (3), the CD Rate in effect on the
particular Interest Determination Date.
"H.15(519)" means the weekly statistical release designated as H.15(519),
or any successor publication, published by the Board of Governors of the
Federal Reserve System.
"H.15 Daily Update" means the daily update of H.15(519), available
through the world-wide-web site of the Board of Governors of the Federal
Reserve System at http://www.bog.frb.fed.us/releases/h15/update, or any
successor site or publication.
CMT Rate. "CMT Rate" means:
(1) if CMT Telerate Page 7051 is specified in the applicable pricing
supplement:
(a) the percentage equal to the yield for United States Treasury
securities at "constant maturity" having the Index Maturity
specified in the applicable pricing supplement as published in
H.15(519) under the caption "Treasury Constant Maturities", as
the yield is displayed on Bridge Telerate, Inc., or any
successor service, on page 7051, or any other page as may
replace page 7051 on that service ("Telerate Page 7051"), for
the particular Interest Determination Date, or
(b) if the rate referred to in clause 1(a) does not appear on
Telerate Page 7051, the percentage equal to the yield for
United States Treasury securities at "constant maturity"
having the particular Index Maturity and for the particular
Interest Determination Date as published in H.15(519) under
the caption "Treasury Constant Maturities", or
(c) if the rate referred to in clause 1(b) does not appear in
H.15(519), the rate on the particular Interest Determination
Date for the period of the particular Index Maturity as may
then be published by either the Federal Reserve System Board
of Governors or the United States Department of the Treasury
that the calculation agent determines to be comparable to the
rate which would otherwise have been published in H.15(519),
or
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(d) if the rate referred to in clause 1(c) is not published, the
rate on the particular Interest Determination Date calculated
by the calculation agent as a yield to maturity based on the
arithmetic mean of the secondary market bid prices at
approximately 3:30 P.M., New York City time, on that Interest
Determination Date of three leading primary United States
government securities dealers in The City of New York, which
may include the agent or its affiliates (each, a "Reference
Dealer"), selected by the calculation agent from five
Reference Dealers selected by the calculation agent and
eliminating the highest quotation, or, in the event of
equality, one of the highest, and the lowest quotation or, in
the event of equality, one of the lowest, for United States
Treasury securities with an original maturity equal to the
particular Index Maturity, a remaining term to maturity no
more than 1 year shorter than that Index Maturity and in a
principal amount that is representative for a single
transaction in the securities in that market at that time, or
(e) if fewer than five but more than two of the prices referred to
in clause 1(d) are provided as requested, the rate on the
particular Interest Determination Date calculated by the
calculation agent based on the arithmetic mean of the bid
prices obtained and neither the highest nor the lowest of the
quotations will be eliminated, or
(f) if fewer than three prices referred to in clause 1(d) are
provided as requested, the rate on the particular Interest
Determination Date calculated by the calculation agent as a
yield to maturity based on the arithmetic mean of the
secondary market bid prices as of approximately 3:30 P.M., New
York City time, on that Interest Determination Date of three
Reference Dealers selected by the calculation agent from five
Reference Dealers selected by the calculation agent and
eliminating the highest quotation or, in the event of
equality, one of the highest and the lowest quotation or, in
the event of equality, one of the lowest, for United States
Treasury securities with an original maturity greater than the
particular Index Maturity, a remaining term to maturity
closest to that Index Maturity and in a principal amount that
is representative for a single transaction in the securities
in that market at that time, or
(g) if fewer than five but more than two prices referred to in
clause 1(f) are provided as requested, the rate on the
particular Interest Determination Date calculated by the
calculation agent based on the arithmetic mean of the bid
prices obtained and neither the highest nor the lowest of the
quotations will be eliminated, or
(h) if fewer than three prices referred to in clause 1(f) are
provided as requested, the CMT Rate in effect on the
particular Interest Determination Date.
(2) if CMT Telerate Page 7052 is specified in the applicable pricing
supplement:
(a) the percentage equal to the one-week or one-month, as
specified in the applicable pricing supplement, average yield
for United States Treasury securities at "constant maturity"
having the Index Maturity specified in the applicable pricing
supplement as published in H.15(519) opposite the caption
"Treasury Constant Maturities", as the yield is displayed on
Bridge Telerate, Inc., or any successor service, on page 7052,
or any other page as may replace page 7052 on that service
("Telerate Page 7052"), for the week or month, as applicable,
ended immediately preceding the week or month, as applicable,
in which the particular Interest Determination Date falls, or
(b) if the rate referred to in clause 2(a) does not appear on
Telerate Page 7052, the percentage equal to the one-week or
one-month, as specified in the applicable pricing supplement,
average yield for United States Treasury securities at
"constant maturity" having the particular Index Maturity and
for the week or month, as applicable, preceding the particular
Interest Determination Date as published in H.15(519) opposite
the caption "Treasury Constant Maturities," or
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(c) if the rate referred to in clause 2(b) does not appear in
H.15(519), the one-week or one-month, as specified in the
applicable pricing supplement, average yield for United States
Treasury securities at "constant maturity" having the
particular Index Maturity as otherwise announced by the
Federal Reserve Bank of New York for the week or month, as
applicable, ended immediately preceding the week or month, as
applicable, in which the particular Interest Determination
Date falls, or
(d) the rate referred to in clause 2(c) is not published, the rate
on the particular Interest Determination Date calculated by
the calculation agent as a yield to maturity based on the
arithmetic mean of the secondary market bid prices at
approximately 3:30 P.M., New York City time, on that Interest
Determination Date of three Reference Dealers selected by the
calculation agent from five Reference Dealers selected by the
calculation agent and eliminating the highest quotation, or,
in the event of equality, one of the highest, and the lowest
quotation or, in the event of equality, one of the lowest, for
United States Treasury securities with an original maturity
equal to the particular Index Maturity, a remaining term to
maturity no more than 1 year shorter than that Index Maturity
and in a principal amount that is representative for a single
transaction in the securities in that market at that time, or
(e) if fewer than five but more than two of the prices referred to
in clause 2(d) are provided as requested, the rate on the
particular Interest Determination Date calculated by the
calculation agent based on the arithmetic mean of the bid
prices obtained and neither the highest nor the lowest of the
quotations will be eliminated, or
(f) if fewer than three prices referred to in clause 2(d) are
provided as requested, the rate on the particular Interest
Determination Date calculated by the calculation agent as a
yield to maturity based on the arithmetic mean of the
secondary market bid prices as of approximately 3:30 P.M., New
York City time, on that Interest Determination Date of three
Reference Dealers selected by the calculation agent from five
Reference Dealers selected by the calculation agent and
eliminating the highest quotation or, in the event of
equality, one of the highest and the lowest quotation or, in
the event of equality, one of the lowest, for United States
Treasury securities with an original maturity greater than the
particular Index Maturity, a remaining term to maturity
closest to that Index Maturity and in a principal amount that
is representative for a single transaction in the securities
in that market at that time, or
(g) if fewer than five but more than two prices referred to in
clause 2(f) are provided as requested, the rate on the
particular Interest Determination Date calculated by the
calculation agent based on the arithmetic mean of the bid
prices obtained and neither the highest or the lowest of the
quotations will be eliminated, or
(h) if fewer than three prices referred to in clause 2(f) are
provided as requested, the CMT Rate in effect on the
particular Interest Determination Date.
If two United States Treasury securities with an original maturity
greater than the Index Maturity specified in the applicable pricing supplement
have remaining terms to maturity equally close to the particular Index
Maturity, the quotes for the United States Treasury security with the shorter
original remaining term to maturity will be used.
Commercial Paper Rate. "Commercial Paper Rate" means:
(1) the Money Market Yield, as defined below, on the particular
Interest Determination Date of the rate for commercial paper
having the Index Maturity specified in the applicable pricing
supplement as published in H.15(519) under the caption
"Commercial Paper-Nonfinancial", or
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(2) if the rate referred to in clause (1) is not published by 3:00
P.M., New York City time, on the related calculation date, the
Money Market Yield of the rate on the particular Interest
Determination Date for commercial paper having the particular
Index Maturity as published in H.15 Daily Update, or other
recognized electronic source used for the purpose of displaying
the applicable rate, under the caption "Commercial Paper--
Nonfinancial", or
(3) if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date calculated by
the calculation agent as the Money Market Yield of the arithmetic
mean of the offered rates at approximately 11:00 A.M., New York
City time, on that Interest Determination Date of three leading
dealers of United States dollar commercial paper in The City of
New York, which may include the agent and its affiliates,
selected by the calculation agent for commercial paper having the
particular Index Maturity placed for industrial issuers whose
bond rating is "Aa", or the equivalent, from a nationally
recognized statistical rating organization, or
(4) if the dealers selected by the calculation agent are not quoting
as mentioned in clause (3), the Commercial Paper Rate in effect
on the particular Interest Determination Date.
"Money Market Yield" means a yield calculated in accordance with the
following formula and expressed as a percentage:
<TABLE>
<S> <C> <C> <C> <C>
Money Market Yield = D X 360
----------- X 100
360-(D X M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the applicable interest period.
Eleventh District Cost of Funds Rate. "Eleventh District Cost of Funds
Rate" means:
(1) the rate equal to the monthly weighted average cost of funds for
the calendar month immediately preceding the month in which the
particular Interest Determination Date falls as set forth under
the caption "11th District" on the display on Bridge Telerate,
Inc., or any successor service, on page 7058 or any other page as
may replace page 7058 on that service ("Telerate Page 7058") as
of 11:00 A.M., San Francisco time, on that Interest Determination
Date, or
(2) if the rate referred to in clause (1) does not appear on Telerate
Page 7058, the monthly weighted average cost of funds paid by
member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "Index") by the
Federal Home Loan Bank of San Francisco as the cost of funds for
the calendar month immediately preceding that Interest
Determination Date, or
(3) if the Federal Home Loan Bank of San Francisco fails to announce
the Index on or prior to the particular Interest Determination
Date for the calendar month immediately preceding that Interest
Determination Date, the Eleventh District Cost of Funds Rate in
effect on the particular Interest Determination Date.
Federal Funds Rate. "Federal Funds Rate" means:
(1) the rate on the particular Interest Determination Date for United
States dollar federal funds as published in H.15(519) under the
caption "Federal Funds (Effective)" and displayed on Bridge
Telerate, Inc. or any successor service on page 120 or any other
page as may replace page 120 on that service ("Telerate Page
120"), or
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(2) if the rate referred to in clause (1) does not appear on Telerate
Page 120 or is not published by 3:00 P.M., New York City time, on
the related calculation date, the rate on the particular Interest
Determination Date for United States dollar federal funds as
published in H.15 Daily Update, or other recognized electronic
source used for the purpose of displaying the applicable rate,
under the caption "Federal Funds (Effective)", or
(3) if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date calculated by
the calculation agent as the arithmetic mean of the rates for the
last transaction in overnight United States dollar federal funds
arranged by three leading brokers of United States dollar federal
funds transactions in The City of New York, which may include the
agent or its affiliates, selected by the calculation agent prior
to 9:00 A.M., New York City time, on that Interest Determination
Date, or
(4) if the brokers selected by the calculation agent are not quoting
as mentioned in clause (3), the Federal Funds Rate in effect on
the particular Interest Determination Date.
LIBOR. "LIBOR" means:
(1) if "LIBOR Telerate" is specified in the applicable pricing
supplement or if neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable pricing supplement as the method for
calculating LIBOR, the rate for deposits in the LIBOR Currency,
as defined below, having the Index Maturity specified in the
applicable pricing supplement, commencing on the related Interest
Reset Date, that appears on the LIBOR Page, as defined below, as
of 11:00 A.M., London time, on the particular Interest
Determination Date, or
(2) if "LIBOR Reuters" is specified in the applicable pricing
supplement, the arithmetic mean of the offered rates calculated
by the calculation agent, or the offered rate if the LIBOR Page
by its terms provides only for a single rate, for deposits in the
LIBOR Currency having the particular Index Maturity, commencing
on the related Interest Reset Date, that appear or appears, as
the case may be, on the LIBOR Page as of 11:00 A.M., London time,
on the particular Interest Determination Date, or
(3) if fewer than two offered rates appear, or no rate appears, as
the case may be, on the particular Interest Determination Date on
the LIBOR Page as specified in clause (1) or (2), as applicable,
the rate calculated by the calculation agent of at least two
offered quotations obtained by the calculation agent after
requesting the principal London offices of each of four major
reference banks, which may include affiliates of the agent, in
the London interbank market to provide the calculation agent with
its offered quotation for deposits in the LIBOR Currency for the
period of the particular Index Maturity, commencing on the
related Interest Reset Date, to prime banks in the London
interbank market at approximately 11:00 A.M., London time, on
that Interest Determination Date and in a principal amount that
is representative for a single transaction in the LIBOR Currency
in that market at that time, or
(4) if fewer than two offered quotations referred to in clause (3)
are provided as requested, the rate calculated by the calculation
agent as the arithmetic mean of the rates quoted at approximately
11:00 A.M., in the applicable Principal Financial Center, on the
particular Interest Determination Date by three major banks,
which may include affiliates of the agent, in that Principal
Financial Center selected by the calculation agent for loans in
the LIBOR Currency to leading European banks, having the
particular Index Maturity and in a principal amount that is
representative for a single transaction in the LIBOR Currency in
that market at that time, or
(5) if the banks selected by the calculation agent are not quoting as
mentioned in clause (4), LIBOR in effect on the particular
Interest Determination Date.
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"LIBOR Currency" means the currency specified in the applicable pricing
supplement as to which LIBOR will be calculated or, if no currency is specified
in the applicable pricing supplement, United States dollars.
"LIBOR Page" means either:
. if "LIBOR Telerate" is specified in the applicable pricing
supplement or neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable pricing supplement as the method
for calculating LIBOR, the display on Bridge Telerate, Inc. or
any successor service on the page specified in the pricing
supplement or any page as may replace the specified page on
that service for the purpose of displaying the London interbank
rates of major banks for the LIBOR Currency, or
. if "LIBOR Reuters" is specified in the applicable pricing
supplement, the display on the Reuter Monitor Money Rates
Service or any successor service on the page specified in the
applicable pricing supplement or any other page as may replace
the specified page on that service for the purpose of
displaying the London interbank rates of major banks for the
LIBOR Currency.
Prime Rate. "Prime Rate" means:
(1) the rate on the particular Interest Determination Date as
published in H.15(519) under the caption "Bank Prime Loan", or
(2) if the rate referred to in clause (1) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date as published
in H.15 Daily Update, or other recognized electronic source used
for the purpose of displaying the applicable rate, under the
caption "Bank Prime Loan", or
(3) if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date calculated by
the calculation agent as the arithmetic mean of the rates of
interest publicly announced by each bank that appears on the
Reuters Screen US PRIME 1 Page, as defined below, as the
applicable bank's prime rate or base lending rate as of 11:00
A.M., New York City time, on that Interest Determination Date, or
(4) if fewer than four rates referred to in clause (3) are published
by 3:00 P.M., New York City time, on the related calculation
date, the rate on the particular Interest Determination Date
calculated by the calculation agent as the arithmetic mean of the
prime rates or base lending rates quoted on the basis of the
actual number of days in the year divided by a 360-day year as of
the close of business on that Interest Determination Date by
three major banks, which may include affiliates of the agent, in
The City of New York selected by the calculation agent, or
(5) if the banks selected by the calculation agent are not quoting as
mentioned in clause (4), the Prime Rate in effect on the
particular Interest Determination Date.
"Reuters Screen US PRIME 1 Page" means the display on the Reuter Monitor
Money Rates Service or any successor service on the "US PRIME 1" Page or other
page as may replace that page on that service for the purpose of displaying
prime rates or base lending rates of major United States banks.
Treasury Rate. "Treasury Rate" means:
(1) the rate from the auction held on the particular Interest
Determination Date (the "Auction") of direct obligations of the
United States ("Treasury Bills") having the Index Maturity
specified in the applicable pricing supplement under the caption
"INVESTMENT RATE" on the
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display on Bridge Telerate, Inc. or any successor service on page
56 or any other page as may replace page 56 on that service
("Telerate Page 56") or page 57 or any other page as may replace
page 57 on that service ("Telerate Page 57"), or
(2) if the rate referred to in clause (1) is not published by 3:00
P.M., New York City time, on the related calculation date, the
Bond Equivalent Yield, as defined below, of the rate for the
applicable Treasury Bills as published in H.15 Daily Update, or
other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption "U.S.
Government Securities/Treasury Bills/Auction High", or
(3) if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
Bond Equivalent Yield of the auction rate of the applicable
Treasury Bills as announced by the United States Department of
the Treasury, or
(4) if the rate referred to in clause (3) is not announced by the
United States Department of the Treasury, or if the Auction is
not held, the Bond Equivalent Yield of the rate on the particular
Interest Determination Date of the applicable Treasury Bills as
published in H.15(519) under the caption "U.S. Government
Securities/Treasury Bills/Secondary Market", or
(5) if the rate referred to in clause (4) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date of the
applicable Treasury Bills as published in H.15 Daily Update, or
other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption "U.S.
Government Securities/Treasury Bills/Secondary Market", or
(6) if the rate referred to in clause (5) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date calculated by
the calculation agent as the Bond Equivalent Yield of the
arithmetic mean of the secondary market bid rates, as of
approximately 3:30 P.M., New York City time, on that Interest
Determination Date, of three primary United States government
securities dealers, which may include the agent or its
affiliates, selected by the calculation agent, for the issue of
Treasury Bills with a remaining maturity closest to the
particular Index Maturity, or
(7) if the dealers selected by the calculation agent are not quoting
as mentioned in clause (6), the Treasury Rate in effect on the
particular Interest Determination Date.
"Bond Equivalent Yield" means a yield calculated in accordance with the
following formula and expressed as a percentage:
<TABLE>
<S> <C> <C> <C> <C>
Bond Equivalent Yield = D X N
----------- X 100
360-(D X M)
</TABLE>
where "D" refers to the applicable per annum rate for Treasury Bills quoted on
a bank discount basis and expressed as a decimal, "N" refers to 365 or 366, as
the case may be, and "M" refers to the actual number of days in the applicable
interest period.
Other Provisions; Addenda
Any provisions with respect to an issue of notes, including the
determination of one or more Interest Rate Bases, the specification of one or
more Interest Rate Bases, the calculation of the interest rate applicable to a
floating rate note, the applicable interest payment dates, the stated maturity
date, any redemption or repayment provisions or any other matter relating to
the applicable notes may be modified by the terms as specified under "Other
Provisions" on the face of the applicable notes or in an Addendum relating to
the applicable notes, if so specified on the face of the applicable notes and
in the applicable pricing supplement.
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Original Issue Discount Notes
ML&Co. may from time to time offer notes at a price less than their
redemption price at Maturity, resulting in the applicable notes being treated
as if they were issued with original issue discount for federal income tax
purposes ("Original Issue Discount Notes"). Original Issue Discount Notes may
currently pay no interest or interest at a rate which at the time of issuance
is below market rates. Additional considerations relating to any Original
Issue Discount Notes will be specified in the applicable pricing supplement.
Amortizing Notes
ML&Co. may from time to time offer notes ("Amortizing Notes"), with
amounts of principal and interest payable in installments over the term of the
notes. Unless otherwise specified in the applicable pricing supplement,
interest on each Amortizing Note will be computed on the basis of a 360-day
year of twelve 30-day months. Payments with respect to Amortizing Notes will
be applied first to interest due and payable on the Amortizing Notes and then
to the reduction of the unpaid principal amount of the Amortizing Notes.
Further information concerning additional terms and conditions of any issue of
Amortizing Notes will be specified in the applicable pricing supplement. A
table setting forth repayment information in respect of each Amortizing Note
will be specified in the applicable pricing supplement.
Linked Notes
ML&Co. may from time to time offer notes ("Linked Notes") the principal
value of which at Maturity will be determined by reference to:
(a) one or more equity or debt securities, including, but not limited
to, the price or yield of such securities,
(b) any statistical measure of economic or financial performance,
including, but not limited to, any currency, consumer price or
mortgage index, or
(c) the price or value of any commodity or any other item or index or
any combination,
(collectively, the "Linked Securities"). The payment or delivery of any
consideration on any Linked Note at Maturity will be determined by the
decrease or increase, as applicable, in the price or value of the applicable
Linked Securities. The terms of and any additional considerations, including
any material tax consequences, relating to any Linked Notes will be specified
in the applicable pricing supplement.
Extendible Maturity Notes
ML&Co. may from time to time offer notes ("Extendible Maturity Notes")
with the option to extend the maturity of the notes to one or more dates
indicated in the notes and the applicable pricing supplement. The terms of and
any additional considerations relating to any Extendible Maturity Notes will
be specified in the applicable pricing supplement.
Book-Entry Notes
Description of the Global Securities
Upon issuance, all notes in book-entry form having the same date of
issue, Maturity and otherwise having identical terms and provisions will be
represented by one or more fully registered global notes (the "Global Notes").
Each Global Note will be deposited with, or on behalf of, The Depository Trust
Company as depository registered in the name of the depository or a nominee of
the depository. Unless and until it is exchanged in whole or in part for notes
in certificated form, no Global Note may be transferred except as a whole by
the depository to a nominee of the depository or by a nominee of the
depository to the depository or another nominee of the depository or by the
depository or any such nominee to a successor of the depository or a nominee
of the successor.
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DTC Procedures
The following is based on information furnished by the depository:
The depository will act as securities depository for the notes in book-
entry form. The notes in book-entry form will be issued as fully registered
securities registered in the name of Cede & Co., the depository's partnership
nominee. One fully registered Global Note will be issued for each issue of
notes in book-entry form, each in the aggregate principal amount of the issue,
and will be deposited with the depository. If, however, the aggregate principal
amount of any issue exceeds $400,000,000, one Global Note will be issued with
respect to each $400,000,000 of principal amount and an additional Global Note
will be issued with respect to any remaining principal amount of the issue.
The depository 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 Exchange
Act. The depository holds securities that its participants deposit with the
depository. The depository 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 the depository include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations. The depository is owned by a number of its direct participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc.,
and the National Association of Securities Dealers, Inc. Access to the
depository'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 the depository and its participants are on file with the
SEC.
Purchasers of notes in book-entry form under the depository's system must
be made by or through direct participants, which will receive a credit for
those notes in book-entry form on the depository's records. The ownership
interest of each actual purchaser of each note in book-entry form represented
by a Global Note is, in turn, to be recorded on the records of direct
participants and indirect participants. Beneficial owners of notes in book-
entry form will not receive written confirmation from the depository of their
purchase, but beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the direct participants or indirect participants through which
the beneficial owner entered into the transaction. Transfers of ownership
interests in a Global Note representing notes in book-entry form are to be
accomplished by entries made on the books of participants acting on behalf of
beneficial owners. Beneficial owners of a Global Note representing notes in
book-entry form will not receive notes in certificated form representing their
ownership interests therein, except in the event that use of the book-entry
system for such notes in book-entry form is discontinued.
To facilitate subsequent transfers, all Global Notes representing notes
in book-entry form which are deposited with, or on behalf of, the depository
are registered in the name of the depository's nominee, Cede & Co. The deposit
of Global Notes with, or on behalf of, the depository and their registration in
the name of Cede & Co. effect no change in beneficial ownership. The depository
has no knowledge of the actual beneficial owners of the Global Notes
representing the notes in book-entry form; the depository's records reflect
only the identity of the direct participants to whose accounts such notes in
book-entry form 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 the depository 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.
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Neither the depository nor Cede & Co. will consent or vote with respect
to the Global Notes representing the notes in book-entry form. Under its usual
procedures, the depository 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 notes in book-
entry form are credited on the applicable record date.
ML&Co. will make principal, premium, if any, and/or interest, if any,
payments on the Global Notes representing the notes in book-entry form in
immediately available funds to the depository. The depository's practice is to
credit direct participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the depository's records
unless the depository has reason to believe that it will not receive payment on
the applicable payment 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 the applicable participant
and not of the depository, 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 the depository is the
responsibility of ML&Co. and the trustee, disbursement of payments to direct
participants will be the responsibility of the depository, and disbursement of
payments to the beneficial owners will be the responsibility of direct
participants and indirect participants.
If applicable, redemption notices shall be sent to Cede & Co. If less
than all of the notes in book-entry form of like tenor and terms are being
redeemed, the depository's practice is to determine by lot the amount of the
interest of each direct participant in the issue to be redeemed.
A beneficial owner will give notice of any option to elect to have its
notes in book-entry form repaid by ML&Co., through its participant, to the
trustee, and will effect delivery of the applicable notes in book-entry form by
causing the direct participant to transfer the participant's interest in the
Global Note representing notes in book-entry form, on the depository's records,
to the trustee. The requirement for physical delivery of notes in book-entry
form in connection with a demand for repayment will be deemed satisfied when
the ownership rights in the Global Note or Notes representing such notes in
book-entry form are transferred by direct participants on the depository's
records.
The depository may discontinue providing its services as securities
depository with respect to the notes in book-entry form at any time by giving
reasonable notice to ML&Co. or the trustee. In the event that a successor
securities depository is not obtained, notes in certificated form are required
to be printed and delivered.
ML&Co. may decide to discontinue use of the system of book-entry
transfers through the depository or a successor securities depository. In that
event, notes in certificated form will be printed and delivered.
The laws of some states may require that certain purchasers of securities
take physical delivery of securities in definitive form. Such limits and such
laws may impair the ability to own, transfer or pledge beneficial interests in
Global Notes.
So long as the depository, or its nominee, is the registered owner of a
Global Note, the depository or its nominee, as the case may be, will be
considered the sole owner or holder of the notes represented by such Global
Note for all purposes under the 1993 Indenture. Except as provided below,
beneficial owners of a Global Note will not be entitled to have the notes
represented by a Global Note registered in their names, will not receive or be
entitled to receive physical delivery of the notes in definitive form and will
not be considered the owners or holders thereof under the 1993 Indenture.
Accordingly, each person owning a beneficial interest in a Global Note must
rely on the procedures of the depository and, if that person is not a
participant, on the procedures of the participant through which that person
owns its interest, to exercise any rights of a holder under the 1993 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 Note desires to give or take any action which a holder is entitled
to give or take under the 1993 Indenture, the depository
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would authorize the participants holding the relevant beneficial interests to
give or take the desired action, and the participants would authorize
beneficial owners owning through the participants to give or take the desired
action or would otherwise act upon the instructions of beneficial owners.
Exchange for Notes in Certificated Form
If:
(a) the depository is at any time unwilling or unable to continue as
depository and a successor depository is not appointed by ML&Co.
within 60 days,
(b) ML&Co. executes and delivers to the trustee a company order to
the effect that the Global Notes shall be exchangeable, or
(c) an Event of Default has occurred and is continuing with respect
to the notes,
the Global Note or Global Notes will be exchangeable for notes in certificated
form of like tenor and of an equal aggregate principal amount, in denominations
of $1,000 and integral multiples of $1,000. The certificated notes will be
registered in the name or names as the depository instructs the trustee. It is
expected that instructions may be based upon directions received by the
depository from participants with respect to ownership of beneficial interests
in Global Notes.
The information in this section concerning the depository and the
depository's system has been obtained from sources that ML&Co. believes to be
reliable, but ML&Co. takes no responsibility for the accuracy of the
information.
UNITED STATES FEDERAL INCOME TAXATION
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change, including changes in effective dates, or possible differing
interpretations. It deals only with notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal with
holders other than original purchasers, except where otherwise specifically
noted. Persons considering the purchase of the notes should consult their own
tax advisors concerning the application of United States Federal income tax
laws to their particular situations as well as any consequences of the
purchase, ownership and disposition of the notes arising under the laws of any
other taxing jurisdiction.
As used in this prospectus, the term "U.S. Holder" means a beneficial
owner of a note that is for United States Federal income tax purposes:
(1) a citizen or resident of the United States,
(2) a corporation or a partnership (including an entity treated as a
corporation or a partnership for United States Federal income tax
purposes) created or organized in or under the laws of the United
States, any state thereof or the District of Columbia (unless, in
the case of a partnership, Treasury regulations are adopted that
provide otherwise),
(3) an estate whose income is subject to United States Federal income
tax regardless of its source,
(4) 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
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(5) any other person whose income or gain in respect of a note is
effectively connected with the conduct of a United States trade
or business.
Certain trusts not described in clause (4) above in existence on August 20,
1996 that elect to be treated as a United States person will also be a U.S.
Holder for purposes of the following discussion. As used herein, the term "non-
U.S. Holder" means a beneficial owner of a note that is not a U.S. Holder.
U.S. Holders
Payments of Interest. Payments of interest on a note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received (in accordance with the U.S. Holder's regular
method of tax accounting).
Original Issue Discount. The following summary is a general discussion of
the United States Federal income tax consequences to U.S. Holders of the
purchase, ownership and disposition of notes issued with original issue
discount ("Discount Notes"). The following summary is based upon final Treasury
regulations (the "OID Regulations") released by the Internal Revenue Service on
January 27, 1994, as amended on June 11, 1996, under the original issue
discount provisions of the Code.
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of
1% of the note's stated redemption price at maturity multiplied by the number
of complete years to its maturity from its issue date or, in the case of a note
providing for the payment of any amount other than qualified stated interest
(as defined below) prior to maturity, multiplied by the weighted average
maturity of the note). The issue price of each note of an issue of notes equals
the first price at which a substantial amount of the notes has been sold
(ignoring sales to bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers). The
stated redemption price at maturity of a note is the sum of all payments
provided by the note other than "qualified stated interest" payments. The term
"qualified stated interest" generally means stated interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at a single fixed rate. In addition, under the OID
Regulations, if a note bears interest for one or more accrual periods at a rate
below the rate applicable for the remaining term of the note (e.g., notes with
teaser rates or interest holidays), and if the greater of either the resulting
foregone interest on the note or any "true" discount on the note (i.e., the
excess of the note's stated principal amount over its issue price) equals or
exceeds a specified de minimis amount, then the stated interest on the note
would be treated as original issue discount rather than qualified stated
interest.
Payments of qualified stated interest on a note are taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of a Discount Note must include original issue
discount in income as ordinary interest for United States Federal income tax
purposes as it accrues under a constant yield method in advance of receipt of
the cash payments attributable to such income, regardless of the U.S. Holder's
regular method of tax accounting. In general, the amount of original issue
discount included in income by the initial U.S. Holder of a Discount Note is
the sum of the daily portions of original issue discount with respect to the
Discount Note for each day during the taxable year (or portion of the taxable
year) on which the U.S. Holder held the Discount Note. The "daily portion" of
original issue discount on any Discount Note is determined by allocating to
each day in any accrual period a ratable portion of the original issue discount
allocable to that accrual period. An "accrual period" may be of any length and
the accrual periods may vary in length over the term of the Discount Note,
provided that each accrual period is no longer than one year and each scheduled
payment of principal or interest occurs either on the final day of an accrual
period or on the first day of an
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accrual period. The amount of original issue discount allocable to each accrual
period is generally equal to the difference between
. the product of the Discount Note's adjusted issue price at the
beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each
accrual period and appropriately adjusted to take into account
the length of the particular accrual period) and
. the amount of any qualified stated interest payments allocable
to such accrual period.
The "adjusted issue price" of a Discount Note at the beginning of any accrual
period is the sum of the issue price of the Discount Note plus the amount of
original issue discount allocable to all prior accrual periods minus the amount
of any prior payments on the Discount Note that were not qualified stated
interest payments. Under these rules, U.S. Holders generally will have to
include in income increasingly greater amounts of original issue discount in
successive accrual periods.
A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal to
the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the Discount Note at an "acquisition premium". Under the acquisition
premium rules, the amount of original issue discount which such U.S. Holder
must include in its gross income with respect to such Discount Note for any
taxable year (or portion thereof in which the U.S. Holder holds the Discount
Note) will be reduced (but not below zero) by the portion of the acquisition
premium properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes
(hereinafter "Variable Notes") are subject to special rules whereby a Variable
Note will qualify as a "variable rate debt instrument" if
. its issue price does not exceed the total noncontingent
principal payments due under the Variable Note by more than a
specified de minimis amount and
. it provides for stated interest, paid or compounded at least
annually, at current values of:
. one or more qualified floating rates,
. a single fixed rate and one or more qualified floating
rates,
. a single objective rate, or
. a single fixed rate and a single objective rate that is a
qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
equal to the product of a qualified floating rate and a fixed multiple that is
greater than .65 but not more than 1.35 will constitute a qualified floating
rate. A variable rate equal to the product of a qualified floating rate and a
fixed multiple that is greater than .65 but not more than 1.35, increased or
decreased by a fixed rate, will also constitute a qualified floating rate. In
addition, under the OID Regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the Variable Note (e.g., two or more qualified floating rates with
values within 25 basis points of each other as determined on the Variable
Note's issue date) will be treated as a single qualified floating rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute
a qualified floating rate but which is subject to one or more restrictions such
as a maximum numerical limitation (i.e., a cap) or a minimum numerical
limitation (i.e., a floor) may, under certain circumstances, fail to be treated
as a qualified floating rate under the OID Regulations unless such cap or floor
is fixed throughout the term of the note. An "objective rate" is a rate that is
not itself a qualified floating rate but which is determined using a single
fixed formula that is based on objective financial or economic
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information. A rate will not qualify as an objective rate if it is based on
information that is within the control of the issuer (or a related party) or
that is unique to the circumstances of the issuer (or a related party), such as
dividends, profits, or the value of the issuer's stock (although a rate does
not fail to be an objective rate merely because it is based on the credit
quality of the issuer). A "qualified inverse floating rate" is any objective
rate where such rate is equal to a fixed rate minus a qualified floating rate,
as long as variations in the rate can reasonably be expected to inversely
reflect contemporaneous variations in the qualified floating rate. The OID
Regulations also provide that if a Variable Note provides for stated interest
at a fixed rate for an initial period of one year or less followed by a
variable rate that is either a qualified floating rate or an objective rate and
if the variable rate on the Variable Note's issue date is intended to
approximate the fixed rate (e.g., the value of the variable rate on the issue
date does not differ from the value of the fixed rate by more than 25 basis
points), then the fixed rate and the variable rate together will constitute
either a single qualified floating rate or objective rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, and
if the interest on a Variable Note is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually, then
all stated interest on the Variable Note will constitute qualified stated
interest and will be taxed accordingly. Thus, a Variable Note that provides for
stated interest at either a single qualified floating rate or a single
objective rate throughout the term thereof and that qualifies as a "variable
rate debt instrument" under the OID Regulations will generally not be treated
as having been issued with original issue discount unless the Variable Note is
issued at a "true" discount (i.e., at a price below the Variable Note's stated
principal amount) in excess of a specified de minimis amount. The amount of
qualified stated interest and the amount of original issue discount, if any,
that accrues during an accrual period on such a Variable Note is determined
under the rules applicable to fixed rate debt instruments by assuming that the
variable rate is a fixed rate equal to
(1) in the case of a qualified floating rate or qualified inverse
floating rate, the value as of the issue date, of the qualified
floating rate or qualified inverse floating rate, or
(2) in the case of an objective rate (other than a qualified inverse
floating rate), a fixed rate that reflects the yield that is
reasonably expected for the Variable Note.
The qualified stated interest allocable to an accrual period is increased (or
decreased) if the interest actually paid during an accrual period exceeds (or
is less than) the interest assumed to be paid during the accrual period
pursuant to the foregoing rules.
In general, any other Variable Note that qualifies as a "variable rate
debt instrument" will be converted into an "equivalent" fixed rate debt
instrument for purposes of determining the amount and accrual of original issue
discount and qualified stated interest on the Variable Note. The OID
Regulations generally require that such a Variable Note be converted into an
"equivalent" fixed rate debt instrument by substituting any qualified floating
rate or qualified inverse floating rate provided for under the terms of the
Variable Note with a fixed rate equal to the value of the qualified floating
rate or qualified inverse floating rate, as the case may be, as of the Variable
Note's issue date. Any objective rate (other than a qualified inverse floating
rate) provided for under the terms of the Variable Note is converted into a
fixed rate that reflects the yield that is reasonably expected for the Variable
Note. In the case of a Variable Note that qualifies as a "variable rate debt
instrument" and provides for stated interest at a fixed rate in addition to
either one or more qualified floating rates or a qualified inverse floating
rate, the fixed rate is initially converted into a qualified floating rate (or
a qualified inverse floating rate, if the Variable Note provides for a
qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Variable Note as of the Variable
Note's issue date is approximately the same as the fair market value of an
otherwise identical debt instrument that provides for either the qualified
floating rate or qualified inverse floating rate rather than the fixed rate.
Subsequent to converting the fixed rate
S-26
<PAGE>
into either a qualified floating rate or a qualified inverse floating rate, the
Variable Note is then converted into an "equivalent" fixed rate debt instrument
in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and
qualified stated interest as if the U.S. Holder held the "equivalent" fixed
rate debt instrument. Each accrual period appropriate adjustments will be made
to the amount of qualified stated interest or original issue discount assumed
to have been accrued or paid with respect to the "equivalent" fixed rate debt
instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Variable Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. On June 11, 1996, the Treasury Department
issued final regulations (the "CPDI Regulations") concerning the proper United
States Federal income tax treatment of contingent payment debt instruments. In
general, the CPDI Regulations would 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 current United
States Federal income tax law. Specifically, the CPDI 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 CPDI Regulations,
any gain recognized by a U.S. Holder on the sale, exchange, or retirement of a
contingent payment debt instrument will be 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 CPDI Regulations apply
to debt instruments issued on or after August 13, 1996. The proper United
States Federal income tax treatment of Variable Notes that are treated as
contingent payment debt obligations will be more fully described in the
applicable pricing supplement. Furthermore, any other special United States
Federal income tax considerations, not otherwise discussed herein, which are
applicable to any particular issue of notes will be discussed in the applicable
pricing supplement.
ML&Co. may issue notes which;
. may be redeemable at the option of ML&Co. prior to their stated
maturity (a "call option") and/or
. may be repayable at the option of the holder prior to their
stated maturity (a "put option").
Notes containing such features may be subject to rules that differ from the
general rules discussed above. Investors intending to purchase notes with such
features should consult their own tax advisors, since the original issue
discount consequences will depend, in part, on the particular terms and
features of the purchased notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
Foreign-Currency Notes. The United States Federal income tax consequences
of the purchase, ownership and disposition of notes providing for payments
denominated in a currency other than U.S. dollars will be more fully described
in the applicable pricing supplement.
S-27
<PAGE>
Short-Term Notes. Notes that have a fixed maturity of one year or less
("Short-Term Notes") will be treated as having been issued with original issue
discount. In general, an individual or other cash method U.S. Holder is not
required to accrue such original issue discount unless the U.S. Holder elects
to do so. If such an election is not made, any gain recognized by the U.S.
Holder on the sale, exchange or maturity of the Short-Term Note will be
ordinary income to the extent of the original issue discount accrued on a
straight-line basis, or upon election under the constant yield method (based on
daily compounding), through the date of sale or maturity, and a portion of the
deductions otherwise allowable to the U.S. Holder for interest on borrowings
allocable to the Short-Term Note will be deferred until a corresponding amount
of income is realized. U.S. Holders who report income for United States Federal
income tax purposes under the accrual method, and certain other holders
including banks and dealers in securities, are required to accrue original
issue discount on a Short-Term Note on a straight-line basis unless an election
is made to accrue the original issue discount under a constant yield method
(based on daily compounding).
Market Discount. If a U.S. Holder purchases a note, other than a Discount
Note, for an amount that is less than its issue price (or, in the case of a
subsequent purchaser, its stated redemption price at maturity) or, in the case
of a Discount Note, for an amount that is less than its adjusted issue price as
of the purchase date, such U.S. Holder will be treated as having purchased the
note at a "market discount", unless such market discount is less than a
specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment (or, in the case of a Discount Note, any payment
that does not constitute qualified stated interest) on, or any gain realized on
the sale, exchange, retirement or other disposition of, a note as ordinary
income to the extent of the lesser of:
. the amount of such payment or realized gain or
. the market discount which has not previously been included in
income and is treated as having accrued on the note at the time
of such payment or disposition.
Market discount will be considered to accrue ratably during the period from the
date of acquisition to the maturity date of the note, unless the U.S. Holder
elects to accrue market discount on the basis of semiannual compounding.
A U.S. Holder may be required to defer the deduction of all or a portion
of the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a note with market discount until the maturity of the Note or
certain earlier dispositions, because a current deduction is only allowed to
the extent the interest expense exceeds an allocable portion of market
discount. A U.S. Holder may elect to include market discount in income
currently as it accrues (on either a ratable or semiannual compounding basis),
in which case the rules described above regarding the treatment as ordinary
income of gain upon the disposition of the note and upon the receipt of certain
cash payments and regarding the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as ordinary
interest for United States Federal income tax purposes. Such an election will
apply to all debt instruments acquired by the U.S. Holder on or after the first
day of the taxable year to which such election applies and may be revoked only
with the consent of the IRS.
Premium. If a U.S. Holder purchases a note for an amount that is greater
than the sum of all amounts payable on the note after the purchase date other
than payments of qualified stated interest, the U.S. Holder will be considered
to have purchased the note with "amortizable bond premium" equal in amount to
such excess. A U.S. Holder may elect to amortize such premium using a constant
yield method over the remaining term of the note and may offset interest
otherwise required to be included in respect of the note during any taxable
year by the amortized amount of such excess for the taxable year. However, if
the note may be optionally redeemed after the U.S. Holder acquires it at a
price in excess of its stated redemption price at maturity, special rules would
apply which could result in a deferral of the amortization of some bond premium
S-28
<PAGE>
until later in the term of the note. Any election to amortize bond premium
applies to all taxable debt obligations then owned and thereafter acquired by
the U.S. Holder and may be revoked only with the consent of the IRS.
Disposition of a Note. Except as discussed above, upon the sale, exchange
or retirement of a note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement (other than amounts representing accrued and unpaid interest) and
the U.S. Holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax
basis in a note generally will equal the U.S. Holder's initial investment in
the note increased by any original issue discount included in income (and
accrued market discount, if any, if the U.S. Holder has included such market
discount in income) and decreased by the amount of any payments, other than
qualified stated interest payments, received and amortizable bond premium taken
with respect to the note. Such gain or loss generally will be long-term capital
gain or loss if the note were held for more than one year. Long-term capital
gains of individuals are subject to reduced capital gain rates while short-term
capital gains are subject to ordinary income rates. The deductibility of
capital losses is subject to certain limitations. Prospective investors should
consult their own tax advisors concerning these tax law provisions.
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 note, 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 Code. 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 (1) is signed by the beneficial owner of the
note under penalties of perjury, (2) certifies that such owner is not a U.S.
Holder and (3) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8, IRS Form W-8 BEN 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
note 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 BEN or the substitute form
provided by the beneficial owner to the organization or institution. The
Treasury Department is considering implementation of further certification
requirements aimed at determining whether the issuer of a debt obligation is
related to holders thereof. To claim an exemption from United States
withholding for interest or proceeds from sale paid after December 31, 2000, a
non-U.S. Holder may no longer use the IRS Form W-8 to certify its status as a
non-U.S. Holder.
The Treasury has issued new regulations (the "New Regulations") which
make certain modifications to the withholding, backup withholding and
information reporting rules. The New Regulations attempt to unify certification
requirements and modify reliance standards. The New Regulations will generally
be effective for payments made after December 31, 2000, subject to certain
transition rules. Prospective investors are urged to consult their own tax
advisors regarding the New Regulations. After December 31, 2000, interest
accrued under the OID Regulations will not be subject to withholding upon sale
or exchange (other than a redemption) of a note unless the Withholding Agent
knows or has reason to know that such instrument was sold with the principal
purpose of avoiding tax.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes capital gain upon retirement or
disposition of a note, provided the gain is not effectively connected with the
conduct of a trade or business in the United States by the non-U.S. Holder.
Certain other exceptions may be applicable, and a non-U.S. Holder should
consult its tax advisor in this regard.
S-29
<PAGE>
The notes 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 death, payments in respect of the
notes 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 notes 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 notes 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 note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either:
. the broker determines that the seller is a corporation or other
exempt recipient or
. 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:
. the broker determines that the seller is an exempt recipient or
. the seller certifies its non-U.S. status (and certain other
conditions are met).
After December 31, 2000, interest accrued under the OID Regulations will not be
subject to withholding upon sale or exchange (other than a redemption) of a
note unless the Withholding Agent knows or has reason to know that such
instrument was sold with the principal purpose of avoiding tax. Certification
of the registered owner's non-U.S. status would be made normally on an IRS Form
W-8 BEN under penalties of perjury, although in certain cases it may be
possible to submit other documentary evidence. After December 31, 2000, a
registered owner may no longer use an IRS Form W-8 to certify to its non-U.S.
status. In addition, prospective U.S. Holders are strongly urged to consult
their own tax advisors with respect to the New Withholding Regulations. See "
United States Federal Income Taxation--Non-U.S. Holders".
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.
PLAN OF DISTRIBUTION
ML&Co. is offering the notes for sale on a continuing basis through the
agent, MLPF&S, who will purchase the notes, as principal, from ML&Co., for
resale to investors and other purchasers at varying prices relating to
prevailing market prices at the time of resale as determined by the agent, or,
if so specified in an applicable pricing supplement, for resale at a fixed
public offering price. Unless otherwise specified in an applicable pricing
supplement, any note sold to the agent as principal will be purchased by the
agent at a price equal to 100% of the principal amount of the note less a
percentage of the principal amount equal to the
S-30
<PAGE>
commission applicable to an agency sale as described below of a note of
identical maturity. If agreed to by ML&Co. and the agent, the agent may utilize
its reasonable efforts on an agency basis to solicit offers to purchase the
notes at 100% of the principal amount of the notes, unless otherwise specified
in an applicable pricing supplement. ML&Co. will pay a commission to the agent,
ranging from .050% to .600% of the principal amount of a note, depending upon
its stated maturity or, with respect to a note for which the stated maturity is
in excess of 30 years, a commission as agreed upon by ML&Co. and the agent at
the time of sale, sold through the agent.
The agent may sell notes it has purchased from ML&Co. as principal to
other dealers for resale to investors, and may allow any portion of the
discount received in connection with such purchases from ML&Co. to such
dealers. After the initial public offering of notes, the public offering price,
in the case of notes to be resold at a fixed public offering price, the
concession and the discount allowed to dealers may be changed.
ML&Co. reserves the right to withdraw, cancel or modify the offer made by
this prospectus supplement without notice and may reject orders, in whole or in
part, whether placed directly with ML&Co. or through the agent. The agent will
have the right, in its discretion reasonably exercised, to reject in whole or
in part any offer to purchase notes received by the agent.
Unless otherwise specified in an applicable pricing supplement, payment
of the purchase price of the notes will be required to be made in immediately
available funds in United States dollars or the Specified Currency, as the case
may be, in The City of New York on the date of settlement.
No Note will have an established trading market when issued. Unless
specified in the applicable pricing supplement, ML&Co. will not list the notes
on any securities exchange. The agent may from time to time purchase and sell
notes in the secondary market, but the agent is not obligated to do so, and
there can be no assurance that there will be a secondary market for the notes
or liquidity in the secondary market if one develops. From time to time, the
agent may make a market in the notes.
The agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended. ML&Co. has agreed to indemnify the agent
against or to make contributions relating to certain civil liabilities,
including liabilities under the Securities Act, or to contribute to payments
the agent may be required to make in respect thereof. ML&Co. has agreed to
reimburse the agent for certain expenses.
From time to time, ML&Co. may issue and sell other securities described
in the accompanying prospectus, and the amount of notes that ML&Co. may offer
and sell under this prospectus supplement may be reduced as a result of such
sales.
In connection with the offering of notes purchased by the agent as
principal on a fixed price basis, the agent is permitted to engage in certain
transactions that stabilize the price of the notes. These transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the notes. If the agent creates a short position in the notes in
connection with the offering, i.e., if it sells more notes than are set forth
on the cover page of this prospectus supplement, the agent may reduce that
short position by purchasing notes in the open market. In general, purchases of
a security for the purpose of stabilization or to reduce a short position could
have the effect of raising or maintaining the market price of the security or
preventing or retarding a decline in the market price of the security. "Naked"
short sales are sales in excess of the agent's overallotment option. Because
the agent has no overallotment option with respect to the notes, it would be
required to close out a short position in the notes by purchasing notes in the
open market.
Neither ML&Co. nor the agent make 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 notes. In addition, neither ML&Co. nor the agent
makes any representation that the agent will engage in any such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
S-31
<PAGE>
The distribution of the notes will conform to the requirements set forth
in the applicable sections of Rule 2720 of the Conduct Rules of the NASD.
VALIDITY OF THE NOTES
The validity of the notes will be passed upon for ML&Co. and the agent by
Brown & Wood LLP, New York, New York.
S-32
<PAGE>
--------------------------------------------------------------------------------
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[LOGO]
$
Merrill Lynch & Co., Inc.
Medium-Term Notes,
Series B
-------------------------------
PROSPECTUS SUPPLEMENT
-------------------------------
Merrill Lynch & Co.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may sell these securities until the registration statement filed with the +
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
P R O S P E C T U S
-------------------
Merrill Lynch & Co., Inc.
Senior Debt Securities
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 our outstanding senior
debt securities listed below and the senior debt securities that we will issue
in the future.
<TABLE>
<CAPTION>
Redeemable Notes*
----------------
<S> <C>
$1,650,000,000 of 6% Notes due February 12, 2003; $125,000,000 of 6 3/8% Notes due September 8, 2006;
$750,000,000 Floating Rate Notes due June 24, 2003; $700,000,000 6 1/2% Notes due July 15, 2018;
$500,000,000 6% Notes due November 15, 2004; $1,000,000,000 6 7/8% Notes due November 15, 2018; and
$500,000,000 6% Notes due July 15, 2005; $33,015,000 of 8.40% Notes due November 1, 2019.
Non-Redeemable Notes
--------------------
$500,000,000 of 6% Notes due January 15, 2001; $200,000,000 of 7% Notes due March 15, 2006;
$250,000,000 of 6% Notes due March 1, 2001; $350,000,000 of 7 3/8% Notes due May 15, 2006;
$300,000,000 of 6 1/2% Notes due April 1, 2001; $500,000,000 of 7% Notes due January 15, 2007;
$225,000,000 of 8% Notes due February 1, 2002; $150,000,000 of 8% Notes due June 1, 2007;
$150,000,000 of 7 3/8% Notes due August 17, 2002; $250,000,000 of 6.56% Notes due December 16, 2007;
$250,000,000 of 6.64% Notes due September 19, 2002; $250,000,000 of 7% Notes due April 27, 2008;
$300,000,000 of Floating Rate Notes due February 4, 2003; $150,000,000 of 6 1/4% Notes due October 15, 2008;
$200,000,000 of 6 7/8% Notes due March 1, 2003; $500,000,000 of 6 3/8% Notes due October 15, 2008;
$500,000,000 of 6.55% Notes due August 1, 2004; $250,000,000 of 6 3/4% Notes due June 1, 2028; and
$200,000,000 of 6 1/4% Notes due January 15, 2006; $2,000,000,000 of 6% Notes due February 17, 2009.
</TABLE>
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 securities will be the prevailing market
price at the time of sale.
____________________
Merrill Lynch & Co.
____________________
The date of this prospectus is , .
* Including redemption for certain tax events.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
MERRILL LYNCH & CO., INC.................................................. 3
RATIO OF EARNINGS TO FIXED CHARGES........................................ 4
DESCRIPTION OF SENIOR DEBT SECURITIES..................................... 5
OTHER TERMS............................................................... 20
WHERE YOU CAN FIND MORE INFORMATION....................................... 23
INCORPORATION OF INFORMATION WE FILE WITH THE SEC......................... 23
PLAN OF DISTRIBUTION...................................................... 24
EXPERTS................................................................... 24
</TABLE>
2
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
senior debt securities described in this prospectus.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges for
the periods indicated:
<TABLE>
<CAPTION>
For the Nine
Year Ended Last Friday in December Months Ended
--------------------------------------------
1995 1996 1997 1998 1999 September 29, 2000
--- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges..... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
4
<PAGE>
DESCRIPTION OF SENIOR DEBT SECURITIES
The senior debt 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 senior debt securities of which this prospectus is a part. The following
summaries of certain 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 each series of the senior debt securities are
governed by and construed in accordance with the laws of the State of New York.
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 senior debt securities in
which $2,500,000 or more has been invested. While ML&Co. believes that New York
law would be given effect by a state or Federal court sitting outside of New
York, state laws frequently regulate the amount of interest that may be charged
to and paid by a borrower, including, in some cases, corporate borrowers.
ML&Co. agrees for the benefit of the holders of its senior debt securities, to
the extent permitted by law, not to claim voluntarily the benefits of any laws
concerning usurious rates of interest against a holder of senior debt
securities.
Outstanding senior debt securities are issuable only in fully registered
form without coupons, in denominations of $1,000 and integral multiples of
$1,000, unless otherwise indicated. No service charge will be made for any
registration of transfer or exchange of senior debt securities, but ML&Co. may
require payment of a sum sufficient to cover any tax or other governmental
charges that may be imposed in connection with any registration, transfer or
exchange.
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 is
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.
Principal, premium and interest on the senior debt securities will be
payable at the office of the trustee in New York City so designated, provided
that, unless otherwise set forth below, payment of interest may be made at the
option of ML&Co. by check mailed to the address of the person entitled to that
payment as shown on the security register. In addition, the transfer of the
senior debt securities is and will be registrable, and senior debt securities
are and will be exchangeable at the trustee's designated office.
Unless otherwise specified with respect to a particular series of senior
debt securities, the senior debt securities are not subject to any sinking fund
and are not redeemable before maturity.
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Book-Entry Securities
Specified series of the senior debt securities have been issued in global
form and are considered book-entry securities. Beneficial owners of these
senior debt securities will not receive physical delivery of these securities
nor may they be entitled to have these securities registered in their name.
These book-entry securities are represented by one or more fully registered
global securities. Each global security has been deposited with, or on behalf
of, The Depository Trust Company, also known as DTC, as depositary, registered
in the name of DTC or its nominee. Unless and until it is exchanged in whole or
in part for senior debt 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.
In some cases, investors of outstanding senior debt securities have elected
to hold interests in the global notes through either the depositary in the
United States or Clearstream Banking, societe anonyme (referred to as
"Clearstream, Luxembourg"), and Morgan Guaranty Trust Company of New York,
Brussels Office, as operator of the Euroclear System, if they are participants
in these systems, or indirectly through organizations which are participants in
these systems. Clearstream, Luxembourg and Euroclear hold interests on behalf
of their participants through customers' securities accounts in Clearstream,
Luxembourg's and Euroclear's names on the books of their respective
depositaries, which in turn will hold these interests in customers' securities
accounts in the depositaries' names on the books of the depositary. Citibank,
N.A. acts as depositary for Clearstream, Luxembourg and The Chase Manhattan Bank
acts as depositary for Euroclear.
DTC Procedures
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 Exchange Act. 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 New York Stock Exchange, Inc., the American Stock
Exchange Inc. 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 securities under DTC's system must be made by or through
direct participants, which will receive a credit for the 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
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in the securities are to
be accomplished by entries made on the books of participants acting on behalf of
beneficial owners.
To facilitate subsequent transfers, all securities deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
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 securities; DTC's records reflect only the identity of the direct
participants to whose accounts the securities are credited, which may or may not
be the beneficial owners. The participants are responsible for keeping account
of their holdings on behalf of their customers.
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Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct and
indirect participants to beneficial owners are 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
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 securities are
credited on the record date.
Principal, premium, if any, and/or interest, if any, payments on the senior
debt 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 these payments to direct participants is the responsibility of
DTC, and disbursement of these payments to the beneficial owners is the
responsibility of direct and indirect participants.
Exchange for Certificated Securities
If the depositary is at any time unwilling or unable to continue as
depositary and
(a) a successor depositary is not appointed by ML&Co. within 60 days,
(b) ML&Co. executes and delivers to the trustee a company order to the
effect that the global notes shall be exchangeable, and
(c) an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the senior debt securities,
the global notes will be exchangeable for senior debt securities in definitive
form of like tenor and of an equal aggregate principal amount, in denominations
of $1,000 and integral multiples of $1,000. The definitive securities will be
registered in the name or names as the depositary shall instruct the trustee.
It is expected that these instructions may be based upon directions received by
the depositary from participants with respect to ownership of beneficial
interests in the global notes.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, senior debt securities
in definitive form 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.
Clearstream, Luxembourg
Clearstream, Luxembourg has advised ML&Co. that it is incorporated under
the laws of Luxembourg as a professional depositary. Clearstream, Luxembourg
holds securities for its participating organizations and facilities the
clearance and settlement of securities transactions between Clearstream,
Luxembourg participants through electronic book-entry changes in accounts of
Clearstream, Luxembourg participants, thereby eliminating the need for physical
movement of certificates. Clearstream, Luxembourg provides to its
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participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream, Luxembourg interfaces with domestic markets
in several countries. As a professional depositary, Clearstream, Luxembourg is
subject to regulation by the Luxembourg Monetary Institute. Clearstream,
Luxembourg participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Indirect access to
Clearstream, Luxembourg is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream, Luxembourg participant either directly or
indirectly.
Distributions with respect to the book-entry securities held beneficially
through Clearstream, Luxembourg are credited to cash accounts of Clearstream,
Luxembourg participants in accordance with its rules and procedures, to the
extent received by the U.S. depositary for Clearstream, Luxembourg.
Euroclear
Euroclear has advised ML&Co. that it was created in 1968 to hold securities
for participants of Euroclear and to clear and settle transactions between
Euroclear participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Euroclear includes various other services, including securities lending
and borrowing and interfaces with domestic markets in several countries.
Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty Trust
Company of New York (the "Euroclear Operator"), under contract with Euro-clear
Clearance Systems S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
Euroclear on behalf of Euroclear participants. Euroclear participants include
banks, central banks, securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
Terms and Conditions only on behalf of Euroclear participants, and has no record
of or relationship with persons holding through Euroclear participants.
Distributions with respect to book-entry securities held beneficially
through Euroclear are credited to the cash accounts of Euroclear participants in
accordance with the Terms and Conditions, to the extent received by the U.S.
depositary for Euroclear.
Clearance and Settlement Procedures
Secondary market trading between DTC participants will occur in the
ordinary way in accordance with the depositary's rules and will be settled in
immediately available funds using the depositary's Same-Day Funds Settlement
System. Secondary market trading between Clearstream, Luxembourg participants
and/or Euroclear participants will occur in the ordinary way in accordance with
the applicable rules and operating
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procedures of Clearstream, Luxembourg and Euroclear and will be settled using
the procedures applicable to conventional eurobonds in immediately available
funds.
Cross-market transfers between persons holding directly or indirectly
through the depositary on the one hand, and directly or indirectly through
Clearstream, Luxembourg or Euroclear participants, on the other, will be
effected in the depositary in accordance with the depositary's rules on behalf
of the relevant European international clearing system by its U.S. depositary;
however, any cross-market transactions will require delivery of instructions to
the relevant European international clearing system by the counterparty in that
system in accordance with its rules and procedures and within its established
deadlines. The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its U.S.
depositary to take action to effect final settlement on its behalf by delivering
or receiving book-entry securities in the depositary, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to the depositary. Clearstream, Luxembourg and Euroclear participants
may not deliver instructions directly to the depositary.
Because of time-zone differences, credits of book-entry securities received
in Clearstream, Luxembourg or Euroclear as a result of a transaction with a DTC
participant will be made during subsequent securities settlement processing and
will be credited on the business day following the depositary settlement date.
Any credits or transactions in book-entry securities settled during processing
will be reported to the relevant Euroclear or Clearstream, Luxembourg
participants on that business day. Cash received in Clearstream, Luxembourg or
Euroclear as a result of sales of securities by or through a Clearstream,
Luxembourg participant or a Euroclear participant to a DTC participant will be
received with value on the depositary settlement date but will be available in
the relevant Clearstream, Luxembourg or Euroclear cash account only as of the
business day following settlement in the depositary.
Although the depositary, Clearstream, Luxembourg and Euroclear have agreed
to the foregoing procedures in order to facilitate transfers of book-entry
securities among participants of the depositary, Clearstream, Luxembourg and
Euroclear, they are under no obligation to perform or continue to perform these
procedures and these procedures may be discontinued at any time.
Notices
Notices to holders of outstanding senior debt securities will be sent by
mail to the registered holders and will be published, whether the securities are
in global or definitive form, and so long as the securities are listed on the
Luxembourg Stock Exchange, in a daily newspaper of general circulation in
Luxembourg. It is expected that publication will be made in Luxembourg in the
Luxembourg Wort. Any notice shall be deemed to have been given on the date of
publication or, if published more than once, on the date of the first
publication. So long as senior debt securities are listed on the Luxembourg
Stock Exchange, any change in the Luxembourg Paying Agent and Transfer Agent
will be published in Luxembourg in the manner set forth above.
Further Issues
ML&Co. may from time to time, without notice to or the consent of the
registered holders of any series of outstanding senior debt securities, create
and issue additional senior debt securities ranking equally with the original
series of senior debt securities in all respects other than the payment of
interest accruing before the originally issue date of the additional senior debt
securities. The new issue of senior debt securities may be consolidated and form
a single series with the original issue of the securities of that series and
have the same terms as to status, redemption or otherwise as the senior debt
securities of the original series.
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Payment of Additional Amounts
Unless otherwise stated, ML&Co. will, subject to the exceptions and
limitations set forth below, pay as additional interest on the senior debt
securities, additional amounts in order for the net payment of the principal of
and interest on the senior debt securities to a holder who is a non-United
States person, after deduction for any present or future tax, assessment or
other governmental charge of the United States of a political subdivision or
taxing authority in or of any United States political subdivision, imposed by
withholding with respect to the payment, will not be less than the amount
provided in the senior debt securities to be then due and payable; provided,
however, that the foregoing obligation to pay additional amounts shall not
apply:
(1) to any tax, assessment, or other governmental charge that is
imposed or withheld solely by reason of the holder, or a fiduciary,
settlor, beneficiary, member or shareholder of the holder if the holder is
an estate, trust, partnership or corporation, or a person holding a power
over an estate or trust administered by a fiduciary holder, being
considered as:
(a) being or having been present or engaged in a trade or
business in the United States or having had a permanent establishment
in the United States;
(b) having a current or former relationship with the Untied
States, including a relationship as a citizen or resident of the
United States;
(c) being or having been a foreign or domestic personal holding
company, a passive foreign investment company or a controlled foreign
corporation with respect to the United States or a corporation that
has accumulated earnings to avoid United States federal income tax;
(d) being or having been a "10-percent shareholder" of ML&Co. as
defined in section 871 (h)(3) of the United States Internal Revenue
Code or any successor provisions; or
(e) being a bank receiving payments on an extension of credit
made pursuant to a loan agreement entered into in the ordinary course
of its trade or business.
(2) to any holder that is not the sole beneficial owner of the
securities, or any portion of the securities, or that is a fiduciary or
partnership, but only to the extent that a beneficiary or settlor with
respect to the fiduciary, a beneficial owner or member of the partnership
would not have been entitled to the payment of an additional amount had the
beneficiary, settlor, beneficial owner or member received directly its
beneficial or distributive share of the payment;
(3) to any tax, assessment, or other governmental charge that is
imposed or withheld solely by reason of the failure of the holder or any
other person to comply with certification, identification or information
reporting requirements concerning the nationality, residence, identity or
connection with the United States of the holder or beneficial owner of the
security, if compliance is required by statute, by regulation of the United
States Treasury Department or by an applicable income tax treaty to which
the United States is a party as a precondition to exemption from tax,
assessment or other governmental charge;
(4) to any tax, assessment or other governmental charge that is
imposed otherwise than by withholding by ML&Co. or a paying agent from the
payment;
(5) to any tax, assessment or other governmental charge that is
imposed or withheld solely by reason of a change in law, regulation, or
administrative or judicial interpretation that
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becomes effective more than 15 days after the payment becomes due or is
duly provided for, whichever occurs later;
(6) to any estate, inheritance, gift, sales, excise, transfer, wealth
or personal property tax or similar tax, assessment or other governmental
charge;
(7) to any tax, assessment or other governmental charge required to
be withheld by any payment agent from any payment of principal of or
interest on any senior debt security, if that payment can be made without
any withholding by any other payment agent; or
(8) in the case of any combination of items (1), (2), (3), (4), (5),
(6) and (7).
Some of the outstanding senior debt securities are subject in all cases to
any tax, fiscal or other law or regulation or administrative or judicial
interpretation applicable to the payments due and payable. Except as
specifically provided under this heading "--Payment of Additional Amounts" and
under the heading "--Redemption for Tax Reasons", ML&Co. will not be required to
make any payment with respect to any tax, assessment or other governmental
charge imposed by any government or a political subdivision or taxing authority.
As used under this heading "--Payment of Additional Amounts" and "--
Redemption for Tax Reasons", the term "United States" means the United States of
America, including the States and the District of Columbia, and its territories,
its possessions and other areas subject to its jurisdiction.
"United States person" means any individual who is a citizen or resident of
the United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States, any state of the United
States or the District of Columbia, other than a partnership that is not treated
as a United States person under any applicable Treasury regulations, any estate
the income of which is subject to United States federal income taxation
regardless of its source, or any 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
decision of the trust. Notwithstanding the preceding sentence, to the extent
provided in the Treasury regulations, certain trusts in existence on August 20,
1996, and treated as United States persons before that date that elect to
continue to be treated as United States persons will also be a United States
person.
"Non-United States person" means a person who is not a United States
person.
Redemption for Tax Reasons
As designated, some of the outstanding senior debt securities provide that,
if, as a result of any change in, or amendment to, the laws, or any regulations
or rulings promulgated under those laws, of the United States or any political
subdivision or taxing authority in or of the United States, or any change in, or
amendments to, an official position regarding the applicable or interpretation
of those laws, regulations or rulings, which change or amendment is announced or
becomes effective on or after the date the applicable series of senior debt
securities were initially issued, ML&Co. becomes or, based upon a written
opinion of independent counsel selected by ML&Co., will become obligated to pay
additional amounts as described in this prospectus under the heading "--Payment
of Additional Amounts" with respect to those securities, then ML&Co. may, at its
option redeem, as a whole, but not in part, the securities on not less than 30
nor more than 60 days prior notice, at a redemption price equal to 100% of their
principal amount, together with interest accrued but unpaid to the date fixed
for redemption.
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Tax Considerations
It is suggested that you should reach an investment decision regarding the
senior debt securities only after carefully considering the suitability of the
senior debt securities in the light of your particular circumstances.
You should also consider the tax consequences, if any, of investing in the
Securities and should consult your tax advisor.
Redeemable Notes
Terms and Provisions Applicable to Each Series of Redeemable Notes
The specific terms and provisions applicable to each series of redeemable
notes of ML&Co. are described below. The title of each series of the redeemable
notes designates the interest rate and maturity date of that series of notes.
Each series of redeemable notes bears interest at a specified rate payable
through their stated maturity date to the persons in whose names the notes are
registered on the record date preceding each interest payment date as indicated
below. If any interest payment date or the stated maturity date falls on a day
that is not a Business Day, as defined below, the related payment of principal
or interest will be made on the next succeeding Business Day as if made on the
date the payment was due, and no interest will accrue on the amount so payable
for the period from and after that interest payment date or stated maturity
date, as the case may be. Unless otherwise stated below, "Business Day" with
respect to any place of payment means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in that place of
payment are authorized or obligated by law to close.
The redeemable notes are subject to redemption by ML&Co. or repayment at
the option of their holders before their stated maturity dates as indicated
below. Beneficial interests in any redeemable notes that are book-entry
securities may be acquired, or subsequently transferred, only in denominations
of $1,000 and integral multiples of $1,000.
Terms and Provisions of 6% Notes due February 12, 2003
The stated maturity date for the 6% Notes due February 12, 2003 is February
12, 2003.
These notes of this series bear interest from February 12, 1998 and are
payable semiannually on February 12 and August 12 of each year and at maturity,
to the persons in whose names the notes are registered on the preceding July 29
and January 29, respectively.
The notes of this series are not subject to redemption by ML&Co. before
maturity unless the events described under the section entitled "--Redemption
for Tax Reasons" occur.
In the event definitive notes are issued, the holders of these notes will
be able to receive payments on the notes and effect transfers of the notes at
the offices of Chase Manhattan Bank Luxembourg S.A. or its successor as paying
agent in Luxembourg.
ML&Co. has appointed Chase Manhattan Bank Luxembourg S.A. as a paying agent
in Luxembourg with respect to this series of notes, and as long as these notes
are listed on the Luxembourg Stock Exchange, ML&Co. will maintain a paying agent
in Luxembourg and any change in the Luxembourg paying agent and transfer agent
will be published in Luxembourg. See "--Notices".
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Terms and Provisions of Floating Rate Notes due June 24, 2003
The Floating Rate Notes due June 24, 2003 will mature on June 24, 2003.
The notes of this series are not subject to redemption by ML&Co. before
maturity unless the events described in the section entitled "--Redemption for
Tax Reasons" occur.
In the event definitive notes are issued, the holders of these notes will
be able to receive payments on the notes and effect transfers of the notes at
the offices of Chase Manhattan Bank Luxembourg S.A. or its successor as paying
agent in Luxembourg.
ML&Co. has appointed Chase Manhattan Bank Luxembourg S.A. as a paying agent
in Luxembourg with respect to notes, and as long as the notes are listed on the
Luxembourg Stock Exchange, ML&Co. will maintain a paying agent in Luxembourg and
any change in the Luxembourg paying agent and transfer agent will be published
in Luxembourg. See "--Notices".
This series of notes bear interest from June 24, 1998 until their maturity,
payable in arrears on March 24, June 24, September 24 and December 24 of each
year and at maturity, to the persons in whose names the Notes are registered on
the preceding March 9, June 9, September 9 and December 9, respectively;
provided, however, that interest payable at maturity will be payable to the
person to whom principal shall be payable. Interest payable on each interest
payment date will include interest accrued from and including the first day of
the interest period relating to that interest payment date to and including the
last day of that interest period. Each interest period comprises the period
beginning on and including June 24, 1998 and ending on and including the day
preceding the first interest payment date, and, thereafter, each successive
period beginning on and including each interest payment date and ending on and
including the day preceding the next succeeding interest payment date.
With respect to this series of notes, "Business Day", with respect to any
place of payment, means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions in that place of
payment are authorized or required by law, regulation or executive order to
close, and which day is also a London Business Day.
"London Business Day" means any day, other than a Saturday or a Sunday, on
which commercial banks and foreign exchange markets settle payments in London,
England.
The per annum rate of interest with respect to this series of notes will be
reset on each interest reset date and will be LIBOR plus 0.15%. Each interest
payment date will be an interest reset date.
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The interest rate applicable to each interest period will be the rate
determined on the interest determination date applicable to that interest
period. The interest determination date applicable to any interest reset date
will be the second London Business Day preceding that interest reset date.
With respect to each interest reset date, "LIBOR" will be determined by
MLPF&S as the calculation agent for an interest determination date and will be
the rate for deposits in United States dollars having a maturity of three months
beginning on the second London Business Day immediately following that interest
determination date that appears on Telerate Page 3750 as of 11:00 A.M., London
time, on that interest determination date.
If fewer than two offered rates appear, or no rate appears, as applicable,
the calculation agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
calculation agent, to provide the Calculation Agent with its offered quotation
for deposits in United States dollars having a maturity of three months
beginning on the second London Business Day immediately following that interest
determination date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on that interest determination date and
in a principal amount that is representative for a single transaction in United
States dollars in that market at that time. If at least two quotations are
provided, LIBOR determined on that interest determination date will be the
arithmetic mean of those quotations. If fewer than two quotations are provided,
LIBOR determined on that interest determination date will be the arithmetic mean
of the rates quoted at approximately 11:00 A.M., in The City of New York, on
that interest determination date by three major banks in The City of New York
selected by the calculation agent for loans in United States dollars to leading
European banks, having a maturity of three months and in a principal amount that
is representative for a single transaction in United States dollars in that
market at that time; provided, however, that if the banks so selected by the
calculation agent are not quoting as mentioned in this sentence, LIBOR
determined on that interest determination date will be LIBOR in effect on that
interest determination date.
"Telerate Page 3750" means page 3750 on the Bridge Telerate, or any other
service or services as may be nominated by the British Bankers' Association for
the purpose of displaying London interbank offered rates for United States
dollars, for the purpose of displaying the London interbank rates of major banks
for United States dollars.
Interest on this series of notes will be computed and paid on the basis of
the actual number of days for which interest accrues in each interest period
divided by 360.
All percentages resulting from any calculation on the notes will be rounded
to the nearest one hundred-thousandth of a percentage point, with five one
millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545)) would be rounded to 9.87655% (or .0987655), and all dollar amounts
used in or resulting from any calculation on the notes will be rounded to the
nearest cent, with one-half cent being rounded upward.
ML&Co. will notify the Luxembourg Stock Exchange or will cause the
Luxembourg Stock Exchange to be notified of the interest rate, the interest
amount that will accrue, and commencement and ending dates for each interest
period as soon as practicable after the determination is made.
Terms and Provisions of 6% Notes due November 15, 2004
The 6% Notes due November 15, 2004 will mature on November 15, 2004.
The notes of this series bear interest and are payable semiannually on May
15 and November 15 of each year and at maturity, to the persons in whose names
the notes are registered on the preceding May 1 and November 1, respectively.
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The notes of this series are not subject to redemption by ML&Co. before
maturity unless the events described in the section entitled "--Redemption for
Tax Reasons" occur.
In the event definitive notes are issued, the holders will be able to
receive payments on the notes and effect transfers of the notes at the offices
of Chase Manhattan Bank Luxembourg S.A. or its successor as paying agent in
Luxembourg with respect to the notes.
ML&Co. has appointed Chase Manhattan Bank Luxembourg S.A. as a paying agent
in Luxembourg with respect to the notes, and as long as the notes are listed on
the Luxembourg Stock Exchange, ML&Co. will maintain a paying agent in Luxembourg
and any change in the Luxembourg paying agent and transfer agent will be
published in Luxembourg. See "--Notices".
Terms and Provisions of 6% Notes due July 15, 2005
The 6% Notes due July 15, 2005 will mature at par on July 15, 2005.
The notes of this series bear interest and are payable semiannually on
January 15 and July 15 of each year and at maturity, to the persons in whose
names the notes are registered on the preceding December 31 and June 30,
respectively.
The notes of this series are not subject to redemption by ML&Co. before
maturity unless the events described in the section entitled "--Redemption for
Tax Reasons" occur.
In the event definitive notes are issued, the holders will be able to
receive payments on the notes and effect transfers of the notes at the offices
of Chase Manhattan Bank Luxembourg S.A. or its successor as paying agent in
Luxembourg with respect to the notes.
ML&Co. has appointed Chase Manhattan Bank Luxembourg S.A. as a paying agent
in Luxembourg with respect to the notes, and as long as the notes are listed on
the Luxembourg Stock Exchange, ML&Co. will maintain a paying agent in Luxembourg
and any change in the Luxembourg paying agent and transfer agent will be
published in Luxembourg. See "--Notices".
Terms and Provisions of 6 3/8% Notes due September 8, 2006
The 6 3/8% Notes due September 8, 2006 will mature on September 8, 2006
unless redeemed earlier as provided below.
The notes of this series bear interest and are payable semiannually on each
March 8 and September 8 to the persons in whose names the notes are registered
on the preceding February 23 and August 23, respectively.
The notes are subject to redemption at the option of ML&Co. on or after
September 8, 2003, in whole or in part in increments of $1,000, at a redemption
price of 100% of the principal amount of the notes to be redeemed plus accrued
interest to but excluding the date of redemption. Notice of redemption of the
notes shall be given not less than 30 or more than 60 days before the date of
redemption to each holder of the notes to be redeemed.
Terms and Provisions of 6 1/2% Notes due July 15, 2018
The 6 1/2% Notes due July 15, 2018 will mature on July 15, 2018.
15
<PAGE>
The notes of this series bear interest and are payable semiannually on
January 15 and July 15 of each year and at maturity, to the persons in whose
names the notes are registered on the preceding December 31 and June 30,
respectively.
The notes of this series are not subject to redemption by ML&Co. before
maturity unless the events described in the section entitled "--Redemption for
Tax Reasons" occur.
In the event definitive notes are issued, the holders will be able to
receive payments on the notes and effect transfers of the notes at the offices
of Chase Manhattan Bank Luxembourg S.A. or its successor as paying agent in
Luxembourg with respect to the notes.
ML&Co. has appointed Chase Manhattan Bank Luxembourg S.A. as a paying agent
in Luxembourg with respect to the notes, and as long as the notes are listed on
the Luxembourg Stock Exchange, ML&Co. will maintain a paying agent in Luxembourg
and any change in the Luxembourg paying agent and transfer agent will be
published in Luxembourg. See "--Notices".
Terms and Provisions of 6 7/8% Notes due November 15, 2018
The 6 7/8% Notes due November 15, 2018 will mature on November 15, 2018.
The notes of this series bear interest and are payable semiannually on May
15 and November 15 of each year and at maturity, to the persons in whose names
the notes are registered on the preceding May 1 and November 1, respectively.
The notes of this series are not subject to redemption by ML&Co. before
maturity unless the events described in the section entitled "--Redemption for
Tax Reasons" occur.
In the event definitive notes are issued, the holders will be able to
receive payments on the notes and effect transfers of the notes at the offices
of Chase Manhattan Bank Luxembourg S.A. or its successor as paying agent in
Luxembourg with respect to the notes.
ML&Co. has appointed Chase Manhattan Bank Luxembourg S.A. as a paying agent
in Luxembourg with respect to the notes, and as long as the notes are listed on
the Luxembourg Stock Exchange, ML&Co. will maintain a paying agent in Luxembourg
and any change in the Luxembourg paying agent and transfer agent will be
published in Luxembourg. See "--Notices".
Terms and Provisions of 8.40% Notes due November 1, 2019
The 8.40% Notes due November 1, 2019 will mature on November 1, 2019.
The notes of this series bear interest and are payable semiannually on each
May 1 and November 1 to the persons in whose names the notes are registered on
the preceding April 15 and October 15, respectively.
The notes are not redeemable by ML&Co. before maturity unless $20,000,000
or less of aggregate principal amount of the notes are outstanding, in which
case the notes are redeemable at any time on or after November 1, 1994, in whole
but not in part, on at least 15 days and not more than 60 days prior notice at a
redemption price of 100% of principal amount of the notes plus accrued interest
to the date of redemption.
16
<PAGE>
Non-Redeemable Notes
Each series of Non-Redeemable Notes bears interest at a specified rate
payable semiannually through maturity to the persons in whose names the notes
are registered on the regular record date preceding each interest payment date.
The Non-Redeemable Notes are not subject to redemption by ML&Co. or repayment at
the option of their holders before their stated maturity dates, and are issuable
and transferable in denominations of $1,000 and any integral multiple of $1,000.
Beneficial interests in Non-Redeemable Notes that are book-entry securities may
be acquired, or subsequently transferred, only in denominations of $1,000 and
integral multiples of $1,000. The title of each series of Non-Redeemable Notes
designates the interest rate or interest rate basis and maturity date of that
series of notes.
Non-Redeemable Fixed Rate Notes
<TABLE>
<CAPTION>
Series Interest Payment Dates Regular Record Dates
------ ---------------------- --------------------
<S> <C> <C>
6% Notes due January 15, 2001* January 15 and July 15 January 1 and July 1
6% Notes due March 1, 2001* March 1 and September 1 February 15 and August 15
6 1/2% Notes due April 1, 2001* April 1 and October 1 March 15 and September 15
8% Notes due February 1, 2002 February 1 and August 1 January 15 and July 15
7 3/8% Notes due August 17, 2002* February 17 and August 17 February 2 and August 2
6.64% Notes due September 19, 2002* March 19 and September 19 March 4 and September 4
8.30% Notes due November 1, 2002 May 1 and November 1 April 15 and October 15
6% Notes due February 12, 2003* February 12 and August 12 January 29 and July 29
6 7/8% Notes due March 1, 2003* March 1 and September 1 February 15 and August 15
6.55% Notes due August 1, 2004* February 1 and August 1 January 15 and July 15
6 1/4% Notes due January 15, 2006* January 15 and July 15 January 1 and July 1
7% Notes due March 15, 2006* March 15 and September 15 March 1 and September 1
7 3/8% Notes due May 15, 2006* May 15 and November 15 May 1 and November 1
7% Notes due January 15, 2007* January 15 and July 15 January 1 and July 1
8% Notes due June 1, 2007 June 1 and December 1 May 15 and November 15
6.56% Notes due December 16, 2007* June 16 and December 16 June 1 and December 1
7% Notes due April 27, 2008* April 27 and October 27 April 12 and October 12
6 1/4% Notes due October 15, 2008* April 15 and October 15 March 31 and September 30
6 3/8% Notes due October 15, 2008* April 15 and October 15 April 1 and October 1
6 3/4% Notes due June 1, 2028* June 1 and December 1 May 15 and November 15
6% Notes due February 17, 2009* February 1 and August 1 February 17 and August 17
</TABLE>
__________________
*Book-Entry Securities
Non-Redeemable Floating Rate Notes due February 4, 2003
The Floating Rate Notes due February 4, 2003 will mature on February 4,
2003.
17
<PAGE>
The notes of this series are not subject to redemption by ML&Co. before
their maturity.
The notes bear interest payable in arrears on February 4, May 4, August 4
and November 4 of each year until maturity. Interest payable on each interest
payment date will include interest accrued from and including the first day of
the interest period relating to that interest payment date to and including the
last day of that interest period. Each interest period comprises the period
beginning on and including the original issue date of the notes and ending on
and including the day preceding the first interest payment date, and,
thereafter, each successive period beginning on and including each interest
payment date and ending on and including the day preceding the next succeeding
interest payment date.
With respect to this series of notes, "Business Day", with respect to any
place of payment, means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions in that place of
payment are authorized or required by law, regulation or executive order to
close, and which day is also a London Business Day.
"London Business Day" means any day, other than a Saturday or a Sunday, on
which commercial banks and foreign exchange markets settle payments in London,
England.
The per annum rate of interest with respect to this series of notes will be
reset on each interest reset date and will be LIBOR plus 0.2%. Each interest
payment date will be an interest reset date.
The interest rate applicable to each interest period will be the rate
determined on the interest determination date applicable to that interest
period. The interest determination date applicable to any interest reset date
will be the second London Business Day preceding that interest reset date.
With respect to each interest reset date, "LIBOR" will be determined by
MLPF&S as the calculation agent for an interest determination date and will be
the rate for deposits in United States dollars having a maturity of three months
beginning on the second London Business Day immediately following that interest
determination date that appears on Telerate Page 3750 as of 11:00 A.M., London
time, on that interest determination date.
If fewer than two offered rates appear, or no rate appears, as applicable,
the calculation agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
calculation agent, to provide the Calculation Agent with its offered quotation
for deposits in United States dollars having a maturity of three months
beginning on the second London Business Day immediately following that interest
determination date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on that interest determination date and
in a principal amount that is representative for a single transaction in United
States dollars in that market at that time. If at least two quotations are
provided, LIBOR determined on that interest determination date will be the
arithmetic mean of those quotations. If fewer than two quotations are provided,
LIBOR determined on that interest determination date will be the arithmetic mean
of the rates quoted at approximately 11:00 A.M., in The City of New York, on
that interest determination date by three major banks in The City of New York
selected by the calculation agent for loans in United States dollars to leading
European banks, having a maturity of three months and in a principal amount that
is representative for a single transaction in United States dollars in that
market at that time; provided, however, that if the banks so selected by the
calculation agent are not quoting as mentioned in this sentence, LIBOR
determined on that interest determination date will be LIBOR in effect on that
interest determination date.
"Telerate Page 3750" means page 3750 on the Bridge Telerate, or any other
service or services as may be nominated by the British Bankers' Association for
the purpose of displaying London interbank offered rates for United States
dollars, for the purpose of displaying the London interbank rates of major banks
for United States dollars.
18
<PAGE>
Interest on this series of notes will be computed and paid on the basis of
the actual number of days for which interest accrues in each interest period
divided by the actual number of days in the relevant year.
All percentages resulting from any calculation on the notes will be rounded
to the nearest one hundred-thousandth of a percentage point, with five one
millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545)) would be rounded to 9.87655% (or .0987655), and all dollar amounts
used in or resulting from any calculation on the notes will be rounded to the
nearest cent, with one-half cent being rounded upward.
19
<PAGE>
OTHER TERMS
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 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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to all
the senior debt securities; and
. perform and observe of all of ML&Co.'s obligations under the 1983
Indenture, and
. 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.
20
<PAGE>
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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any senior debt security;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any senior debt security;
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. any other Event of Default provided with respect to senior debt
securities of that series which are not inconsistent with the 1983
Indenture.
21
<PAGE>
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.
Any Event of Default with respect to any series of debt securities may be
waived by the holders of a majority in principal amount or aggregate issue price
of the outstanding senior debt securities of that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the consent
of each holder of each outstanding security of each series of senior
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 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.
22
<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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 have filed a registration statement on Form S-3 with the SEC covering
the senior debt securities. For further information on ML&Co. and the senior
debt 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly report on Form 10-Q for the period ended March 31, 2000, June
30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29, 2000, July
18, 2000, August 2, 2000, August 4, 2000, September 13, 2000, October 6,
2000, October 17, 2000, November 1, 2000, November 20, 2000 and December
6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. 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.
23
<PAGE>
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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
senior debt securities and is to be used by MLPF&S when making offers and sales
related to market-making transactions in the senior debt securities.
MLPF&S may act as principal or agent in these market-making transactions.
The distribution of the senior debt 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
24
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
<TABLE>
<S> <C>
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
</TABLE>
Merrill Lynch & Co., Inc.
Medium-Term Notes
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
our wholly-owned subsidiary, will use this prospectus when making offers and
sales related to market-making transactions in the following securities.
<TABLE>
<S> <C>
. The final terms and conditions of each issue of . The notes bear interest at fixed or floating rates or
notes are specified in the applicable pricing may not bear any interest. If the notes bear interest
supplement. at a floating rate, the floating rate is based on one or
more indices or formulas plus or minus a fixed amount or
. The notes are senior unsecured debt securities of multiplied by a factor.
ML&Co.
. The notes have stated maturities of nine months . Whether the notes are redeemable or repayable before
or more from the date they were originally their maturity and whether they are subject to mandatory
issued. redemption, redemption at the option of ML&Co. or
repayment at the option of the holder of the notes is
. We will pay amounts due on the notes in U.S. specified in the applicable pricing supplement.
dollars or any other consideration described in the
applicable pricing supplement.
</TABLE>
Investing in the notes involves certain risks.
See "Risk Factors" on page 3.
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 notes will be the prevailing market price at the time
of sale.
___________________
Merrill Lynch & Co.
___________________
The date of this prospectus is , .
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
RISK FACTORS.............................................................. 3
MERRILL LYNCH & CO., INC.................................................. 4
RATIO OF EARNINGS TO FIXED CHARGES........................................ 5
DESCRIPTION OF NOTES...................................................... 5
OTHER TERMS............................................................... 13
WHERE YOU CAN FIND MORE INFORMATION....................................... 17
INCORPORATION OF INFORMATION WE FILE WITH THE SEC......................... 17
PLAN OF DISTRIBUTION...................................................... 17
EXPERTS................................................................... 18
</TABLE>
2
<PAGE>
RISK FACTORS
Your investment in the notes will include certain risks. In consultation
with your own financial and legal advisers, you should carefully consider, among
other matters, the following discussion of risks before deciding whether an
investment in the notes is suitable for you. The notes are not an appropriate
investment for you if you are unsophisticated with respect to the significant
components of their relationship.
Structure Risks of Notes Indexed to Interest Rate, Currency or Other Indices or
Formulas
If you invest in notes indexed to one or more interest rate, currency or
other indices or formulas, there will be significant risks not associated with a
conventional fixed rate or floating rate debt security. These risks include
fluctuation of the indices or formulas and the possibility that you will receive
a lower, or no, amount of principal, premium or interest and at different times
than you expected. We have no control over a number of matters, including
economic, financial and political events, that are important in determining the
existence, magnitude and longevity of these risks and their results. In
addition, if an index or formula used to determine any amounts payable in
respect of the notes contains a multiplier or leverage factor, the effect of any
change in that index or formula will be magnified. In recent years, values of
certain indices and formulas have been volatile and volatility in those and
other indices and formulas may be expected in the future. However, past
experience is not necessarily indicative of what may occur in the future.
Redemption May Adversely Affect Your Return on the Notes
If your notes are redeemable at our option or are otherwise subject to
mandatory redemption, we may, in the case of optional redemption, or must, in
the case of mandatory redemption, choose to redeem your notes at times when
prevailing interest rates may be relatively low. Accordingly, you generally
will not be able to reinvest the redemption proceeds in a comparable security at
an effective interest rate as high as that of the notes.
There May Be an Uncertain Trading Market for Your Notes; Many Factors Affect the
Trading Value of Your Notes
We cannot assure you a trading market for your notes will continue to
exist. Many factors independent of our creditworthiness may affect the trading
market of your notes. These factors include:
. the complexity and volatility of the index or formula applicable to
the notes,
. the method of calculating the principal, premium and interest in
respect of the notes,
. the time remaining to the maturity of the notes,
. the outstanding amount of the notes,
. the redemption features of the notes,
. the amount of other securities linked to the index or formula
applicable to the notes, and
. the level, direction and volatility of market interest rates
generally.
In addition, because some notes were designed for specific investment
objectives or strategies, these notes will have a more limited trading market
and experience more price volatility. There may be a limited number of buyers
for these notes. This may affect the price you receive for these notes or your
ability to sell these notes at all. You should not purchase notes unless you
understand and know you can bear the related investment risks.
3
<PAGE>
Our Credit Ratings May Not Reflect All Risks of an Investment in the Notes
Our credit ratings are an assessment of our ability to pay our obligations.
Consequently, real or anticipated changes in our credit ratings will generally
affect the market value of your notes. Our credit ratings, however, may not
reflect the potential impact of risks related to structure, market or other
factors discussed above on the value of your notes.
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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
notes described in this prospectus.
4
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges for
the periods indicated:
<TABLE>
<CAPTION>
For the Nine
Year Ended Last Friday in December Months Ended
--------------------------------------------
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges..... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
5
<PAGE>
DESCRIPTION OF NOTES
Terms of the Notes
"Pricing supplement", as used herein, means a prospectus supplement
relating to an individual issue of the notes, as filed with the SEC.
The terms and conditions described below apply to each note unless
otherwise specified in the applicable pricing supplement.
Except as provided in the applicable pricing supplement, the notes are
denominated in U.S. dollars. If provided in the applicable pricing supplement,
notes may be denominated in a foreign currency or in units of two or more
currencies ("Multi-Currency Notes").
Except as provided in the applicable pricing supplement:
. the notes were issued only in fully registered form without coupons;
. floating rate notes and Zero Coupon Notes, as defined, were issued in
denominations of $25,000 or any amount in excess of $25,000 which is
an integral multiple of $1,000; and
. fixed rate notes were issued in denominations of $1,000 or any
integral multiple in excess of $1,000.
Unless otherwise specified in the applicable pricing supplement:
. principal and interest, if any, is payable,
. the transfer of the notes is registrable, and
. the notes are exchangeable for notes bearing identical terms and
provisions,
at the office of the trustee in The City of New York designated for such
purpose, provided that ML&Co., at its option, may pay interest, other than
interest payable at maturity or on any date of redemption or repayment, by check
mailed to the address of the person entitled to receive payment as shown on the
security register. ML&Co. will pay the principal and interest payable at
maturity or the date of redemption or repayment on each note upon maturity,
redemption or repayment, as the case may be, in immediately available funds
against presentation of the note at the office of the trustee maintained for
that purpose.
Notwithstanding the preceding two sentences, ML&Co. may pay interest on a
note which bears interest at a floating rate at maturity or earlier redemption
or repayment by wire transfer of immediately available funds to a designated
account maintained in the United States upon:
(1) receipt of written notice by the trustee from the holder of the
applicable note not less than one Business Day before the due date of
the relevant principal payment; and
(2) presentation of the note at the corporate trust office of the trustee
in the Borough of Manhattan, The City of New York, or at any other
place as ML&Co. may designate.
A holder of not less than $1,000,000 aggregate principal amount of floating rate
notes may by written notice to the trustee at the corporate trust office or at
such other address as ML&Co. will give notice in writing not less than 15 days
before an interest payment date, arrange to have the interest payable on all
notes held by that holder on the relevant interest payment date, and all
subsequent interest payment dates until written notice to the contrary is given
6
<PAGE>
to the trustee, made by wire transfer of immediately available funds to a
designated account maintained in the United States.
Except as provided in the applicable pricing supplement, "Business Day"
means any day that is not a Saturday or Sunday and that, in The City of New
York, is neither a legal holiday nor a day on which banking institutions are
authorized or obligated by law or regulation to close.
Repayment at Option of Holder
If so indicated in an applicable pricing supplement, notes are repayable by
ML&Co. in whole or in part at the option of the holders of the notes on their
respective optional repayment dates specified in the applicable pricing
supplement. If no optional repayment date is indicated with respect to a note,
that note is not repayable at the option of the holder before maturity. Any
repayment in part will be in increments of $1,000 provided that any remaining
principal amount of the applicable note will be an authorized denomination of
the applicable note. The repurchase price for any note repurchased is 100% of
the principal amount to be repaid, together with interest payable to the date of
repayment.
Notwithstanding anything to the contrary in this prospectus, if repayable
at the option of the holder, a note is repayable only on an interest payment
date. If any optional repayment date specified with respect to a note is not an
interest payment date, whether because the payment date is not a Business Day or
otherwise, the applicable repayment date will, instead of being the date
specified, be the interest payment date nearest the specified optional repayment
date whether the applicable interest payment date precedes or succeeds the
specified optional repayment date. In the event that an equal number of days
separates a specified optional repayment date and the preceding interest payment
date, on the one hand, and the succeeding interest payment date, on the other
hand, the optional repayment date will be the succeeding interest payment date.
In order for a note which is by its terms repayable at the option of the
holder to be repaid before maturity, ML&Co. must receive at the corporate trust
office of the trustee, or at any other address of which ML&Co. will from time to
time notify the holders of the notes, during the period from and including the
20th Business Day preceding the applicable optional repayment date up to and
including the close of business on the 16th Business Day preceding the
applicable optional repayment date:
(1) the applicable note with the information under the caption "option to
elect repayment" duly completed, or
(2) a telegram, telex, facsimile transmission or letter from a member of a
national securities exchange or the National Association of Securities
Dealers, Inc. or a commercial bank or a trust company in the United
States of America dated no later than the 16th Business Day preceding
the applicable optional repayment date and setting forth the name of
the holder of the note, the principal amount of the note, the amount
of the note to be repaid, a statement that the option to elect
repayment is being exercised and a guarantee that the note with the
information required under the caption "option to elect repayment"
duly completed will be received at the above-mentioned office of the
trustee, not later than the 5th Business Day after the date of the
telegram, telex, facsimile transmission or letter and note, duly
completed, is received at the office of the trustee by the 5th
Business Day.
A holder's effective exercise of the repayment option will be irrevocable.
A holder of a note will not be permitted to transfer or exchange that note or,
in the event that a note is to be repaid in part, that portion of the note to be
repaid, after exercise of the repayment option. ML&Co. will make all
determinations with respect to all questions as to the validity, eligibility,
including time of receipt and acceptance of any note for repayment. All such
determinations will be final, binding and non-appealable. ML&Co. has the right
to offer for resale any note acquired by it pursuant to the foregoing
arrangements. Accordingly, ML&Co. may not satisfy the indebtedness evidenced by
any note repurchased by it by such repurchase.
7
<PAGE>
Redemption at Option of ML&Co.
The notes do not have a sinking fund but are redeemable at the option of
ML&Co. if a redemption date is specified in the applicable notes and in the
applicable pricing supplement. If indicated in an applicable pricing supplement,
the notes are subject to redemption by ML&Co. on and after their respective
redemption dates specified in the applicable pricing supplement. On and after
the redemption date, if any, the related note is redeemable in whole or in part
at the option of ML&Co. on notice given not more than 60 nor less than 30 days
before the date of redemption in the case of fixed rate notes, or on notice
given not more than 30 nor less than 15 days before the date of redemption in
the case of floating rate notes. Any redemption in part will be in increments of
$1,000 provided that any remaining principal amount of the applicable note will
be an authorized denomination of the applicable note. The redemption price is
equal to 100% of the principal amount to be redeemed, together with interest
payable to the date of redemption. Notwithstanding the above, however, floating
rate notes, if redeemable at the option of ML&Co., are redeemable only on
interest payment dates occurring on or after the applicable redemption dates.
Interest Rate
Each note bears interest at the rate per annum, or pursuant to the interest
rate formula, stated in the applicable note and in the applicable pricing
supplement until the principal of the note is paid or made available for
payment. Interest is payable on each interest payment date and at maturity or,
if applicable, upon redemption or repayment. Interest is payable to the person
in whose name a note is registered at the close of business on the regular
record date next preceding each interest payment date; provided, however,
interest payable at maturity or, if applicable, upon redemption or repayment
will be payable to the person to whom principal will be payable. Except as
provided in the applicable pricing supplement, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, referred to in this prospectus as MLPF&S, is the calculation
agent with respect to floating rate notes.
Each floating rate note bears interest at rates determined by reference to
an interest rate formula, which may be adjusted by a Spread or Spread Multiplier
, each as defined below, unless otherwise specified in the applicable note. A
floating rate note may also have either or both of the following:
. a maximum limitation, or ceiling, on the rate at which interest which
may accrue during any interest period; and
. a minimum limitation, or floor, on the rate at which interest which
may accrue during any interest period.
The applicable pricing supplement designates either a fixed rate of
interest per annum payable on the applicable note, in which case the note is a
fixed rate note, or one of the following base rates, as applicable to the
relevant floating rate note:
. the commercial paper index rate, in which case the note is a
Commercial Paper Index Rate Note,
. the federal funds rate, in which case the note is a Federal Funds Rate
Note,
. the prime rate, in which case the note is a Prime Rate Note,
. the treasury index rate, in which case the note is a Treasury Index
Rate Note,
. LIBOR, in which case the note is a LIBOR Note, or
. such other interest rate formula as is set forth in the applicable
pricing supplement.
Except as specified in the applicable pricing supplement, floating rate
notes have daily, weekly, monthly, quarterly, semiannual or annual resets of the
rate of interest.
8
<PAGE>
Fixed Rate Notes
Each fixed rate note bears interest at the rate per annum stated on the
face of the applicable note until the principal of the note is paid or made
available for payment. Except as provided in the applicable pricing supplement,
interest is payable semi-annually on May 15 and November 15 of each year and at
maturity, or on the date of redemption or repayment if a fixed rate note is
redeemed by ML&Co. or repaid at the holder's option prior to maturity. Interest
is computed on the basis of a 360-day year of twelve 30-day months. Interest is
payable to the person in whose name a fixed rate note is registered at the close
of business on the May 1 or November 1 regular record date next preceding the
May 15 or November 15 interest payment date. Interest rates are subject to
change by ML&Co. from time to time, but no change will affect any fixed rate
note previously issued or as to which ML&Co. has accepted an offer to purchase.
Any payment of principal or interest required to be made on an interest
payment date, at maturity or earlier redemption or repayment of a fixed rate
note which is not a Business Day need not be made on that day, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the interest payment date, maturity date or date of redemption or repayment, as
the case may be. No interest will accrue with respect to the payment for the
period from and after the applicable interest payment date, maturity date or
date of redemption or repayment.
Floating Rate Notes
The applicable pricing supplement specifies:
. the base rate or other interest rate formula,
. the Spread, or Spread Multiplier, if any, and
. the maximum or minimum interest rate limitation, if any, applicable to
each floating rate note.
In addition, the pricing supplement specifies for each floating rate note the
following terms, if applicable: the initial interest rate, the interest payment
dates, the Index Maturity, Interest Reset Dates, optional repayment dates,
redemption date and any other variable term applicable to the note.
The interest rate on each floating rate note is calculated by reference to
the specified interest rate formula:
(1) plus or minus the number of basis points specified in the applicable
pricing supplement as being applicable to the interest rate for the
relevant floating rate note (the "Spread"), if any, or
(2) multiplied by the percentage of the base rate applicable to the
interest rate for the applicable floating rate note (the "Spread
Multiplier"), if any.
"Index Maturity" means, the period to maturity of the instrument or
obligation on which the interest rate formula is based, as specified in the
applicable pricing supplement.
"Regular record date" with respect to floating rate notes means the 15th
day, whether or not a Business Day, before the applicable interest payment date.
The "calculation date", if applicable, with respect to any Interest
Determination Date as specified with respect to each base rate is the earlier
of:
. the tenth calendar day after the Interest Determination Date or,
if the tenth calendar day is not a Business Day, the next
succeeding Business Day, or
. the Business Day before the interest payment date on which the
accrued interest will be payable.
9
<PAGE>
Except as otherwise provided herein with respect to LIBOR Notes or in the
applicable pricing supplement, if any Interest Reset Date for any floating rate
note would otherwise be a day that is not a Business Day, that Interest Reset
Date will be postponed to the next succeeding day that is a Business Day.
Each floating rate note bears interest from the date of issue at the rates
determined as described below until the principal of the note is paid or
otherwise made available for payment. The rate of interest on a floating rate
note is reset each Interest Reset Date applicable to the note; provided,
however, that except in the case of floating rate notes which reset daily, the
interest rate in effect for the ten days immediately before maturity, redemption
or repayment, as the case may be, will be the interest rate in effect on the
tenth day preceding such maturity, redemption or repayment, as the case may be.
Except as otherwise provided herein or in the applicable pricing supplement, the
rate of interest determined on an Interest Reset Date with respect to a floating
rate note will be applicable on and after the applicable Interest Reset Date to,
but not including, the next succeeding Interest Reset Date, or until the date of
maturity or date of redemption or repayment, as the case may be.
If an interest payment date with respect to any floating rate note falls on
a day that is not a Business Day with respect to the note, that interest payment
date will be the following day that is a Business Day, except that in the case
of a LIBOR Note, if such day falls in the next calendar month, the interest
payment date will be the preceding day that is a Business Day. If the maturity
date or date of redemption or repayment of any floating rate note falls on a day
that is not a Business Day, the payment of interest and principal may be made on
the next succeeding Business Day, and no interest on that payment will accrue
for the period from and after the maturity date or the date of redemption or
repayment.
Except as provided in the applicable pricing supplement, interest payments
on floating rate notes will be the amount of interest accrued from, and
including, the next preceding interest payment date in respect of which interest
has been paid to, but excluding, the interest payment date. With respect to a
floating rate note, accrued interest from the last date to which interest has
been paid is calculated by multiplying the principal amount of the applicable
floating rate note by an accrued interest factor. The accrued interest factor is
computed by adding the interest factors, calculated for each day, from the last
date to which interest has been paid, to the date for which accrued interest is
being calculated. The interest factor for each day is computed by dividing the
interest rate applicable to each day by 360, in the case of Commercial Paper
Index Rate Notes, Federal Funds Rate Notes, Prime Rate Notes and LIBOR Notes, or
by the actual number of days in the year, in the case of Treasury Index Rate
Notes.
All percentages resulting from any calculation on floating rate notes will
be rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upward. For
example, 9.876545% or .09876545 would be rounded to 9.87655% or .0987655. All
dollar amounts used in or resulting from calculations on floating rate notes
will be rounded to the nearest cent with one-half cent being rounded upward.
Upon the request of the holder of any floating rate note, the calculation
agent will provide the interest rate then in effect and, if determined, the
interest rate which will become effective as a result of a determination made
with respect to the most recent Interest Determination Date with respect to the
applicable note.
Commercial Paper Index Rate Notes
Commercial Paper Index Rate Notes bear interest at the interest rates,
calculated with reference to the Commercial Paper Index Rate and the Spread or
Spread Multiplier, if any, specified in the applicable pricing supplement.
Unless otherwise indicated in the applicable pricing supplement,
"Commercial Paper Index Rate" means, with respect to any Interest Determination
Date relating to a Commercial Paper Index Rate Note, the Money Market Yield
calculated as described below of the rate on that date for commercial paper
having the Index Maturity specified in the applicable pricing supplement as such
rate is published by the Board of Governors of the Federal Reserve System in
"Statistical Release H.15(519), Selected Interest Rates" or any successor
publication of the Board of Governors of the Federal Reserve System
("H.15(519)"), under the heading "Commercial Paper". In the event that such rate
is not published by 9:00 A.M. New York City time on the calculation date
pertaining to the applicable Interest Determination Date, then the Commercial
Paper Index Rate will be the Money Market Yield of the rate on
10
<PAGE>
that Interest Determination Date for commercial paper having the Index Maturity
as published by the Federal Reserve Bank of New York in its daily statistical
release, "Composite 3:30 P.M. Quotations for U.S. Government Securities"
("Composite Quotations") under the heading "Commercial Paper". If by 3:00 P.M.,
New York City time, on the applicable calculation date such rate is not yet
published in either H.15(519) or Composite Quotations, the Commercial Paper
Index Rate for that Interest Determination Date will be calculated by the
calculation agent and will be the Money Market Yield of the arithmetic mean of
the offered rates of three leading dealers of commercial paper in The City of
New York selected by the calculation agent as of 11:00 A.M., New York City time,
on that Interest Determination Date for commercial paper having the specified
Index Maturity placed for an industrial issuer whose bond rating is "AA" or the
equivalent from a nationally recognized rating agency. If the dealers selected
by the calculation agent are not quoting as mentioned in the preceding sentence,
the Commercial Paper Index Rate will be the Commercial Paper Index Rate in
effect on such Interest Determination Date.
"Money Market Yield" means the yield calculated in accordance with the
following formula and expressed as a percentage:
D x 360
Money Market Yield = ----------------- x 100
360 - (D x X x M)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal; and "M" refers to the actual number
of days in the interest period for which interest is being calculated.
The Interest Determination Date pertaining to an Interest Reset Date on a
Commercial Paper Index Rate Note is the Business Day before the Interest Reset
Date.
Federal Funds Rate Notes
Federal Funds Rate Notes bear interest at the interest rates, calculated
with reference to the Federal Funds Rate and the Spread, or Spread Multiplier,
if any, specified in the applicable pricing supplement.
Unless otherwise indicated in the applicable pricing supplement, "Federal
Funds Rate" means, with respect to any Interest Determination Date relating to a
Federal Funds Rate Note, the rate on that date for Federal Funds as published by
the Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" ("H.15(519)") or any successor publication
under the heading "Federal Funds (Effective)" or, if not so published by 9:00
A.M., New York City time, on the calculation date pertaining to the applicable
Interest Determination Date, the Federal Funds Rate will be the interest rate on
the Interest Determination Date as published by the Federal Reserve Bank of New
York in its daily statistical release, "Composite 3:30 P.M. Quotations for U.S.
Government Securities" ("Composite Quotations") under the heading "Federal
Funds/Effective Rate". If such rate is not yet published by 9:00 A.M. on the
calculation date pertaining to the applicable Interest Determination Date, the
Federal Funds Rate for the applicable Interest Determination Date will be the
rate on the applicable Interest Determination Date made publicly available by
the Federal Reserve Bank of New York which is equivalent to the rate which
appears in H.15(519) under the heading "Federal Funds (Effective)". If the rate
described in the preceding sentence is not made publicly available by the
Federal Reserve Bank of New York by 9:00 A.M. on the calculation date, the
Federal Funds Rate will be the last Federal Funds Rate in effect before the
applicable Interest Determination Date.
The rate of interest on a Federal Funds Rate Note is reset on each Interest
Reset Date applicable to the note. Unless otherwise specified in the applicable
pricing supplement, with respect to Federal Funds Rate Notes, each Business Day
is an Interest Reset Date. The Interest Determination Date pertaining to an
Interest Reset Date on a Federal Funds Rate Note is the Business Day before the
applicable Interest Reset Date.
Prime Rate Notes
Prime Rate Notes bear interest at the interest rates, calculated with
reference to the Prime Rate and the Spread, or Spread Multiplier, if any,
specified in the applicable pricing supplement.
11
<PAGE>
Unless otherwise indicated in the applicable pricing supplement, "Prime
Rate" means, with respect to any Interest Determination Date relating to a Prime
Rate Note, the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by a 360-day year as of the close of
business on the Interest Determination Date by three major money center banks in
The City of New York selected by the calculation agent. If fewer than three
quotations are provided, the Prime Rate will be calculated by the calculation
agent and will be determined as the arithmetic mean on the basis of the prime
rates quoted in The City of New York on the calculation date by three substitute
banks or trust companies organized and doing business under the laws of the
United States, or any State thereof, and unaffiliated with ML&Co., having total
equity capital of at least $500 million and being subject to supervision or
examination by a Federal or State authority, selected by the calculation agent.
If the substitute banks or trust companies selected by the calculation agent are
not quoting as mentioned in the preceding sentence, the Prime Rate will be the
Prime Rate in effect on such Interest Determination Date relating to a Prime
Rate Note.
The Interest Determination Date pertaining to an Interest Reset Date on a
Prime Rate Note is the Business Day before the applicable Interest Reset Date.
LIBOR Notes
LIBOR Notes bear interest at the interest rates calculated with reference
to LIBOR and the Spread or Spread Multiplier, if any, specified in the
applicable pricing supplement.
Unless otherwise indicated in the applicable pricing supplement, LIBOR,
with respect to any Interest Determination Date relating to a LIBOR Note will
equal the arithmetic mean as determined by the calculation agent of the offered
rates which appear as of 11:00 A.M., London time, on the Reuters Screen LIBOR
Page on the Reuter Monitor Money Rates Service for deposits in United States
dollars for the period of the Index Maturity specified in the applicable pricing
supplement commencing on the second day on which dealings in deposits in United
States dollars are transacted in the London interbank market (a "London Banking
Day") immediately following the applicable Interest Determination Date;
provided, however, that if fewer than two quotations appear, the calculation
agent will request the principal London office of four major banks in the London
interbank market selected by the calculation agent to provide the calculation
agent with a quotation of their offered rates at approximately 11:00 A.M.,
London time, on the applicable Interest Determination Date for deposits in
United States dollars for the period of the applicable Index Maturity and in a
principal amount equal to an amount that is representative for a single
transaction in such market at such time commencing on the second London Banking
Day immediately following the applicable Interest Determination Date. If at
least two quotations are provided, LIBOR for the applicable Interest
Determination Date will equal the arithmetic mean of the quotations. If fewer
than two quotations are provided, LIBOR for the applicable Interest
Determination Date will equal the arithmetic mean of the rates quoted by three
major banks in The City of New York, as selected by the calculation agent, at
approximately 11:00 A.M., New York City time, on the applicable Interest
Determination Date for loans to leading European banks in United States dollars
for the period of the applicable Index Maturity and in a principal amount equal
to an amount that is representative for a single transaction in such market at
such time commencing on the second London Banking Day following the Interest
Determination Date. If the banks selected by the calculation agent are not
quoting as mentioned in the preceding sentence, LIBOR for the applicable
Interest Determination Date will be LIBOR in effect on such Interest
Determination Date.
The Interest Determination Date pertaining to an Interest Reset Date on a
LIBOR Note is the second London Banking Day next preceding the applicable
Interest Reset Date.
Treasury Index Rate Notes
Treasury Index Rate Notes bear interest at the interest rates, calculated
with reference to the Treasury Index Rate and the Spread or Spread Multiplier,
if any, specified in the applicable pricing supplement.
Unless otherwise indicated in the pricing supplement, "Treasury Index Rate"
means, with respect to any Interest Determination Date relating to a Treasury
Index Rate Note, the per annum discount rate for direct obligations of the
United States with a maturity of thirteen weeks ("91-day Treasury bills"),
expressed as a bond equivalent on the basis of a year of 365 or 366 days, at the
91-day Treasury bill auction occurring on the applicable
12
<PAGE>
Interest Determination Date as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates", or any successor publication, under the heading "Treasury bills--auction
average (investment)" or if not published by 9:00 A.M. New York City time on the
calculation date as reported by the United States Department of the Treasury.
Treasury bills are usually sold at auction on Monday of each week unless that
day is a legal holiday in which case the auction is usually held on the
following Tuesday, except that the auction may be held on the preceding Friday.
The day of each auction of 91-day Treasury bills, unless otherwise
specified in the pricing supplement, is an Interest Determination Date provided
that the results of the auction are published or reported, and each Business Day
following such an Interest Determination Date is a Treasury Index Rate Note
Interest Reset Date. The rate of interest applicable to Treasury Index Rate
Notes will therefore not be reset during any period in which auctions are not
held or the results of auctions are not so published or reported.
Zero Coupon Notes
Notes which do not bear interest ("Zero Coupon Notes") were initially
offered at a substantial discount from their principal amount at maturity. There
are no periodic payments of interest. The calculation of the accrual of Original
Issue Discount, as defined below, in the period during which a Zero Coupon Note
remains outstanding, is on a semiannual bond equivalent basis using a year
composed of twelve 30-day months. Upon maturity, Original Issue Discount will
cease to accrue on a Zero Coupon Note.
Limitation of Claims in Bankruptcy: If a bankruptcy proceeding is commenced
in respect of ML&Co., the claim of the holder of a Zero Coupon Note with respect
to the principal amount thereof may, under Section 502(b)(2) of Title 11 of the
United States Code, be limited to the issue price of the Zero Coupon Note plus
that portion of the Original Issue Discount that is amortized from the date of
issue to the commencement of the proceeding.
OTHER TERMS
ML&Co. issued the notes as a series of securities under an Indenture, dated
as of April 1, 1983, as amended and restated (the "1983 Indenture"), between
ML&Co. and The Chase Manhattan Bank, as trustee. All of the securities issued
under the 1983 Indenture are referred to in this prospectus as the "senior debt
securities". A copy of the 1983 Indenture is filed as an exhibit to the
registration statement relating to the notes 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 definition of terms in the
1983 Indenture.
ML&Co. may issue series of senior debt securities from time to time under
the 1983 Indenture, without limitation as to aggregate principal amount, in one
or more series and upon such terms as ML&Co. may establish under to the
provisions of the 1983 Indenture.
The 1983 Indenture and the notes 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 reopen a previously issued series
of senior debt securities 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, since ML&Co. is a
holding company, the right 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 a bankruptcy court may recognize claims of ML&Co. itself as a creditor of
the subsidiary. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to ML&Co. are restricted
13
<PAGE>
by net capital requirements under the Securities Exchange Act of 1934, as
amended, and under rules of certain 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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to all
the senior debt securities; and
. perform and observe of all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
14
<PAGE>
. 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;
. 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;
. change the place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any senior debt security;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any senior debt security;
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. 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
15
<PAGE>
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 that series may waive any Event of Default
with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of the 1983 Indenture without the
consent of each holder of each outstanding security 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 notes 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.
16
<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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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, 20 Broad Street,
New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the notes. For further information on ML&Co. and the notes, 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 the
prospectus may not contain all the information that you may find important, you
should review the full text of these documents. We have included copies of these
documents as exhibits to our registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly report on Form 10-Q for the period ended March 31, 2000, June
30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29, 2000, July
18, 2000, August 2, 2000, August 4, 2000, September 13, 2000, October 6,
2000, October 17, 2000, November 1, 2000, November 20, 2000 and December
6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. 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
17
<PAGE>
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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
notes and is to be used by MLPF&S when making offers and sales related to
market-making transactions in the notes.
MLPF&S may act as principal or agent in these market-making transactions.
The distribution of the notes 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
18
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with the+
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is soliciting an offer to buy these +
+ securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
AMEX Oil Index(SM)
Stock Market Annual Reset Term(SM) Notes
due December 29, 2000
"SMART Notes(SM)"
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 SMART Notes.
The SMART Notes:
. 100% principal protection at maturity
. Interest payment on each June 30 and December 30
. We will pay interest on the SMART Notes at a rate equal to the
product of 85% and the percentage increase, if any, in the AMEX
Oil Index
. For each $1,000 principal amount of the SMART Notes that you
own, you will receive not less than $20 per year
. The SMART Notes are listed on the American Stock Exchange under
the symbol "MOI.F"
Investing in the SMART Notes involves risks.
See "Risk Factors" beginning on page 3.
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 SMART Notes will be the prevailing market price at
the time of sale.
________________________
Merrill Lynch & Co.
________________________
The date of this prospectus is , .
(SM)"SMART Notes" and "Stock Market Annual Reset Term" are service marks of
Merrill Lynch & Co., Inc.
(SM)"Oil Index" is a registered service mark of the American Stock Exchange,
Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS........................................................... 3
MERRILL LYNCH & CO., INC............................................... 6
RATIO OF EARNINGS TO FIXED CHARGES..................................... 7
DESCRIPTION OF THE SMART NOTES......................................... 8
THE AMEX OIL INDEX..................................................... 13
OTHER TERMS............................................................ 15
WHERE YOU CAN FIND MORE INFORMATION.................................... 19
INCORPORATION OF INFORMATION WE FILE WITH THE SEC...................... 19
PLAN OF DISTRIBUTION................................................... 20
EXPERTS................................................................ 20
</TABLE>
2
<PAGE>
RISK FACTORS
Your investment in the SMART Notes will involve risks. You should
carefully consider the following discussion of risks before investing in the
SMART Notes. In addition, you should reach an investment decision with regard
to the SMART Notes only after consulting with your legal and tax advisers and
considering the suitability of the SMART Notes in the light of your particular
circumstances.
You may not earn a return on your investment
If the arithmetic mean of the quarterly closing values of the AMEX Oil
Index applicable to each December payment date, determined in the manner set
forth in this prospectus, does not exceed the closing value of the AMEX Oil
Index on the last business day of the immediately preceding calendar year by
more than approximately 2.35%, at maturity you receive no more than $20 for each
$1,000 principal amount of your SMART Notes on that December payment date. This
will be true even if at some point during the time the calculation agent
determines the interest payable on the SMART Notes for each December payment
date, the arithmetic mean of the quarterly closing values of the AMEX Oil Index
for that year exceeded the closing value of the AMEX Oil Index on the last
business day of the immediately preceding calendar year by more than 2.35%.
You will receive no less than $20 for each $1,000 principal amount of your
SMART Notes and we will repay you 100% of the principal amount of your SMART
Notes at maturity. Therefore, the amount that 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 senior non-callable debt
security of Merrill Lynch & Co., Inc. 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.
The amount payable on the SMART Notes based on the AMEX Oil Index will not
produce the same return as if you purchased the stocks underlying the AMEX Oil
Index and held them for a similar period because of the following:
. the AMEX Oil Index does not reflect the payment of dividends on the
stocks underlying it,
. the annual amount payable is limited to 85% multiplied by the percentage
increase in the AMEX Oil Index during any relevant period, but will not
be less than $20 per $1,000 principal amount of the SMART Notes,
. the arithmetic mean of the quarterly closing values of the AMEX Oil
Index for each calendar year may not reflect the full percentage
increase in the AMEX Oil Index during any relevant period because it is
an average of the AMEX Oil Index at various points in time, and
. the amounts payable on the SMART Notes do not reflect changes in the
AMEX Oil Index for the period between the determination of the
arithmetic mean of the quarterly closing values of the AMEX Oil Index
applicable to each December payment date and the determination of the
closing value of the AMEX Oil Index on the last business day of the
preceding calendar year for the next December payment date.
There may be an uncertain trading market for the SMART Notes in the future
Although the SMART Notes are listed on the AMEX under the symbol "MOI.F,"
you cannot assume that a trading market will continue to exist for the SMART
Notes. If a trading market does continue to exist, there can be no assurance
that there will be liquidity in the trading market. The continued existence of
a trading market for the SMART Notes will depend on our financial performance,
and other factors, such as the increase, if any, in the value of the index. We
expect that the secondary market for the SMART Notes, including prices in that
market, will likely be affected by our creditworthiness and by a number of other
factors. It is possible to view the SMART Notes as the economic equivalent of a
debt obligation plus a series of cash settlement options; however, the SMART
Notes may
3
<PAGE>
trade in the secondary market at a discount from the aggregate value of these
economic components, if these economic components were valued and capable of
being traded separately.
If the trading market for the SMART Notes is limited and you do not wish to
hold your investment until maturity, there may be a limited number of buyers for
your SMART Notes. This may affect the price you receive if you sell before
maturity.
Many factors affect the trading value of the SMART Notes; 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 SMART Notes 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 SMART
Notes caused by another factor and that the effect of one factor may magnify the
decrease in the trading value of the SMART Notes 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 SMART Notes attributable to another factor,
such as an increase in the value of the index.
Relative level of the AMEX Oil Index. We expect that the trading value of
the SMART Notes will depend significantly on the extent of the excess of the
expected average of the quarterly closing values of the AMEX Oil Index for a
calendar year over the closing value of the AMEX Oil Index on the last business
day of the preceding calendar year. If, however, you sell your SMART Notes at a
time when this excess exists, the price you receive may nevertheless be at a
discount from the amount expected to be payable if this excess were to prevail
until the next December payment date. Furthermore, the price at which you will
be able to sell SMART Notes before a December payment date may be at a discount,
which could be substantial, from the principal amount of your SMART Notes, if,
at that time, the AMEX Oil Index is below, equal to or not sufficiently above
the closing value of the AMEX Oil Index on the last business day of the
immediately preceding calendar year before that December payment date. The level
of the AMEX Oil Index will depend on the prices of the stocks underlying the
AMEX Oil Index which, in turn, will be affected by factors affecting the oil
industry, see "The AMEX Oil Index--Oil Industry Sector".
Changes in the volatility of the index are expected to affect the trading
value of the SMART Notes. If the volatility of the AMEX Oil Index increases, we
expect the trading value of the SMART Notes to increase. If the volatility of
the AMEX Oil Index decreases, we expect the trading value of the SMART Notes to
decrease.
Changes in the levels of U.S. interest rates are expected to affect the
trading value of the SMART Notes. In general, if U.S. interest rates increase,
we expect the value of the SMART Notes to decrease. If U.S. interest rates
decrease, we expect the value of the SMART Notes to increase. Interest rates may
also affect the U.S. economy, and, in turn, the level of the AMEX Oil Index.
Rising interest rates may lower the level of the AMEX Oil Index and, thus, the
value of the SMART Notes. Falling interest rates may increase the level of the
AMEX Oil Index and, thus, may increase the value of the SMART Notes.
Time remaining to December payment dates. We anticipate that before each
December payment date, the SMART Notes may trade at a value above which may be
inferred from the level of U.S. interest rates and the AMEX Oil Index. This
difference will reflect a "time premium" due to expectations concerning the
level of the AMEX Oil Index during the period before each December payment date.
As the time remaining to each December payment date decreases, however, this
time premium may decrease, thus decreasing the trading value of the SMART Notes.
As the time remaining to maturity of the SMART Notes decreases, the "time
premium" associated with the SMART Notes will decrease. As the number of
remaining December payment dates decreases, the cumulative value of all the
annual rights to receive an amount that reflects participation in the payments
in excess of the minimum annual interest payment of $20 per $1,000 principal
amount will decrease, thus decreasing the value of the SMART Notes.
Changes in dividend yields of the stocks included in the index are expected
to affect the trading value of the SMART Notes. A number of complex
relationships between the relative values of the SMART Notes and
4
<PAGE>
dividend rates are likely to exist. If dividend rates on the stocks comprising
the AMEX Oil Index increase, the value of the annual right to receive an amount
that reflects participation in the average appreciation of the AMEX Oil Index
above the annual starting value is expected to decrease, and consequently, we
expect the value of the SMART Notes to decrease. Conversely, if dividend rates
on the stocks comprising the AMEX Oil Index decrease, the value of the annual
right to receive such an amount is expected to increase and, therefore, the
value of the SMART Notes is expected to increase. In general, however, because
the majority of issuers of stocks underlying the AMEX Oil Index are organized in
the United States, rising U.S. corporate dividend rates may increase the AMEX
Oil Index and, in turn, increase the value of the SMART Notes. Conversely,
falling U.S. dividend rates may decrease the AMEX Oil Index and, in turn,
decrease the value of the SMART Notes.
Changes in our credit ratings may affect the trading value of the SMART
Notes. Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
may affect the trading value of the SMART Notes. However, because your return
on your SMART Notes is dependent upon factors in addition to our ability to pay
our obligations under the SMART Notes, such as the percentage increase in the
value of the index at maturity, an improvement in our credit ratings will not
reduce investment risks related to the SMART Notes.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the SMART Notes of a given change in most of
the factors listed above will be less if it occurs later in the term of the
SMART Notes than if it occurs earlier in the term of the SMART Notes. However,
we expect that the effect on the trading value of the SMART Notes of a given
increase in the value of the index will be greater if it occurs later in the
term of the SMART Notes than if it occurs earlier in the term of the SMART
Notes.
Amounts payable on the MITTS Securities may be limited by state law
The indenture under which the SMART Notes are issued is governed by New
York State law. 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 SMART
Notes. Under present New York law, the maximum rate of interest is 25% per annum
on a simple interest basis. This limit may not apply to debt securities in which
$2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for the benefit of the holders of the SMART Notes, to the
extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
5
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services ;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
SMART Notes described in this prospectus.
6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
7
<PAGE>
DESCRIPTION OF THE SMART NOTES
The SMART Notes were issued as a series of Senior Debt Securities under the
1983 Indenture which is more fully described this prospectus.
The SMART Notes will mature, and the principal of the SMART Notes will be
repayable at par, on December 29, 2000.
The SMART Notes are not subject to redemption before maturity by ML&Co. or
at the option of any beneficial owner. Upon the occurrence of an Event of
Default with respect to the SMART Notes, however, beneficial owners of the SMART
Notes or the Trustee may accelerate the maturity of the SMART Notes, as
described under "Description of SMART Notes--Events of Default and Acceleration"
and "Other Terms--Events of Default" in this prospectus.
The SMART Notes are transferable in denominations of $1,000 and integral
multiples of $1,000.
Interest Payments
For each full calendar year, ML&Co. will pay interest in an amount equal to
the following for each $1,000 principal amount of SMART Notes:
$1,000 x Average Percent Change x Participation Rate
provided, however, that the per annum amount payable as a result of the
foregoing on the SMART Notes will not be less than the Minimum Annual Payment of
$20 per $1,000 principal amount of SMART Notes on a per annum basis or 2% per
annum.
The "Participation Rate" equals 85%.
The "Average Percent Change" applicable to the determination of the amount
payable in any calendar year will equal:
Ending Average Value - Starting Annual Value
--------------------------------------------
Starting Annual Value
The "Starting Annual Value" applicable to the determination of the amount
payable in a calendar year will equal the closing value of the AMEX Oil Index on
the last AMEX Business Day in the immediately preceding calendar year as
determined by State Street Bank and Trust Company or the calculation agent.
The "Ending Average Value" applicable to the determination of the amount
payable in a calendar year will equal the arithmetic average or arithmetic mean
of the Quarterly Values of the AMEX Oil Index for each calendar quarter during
such year as determined by the calculation agent.
The "Quarterly Value" for any of the first three calendar quarters in a
calendar year will be the closing value of the AMEX Oil Index on the last
scheduled AMEX Business Day in any such calendar quarter; provided, however,
that if a Market Disruption Event has occurred on the last scheduled AMEX
Business Day in that calendar quarter, the Quarterly Value for that calendar
quarter will be the closing value of the AMEX Oil Index on the next succeeding
scheduled AMEX Business Day regardless of whether a Market Disruption Event
occurs on that day.
The "Quarterly Value" for the fourth calendar quarter in a calendar year
will be the closing value of the AMEX Oil Index on the seventh scheduled AMEX
Business Day preceding the end of that calendar quarter; provided, however, that
if a Market Disruption Event has occurred on the seventh scheduled AMEX Business
Day, the Quarterly Value for that calendar quarter will be the closing value of
the AMEX Oil Index on the sixth scheduled AMEX Business Day preceding the end of
that calendar quarter regardless of whether a Market Disruption Event occurs on
that day. The calculation agent will determine scheduled AMEX Business Days.
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If the Ending Average Value applicable to the applicable December payment
date does not exceed the Annual Starting Value by more than approximately 2.35%,
beneficial owners of the SMART Notes will receive only the Minimum Annual
Payment on that December payment date, even if the value of the AMEX Oil Index
at some point between the determination of the applicable Starting Annual Value
and the determination of the applicable Ending Average Value exceeded that
Starting Annual Value by more than approximately 2.35%.
"Calculation Day" is any day on which a Starting Annual Value or a closing
value of the AMEX Oil Index for a calendar quarter is required to be calculated.
An "AMEX Business Day" is a day on which the AMEX is open for trading. All
determinations made by the calculation agent shall be at the sole discretion of
the calculation agent and, in the absence of manifest error, shall be conclusive
for all purposes and binding on ML&Co. and beneficial owners of the SMART Notes.
All percentages resulting from any calculation on the SMART Notes will be
rounded to the nearest one hundred-thousandth of a percentage point, with five
one millionths of a percentage point rounded upwards, e.g., 9.876545% or
.09876545 would be rounded to 9.87655% or .0987655, and all dollar amounts used
in or resulting from any calculation will be rounded to the nearest cent with
one-half cent being rounded upwards.
Adjustments to the Index; Market Disruption Event
If at any time the method of calculating the AMEX Oil Index, or its value,
is changed in a material respect, or if the AMEX Oil Index is in any other way
modified so that the index does not, in the opinion of the calculation agent,
fairly represent the value of the AMEX Oil Index had no changes or modifications
been made, then, from and after that time, the calculation agent shall, at the
close of business in New York, New York, on each Calculation Day, 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 AMEX Oil Index as if no changes or modifications had been
made, and calculate the closing value with reference to the AMEX Oil Index, as
adjusted. Accordingly, if the method of calculating the AMEX Oil Index is
modified so that the value of the 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 in the index,
then the calculation agent shall adjust the index in order to arrive at a value
of the AMEX Oil 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) the suspension or material limitation on trading during the last
half hour of trading in any of the component stocks, or
depository receipts representing those stocks, included in the
AMEX Oil Index on any national securities exchange in the United
States, or
(b) the suspension or material limitation, in each case during the
last half hour of trading whether by reason of movements in price
exceeding levels permitted by the relevant exchange or otherwise,
in:
. futures contracts related to the AMEX Oil Index which are
traded on any exchange or board of trade in the United States,
or
. option contracts related to the AMEX Oil Index which are
traded on the AMEX.
For the purposes of clause (a) above, any limitations on trading during
significant market fluctuations under New York Stock Exchange Rule 80A, or any
applicable rule or regulation enacted or promulgated by the NYSE, the AMEX or
any other self regulatory organization or the SEC of similar scope as determined
by the calculation agent, will be considered ''material''.
For the purposes of this definition, 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.
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Interest Payment Dates
ML&Co. will make semiannual interest payments on the SMART Notes on June 30
of each year ("June Payment Dates") and December 31 of each year and at maturity
("December Payment Dates"), except as described in this prospectus, to the
persons in whose names the SMART Notes are registered on the immediately
preceding June 29 or December 30, and, at maturity, to the person to whom the
principal is payable. For each Note, ML&Co. will pay half of the Minimum Annual
Payment for each calendar year on the June Payment Date, and will pay the
balance of the annual amount payable on each Note for that year on the December
Payment Date.
Notwithstanding the foregoing, if it is known at least three Business Days
before December 31 that December 31 will not be a Business Day, the amount
payable by ML&Co. with respect to a December Payment Date for the SMART Notes
will be made on the Business Day immediately preceding that December 31 to the
persons in whose names the SMART Notes are registered on the second Business Day
immediately preceding that December 31.
Discontinuance of the AMEX Oil Index
If the AMEX discontinues publication of the AMEX Oil Index and the AMEX or
another entity publishes a successor or substitute index that the calculation
agent determines, in its sole discretion, to be comparable to the AMEX Oil 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 the AMEX or any other entity for the AMEX
Oil Index and calculate the annual amount payable as described above under
"Interest Payments". Upon any selection by the calculation agent of a Successor
Index, ML&Co. shall cause notice to be given to holders of the SMART Notes.
If the AMEX discontinues publication of the AMEX Oil 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 substituted for the AMEX Oil Index for
any Calculation Day used to calculate the annual amount payable will be a value
computed by the calculation agent for each Calculation Day in accordance with
the procedures last used to calculate the AMEX Oil Index before any
discontinuance. If a Successor Index is selected or the calculation agent
calculates a value as a substitute for the AMEX Oil Index the Successor Index or
value shall be substituted for the AMEX Oil Index for all purposes, including
for purposes of determining whether a Market Disruption Event exists.
If the AMEX discontinues publication of the AMEX Oil Index before the
period during which the amount payable with respect to any year is to be
determined and the calculation agent determines that no Successor Index is
available at that time, then on each AMEX Business Day until the earlier to
occur of:
(a) the determination of the amount payable with respect to that year or
(b) 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 amount payable with respect to that year 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 arrange for information with respect to these values
to be made available by telephone. Notwithstanding these alternative
arrangements, discontinuance of the publication of the AMEX Oil Index may
adversely affect trading in the SMART Notes.
Events of Default and Acceleration
In case an Event of Default with respect to any SMART Notes shall have
occurred and be continuing, the amount payable to a beneficial owner of a Note
upon any acceleration permitted by the SMART Notes, will equal:
(a) the principal amount of each SMART Note, plus
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(b) an additional amount, if any, of interest calculated as though the
date of early repayment were a December Payment Date and prorated
through the date of early repayment on the basis of a year consisting
of 360 days of twelve 30-day months.
If Quarterly Values have been calculated before the early redemption date for
the calendar year in which any early redemption date occurs, these Quarterly
Values shall be averaged with the value of the AMEX Oil Index determined with
respect to that date of early redemption. If no Quarterly Values have been
calculated before the early redemption date for the calendar year in which the
early redemption date occurs, the Ending Average Value for that calendar year
will be the value of the AMEX Oil Index determined with respect to the date of
early redemption. The Minimum Supplemental Redemption Amount with respect to any
early redemption date will be an amount equal to the interest which would have
accrued on the SMART Notes from and including January 1 in the calendar year in
which the early redemption date occurs, to but excluding the date of early
redemption at an annualized rate of 2%, calculated on a semiannual bond
equivalent basis.
If a bankruptcy proceeding is commenced in respect of ML&Co., the claim of
the beneficial owner of a Note may be limited, under Section 502(b)(2) of Title
11 of the United States Code, to the principal amount of the Note plus an
additional amount, if any, of contingent interest calculated as though the date
of the commencement of the proceeding were the maturity date of the SMART Notes.
In case of default in payment at the maturity date of the SMART Notes
whether at their stated maturity or upon acceleration, from and after the
maturity date the SMART Notes shall bear interest, payable upon demand of the
holders, at the rate of 7% per annum to the extent that payment of interest
shall be legally enforceable, on the unpaid amount due and payable on that date
in accordance with the terms of the SMART Notes to the date payment of that
amount has been made or duly provided for.
Global Securities
Description of the Global Securities.
Beneficial owners of the SMART Notes may not receive physical delivery of
the securities nor may they be entitled to have the securities registered in
their names. The SMART Notes are represented by one or more fully registered
global securities. Each global security has been deposited with, or on behalf
of, The Depository Trust Company or 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 SMART Notes in definitive form, no global security may be transferred
except as a whole by the depositary to a nominee of the depositary or by a
nominee of the depositary to such depositary or another nominee of the
depositary or by the depositary or any nominee to a successor of such 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 SMART Notes represented by a global security for all purposes
under the 1983 Indenture. Except as provided below, the beneficial owners of the
securities represented by a global security are not entitled to have the SMART
Notes represented by the global security registered in their names, will not
receive or be entitled to receive physical delivery of the SMART Notes in
definitive form and are not considered the owners or holders under the 1983
Indenture, including for purposes of receiving any reports delivered by ML&Co.
or the trustee under the 1983 Indenture. Accordingly, each person owning a
beneficial interest in a global security must rely on the procedures of DTC and,
if that person is not a participant of DTC on the procedures of the participant
through which that person owns its interest, to exercise any rights of a Holder
under the 1983 Indenture. ML&Co. understands that under existing industry
practices, in the event that ML&Co. requests any action of holders or that an
owner of a beneficial interest in a global security desires to give or take any
action which a holder is entitled to give or take under the 1983 Indenture, DTC
would authorize the participants holding the relevant beneficial interests to
give or take action, and those participants would authorize beneficial owners
owning through those participants to give or take action or would otherwise act
upon the instructions of beneficial owners. Conveyance of notices and other
communications by DTC to participants, by participants to indirect participants
and by participants and indirect participants to beneficial owners are governed
by arrangements among them, subject to any statutory or regulatory requirements
as may be in effect from time to time.
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DTC Procedures
The following is based on information furnished by DTC:
DTC is the securities depositary for the securities. The securities have
been issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One or more fully registered global securities have
been issued for the SMART Notes in the aggregate principal amount of that issue,
and has been 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 Exchange Act. 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 securities under DTC's system must be made by or through
direct participants, which will receive a credit for the 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
participants or indirect participants through which such beneficial owner
entered into the transaction. Transfers of ownership interests in the securities
are to be accomplished by entries made on the books of participants acting on
behalf of beneficial owners.
To facilitate subsequent transfers, all securities deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
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 securities; DTC's records reflect only the identity of the direct
participants to whose accounts such securities are credited, which may or may
not be the beneficial owners. The participants are 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 and
indirect participants to beneficial owners are 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
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 securities are
credited on the record date.
Principal, premium, if any, and/or interest, if any, payments on the SMART
Notes will be made in immediately available funds to DTC. DTC's practice is to
credit direct participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the depositary's records
unless DTC has reason to believe that it will not receive payment on 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 is the responsibility of DTC, and disbursement
of such payments to the beneficial owners is the responsibility of direct and
indirect participants.
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Exchange for Certificated Securities
If
(a) 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,
(b) ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, and
(c) an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the securities,
the global securities will be exchangeable for securities in definitive form of
like tenor and of an equal aggregate principal amount, in denominations of
$1,000 and integral multiples of $1,000. The definitive securities will be
registered in such name or names as the depositary shall instruct the trustee.
It is expected that such instructions may be based upon directions received by
the depositary from participants with respect to ownership of beneficial
interests in the global securities.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, SMART Notes in definitive
form 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.
THE AMEX OIL INDEX
The AMEX Oil Index is a price-weighted stock index, i.e., an Underlying
Stock's weight in the index is based on its price per share rather than the
total market capitalization of the issuer, calculated, published and
disseminated by the AMEX that measures the composite price performance of
selected common stocks of widely-held corporations involved in various segments
of the oil industry. The AMEX Oil Index was originally published by the AMEX as
the Oil and Gas Index. In September 1984, the AMEX changed the Oil and Gas Index
from a market-weighted index to a price-weighted index and deleted all companies
engaged exclusively in gas exploration and production activities. The Oil and
Gas Index was then renamed the Oil Index. At March 24, 1994, the calculation of
the value of the AMEX Oil Index was based on the relative value of the aggregate
market price of the common stocks of sixteen companies engaged in various
segments of the oil industry.
The AMEX may from time to time, with approval of the SEC, add companies to,
or delete companies from, the AMEX Oil Index to fulfill the above-stated
intention of providing an indication of price movements of common stock of
corporations engaged in various segments of the oil industry. The level of the
AMEX Oil Index is calculated once per day using last sale prices only, i.e., not
special "bid quotes" or special "ask quotes" which are used in connection with
other stock indices.
The level of the AMEX Oil Index is disseminated via the Consolidated Tape
Authority Network-B also known as the "AMEX Tape". The AMEX Tape Symbol for the
AMEX Oil Index is "XOI".
Computation of the AMEX Oil Index
At March 24, 1994, the AMEX computed the AMEX Oil Index as of a particular
time as follows:
(a) the market price of one share of each component stock is determined as
of such time;
(b) the market prices of all component stocks as of such time (as
determined under clause (a) above) are aggregated;
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(c) the aggregate amount (as determined under clause (b) above) is divided
by 3.47874.
While the AMEX employed the above methodology to calculate the AMEX Oil
Index at March 24, 1994, no assurance can be given that the AMEX will not modify
or change such methodology in a manner that may affect the amounts payable on
any December Payment Date to beneficial owners of the SMART Notes.
In order to maintain continuity in the level of the AMEX Oil 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 AMEX Oil Index is adjusted in a manner designed
to prevent any instantaneous change or discontinuity in the level of the AMEX
Oil Index. Thereafter, the divisor remains at the new value until a further
adjustment is necessary as the result of another change. As a result of each
such change affecting any component stock, the divisor is adjusted in such a way
that the level of the AMEX Oil Index immediately after any change will equal the
level of the AMEX Oil Index immediately prior to the change.
Component stocks may be deleted or added by the AMEX with approval of the
SEC. However, to maintain continuity in the AMEX Oil Index, the policy of the
AMEX is generally not to alter the composition of the component stocks except
when a component stock is deleted due to:
(a) bankruptcy of the issuer,
(b) merger of the issuer with, or acquisition of the issuer by, another
company,
(c) delisting of such stock, or
(d) failure of such stock to meet, upon periodic review by the AMEX,
market value and trading volume criteria established by the AMEX (as
such may change from time to time).
Upon deletion of a stock from the component stocks, the AMEX may select a
suitable replacement for such deleted component stock. The policy of the AMEX is
to announce any such change in advance via distribution of an information
circular.
The use of and reference to the AMEX Oil Index in connection with the SMART
Notes has been consented to by the AMEX, the publisher of the AMEX Oil Index
and, in connection with that consent, the AMEX has requested that the following
information appear in this prospectus. The AMEX is under no obligation to
continue the calculation and dissemination of the AMEX Oil Index. The SMART
Notes are not sponsored, endorsed, sold or promoted by the AMEX. No inference
should be drawn from the information contained in this prospectus that the AMEX
makes any representation or warranty, implied or express, to ML&Co., beneficial
owners of the SMART Notes or any member of the public regarding the advisability
of investing in securities generally or in the SMART Notes in particular or the
ability of the AMEX Oil Index to track general stock market performance. The
AMEX has no obligation to take the needs of ML&Co. or beneficial owners of the
SMART Notes into consideration in determining, composing or calculating the AMEX
Oil Index. The AMEX is not responsible for, and has not participated, in the
determination or calculation of the equation by which the SMART Notes with
respect to the annual payments will be determined. The AMEX has no obligation or
liability in connection with the administration, marketing or trading of the
SMART Notes. The AMEX disclaims all responsibility for any errors or omissions
in the calculation and dissemination of the AMEX Oil Index or the manner in
which the index is applied in determining the annual payments with respect to
the SMART Notes.
None of ML&Co., the calculation agent, MLPF&S nor the trustee accepts any
responsibility for the calculation, maintenance or publication of the AMEX Oil
Index or any Successor Index.
You should review the historical prices of the securities underlying the
Amex Oil Index. The historical prices of the securities should not be taken as
an indication of future performance, and no assurance can be given that the
prices of the securities will increase sufficiently to cause the beneficial
owners of the SMART Notes to
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receive an amount in excess of the Minimum Annual Payment on any December
Payment Date and at the maturity of the SMART Notes.
Oil Industry Sector
The oil industry is subject to varying degrees of regulatory, political and
economic risk which may affect the price of the stocks of the companies in the
industry. These risks depend on a number of factors including the countries in
which a particular company conducts its activities, evolving levels of
governmental regulation, and litigation with respect to environmental and other
matters. All segments of the oil industry are competitive, including
manufacturing, distribution and marketing of petroleum products and
petrochemicals. In addition, the oil industry competes with other industries in
supplying the energy needs of various types of consumers. Refining margins or
the difference between the price of products and the price of crude oil, and
marketing margins or the difference between the wholesale and retail price of
petroleum products, also affect companies engaged in the oil industry.
The profitability of companies engaged in the oil industry is directly
affected by the worldwide price of oil and related petroleum products which, in
turn, depends upon the worldwide demand for oil and related petroleum products.
Environmental regulation is a significant factor affecting profitability of
companies engaged in the oil industry. In the U.S., companies engaged in the oil
industry are subject to substantial environmental regulation by federal, state,
and local authorities. Federal regulations include the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended or
also known as CERCLA or Superfund, the Superfund Amendments and Reauthorizations
Act of 1986, and the Resource Conservation Recovery Act of 1976.
In the United States and elsewhere, various laws and regulations are either
now in force, in standby status or under consideration, with respect to such
matters as price controls, crude oil and refined product allocations, refined
product specifications, environmental, health and safety regulations,
retroactive and prospective tax increases, cancellation of contract rights,
expropriation of property, divestiture of certain operations, foreign exchange
rate restrictions as to the convertibility of currencies, tariffs and other
international trade restrictions. Other regulations such as the U.S. Federal
Clean Air Act Amendments of 1990 may have a substantial impact on companies
engaged in the oil industry despite the fact that they do not impose direct
regulations. Finally, regional regulations like those proposed by California's
South Coast Air Quality Management District may have substantial effects on the
oil industry as well.
OTHER TERMS
The SMART Notes 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 SMART Notes
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 SMART Notes 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.
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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 is
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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe of all of ML&Co.'s obligations under the 1983
Indenture, and
. 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.
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<PAGE>
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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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
17
<PAGE>
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 senior debt securities may
waive an Event of Default for that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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 SMART Notes 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.
18
<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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 have filed a registration statement on Form S-3 with the SEC covering
the SMART Notes and other securities. For further information on ML&Co. and the
SMART Notes, 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 the prospectus may not contain all the information
that you may find important, you should review the full text of these documents.
We have included copies of these documents as exhibits to our registration
statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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
19
<PAGE>
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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
SMART Notes and is to be used by MLPF&S when making offers and sales related to
market-making transactions in the SMART Notes.
MLPF&S may act as principal or agent in these market-making transactions.
The SMART Notes may be offered on the AMEX or off the exchange in
negotiated transactions or otherwise.
The distribution of the SMART Notes 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
20
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
-----------
Merrill Lynch & Co., Inc.
S&P 500 Market Index Target-Term Securities(R)
due May 10, 2001
"MITTS(R) Securities"
$10 principal amount
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>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the S&P 500 Index. any, in the value of the index, adjusted as described
. The MITTS Securities are listed on the New York in this prospectus.
Stock Exchange under the symbol "MIX". . You will receive no less than the principal amount
of your MITTS Securities.
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , .
"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 ML&Co. is an authorized
sublicensee.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS........................................................ 3
MERRILL LYNCH & CO., INC............................................ 6
RATIO OF EARNINGS TO FIXED CHARGES.................................. 7
DESCRIPTION OF THE MITTS SECURITIES................................. 8
THE INDEX........................................................... 14
OTHER TERMS......................................................... 16
WHERE YOU CAN FIND MORE INFORMATION................................. 19
INCORPORATION OF INFORMATION WE FILE WITH THE SEC................... 19
PLAN OF DISTRIBUTION................................................ 20
EXPERTS............................................................. 20
</TABLE>
2
<PAGE>
RISK FACTORS
Your investment in 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 at maturity we will pay you no more than $10 for
each unit of the MITTS Securities you own if the average value of the index over
five trading days shortly before the maturity date is less than 638.26, the
value of the index on the date the MITTS Securities were priced. This will be
true even if at some time during the life of the MITTS Securities, the value of
the index, as adjusted, was higher than 638.26 but later falls below 638.26.
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 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
index
Your return will not reflect the return you would realize if you actually
owned the stock underlying the index and received the dividends paid on those
stocks because the index does not reflect the payment of dividends on the stocks
underlying it.
There may be an uncertain trading market for the MITTS Securities in the future
Although the MITTS Securities are listed on the NYSE under the symbol "IX,"
you cannot assume that a trading market will continue to exist for the MITTS
Securities. If a trading market in the MITTS Securities continues to exist, you
cannot assume that there will be liquidity in the trading market. The continued
existence of a trading market for the MITTS Securities will depend on our
financial performance and other factors such as the appreciation, if any, of the
value of the index.
If a limited trading market for the MITTS Securities exists, and you do not
wish to hold your investment until maturity, fewer buyers may want to purchase
your MITTS Securities. This may affect the price you receive if you sell before
maturity.
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
magnify 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 index. The following
paragraphs describe the expected effect on the trading value of the MITTS
Securities given a change in a specific factor, assuming all other conditions
remain constant:
3
<PAGE>
Changes in the levels of U.S. 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 the trading
value of the MITTS Securities will likely be affected by changes in interest
rates. In general, we anticipate that if U.S. interest rates increase, the
trading value of the MITTS Securities will decrease. If U.S. interest rates
decrease, we expect the trading value of the MITTS Securities to increase.
Interest rates may also affect the U.S. economy, and, in turn, the value of the
index. Rising interest rates may lower the value of the index and, thus, the
MITTS Securities. Falling interest rates may increase the value of the index
and, thus, may increase the value of the MITTS Securities.
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. If the volatility of the index increases, we
expect that the trading value of the MITTS Securities will increase. If the
volatility of the 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 believe
that before maturity the MITTS Securities may trade at a value above that which
you may expect based upon the level of interest rates and the index. This
difference will reflect a "time premium" due to expectations concerning the
value of the index during the period prior to maturity of the MITTS Securities.
As the time remaining to maturity of the MITTS Securities decreases, however, we
expect this time premium to decrease, thus decreasing the trading value of the
MITTS Securities. In addition, the price at which you may be able to sell MITTS
Securities prior to maturity may be at a discount, which may be substantial,
from the principal amount of the MITTS Securities if the value of the index is
below, equal to, or not sufficiently above 638.26.
Changes in dividend yields of the stocks included in the index are expected
to affect the trading value of the MITTS Securities. If dividend rates on the
stocks included in the index increase, we expect the value of the MITTS
Securities to decrease. Conversely, if dividend rates on the stocks included in
the index decrease, we expect the value of the MITTS Securities to increase.
However, in general, rising U.S. corporate dividend rates may increase the value
of the index and, in turn, increase the value of the MITTS Securities.
Conversely, falling U.S. dividend rates may decrease the value of the index and,
in turn, decrease the value of the MITTS Securities.
In general, assuming all relevant factors are held constant, the effect on
the trading value of the MITTS Securities of a given change in interest rates,
index volatility and/or dividend rates of stocks comprising the index is
expected to 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. We expect that the
effect on the trading value of the MITTS Securities of a given appreciation of
the index in excess of 638.26 to 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, assuming all other relevant factors are held constant.
Amounts payable on the MITTS Securities may be limited by state law
New York State laws govern the indenture under which the MITTS Securities
were 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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
The Index
Political, economic and other developments that affect the stocks included
in the index may adversely affect the value of the index and therefore the value
of the MITTS Securities.
4
<PAGE>
Potential conflicts
Our wholly-owned subsidiary, Merrill Lynch, Pierce, Fenner & Smith or
MLPF&S, or its affiliates may from time to time engage in transactions involving
the stocks underlying the index for their proprietary accounts and for other
accounts under their management, which may influence the value of these stocks
and therefore the value of the MITTS Securities. MLPF&S and its affiliates will
also be the counterparties to the hedge of ML&Co.'s obligations under the MITTS
Securities. Accordingly, under some circumstances, conflicts of interest may
arise between MLPF&S's responsibilities as calculation agent with respect to the
MITTS Securities and its obligations under its hedge and its status as a
subsidiary of ML&Co. Under some circumstances, the duties of MLPF&S as
calculation agent could conflict with the interests of MLPF&S as an affiliate of
the issuer of the MITTS Securities, Merrill Lynch & Co., Inc., and with the
interests of the holders of the MITTS Securities.
5
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
7
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On May 13, 1996, ML&Co. issued $110,000,000 aggregate principal amount of
S&P 500 MITTS Securities due May 10, 2001. 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 May 10, 2001.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of the MITTS Security plus the Supplemental Redemption Amount
described below, 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. Upon the occurrence of an Event
of Default 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.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of each unit plus the Supplemental
Redemption Amount, if any, all as provided below. If the Ending Index Value does
not exceed the Starting Index Value, a beneficial owner of a MITTS Security will
be entitled to receive only the principal amount of its MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<S> <C> <C>
Principal Amount X Ending Index Value--Starting Index Value X Participation Rate
----------------------------------------
Starting Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Index Value" equals 638.26, which was the closing value of
the S&P 500 Index (the "Index") on the date the MITTS Securities were priced by
ML&Co. for initial sale to the public (the "Pricing Date").
The "Participation Rate" equals 110%.
The "Ending Index Value" will be determined by the calculation agent and
will equal the average or arithmetic mean of the closing values of the 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 Index
Value will equal the average or arithmetic mean of the closing values of the
Index on these Calculation Days. If there is only one Calculation Day, then the
Ending Index Value will equal the closing value of the Index on that Calculation
Day. If no Calculation Days occur during the Calculation Period because of
Market Disruption Events, then the Ending Index Value will equal the closing
value of the Index determined on the last scheduled Index Business Day in the
Calculation Period, regardless of the occurrences of a Market Disruption Event
on that day.
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.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
8
<PAGE>
For purposes of determining the Ending Index Value, an "Index Business Day"
is a day on which the New York Stock Exchange and the American Stock Exchange
are open for trading and the Index or any Successor Index, as defined below, 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 purpose and
binding on ML&Co. and beneficial owners of the MITTS Securities.
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending Index
Values,
. the total amount payable at maturity for each $10 principal amount of
MITTS Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
underlying the Index, which includes an assumed aggregate dividend yield
of 2.20% per annum, as more fully described below.
<TABLE>
<CAPTION>
Total Amount Pretax Pretax Annualized
Percentage Change Payable at Maturity Annualized Rate Rate of Return of
Hypothetical Ending Over the Starting Per $10 Principal of Return on Stocks Underlying
Index Value Index Value Amount of Securities the Securities(1) the Index(1)(2)
----------- ----------- -------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
319.13 -50% $10.00 0.00% -11.41%
382.96 -40% $10.00 0.00% -7.89%
446.78 -30% $10.00 0.00% -4.89%
510.61 -20% $10.00 0.00% -2.25%
574.43 -10% $10.00 0.00% 0.09%
638.26(3) 0% $10.00 0.00% 2.21%
702.09 10% $11.10 2.10% 4.15%
765.91 20% $12.20 4.02% 5.94%
829.74 30% $13.30 5.80% 7.61%
893.56 40% $14.40 7.44% 9.16%
957.39 50% $15.50 8.97% 10.62%
1,021.22 60% $16.60 10.42% 12.00%
1,085.04 70% $17.70 11.77% 13.30%
1,148.87 80% $18.80 13.05% 14.54%
1,212.69 90% $19.90 14.27% 15.72%
1,276.52 100% $21.00 15.43% 16.84%
1,340.35 110% $22.10 16.53% 17.92%
1,404.17 120% $23.20 17.59% 18.95%
</TABLE>
___________________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes
. an investment of a fixed amount in the stocks underlying the Index with
the allocation of the amount reflecting the current relative weights of the
stocks in the Index;
. a percentage change in the aggregate price of the stocks that equals the
percentage change in the Index from the Starting Index Value to the
relevant hypothetical Ending Index Value;
. a constant dividend yield of 2.20% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of the
Index at the end of each quarter assuming the value increases or decreases
linearly from the Starting Index Value to the applicable hypothetical
Ending Index Value;
. no transaction fees or expenses;
. a term for the MITTS Securities from May 13, 1996 to May 10, 2001; and
. a final Index value equal to the Ending Index Value. The aggregate
dividend yield of the stocks underlying the Index as of May 7, 1996 was
approximately 2.20%.
(3) The Starting Index Value.
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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 Index
Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Index; Market Disruption Events
If at any time the method of calculating the Index, or its value, is
changed in any material respect, or if the Index is in any other way modified so
that the Index does not, in the opinion of the calculation agent, fairly
represent the value of the 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 Ending Index 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 Index
as if the changes or modifications had not been made, and calculate the closing
value with reference to the Index, as adjusted. Accordingly, if the method of
calculating the Index is modified so that the value of the 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 Index, then the calculation agent shall adjust
the Index in order to arrive at a value of the 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 in trading for more than two
hours of trading in 100 or more of the securities included in the S&P 500 Index,
or
(b) the suspension or material limitation on trading 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
(1) futures contracts related to the Index which are traded on the
Chicago Mercantile Exchange or
(2) option contracts related to the Index which are traded on the
Chicago Board Options Exchange, Inc.
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 purposes of clause (a) above, any limitations on trading during
significant market fluctuations under New York Stock Exchange 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 Index
If S&P discontinues publication of the 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 Index (any successor or
substitute index is referred to as a ''Successor Index''), then, upon the
calculation agent's notification of the determination to the trustee and ML&Co.,
the calculation agent will substitute the Successor Index as calculated by S&P
or any other entity for the 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 S&P discontinues publication of the 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 substituted for the 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 Index before the discontinuance.
If a Successor Index is selected or the calculation agent calculates a value as
a substitute
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for the Index as described below, the Successor Index or value shall be
substituted for the Index for all purposes, including for purposes of
determining whether a Market Disruption Event exists.
If S&P discontinues publication of the 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 Ending Index 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
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 the values to be made available by telephone.
Despite these alternative arrangements, discontinuance of the publication
of the 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 per unit, will be equal to the initial issue price
($10) per unit and an additional amount of contingent interest calculated as
though the date of early repayment were the stated maturity date of the MITTS
Securities. See "- 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 per unit 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
thereof, at the rate of 8% per annum, to the extent that payment of any 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 any
amount has been made or duly provided for.
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by one
or more fully registered global securities. Each global security was deposited
with, or on behalf of, The Depository Trust Company or 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 a global security for all purposes
under the 1983 Indenture. Except as provided below, the beneficial owners of the
MITTS Securities
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represented by a global security will not be entitled to have the MITTS
Securities represented by the 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 under the
1983 Indenture, 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 any action, and the participants would authorize
beneficial owners owning through those participants to give or take action or
would otherwise act upon the instructions of beneficial owners. Conveyance of
notices and other communications by DTC to participants, by participants to
indirect participants and by participants and indirect participants to
beneficial owners will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC 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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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 written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in 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 the 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.
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Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct 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 identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments 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 the 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
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to 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.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form 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
All payments of principal and the Supplemental Redemption Amount, if any,
will be made by ML&Co. in immediately available funds so long as the MITTS
Securities are maintained in book-entry form.
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THE INDEX
Standard & Poor's publishes the Index. The Index is intended to provide an
indication of the pattern of common stock price movement. The calculation of
the value of the 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. Standard & Poor's chooses companies for inclusion in
the 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. The Index is comprised of
the common stocks of companies in four main groups: Industrials, Utilities,
Transportation and Financial. Standard & Poor's may from time to time, in its
sole discretion, add companies to, or delete companies from, the Index to
achieve the objectives stated above.
The Index does not reflect the payment of dividends on the stocks included
in the 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 Index
Standard & Poor's currently computes the 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 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. These changes
may result from causes such as:
. the issuance of stock dividends,
. the granting to shareholders of rights to purchase additional shares
of stock,
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. the purchase of shares by employees pursuant to employee benefit
plans,
. 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 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 of
that stock or both, as the case may be, and then determines the new base value
in accordance with the following formula:
New Market Value
Old Base Value X ---------------- = New Base 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 Index.
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OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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.
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In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under
"--Events of Default".
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Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior 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.
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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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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.
19
<PAGE>
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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 offered on the NYSE 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
20
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with the+
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy these+
+ securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
6 1/4% STRUCTURED YIELD PRODUCT EXCHANGEABLE FOR STOCK(SM) due July 1, 2001
"STRYPES(SM)"
Payable with Shares of Common Stock of IMC Global Inc.
or an equivalent amount in cash
____________________
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
our wholly-owned subsidiary, will use this prospectus when making offers and
sales related to market-making transactions in the STRYPES.
The issue price of each STRYPES was $38.25, which was the last sale price
of one share of common stock, par value $1.00 per share, of IMC on July 2, 1996,
as reported on the New York Stock Exchange. The STRYPES will mature on July 1,
2001.
What you will receive before July 1, 2001:
. On each January 1, April 1, July 1 and October 1, beginning October 1, 1996,
we will pay you interest on the STRYPES in cash at the rate of 6 1/4% per
year.
. We may not redeem the STRYPES at any time before July 1, 2001.
What you will receive on July 1, 2001:
. For each STRYPES you own, you will receive a percentage of each type of
reference property or an equivalent amount in cash. The reference property
will initially be one share of common stock of IMC, which may be adjusted
before July 1, 2001. The adjustments that may be made to the reference
property are more fully described in this prospectus.
<TABLE>
<CAPTION>
If the value of the reference property is: You will receive:
<S> <C>
(a) greater than or equal to $46.28 82.65% of each type of reference property
(b) less than $46.28 but greater than $38.25 a percentage of each type of reference
property equal to $38.25
(c) less than or equal to $38.25 100% of each type of reference property
</TABLE>
Investing in the STRYPES involves risks, including the risk that your investment
may result in a loss. See "Risk Factors" beginning on page 3.
The STRYPES are listed on the NYSE under the symbol "IGL".
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 STRYPES will be the prevailing price at the time of
sale.
____________________
Merrill Lynch & Co.
____________________
The date of this prospectus is , .
"STRYPES" and "Structured Yield Product Exchangeable for Stock" are registered
service marks owned by ML&Co.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
RISK FACTORS............................................................... 3
MERRILL LYNCH & CO., INC................................................... 7
RATIO OF EARNINGS TO FIXED CHARGES......................................... 8
IMC GLOBAL INC............................................................. 9
DESCRIPTION OF THE STRYPES................................................. 9
OTHER TERMS................................................................ 17
CERTAIN ARRANGEMENTS WITH GVI.............................................. 20
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.......................... 21
PLAN OF DISTRIBUTION....................................................... 22
EXPERTS.................................................................... 22
</TABLE>
2
<PAGE>
RISK FACTORS
Your investment in the STRYPES will involve risks. You should carefully
consider the following discussion of risks before investing in the STRYPES. In
addition, you should reach an investment decision with regard to the STRYPES
only after consulting with your legal and tax advisors and considering the
suitability of the STRYPES in the light of your particular circumstances.
You may suffer a loss on your investment
You should be aware that at maturity the amount you will receive may be
less than the amount you paid for the STRYPES, which was $38.25 per STRYPES. If
the value of the reference property is less than $38.25, the amount you will
receive will be less than the amount you paid for the STRYPES and, therefore,
your investment in the STRYPES will result in a loss to you. When you invest in
the STRYPES, you assume the risk that the market value of the reference property
may decline, and that the decline could be substantial. You should review the
prospectus of IMC, which is attached to this prospectus. The prospectus of IMC
describes the shares of common stock of IMC, including the preferred stock
purchase rights associated with the shares, that you may receive as a holder of
the STRYPES on the maturity date.
Your investment in the STRYPES may differ from an investment in other debt
securities
The terms of the STRYPES differ from those of ordinary debt securities
because the value of the reference property or the equivalent amount in cash
that you will receive on the maturity date is not fixed, but is based on the
value of the reference property. Please review the section entitled
"Description of the STRYPES".
There may be a limited opportunity for equity appreciation
Your opportunity for equity appreciation may be greater if you made a
direct investment in the common stock of IMC because the value of the reference
property is subject to market fluctuations. The amount you will receive on the
maturity date will only exceed the amount you paid for the STRYPES, which was
$38.25 per STRYPES, if the value of the reference property exceeds the threshold
appreciation price of $46.28. The threshold appreciation price of $46.28
represents an appreciation of 21% over the initial price of $38.25. In
addition, you will only be entitled to receive on the maturity date 82.65%,
which is the percentage equal to the initial price of $38.25 divided by the
threshold appreciation price of $46.28, of any appreciation of the value of the
reference property in excess of the threshold appreciation price of $46.28.
Please review the section entitled "Description of the STRYPES".
There are many factors affecting the trading prices of the STRYPES
The trading prices of the STRYPES in the secondary market will be directly
affected by the trading prices of the common stock of IMC in the secondary
market. It is impossible to predict whether the price of the common stock of
IMC will rise or fall because several factors may influence the trading prices
of the common stock of IMC. These factors include:
. IMC's operating results and prospects;
. complex and interrelated political, economic, financial and other
factors and market conditions that can affect (1) the capital markets
generally, (2) the market segment of which IMC is a part, or (3) the
NYSE, on which the common stock of IMC is traded, including the level
of, and fluctuations in, the trading prices of stocks generally and
sales of substantial amounts of the common stock of IMC in the market
subsequent to the offering of the STRYPES or the perception that these
sales could occur; and
3
<PAGE>
. other events that are difficult to predict and are beyond our control.
Investing in the STRYPES may affect the market for the common stock of IMC
Any market that develops for the STRYPES is likely to influence and be
influenced by the market for common stock of IMC. For example, the price of
common stock of IMC could become more volatile and could be depressed:
. by investors' anticipation of the potential distribution into the market
of substantial amounts of common stock of IMC on the maturity date,
. by possible sales of common stock of IMC by investors who view the
STRYPES as a more attractive means of equity participation in IMC, and
. by hedging or arbitrage trading activity that may develop involving the
STRYPES and the common stock of IMC.
There may be illiquidity of the STRYPES in the secondary market
It is not possible to predict how the STRYPES will trade in the secondary
market or whether the secondary market for the STRYPES will be liquid or
illiquid. The STRYPES are novel securities and there is currently no secondary
market for the STRYPES. Although the STRYPES are listed on the NYSE under the
symbol "IGL", you cannot assume (1) that an active trading market for the
STRYPES will develop, (2) that listing on the NYSE will provide you with
liquidity of investment, (3) that the STRYPES will not later be delisted or (4)
that trading of the STRYPES on the NYSE will not be suspended. If the NYSE
delists the STRYPES or suspends the trading of the STRYPES, we will apply for
listing of the STRYPES on another national securities exchange or for quotation
on another trading market. If the STRYPES are not listed or traded on any
securities exchange or trading market, or if trading of the STRYPES is
suspended, pricing information for the STRYPES may be more difficult to obtain
and the liquidity of the STRYPES may be adversely affected.
As a holder of STRYPES, you have no stockholder's rights with respect to the
common stock of IMC or the reference property
You will not be entitled to any rights, including voting rights and rights
to receive any dividends, interest or other distributions, with respect to the
common stock of IMC or the reference property until we have delivered the
reference property on the maturity date. In addition, you will not be entitled
to any rights if the applicable record date for the exercise of any rights
occurs before we deliver the reference property. For example, if an amendment
is proposed to the restated certificate of incorporation of IMC and the record
date for determining the stockholders of record entitled to vote on the
amendment occurs before we deliver the reference property, you, as a holder of
the STRYPES, will not be entitled to vote on the proposed amendment.
IMC has no obligations with respect to the STRYPES
We are not affiliated with IMC. IMC has no obligations with respect to the
STRYPES or amounts to be paid to you, including any obligation to take our needs
or yours, as a holder of the STRYPES, into consideration for any reason. IMC
will not receive any of the proceeds of this offering of the STRYPES. IMC is
not responsible for, and has not participated in, the determination of the
timing of, prices for or quantities of the STRYPES to be issued, or the
determination or calculation of the amount receivable by holders of the STRYPES
on the maturity date. In addition, IMC is not involved with the administration
or trading of the STRYPES.
4
<PAGE>
There may be a dilution of common stock of IMC
The reference property or the equivalent amount of cash that you are
entitled to receive on the maturity date is subject to adjustment for events
such as:
. a merger or consolidation in which IMC is not the surviving or resulting
corporation,
. the liquidation, dissolution, winding up or bankruptcy of IMC,
. stock splits and combinations, stock dividends, and
. other actions of IMC that modify its capital structure.
Please review the section entitled "Description of the STRYPES--Reference
Property Adjustments".
The reference property or equivalent amount of cash that you may receive on
the maturity date will not be adjusted for other events, such as offerings of
common stock of IMC for cash or in connection with acquisitions. IMC is not
restricted from issuing additional shares of common stock of IMC during the term
of the STRYPES and has no obligation to consider the interests of the holders of
the STRYPES for any reason. Additional issuances may materially and adversely
affect the price of the common stock of IMC. Because of the relationship of
the amount of the reference property or cash to be received on maturity to the
price of the common stock of IMC, other events may adversely affect the trading
price of the STRYPES.
The tax treatment of STRYPES is uncertain
Because of an absence of authority as to the proper characterization of the
STRYPES, their ultimate tax treatment is uncertain. Accordingly, you cannot
assume that any particular characterization and treatment of the STRYPES will be
accepted by the Internal Revenue Service or upheld by a court. However, it is
the opinion of Brown & Wood LLP, counsel to ML&Co., that the characterization
and tax treatment of the STRYPES described in this prospectus, while not the
only reasonable characterization and tax treatment, is based on reasonable
interpretations of law currently in effect and, even if successfully challenged
by the IRS, will not result in the imposition of penalties.
The 1983 indenture, which is more fully described in this prospectus, will
require that if you are subject to U.S. Federal income tax, that you include
currently in income, for U.S. Federal income tax purposes, payments denominated
as interest that are made with respect to a STRYPES in accordance with your
regular method of tax accounting. The 1983 indenture also requires ML&Co. and
holders to treat each STRYPES for tax purposes as a unit consisting of:
. a debt instrument with a fixed principal amount unconditionally payable
on the maturity date equal to the issue price of the STRYPES and bearing
interest at the stated interest rate on the STRYPES, and
. a forward purchase contract under which you agree to use the principal
payment due on the debt instrument to purchase on the maturity date the
reference property which ML&Co. is obligated under the STRYPES to
deliver at that time, subject to ML&Co.'s right to deliver cash instead
of the reference property.
The 1983 indenture also requires that upon the acquisition of a STRYPES and upon
your sale or other disposition of a STRYPES before the maturity date, the amount
paid or realized by you be allocated between the debt instrument and the forward
purchase contract based upon their relative fair market values, as determined on
the date of acquisition or disposition. For these purposes, with respect to
acquisitions of STRYPES in connection with the original issuance of the STRYPES,
ML&Co. and you agree to allocate
5
<PAGE>
$37.045 of the entire initial purchase price of a STRYPES to the debt instrument
and to allocate the remaining $1.205 of the entire initial purchase price of a
STRYPES to the forward purchase contract. As a result of this allocation, the
debt instrument will be treated as having been issued with original issue
discount for U.S. Federal income tax purposes.
The appropriate character and timing of income, gain or loss to be
recognized on a STRYPES is uncertain. You should consult your own tax adviser
concerning the application of the U.S. federal income tax laws to your
particular situation and any consequences of the purchase, ownership and
disposition of the STRYPES arising under the laws of any other taxing
jurisdiction.
Our holding company structure may affect your right to participate in any
distribution of assets of any subsidiary
Since we are a holding company, our right and the right of our creditors,
including you, as a holder of STRYPES, to participate in any distribution of
the assets of any subsidiary upon its liquidation or reorganization or otherwise
is necessarily subject to the prior claims of creditors of the subsidiary,
except to the extent a bankruptcy court may recognize our claims as a creditor
of the subsidiary. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to us are restricted by net capital requirements
under the Exchange Act and under rules of exchanges and other regulatory bodies.
6
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
STRYPES described in this prospectus.
7
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. to give effect to the
merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
8
<PAGE>
IMC GLOBAL INC.
IMC is one of the world's leading producers of crop nutrients for the
international agricultural community. It is also one of the largest
distributors in the United States of crop nutrients and related products through
its retail and wholesale distribution networks. IMC mines, processes and
distributes potash in the United States and Canada, and is a joint venture
partner in IMC-Agrico Company, a leading producer, marketer and distributor of
phosphate crop nutrients and a leading producer and marketer of animal feed
ingredients. IMC's retail distribution network, which extends principally to
corn and soybean farmers in the Midwestern and Southeastern United States, is
one of the largest distributors of crop nutrients and related products in the
United States. IMC also manufactures nitrogen-based and other high-value crop
nutrients which are marketed on a wholesale basis principally in the Midwestern
and Southeastern United States. In addition, IMC sells specialty lawn and
garden, turf, and nursery products on a national basis and ice-melter products
in the Midwest and Eastern snow-belt states.
IMC is subject to the informational requirements of the Exchange Act.
Accordingly, IMC files reports, proxy and information statements and other
information with the SEC. Copies of these materials can be inspected and copied
at the public reference facilities maintained by the SEC at the addresses
specified under "Where You Can Find More Information". Reports, proxy and
information statements and other information concerning IMC may also be
inspected at the offices of the NYSE.
ML&Co. is not affiliated with IMC, and IMC has no obligations with respect
to the STRYPES. This prospectus relates only to the STRYPES offered hereby and
does not relate to IMC or the common stock of IMC. IMC has filed a registration
statement on Form S-3 with the SEC covering the shares of common stock of IMC
that may be received by a holder of STRYPES on the maturity date. The
prospectus of IMC constituting a part of the registration statement includes
information relating to IMC and the common stock of IMC, including risk factors
relevant to an investment in the common stock of IMC. The prospectus of IMC does
not constitute a part of this prospectus, nor is it incorporated by reference
herein.
DESCRIPTION OF THE STRYPES
ML&Co. issued the STRYPES as a series of senior debt securities under the
1983 indenture, which is more fully described in this prospectus. The following
summary of material provisions of the 1983 indenture does not purport to be
complete and is qualified in its entirety by reference to the 1983 indenture. A
copy of the 1983 indenture is filed as an exhibit to the registration statement
of which this prospectus is a part.
Each STRYPES, was issued at a price of $38.25 (the "Initial Price"), bears
interest at the rate of 6 1/4% of the issue price per annum, or $2.3908 per
annum, from July 9, 1996, or from the most recent Interest Payment Date to which
interest has been paid or provided for, until the maturity date or the earlier
date on which the STRYPES are repaid under the terms of the STRYPES. Interest
on the STRYPES is payable in cash quarterly in arrears on January 1, April 1,
July 1 and October 1, beginning October 1, 1996, and on the maturity date (each,
an "Interest Payment Date"), to the persons in whose names the STRYPES are
registered at the close of business on the fifteenth calendar day, whether or
not a Business Day, immediately preceding the Interest Payment Date. Interest
on the STRYPES will be computed on the basis of a 360-day year of twelve 30-day
months. If an Interest Payment Date falls on a day that is not a Business Day,
the interest payment to be made on the Interest Payment Date will be made on the
next succeeding Business Day with the same force and effect as if made on the
Interest Payment Date, and no additional interest will accrue as a result of the
delayed payment.
The maturity date of the STRYPES is July 1, 2001. On the maturity date,
ML&Co. will pay and discharge each STRYPES by delivering to the holder of the
STRYPES a percentage of each type of Reference Property determined in accordance
with the formula described below. ML&Co. will have the right to deliver,
9
<PAGE>
with respect to all, but not less than all, Reference Property deliverable on
the maturity date, cash with an equal value.
(a) If the Reference Property Value (as defined below) is greater than or
equal to $46.28 (the "Threshold Appreciation Price"), the holder of
the STRYPES will receive 82.65% of each type of Reference Property;
(b) If the Reference Property Value is less than the Threshold
Appreciation Price but is greater than the Initial Price, the holder
of the STRYPES will receive a percentage of each type of Reference
Property, allocated as proportionately as practicable, so that the
aggregate value of the Reference Property is equal to the Initial
Price; and
(c) If the Reference Property Value is less than or equal to the Initial
Price, the holder of the STRYPES will receive 100% of each type of
Reference Property.
Accordingly, there can be no assurance that the amount receivable by holders of
the STRYPES on the maturity date will be equal to or greater than the issue
price of the STRYPES. If the Reference Property Value is less than the Initial
Price, the amount receivable on the maturity date will be less than the issue
price paid for the STRYPES, in which case an investment in STRYPES will result
in a loss.
Notwithstanding the foregoing, ML&Co. may, in lieu of delivering the
applicable percentage of each type of Reference Property, deliver cash in an
amount equal to the sum of:
(a) for any portion of the Reference Property consisting of cash that is
otherwise deliverable on the maturity date, the amount of cash,
without interest thereon,
(b) for any portion of the Reference Property consisting of property other
than cash or Reference Securities that is otherwise deliverable on the
maturity date, the fair market value, as determined by a nationally
recognized independent investment banking firm retained for this
purpose by ML&Co., as of the third Trading Day preceding the maturity
date of the property, and
(c) for any portion of the Reference Property consisting of a Reference
Security (as defined below) that is otherwise deliverable on the
maturity date, except as described under "Reference Property
Adjustments" below, an amount equal to the average Closing Price (as
defined below) per unit of the Reference Security on the 20 Trading
Days immediately before, but not including, the second Trading Day
preceding the maturity date multiplied by the number of units of the
Reference Security constituting part of the Reference Property,
subject to ML&Co.'s agreement contained in the Purchase Agreement to
deliver on the maturity date the form of consideration that the ML&Co.
Subsidiary (as defined below) receives from GVI.
The right to deliver cash, if exercised by ML&Co., must be exercised with
respect to all Reference Property otherwise deliverable on the maturity date in
payment of all outstanding STRYPES. On or before the sixth Business Day before
the maturity date, ML&Co. will notify The Depository Trust Company and the
trustee and publish a notice in The Wall Street Journal or another daily
newspaper of national circulation stating whether the STRYPES will be paid and
discharged by delivery of the applicable percentage of each type of Reference
Property or cash. At the time the notice is published, the Reference Property
Value will not have been determined. If ML&Co. elects to deliver Reference
Property, holders of the STRYPES will be responsible for the payment of any and
all brokerage costs upon the subsequent sale of Reference Property.
The term "Reference Property" initially means one share of common stock of
IMC and shall be subject to adjustment from time to time before the maturity
date to reflect the addition or substitution of any cash, securities and/or
other property resulting from the application of the adjustment provisions
described herein. See "--Reference Property Adjustments" below. The term
"Reference Security" means, at any time, any security (as defined in Section
2(1) of the Securities Act) then constituting part of the Reference Property.
10
<PAGE>
The term "Reference Property Value" means, subject to the adjustment provisions
described below, the sum of
(a) for any portion of the Reference Property consisting of cash, the
amount of cash,
(b) for any portion of the Reference Property consisting of property other
than cash or Reference Securities, the fair market value, which will
be determined by a nationally recognized independent investment
banking firm retained for this purpose by ML&Co., as of the third
Trading Day preceding the maturity date of the property, and
(c) for any portion of the Reference Property consisting of a Reference
Security, an amount equal to the average Closing Price per unit of the
Reference Security on the 20 Trading Days immediately before, but not
including, the second Trading Day preceding the maturity date
multiplied by the number of units of the Reference Security
constituting part of the Reference Property.
The "Closing Price" of any Reference Security on any date of determination
means (1) the closing sale price or, if no closing price is reported, the last
reported sale price of the Reference Security on the NYSE on the date of
determination or, (2) if the Reference Security is not listed for trading on the
NYSE on any date, as reported in the composite transactions for the principal
United States securities exchange on which the Reference Security is so listed,
or (3) if the Reference Security is not so listed on a United States national or
regional securities exchange, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System, or (4) if the Reference
Security is not so reported, the last quoted bid price for the Reference
Security in the over-the-counter market as reported by the National Quotation
Bureau or similar organization, or (5) if a bid price is not available, the
market value of the Reference Security on a date as determined by a nationally
recognized independent investment banking firm retained for this purpose by
ML&Co.
A "Trading Day" is defined as a day on which the Reference Security the
Closing Price of which is being determined (A) is not suspended from trading on
any national or regional securities exchange or association or over-the-counter
market at the close of business and (B) has traded at least once on the national
or regional securities exchange or association or over-the-counter market that
is the primary market for the trading of the Reference Security.
For illustrative purposes only, the following table shows the number of
shares of common stock of IMC or the amount of cash that a holder of STRYPES
would receive for each STRYPES at various Reference Property Values. The table
assumes that there will be no Reference Property adjustments as described below
and, accordingly, that on the maturity date the Reference Property will consist
of one share of common stock of IMC. There can be no assurance that the
Reference Property Value will be within the range set forth below. Given the
Initial Price of $38.25 and the Threshold Appreciation Price of $46.28, a
STRYPES holder would receive on the maturity date the following number of shares
of common stock of IMC per STRYPES or, if ML&Co. elects to pay and discharge the
STRYPES with cash, the amount of cash per STRYPES:
Reference Number of Shares
Property of IMC Common Amount
Value Stock of Cash
----- ----- -------
$35.00 1.0000 $35.00
38.25 1.0000 38.25
42.00 0.9107 38.25
46.28 0.8265 38.25
50.00 0.8265 41.33
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Reference Property Adjustments
The Reference Property is subject to adjustment if an issuer of a Reference
Security shall:
(1) subdivide or split the outstanding units of the Reference Security
into a greater number of units;
(2) combine the outstanding units of the Reference Security into a smaller
number of units;
(3) issue by reclassification of units of the Reference Security any units
of another security of the issuer;
(4) issue rights or warrants to all holders of the Reference Security
entitling them, for a period expiring before the fifteenth calendar
day following the maturity date, to subscribe for or purchase any of
its securities or other property, other than rights to purchase units
of the Reference Security pursuant to a plan for the reinvestment of
dividends or interest; or
(5) pay a dividend or make a distribution to all holders of the Reference
Security of cash, securities or other property, excluding any cash
dividend on any Reference Security consisting of capital stock that
does not constitute an Extraordinary Cash Dividend (as defined below),
excluding any payment of interest on any Reference Security consisting
of an evidence of indebtedness and excluding any dividend or
distribution referred to in clause (1), (2), (3) or (4) above), or
issue to all holders of the Reference Security rights or warrants to
subscribe for or purchase any of its securities or other property
(other than those referred to in clause (4) above). Any of the
foregoing cash, securities or other property or rights or warrants are
referred to in this prospectus as the "Distributed Assets".
In the case of the events referred to in clauses (1), (2) and (3) above, the
Reference Property shall be adjusted to include the number of units of the
Reference Security and/or other security of the issuer which a holder of units
of the Reference Security would have owned or been entitled to receive
immediately following any event had a holder held, immediately before the event,
the number of units of the Reference Security constituting part of the Reference
Property immediately before the event. Each adjustment shall become effective
immediately after the effective date for subdivision, split, combination or
reclassification, as the case may be. Each adjustment shall be made
successively.
In the case of the event referred to in clause (4) above, the Reference
Property shall be adjusted to include an amount in cash equal to the fair market
value, which shall be determined in the manner described below, as of the fifth
Business Day, except as provided below, following the date on which rights or
warrants are received by securityholders entitled thereto (the "Receipt Date"),
of each right or warrant multiplied by the product of (A) the number of rights
or warrants issued for each unit of the Reference Security and (B) the number of
units of the Reference Security constituting part of the Reference Property on
the date of issuance of the rights or warrants, immediately before issuance,
without interest thereon. For purposes of the foregoing, the fair market value
of each right or warrant shall be the quotient of:
(1) the highest net bid, as of approximately 10:00 A.M., New York City
time, on the fifth Business Day following the Receipt Date for
settlement three Business Days later, by a recognized securities
dealer in The City of New York selected by or on behalf of ML&Co.,
from three or a fewer number of dealers as may be providing bids,
recognized dealers selected by or on behalf of ML&Co., for the
purchase by a quoting dealer of the number of rights or warrants (the
"Aggregate Number") that a holder of the Reference Security would
receive if the holder held, as of the record date for determination of
stockholders entitled to receive rights or warrants, a number of units
of the Reference Security equal to the product of
(A) the aggregate number of Outstanding STRYPES as of a record date
and (B) the number of units of the Reference Security
constituting part of the Reference Property, divided by
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(2) the Aggregate Number.
Each adjustment shall become effective on the fifth Business Day following
the Receipt Date of the rights or warrants. If for any reason ML&Co. is unable
to obtain the required bid on the fifth Business Day following the Receipt Date,
it shall attempt to obtain the bid at successive intervals of three months and
on the third Trading Day before the maturity date until it is able to obtain the
required bid. From the date of issuance of the rights or warrants until the
required bid is obtained, the Reference Property shall include the number of
rights or warrants issued for each unit of the Reference Security multiplied by
the number of units of the Reference Security constituting part of the Reference
Property on the date of issuance of the rights or warrants, immediately before
the issuance, and the rights or warrants constituting part of the Reference
Property shall be deemed for all purposes hereof to have a fair market value of
zero.
In the case of the event referred to in clause (5) above, the Reference
Property shall be adjusted to include, from and after a dividend, distribution
or issuance, (a) in respect of that portion, if any, of the Distributed Assets
consisting of cash, the amount of Distributed Assets consisting of cash received
for each unit of the Reference Security multiplied by the number of units of the
Reference Security constituting part of the Reference Property on the date of a
dividend, distribution or issuance, immediately before a dividend, distribution
or issuance, without interest thereon, plus (b) in respect of that portion, if
any, of the Distributed Assets which are other than cash, the number or amount
of each type of Distributed Assets other than cash received with respect to each
unit of the Reference Security multiplied by the number of units of the
Reference Security constituting part of the Reference Property on the date of a
dividend, distribution or issuance, immediately before the dividend,
distribution or issuance.
An "Extraordinary Cash Dividend" means, with respect to any consecutive 12-
month period, the amount, if any, by which the aggregate amount of all cash
dividends on any Reference Security consisting of capital stock occurring in a
12-month period or, if the Reference Security was not outstanding at the
commencement of the 12-month period, occurring in a shorter period during which
the Reference Security was outstanding, exceeds on a per share basis 12% of the
average of the Closing Prices per share of the Reference Security over a 12-
month period or a shorter period during which the Reference Security was
outstanding; provided that, for purposes of this definition, the amount of cash
dividends paid on a per share basis will be appropriately adjusted to reflect
the occurrence during the period of any stock dividend or distribution of shares
of capital stock of the issuer of the Reference Security or any subdivision,
split, combination or reclassification of shares of the Reference Security.
In the event of a "Reorganization Event", which is:
(A) any consolidation or merger of an issuer of a Reference Security with or
into another entity, except for a merger or consolidation in which the
issuer is the continuing corporation and in which the Reference Security
outstanding immediately before the merger or consolidation is not
exchanged for cash, securities or other property of the issuer or another
entity,
(B) any statutory exchange of securities of an issuer of a Reference Security
with another entity, except in connection with a merger or acquisition,
or
(C) any liquidation, dissolution, winding up or bankruptcy of an issuer of a
Reference Security, excluding any distribution in the event referred to
in clause (5) above,
the Reference Property shall be adjusted to include, from and after the
effective date for a Reorganization Event, in lieu of the number of units of the
Reference Security constituting part of the Reference Property immediately
before the effective date for a Reorganization Event, the amount or number of
any cash, securities and/or other property owned or received in a Reorganization
Event with respect to each unit of the Reference Security multiplied by the
number of units of the Reference Security constituting part of the Reference
Property immediately before the effective date for a Reorganization Event.
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No adjustments will be made for other events, such as offerings of common
stock of IMC by IMC for cash or in connection with acquisitions. Likewise, no
adjustments will be made for any sales of common stock of IMC by GVI.
ML&Co. is required, within ten Business Days following the occurrence of an
event that requires an adjustment to the Reference Property (or if ML&Co. is not
aware of the occurrence of an event, as soon as practicable after becoming so
aware), to provide written notice to the trustee and to the holders of the
STRYPES of the occurrence of an event and a statement in reasonable detail
setting forth the amount or number of each type of Reference Security and other
property then constituting part of the Reference Property.
Fractional Interests
No fractional units of any Reference Security will be delivered if ML&Co.
pays and discharges the STRYPES by delivering Reference Property. In lieu of
any fractional unit otherwise deliverable in respect of all STRYPES of any
holder on the maturity date, a holder shall be entitled to receive an amount in
cash equal to the value of a fractional unit based on the average Closing Price
per unit of the Reference Security on the 20 Trading Days immediately before,
but not including, the second Trading Day preceding the maturity date.
To the extent practicable, ML&Co. will deliver fractional interests of any
Reference Property other than cash or a Reference Security if ML&Co. pays and
discharges the STRYPES by delivering Reference Property. If a delivery of
fractional interests is not practicable, in lieu of delivering any fractional
interest otherwise deliverable in respect of all STRYPES to any holder on the
maturity date, ML&Co. will deliver holder shall be entitled to receive an amount
in cash equal to the value of the fractional interest based on the fair market
value (as determined by a nationally recognized independent investment banking
firm retained for this purpose by ML&Co.) as of the third Trading Day preceding
the maturity date of the Reference Property other than cash or a Reference
Security.
Redemption, Sinking Fund and Payment Before Maturity
The STRYPES are not subject to redemption by ML&Co. before the maturity
date and do not contain sinking fund or other mandatory redemption provisions.
The STRYPES are not subject to payment before the maturity date at the option of
the holder.
Ranking
The STRYPES are unsecured obligations and will rank equally with all other
unsecured and unsubordinated indebtedness of ML&Co.
There are no contractual restrictions on the ability of ML&Co. or its
subsidiaries to incur additional secured or unsecured debt. However, borrowings
by certain subsidiaries, including MLPF&S, are restricted by net capital
requirements under the Exchange Act and under rules of certain exchanges and
other regulatory bodies.
Purchase Agreement
GVI is obligated, under the Purchase Agreement described in "Certain
Arrangements with GVI", to deliver to the ML&Co. Subsidiary (as defined below)
immediately before the maturity date the Reference Property required by ML&Co.
to pay and discharge all of the STRYPES, including any STRYPES issued pursuant
to the over-allotment option granted by ML&Co. to MLPF&S. In lieu of delivering
the Reference Property immediately before the maturity date, GVI has the right
to satisfy its obligation under the Purchase Agreement by delivering cash in an
amount equal to the value of the Reference Property immediately before the
maturity date. The right to deliver cash, if exercised by GVI, must be
exercised with respect to all of the Reference Property deliverable under the
Purchase Agreement.
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Securities Depository
Description of the Global Securities
The STRYPES are represented by one or more fully registered global
securities. Each global security has been deposited with, or on behalf of, The
Depository Trust Company or 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
STRYPES 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 STRYPES represented by a global security for all purposes under
the 1983 indenture. Except as provided below, the beneficial owners of the
STRYPES represented by a global security are not entitled to have the STRYPES
represented by the global security registered in their names, will not receive
or be entitled to receive physical delivery of the STRYPES in definitive form
and are not considered the owners or holders thereof under the 1983 indenture,
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 the
person is not a participant of DTC on the procedures of the participant through
which the person owns its interest, to exercise any rights of a holder under the
1983 indenture. ML&Co. understands that under existing industry practices, in
the event that ML&Co. requests any action of holders or that an owner of a
beneficial interest in a global security desires to give or take any action
which a holder is entitled to give or take under the 1983 indenture, DTC would
authorize the participants holding the relevant beneficial interests to give or
take action, and those participants would authorize beneficial owners owning
through such participants to give or take action or would otherwise act upon the
instructions of beneficial owners. Conveyance of notices and other
communications by DTC to participants, by participants to indirect participants
and by participants and indirect participants to beneficial owners are 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 STRYPES. The STRYPES have been
issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One or more fully registered global securities
have been issued for the STRYPES in the aggregate principal amount of such
issue, and has been 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 1934 Act. 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.
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Purchases of STRYPES under DTC's system must be made by or through direct
participants, which will receive a credit for the STRYPES 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 participants
or indirect participants through which such beneficial owner entered into the
transaction. Transfers of ownership interests in the STRYPES are to be
accomplished by entries made on the books of participants acting on behalf of
beneficial owners.
To facilitate subsequent transfers, all STRYPES deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
STRYPES 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 STRYPES; DTC's records reflect only the identity of the direct
participants to whose accounts such STRYPES are credited, which may or may not
be the beneficial owners. The participants are 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 and
indirect participants to beneficial owners are 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
STRYPES. 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 STRYPES are
credited on the record date.
Principal, premium, if any, and/or interest, if any, payments on the
STRYPES 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 is the responsibility of DTC, and disbursement
of such payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If
(a) 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,
(b) ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, and
(c) an Event of Default under the 1983 indenture has occurred and is
continuing with respect to the STRYPES,
the global securities will be exchangeable for STRYPES in definitive form of
like tenor and of an equal aggregate principal amount. The definitive STRYPES
will be registered in such name or names as the depositary shall instruct the
trustee. It is expected that such instructions may be based upon directions
received by the depositary from participants with respect to ownership of
beneficial interests in the global securities.
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In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, STRYPES in definitive
form 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.
Governing Law
The 1983 indenture and the STRYPES will be governed by, and construed in
accordance with, the laws of the State of New York.
Listing
The STRYPES have been listed on the NYSE under the symbol "IGL".
OTHER TERMS
ML&Co. issued the STRYPES 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 STRYPES 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.
ML&Co. may issue series of senior debt securities from time to time 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 STRYPES 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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.
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"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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
indenture, and
. 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:
. 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;
. 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;
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. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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 1983 indenture and waive compliance by
ML&Co. with provisions in the 1983 indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 that series may waive any Event of Default
with respect to that series, except a default:
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<PAGE>
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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 STRYPES 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.
CERTAIN ARRANGEMENTS WITH GVI
ML&Co., Merrill Lynch Mortgage Capital Inc., our wholly-owned subsidiary
(the "ML&Co. Subsidiary"), and GVI have entered into a purchase agreement (the
"Purchase Agreement"). Under the Purchase Agreement, GVI is obligated to
deliver to the ML&Co. Subsidiary immediately before the maturity date the
Reference Property required by ML&Co. to pay and discharge all of the STRYPES.
In lieu of delivering the Reference Property immediately before the maturity
date, GVI has the right to satisfy its obligation under the Purchase Agreement
by delivering cash in an amount equal to the value of the Reference Property
immediately before the maturity date. The right to deliver cash, if exercised
by GVI, must be exercised with respect to all of the Reference Property
deliverable under the Purchase Agreement. Under the Purchase Agreement, ML&Co.
has agreed to pay and discharge the STRYPES by delivering to the holders of the
STRYPES on the maturity date the form of consideration that the ML&Co.
Subsidiary receives from GVI. The consideration to be paid by the ML&Co.
Subsidiary under the Purchase Agreement is $153,382,017 in the aggregate, which
was paid to GVI on July 9, 1996. No other consideration is payable by the
ML&Co. Subsidiary to GVI in connection with its acquisition of the Reference
Property under the Purchase Agreement or the performance of the Purchase
Agreement by GVI. ML&Co. has agreed with GVI that, without the prior consent of
GVI, it will not amend the 1983 indenture in any respect that would adversely
affect any obligation of GVI under the Purchase Agreement, including, without
limitation, increasing the consideration that GVI is obligated to deliver under
the Purchase Agreement.
Until such time, if any, as GVI shall have delivered the Reference Property
to the ML&Co. Subsidiary under the terms of the Purchase Agreement, GVI will
retain all ownership rights with respect to the Reference Property held by it
(including, without limitation, voting rights and rights to receive any
dividends, interest or other distributions in respect thereof).
GVI has no obligations with respect to the STRYPES or amounts to be paid to
holders of the STRYPES, including any obligation to take our needs or yours, as
holders of the STRYPES, into consideration in determining whether to deliver the
Reference Property or cash or for any other reason. The Purchase Agreement
among ML&Co., the ML&Co. Subsidiary and GVI is a commercial transaction and does
not create any rights in, or for the benefit of, any holder of STRYPES.
20
<PAGE>
In the event GVI does not perform under the Purchase Agreement, ML&Co. will
be required to otherwise acquire the Reference Property for delivery to the
holders of the STRYPES on the maturity date, unless it elects to exercise its
option to deliver cash with an equal value.
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 have filed a registration statement on Form S-3 with the SEC covering
the STRYPES and other securities. For further information on ML&Co. and the
STRYPES, 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 the prospectus may not contain all the information
that you may find important, you should review the full text of these documents.
We have included copies of these documents as exhibits to our registration
statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. any reports filed under Section 15(d) of the Exchange Act.
21
<PAGE>
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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
STRYPES and is to be used by MLPF&S when making offers and sales related to
market-making transactions in the STRYPES.
MLPF&S may act as principal or agent in these market-making transactions.
The STRYPES may be offered on the NYSE or off the exchange in negotiated
transactions or otherwise.
The distribution of the STRYPES 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
22
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
Top Ten Yield Market Index Target-Term Securities(R)
due August 15, 2006
"MITTS(R) Securities"
$10 principal amount per unit
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
our wholly-owned subsidiary, will use this prospectus when making offers and
sales related to market-making transactions in the MITTS Securities.
<TABLE>
<CAPTION>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the Top Ten Yield Index. any, in the value of the index as described in this
. The MITTS Securities are listed on the American prospectus.
Stock Exchange under the symbol "MTT". . You will receive the principal amount of your MITTS
Securities, plus an amount no less than $2.40 per
unit, representing a minimum yield-to-maturity of
2.16% per year.
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
of Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS............................................................ 3
MERRILL LYNCH & CO., INC................................................ 6
RATIO OF EARNINGS TO FIXED CHARGES...................................... 7
DESCRIPTION OF THE MITTS SECURITIES..................................... 8
THE INDEX............................................................... 15
OTHER TERMS............................................................. 19
WHERE YOU CAN FIND MORE INFORMATION..................................... 22
INCORPORATION OF INFORMATION WE FILE WITH THE SEC....................... 22
PLAN OF DISTRIBUTION.................................................... 23
EXPERTS................................................................. 23
</TABLE>
2
<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 may not earn a return on your investment. You should be aware that at
maturity if the average value of the index over five trading days shortly before
the maturity date does not exceed 100 by more than 24%, we will pay you no more
than $10 plus $2.40 for each unit of your MITTS Securities. This will be true
even if, at some time during the life of the MITTS Securities the value of the
index exceeded 124.
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. 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
index
While the index does reflect the payment of dividends on the stocks
underlying the index as described in more detail below, the yield based on the
index to the maturity of the MITTS Securities will not produce the same yield as
if you purchased the underlying stocks and held them for a similar period. At
the end of each calendar quarter, the dividends accrued on the stocks underlying
the index will be incorporated into the index by adjusting the share multipliers
of these stocks and these amounts will then be subject to the price movements of
the stocks. In addition, as described in more detail below, at the end of each
calendar quarter, an amount equal to 0.4375% of the current value of the index
will be deducted from the value of the index, provided that:
. there was no deduction at the end of the calendar quarter ending in
September 1996 and the deduction at the end of the calendar quarter
ending in December 1996 was increased to reflect the quarterly rate of
0.4375% prorated for the period from the date of the issuance of the
MITTS Securities through the end of the calendar quarter in December
1996, and
. there will be a prorated amount deducted on July 31, 2006 equal to
0.1507% of the then current index value to reflect the quarterly rate
of 0.4375% for the period from July 1, 2006 through July 31, 2006.
Although the index is based on stocks that are selected based on dividends paid,
you will not receive any interest, periodic or otherwise, on the MITTS
Securities before their maturity.
There may be an uncertain trading market for the MITTS Securities in the future
Although the MITTS Securities are listed on the NYSE under the symbol
"MTT," you cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS Securities continues to
exist, you cannot assume that there will be liquidity in the trading market. The
continued existence of a trading market for the MITTS Securities will depend on
our financial performance and other factors such as the appreciation, if any, of
the value of the index.
3
<PAGE>
If the trading market for the MITTS Securities is limited and you do not
wish to hold your investment until maturity, there may be a limited number of
buyers for your MITTS Securities. This may affect the price you receive if you
sell before maturity.
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
magnify 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 index. 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.
The value of the 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 by which the index exceeds the starting index value.
If you choose to sell your MITTS Securities when the value of the index exceeds
the starting index value, you may receive substantially less than the amount
that would be payable at maturity based on that index value because of the
expectation that the index will continue to fluctuate until the ending index
value is determined. If you choose to sell your MITTS Securities when the value
of the index is below the starting index value, you may receive less than the
$10 principal amount per unit of MITTS Securities. In general, rising Japanese
dividend rates, or dividends per share, may increase the value of the index
while falling Japanese dividend rates may decrease the value of the index.
Political, economic and other developments that affect the stocks underlying the
index may also affect the value of the index and the value of the MITTS
Securities.
Changes in the levels of U.S. 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 the 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 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
index. Rising interest rates may lower the value of the index and, thus, may
decrease the trading value of the MITTS Securities. Falling interest rates may
increase the value of the index, and, thus may increase the trading value of the
MITTS Securities.
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. Volatility is the term used to describe the size
and frequency of market fluctuations. If the volatility of the index increases,
we expect that the trading value of the MITTS Securities will increase. If the
volatility of the 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 the maturity of the MITTS Securities, the MITTS Securities may trade
at a value above that which would be expected based on the level of interest
rates and the index. This difference will reflect a "time premium" due to
expectations concerning the value of the index during the period prior to
maturity of the MITTS Securities. However, as the time remaining to 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 index are expected
to affect the trading value of the MITTS Securities. If dividend yields on the
stocks comprising the index increase, we expect that the value of the MITTS
Securities will decrease. Conversely, if dividend yields on the stocks
comprising the index decrease, we expect that the value of the MITTS Securities
will increase.
4
<PAGE>
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 index at maturity, an improvement in our credit ratings will
not reduce 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 except that we expect that the effect on the trading value of the
MITTS Securities of a given increase in the value of the 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 laws govern the indenture under which the MITTS Securities
are 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.
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 holders, 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 affiliates may from time to time buy or sell the stocks
underlying the index for our own accounts for business reasons or in connection
with hedging our obligations under the MITTS. These transactions could affect
the price of these stocks and the value of the index in a manner that be adverse
to your investment in the MITTS Securities.
Potential conflicts of interest
Our subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated, or
MLPF&S, is our agent for the purposes of calculating the value of the index and
the amount payable to you at maturity. In some 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 its determination as to whether the
value of the 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 index. See "Description of the MITTS Securities--
Adjustments to the Index; Market Disruption Events" and "--Discontinuance of the
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.
5
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
7
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On August 26, 1996, ML&Co. issued $35,000,000 aggregate principal amount,
or 3,500,000 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 15, 2006.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of each MITTS Security plus the Supplemental Redemption Amount
described below, if any, ML&Co. will make 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 to maturity. Upon the occurrence of an
Event of Default 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.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of each unit plus a supplemental
redemption amount as provided below. If the ending index value does not exceed
the starting index value by more than 24%, a beneficial owner of a MITTS
Security will be entitled to receive only the principal amount of its MITTS
Securities and the minimum supplemental redemption amount.
The "Index" is the Top Ten Yield Index, described more fully on pages 15-
19.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
Principal Amount X Ending Index Value - Starting Index Value
-----------------------------------------
Starting Index Value
provided, however, that in no event will the Supplemental Redemption Amount be
less than $2.40 per $10 principal amount of the MITTS Securities.
The "Starting Index Value" was set at 100.
The "Minimum Supplemental Redemption Amount" is equivalent to a rate of
return of 2.16% per annum calculated on a semi-annual bond equivalent basis.
The "Ending Index Value" will be determined by the calculation agent and
will equal the average or arithmetic mean of the closing values of the 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 Index
Value will equal the average, or arithmetic mean, of the closing values of the
Index on these Calculation Days, and if there is only one Calculation Day, then
the Ending Index Value will equal the closing value of the Index on that
Calculation Day. If no Calculation Days occur during the Calculation Period,
then the Ending Index Value will equal the closing value of the 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.
8
<PAGE>
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.
"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 index or any successor index, as defined on page 11 below,
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.
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending Index
Values:
. the percentage change from the Starting Index Value to the Ending
Index 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 an investment in the stocks
underlying the Index, as adjusted from time to time, that
experience the same price changes and dividend payments necessary
to produce the indicated hypothetical ending index value, which
reflects a deduction from the value of the Index at the end of each
calendar quarter equal to 0.4375% of the then current Index value.
The pretax annualized rate of return of the stocks underlying the Index
illustrated below is intended to reflect the return that might be earned by an
investor who seeks to replicate the Index return by trading in the actual stocks
underlying the Index and differs from the pretax annualized rate of return on
the MITTS Securities because of the percentage deducted from the value of the
Index each calendar quarter equal to 0.4375% of the then current Index value.
Investors seeking to replicate the Index return by trading in the actual
underlying stocks would not incur this periodic deduction although they might
incur commissions and other transaction-related costs.
9
<PAGE>
<TABLE>
<CAPTION>
Total Pretax Pretax Annualized
Percentage Change Amount Annualized Rate of Rate of Return of
Hypothetical Ending Over the Starting Payable at Return on the MITTS Stock Underlying
Index Value Index Value Maturity Securities(1) Index(1)(2)
----------- ----------- -------- ------------- -----------
<S> <C> <C> <C> <C>
50 -50% $12.40 2.16% -5.09%
60 -40% $12.40 2.16% -3.31%
70 -30% $12.40 2.16% -1.80%
80 -20% $12.40 2.16% -0.47%
90 -10% $12.40 2.16% 0.70%
100 (3) 0% $12.40 2.16% 1.75%
110 10% $12.40 2.16% 2.71%
120 20% $12.40 2.16% 3.59%
130 30% $13.00 2.64% 4.41%
140 40% $14.00 3.39% 5.16%
150 50% $15.00 4.10% 5.87%
160 60% $16.00 4.76% 6.53%
170 70% $17.00 5.38% 7.15%
180 80% $18.00 5.97% 7.74%
190 90% $19.00 6.52% 8.30%
200 100% $20.00 7.05% 8.84%
210 110% $21.00 7.56% 9.35%
220 120% $22.00 8.04% 9.83%
230 130% $23.00 8.50% 10.30%
240 140% $24.00 8.94% 10.74%
250 150% $25.00 9.37% 11.17%
260 160% $26.00 9.78% 11.58%
270 170% $27.00 10.17% 11.98%
280 180% $28.00 10.56% 12.37%
290 190% $29.00 10.93% 12.74%
300 200% $30.00 11.28% 13.10%
310 210% $31.00 11.63% 13.44%
320 220% $32.00 11.97% 13.78%
330 230% $33.00 12.29% 14.11%
340 240% $34.00 12.61% 14.43%
350 250% $35.00 12.92% 14.74%
360 260% $36.00 13.22% 15.04%
370 270% $37.00 13.51% 15.33%
380 280% $38.00 13.80% 15.62%
390 290% $39.00 14.07% 15.90%
400 300% $40.00 14.34% 16.17%
</TABLE>
------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes, in addition to the price changes and dividend
payments described above:
(a) an initial investment of a fixed amount in the Top Ten Yield Stocks
with the allocation of this amount reflecting an equal dollar-weighted
portfolio of the stocks in the Index;
(b) a reconstruction of this portfolio investment on each Anniversary Date
so as to be an equal-dollar weighted portfolio of the ten common
stocks in the DJIA having the highest Dividend Yield on the second
scheduled Index Business Day prior to each Anniversary Date,
(c) a compounded quarterly rate of return on the stocks which is greater
than the compounded quarterly return on the Index by 0.4375%, the
amount of the quarterly deduction applied to the Index, with dividends
being reinvested on a quarterly basis
(d) no transaction fees or expenses;
(e) an investment term equal to the term of the securities; and
(f) a final Index value equal to the Ending Index Value.
(3) The Starting Index Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the pretax annualized
rate of return resulting therefrom will depend entirely on the actual Ending
Index Value determined by the calculation agent as provided in this prospectus.
Historical data regarding the Index is included in this prospectus under "The
Index--Historical Data on the Index".
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Adjustments to the Index; Market Disruption Events
If at any time the AMEX changes its method of calculating the Index, or the
Index's value changes in any material respect, or if the Index is in any other
way modified so that the Index does not, in the opinion of the calculation
agent, fairly represent the value of the 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 Ending Index 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 Index as if any changes or modifications had not been made,
and calculate the closing value with reference to the Index, as adjusted.
Accordingly, if the method of calculating the Index is modified so that the
value of the 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 Index, then the
calculation agent shall adjust the Index in order to arrive at a value of the
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 period one-half hour prior to the close
of trading, 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
(1) futures contracts related to the Index, or options on futures
contracts, which traded on any major U.S. exchange, or
(2) option contracts related to the Index which are traded on any
major U.S. exchange.
For the purposes of clause (a) above, any limitations on trading during
significant market fluctuations under New York Stock Exchange 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".
In some circumstances, the duties of MLPF&S as calculation agent in
determining the existence of Market Disruption Events could conflict with the
interests of MLPF&S as a subsidiary of ML&Co.
Discontinuance of the Index
If the AMEX discontinues publication of the Index and the AMEX or another
entity publishes a successor or substitute index that the calculation agent
determines, in its sole discretion, to be comparable to the Index (that index
being referred to as a "Successor Index"), then, upon the calculation agent's
notification of its determination to the Trustee, as defined below, and ML&Co.,
the calculation agent will substitute the Successor Index as calculated by the
AMEX or other entity for the Index and calculate the Ending Index Value as
described above under "Payment at Maturity". Upon any selection by the
calculation agent of a Successor Index, ML&Co. shall cause notice thereof to be
given to Holders of the MITTS Securities.
If the AMEX discontinues publication of the 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 substituted for the 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 Index prior to any
discontinuance. If a Successor Index is selected or the calculation agent
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calculates a value as a substitute for the Index as described below, that
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If the AMEX discontinues publication of the Index prior to 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:
(a) the determination of the Ending Index Value, and
(b) 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 value to be published not less often than once each month in The Wall
Street Journal, or another newspaper of general circulation, (the "WSJ"), and
arrange for information with respect to these values to be made available by
telephone. Notwithstanding these alternative arrangements, discontinuance of
the publication of the Index may adversely affect trading in the MITTS
Securities.
Events of Default and Acceleration
If 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 per unit, will be equal to the principal amount per unit
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 "-
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 per unit 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
thereof, at the rate of 7.76% per annum, to the extent that payment of any
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 any amount has been made or duly provided for.
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by
one or more fully registered global securities. Each global security was
deposited with, or on behalf of, The Depository Trust Company or 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.
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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 a 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 the 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
under the 1983 Indenture, 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 any action, and the participants
would authorize beneficial owners owning through those participants to give or
take action or would otherwise act upon the instructions of beneficial owners.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC 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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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 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
participants or indirect participants through which the 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.
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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 the 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 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 identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments 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 the 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
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to
the effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to 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.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form will be printed and delivered.
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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
All payments of principal and the Supplemental Redemption Amount, if any,
will be made by ML&Co. in immediately available funds so long as the MITTS
Securities are maintained in book-entry form.
THE INDEX
Top Ten Yield Index
AMEX will calculate and disseminate the value of the Index on any Index
Business Day; the Index will equal the Top Ten Yield Portfolio Value plus the
Current Quarter Dividends (as defined below) as of that Index Business Day. The
Top Ten Yield Portfolio Value will equal the sum of the products of the most
recently available market price and the applicable Share Multiplier for each Top
Ten Yield Stock. The AMEX will generally calculate and disseminate the value of
the Index based on the most recently reported prices of the stocks underlying
the Index, as reported by the exchange or trading system on which the underlying
stocks are listed or traded, at approximately 15-second intervals during the
AMEX's business hours and the end of each Index Business Day via the
Consolidated Tape Association's Network B.
The "Dividend Yield" for each common stock is determined by the AMEX by
annualizing the last quarterly or semi-annual ordinary cash dividend for which
the ex-dividend date has occurred, excluding any extraordinary dividend as
determined by the AMEX in its sole discretion, and dividing the result by the
last available sale price for each stock on its primary exchange on the date the
Dividend Yield is to be determined.
Annual Top Ten Yield Portfolio Reconstitution
As of the close of business on each Anniversary Date, as defined below,
through the applicable Anniversary Date in 2005, the content of the Top Ten
Yield Portfolio shall be reconstituted to include the ten common stocks in the
DJIA having the highest Dividend Yield (the "New Stocks") on the second
scheduled Index Business Day prior to the Anniversary Date (the "Annual
Determination Date"), provided, however, that the AMEX will only add a stock
having characteristics as of the Annual Determination Date that will permit the
Index to remain within the criteria specified in the AMEX rules and within the
applicable rules of the Securities and Exchange Commission. These criteria and
rules will apply only on an Annual Determination Date to exclude a proposed New
Stock. If a proposed New Stock does not meet these criteria or rules, the AMEX
will replace it with the common stock in the DJIA with the next highest Dividend
Yield which does meet these criteria and rules. These criteria currently
provide, among other things:
. that each component stock must have a minimum market value of at least
$75 million, except that up to 10% of the component securities in the
Index may have a market value of $50 million;
. that each component stock must have an average monthly trading volume
in the preceding six months of not less than 1,000,000 shares, except
that up to 10% of the component stocks in the Index may have an
average monthly trading volume of 500,000 shares or more in the last
six months;
. 90% of the Index's numerical Index value and at least 80% of the total
number of component stocks will meet the then current criteria for
standardized option trading set forth in the rules of the AMEX; and
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. all component stocks will either be listed on the AMEX, the NYSE, or
traded through the facilities of the National Association of
Securities Dealers Automated Quotation System and reported as National
Market System securities.
The AMEX will determine the Share Multiplier for each New Stock and will
indicate the number of shares of each New Stock, given the closing market price
of the New Stock on the Anniversary Date, required to be included in the
calculation of the Top Ten Yield Portfolio Value so that each New Stock
represents approximately an equal percentage of a value equal to the Index in
effect at the close of business on the Anniversary Date. As an example, if the
Index in effect at the close of business on an Anniversary Date equaled 200,
then each of the ten New Stocks relating to the Anniversary Date would be
allocated a portion of the value of the Index equal to 20 and if the closing
market price of one the New Stock on the Anniversary Date was 40, the applicable
Share Multiplier would be 0.5. If the Index equaled 80, then each of the ten
New Stocks would be allocated a portion of the value of the Index equal to 8 and
if the closing market price of one New Stock on the Anniversary Date was 40, the
applicable Share Multiplier would be 0.2. The last Anniversary Date on which
this reconstitution will occur will be the Anniversary Date in 2005, which will
be approximately one year prior to the maturity date of the MITTS Securities.
"Anniversary Date" shall mean the anniversary date of the date the MITTS
Securities are initially issued; provided, however, that if this date is not an
Index Business Day or a Market Disruption Event occurs on that date, then the
Anniversary Date for that year shall mean the immediately succeeding Index
Business Day on which a Market Disruption Event does not occur. "Top Ten Yield
Stock" at any time shall mean the stocks contained in the Top Ten Yield
Portfolio at that time.
Dow Jones Industrial Average
The DJIA is comprised of 30 common stocks chosen by the editors of the WSJ
as representative of the broad market of American industry generally. The
companies are major factors in their industries and their stocks are typically
widely held by individuals and institutional investors. Changes in the
composition of the DJIA are made entirely by the editors of the WSJ without
consultation with the companies, the stock exchange or any official agency or
ML&Co. For the sake of continuity, changes are made infrequently. Most
substitutions have result from mergers, but from time to time, changes may be
made to achieve a better representation. The components of the DJIA may be
changed at any time for any reason. Dow Jones & Company, Inc., publisher of the
WSJ, is not affiliated with ML&Co, has not participated in any way in the
creation of the MITTS Securities or in the selection of stocks to be included in
the Top Ten Yield Portfolio and has not reviewed or approved any information
included in this prospectus.
The first DJIA, consisting of 12 stocks, was published in the WSJ in 1896.
The list grew to 20 stocks in 1916 and to 30 stocks on October 1, 1928. For two
periods of 17 consecutive years each, there were no changes to the list; March
15, 1939-July 2, 1956 and June 2, 1959-August 8, 1976.
ML&Co or its affiliates may presently or from time to time engage in
business with one or more of the issuers of the Top Ten Yield Portfolio stocks,
including extending loans to, or making equity investments in, these issuers or
providing advisory services to these issuers, including merger and acquisition
advisory services. In the course of this business, ML&Co or its affiliates may
acquire non-public information with respect to these issuers and, in addition,
one or more affiliates of ML&Co may publish research reports with respect to
these issuers. ML&Co does not make any representation to any purchaser of MITTS
Securities with respect to any matters whatsoever relating to these issuers.
Any prospective purchaser of MITTS Securities should undertake an independent
investigation of the issuers of the Top Ten Yield Portfolio stocks as in its
judgment is appropriate to make an informed decision with respect to an
investment in the MITTS Securities. The composition of the Index does not
reflect any investment or sell recommendations of ML&Co or its affiliates.
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Cash Dividends
Current Quarter Dividend
As described above, the value of the Index will include an amount
reflecting Current Quarter Dividends. "Current Quarter Dividends" for any day
will be determined by the AMEX and will equal the sum of the Dividend Payment
for each Top Ten Yield Stock. The "Dividend Payment" with respect to a Top Ten
Yield Stock for any day will equal the sum of the products of:
. each dividend paid by the issuer of that Top Ten Yield Stock on one
share of that Top Ten Yield Stock during the Current Quarter, not
including any reinvestment thereof, multiplied by
. the Share Multiplier applicable to that Top Ten Yield Stock at the
time each dividend is paid. A dividend will be considered paid by an
issuer at the open of business on the ex-dividend date, generally, the
trading day on which the market price of the stock reflects the
payment of the dividend. "Current Quarter" shall mean the period from
and including August 9, 1996 through December 31, 1996, and after
December 31, 1996, from and including the first day of the then
current calendar quarter containing the day on which the applicable
Dividend Payment is being determined to and including the day on which
the applicable Dividend Payment is being determined.
Quarterly Stock Dividend
As of the first day of the start of each calendar quarter, the AMEX will
allocate the Current Quarter Dividends as of the end of the immediately
preceding calendar quarter to each then outstanding Top Ten Yield Stock. The
amount of the Current Quarter Dividends allocated to each Top Ten Yield Stock
will equal the percentage of the value of that Top Ten Yield Stock contained in
the Top Ten Yield Portfolio relative to the value of the entire Top Ten Yield
Portfolio based on the closing market price on the last Index Business Day in
the immediately preceding calendar quarter. The AMEX will increase the Share
Multiplier of each outstanding Top Ten Yield Stock to reflect the number of
shares, or portion of a share, that the amount of the Current Quarter Dividend
allocated to that Top Ten Yield Stock can purchase of each Top Ten Yield Stock
based on the closing market price on the last Index Business Day in the
immediately preceding calendar quarter.
Quarterly Deduction
At the end of each calendar quarter, the Index will be reduced by a value
equal to 0.4375% of the then current Index, provided that:
. there was no deduction at the end of the calendar quarter ending in
September 1996 and the deduction at the end of the calendar quarter
ending in December 1996 was increased to reflect the quarterly rate of
0.4375% prorated for the period from the date of the issuance of the
MITTS Securities through the end of the calendar quarter in December
1996, and
. the Index will be reduced at the close of business on July 31, 2006 by
a value equal to 0.1507% of the closing value of the Index on that
date. With respect to the period ending December 31, 1996, the
quarterly rate of 0.4375% will be prorated by multiplying it by a
factor equal to the result of dividing the number of days in the
period from the date the MITTS Securities are issued through the
calendar quarter ending in December 1996 by 90.
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Adjustments to the Share Multiplier and Top Ten Yield Portfolio
The Share Multiplier with respect to any Top Ten Yield Stock and the Top
Ten Yield Portfolio will be adjusted as follows:
1. If a Top Ten Yield Stock is subject to a stock split or reverse stock
split, then once the split has become effective, the Share Multiplier relating
to that Top Ten Yield Stock will be adjusted to equal the product of the number
of shares issued with respect to one share of that Top Ten Yield Stock and the
prior multiplier.
2. If a Top Ten Yield Stock is subject to a stock dividend, defined as an
issuance of additional shares of the Top Ten Yield Stock, that is given equally
to all holders of shares of the issuer of that Top Ten Yield Stock, then once
the dividend has become effective and that Top Ten Yield Stock is trading ex-
dividend, AMEX will adjust the Share Multiplier so that the new Share Multiplier
shall equal the former Share Multiplier plus the product of the number of shares
of that Top Ten Yield Stock issued with respect to one share of that Top Ten
Yield Stock and the prior multiplier.
3. If the issuer of a Top Ten Yield Stock is being liquidated or is
subject to a proceeding under any applicable bankruptcy, insolvency or other
similar law, that Top Ten Yield Stock will continue to be included in the Top
Ten Yield Portfolio so long as a Market Price for that Top Ten Yield Stock is
available. If a market price is no longer available for a Top Ten Yield Stock
for whatever reason, including the liquidation of the issuer of Top Ten Yield
Stock or the subjection of the issuer of that Top Ten Yield Stock to a
proceeding under any applicable bankruptcy, insolvency or other similar law,
then the value of that Top Ten Yield Stock will equal zero in connection with
calculating the Top Ten Yield Portfolio Value for so long as no market price is
available, and no attempt will be made to immediately find a replacement stock
or increase the value of the Top Ten Yield Portfolio to compensate for the
deletion of that Top Ten Yield Stock. If a market price is no longer available
for a Top Ten Yield Stock as described above, the Top Ten Yield Portfolio Value
will be computed based on the remaining Top Ten Yield Stocks for which market
prices are available and no new stock will be added to the Top Ten Yield
Portfolio until the annual reconstitution of the Top Ten Yield Portfolio. As a
result, there may be periods during which the Top Ten Yield Portfolio contains
fewer than ten Top Ten Yield Stocks.
4. If the issuer of a Top Ten Yield Stock has been subject to a merger or
consolidation and is not the surviving entity or is nationalized, then a value
for that Top Ten Yield Stock will be determined at the time the issuer is merged
or consolidated or nationalized and will equal the last available market price
for that Top Ten Yield Stock and that value will be constant until the Top Ten
Yield Portfolio is reconstituted. At that time, no adjustment will be made to
the Share Multiplier of that Top Ten Yield Stock.
5. If the issuer of a Top Ten Yield Stock issues to all of its
shareholders equity securities that are publicly traded of an issuer other than
the issuer of the Top Ten Yield Stock, then the new equity securities will be
added to the Top Ten Yield Portfolio as a new Top Ten Yield Stock. The Share
Multiplier for that new Top Ten Yield Stock will equal the product of the
original Share Multiplier with respect to the Top Ten Yield Stock for which the
new Top Ten Yield Stock is being issued (the "Original Top Ten Yield Stock") and
the number of shares of the new Top Ten Yield Stock issued with respect to one
share of the Original Top Ten Yield Stock.
No adjustments of any Share Multiplier of a Top Ten Yield Stock will be
required unless the adjustment would require a change of at least 1% in the
Share Multiplier then in effect. The Share Multiplier resulting from any of the
adjustments specified above will be rounded to the nearest ten-thousandth with
five hundred-thousandths being rounded upward.
The AMEX expects that no adjustments to the Share Multiplier of any Top Ten
Yield Stock or to the Top Ten Yield Portfolio will be made other than those
specified above, however, the AMEX may at its
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discretion make adjustments to maintain the value of the Index if events would
otherwise alter the value of the Index despite no change in the market prices of
the Top Ten Yield Stocks.
Historical Performance of the Index
You should review the historical performance of the Index. The historical
performance of the Index should not be taken as an indication of future
performance, and no assurance can be given that the Index will increase
sufficiently to cause the beneficial owners of the MITTS Securities to receive
an amount in excess of the principal amount at the maturity of the MITTS
Securities.
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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.
19
<PAGE>
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 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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
20
<PAGE>
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior debt securities affected.
21
<PAGE>
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.
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 2000.
22
<PAGE>
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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
23
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
Technology Market Index Target-Term Securities(R)
due August 15, 2001
"MITTS(R) Securities"
$10 principal amount
<TABLE>
<CAPTION>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount
. Senior unsecured debt securities of Merrill equal to the sum of the principal amount of each
Lynch & Co., Inc. unit and an additional amount based on the
. Linked to the value of the Chicago Board of percentage increase, if any, in the value of the
Options Exchange Technology Index, as further index, adjusted as described in this prospectus.
described in this prospectus. . At maturity you will receive no less than the
. The MITTS Securities are listed on the Chicago principal amount of your MITTS Securities and no
Board of Options Exchange and the New York Stock more than $20.
Exchange under the symbol "TKM".
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , .
"MITTS" and "Market Index Target-Term Securities" are service marks of Merrill
Lynch & Co., Inc.
* The use and reference of the term "CBOE Technology Index" in this
prospectus has been consented to by the CBOE. The "CBOE Technology Index"
is a service mark of the CBOE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS........................................................... 3
MERRILL LYNCH & CO., INC............................................... 6
RATIO OF EARNINGS TO FIXED CHARGES..................................... 7
DESCRIPTION OF SECURITIES.............................................. 8
THE INDEX.............................................................. 13
OTHER TERMS............................................................ 15
INCORPORATION OF INFORMATION WE FILE WITH THE SEC...................... 19
PLAN OF DISTRIBUTION................................................... 20
EXPERTS................................................................ 20
</TABLE>
2
<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 at maturity we will pay you no more than $10 for
each unit of the MITTS Securities you own if the average value of the index over
five trading days shortly before the maturity date is less than 189.48.
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 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.
Yield on the MITTS Securities is subject to a maximum amount
Because the amount, in addition to the principal amount of the MITTS
Securities, if any, we will pay you at maturity, will not exceed $10 per unit of
MITTS Securities, you will not benefit from index increases in excess of
approximately 125% of the closing index value on the date the MITTS Securities
were priced for initial sale to the public.
Your return will not reflect the return of owning the stocks included in the
index
The index does not reflect the payment of dividends on the stocks
underlying it and therefore the yield based on the index to the maturity of the
MITTS Securities will not produce the same yield as if you purchased the
underlying stocks and held them for a similar period.
There may be an uncertain trading market for the MITTS Securities
ML&Co. has listed the MITTS Securities on the Chicago Board of Options
Exchange and the NYSE under the trading symbol "TKM". You cannot assume that a
trading market will continue to exist for the MITTS Securities. If a trading
market in the MITTS Securities continues to exist, there can be no assurance
that there will be liquidity in the trading market. The continued 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
index.
If a limited trading market for the MITTS Securities exists, and you do not
wish to hold your investment until maturity, fewer buyers may want to purchase
your MITTS Securities. This may affect the price you receive if you sell before
maturity.
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 is expected to depend
substantially on the extent of the appreciation, if any, of the index over
189.48. If, however, you sell your MITTS Securities prior to the maturity date
at a time when the index exceeds 189.48, the price you receive may be at a
substantial discount from the amount expected to be payable if the excess of the
index over 189.48 were to prevail until maturity of the MITTS Securities because
of the possible fluctuation of the index between the time of the sale and the
time that the MITTS Securities mature. Furthermore, the price at which you will
be able to sell the MITTS Securities prior to maturity may be at a discount,
which could be substantial, from the principal amount thereof, if, at that time,
the index is below, equal to, or not sufficiently above 189.48. The $20
limitation on
3
<PAGE>
payment at maturity of the MITTS Securities may adversely affect the secondary
market value of the MITTS Securities. A discount could also result from rising
interest rates.
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
magnify 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 index. 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.
Changes in the levels of U.S. 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 the trading
value of the MITTS Securities will likely be affected by changes in interest
rates. In general, we anticipate that if U.S. interest rates increase, the
trading value of the MITTS Securities is expected to decrease. Conversely, if
U.S. interest rates decrease, the trading value of the MITTS Securities is
expected to increase. Interest rates may also affect the U.S. economy, and, in
turn, the value of the Index. Rising interest rates may lower the value of the
index and, thus, may decrease the trading value of the MITTS Securities. Falling
interest rates may increase the value of the index and, thus, may increase the
trading value of the MITTS Securities.
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. If the volatility of the index increases, we
expect that the trading value of the MITTS Securities will increase. If the
volatility of the 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 believe
that before maturity the MITTS Securities may trade at a value above that which
you may expect from the level of interest rates and the index. This difference
will reflect a "time premium" due to expectations concerning the value of the
index during the period prior to maturity of the MITTS Securities. As the time
remaining to maturity of the MITTS Securities decreases, however, we expect this
time premium to decrease, thus decreasing the trading value of the MITTS
Securities. In addition, the price at which you may be able to sell your MITTS
Securities prior to maturity may be at a discount, which may be substantial,
from the principal amount of the MITTS Securities if the value of the index is
below, equal to, or not sufficiently above 189.48.
Changes in dividend yields of the stocks included in the portfolio are
expected to affect the trading value of the MITTS Securities. If dividend rates
on the stocks included in the index increase, we expect the trading value of the
MITTS Securities to decrease. Conversely, if dividend rates on the stocks
included in the index decrease, we expect the value of the MITTS Securities to
increase. However, in general, rising U.S. corporate dividend rates may increase
the value of the index and, in turn, increase the trading value of the MITTS
Securities. Conversely, falling U.S. corporate dividend rates may decrease the
value of the index and, in turn, decrease the trading value of the MITTS
Securities.
The impact of the factors specified above, excluding the value of the
index, may offset, partially or in whole, any increase in the trading value of
the MITTS Securities that is attributable to an increase in the value of the
index. For example, an increase in U.S. interest rates may cause the MITTS
Securities to trade at a discount from their initial offering price, even if the
index has appreciated significantly. In addition, the impact of a given factor
may change depending on the prevailing value of the index relative to 189.48 and
on the time remaining to maturity. In general, assuming all relevant factors are
held constant, the effect on the trading value of the MITTS Securities of a
given change in interest rates, index volatility and/or dividend rates of stocks
comprising the index is expected to 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. We expect that the effect on the trading value of the MITTS
Securities of a given appreciation of the index in excess of value of the MITTS
Securities to 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, assuming all
other relevant factors are held constant.
4
<PAGE>
Many factors affect the value of the index
Political, economic and other developments that affect the stocks included
in the index may adversely affect the value of the index and the value of the
MITTS Securities. Since the stocks included in the index are of companies
involved in various aspects of the high technology industry segment, factors
affecting this industry segment may affect the value of the index and therefore
the trading value of the MITTS Securities.
Amounts payable on the MITTS Securities may be limited by state law
New York State laws govern the indenture under which the MITTS Securities
are 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 chargeable to and payable 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.
Potential conflicts
Our wholly-owned subsidiary, Merrill Lynch, Pierce, Fenner and Smith, or
MLPF&S, or its affiliates may from time to time engage in transactions involving
the stocks underlying the index for their proprietary accounts and for other
accounts under their management, which may influence the value of the stocks and
therefore the value of the MITTS Securities. MLPF&S and its affiliates will also
be the counterparties to the hedge of ML&Co.'s obligations under the MITTS
Securities. Accordingly, in some circumstances, conflicts of interest may arise
between MLPF&S's responsibilities as calculation agent with respect to the MITTS
Securities and its obligations under its hedge and its status as a subsidiary of
ML&Co. In some circumstances, the duties of MLPF&S as calculation agent could
conflict with the interests of MLPF&S as an affiliate of the issuer of the MITTS
Securities, Merrill Lynch & Co., Inc., and with the interests of the holders of
the MITTS Securities.
5
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
7
<PAGE>
DESCRIPTION OF SECURITIES
On August 12, 1996, ML&Co. issued $25,000,000 aggregate principal amount of
Technology MITTS Securities due August 15, 2001. 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 15, 2001.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of that MITTS Security plus the Supplemental Redemption Amount
described below, 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. Upon the occurrence of an Event
of Default 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.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of each unit plus the Supplemental
Redemption Amount, if any, all as provided below. If the Ending Index Value does
not exceed the Benchmark Index Value, a beneficial owner of a MITTS Security
will be entitled to receive only the principal amount of its MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<S> <C>
Ending Index Value - Benchmark Index Value
Principal Amount X ------------------------------------------
Benchmark Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero or more than $10 per $10 principal amount of MITTS Securities.
The "Benchmark Index Value" equals 189.48. The Benchmark Index Value was
determined on the date the MITTS Securities were priced for initial sale to the
public (the "Pricing Date") by multiplying the closing value of the CBOE
Technology Index (the "Index") on the Pricing Date by a factor equal to 112.5%.
The "Ending Index Value" will be determined by calculation agent and will
equal the average or arithmetic mean of the closing values of the 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 Index
Value will equal the average or arithmetic mean of the closing values of the
Index on those Calculation Days. If there is only one Calculation Day, then the
Ending Index Value will equal the closing value of the Index on that Calculation
Day. If no Calculation Days occur during the Calculation Period because of
Market Disruption Events, then the Ending Index Value will equal the closing
value of the 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 "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.
8
<PAGE>
For purposes of determining the Ending Index Value, an "Index Business Day"
is a day on which the NYSE is open for trading and trading generally occurs in
the over-the-counter market for equity securities and the Index or any Successor
Index, as defined on page 10 below, 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.
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending Index
Values,
. the total amount payable at maturity for each $10 principal amount of
MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
underlying the Index, which includes an assumed aggregate dividend
yield of 0.20% per annum, as more fully described below.
<TABLE>
<CAPTION>
Total Pretax Pretax Annualized
Percentage Change Amount Annualized Rate of Rate of Return of
Hypothetical Ending Over the Starting Payable at Return on the Stocks Underlying
Index Value Index Value Maturity MITTS Securities(1) the Index(1)(2)
------------------- ----------------- ---------- ------------------- -----------------
<S> <C> <C> <C> <C>
84.22 -50% $10.00 0.00% -13.20%
101.06 -40% $10.00 0.00% -9.77%
117.90 -30% $10.00 0.00% -6.81%
134.74 -20% $10.00 0.00% -4.22%
151.59 -10% $10.00 0.00% -1.90%
168.43 (3) 0% $10.00 0.00% 0.20%
185.27 10% $10.00 0.00% 2.12%
202.12 20% $10.67 1.30% 3.88%
218.96 30% $11.56 2.92% 5.52%
235.80 40% $12.44 4.41% 7.05%
252.65 50% $13.33 5.82% 8.49%
269.49 60% $14.22 7.15% 9.84%
286.33 70% $15.11 8.41% 11.12%
303.17 80% $16.00 9.61% 12.33%
320.02 90% $16.89 10.74% 13.48%
336.86 100% $17.78 11.83% 14.58%
353.70 110% $18.67 12.86% 15.63%
370.55 120% $19.56 13.85% 16.64%
387.39 130% $20.00 14.33% 17.60%
404.23 140% $20.00 14.33% 18.53%
421.08 150% $20.00 14.33% 19.43%
</TABLE>
--------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes
(a) an investment of a fixed amount in the stocks underlying the Index
with the allocation of that amount reflecting the relative weights of
the stocks in the Index;
(b) a percentage change in the aggregate price of the stocks that equals
the percentage change in the Index from the closing value of the Index
on the Pricing Date to the relevant hypothetical Ending Index Value;
(c) a constant dividend yield of 0.20% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of
the Index at the end of each quarter assuming the value increases or
decreases linearly from the closing value of the Index on the Pricing
Date to the applicable hypothetical
9
<PAGE>
Ending Index Value;
(d) no transaction fees or expenses;
(e) an investment term equal to the term of the MITTS Securities; and
(f) a final Index value equal to the Ending Index Value. The aggregate
dividend yield of the stocks underlying the Index as of August 7, 1996
was approximately 0.20%.
(3) The closing value of the Index on the Pricing Date.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the resulting pretax
annualized rate of return will depend entirely on the actual Ending Index Value
determined by the calculation agent as provided in this prospectus.
Adjustments to the Index; Market Disruption Events
If at any time the method of calculating its Index, or its value, is
changed in any material respect, or if the Index is in any other way modified so
that the Index does not, in the opinion of the calculation agent, fairly
represent the value of the Index had the 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 Ending Index 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 Index as
if the changes or modifications had not been made, and calculate the closing
value with reference to the Index, as adjusted. Accordingly, if the method of
calculating the Index is modified so that the value of the 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 Index, then the calculation agent shall adjust
the Index in order to arrive at a value of the 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 in 5 or more of the securities included in the 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 option
contracts on the Index which are traded on the Chicago Board Options Exchange,
Inc.
For the purposes of clause (a) above, any limitations on trading during
significant market fluctuations under New York Stock Exchange 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".
For the purposes of this definition, 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.
Discontinuance of the Index
If the CBOE discontinues publication of the Index and the CBOE or
another entity publishes a successor or substitute index that the calculation
agent determines, in its sole discretion, to be comparable to the Index (a
"Successor Index"), then, upon the calculation agent's notification of the
determination to the trustee and ML&Co., the calculation agent will substitute
the Successor Index as calculated by the CBOE or any other entity for the Index
and calculate the Ending Index 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.
If the CBOE discontinues publication of the 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 substituted for the 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 Index
10
<PAGE>
before any discontinuance. If a Successor Index is selected or the calculation
agent calculates a value as a substitute for the Index as described below, the
Successor Index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If the CBOE discontinues publication of the Index before the period during
which the calculation agent is to calculate the Supplemental Redemption Amount
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 Ending Index 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 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. Despite these alternative arrangements, discontinuance
of the publication of the 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 shall have
occurred and be continuing, the amount payable to a beneficial owner of a
Security upon any acceleration permitted by the MITTS Securities, with respect
to each $10 principal amount thereof, will be equal to the principal amount plus
an additional amount of contingent interest calculated as though the date of
early repayment were the maturity date of the MITTS Securities. See "Description
of Securities--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 Security may be limited, under Section 502(b)(2) of Title 11 of the United
States Code, to the principal amount of the 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 at the maturity date of the MITTS Securities,
whether at their stated maturity or upon acceleration, from and after the
maturity date the MITTS Securities shall bear interest, payable upon demand of
the beneficial owners thereof, at the rate of 7.76%, per annum to the extent
that payment of any 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 that amount has been made or duly provided
for.
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by one
or more fully registered global securities. Each global security was deposited
with, or on behalf of, The Depository Trust Company or DTC (DTC, together with
any successor, 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 a 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 the 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
under the 1983 Indenture, 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
11
<PAGE>
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 any action, and the participants would
authorize beneficial owners owning through those participants to give or take
action or would otherwise act upon the instructions of beneficial owners.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC 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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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 written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in 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 the 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 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 identified in a listing attached to
the omnibus proxy.
12
<PAGE>
Principal, premium, if any, and/or interest, if any, payments 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 the 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
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to 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.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form 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
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 INDEX
Unless otherwise stated, all information in this prospectus on the Index is
derived from the CBOE or other publicly available sources. This information
reflects the policies of the CBOE as stated in those sources and the policies
are subject to change by the CBOE.
The Index is a price-weighted stock index designed, developed, maintained
and operated by, and is a service mark of, the CBOE. The Index is designed to
provide an indication of the composite price performance of the common stocks of
companies involved in the U.S. high technology industry segment for example,
companies involved in the design and manufacture of high technology components
and systems.
The value of the Index is reported on the AMEX and Bloomberg under the
symbol "TXX" and on Reuters under the symbol ".TXX".
The Index consists of the stocks of issuers involved in various aspects of
the high technology industry segment, including:
13
<PAGE>
. computer services,
. telecommunications equipment,
. server software and hardware,
. design software,
. PC software and hardware,
. networking, peripherals, and
. semiconductors.
The CBOE selects companies for inclusion in the Index with the aim of
representing the spectrum of companies that develop components and systems that
define high technology. Relevant criteria employed by the CBOE include:
. the viability of the particular company,
. the extent to which that company represents the high technology
sector,
. the extent to which the market price of that company's common stock is
generally responsive to changes in the affairs of the technology
sector, and
. the market value and trading activity of the common stock of that
company.
Computation of the Index
The Index is a price-weighted index for example, the weight in the Index of
a stock underlying the Index (an "Underlying Stock") is based on its price per
share rather than the total market capitalization of the issuer of that stock,
and reflects changes in the prices of the Underlying Stocks relative to the
index base date, January 3, 1995, when the Index equaled 100.00. Specifically,
the Index value is calculated by:
. totaling the prices of a single share of each of the Underlying Stocks
(the "Market Price Aggregate"), and
. dividing the Market Price Aggregate by the Index Divisor.
The Index Divisor was originally chosen to result in an Index value of 100 on
January 3, 1995, and is subject to periodic adjustments as set forth below. The
stock prices used to calculate the Index are those reported by a primary market
for the Underlying Stocks.
The CBOE adjusts the foregoing Index Divisor to negate the effects of
changes in the price of an Underlying Stock that are determined by the CBOE to
be arbitrary and not due to market fluctuations. These adjustments may result
from stock splits, consolidations and acquisitions, the grant to shareholders of
the right to purchase other securities of the issuer for example, spinoffs and
rights issuances. The CBOE may also adjust the Index Divisor because of the
substitution of an Underlying Security. The CBOE first recalculates the Market
Price Aggregate and then determines a new Index Divisor based on the following
formula:
New Market Price Aggregate
Old Divisor X -------------------------- = New Divisor
Old Market Price Aggregate
14
<PAGE>
The Index will be maintained by the CBOE. The Index is reviewed on
approximately a monthly basis by the CBOE staff. The CBOE may change the
composition of the Index at any time to reflect changes affecting the components
of the Index or the technology industry generally. If it becomes necessary to
remove a stock from the Index for example, because of a takeover or merger, the
CBOE will only add a stock having characteristics that will permit the Index to
remain within the maintenance criteria specified in CBOE Rules and within the
applicable rules of the Commission.
Additionally, as of the first trading day of each January and July, no
single security may account for over 25% of the weight of the Index and no five
securities may account for over 50% of the weight of the Index. Furthermore,
each component security must be a reported security as defined in Rule 11Aa3-1
of the Exchange Act. Finally, at least 90% of the weight of the Index and 80% of
the number of components in the Index must be eligible for standardized options
trading pursuant to CBOE Rules or, if currently listed for options trading, must
meet the applicable maintenance standards specified in CBOE Rules. The CBOE will
also take into account the capitalizations, liquidity, volatility, and name
recognition of any proposed replacement stock.
Absent prior approval of the SEC, the CBOE will not increase to more than
40, or decrease to fewer than 20, the number of stocks in the Index.
Additionally, the CBOE will not make any change in the composition of the Index
that would cause fewer than 90% of the stocks by weight, or fewer than 80% of
the total number of stocks in the index, to qualify as stocks eligible for
equity options trading under CBOE rules.
The CBOE is under no obligation to continue the calculation and
dissemination of the Index and the method by which the Index is calculated and
the name "CBOE Technology Index" may be changed at the discretion of the CBOE.
The MITTS Securities are not sponsored, endorsed, sold or promoted by the CBOE.
No inference should be drawn from the information contained in this prospectus
that the CBOE makes any representation or warranty, implied or express, to
ML&Co., the beneficial owners of MITTS Securities or any member of the public
regarding the advisability of investing in securities generally or in the MITTS
Securities in particular or the ability of the Index to track general stock
market performance. The CBOE has no obligation to take the needs of ML&Co. or
the beneficial owners of MITTS Securities into consideration in determining,
composing or calculating the Index. The CBOE is not responsible for, and has not
participated in the determination of the timing of prices for or quantities of,
the MITTS Securities to be issued or in the determination or calculation of the
equation by which the Supplemental Redemption Amount is determined. The CBOE has
no obligation or liability in connection with the administration, marketing or
trading of the MITTS Securities.
The use of and reference to the Index in connection with the MITTS
Securities have been consented to by the CBOE.
Except in the limited circumstance described in this prospectus, none of
ML&Co., the trustee, the calculation agent or the underwriter has undertaken
independent diligence of the calculation, maintenance or publication of the
Index or any Successor Index. The CBOE disclaims all responsibility for any
inaccuracies in the data on which the Index is based and any mistakes or errors
or omissions in the calculation or dissemination of the Index and for the manner
in which the Index is used in determining the Supplemental Redemption Amount, if
any.
A potential investor should review the historical performance of the Index.
The historical performance of the Index should not be taken as an indication of
future performance, and no assurance can be given that the Index will increase
sufficiently to cause the beneficial owners of the MITTS Securities to receive
an amount in excess of the principal amount at the maturity of the MITTS
Securities.
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
15
<PAGE>
ML&Co. may issue series of senior debt securities from time to time 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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, LPF&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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
16
<PAGE>
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
17
<PAGE>
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior 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.
18
<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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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.
19
<PAGE>
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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 CBOE or NYSE or off the
exchanges 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
20
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ This information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with the+
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy these+
+ securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
Healthcare/Biotechnology Portfolio
Market Index Target-Term Securities(R)
due October 31, 2001
"MITTS(R) Securities"
$10 principal amount
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>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities Merrill Lynch & the sum of the principal amount of each unit and an
Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the any, in the value of the portfolio, adjusted as
Healthcare/Biotechnology Portfolio, as described in described in this prospectus.
this prospectus. . You will receive no less than the principal amount
. The MITTS Securities are listed on the American of your MITTS Securities.
Stock Exchange under the symbol "MLH".
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , .
(R)"MITTS" and "Market Index Target-Term Securities" are registered service
marks of Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS........................................................... 3
MERRILL LYNCH & CO., INC............................................... 6
RATIO OF EARNINGS TO FIXED CHARGES..................................... 7
DESCRIPTION OF SECURITIES.............................................. 8
THE PORTFOLIO.......................................................... 15
OTHER TERMS............................................................ 17
PROJECTED PAYMENT SCHEDULE............................................. 21
WHERE YOU CAN FIND MORE INFORMATION.................................... 21
INCORPORATION OF INFORMATION WE FILE WITH THE SEC...................... 22
PLAN OF DISTRIBUTION................................................... 23
EXPERTS................................................................ 23
</TABLE>
2
<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 at maturity we will pay you no more than $10 for
each unit of the MITTS Securities you own if the average value of the portfolio
over five trading days shortly before the maturity date is less than 115. This
will be true even if at some time during the life of the MITTS Securities, the
value of the portfolio was higher than 115 but later falls below 115.
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 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
portfolio
The portfolio does not reflect the payment of dividends on the stocks
underlying it. Therefore your yield you receive based on the value of portfolio
at the maturity of the MITTS Securities will not be the same as the yield you
would receive if you had purchased the underlying stocks and held them for a
similar period.
There may be an uncertain trading market for the MITTS Securities
ML&Co. has listed the MITTS Securities on the AMEX under the trading symbol
"MLH". You cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS Securities continues to
exist, there can be no assurance that there will be liquidity in the trading
market. The continued 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 portfolio.
If a limited trading market for the MITTS Securities exists, and you do not
wish to hold your investment until maturity, fewer buyers may want to purchase
your MITTS Securities. This may affect the price you receive if you sell before
maturity.
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
magnify 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 portfolio. 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.
Changes in the levels of U.S. 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 the MITTS Securities at maturity, changes in
interest rates will likely affect the trading value of the MITTS Securities. In
general, if U.S. interest rates increase, we expect the trading value of the
MITTS Securities to decrease. Conversely, if U.S. interest rates decrease, we
expect the trading value of the MITTS Securities to increase. Interest rates may
3
<PAGE>
also affect the U.S. economy, and, in turn, the value of the portfolio. Rising
interest rates may lower the value of the portfolio and, thus, may decrease the
trading value of the MITTS Securities. Falling interest rates may increase the
value of the portfolio and, thus, may increase the trading value of the MITTS
Securities.
Changes in the volatility of the portfolio are expected to affect the
trading value of the MITTS Securities. If the volatility of the portfolio value
increases, we expect the trading value of the MITTS Securities to increase. If
the volatility of the portfolio value decreases, we expect the trading value of
the MITTS Securities to 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 prior to maturity the MITTS Securities may trade at a value
above that which you may expect based on the level of interest rates and the
portfolio. This difference will reflect a "time premium" due to expectations
concerning the value of the portfolio during the period prior to maturity of the
MITTS Securities. As the time remaining to maturity of the MITTS Securities
decreases, however, this time premium is expected to decrease, thus decreasing
the trading value of the MITTS Securities. In addition, the price at which you
may be able to sell the MITTS Securities prior to maturity may be at a discount,
which may be substantial, from the principal amount of the MITTS Securities if
the value of the portfolio is below, equal to, or not sufficiently above 115.
Changes in dividend yields of the stocks included in the portfolio are
expected to affect the trading value of the MITTS Securities. If dividend rates
on the stocks included in the portfolio increase, we expect the trading value of
the MITTS Securities to decrease. Conversely, if dividend rates on the stocks
included in the portfolio decrease, we expect the value of the MITTS Securities
to increase. However, in general, rising U.S. corporate dividend rates may
increase the value of the portfolio and, in turn, increase the trading value of
the MITTS Securities. Conversely, falling U.S. corporate dividend rates may
decrease the value of the portfolio and, in turn, decrease the trading value of
the MITTS Securities.
In general, assuming all relevant factors are held constant, the effect on
the trading value of the MITTS Securities of a given change in interest rates,
portfolio volatility and/or dividend rates of stocks comprising the portfolio is
expected to 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, the effect on
the trading value of the MITTS Securities of a given appreciation of the
portfolio in excess 115 is expected to 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, assuming all other relevant factors are held constant.
Many factors affecting the stocks in the portfolio value will affect your return
Political, economic and other developments that affect the stocks
underlying the portfolio may adversely affect the value of the portfolio and the
value of the MITTS Securities. Since the stocks underlying the portfolio are of
companies involved in various segments of the healthcare industry and the
biotechnology industry, factors affecting these industries may affect the value
of the portfolio and therefore the trading value of the MITTS Securities. See
"The Portfolio--Healthcare and Biotechnology Industries".
Amounts payable on the MITTS Securities may be limited by state law
New York State laws govern the indenture under which the MITTS Securities
were 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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
4
<PAGE>
Potential Conflicts
Our wholly-owned subsidiary, Merrill Lynch, Pierce, Fenner and Smith
Incorporated, or MLPF&S, or its affiliates may from time to time engage in
transactions involving the stocks included in the portfolio for their
proprietary accounts and for other accounts under their management, which may
influence the value of these stocks and therefore the value of the MITTS
Securities. MLPF&S and its affiliates will also be the counterparties to the
hedge of ML&Co.'s obligations under the MITTS Securities. Accordingly, in some
circumstances, conflicts of interest may arise between MLPF&S's responsibilities
as calculation agent for the MITTS Securities and its obligations under its
hedge and its status as a subsidiary of ML&Co. At times, the duties of MLPF&S
as calculation agent could conflict with the interests of MLPF&S as an affiliate
of the issuer of the MITTS Securities, Merrill Lynch & Co., Inc., and with the
interests of the holders of the MITTS Securities.
5
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
7
<PAGE>
DESCRIPTION OF SECURITIES
On October 30, 1996, ML&Co. issued $15,000,000 aggregate principal amount
of Healthcare/Biotechnology MITTS Securities due October 31, 2001. 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 October 31, 2001.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of the MITTS Security plus the Supplemental Redemption Amount
described below, 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. Upon the occurrence of an Event
of Default, as defined below, 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.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of that unit plus the Supplemental
Redemption Amount, if any, all as provided below. If the Ending Portfolio Value
does not exceed the Benchmark Portfolio Value, a beneficial owner of a MITTS
Security will be entitled to receive only the principal amount of its MITTS
Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<CAPTION>
<S> <C>
( Ending Portfolio Value-Benchmark Portfolio Value )
Principal Amount ($10 per unit) X ( ------------------------------------------------ )
( Benchmark Portfolio Value )
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Portfolio" means the Healthcare/Biotechnology Portfolio.
The "Benchmark Portfolio Value" equals 115. The Benchmark Portfolio Value
was determined on the date the MITTS securities were priced for initial sale to
the public (the "Pricing Date"), by multiplying the Starting Portfolio Value by
a factor equal to 115%. Based on the individual prices of the stocks included in
the Portfolio (the "Portfolio Securities") on the Pricing Date, the Multiplier
for each Portfolio Security was initially set by the AMEX so that, on the
Pricing Date, the Portfolio Securities were equally dollar-weighted in the
Portfolio and the Portfolio Value equaled 100 (the "Starting Portfolio Value").
The "Ending Portfolio Value" will be determined by the calculation agent
and will equal the average or arithmetic mean of the closing values of the
Portfolio determined on each of the first five Calculation Days during the
Calculation Period. If there are fewer than five Calculation Days, then the
Ending Portfolio Value will equal the average or arithmetic mean of the closing
values of the Portfolio on those Calculation Days. If there is only one
Calculation Day, then the Ending Portfolio Value will equal the closing value of
the Portfolio on that Calculation Day. If no Calculation Days occur during the
Calculation Period because of Market Disruption Events, then the Ending
Portfolio Value will equal the closing value of the Portfolio determined on
8
<PAGE>
the last scheduled Portfolio Business Day in the Calculation Period, regardless
of the occurrence of a Market Disruption Event on that day.
The "Calculation Period" means the period from and including the seventh
scheduled Portfolio Business Day prior to the maturity date to and including the
second scheduled Portfolio Business Day prior to the maturity date.
"Calculation Day" means any Portfolio Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
For purposes of determining the Ending Portfolio Value, a "Portfolio
Business Day" is a day on which the AMEX is open for trading and trading
generally occurs in the over-the-counter market for equity securities and the
Portfolio or any Successor Portfolio, as defined below on page 10, 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.
9
<PAGE>
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending
Portfolio Values:
. the total amount payable at maturity for each $10 principal amount of
MITTS Securities, based on the Benchmark Portfolio Value, which equals
115% of the Starting Portfolio Value;
. the pretax annualized rate of return to beneficial owners of MITTS
Securities; and
. the pretax annualized rate of return of an investment in the stocks
underlying the Portfolio, which includes an assumed aggregate dividend
yield of 0.23% per annum, as more fully described below.
<TABLE>
<CAPTION>
Total Pretax Pretax Annualized
Hypothetical Percentage Change Amount Annualized Rate of Rate of Return of
Ending Over the Starting Payable at Return on the Stock Underlying
Portfolio Value Portfolio Value Maturity(1) Securities(2) the Portfolio(2)(3)
--------------- ----------------- ----------- -------------- ---------------------
<S> <C> <C> <C> <C>
50 -50% $10.00 0.00% -13.09%
60 -40% $10.00 0.00% -9.66%
70 -30% $10.00 0.00% -6.71%
80 -20% $10.00 0.00% -4.11%
90 -10% $10.00 0.00% -1.79%
100(4) 0% $10.00 0.00% 0.23%
110 10% $10.00 0.00% 2.23%
120 20% $10.43 0.85% 4.00%
130 30% $11.30 2.47% 5.64%
140 40% $12.17 3.97% 7.17%
150 50% $13.04 5.39% 8.60%
160 60% $13.91 6.72% 9.96%
170 70% $14.78 7.97% 11.23%
180 80% $15.65 9.16% 12.45%
190 90% $16.52 10.30% 13.60%
200 100% $17.39 11.38% 14.70%
210 110% $18.26 12.41% 15.75%
220 120% $19.13 13.40% 16.76%
230 130% $20.00 14.35% 17.77%
240 140% $20.87 15.27% 18.66%
250 150% $21.74 16.15% 19.56%
</TABLE>
(1) The total amount payable at maturity is based on the Benchmark Portfolio
Value, which equals 115% of the Starting Portfolio Value.
(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:
. an investment of a fixed amount in the stocks underlying the
Portfolio with the allocation of that amount reflecting the relative
weights of the stocks in the Portfolio;
. a percentage change in the aggregate price of the stocks that equals
the percentage change in the Portfolio from the Starting Portfolio
Value to the relevant hypothetical Ending Portfolio Value;
. a constant dividend yield of 0.23% per annum, paid quarterly from
the date of initial delivery of MITTS Securities, applied to the
value of the Portfolio at the end of each quarter assuming this
10
<PAGE>
value increases or decreases linearly from the Starting Portfolio
Value to the applicable hypothetical Ending Portfolio Value;
. no transaction fees or expenses;
. a five year maturity of the MITTS Securities from the date of
issuance; and
. a final Portfolio value equal to the Ending Portfolio Value. The
aggregate dividend yield of the stocks underlying the Portfolio as
of October 24, 1996 was approximately 0.23% per annum.
(4) The Starting Portfolio Value was set at 100 based on the closing prices on
the Pricing Date.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the resulting pretax
annualized rate of return will depend entirely on the actual Ending Portfolio
Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Portfolio; Market Disruption Events
If at any time the method of calculating the Portfolio Value is changed in
any material respect, or if the Portfolio is in any other way modified so that
the Portfolio Value does not, in the opinion of the calculation agent, fairly
represent the Portfolio Value 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 Ending Portfolio 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 Portfolio
Value as if any changes or modifications had not been made, and calculate the
closing value with reference to the Portfolio Value, as adjusted. Accordingly,
if the method of calculating the Portfolio Value is modified so that the
Portfolio Value 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 Portfolio Value, then the
calculation agent shall adjust the Portfolio Value in order to arrive at a
Portfolio Value 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 the trading of three or more
of the Portfolio Securities on any exchange in the United States or in the over-
the-counter market for more than two hours of trading or during the period one-
half hour prior to the close of trading, or
(b) the suspension or material limitation, whether by reason of movements
in price otherwise exceeding levels permitted by the relevant exchange or
otherwise, in the trading of option contracts related to three or more of the
Portfolio Securities traded on any exchange for more than two hours of trading
or during the period one-half hour prior to the close of trading.
For the purposes of clause (a) above, any limitations on trading during
significant market fluctuations under New York Stock Exchange 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".
For the purposes of this definition, 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.
Discontinuance of the Portfolio
If the AMEX discontinues publication of the Portfolio Value and the AMEX or
another entity publishes a successor or substitute index that the calculation
agent determines, in its sole discretion, to be
11
<PAGE>
comparable to the Portfolio Value (the "Successor Portfolio Value"), then, upon
the calculation agent's notification of this determination to the trustee and
ML&Co., the calculation agent will substitute the Successor Portfolio Value as
calculated by the AMEX or any other entity for the Portfolio Value and calculate
the Ending Portfolio Value as described above under "Payment at Maturity". Upon
any selection by the calculation agent of a Successor Portfolio Value, ML&Co.
shall cause notice to be given to holders of the MITTS Securities.
If the AMEX discontinues publication of the Portfolio Value and a Successor
Portfolio Value is not selected by the calculation agent or is no longer
published on any of the Calculation Days, the value to be substituted for the
Portfolio Value 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 Portfolio Value prior to any discontinuance. If a Successor
Portfolio Value is selected or the calculation agent calculates a value as a
substitute for the Portfolio Value as described below, the Successor Portfolio
Value or value calculated by the calculation agent shall be substituted for the
Portfolio Value for all purposes, including for purposes of determining whether
a Market Disruption Event exists.
If the AMEX discontinues publication of the Portfolio Value prior to the
period during which the Supplemental Redemption Amount is to be determined and
the calculation agent determines that no Successor Portfolio Value is available
at that time, then on each Business Day until the earlier to occur of
. the determination of the Ending Portfolio Value and
. a determination by the calculation agent that a Successor Portfolio
Value 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
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
to be made available by telephone.
Despite these alternative arrangements, discontinuance of the publication
of the Portfolio Value 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
occured 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 plus an
additional amount of contingent interest calculated as though the date of early
repayment were the maturity date of the MITTS Securities. See "Description of
Securities--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 were the maturity date of the MITTS Securities.
In case of default in payment at the maturity date of the MITTS Securities
whether at their stated maturity or upon acceleration, from and after the
maturity date the MITTS Securities shall bear interest, payable upon demand of
the beneficial owners thereof, at the rate of 6.61% per annum to the extent that
payment of the 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 any amount has been made or duly provided for.
12
<PAGE>
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by one
or more fully registered global securities. Each global security was deposited
with, or on behalf of, The Depository Trust Company or 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 a 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 the 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
under the 1983 Indenture, 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 any action, and the participants
would authorize beneficial owners owning through those participants to give or
take action or would otherwise act upon the instructions of beneficial owners.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC 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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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
13
<PAGE>
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 written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in 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 the 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 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 identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments 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 the 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
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co. within
60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
14
<PAGE>
. 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.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form 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
ML&CO. will make all payments of principal and the Supplemental Redemption
Amount, in immediately available funds so long as the MITTS Securities are
maintained in book-entry form.
THE PORTFOLIO
While the Portfolio consists of stocks of companies involved in various
segments of the healthcare industry and the biotechnology industry, the
Portfolio is not intended to provide an indication of the pattern of price
movements of common stocks of healthcare and biotechnology corporations
generally. All of the Portfolio Securities are registered under the Exchange
Act. Companies with securities registered under the Exchange Act are required
to file periodically financial and other information specified by the SEC.
Information provided to or filed with the SEC is available at the offices of the
SEC. Neither ML&Co. nor MLPF&S makes any representation or warranty as to the
accuracy or completeness of the reports. The inclusion of a Portfolio Security
in the Portfolio is not a recommendation to buy or sell that Portfolio Security
and neither ML&Co. nor any of its affiliates make any representation to any
purchaser of MITTS Securities as to the performance of the Portfolio.
The value of the Portfolio is reported on the AMEX and Bloomberg under the
symbol "MXH" and on Reuters under the symbol ".MXH".
ML&Co. or its affiliates may presently or from time to time engage in
business with one or more of the issuers of the Portfolio Securities, including
extending loans to, or making equity investments in, these issuers or providing
advisory services to these issuers, including merger and acquisition advisory
services. In the course of business, ML&Co. or its affiliates may acquire non-
public information about the issuers and, in addition, one or more affiliates of
ML&Co. may publish research reports about the issuers. ML&Co. does not make any
representation to any purchaser of MITTS Securities with respect to any matters
whatsoever relating to these issuers. Any prospective purchaser of a MITTS
Security should undertake an independent investigation of the issuers of the
Portfolio Securities as in its judgment is appropriate to make an informed
decision about an investment in the MITTS Securities.
Healthcare and Biotechnology Industries
The healthcare industry is subject to various federal, state and local laws
and regulations which are frequently subject to change in many ways that can
affect the price of the stocks of companies involved in the industry.
15
<PAGE>
The biotechnology industry segment is subject to many of the same factors
that affect the healthcare industry. In addition, the products produced by
biotechnology companies often entail costly research and development and can be
subject to extensive regulatory review prior to approval for sale.
Computation of the Portfolio Value
The AMEX will generally calculate and disseminate the value of the
Portfolio based on the most recently reported prices of the Portfolio
Securities, as reported by the Exchanges, at approximately 15-second intervals
during the AMEX's business hours and at the end of each Portfolio Business Day
via the Consolidated Tape Association's Network B. The Portfolio Value, at any
time, will equal the sum of the products of these prices and the applicable
Multipliers for the Portfolio Securities. The Ending Portfolio Value, however,
is calculated by the calculation agent based on averaging the Portfolio Values
reported by the AMEX at the end of particular Portfolio Business Days. See
"Description of Securities--Payment at Maturity". The securities listed below
are the Portfolio Securities and will be used to calculate the value of the
Portfolio. Holders of the MITTS will not have any right to receive the Portfolio
Securities.
The initial Multiplier relating to each Portfolio Security indicates the
number of shares of the Portfolio Security, given the market price of the
Portfolio Security, required to be included in the calculation of the Starting
Portfolio Value so that each Portfolio Security represents an equal percentage
of the Starting Portfolio Value. The price of each Portfolio Security used to
calculate the initial Multiplier relating to each Portfolio Security was the
closing price of the Portfolio Security on the Pricing Date. The respective
Multipliers will remain constant for the term of the MITTS Securities unless
adjusted for particular corporate events, as described below.
Adjustments to the Multiplier and Portfolio
The AMEX will adjust the Multiplier with respect to any Portfolio Security
and the Portfolio as follows:
1. If a Portfolio Security is subject to a stock split or reverse stock
split, then once the split has become effective, the Multiplier relating to the
Portfolio Security will be adjusted to equal the product of the number of shares
issued with respect to one share of the Portfolio Security and the prior
multiplier.
2. If a Portfolio Security is subject to a stock dividend, issuance of
additional shares of the Portfolio Security, that is given equally to all
holders of shares of the issuer of that Portfolio Security, then once the
dividend has become effective and that Portfolio Security is trading ex-
dividend, the Multiplier will be adjusted so that the new Multiplier shall equal
the former Multiplier plus the product of the number of shares of that Portfolio
Security issued with respect to one share of that Portfolio Security and the
prior multiplier.
3. There will be no adjustments to the Multipliers to reflect cash
dividends or distributions paid on a Portfolio Security other than for
Extraordinary Dividends as described below. A cash dividend with respect to a
Portfolio Security will be deemed to be an "Extraordinary Dividend" if that
dividend exceeds the immediately preceding non-Extraordinary Dividend for the
Portfolio Security by an amount equal to at least 10% of the market price on the
Portfolio Business Day preceding the record day for the payment of the
Extraordinary Dividend (the "ex-dividend date"). If an Extraordinary Dividend
occurs with respect to a Portfolio Security, the Multiplier of the Portfolio
Security will be adjusted on the ex-dividend date with respect to that
Extraordinary Dividend so that the new Multiplier will equal the product of the
then current Multiplier and a fraction, the numerator of which is the sum of the
Extraordinary Dividend Amount and the market price on the Trading Day preceding
the ex-dividend date, and the denominator of which is the market price on the
Trading Day preceding the ex-dividend date. The "Extraordinary Dividend Amount"
with respect to an Extraordinary Dividend for a Portfolio Security will equal
the Extraordinary Dividend minus the amount of the immediately preceding non-
Extraordinary Dividend for that Portfolio Security.
16
<PAGE>
4. If the issuer of a Portfolio Security is being liquidated or is subject
to a proceeding under any applicable bankruptcy, insolvency or other similar
law, the Portfolio Security will continue to be included in the Portfolio so
long as a market price for the Portfolio Security is available. If a market
price is no longer available for a Portfolio Security for whatever reason,
including the liquidation of the issuer of the Portfolio Security or the
subjection of the issuer of the Portfolio Security to a proceeding under any
applicable bankruptcy, insolvency or other similar law, then the value of that
Portfolio Security will equal zero in connection with calculating the Portfolio
Value and the Ending Portfolio Value for so long as no market price is
available, and no attempt will be made to find a replacement stock or increase
the value of the Portfolio to compensate for the deletion of the Portfolio
Security.
5. If the issuer of a Portfolio Security has been subject to a merger or
consolidation and is not the surviving entity or is nationalized, then a value
for that Portfolio Security will be determined at the time the issuer is merged
or consolidated or nationalized and will equal the last available market price
for the Portfolio Security and that value will be constant for the remaining
term of the MITTS Securities. At that time, no adjustment will be made to the
Multiplier of the Portfolio Security. ML&Co. may at its sole discretion increase
the last available market price to reflect payments or dividends of cash,
securities or other consideration to holders of the Portfolio Security in
connection with the merger or consolidation which may not be reflected in the
last available market price.
6. If the issuer of a Portfolio Security issues to all of its shareholders
equity securities that are publicly traded of an issuer other than the issuer of
the Portfolio Security, then the new equity securities will be added to the
Portfolio as a new Portfolio Security. The Multiplier for the new Portfolio
Security will equal the product of the original Multiplier of the Portfolio
Security for which the new Portfolio Security is being issued (the "Original
Portfolio Security") and the number of shares of the new Portfolio Security
issued with respect to one share of the Original Portfolio Security.
No adjustments of any Multiplier of a Portfolio Security will be required
unless the adjustment would require a change of at least 1% in the Multiplier
then in effect. The Multiplier resulting from any of the adjustments specified
above will be rounded to the nearest one thousandth with five ten-thousandths
being rounded upward.
The AMEX expects that no adjustments to the Multiplier of any Portfolio
Security or to the Portfolio will be made other than those specified above,
however, the AMEX may at its discretion make adjustments to maintain the
economic intent of the Portfolio.
A potential investor should review the historical performance of the
Portfolio. The historical performance of the Portfolio should not be taken as
an indication of future performance, and no assurance can be given that the
Portfolio will increase sufficiently to cause the beneficial owners of the MITTS
Securities to receive an amount in excess of the principal amount at the
maturity of the MITTS Securities.
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time 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.
17
<PAGE>
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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
18
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. 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:
. pay any amounts due and payable or deliverable with respect to all
the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any senior debt security;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any senior debt security;
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
19
<PAGE>
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the consent
of each holder of each outstanding security of each series of senior
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.
20
<PAGE>
PROJECTED PAYMENT SCHEDULE
Solely for purposes of applying final Treasury regulations (the "Final
Regulations") concerning the United States Federal income tax treatment of
contingent payment debt instruments to the 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 Supplemental
Redemption Amount equal to $3.8425 per unit. This represents an estimated yield
on the MITTS Securities equal to 6.61% 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 not
a prediction 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 the projected
payment schedule for the MITTS Securities (including both the projected
Supplemental Redemption Amount and the estimated yield equal to 6.61% per annum
(compounded semiannually)) as determined by ML&Co. for purposes of the
application of the Final Regulations to the MITTS Securities:
<TABLE>
<CAPTION>
Total Interest Deemed
to Have Accrued on
Interest Deemed to Securities as of End
Accrue During Accrual of Accrual Period
Accrual Period Period (per unit) (per unit)
--------------- --------------------- --------------------
<S> <C> <C>
October 30, 1996 through April 30, 1997.......... $0.3305 $0.3305
May 1, 1997 through October 31, 1997............. $0.3414 $0.6719
November 1, 1997 through April 30, 1998.......... $0.3527 $1.0246
May 1, 1998 through October 31, 1998............. $0.3644 $1.3890
November 1, 1998 through April 30, 1999.......... $0.3764 $1.7654
May 1, 1999 through October 31, 1999............. $0.3888 $2.1542
November 1, 1999 through April 30, 2000.......... $0.4017 $2.5559
May 1, 2000 through October 31, 2000............. $0.4150 $2.9709
November 1, 2000 through April 30, 2001.......... $0.4287 $3.3996
May 1, 2001 through October 31, 2001............. $0.4429 $3.8425
</TABLE>
_______________
Projected Supplemental Redemption Amount = $3.8425 per unit
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 the
information to Merrill Lynch & Co., Inc., Corporate Secretary's Office, 222
Broadway, 17th Floor, New York, New York 10038, (212) 670-0432,
[email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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
21
<PAGE>
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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29, 2000, July
18, 2000, August 2, 2000, August 4, 2000, September 13, 2000, October 6,
2000, October 17, 2000, November 1, 2000, November 20, 2000 and December
6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. 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.
22
<PAGE>
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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
23
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
S&P 500 Market Index Target-Term Securities(R)
due September 16, 2002
"MITTS(R) Securities"
$10 principal amount
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>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the S&P 500 Index. any, in the value of the index, adjusted as described
. The MITTS Securities are listed on the New York in this prospectus.
Stock Exchange under the symbol "MIM". . You will receive no less than the principal amount
of the MITTS Securities.
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , .
"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 ML&Co. is an authorized
sublicensee.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS...................................................... 3
MERRILL LYNCH & CO., INC.......................................... 6
RATIO OF EARNINGS TO FIXED CHARGES................................ 7
DESCRIPTION OF THE MITTS SECURITIES............................... 8
THE INDEX......................................................... 14
OTHER TERMS....................................................... 16
PROJECTED PAYMENT SCHEDULE........................................ 20
WHERE YOU CAN FIND MORE INFORMATION............................... 21
INCORPORATION OF INFORMATION WE FILE WITH THE SEC................. 21
PLAN OF DISTRIBUTION.............................................. 22
EXPERTS........................................................... 22
</TABLE>
2
<PAGE>
RISK FACTORS
Your investment in 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 at maturity we will pay you no more than $10 for
each unit of the MITTS Securities you own if the average value of the index over
five trading days shortly before the maturity date is less than 813.65, the
value of the index on the date the MITTS Securities were priced. This will be
true even if at some time during the life of the MITTS Securities, the value of
the index was higher than 813.65 but later falls below 813.65.
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 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.
The yield on the MITTS Securities will not reflect the dividends on the stocks
included in the index
Your return will not reflect the return you would realize if you actually
owned the stocks underlying the index and received the dividends paid on those
stocks because the index does not reflect the payment of dividends on the stocks
underlying it.
There may be an uncertain trading market for the MITTS Securities in the future
Although the MITTS Securities are listed on the NYSE under the symbol
"MIM," you cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS Securities continues to
exist, you cannot assume that there will be liquidity in the trading market.
The continued existence of a trading market for the MITTS Securities will depend
on our financial performance and other factors such as the appreciation, if any,
of the value of the index.
If a limited trading market for the MITTS Securities exists, and you do not
wish to hold your investment until maturity, fewer buyers may want to purchase
your MITTS Securities. This may affect the price you receive if you sell before
maturity.
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
magnify 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 index. 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.
Changes in the levels of U.S. 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 the trading
value of the MITTS Securities will likely be affected by changes in interest
rates. In general, we
3
<PAGE>
anticipate that if U.S. interest rates increase, the trading value of the MITTS
Securities will decrease. If U.S. interest rates decrease, we expect the trading
value of the MITTS Securities to increase. Interest rates may also affect the
U.S. economy, and, in turn, the value of the index. Rising interest rates may
lower the value of the index and, thus, the MITTS Securities. Falling interest
rates may increase the value of the index and, thus, may increase the value of
the MITTS Securities.
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. If the volatility of the index increases, we
expect that the trading value of the MITTS Securities will increase. If the
volatility of the 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 believe
that before maturity the MITTS Securities may trade at a value above that which
may be inferred from the level of interest rates and the index. This difference
will reflect a "time premium" due to expectations concerning the value of the
index during the period prior to maturity of the MITTS Securities. As the time
remaining to maturity of the MITTS Securities decreases, however, we expect this
time premium to decrease, thus decreasing the trading value of the MITTS
Securities. In addition, the price at which you may be able to sell MITTS
Securities prior to maturity may be at a discount, which may be substantial,
from the principal amount of the MITTS Securities if the value of the index is
below, equal to, or not sufficiently above 813.65.
Changes in dividend yields of the stocks included in the index are expected
to affect the trading value of the MITTS Securities. If dividend rates on the
stocks included in the index increase, we expect the value of the MITTS
Securities to decrease. Conversely, if dividend rates on the stocks included in
the index decrease, we expect the value of the MITTS Securities to increase.
However, in general, rising U.S. corporate dividend rates may increase the value
of the index and, in turn, increase the value of the MITTS Securities.
Conversely, falling U.S. dividend rates may decrease the value of the index and,
in turn, decrease the value of the MITTS Securities.
In general, assuming all relevant factors are held constant, the effect on
the trading value of the MITTS Securities of a given change in interest rates,
index volatility and/or dividend rates of stocks comprising the index is
expected to 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. We expect that the
effect on the trading value of the MITTS Securities of a given appreciation of
the index value in excess of 813.65 to 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, assuming all other relevant factors are held constant.
Amounts payable on the MITTS Securities may be limited by state law
New York State laws govern the indenture under which the MITTS Securities
were 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 your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
The S&P 500 Index
Political, economic and other developments that affect the stocks
underlying the index may adversely affect the value of the index and therefore
the value of the MITTS Securities.
Potential conflicts
Our wholly-owned subsidiary, Merrill Lynch, Pierce, Fenner & Smith or
MLPF&S, or its affiliates may from time to time engage in transactions involving
the stocks underlying the index for their proprietary accounts and
4
<PAGE>
for other accounts under their management, which may influence the value of
those stocks and therefore the value of the MITTS Securities. MLPF&S and its
affiliates will also be the counterparties to the hedge of ML&Co.'s obligations
under the MITTS Securities. Accordingly, under some circumstances, conflicts of
interest may arise between MLPF&S's responsibilities as calculation agent with
respect to the MITTS Securities and its obligations under its hedge and its
status as a subsidiary of ML&Co. Under some circumstances, the duties of MLPF&S
as calculation agent could conflict with the interests of MLPF&S as an affiliate
of the issuer of the MITTS Securities, Merrill Lynch & Co., Inc., and with the
interests of the holders of the MITTS Securities.
5
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards,
futures and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
7
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On March 14, 1997, ML&Co. issued $175,000,000 aggregate principal amount of
S&P 500 MITTS Securities due September 16, 2002. 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 September 16, 2002.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of that MITTS Security plus the Supplemental Redemption Amount
described below, 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. Upon the occurrence of an Event
of Default 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.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of each unit plus the Supplemental
Redemption Amount, if any, all as provided below. If the Ending Index Value does
not exceed the Starting Index Value, a beneficial owner of a MITTS Security will
be entitled to receive only the principal amount of its MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<S> <C> <C>
Principal Amount X Ending Index Value - Starting Index Value X Participation Rate
-----------------------------------------
Starting Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Index Value" equals 813.65, which was the closing value of
the S&P 500 Index (the "Index") on the date the MITTS Securities were priced by
ML&Co. for initial sale to the public (the "Pricing Date").
The "Participation Rate" equals 101%.
The "Ending Index Value" will be determined by the calculation agent and
will equal the average or arithmetic mean of the closing values of the Index
determined on each of the first five Calculation Days during the Calculation
Period. If there are fewer than five but more than one Calculation Days, then
the Ending Index Value will equal the average or arithmetic mean of the closing
values of the Index on these Calculation Days. If there is only one Calculation
Day, then the Ending Index Value will equal the closing value of the Index on
that Calculation Day. If no Calculation Days occur during the Calculation Period
because of Market Disruption Events, then the Ending Index Value will equal the
closing value of the 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 "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.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
8
<PAGE>
For purposes of determining the Ending Index Value, an "Index Business
Day" is a day on which the NYSE and the American Stock Exchange are open for
trading and the Index or any Successor Index, as defined on page 10 below, 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.
The following table illustrates, for a range of hypothetical Ending Index
Values:
. the total amount payable at maturity for each $10 principal amount of
MITTS Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
underlying the Index, which includes an assumed aggregate dividend yield
of 1.80% per annum, as more fully described below.
<TABLE>
<CAPTION>
Pretax
Total Amount Pretax Annualized
Payable at Maturity Total Rate of Annualized Rate Rate of Return
Percentage Change Per $10 Principal Return on of Return on of Stocks
Hypothetical Ending Over the Starting Amount of the MITTS the MITTS Underlying the
Index Value Index Value MITTS Securities Securities Securities(1) Index(1)(2)
------------------- ----------------- ------------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
406.83 -50% $10.00 0.00% 0.00% -10.43%
488.19 -40% $10.00 0.00% 0.00% -7.30%
569.56 -30% $10.00 0.00% 0.00% -4.60%
650.92 -20% $10.00 0.00% 0.00% -2.23%
732.29 -10% $10.00 0.00% 0.00% -0.12%
813.65(3) 0% $10.00 0.00% 0.00% 1.80%
895.02 10% $11.01 10.10% 1.76% 3.56%
976.38 20% $12.02 20.20% 3.37% 5.18%
1,057.75 30% $13.03 30.30% 4.87% 6.69%
1,139.11 40% $14.04 40.40% 6.26% 8.10%
1,220.48 50% $15.05 50.50% 7.56% 9.41%
1,301.84 60% $16.06 60.60% 8.79% 10.66%
1,383.21 70% $17.07 70.70% 9.95% 11.83%
1,464.57 80% $18.08 80.80% 11.05% 12.95%
1,545.94 90% $19.09 90.90% 12.10% 14.01%
1,627.30 100% $20.10 101.00% 13.09% 15.02%
1,708.67 110% $21.11 111.10% 14.04% 16.00%
1,790.03 120% $22.12 121.20% 14.95% 16.83%
</TABLE>
___________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes
. an investment of a fixed amount in the stocks underlying the Index
with the allocation of that amount reflecting the current relative
weights of the stocks in the Index;
. a percentage change in the aggregate price of the stocks that equals
the percentage change in the Index from the Starting Index Value to
the relevant hypothetical Ending Index Value;
. a constant dividend yield of 1.80% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of
the Index at the end of each quarter assuming the value
9
<PAGE>
increases or decreases linearly from the Starting Index Value to the
applicable hypothetical Ending Index Value;
. no transaction fees or expenses;
. a term for the MITTS Securities from March 14, 1997 to September 16,
2002; and
. a final Index value equal to the Ending Index Value. The aggregate
dividend yield of the stocks included in the Index as of March 10,
1997 was approximately 1.80%.
(3) This is the Starting Index 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 Index
Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Index; Market Disruption Events
If at any time the method of calculating the Index, or its value, is
changed in any material respect, or if the Index is in any other way modified so
that the Index does not, in the opinion of the calculation agent, fairly
represent the value of the Index had any 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 Ending Index 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 Index as
if the changes or modifications had not been made, and calculate the closing
value with reference to the Index, as adjusted. Accordingly, if the method of
calculating the Index is modified so that the value of the 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 Index, then the calculation agent shall adjust
the Index in order to arrive at a value of the Index as if it had not been
modified, for example, as if a 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 for more than two hours of
trading in 100 or more of the securities included in 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
(1) futures contracts related to the Index which are traded on the
Chicago Mercantile Exchange or
(2) option contracts related to the Index which are traded on the
Chicago Board Options Exchange, Inc.
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 purposes of clause (a) above, any limitations on trading during
significant market fluctuations under New York Stock Exchange 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 Index
If S&P discontinues publication of the 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 Index, any successor or
substitute index is referred to as a "Successor Index", then, upon the
calculation agent's notification of the determination to the trustee and ML&Co.,
the calculation agent will substitute the Successor Index as calculated by S&P
or any other entity for the 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.
10
<PAGE>
If S&P discontinues publication of the 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 substituted for the 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 Index before the discontinuance.
If a Successor Index is selected or the calculation agent calculates a value as
a substitute for the Index as described below, the Successor Index or value
shall be substituted for the Index for all purposes, including for purposes of
determining whether a Market Disruption Event exists.
If S&P discontinues publication of the 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 Ending Index 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
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 the values to be made available by telephone.
Despite these alternative arrangements, discontinuance of the publication
of the 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 per unit, will be equal to the initial issue price
($10) per unit and an additional amount of contingent interest calculated as
though the date of early repayment were the stated maturity date of the MITTS
Securities. See "- 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 per unit 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
thereof, at the rate of 6.75% per annum, to the extent that payment of any
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 any amount has been made or duly provided for.
11
<PAGE>
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by one
or more fully registered global securities. Each global security was deposited
with, or on behalf of, The Depository Trust Company or 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 a 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 the 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
under the 1983 Indenture, 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 any action, and the participants
would authorize beneficial owners owning through those participants to give or
take action or would otherwise act upon the instructions of beneficial owners.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC 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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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.
12
<PAGE>
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 written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in 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 the 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 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 identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments 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 the 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
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to 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.
13
<PAGE>
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form 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
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 INDEX
Standard & Poor's publishes the Index. The Index is intended to provide an
indication of the pattern of common stock price movement. The calculation of
the value of the 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. Standard & Poor's chooses companies for inclusion in
the 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. The Index is comprised of
the common stock of companies in four main groups: Industrials, Utilities,
Transportation and Financial. Standard & Poor's may from time to time, in its
sole discretion, add companies to, or delete companies from, the Index to
achieve the objectives stated above.
The Index does not reflect the payment of dividends on the stocks included
in the 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 Index
Standard & Poor's currently computes the 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 Index, no assurance can be given that Standard & Poor's will not
modify or change this methodology in a manner that may affect the
14
<PAGE>
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. These changes
may result from causes such as
. 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,
. 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 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
of that stock or both, as the case may be, and then determines the new base
value in accordance with the following formula:
New Market Value
Old Base Value X ---------------- = New Base 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 Index.
License Agreement
Standard & Poor's ("S&P") does not guarantee the accuracy and/or the
completeness of the Index or any data included in the Index. S&P 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 of
the S&P Index or any data included in the Index in connection with the rights
licensed under the license agreement described in this prospectus or for any
other use. S&P 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 Index or any data included in the Index. Without
limiting any of the above information, in no event shall S&P have any liability
for any special, punitive, indirect or consequential damage, including lost
profits, even if notified of the possibility of these damages.
S&P 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 S&P in connection with some securities, including the MITTS
Securities, and ML&Co. is an authorized sublicensee of Merrill Lynch Capital
Services, Inc.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this prospectus:
"The MITTS Securities are not sponsored, endorsed, sold or promoted by S&P.
S&P makes no representation or warranty, express or implied, to the holders of
the MITTS Securities or any member of the public
15
<PAGE>
regarding the advisability of investing in securities generally or in the MITTS
Securities particularly or the ability of the Index to track general stock
market performance. S&P'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 S&P and of
the Index which is determined, composed and calculated by S&P without regard to
ML&Co. or the MITTS Securities. S&P 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 Index. S&P 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. S&P has no obligation or liability in connection with the
administration, marketing or trading of the MITTS Securities."
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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.
16
<PAGE>
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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to all
the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any senior debt security;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any senior debt security;
. 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
17
<PAGE>
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the consent
of each holder of each outstanding security of each series of senior
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
18
<PAGE>
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.
19
<PAGE>
PROJECTED PAYMENT SCHEDULE
Solely for purposes of applying final Treasury regulations (the "Final
Regulations") concerning the United States Federal income tax treatment of
contingent payment debt instruments 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
Supplemental Redemption Amount equal to $4.3254 per unit. This represents an
estimated yield on the MITTS Securities equal to 6.64% 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 not
a prediction 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 the projected
payment schedule for the MITTS Securities (including both the projected
Supplemental Redemption Amount and the estimated yield equal to 6.64% per annum
(compounded semiannually)) as determined by ML&Co. for purposes of the
application of the Final Regulations to the MITTS Securities:
<TABLE>
<CAPTION>
Total Interest Deemed
to Have Accrued on
Interest Deemed to Securities as of End
Accrue During Accrual of Accrual Period
Accrual Period Period (per unit) (per unit)
-------------- ------------------- ----------------------
<S> <C> <C>
March 14, 1997 through March 16, 1997.............. $0.0018 $0.0018
March 17, 1997 through September 16, 1997.......... $0.3338 $0.3356
September 17, 1997 through March 16, 1998.......... $0.3413 $0.6769
March 17, 1998 through September 16, 1998.......... $0.3545 $1.0314
September 17, 1998 through March 16, 1999.......... $0.3662 $1.3976
March 17, 1999 through September 16, 1999.......... $0.3785 $1.7761
September 17, 1999 through March 16, 2000.......... $0.3909 $2.1670
March 17, 2000 through September 16, 2000.......... $0.4040 $2.5710
September 17, 2000 through March 16, 2001.......... $0.4173 $2.9883
March 17, 2001 through September 16, 2001.......... $0.4312 $3.4195
September 17, 2001 through March 16, 2002.......... $0.4456 $3.8651
March 17, 2002 through September 16, 2002.......... $0.4603 $4.3254
</TABLE>
________________
Projected Supplemental Redemption Amount = $4.3254 per unit
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
information to Merrill Lynch & Co., Inc., Corporate Secretary's Office, 222
Broadway, 17/th/ Floor, New York, New York 10038, (212) 670-0432,
[email protected].
20
<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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29, 2000, July
18, 2000, August 2, 2000, August 4, 2000, September 13, 2000, October 6,
2000, October 17, 2000, November 1, 2000, November 20, 2000 and December
6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. 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.
21
<PAGE>
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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 NYSE 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
22
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
Nikkei 225 Market Index Target-Term Securities(R)
due June 14, 2002
"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>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before maturity. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch & the sum of the principal amount of each unit and an
Co., Inc. additional amount based on the product of the
. Linked to the value of the Nikkei Stock Average. percentage change in the value of the index and 140%.
. The MITTS Securities are listed on the New York . You will receive no less than the principal amount of
Stock Exchange under the symbol "MLN". your MITTS Securities.
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
of Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS.................................................................................. 3
MERRILL LYNCH & CO., INC...................................................................... 7
RATIO OF EARNINGS TO FIXED CHARGES............................................................ 8
DESCRIPTION OF THE MITTS SECURITIES........................................................... 9
THE INDEX..................................................................................... 17
OTHER TERMS................................................................................... 19
PROJECTED PAYMENT SCHEDULE.................................................................... 22
WHERE YOU CAN FIND MORE INFORMATION........................................................... 23
INCORPORATION OF INFORMATION WE FILE WITH THE SEC............................................. 23
PLAN OF DISTRIBUTION.......................................................................... 23
EXPERTS....................................................................................... 24
</TABLE>
<PAGE>
RISK FACTORS
Your investment in 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 at maturity we will pay you no more than $10 for
each unit of the MITTS Securities you own if the average value of the index over
five trading days shortly before the maturity date is less than 20,351.34, the
value of the index on the date the MITTS Securities were priced. This will be
true even if at some time during the life of the MITTS Securities, the value of
the index, as adjusted, was higher than 20,351.34 but later falls below
20,351.34.
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 maturity date. Your investment may not reflect the full
opportunity cost to you when you consider inflation or other factors that affect
the time value of money.
Your return will not reflect the return of owning the stocks included in the
index.
Your return will not reflect the return you would realize if you actually
owned the stocks underlying the index and received the dividends paid on those
stocks. This is because the value of the index is calculated by reference to the
prices of the common stocks included in the index without taking into
consideration the value of dividends paid on those stocks.
Your return will be affected by currency exchange rates.
Although the stocks included in the index are traded in Japanese Yen and
the MITTS Securities are denominated in U.S. Dollars, we will not adjust any
amounts payable on the MITTS Securities for the currency exchange rate in effect
at maturity. 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 index.
Changes in the exchange rate, however, may reflect changes in the Japanese
economy that may affect the value of the index and the MITTS Securities.
Your return may be affected by factors affecting the value of Japanese stocks.
Because the underlying stocks included in the index have been issued by
Japanese companies, risks relating to an investment in Japanese equity
securities may affect the return on your MITTS Securities. The Japanese
securities markets may be more volatile than U.S. or other securities markets
and market developments can effect the Japanese markets 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 U.S. Securities and Exchange Commission, 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. In addition, recent or future changes in
the Japanese government's economic and fiscal policies, the
3
<PAGE>
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 fluctuations in the rate of exchange between currencies
may negatively affect the Japanese securities markets. Moreover, the Japanese
economy may differ favorably or unfavorably from the U.S. economy in economic
factors such as growth in gross national product, rates of inflation, capital
reinvestment, resources and self-sufficiency.
There may be an uncertain trading market for the MITTS Securities in the future.
Although the MITTS Securities are listed on the NYSE under the symbol
"MLN," you cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS Securities continues to
exist, you cannot assume that there will be liquidity in the trading market.
The continued existence of a trading market for the MITTS Securities will depend
on our financial performance and other factors such as the appreciation, if any,
of the value of the index.
If a limited trading market for the MITTS Securities exists, and you do not
wish to hold your investment until maturity, fewer buyers may want to purchase
your MITTS Securities. This may affect the price you receive if you sell before
maturity.
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
magnify 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 index. 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.
The value of the 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 by which the index exceeds 20,351.34. If you choose
to sell your MITTS Securities when the value of the Index exceeds 20,351.34, you
may receive substantially less than the amount that would be payable at maturity
based on that index value because of the expectation that the index will
continue to fluctuate until shortly before the maturity date when the average
value of the index over five trading days is determined. If you choose to sell
your MITTS Securities when the value of the index is below 20,351.34, you may
receive less than the $10 principal amount per Unit of MITTS Securities. In
general, rising Japanese dividend rates, or dividends per share, may increase
the value of the index while falling Japanese dividend rates may decrease the
value of the Index. Political, economic and other developments that affect the
stocks underlying the index may also affect the value of the index and 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 the 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 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 the trading value of the MITTS Securities will decrease. However,
interest rates in Japan may also affect the Japanese economy and, in turn, the
value of the index. Rising interest rates in Japan may lower the value of the
Index and the MITTS Securities. Falling interest rates in Japan may increase
the value of the Index and the value of the MITTS Securities.
4
<PAGE>
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. Volatility is the term used to describe the size
and frequency of market fluctuations. If the volatility of the Index increases,
we expect that the trading value of the Securities will increase. If the
volatility of the 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 prior to the maturity of the MITTS Securities, the MITTS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the index. This difference will reflect a "time
premium" due to expectations concerning the value of the index during the period
prior to maturity of the MITTS Securities. However, as the time remaining to
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 index are expected
to affect the trading value of the MITTS Securities. If dividend yields on the
stocks comprising the index increase, we expect that the value of the MITTS
Securities will decrease. Conversely, if dividend yields on the stocks
comprising the index 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 index at maturity, an improvement in our credit ratings will
not reduce 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 except that we expect that the effect on the trading value of the
MITTS Securities of a given increase in the value of the 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 laws govern the indenture under which the MITTS Securities
are 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 chargeable to and payable 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.
Purchases and sales by us and our affiliates may affect your return.
We, MLPF&S, and our affiliates may from time to time buy or sell the stocks
underlying the 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 index in a manner
that would be adverse to your investment in the MITTS Securities.
5
<PAGE>
Potential conflicts of interest
Our subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated or
MLPF&S, is our agent for the purposes of calculating the value of the index and
the amount payable to you at maturity. In some 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 its determination as to whether the
value of the 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 index. See "Description of the MITTS Securities--
Adjustments to the Index; Market Disruption Events" and "--Discontinuance of the
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.
6
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
7
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
8
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On June 3, 1997, ML&Co., Inc. issued an aggregate principal amount of
$255,000,000 or 25,500,000 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 June 14, 2002.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of the MITTS Security plus the Supplemental Redemption Amount
described below, if any, there will be no other payment of interest, periodic or
otherwise. See "- Payment at Maturity" below.
ML&Co., or any beneficial owner, may not redeem the MITTS Securities before
maturity. Upon the occurrence of an Event of Default 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.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of each unit plus the Supplemental
Redemption Amount, if any, all as provided below. If the Supplemental Redemption
Amount is not greater than zero, a beneficial owner of a MITTS Security will be
entitled to receive only the principal amount of its MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<S> <C> <C>
Ending Index Value - Starting Index Value
Principal Amount of each MITTS Security ($10 per Unit) X ----------------------------------------- X Participation Rate
Starting Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount
be less than zero.
The "Starting Index Value" equals 20,351.34, the closing value of the Index
on the Pricing Date.
The "Ending Index 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 (the "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 Index on these Calculation Days, and if there is only one
Calculation Day, then the Ending Value will equal the closing value of the 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 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 140%.
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.
9
<PAGE>
"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 Index or any Successor Index, as defined on page 12 below,
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.
10
<PAGE>
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending Index
Values:
. the percentage change from the Starting Index Value to the Ending Index
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 underlying the Index,
which includes an assumed aggregate dividend yield of .75% per annum, as
more fully described below.
<TABLE>
<CAPTION>
Total Amount
Payable at Pretax
Maturity Pretax Annualized
Percentage Per $10 Total Rate Annualized Rate of Return
Change Principal of Rate of
Hypothetical Over the Amount of Return on of Return on Stocks
Ending Starting MITTS the MITTS the MITTS Underlying the
Index Value Index Value Securities Securities Securities(1) Index(1)(2)
-------------------- ----------------- ------------------ --------------- -------------------- ----------------------
<S> <C> <C> <C> <C> <C>
8,140.54 -60% $10.00 0.00% 0.00% -17.13%
10,175.67 -50% $10.00 0.00% 0.00% -12.86%
12,210.80 -40% $10.00 0.00% 0.00% -9.33%
14,245.94 -30% $10.00 0.00% 0.00% -6.32%
16,281.07 -20% $10.00 0.00% 0.00% -3.69%
18,316.21 -10% $10.00 0.00% 0.00% -1.35%
20,351.34(3) 0% $10.00 0.00% 0.00% 0.75%
22,386.47 10% $11.40 14.00% 2.62% 2.66%
24,421.61 20% $12.80 28.00% 4.97% 4.42%
26,456.74 30% $14.20 42.00% 7.09% 6.04%
28,491.88 40% $15.60 56.00% 9.04% 7.55%
30,527.01 50% $17.00 70.00% 10.83% 8.96%
32,562.14 60% $18.40 84.00% 12.50% 10.29%
34,597.28 70% $19.80 98.00% 14.05% 11.54%
36,632.41 80% $21.20 112.00% 15.51% 12.72%
38,667.55 90% $22.60 126.00% 16.88% 13.84%
40,702.68 100% $24.00 140.00% 18.18% 14.91%
42,737.81 110% $25.40 154.00% 19.42% 15.92%
44,772.95 120% $26.80 168.00% 20.59% 16.90%
46,808.08 130% $28.20 182.00% 21.71% 17.83%
</TABLE>
__________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) an investment of a fixed amount in the stocks underlying the Index
with the allocation of an amount reflecting the current relative
weights of the stocks in the Index; a constant dividend yield of .75%
per annum, paid quarterly from the date of initial delivery of MITTS
Securities, applied to the value of the Index at the end of each
quarter assuming this value increases or decreases linearly from the
Starting Value to the hypothetical Ending Index Value;
(b) a percentage change in the aggregate price of these stocks that equals
the percentage change in the Index from 20,351.34 to the relevant
hypothetical Ending Index Value;
11
<PAGE>
(c) no transaction fees or expenses;
(d) the term of the MITTS Securities is from June 3, 1997 to June 14,
2002;
(e) a final Index value equal to the Ending Index Value. The aggregate
dividend yield of the stocks underlying the Index as of May 28, 1997
was approximately .75%.
(3) The Starting Index 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 Index
Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Index; Market Disruption Events
"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
Tokyo Stock Exchange (the "TSE") of 20% or more of the underlying
stocks included in the 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 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:
. 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,
. a decision to permanently discontinue trading in the relevant
futures or options contract will not constitute a Market
Disruption Event,
. a suspension in trading in a futures or options contracts on the
Index by a major securities market by reason of
. a price change violating limits set by that securities
market,
. an imbalance of orders relating to futures or options
contracts, or
. a disparity in bid and ask quotes relating to futures or
options contracts will constitute a suspension or
material limitation of trading in futures or options
contracts related to the Index, and,
. an absence of trading on the TSE will not include any time when
the TSE is closed for trading under ordinary circumstances. In
some circumstances, the duties of MLPF&S as calculation agent in
determining the existence of Market Disruption Events could
conflict with the interests of MLPF&S as an affiliate of the
issuer of the MITTS Securities.
12
<PAGE>
Discontinuance of the Index
If the publisher of the Nikkei 225 Index, Nihon Keizai Shimbum, Inc.
("NKS"), discontinues publication of the 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 Index (any successor or
substitute index is referred to as a "Successor Index"), then, upon the
calculation agent's notification of its determination to the trustee and ML&Co.,
the calculation agent will substitute the Successor Index as calculated by NKS
or other entity for the Index and calculate the Ending Value as described above
under "-Payment at Maturity". Upon any selection by the calculation agent of a
Successor Index, ML&Co. shall cause notice of that selection to be given to
holders of the MITTS Securities.
If NKS discontinues publication of the 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 substituted for the Index for a 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 Index prior to the
discontinuance. If a Successor Index is selected or the calculation agent
calculates a value as a substitute for the Index as described below, the
Successor Index or value shall be substituted for the 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 Index,
"Calculation Day" shall mean any day on which the calculation agent is able to
calculate that value.
If NKS discontinues publication of the Index prior to 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 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
these values 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.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Index may adversely affect trading in the MITTS Securities.
Events of Default and Acceleration
If 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 per unit, will be equal to the principal amount per unit
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 "-
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 per unit 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 of
the MITTS Securities, at the rate of 6.96% per annum, to the extent that payment
of
13
<PAGE>
any 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 any amount has been made or duly provided for.
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by
one or more fully registered global securities. Each global security was
deposited with, or on behalf of, The Depository Trust Company or 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, the
global security is not transferrable 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 appropriate, will be considered the sole owner or holder
of the MITTS Securities represented by a 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 the 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
under the 1983 Indenture, 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 the 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 any action, and the participants
would authorize beneficial owners owning through those participants to give or
take action or would otherwise act upon the instructions of beneficial owners.
Arrangements among participants, indirect participants and beneficial owners,
will govern conveyance of notices and other communications by DTC to
participants, by participants to indirect participants and by participants and
indirect participants to beneficial owners, subject to any statutory or
regulatory requirements 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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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
14
<PAGE>
physical movement of securities certificates. Direct participants of DTC include
securities brokers and dealers, banks, trust companies, clearing corporations
and 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 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
participants or indirect participants through which the 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 the 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.
Arrangements among participants, indirect participants and beneficial
owners, will govern conveyance of notices and other communications by DTC to
participants, by participants to indirect participants and by participants and
indirect participants to beneficial owners, subject to any statutory or
regulatory requirements 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 identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments 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.
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", will govern payments by participants to beneficial owners, and these
payments will be the responsibility of the participant and not of DTC, the
trustee or ML&Co., subject to any statutory or regulatory requirements 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
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
15
<PAGE>
. 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,
DTC will exchange the global securities 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.
The depositary expects that these instructions may be based upon directions
received by the depositary from participants with respect to ownership of
beneficial interests in the global securities.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form will be printed and delivered to holders.
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
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.
16
<PAGE>
THE INDEX
All disclosure contained in this prospectus regarding the Index, including,
without limitation, its make-up, method of calculation and changes in its
components, is derived from publicly available information prepared by Nihon
Keizai Shimbun, Inc. ("NKS").
Unless otherwise stated, all information in this prospectus relating to the
Nikkei 225 Index has been derived from the Stock Market Indices Data Book
published by NKS and other publicly-available sources. This information
reflects the policies of NKS as stated in these sources. These 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 Underlying Stocks 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 Singapore International Monetary Exchange Ltd., the Osaka
Securities Exchange 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 (i.e., an
Underlying Stock's weight in the index is based on its price per share rather
than the total market capitalization of the issuer) which is calculated by:
. multiplying the per share price of each Underlying Stock by the
corresponding weighting factor for the Underlying Stock (a "Weight
Factor"),
. calculating the sum of all these products, and
. dividing this sum by a divisor.
Each Weight Factor is computed by dividing (Yen)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 (Yen)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, 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, including 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.
Thereafter, 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 so 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. The current divisor is reported on Bloomberg under the symbol
"NKY".
NKS may delete or add Underlying Stocks. 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
17
<PAGE>
Underlying Stock is deleted in accordance with the following criteria. NKS will
delete from the Underlying Stocks any stock becoming ineligible for listing in
the First Section of the TSE due to any of the following reasons: 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 from the
Underlying Stocks, NKS will select, in accordance with certain criteria
established by it, a replacement for the deleted Underlying Stock. In an
exceptional case, NKS may add to the Underlying Stocks a newly listed stock in
the First Section of the TSE that is recognized by NKS to be representative of a
market. In that case, NKS will delete an existing Underlying Stock with low
trading volume that is not representative of a market.
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 Merrill Lynch & Co., 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 in particular or the ability of the Nikkei
225 Index to track general stock market performance. NKS 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 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 to be 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, marketing or trading 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 the underwriter 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 Index is applied in determining any Starting or Ending Index
Values or any Supplemental Redemption Amount upon maturity of the MITTS
Securities.
The Tokyo Stock Exchange
The Tokyo Stock Exchange is one of the world's largest securities exchanges
in terms of market capitalization. The TSE market is a two-way, continuous pure
auction market. 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. 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
18
<PAGE>
price limitations or special quotes, or by suspension of trading, on individual
stocks which comprise the Nikkei 225 Index. These limitations may, in turn,
adversely affect the value of the MITTS Securities.
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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 transaction, MLPF&S remains a
Controlled Subsidiary.
19
<PAGE>
"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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
20
<PAGE>
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior 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
21
<PAGE>
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 final Treasury regulations (the "Final
Regulations") concerning the United States Federal income tax treatment of
contingent payment debt instruments 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 and a
Supplemental Redemption Amount equal to $4.1078 per Unit. This represents an
estimated yield on the MITTS Securities equal to 6.96% 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, for purposes of
applying the Final Regulations to the MITTS Securities, and is not a prediction
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 Securities based upon the projected payment
schedule for the MITTS Securities, including both the projected Supplemental
Redemption Amount and the estimated yield equal to 6.96% per annum, compounded
semiannually, as determined by ML&Co. for purposes of the application of the
Final Regulations to the MITTS Securities:
<TABLE>
<CAPTION>
Total Interest Deemed
Interest Deemed to to Have Accrued on
Accrue During MITTS Securities as of End
Accrual of Accrual Period
Accrual Period Period (per Unit) (per Unit)
-------------- --------------------- ----------------
<S> <C> <C>
June 3, 1997 through June 14, 1997............... $0.0206 $0.0206
June 15, 1997 through December 14, 1997.......... $0.3506 $0.3712
December 15, 1997 through June 14, 1998.......... $0.3590 $0.7302
June 15, 1998 through December 14, 1998.......... $0.3734 $1.1036
December 15, 1998 through June 14, 1999.......... $0.3864 $1.4900
June 15, 1999 through December 14, 1999.......... $0.3999 $1.8899
December 15, 1999 through June 14, 2000.......... $0.4138 $2.3037
June 15, 2000 through December 14, 2000.......... $0.4281 $2.7318
June 15, 2001 through December 14, 2001.......... $0.4585 $3.6334
December 15, 2001 through June 14, 2002.......... $0.4744 $4.1078
</TABLE>
____________
Projected Supplemental Redemption Amount = $4.1078 per Unit.
22
<PAGE>
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: Corporate Secretary's Office,
222 Broadway, 17th Floor, New York, New York 10038, (212) 670-0432,
[email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
23
<PAGE>
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 NYSE 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
24
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
Major 8 European Index Market Index Target-Term Securities(R)
due August 30, 2002
"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>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before maturity. Securities you own, we will pay you an amount
. Linked to the value of the Major 8 European Index. equal to the sum of the principal amount of each
. Senior unsecured debt securities of Merrill Lynch unit and an additional amount based on the product of the
& Co., Inc. percentage increase, if any, in the value of
. The MITTS Securities are listed on the American the Major 8 European Index and 115% as
Stock Exchange under the trading symbol "MEM". described in this prospectus.
. You will receive no less than the principal amount
of the MITTS Securities.
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
owned by Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
RISK FACTORS............................................................... 3
MERRILL LYNCH & CO., INC................................................... 7
RATIO OF EARNINGS TO FIXED CHARGES......................................... 8
DESCRIPTION OF THE MITTS SECURITIES........................................ 9
THE INDEX.................................................................. 16
OTHER TERMS................................................................ 19
PROJECTED PAYMENT SCHEDULE................................................. 22
WHERE YOU CAN FIND MORE INFORMATION........................................ 23
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.......................... 24
PLAN OF DISTRIBUTION....................................................... 24
EXPERTS.................................................................... 25
</TABLE>
2
<PAGE>
RISK FACTORS
Your investment in 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 we will pay you no more than $10 per unit of the
MITTS Securities you own if the average value of the index over five trading
days shortly before the maturity is less than 100. This will be true even if at
some time during the life of the MITTS Securities, the value of the index, as
adjusted, was higher than 100 but later falls below 100.
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 maturity date. Your investment may not reflect the full
opportunity cost to you when you consider the effect of factors that affect the
time value of money.
Your return will not reflect the return of owning the stocks included in the
index.
Your return will not reflect the return you would realize if you actually
owned the stocks underlying the index and received the dividends paid on those
stocks. This is because, except as described below in the immediately
succeeding paragraph, the value of the index is calculated by reference to the
prices of the common stocks included in the index without taking into
consideration the value of dividends paid on those stocks.
Your return will not reflect the payment of dividends.
The index is calculated with reference to the sub-indices which reflect the
prices of the common stocks comprising the sub-indices without taking into
consideration the value of dividends paid on those stocks, except in the case of
the Deutscher Aktienindex sub-index which reflects dividends paid on its
underlying common stocks. Therefore, the return you earn on the MITTS
Securities, if any, will not be the same as the return that you would earn if
you actually owned each of the common stocks underlying each sub-index and
received the dividends paid on those stocks.
Your return will be affected by changes in currency exchange rates.
Although the stocks included in the sub-indices are traded in currencies
other than U.S. dollars and the MITTS Securities are denominated in U.S.
dollars, we will not adjust any amounts payable on the MITTS Securities for
currency exchange rates 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 index. Changes in
exchange rates, however, may reflect changes in the relevant European economies
that may affect the value of the sub-indices, and the MITTS Securities.
Changes in European securities markets will affect your return.
Companies listed on European exchanges issued the underlying stocks that
constitute the sub-indices. You should be aware that investments in securities
indexed to the value of the European equity securities involve certain risks.
The European securities markets may be more volatile than U.S. or other
securities markets and market developments may affect these markets in different
ways than U.S. or other securities markets. Direct or indirect government
intervention to stabilize a particular European securities market and cross-
shareholdings in European companies on these markets may affect prices and
volume of trading on those markets. Also, there is generally less publicly
available information about European companies than about those U.S. companies
that are subject to the
3
<PAGE>
reporting requirements of the SEC and European companies are subject to
accounting, auditing and financial reporting standards and requirements that
differ from those applicable to U.S. reporting companies.
Political, economic, financial and social factors in Europe may affect
securities prices in Europe. These factors, including the possibility that
recent or future changes in a European country's government, economic and fiscal
policies, the possible imposition of, or changes in, currency exchange laws or
other laws or restrictions applicable to European companies or investments in
European equity securities and the possibility of fluctuations in the rate of
exchange between currencies, could negatively affect the European securities
markets. Moreover, the relevant European economies may differ favorably or
unfavorably from the U.S. economy in areas of growth of gross national product,
rate of inflation, capital reinvestment, resources and self-sufficiency.
There may be an uncertain trading market for the MITTS Securities in the future.
Although the MITTS Securities are listed on the NYSE under the symbol
"MEM," you cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS Securities continues to
exist, you cannot assume that there will be liquidity in the trading market.
The continued existence of a trading market for the MITTS Securities will depend
on our financial performance and other factors such as the appreciation, if any,
of the value of the index.
If a limited trading market for the MITTS Securities exists, and you do not
wish to hold your investment until maturity, fewer buyers may want to purchase
your MITTS Securities. This may affect the price you receive if you sell before
maturity.
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
magnify 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 index. 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.
The value of the 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 by which the value of the index exceeds 100. If you
choose to sell your MITTS Securities when the value of the index exceeds 100 you
may receive substantially less than the amount that would be payable at maturity
based on that index value because of the expectation that the index will
continue to fluctuate until the ending index value is determined. If you choose
to sell your MITTS Securities when the value of the index is below 100, you may
receive less than the $10 principal amount per unit of MITTS Securities. In
general, rising dividend rates, or dividends per share in the European countries
related to the common stocks underlying the sub-indices, each an "applicable
European country", may increase the value of the index while falling dividend
rates in the applicable European countries may decrease the value of the index.
Political, economic and other developments that affect the stocks underlying the
index may also affect the value of the index and 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 the 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 the trading value of the MITTS Securities will increase. In
general, if interest rates in the applicable European countries increase, we
expect that the trading value of the MITTS Securities will increase. If
interest rates in the applicable European countries decrease, we expect the
trading value of the MITTS Securities will decrease. However, interest rates in
the applicable European countries may also affect the relevant economies and, in
turn, the value of the index. Rising interest rates in the applicable European
countries may lower the value of the index and the MITTS Securities. Falling
interest rates in the applicable European countries may increase the value of
the index and the value of the MITTS Securities.
4
<PAGE>
Changes in volatility of the index are expected to affect the trading value
of the MITTS Securities. Volatility is the term used to describe the size and
frequency of market fluctuations. If the volatility of the index increases, we
expect that the trading value of the MITTS Securities will increase. If the
volatility of the 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 prior to the maturity of the MITTS Securities, the MITTS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the index. This difference will reflect a "time
premium" due to expectations concerning the value of the index during the period
prior to maturity of the MITTS Securities. However, as the time remaining to
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 index are expected
to affect the trading value of the MITTS Securities. If dividend yields on the
stocks comprising the index increase, we expect that the value of the MITTS
Securities will decrease. Conversely, if dividend yields on the stocks
comprising the index 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 index at maturity, an improvement in our
credit ratings will not reduce 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 except that we expect that the effect on the trading value of the
MITTS Securities of a given increase in the value of the 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 laws govern the indenture under which the MITTS Securities
are 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 chargeable to and payable 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.
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 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 index in a manner
that would be adverse to your investment in the MITTS Securities.
Potential conflicts of interest.
Our subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated or
MLPF&S, is our agent for the purposes of calculating the value of the index and
the amount payable to you at maturity. In some 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 its determination as to
5
<PAGE>
whether the value of the 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 index. See "Description of the MITTS Securities--
Adjustments to the Index; Market Disruption Events" and "--Discontinuance of the
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 a 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.
6
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
7
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
8
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On July 28, 1997, ML&Co. issued an aggregate principal amount of
$72,000,000 or 7,200,000 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 below.
The MITTS Securities will mature on August 30, 2002.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of the MITTS Security plus the Supplemental Redemption Amount
described below, if any, we will make 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 prior to maturity. Upon the occurrence of an
Event of Default 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.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of each unit plus the Supplemental
Redemption Amount, if any, all as provided below. If the Supplemental
Redemption Amount is not greater than zero, a beneficial owner of a MITTS
Security will be entitled to receive only the principal amount of its MITTS
Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<S> <C> <C>
Ending Index Value-Starting Index Value
Principal Amount of each Security ($10 per unit) X --------------------------------------- X Participation Rate
Starting Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Participation Rate" equals 110%.
The "Starting Index Value" equals 100.
The "Ending Index Value" will be determined by the calculation agent and
will equal the average, or the arithmetic mean, of the closing values of the
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 Index Value will equal the average, or the arithmetic mean, of the
closing values of the Index on the Calculation Days, and if there is only one
Calculation Day, then the Ending Index Value will equal the closing value of the
Index on that Calculation Day. If no Calculation Days occur during the
Calculation Period because of Market Disruption Events, then the Ending Index
Value will equal the closing value of the Index determined on the last scheduled
Index Business Day in the Calculation Period, regardless of the occurrences of a
Market Disruption Event on that day.
9
<PAGE>
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.
"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 New York Stock Exchange and
the AMEX are open for trading and the Index or any Successor Index, as defined
below, 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.
10
<PAGE>
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending Index
Values:
. the percentage change from the Starting Index Value to the Ending
Index 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 underlying the
Index, which includes an assumed aggregate dividend yield of 2.33% per
annum, as more fully described below.
<TABLE>
<CAPTION>
Pretax
Total Amount Annualized
Percentage Payable at Maturity Total Rate of Rate Pretax Annualized
Hypothetical Change per $10 Principal Return on of Return on Rate of Return of
Ending Over the Starting Amount of MITTS the MITTS the MITTS Stocks Underlying the
Index Value Index Value Securities Securities Securities(1) Index(1)(2)
----------- ----------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
40 -60% $10.00 0.00% 0.00% -15.28%
50 -50% $10.00 0.00% 0.00% -11.10%
60 -40% $10.00 0.00% 0.00% -7.64%
70 -30% $10.00 0.00% 0.00% -4.68%
80 -20% $10.00 0.00% 0.00% -2.09%
90 -10% $10.00 0.00% 0.00% 0.21%
100(3) 0% $10.00 0.00% 0.00% 2.29%
110 10% $11.10 11.00% 2.06% 4.18%
120 20% $12.20 22.00% 3.95% 5.92%
130 30% $13.30 33.00% 5.69% 7.53%
140 40% $14.40 44.00% 7.31% 9.03%
150 50% $15.50 55.00% 8.81% 10.43%
160 60% $16.60 66.00% 10.23% 11.75%
170 70% $17.70 77.00% 11.56% 12.99%
180 80% $18.80 88.00% 12.82% 14.17%
190 90% $19.90 99.00% 14.01% 15.28%
200 100% $21.00 110.00% 15.14% 16.35%
210 110% $22.10 121.00% 16.23% 17.36%
220 120% $23.20 132.00% 17.26% 18.34%
230 130% $24.30 143.00% 18.26% 19.27%
</TABLE>
____________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) an investment of a fixed amount in the stocks underlying the Sub-
Indices with the allocation of that amount reflecting the current
relative weights of the stocks in the Sub-Indices;
(b) a percentage change in the aggregate price of the stocks that equals
the percentage change in the Index from the Starting Index Value to
the relevant hypothetical Ending Index Value;
(c) a constant dividend yield of 2.33% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of
the Index at the end of each quarter, assuming that value increases or
decreases linearly from the Starting Value to the hypothetical Ending
Value;
(d) no transaction fees or expenses;
(e) the term of the MITTS Securities is from August 1, 1997 to August 30,
2002; and
(f) a final Index Value equal to the hypothetical Ending Index Value. A
final Index Value equal to the Ending Index Value. The aggregate
dividend yield of the stocks underlying the Sub-Indices as of July 28,
1997 was approximately 2.33%.
(3) The Starting Index Value of the Index.
11
<PAGE>
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 on the actual
Ending Index Value determined by the calculation agent as provided herein.
Adjustments to the Index; Market Disruption Events
If at any time the method of calculating the Index, or its value, is
changed in any material respect, or if the Index is in any other way modified so
that the Index does not, in the opinion of the calculation agent, fairly
represent the value of the Index had the 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 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 Index as if the
changes or modifications had not been made, and calculate the closing value with
reference to the Index, as adjusted. Accordingly, if the method of calculating
the Index is modified so that the value of the 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 Index, then the calculation agent shall adjust the Index in order
to arrive at a value of the Index as if it had not been modified for example, as
if the split had not occurred.
"Market Disruption Event" means the occurrence or existence on any Overseas
Index Business Day with respect to a Sub-Index during the one-half hour period
that ends at the regular official weekday time at which trading on the Index
Exchange related to that Sub-Index occurs of any suspension of, or limitation
imposed on, trading, by reason of movements in price exceeding limits permitted
by the relevant exchange or otherwise, on
. the Index Exchange in securities that comprise 20% or more of the
value of that Sub-Index, or
. any exchanges on which futures or options on that Sub-Index are traded
in options or futures if, in the determination of the calculation
agent, the suspension or limitation is material. For the purpose of
the foregoing definition:
. a limitation on the hours and number of days of trading will not
constitute a Market Disruption Event if it results from an
announced change in the regular hours of the relevant exchange,
and
. a limitation on trading imposed during the course of a day by
reason of movements in price otherwise exceeding levels permitted
by the relevant exchange will constitute a Market Disruption
Event.
"Overseas Index Business Day" means, with respect to any sub-index, any day
that is, or, but for the occurrence of a Market Disruption Event, would have
been, a trading day on the relevant Index Exchange or on any exchanges on which
futures or options on that Sub-Index are traded, other than a day on which
trading on any relevant exchange is scheduled to close prior to its regular
weekday closing time.
"Index Exchange" means, with respect to any Sub-Index, the principal
exchange on which the shares comprising that Sub-Index are traded.
Discontinuance of the Index
If the AMEX discontinues publication of the Index and the AMEX or another
entity publishes a successor or substitute index that the calculation agent
determines, in its sole discretion, to be comparable to the Index, referred to
in this prospectus as 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 AMEX or another
entity for the Index and calculate the Ending 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.
12
<PAGE>
If the AMEX discontinues publication of the 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 substituted for the 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 Index before any discontinuance.
If a Successor Index is selected or the calculation agent calculates a value as
a substitute for the Index as described below, that Successor Index or value
shall be substituted for the 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 Index, "Calculation Day" shall mean
any day on which the calculation agent is able to calculate a substitute value.
If the AMEX discontinues publication of the Index prior to 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 Ending Index 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 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 the values to be made available by telephone.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Index may adversely affect trading in the 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 per unit, will be equal to the principal amount per
unit 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 "- Payment at Maturity" in this prospectus. A bankruptcy proceeding
commenced in respect of ML&Co. may limit the claim of the beneficial owner of a
MITTS Security, under Section 502(b)(2) of Title 11 of the United States Code,
to the principal amount per unit 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
thereof, at the rate of 6.32% per annum, to the extent that payment of any
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 any amount has been made or duly provided for.
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by
one or more fully registered global securities. Each global security was
deposited with, or on behalf of, The Depository Trust Company or 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, the depositary cannot transfer any global security except as
13
<PAGE>
a whole 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 appropriate, will be considered the sole owner or holder
of the MITTS Securities represented by a 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 the 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
under the 1983 Indenture, 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 any action, and the participants
would authorize beneficial owners owning through those participants to give or
take action or would otherwise act upon the instructions of beneficial owners.
Arrangements among participants, indirect participants and beneficial owners
will govern conveyance of notices and other communications by DTC to
participants, by participants to indirect participants and by participants and
indirect participants to beneficial owners, 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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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 written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in 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
14
<PAGE>
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 the 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.
Arrangements among participants, indirect participants and beneficial
owners will govern conveyance of notices and other communications by DTC to
participants, by participants to indirect participants and by participants and
indirect participants to beneficial owners, 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 identified in a listing attached to
the omnibus proxy.
DTC will make principal, premium, if any, and/or interest, if any, payments
on the MITTS Securities in funds immediately available 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.
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", will govern payments by participants to beneficial owners, and will be
the responsibility of the 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 payments
to direct participants is the responsibility of DTC, and disbursement of
payments to the beneficial owners is the responsibility of direct and indirect
participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the MITTS Securities,
DTC will exchange the global securities 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 depositary shall instruct the Trustee as
to the names in which it is to register the definitive MITTS Securities. DTC
expects that these instructions to be based upon directions received by the
depositary from participants with respect to ownership of beneficial interests
in the global securities.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form 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
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.
15
<PAGE>
THE INDEX
The value of the Index on any Index Business Day is calculated and
disseminated by the AMEX. The AMEX generally calculates and disseminates the
value of the Index based on the most recently reported values of the Sub-
Indices, at approximately 15-second intervals during the AMEX's business hours
and the end of each Index Business Day via the Consolidated Tape Association's
Network B. The value of the Index is reported on the AMEX and Bloomberg under
the symbol "EMX" and on Reuters under the symbol "EMX".
Determination of Index Multiplier for each Sub-Index
The initial weighting of each Sub-Index was determined at the close of
business on the date the MITTS Securities were priced for initial sale to the
public, or the "Pricing Date", based on its relative market capitalization. The
market capitalization of a stock equals the product of the total number of
shares of stock outstanding and the price of a share of stock. The total market
capitalization of the stocks comprising each Sub-Index was determined using the
most recently available information concerning the number of shares outstanding
for each stock contained in a Sub-Index and the most recently available price
for each share. Current exchange rates were used to translate market
capitalization information into U.S. dollars. The market capitalizations
expressed in U.S. dollars of each Sub-Index were totaled, or the "Total Market
Capitalization". The weighting of each Sub-Index was then determined and equals
the percentage of the market capitalization for each Sub-Index relative to the
Total Market Capitalization. The Index Multiplier for each Sub-Index was then
calculated and equals
. the weighting for that Sub-Index multiplied by 100, divided by
. the most recently available value of that Sub-Index. The Index
Multipliers were calculated in this way so that the Index would equal
100.00 on the Pricing Date.
The Index Multiplier for each Sub-Index will remain fixed, except that the
AMEX may adjust the Index Multiplier in the event of a significant change in how
a Sub-Index is calculated. The Index will not be rebalanced periodically to
reflect changes in the relative market capitalizations of the Sub-Indices.
Computation of the Index
The Index is calculated by totaling the products of the most recently
available value of each Sub-Index and the Index Multiplier applicable to that
Sub-Index. Since the Sub-Indices are based on stocks traded on stock exchanges
in Europe, once these stock exchanges close and the values of the Sub-Indices
become fixed until these stock exchanges reopen, the value of the Index will be
fixed.
Sub-Indices
The following is a list of the Sub-Indices and certain information
concerning each Sub-Index. All disclosure contained in this prospectus
regarding the Sub-Indices is derived from publicly available information.
Financial Times 100 Index--"FTSE 100"
Description of FTSE 100: The FTSE 100 is intended to provide an indication
of the pattern of common stock price movement of the 100 common stocks with
the largest market capitalization on the London Stock Exchange.
Publisher: FTSE International Limited
Required Disclosure: The FTSE is a registered trademark of the London
Stock Exchange Limited and the Financial Times Limited.
16
<PAGE>
Deutscher Aktienindex--"DAX(R)"
Description of DAX: The DAX is a total rate of return index measuring the
performance of 30 common stocks on the Frankfurt Stock Exchange selected on
the basis of their market capitalization and trading volume. A total rate
of return index reflects both the price performance of the relevant common
stocks as well as the dividends paid on these common stocks.
Publisher: Deutsche Borse AG
"DAX is a registered trademark of Deutsche Borse AG.
Compagnie des Agents de Change 40 Index--"CAC 40"
Description of CAC 40: The CAC 40 is intended to provide an indication of
the pattern of common stock price movement of the 40 common stocks with the
largest market capitalization on the Paris Bourse.
Publisher: SBF-Paris Bourse
Required Disclosure: "CAC 40" is a registered trademark of the Societe des
Bourses Francaises-Paris Bourse, which designates the index that the SBF-
Paris Bourse calculates and publishes. Authorization to use the index and
the "CAC 40" trademark in connection with the MITTS Securities has been
granted by license.
The SBF-Paris Bourse, owner of the trademark and of the index, does not
sponsor, endorse or participate in the marketing of the MITTS Securities.
The SBF-Paris Bourse makes no warranty or representation to any person,
express or implied, as to the figure at which the said index stands at any
particular time, nor as to the results or performance of the MITTS
Securities. Neither shall the SBF-Paris Bourse be under any obligation to
advise any person of any error in the published level of the index.
Swiss Market Index--"SMI"
Description of SMI: The SMI is intended to provide an indication of the
pattern of common stock price movement of common stocks with the largest
market capitalization and greatest liquidity on the Geneva, Zurich and
Basle Stock Exchanges.
Publisher: Swiss Exchange SWX
Required Disclosure: These MITTS Securities are not in any way sponsored,
endorsed, sold or promoted by the Swiss Exchange SWX and the Swiss Exchange
SWX makes no warranty or representation whatsoever, express or implied,
either as to the results to be obtained from the use of the SMI index (the
"Index") and/or the figure at which the said Index stands at any particular
time on any particular day or otherwise. The Index is compiled and
calculated solely by the Swiss Exchange SWX. However, the Swiss Exchange
SWX shall not be liable (whether in negligence or otherwise) to any person
for any error in the Index and the Swiss Exchange SWX shall not be under
any obligation to advise any person of any error therein.
SMI(R) is a registered trademark of the Swiss Exchange SWX.
Amsterdam Exchanges-index(R)--"AEX-index"
Description of AEX: The AEX is intended to provide an indication of the
pattern of common stock price movement of the 25 common stocks with the
largest market capitalization on the Amsterdam Stock Exchange.
Publisher: AEX-Optiebeurs nv
17
<PAGE>
Required Disclosure: "The AEX-index is a registered trademark of ASX
Operations Pty Limited ("ASXO"), a wholly owned subsidiary of the
Australian Stock Exchange Limited. ASXO has granted a license for the use
of the index on the basis that ASXO does not expressly or impliedly
approve, endorse, make any judgement or express any opinion in respect of
the MITTS Securities or any Index Products issued by the Licensee".
Milano Italia Borsa 30 Index--"MIB 30"
Description of MIB 30: The MIB 30 is intended to provide an indication of
the pattern of common stock price movement of common stocks with the
largest market capitalization and greatest liquidity on the Italian Stock
Exchange.
Publisher: Borsa Italiana S.p.A.
Stockholm Exchange Index--"OMX index"
Description of OMX index: The OMX index is intended to provide an
indication of the pattern of common stock price movement of the 30 common
stocks with the largest volume of trading on the Stockholm Stock Exchange.
Publisher: OM Gruppen AB
Required Disclosure: The MITTS Securities are not in any way sponsored,
endorsed, sold or promoted by OM Gruppen AB or OM and OM makes no warranty
or representation whatsoever, express or implied, either as to the results
to be obtained from the use of the OMX index and/or the figure at which the
said OMX index stands at any particular time on any particular day or
otherwise. The OMX index is compiled and calculated solely by an indexer
on behalf of OM. However, OM shall not be liable whether in negligence or
otherwise to any person for any error in the OMX index and OM shall not be
under any obligation to advise any person of any error in the OMX index.
All rights to the trademark OMX, OMX INDEX are vested in OM Gruppen AB and
are used under a license agreement with OM.
IBEX 35 Index--"IBEX 35"
Description of IBEX 35: The IBEX 35 is intended to provide an indication
of the pattern of common stock price movement of the 35 common stocks with
the greatest liquidity continuously traded and quoted on the Joint Stock
Exchange System made up of the Barcelona, Bilbao, Madrid and Valencia stock
exchanges.
Publisher: Sociedad de Bolsas, S.A.
Required Disclosure: Sociedad de Bolsas, S.A. does not warrant in any case
nor for any reason whatsoever:
(a) the continuity of the composition of the IBEX 35 exactly as it is
today;
(b) the continuity of the method for calculating the IBEX 35 exactly as it
is calculated today;
(c) the continuity of the calculation, formula and publication of the IBEX
35;
(d) the precision, integrity or freedom from errors or mistakes in the
composition and calculation of the IBEX 35; and
(e) the adequacy of the IBEX 35 for the purposes expected in the issue of
the MITTS Securities nor for dealing in the same.
18
<PAGE>
The publisher of each Sub-Index will add or delete stocks due to events
such as the bankruptcy or merger of the issuer of a stock. The publisher of a
Sub-Index may reevaluate the composition of the stocks underlying the Sub-Index
at specified intervals to assure that they still meet the selection criteria or
any ongoing eligibility criteria.
The publisher of a Sub-Index is under no obligation to continue the
calculation and dissemination of that Sub-Index and the publisher may change the
method by which that Sub-Index is calculated. The publishers of the Sub-Indices
are under no obligation to take the needs of ML&Co. or the holders of the MITTS
into consideration in determining, composing or calculating the Sub-Indices.
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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.
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<PAGE>
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 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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
20
<PAGE>
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior 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
21
<PAGE>
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 final Treasury Department Regulations
(the "Final Regulations") concerning the United States Federal income tax
treatment of contingent payment debt instruments 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 a projected
Supplemental Redemption Amount equal to $3.7137 per unit. This represents an
estimated yield on the MITTS Securities equal to 6.32% 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 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 an assumed term of five years and one month for the MITTS
Securities based upon the projected payment schedule for the MITTS Securities,
including both the projected Supplemental Redemption Amount and the estimated
yield equal to 6.32% per annum, compounded semiannually, as determined by ML&Co.
for purposes of application of the Final Regulations to the MITTS Securities:
22
<PAGE>
<TABLE>
<CAPTION>
Total Interest
Deemed to Have
Interest Deemed to Accrued on
Accrue During Securities as of End
Accrual Period of Accrual Period
Accrual Period (per Unit) (per Unit)
--------------------------------- ------------------ ----------------------
<S> <C> <C>
August 1, 1997 through August 30, 1997.......................... $0.0495 $0.0495
August 31, 1997 through February 28, 1998....................... $0.3173 $0.3668
March 1, 1998 through August 30, 1998........................... $0.3274 $0.6942
August 31, 1998 through February 28, 1999....................... $0.3376 $1.0318
March 1, 1999 through August 30, 1999........................... $0.3484 $1.3802
August 31, 1999 through February 29, 2000....................... $0.3593 $1.7395
March 1, 2000 through August 30, 2000........................... $0.3707 $2.1102
August 31, 2000 through February 28, 2001....................... $0.3823 $2.4925
March 1, 2001 through August 30, 2001........................... $0.3945 $2.8870
August 31, 2001 through February 28, 2002....................... $0.4069 $3.2939
March 1, 2002 through August 30, 2002........................... $0.4198 $3.7137
</TABLE>
_______________________
Projected Supplemental Redemption Amount = $3.7137 per unit.
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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
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<PAGE>
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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.
24
<PAGE>
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
25
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
S&P 500 Inflation Adjusted
Market Index Target-Term Securities(R)
due September 24, 2007
"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:
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount of
. Senior unsecured debt securities of Merrill Lynch . the principal amount of each unit, adjusted by
& Co., Inc. the CPI, and
. Linked to the value of the S&P 500 Index. . an additional amount based on the percentage
. The MITTS Securities are listed on the New York increase, if any, in the value of the S&P 500
Stock Exchange under the trading symbol "IEM". Index, adjusted as described in this prospectus.
. You will receive no less than the principal amount
of the MITTS Securities and the additional amount you
receive, if any, will not exceed $10.
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , .
"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 ML&Co. is an authorized
sublicensee.
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS......................................................... 3
MERRILL LYNCH & CO., INC............................................. 7
RATIO OF EARNINGS TO FIXED CHARGES................................... 8
DESCRIPTION OF THE MITTS SECURITIES.................................. 9
THE INDEX............................................................ 17
CONSUMER PRICE INDEX................................................. 19
OTHER TERMS.......................................................... 20
PROJECTED PAYMENT SCHEDULE........................................... 23
WHERE YOU CAN FIND MORE INFORMATION.................................. 24
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.................... 25
PLAN OF DISTRIBUTION................................................. 26
EXPERTS.............................................................. 26
</TABLE>
2
<PAGE>
RISK FACTORS
Your investment in 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 at maturity we will pay you no more than the
principal amount, as adjusted, for each unit of the MITTS Securities you own if
the average value of the S&P 500 Index over five trading days shortly before the
maturity date is less than 1089.38. This will be true even if the value of the
S&P 500 Index was higher than 1089.38 at some time during the life of the MITTS
Securities but later falls below 1089.38.
You will not receive an amount in addition to the principal amount, as
adjusted, that exceeds $10 per unit regardless of how much the S&P 500 Index
increases. If the S&P 500 Index reaches a value of 2178.76, you will receive an
additional amount of $10. Since $10 is the maximum additional amount we will
pay, you will not receive any incremental benefit from increases beyond that
value. If we pay you the maximum additional amount of $10 per unit, this will
represent a maximum annualized rate of return of 7.05% compounded semi-annually
over a term of ten years. This limitation does not apply to the principal
amount, as adjusted, which is dependent on changes in the Consumer Price Index
or CPI.
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 ML&Co. with the
same maturity date. Your investment may not reflect the full opportunity cost to
you when you consider the effect of factors that affect the time value of money.
Your return will not reflect the payment of dividends on the stocks included in
the S&P 500 Index
S&P calculates the S&P 500 Index by reference to the prices of the common
stocks comprising the S&P 500 Index without taking into consideration the value
of dividends paid on those stocks. Therefore, the return you earn on the MITTS
Securities, if any, will not be the same as the return that you would earn if
you actually owned each of the common stocks in the S&P 500 Index and received
the dividends paid on those stocks.
Many factors may affect the value of the Consumer Price Index
Changes in the CPI will affect the principal amount, as adjusted, that we
will pay you at maturity. The changes may be significant. Changes in the CPI are
a function of the changes in specified consumer prices over time, which result
from the interaction of many factors over which ML&Co. has no control.
In the past, the CPI has experienced periods of volatility and this
volatility may occur in the future. Fluctuations and trends in the CPI that have
occurred in the past are not necessarily indicative, however, of fluctuations
that may occur in the future.
As a result of any change of calculating the CPI, the principal amount, as
adjusted, payable on the MITTS Securities, and therefore the value of the MITTS
Securities could be significantly reduced. If the CPI is substantially altered,
the calculation agent may employ a substitute index to calculate the principal
amount, as adjusted, as described under "Description of MITTS Securities--
Payment at Maturity".
3
<PAGE>
There may be an uncertain trading market for the MITTS Securities in the future
Although the MITTS Securities are listed on the NYSE under the symbol
"IEM," you cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS Securities continues to
exist, you cannot assume that there will be liquidity in the trading market. The
continued existence of a trading market for the MITTS Securities will depend on
our financial performance and other factors such as the appreciation, if any, of
the value of the S&P 500 Index.
If the trading market for the MITTS Securities is limited and you do not
wish to hold your investment until maturity, there may be a limited number of
buyers for your MITTS Securities. This may affect the price you receive if you
sell before maturity.
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
magnify 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 S&P 500 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 S&P 500 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 by which the S&P 500 Index exceeds
1089.38. If you choose to sell your MITTS Securities when the value of the S&P
500 Index exceeds 1089.38, you may receive substantially less than the amount
that would be payable at maturity based on that S&P 500 Index value because of
the expectation that the S&P 500 Index will continue to fluctuate until the
maturity of the MITTS Securities. If you choose to sell your MITTS Securities
when the value of the S&P 500 Index is below 1089.38, you may receive less than
the $10 principal amount per unit of MITTS Securities. In general, rising U.S.
dividend rates 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.
Changes in the levels of U.S. interest rates are expected to affect the
trading value of the MITTS Securities. 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. 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 rates may increase the value of the S&P 500 Index and, thus,
may increase the value of the MITTS Securities.
The value of the CPI may affect the trading value of the MITTS Securities.
The principal amount of the MITTS Securities, as adjusted, will generally be
higher in direct proportion to the percentage increase, if any, in the value of
the CPI from when the initial CPI is fixed to when the final CPI is determined.
However, interim increases in the CPI may or may not result in increases in the
trading value of the MITTS Securities because of other economic factors. For
example, an increase in the CPI may be accompanied by higher interest rates.
Higher interest rates could offset any positive impact of increases in the CPI
on the trading value of the MITTS Securities.
4
<PAGE>
Changes in the volatility of the S&P 500 Index or the CPI are expected to
affect the trading value of the MITTS Securities. Volatility is the term used
to describe the size and frequency of market fluctuations. If the volatility of
the S&P 500 Index or of the CPI increases, we expect that the trading value of
the MITTS Securities will increase. Conversely, if the volatility of the S&P 500
Index or of the CPI 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 prior to the maturity of the MITTS Securities, 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 will reflect a
"time premium" due to expectations concerning the value of the S&P 500 Index
during the period prior to maturity of the MITTS Securities. However, as the
time remaining to 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 S&P 500 Index are
expected to affect the trading value of the MITTS Securities. 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. Conversely, if dividend yields on
the stocks included in the S&P 500 Index 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 S&P 500 Index at maturity, an
improvement in our credit ratings will not reduce 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 S&P 500 Index or the
CPI 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 laws govern the indenture under which the MITTS Securities
were 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 MITTS Securities holders, to the extent
permitted by law, not to voluntarily claim the benefits of any laws concerning
usurious rates of interest.
Purchases and sales by Merrill Lynch
We and our other affiliates may from time to time buy or sell the stocks
underlying the S&P 500 Index for their own accounts for business reasons or in
connection with hedging ML&Co.'s obligations under the MITTS Securities. These
transactions could affect the price of those stocks and the value of the S&P 500
Index.
5
<PAGE>
Potential conflicts of interests
The calculation agent is a subsidiary of ML&Co., the issuer of the MITTS
Securities. In come circumstances, MLPF&S' roles as a subsidiary of ML&Co. and
its responsibilities as calculation agent for the MITTS Securities could give
rise to conflicts of interests. You should be aware that because the calculation
agent is controlled by ML&Co., potential conflicts of interest could arise;
however, the calculation agent is subject to limits and has certain duties. For
example, in the case of the CPI, the calculation agent could only adjust a value
of the CPI to undo a change to how the CPI is calculated or select a successor
measure for inflation to maintain the intended economic benefits of the MITTS
Securities to you if the CPI is discontinued. The calculation agent could not
otherwise adjust a value of the CPI or replace the CPI with another measure of
inflation.
6
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
7
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
8
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On September 24, 1997, ML&Co. issued $16,500,000 aggregate principal amount
of S&P 500 MITTS Securities due September 24, 2007. 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 September 24, 2007.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of the MITTS Security, as adjusted, plus the Supplemental
Redemption Amount described below, 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. Upon the occurrence of an Event
of Default 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.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the Adjusted Principal Amount of each unit plus the
Supplemental Redemption Amount, if any, all as provided below. If the Ending
Index Value does not exceed the Benchmark Index Value, a beneficial owner of a
MITTS Security will be entitled to receive only the principal amount of its
MITTS Securities.
Determination of the Adjusted Principal Amount
The "Adjusted Principal Amount" for a MITTS Security will be determined by
the calculation agent, and will equal the greater of:
(a) the principal amount of the MITTS Security ($10 for each unit); and
(b) the principal amount of the MITTS Security X Final CPI
-----------
Initial CPI
"Initial CPI" equals 160.3, the value of the CPI for the third calendar
month prior to the month containing the Pricing Date.
"Final CPI" shall be determined by the calculation agent and will equal the
value of the CPI for the third calendar month prior to September 24, 2007 as
reported on the seventh calendar day prior to the maturity date.
"CPI" means the non-seasonally adjusted U.S. City Average All Items
Consumer Price Index for All Urban Consumers, published monthly by the Bureau of
Labor Statistics of the Department of Labor (the "BLS").
If a previously reported CPI value is revised by the BLS after the Final
CPI is determined, the calculation agent will continue to use the previously
reported CPI value in calculating the Adjusted Principal Amount.
9
<PAGE>
If the CPI is rebased to a different year, the calculation agent will
continue to use the CPI based on the base reference period in effect on the
Pricing Date for those purposes, as long as the CPI continues to be published.
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>
Ending Index Value - Benchmark Index Value
Principal Amount of the MITTS Security ($10 per unit) X ---------------------------------------------------------
Benchmark Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero or more than $10 per unit. As indicated in the formula above, the
calculation agent will calculate the Supplemental Redemption Amount for the
MITTS Securities using the principal amount of the MITTS Securities, not the
Adjusted Principal Amount which may be greater if the CPI has increased over the
term of the MITTS Securities.
The "Benchmark Index Value" equals 1089.38. The Benchmark Index Value was
determined on the Pricing Date by multiplying the Starting Index Value by a
factor equal to 115%.
The "Ending Index 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 (the "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 Index Value will equal the average or arithmetic mean of the closing
values of the Index on these Calculation Days. If there is only one Calculation
Day, then the Ending Index Value will equal the closing value of the Index on
that Calculation Day. If no Calculation Days occur during the Calculation Period
because of Market Disruption Events, then the Ending Index Value will equal the
closing value of the Index determined on the last scheduled Index Business Day
in the Calculation Period, regardless of the occurrences of a Market Disruption
Event on that day.
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.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
For purposes of determining the Ending Index Value, an "Index Business Day"
is a day on which the NYSE and the American Stock Exchange are open for trading
and the Index or any Successor Index, as defined below on page 12, 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.
10
<PAGE>
Hypothetical Returns
The following table provides the amount payable to beneficial owners of
MITTS Securities related to the pretax annualized rates of return given in the
table on the following page for a range of hypothetical annualized rates of
change in the CPI and percentage changes in the Index from the Starting Index
Value to the Ending Index Value.
<TABLE>
<CAPTION>
Annualized Rate of Change in CPI
----------------------------------------------------------------------------------
Percentage Change in Index
from Starting Index Value -3.00% -1.00% 0.00% 1.00% 3.00% 5.00% 7.00% 9.00%
--------------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-50.00%................................ $10.00 $10.00 $10.00 $11.05 $13.44 $16.29 $19.67 $23.67
-30.00%................................ 10.00 10.00 10.00 11.05 13.44 16.29 19.67 23.67
-10.00%................................ 10.00 10.00 10.00 11.05 13.44 16.29 19.67 23.67
0.00%.................................. 10.00 10.00 10.00 11.05 13.44 16.29 19.67 23.67
10.00%................................. 10.00 10.00 10.00 11.05 13.44 16.29 19.67 23.67
30.00%................................. 11.30 11.30 11.30 12.35 14.74 17.59 20.98 24.98
50.00%................................. 13.04 13.04 13.04 14.09 16.48 19.33 22.71 26.72
70.00%................................. 14.78 14.78 14.78 15.83 18.22 21.07 24.45 28.46
90.00%................................. 16.52 16.52 16.52 17.57 19.96 22.81 26.19 30.20
110.00%................................ 18.26 18.26 18.26 19.31 21.70 24.55 27.93 31.93
130.00%................................ 20.00 20.00 20.00 21.05 23.44 26.29 29.67 33.67
150.00%................................ 20.00 20.00 20.00 21.05 23.44 26.29 29.67 33.67
170.00%................................ 20.00 20.00 20.00 21.05 23.44 26.29 29.67 33.67
190.00%................................ 20.00 20.00 20.00 21.05 23.44 26.29 29.67 33.67
</TABLE>
The following table provides the pretax annualized rate of return to
beneficial owners of the MITTS Securities for a range of hypothetical annualized
rates of change in the CPI and percentage changes in the Index from the Starting
Index Value to the Ending Index Value. The far right column of the table
provides the pretax annualized rate of return of an investment in the stocks
underlying the Index, which includes an assumed aggregate dividend yield of
1.60% per annum, as more fully described below.
11
<PAGE>
<TABLE>
<CAPTION>
Percentage Change Pretax Annualized
in Index Rate of Return of
from Starting Stocks Underlying
Index Value Annualized Rate of Change in CPI (1) the Index (2)
---------------------------- ---------------------------------------------------------- ------------------
-3.00% -1.00% 0.00% 1.00% 3.00% 5.00% 7.00% 9.00%
----- ----- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-50.00%..................... 0.00% 0.00% 0.00% 1.00% 2.98% 4.94% 6.88% 8.81% -5.24%
-30.00%..................... 0.00% 0.00% 0.00% 1.00% 2.98% 4.94% 6.88% 8.81% -1.95%
-10.00%..................... 0.00% 0.00% 0.00% 1.00% 2.98% 4.94% 6.88% 8.81% 0.55%
0.00%....................... 0.00% 0.00% 0.00% 1.00% 2.98% 4.94% 6.88% 8.81% 1.60%
10.00%...................... 0.00% 0.00% 0.00% 1.00% 2.98% 4.94% 6.88% 8.81% 2.56%
30.00%...................... 1.23% 1.23% 1.23% 2.12% 3.92% 5.73% 7.55% 9.37% 4.25%
50.00%...................... 2.67% 2.67% 2.67% 3.46% 5.06% 6.70% 8.38% 10.07% 5.71%
70.00%...................... 3.95% 3.95% 3.95% 4.65% 6.09% 7.59% 9.15% 10.74% 7.00%
90.00%...................... 5.08% 5.08% 5.08% 5.72% 7.03% 8.42% 9.86% 11.36% 8.15%
110.00%..................... 6.11% 6.11% 6.11% 6.69% 7.90% 9.19% 10.54% 11.95% 9.20%
130.00%..................... 7.05% 7.05% 7.05% 7.58% 8.70% 9.90% 11.18% 12.52% 10.15%
150.00%..................... 7.05% 7.05% 7.05% 7.58% 8.70% 9.90% 11.18% 12.52% 11.02%
170.00%..................... 7.05% 7.05% 7.05% 7.58% 8.70% 9.90% 11.18% 12.52% 11.84%
190.00%..................... 7.05% 7.05% 7.05% 7.58% 8.70% 9.90% 11.18% 12.52% 12.60%
</TABLE>
--------------------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) an investment of a fixed amount in the stocks underlying the Index
with the allocation of that amount reflecting the current relative
weights of the stocks in the Index;
(b) a percentage change in the aggregate price of the stocks that equals
the percentage change in the Index from the Starting Index Value to
the relevant hypothetical Ending Index Value;
(c) a constant dividend yield of 1.60% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of
the Index at the end of each quarter assuming the value increases or
decreases linearly from the Starting Index Value to the applicable
hypothetical Ending Index Value;
(d) no transaction fees or expenses;
(e) a term for the MITTS Securities from September 24, 1997 to September
24, 2007; and
(f) a final Index value equal to the Ending Index Value. The aggregate
dividend yield of the stocks included in the Index as of September 18,
1997 was approximately 1.60%.
As you can see from the tables, if you assume a 3% per annum change in
the CPI during the term of the MITTS Securities and a 70% increase in the Index
from the Starting Index Value to the Ending Index Value, $18.22 would be payable
at the maturity of the MITTS Securities and the pretax annualized rate of return
to beneficial owners of the MITTS Securities calculated on a semi-annual bond
equivalent basis would be 6.09%. Given a fixed annual percentage change in the
CPI, any increase in the value of the Index above 230% of the Starting Index
Value, a percentage increase in the Index from the Starting Index Value of 130%,
will not increase the pretax annualized rate of return on the MITTS Securities.
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 Index
Value determined by the calculation agent as described in this prospectus.
12
<PAGE>
Adjustments to the CPI
If at any time the method of calculating the CPI, or its value, is changed
in any material respect, or if the CPI is in any other way modified so that the
CPI does not, in the opinion of the calculation agent, fairly represent the
value of the CPI had the changes or modifications not been made, then the
calculation agent shall make any adjustments for purposes of determining the
Final CPI as, in the good faith judgment of the calculation agent, may be
necessary in order to arrive at a calculation of a value of an inflation index
comparable to the CPI as if changes or modifications had not been made.
If the CPI is discontinued while the MITTS Securities are outstanding, the
calculation agent shall determine an alternative index that in the calculation
agent's sole discretion is comparable to the CPI (the "Successor CPI"). Upon the
calculation agent's notification of this determination to the trustee and
ML&Co., the calculation agent will substitute the Successor CPI for the CPI. The
calculation agent may make any adjustments to the values of the Successor CPI in
order to maintain the intended economic benefits to ML&Co. and the holders of
the MITTS Securities. Upon any selection by the calculation agent of a Successor
CPI, ML&Co. shall cause notice to be given to the Holders of the MITTS
Securities.
Adjustments to the Index; Market Disruption Events
If at any time the method of calculating the Index, or its value, is
changed in any material respect, or if the Index is in any other way modified so
that the Index does not, in the opinion of the calculation agent, fairly
represent the value of the 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 with
respect to the Ending Index 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 Index
as if the changes or modifications had not been made, and calculate the closing
value with reference to the Index, as adjusted. Accordingly, if the method of
calculating the Index is modified so that the value of the 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 Index, then the calculation agent shall adjust
the Index in order to arrive at a value of the 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 in 100 or more of the securities included in 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
(1) futures contracts related to the Index which are traded on the
Chicago Mercantile Exchange or
(2) option contracts related to the Index which are traded on the
Chicago Board Options Exchange, Inc.
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 purposes of clause (a) above, any limitations on trading during
significant market fluctuations under New York Stock Exchange Rule 80A, or any
applicable rule or regulation enacted or promulgated by the
13
<PAGE>
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 Index
If S&P discontinues publication of the 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 Index (any successor or
substitute index is referred to as a ''Successor Index''), then, upon the
calculation agent's notification of the determination to the trustee and ML&Co.,
the calculation agent will substitute the Successor Index as calculated by S&P
or any other entity for the 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 S&P discontinues publication of the 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 substituted for the 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 Index before the discontinuance.
If a Successor Index is selected or the calculation agent calculates a value as
a substitute for the Index as described below, the Successor Index or value
shall be substituted for the Index for all purposes, including for purposes of
determining whether a Market Disruption Event exists.
If S&P discontinues publication of the 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 Ending Index 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
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 the values to be made available by telephone.
Despite these alternative arrangements, discontinuance of the publication
of the Index may adversely affect trading in the MITTS Securities.
14
<PAGE>
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 per unit, will be equal to the Adjusted 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 "- 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 per unit 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
thereof, at the rate of 6.58% per annum, to the extent that payment of any
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 any amount has been made or duly provided for.
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by one
or more fully registered global securities. Each global security was deposited
with, or on behalf of, The Depository Trust Company or 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 a 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 the 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
under the 1983 Indenture, 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 any action, and the participants
would authorize beneficial owners owning through those participants to give or
take action or would otherwise act upon the instructions of beneficial owners.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
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<PAGE>
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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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 written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in 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 the 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 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 identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments 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
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<PAGE>
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 the 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 payments to direct
participants is the responsibility of DTC, and disbursement of payments to the
beneficial owners is the responsibility of direct and indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to 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.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form 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
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 INDEX
Standard & Poor's publishes the Index. The Index is intended to provide an
indication of the pattern of common stock price movement. The calculation of
the value of the 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 Standard & Poor's chooses companies for inclusion in
the 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
17
<PAGE>
activity of the common stock of that company. The S&P Index is comprised of the
common stocks of companies in four main groups: Industrials, Utilities,
Transportation and Financial. Standard & Poor's may from time to time, in its
sole discretion, add companies to, or delete companies from, the Index to
achieve the objectives stated above.
The Index does not reflect the payment of dividends on the stocks included
in the 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 Index
Standard & Poor's currently computes the 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 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. These changes
may result from causes such as
. 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,
. 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 Index, and
. other reasons.
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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
of that stock or both, as the case may be, and then determines the new base
value in accordance with the following formula:
New Market Value
Old Base Value X ------------------ = New Base 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 Index.
License Agreement
S&P 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 S&P in connection with particular securities, including the
Securities, and ML&Co. is an authorized sublicensee thereof.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this prospectus:
"The MITTS Securities are not sponsored, endorsed, sold or promoted by
S&P. S&P 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 Index to track general stock
market performance. S&P'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 S&P and of the Index which is determined, composed and
calculated by S&P without regard to ML&Co. or the MITTS Securities. S&P 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
Index. S&P 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. S&P
has no obligation or liability in connection with the administration,
marketing or trading of the MITTS Securities."
CONSUMER PRICE INDEX
The Consumer Price Index or CPI, is a measure of the average change in
consumer prices over time for a fixed market basket of goods and services,
including food, clothing, shelter, fuels, transportation, charges for doctors
and dentists services, and drugs. In calculating the CPI, price changes for the
various items are averaged together with weights that represent their importance
in the spending of urban households in the United States. The contents of the
market basket of goods and services and the weights assigned to the various
items are updated periodically by the BLS to take into account changes in
consumer expenditure patterns.
All disclosure contained in this prospectus regarding the CPI, including,
without limitation, its composition, method of calculation and changes in its
components, is derived from publicly available information prepared by the
United States Government. Neither ML&Co. nor the underwriter takes any
responsibility for the accuracy or completeness of this information.
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<PAGE>
The CPI is expressed in relative terms in relation to a time base reference
period for which the level is set at 100. For example, if the CPI for the 1982-
1984 reference period is 100, an increase of 16.5 percent from that period would
result in a CPI value equal to 116.5. The CPI for a particular month is released
and published during the following month. From time to time, the CPI is rebased
to a more recent base reference period. The base reference period for these
Notes is the 1982-1984 average which is equal to 100.
Historical data on the CPI is available from the U.S. Department of Labor's
Bureau of Labor Statistics, Washington, D.C. 20212 or by accessing the Bureau of
Labor Statistics' web site located at http://www.bls.gov.
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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
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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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
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. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
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. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior 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 final Treasury Department Regulations
(the "Final Regulations") concerning the United States Federal income tax
treatment of contingent payment debt instruments 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 a projected amount equal to $9.0973
per unit. This represents an estimated yield on the MITTS Securities equal to
6.58% per annum (compounded semiannually).
The projected payment schedule (including both the projected 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 either the actual Adjusted Principal Amount
or the actual Supplemental Redemption Amount will be, or that either the actual
Adjusted Principal Amount will exceed $10 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 a term of ten years for 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 6.58%
per annum (compounded semiannually)) as determined by ML&Co. for purposes of
application of the Final Regulations to the MITTS Securities:
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<TABLE>
<CAPTION>
Total Interest
Deemed to
Interest Deemed to Have Accrued on
Accrue During Securities as of End
Accrual of Accrual Period
Accrual Period Period (per unit) (per unit)
-------------- ------------------- ---------------------
<S> <C> <C>
September 24, 1997 through March 23, 1998....................................... $0.3244 $0.3244
March 24, 1998 through September 23, 1998....................................... $0.3415 $0.6659
September 24, 1998 through March 23, 1999....................................... $0.3490 $1.0149
March 24, 1999 through September 23, 1999....................................... $0.3624 $1.3773
September 24, 1999 through March 23, 2000....................................... $0.3743 $1.7516
March 24, 2000 through September 23, 2000....................................... $0.3867 $2.1383
September 24, 2000 through March 23, 2001....................................... $0.3993 $2.5376
March 24, 2001 through September 23, 2001....................................... $0.4125 $2.9501
September 24, 2001 through March 23, 2002....................................... $0.4261 $3.3762
March 24, 2002 through September 23, 2002....................................... $0.4401 $3.8163
September 24, 2002 through March 23, 2003....................................... $0.4545 $4.2708
March 24, 2003 through September 23, 2003....................................... $0.4695 $4.7403
September 24, 2003 through March 23, 2004....................................... $0.4850 $5.2253
March 24, 2004 through September 23, 2004....................................... $0.5009 $5.7262
September 24, 2004 through March 23, 2005....................................... $0.5174 $6.2436
March 24, 2005 through September 23, 2005....................................... $0.5344 $6.7780
September 24, 2005 through March 23, 2006....................................... $0.5520 $7.3300
March 24, 2006 through September 23, 2006....................................... $0.5701 $7.9001
September 24, 2006 through March 23, 2007....................................... $0.5890 $8.4891
March 24, 2007 through September 24, 2007....................................... $0.6082 $9.0973
</TABLE>
________________
Projected Redemption Amount = $9.0973 per unit.
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 the information to Merrill Lynch & Co., Inc., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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
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documents that we refer you to. Because the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
25
<PAGE>
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 NYSE 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
26
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
Russell 2000(R) Index* Market Index Target-Term Securities(R)
due September 30, 2004
"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>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill the sum of the principal amount of each unit and an
Lynch & Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the Russell 2000 Index. any, in the value of the Russell 2000 Index above a
. The MITTS Securities are listed on the American benchmark value of 494.36, as described in this
Stock Exchange under the symbol "RUM". prospectus.
. You will receive no less than the principal amount of
your MITTS Securities.
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , .
_________________
* The use of, and reference to, the term "Russell 2000 Index" in this prospectus
has been consented to by Frank Russell Company.
"MITTS" and "Market Index Target-Term Securities" are registered service marks
owned by Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS........................................................... 3
MERRILL LYNCH & CO., INC............................................... 7
RATIO OF EARNINGS TO FIXED CHARGES..................................... 8
DESCRIPTION OF THE MITTS SECURITIES.................................... 9
THE INDEX.............................................................. 16
OTHER TERMS............................................................ 17
PROJECTED PAYMENT SCHEDULE............................................. 20
WHERE YOU CAN FIND MORE INFORMATION.................................... 21
INCORPORATION OF INFORMATION WE FILE WITH THE SEC...................... 22
PLAN OF DISTRIBUTION................................................... 22
EXPERTS................................................................ 23
</TABLE>
2
<PAGE>
RISK FACTORS
Your investment in 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 at maturity we will pay you no more than $10 for
each unit of the MITTS Securities you own if the average value of the index over
five trading days shortly before the maturity date the index value does not
exceed 449.42 by more than 10%. This will be true even if at some time during
the life of the MITTS Securities, the value of the Russell 2000 Index, as
adjusted, was higher than that amount, 494.36, but later falls below 494.36.
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 maturity date. Your investment may not reflect the full
opportunity cost to you when you take into account inflation and other factors
that affect the time value of money.
Your return will not reflect the return of owning the stocks included in the
index.
Your return will not reflect the return you would realize if you actually
owned the stocks underlying the index and received the dividends paid on those
stocks. This is because the value of the index is calculated by reference to
the prices of the common stocks included in the index without taking into
consideration the value of dividends paid on those stocks.
Your return will not reflect the payment of dividends.
The index is calculated with reference to the prices of the common stocks
comprising the index without taking into consideration the value of dividends
paid on those stocks. Therefore, the return you earn on your MITTS Securities,
if any, will not be the same as the return that you would earn if you actually
owned each of the common stocks underlying the index and received the dividends
paid on those stocks.
Investments in small capitalization stocks involve risks.
The underlying stocks that constitute the index have been issued by
corporations domiciled in the U.S. and its territories and traded on the NYSE,
on the AMEX or in the over-the-counter market. If a successor index is
substituted for the index as described below, any successor index would also be
based upon stocks issued by corporations domiciled in the U.S. and its
territories and traded on the NYSE, on the AMEX or in the over-the-counter
market. You should be aware that investments in securities indexed to the value
of small capitalization companies involve risks. In general, the stocks
comprising the index have smaller market capitalizations, less trading liquidity
and greater price volatility than stocks in other larger capitalization indexes
which are designed to measure the broad movement of the U.S. stock markets. You
should understand that these factors could adversely affect the value of the
index and your MITTS Securities.
There may be an uncertain trading market for the MITTS Securities in the future.
Although the MITTS Securities are listed on the NYSE under the symbol
"RUM", you cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS
3
<PAGE>
Securities continues to exist, you cannot assume that there will be liquidity in
the trading market. The continued existence of a trading market for the MITTS
Securities will depend on our financial performance and other factors such as
the appreciation, if any, of the value of the index.
If the trading market for the MITTS Securities is limited and you do not
wish to hold your investment until maturity, there may be a limited number of
buyers for your MITTS Securities. This may affect the price you receive if you
sell before maturity.
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
magnify 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 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 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 value of the index relative to the benchmark index value.
If you choose to sell your MITTS Securities when the value of the index exceeds
the benchmark index value, you may receive substantially less than the amount
that would be payable at maturity based on that index value because of the
expectation that the index will continue to fluctuate until shortly before the
maturity date when the average value of the index is determined. If you choose
to sell your MITTS Securities when the value of the index is below the benchmark
index 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 index, while falling U.S. dividend rates
may decrease the value of the index. Political, economic and other developments
that affect the stocks underlying the index may also affect the value of the
index and the value of the MITTS Securities.
Changes in the levels of U.S. 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 the 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 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
index. Rising interest rates may lower the value of the index and, thus, the
MITTS Securities. Falling interest rates may increase the value of the index
and, thus, may increase the value of the MITTS Securities.
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. Volatility is the term used to describe the size
and frequency of market fluctuations. Generally if the volatility of the index
increases, we expect that the trading value of the MITTS Securities will
increase. If the volatility of the 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. The MITTS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the index. This difference will reflect a "time
premium" due to expectations concerning the value of the index during the period
prior to maturity of the MITTS Securities. However, as the time remaining to
maturity of the MITTS Securities decreases, we expect that this time premium
will decrease, lowering the trading value of the MITTS Securities.
4
<PAGE>
Changes in dividend yields of the stocks included in the index are expected
to affect the trading value of the MITTS Securities. If dividend yields on the
stocks comprising the index increase, we expect that the value of the MITTS
Securities will decrease. Conversely, if dividend yields on the stock
comprising the index 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 index at maturity, an improvement in our
credit ratings will not reduce 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 except that we expect that the effect on the trading value of the
MITTS Securities of a given increase in the value of the 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 laws govern the indenture, under which the MITTS Securities
are 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 MITTS holders, 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 affiliates may from time to time buy or sell the stocks
underlying the index for their 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 index
in a manner that would be adverse to your investment in the MITTS Securities.
Potential conflicts of interest.
Our subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated or
MLPF&S, is our agent for the purposes of calculating the value of the index and
the amount payable to you at maturity. In some 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 its determination as to whether the
value of the 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 index. See "Description of the MITTS Securities--
Adjustments to the index; Market Disruption Events" and "--Discontinuance of the
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.
5
<PAGE>
We have entered into an arrangement with one of our a 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.
6
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards,
futures and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage
lending and related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
7
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
8
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On September 29, 1997, ML&Co. issued an aggregate principle amount of
$167,500,000 or 16,750,000 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 September 30, 2004.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of each MITTS Security plus the Supplemental Redemption Amount
described below, 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. Upon the occurrence of an Event
of Default 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.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of each unit plus the Supplemental
Redemption Amount, if any, all as provided below. If the Supplemental
Redemption Amount is not greater than zero, a beneficial owner of a MITTS
Security will be entitled to receive only the principal amount of its MITTS
Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<S> <C>
Principal amount of each MITTS Security ($10 per Unit) x (Ending Value - Starting Value )
(--------------------------------)
( Starting Value )
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" equals 494.36 which was determined on the Pricing Date
by multiplying 449.82, the value of the index on the pricing date by 110%.
The "Ending Value" will be determined by the calculation agent and will
equal the average, or arithmetic mean, of the closing values of the 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 Index on
these Calculation Days, and if there is only one Calculation Day, then the
Ending Value will equal the closing value of the Index on that Calculation Day.
If no Calculation Days occur during the Calculation Period because of Market
Disruption Events, then the Ending Index Value will equal the closing value of
the Index determined on the last scheduled Index Business Day in the Calculation
Period, regardless of the occurrences of a Market Disruption Event on that day.
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.
9
<PAGE>
"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 Index or any Successor Index, as defined on page 10 below,
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.
10
<PAGE>
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending Values:
. the percentage change from the Starting Value to the 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 underlying the
Index, which includes an assumed aggregate dividend yield of 1.15% per
annum, as more fully described below.
<TABLE>
<CAPTION>
Total Amount
Payable at
Maturity Pretax Pretax
Percentage per $10 Total Rate Annualized Annualized
Change Principal of Rate Rate of Return of
Hypothetical Over the Amount of Return on of Return on Stocks
Ending Starting MITTS the MITTS the MITTS Underlying the
Value Value Securities Securities Securities(1) Index(1)(2)
----- ----- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
179.77 -60.00% $10.00 0.00% 0.00% -11.69%
224.71 -50.00% $10.00 0.00% 0.00% -8.61%
269.65 -40.00% $10.00 0.00% 0.00% -6.08%
314.59 -30.00% $10.00 0.00% 0.00% -3.92%
359.54 -20.00% $10.00 0.00% 0.00% -2.03%
404.48 -10.00% $10.00 0.00% 0.00% -0.36%
449.42(3) 0.00% $10.00 0.00% 0.00% 1.15%
494.36 10.00% $10.00 0.00% 0.00% 2.52%
539.30 20.00% $10.91 9.09% 1.25% 3.77%
584.25 30.00% $11.82 18.18% 2.40% 4.93%
629.19 40.00% $12.73 27.27% 3.48% 6.01%
674.13 50.00% $13.64 36.36% 4.48% 7.02%
719.07 60.00% $14.55 45.45% 5.43% 7.96%
764.01 70.00% $15.45 54.55% 6.32% 8.85%
808.96 80.00% $16.36 63.64% 7.16% 9.69%
853.90 90.00% $17.27 72.73% 7.96% 10.49%
898.84 100.00% $18.18 81.82% 8.73% 11.25%
943.78 110.00% $19.09 90.91% 9.45% 11.98%
988.72 120.00% $20.00 100.00% 10.15% 12.67%
1,033.67 130.00% $20.91 109.09% 10.82% 13.33%
1,078.61 140.00% $21.82 118.18% 11.46% 13.97%
1,123.55 150.00% $22.73 127.27% 12.08% 14.58%
</TABLE>
___________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) a constant dividend yield of 1.15% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of
the Index at the end of each quarter, assuming this value increases or
decreases linearly from the Starting Value to the hypothetical Ending
Value;
(b) no transaction fees or expenses;
11
<PAGE>
(c) the term of the MITTS Securities is from September 29, 1997 to
September 30, 2004;
(d) the aggregate dividend yield of the stocks underlying the Index as of
September 23, 1997 was approximately 1.15%.
(e) a final Index value equal to the hypothetical Ending Value.
(3) The Starting Value of the Index.
The above figures are for purposes of illustration only. The actual
investment term, Supplemental Redemption Amount received by investors, and the
respective 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 Index; Market Disruption Events
If at any time the method of calculating the Index, or its value, is
changed in any material respect, or if the Index is in any other way modified so
that the Index does not, in the opinion of the calculation agent, fairly
represent the value of the Index had the 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 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 Index as if any
changes or modifications had not been made, and calculate the closing value with
reference to the Index, as adjusted. Accordingly, if the method of calculating
the Index is modified so that the value of the 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 Index, then the calculation agent shall adjust the Index in order
to arrive at a value of the 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, each case, in 20% or more
of the stocks which then comprise the 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 Index which are traded on the
Chicago Mercantile Exchange or
(B) option contracts related to the Index which are traded on the
Chicago Board Options Exchange, Inc.
For the purposes of clause (a) above, any limitations on trading
during significant market fluctuations under New York Stock Exchange 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".
In some circumstances, the duties of MLPF&S as calculation agent in determining
the existence of Market Disruption Events could conflict with the interests of
MLPF&S as a subsidiary of ML&Co.
Discontinuance of the Index
If FRC discontinues publication of the Index and FRC or another entity
publishes a successor or substitute Index that the calculation agent determines,
in its sole discretion, to be comparable to the Index,
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referred to as a "Successor Index", then, upon the calculation agent's
notification of its determination to the trustee and ML&Co., the calculation
agent will substitute the Successor Index as calculated by FRC or any other
entity for the Index and calculate the Ending 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.
If FRC discontinues publication of the 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 substituted for the 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 Index before any discontinuance.
If a Successor Index is selected or the calculation agent calculates a value as
a substitute for the Index as described below, the Successor Index or value
shall be substituted for the 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 Index, "Calculation Day" shall mean
any day on which the calculation agent is able to calculate the value.
If FRC discontinues publication of the 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 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 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.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the 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 per unit, will be equal to the principal amount per
unit 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 "- 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 per unit 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 of
the MITTS Securities, at the rate of 6.39% per annum, to the extent that payment
of any 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 any amount has been made or duly provided for.
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Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by
one or more fully registered global securities. Each global security was
deposited with, or on behalf of, The Depository Trust Company or DTC (DTC,
together with any successor to DTC, 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 a 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 the 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
under the 1983 Indenture, 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 any action, and the participants
would authorize beneficial owners owning through those participants to give or
take action or would otherwise act upon the instructions of beneficial owners.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC 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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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
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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 written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in 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 the 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 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 identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments 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 the 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
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co. within
60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
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<PAGE>
. 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.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form 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
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 INDEX
Unless otherwise stated, all information in this prospectus on the Index is
derived from FRC or other publicly available sources. This information reflects
the policies of FRC as stated in these sources and these policies are subject to
change by FRC. FRC is under no obligation to continue to publish the Index and
may discontinue publication of the Index at any time.
The Index is an index calculated, published and disseminated by FRC, and
measures the composite price performance of stocks of 2,000 companies domiciled
in the U.S. and its territories. All 2,000 stocks are traded on either the NYSE
or the AMEX or in the over-the-counter market and form a part of the Russell
3000(R) Index. The Russell 3000 Index is composed of the 3,000 largest U.S.
companies as determined by market capitalization and represents approximately
98% of the investable U.S. equity market.
The Index consists of the smallest 2,000 companies included in the Russell
3000 Index. The Index is designed to track the performance of the small
capitalization segment of the U.S. equity market.
Only common stocks belonging to corporations domiciled in the U.S. and its
territories are eligible for inclusion in the Russell 3000 Index and the Index.
Stocks traded on U.S. exchanges but domiciled in other countries are excluded.
Preferred stock, convertible preferred stock, participating preferred stock,
paired shares, warrants and rights are also excluded. Trust receipts, Royalty
Trusts, limited liability companies, OTC Bulletin Board companies, pink sheets,
closed-end mutual funds, and limited partnerships that are traded on U.S.
exchanges, are also ineligible for inclusion. Real Estate Investment Trusts and
Beneficial Trusts are eligible for inclusion, however. Generally, only one
class of securities of a company is allowed in the Russell 3000 Index, although
exceptions to this general rule have been made where FRC has determined that
each class of securities acts independent of the other.
The primary criteria used to determine the initial list of securities
eligible for the Russell 3000 Index is total market capitalization, which is
defined as the price of the shares times the total number of shares outstanding.
Based on closing values on May 31 of each year, FRC reconstitutes the
composition of the Russell 3000 Index using the then existing market
capitalizations of eligible companies. As of June 30 of each year, the Index is
adjusted to reflect the reconstitution of the Russell 3000 Index for that year.
Publication of the Index began on January 1, 1987.
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As a capitalization-weighted Index, the Russell 2000 Index reflects changes
in the capitalization (market value) of the component stocks relative to the
capitalization on a base date. The current Index value is calculated by adding
the market values of the Index's component stocks, which are derived by
multiplying the price of each stock by the number of shares outstanding, to
arrive at the total market capitalization of the 2,000 stocks. The total market
capitalization is then divided by a divisor, which represents the "adjusted"
capitalization of the Index on the base date of December 31, 1986. To calculate
the Index, last sale prices will be used for exchange-traded and NASDAQ stocks.
If a component stock is not open for trading, the most recently traded price for
that security will be used in calculating the Index. In order to provide
continuity for the Index's value, the divisor is adjusted periodically to
reflect events including changes in the number of common shares outstanding for
component stocks, company additions or deletions, corporate restructurings and
other capitalization changes.
The value of the Index is reported on the AMEX under the symbol "RTY", on
Bloomberg under the symbol "RTY" and on Reuters under the symbol ".RTY".
All disclosure contained in this prospectus regarding the Index, or its
publisher, is derived from publicly available information. All copyrights and
other intellectual property rights relating to the Index are owned by FRC. FRC
has no relationship with ML&Co., Inc. or the MITTS Securities; it does not
sponsor, endorse, authorize, sell or promote the MITTS Securities, and has no
obligation or liability in connection with the administration, marketing or
trading of the MITTS Securities.
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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.
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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 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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to all
the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However,
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without the consent of each holder of any outstanding senior debt security
affected, no amendment or modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any senior debt security;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any senior debt security;
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. 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
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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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the consent
of each holder of each outstanding security of each series of senior
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 Treasury Department Final Regulations
(the "Final Regulations") concerning the United States Federal income tax
treatment of contingent payment debt instruments 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 and a projected
Supplemental Redemption Amount equal to $5.5304 per unit. This represents an
estimated yield on the MITTS Securities equal to 6.39% 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, 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 a term of seven years and one day for the MITTS Securities
based upon the projected payment schedule for the MITTS Securities, including
both the projected Supplemental Redemption Amount and the estimated yield equal
to 6.39% per annum, compounded semiannually, as determined by ML&Co. for
purposes of application of the Final Regulations to the MITTS Securities:
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<TABLE>
<CAPTION>
Total Interest
Deemed to
Have Accrued
on the MITTS
Interest Deemed to Securities
Accrue During as of End of
Accrual Period Accrual Period
Accrual Period (per unit) (per unit)
-------------- ---------- ----------
<S> <C> <C>
September 29, 1997 through March 30, 1998.................. $0.3186 $0.3186
March 31, 1998 through September 30, 1998.................. $0.3315 $0.6501
October 1, 1998 through March 30, 1999..................... $0.3384 $0.9885
March 31, 1999 through September 30, 1999.................. $0.3511 $1.3396
October 1, 1999 through March 30, 2000..................... $0.3623 $1.7019
March 31, 2000 through September 30, 2000.................. $0.3739 $2.0758
October 1, 2000 through March 30, 2001..................... $0.3858 $2.4616
March 31, 2001 through September 30, 2001.................. $0.3981 $2.8597
October 1, 2001 through March 30, 2002..................... $0.4109 $3.2706
March 31, 2002 through September 30, 2002.................. $0.4240 $3.6946
October 1, 2002 through March 30, 2003..................... $0.4375 $4.1321
March 31, 2003 through September 30, 2003.................. $0.4516 $4.5837
October 1, 2003 through March 30, 2004..................... $0.4659 $5.0496
March 31, 2004 through September 30, 2004.................. $0.4808 $5.5304
</TABLE>
___________
Projected Supplemental Redemption Amount = $5.5304 per unit.
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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement of which this prospectus is a part.
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INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29, 2000, July
18, 2000, August 2, 2000, August 4, 2000, September 13, 2000, October 6,
2000, October 17, 2000, November 1, 2000, November 20, 2000 and December
6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. 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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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.
22
<PAGE>
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
23
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
Major 11 International Market Index Target-Term Securities(R)
due December 6, 2002
"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>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before maturity date. Securities you own, we will pay you an amount
. Senior unsecured debt securities of Merrill equal to the sum of the principal amount of each
Lynch & Co., Inc. unit and an additional amount based on the
. Linked to the value of the Major 11 percentage increase, if any, in the value of the
International Index. Major 11 International Index as described in this
. The MITTS Securities are listed on the prospectus.
American Stock Exchange under the symbol . You will receive no less than the principal amount
"EEM". of your MITTS Securities.
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
of Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS............................................................ 3
MERRILL LYNCH & CO., INC................................................ 7
RATIO OF EARNINGS TO FIXED CHARGES...................................... 8
DESCRIPTION OF THE MITTS SECURITIES..................................... 9
THE INDEX............................................................... 16
OTHER TERMS............................................................. 21
PROJECTED PAYMENT SCHEDULE.............................................. 25
WHERE YOU CAN FIND MORE INFORMATION..................................... 26
INCORPORATION OF INFORMATION WE FILE WITH THE SEC....................... 26
PLAN OF DISTRIBUTION.................................................... 27
EXPERTS................................................................. 27
</TABLE>
2
<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 average value of the index over five
trading days shortly before the maturity date is less than 100, the value of the
index on the date the MITTS Securities were priced, we will pay you only $10 for
each unit of the MITTS Securities you own. This will be true even if, at some
time during the life of the MITTS Securities, the value of the index was higher
than 100 but later falls below 100.
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 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
index
The AMEX calculates the index by reference to the sub-indices comprising
eleven major international market indices that reflect the prices of the common
stocks included in those sub-indices without taking into consideration the value
of dividends paid on those stocks, except in the case of the Deutscher
Aktienindex Sub-Index which reflects dividends paid on its underlying common
stocks. Your return on your MITTS Securities will not reflect the return you
would realize if you actually owned all of the stocks underlying the index and
received the dividends paid on those stocks because, except as noted above, the
value of the index is calculated by reference to the prices of the stocks
included in the index without taking into consideration the value of dividends
paid on those stocks.
Your return may be affected by currency exchange rates
Although the stocks comprising the sub-indices are traded in currencies
other than U.S. dollars and the MITTS Securities are denominated in U.S.
dollars, we will not adjust the amount payable at maturity for currency exchange
rates 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 index. Changes in exchange rates, however,
may reflect changes in the relevant European, Australian and Asian economies
which in turn may affect the value of the sub-indices and the MITTS Securities.
Your return may be affected by factors affecting international securities
markets
The underlying stocks that constitute the sub-indices have been issued by
companies listed on European, Australian and Asian exchanges. You should be
aware that investments in securities indexed to the value of European,
Australian and Asian securities involve risks. The European, Australian and
Asian 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 a particular non-U.S. securities market and cross-shareholdings in
European, Australian and Asian companies on these markets may affect prices and
volume of trading on those markets. Also, there is generally less publicly
available information about non-U.S. companies than about U.S. companies that
are subject to the reporting requirements of the SEC and non-U.S. companies are
subject to
3
<PAGE>
accounting, auditing and financial reporting standards and requirements that
differ from those applicable to U.S. reporting companies.
Securities prices in Europe, Australia and Asia may be affected by
political, economic, financial and social factors in those regions. In addition,
recent or future changes in a country's government, economic and fiscal
policies, the possible imposition of, or changes in, currency exchange laws or
other laws or restrictions applicable to non-U.S. companies or investments in
non-U.S. equity securities, and possible fluctuations in the rate of exchange
between currencies are factors that could negatively affect the international
securities markets. Moreover, the relevant European, Australian and Asian
economies may differ favorably or unfavorably from the U.S. economy in economic
factors such as growth of gross national product, rate of inflation, capital
reinvestment, resources and self-sufficiency. Because some sub-indices have a
greater weighting than others in calculating the value of the index,
fluctuations in the securities markets relating to those sub-indices will have a
greater effect on the value of the index than fluctuations in securities markets
relating to sub-indices with a lesser weighting.
There may be an uncertain trading market for the MITTS Securities in the future
Although the MITTS Securities are listed on the AMEX under the symbol
"EEM", you cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS Securities continues to
exist, there can be no assurance that there will be liquidity in the trading
market. The continued existence of a trading market for the MITTS Securities
will depend on our financial performance and other factors such as the
appreciation, if any, of the value of the 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
magnify 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 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 index is expected to affect the trading value of the MITTS
Securities. The trading value of the MITTS Securities will depend substantially
on the amount by which the index exceeds or does not exceed 100, the value of
the index on the date the MITTS Securities were priced for sale to the public.
If you choose to sell your MITTS Securities at a time when the value of the
index exceeds 100, you may receive substantially less than the amount that would
be payable at maturity based on that index value because of the expectation that
the index will continue to fluctuate until shortly before the maturity date when
the average value of the index over five trading days is determined. If you
choose to sell your MITTS Securities when the value of the index is below, or
not sufficiently above, 100, you may receive less than $10 per unit of your
MITTS Securities. In general, rising dividend rates or dividends per share in
the respective home countries related to the common stocks underlying the sub-
indices may increase the value of the index while falling dividend rates in
these countries may decrease the value of the index. Political, economic and
other developments that affect the stocks underlying the index may also affect
the value of the index and the value of the MITTS Securities.
4
<PAGE>
Changes in the levels of interest rates are expected to affect the trading
value of the MITTS Securities. Because the MITTS Securities repay, at a minimum,
the principal amount at maturity, we expect that the trading value of the MITTS
Securities will be affected by changes in interest rates. In general, if U.S.
interest rates increase, we expect that the trading value of the MITTS
Securities will decrease. If U.S. interest rates decrease, we expect the trading
value of the MITTS Securities will increase. In general, if interest rates in
the applicable home countries increase, we expect that the trading value of the
MITTS Securities will increase. If interest rates in the applicable home
countries decrease, we expect the trading value of the MITTS Securities will
decrease. However, interest rates in the applicable home countries may also
affect the relevant economies and, in turn, the value of the sub-indices. Rising
interest rates in the applicable home countries may lower the value of the sub-
indices and the MITTS Securities. Falling interest rates in the applicable home
countries may increase the value of the index and the value of the MITTS
Securities.
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. Volatility is the term used to describe the size
and frequency of market fluctuations. If the volatility of the index increases,
we expect that the trading value of the MITTS Securities will increase. If the
volatility of the 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 index. This
difference will reflect a "time premium" due to expectations concerning the
value of the index during the period before their maturity of the MITTS
Securities. However, as the time remaining to 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 comprising the sub-indices are
expected to affect the trading value of the MITTS Securities. If dividend yields
on the stocks comprising the sub-indices increase, we expect that the value of
the MITTS Securities will decrease, and conversely, if dividend yields on the
underlying stock comprising the sub-indices 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 other factors in addition to our
ability to pay our obligations under the MITTS Securities, an improvement in our
credit ratings will not reduce other investment risks related to an investment
in 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 except that we expect that the effect on the trading value of the
MITTS Securities of a given increase in the value of the 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 laws govern 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.
5
<PAGE>
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for 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.
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 index for their 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 index
in a manner that would be adverse to your investment in the MITTS Securities.
Potential conflicts of interests
Our subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated or
MLPF&S, is our agent for the purposes of calculating the value of the index and
the amount payable to you at maturity. 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 its determination as to whether
the value of the 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 index. See "Description of the MITTS Securities--
Adjustments to the Index; Market Disruption Events" and "--Discontinuance of the
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 such arrangement. We did not seek competitive bids for such an arrangement
from unaffiliated parties.
6
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
7
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
8
<PAGE>
DESCRIPTION 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 December 6, 2002.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of that MITTS Security plus the Supplemental Redemption Amount
described below, 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 prior to maturity. Upon the occurrence of an
Event of Default 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.
The MITTS Securities were issued in denominations of whole units.
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 Supplemental Redemption
Amount is not greater than zero, a beneficial owner of a MITTS Security will be
entitled to receive only the principal amount of its MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<CAPTION>
<S> <C>
principal amount per MITTS Security ($10 per unit) X Ending Index Value - Starting Index Value X Participation Rate
-----------------------------------------
Starting Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Index Value" equals 100.
The "Participation Rate" equals 115%.
The "Ending Index Value" will be determined by the calculation agent and
will equal the average or arithmetic mean of the closing values of the index in
New York determined on each of the first five Calculation Days during the
Calculation Period. If there are fewer than five Calculation Days, then the
Ending Index Value will equal the average or arithmetic mean of the closing
values of the index on those Calculation Days, and if there is only one
Calculation Day, then the Ending Index Value will equal the closing value of the
index on that Calculation Day. If no Calculation Days occur during the
Calculation Period because of Market Disruption Events, then the Ending Index
Value will equal the closing value of the Index determined on the last scheduled
Index Business Day in the Calculation Period, regardless of the occurrences of a
Market Disruption Event on that day.
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.
9
<PAGE>
The "Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
The "Index Business Day" is a day on which the New York Stock Exchange and
the AMEX are open for trading and the 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 beneficial owners of the MITTS Securities.
10
<PAGE>
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending Index
Values:
. the total amount payable at maturity for each $10 principal amount of
MITTS Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
underlying the index, which includes an assumed aggregate dividend
yield of 2.36% per annum, as more fully described below.
<TABLE>
<CAPTION>
Total Amount Pretax
Percentage Payable at Pretax Annualized
Change Maturity per Total Rate Annualized Rate of Return of
Hypothetical Over the $10 Principal of Rate Stocks
Ending Starting Amount of Return on of Return on Underlying the
Index Value Index Value Securities Securities Securities(1) Index(1)(2)
----------- ----------- ------------- ---------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
40 -60% $10.00 0.00% 0.00% -15.48%
50 -50% $10.00 0.00% 0.00% -11.24%
60 -40% $10.00 0.00% 0.00% -7.73%
70 -30% $10.00 0.00% 0.00% -4.72%
80 -20% $10.00 0.00% 0.00% -2.09%
90 -10% $10.00 0.00% 0.00% 0.25%
100(3) 0% $10.00 0.00% 0.00% 2.36%
110 10% $11.15 11.50% 2.18% 4.28%
120 20% $12.30 23.00% 4.16% 6.04%
130 30% $13.45 34.50% 5.98% 7.68%
140 40% $14.60 46.00% 7.67% 9.20%
150 50% $15.75 57.50% 9.24% 10.62%
160 60% $16.90 69.00% 10.71% 11.96%
170 70% $18.05 80.50% 12.09% 13.22%
180 80% $19.20 92.00% 13.40% 14.41%
190 90% $20.35 103.50% 14.64% 15.55%
200 100% $21.50 115.00% 15.81% 16.63%
210 110% $22.65 126.50% 16.93% 17.66%
220 120% $23.80 138.00% 18.00% 18.64%
230 130% $24.95 149.50% 19.03% 19.59%
</TABLE>
--------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) an investment of a fixed amount in the stocks underlying the sub-
indices with the allocation of this amount reflecting the current
relative weights of these stocks in the sub-indices;
(b) a percentage change in the aggregate price of the stocks that equals
the percentage change in the index from the Starting Index Value to
the relevant hypothetical Ending Index Value;
(c) a constant dividend yield of 2.36% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of
the index at the end of each quarter assuming this value increases or
decreases linearly from the Starting Index Value to the applicable
hypothetical Ending Index Value;
(d) no transaction fees or expenses;
11
<PAGE>
(e) a term for the MITTS Securities from November 26, 1997 to December 6,
2002; and
(f) a final Index value equal to the Ending Index Value. The aggregate
dividend yield of the stocks underlying the Sub-Indices as of the
close of business on November 20, 1997 was approximately 2.36%.
(3) The Starting Index Value equals 100.
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 Index
Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Index; Market Disruption Events
If at any time the method of calculating the index, or its value, is
changed in any material respect, or if the index is in any other way modified so
that such index does not, in the opinion of the calculation agent, fairly
represent the value of the index had any changes or modifications not been made,
then, from and after such 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 Ending Index 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 index as
if no changes or modifications had been made, and calculate the closing value
with reference to the index, as adjusted. Accordingly, if the method of
calculating the index is modified so that the value of the 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 in the index, then the calculation agent shall adjust the index in
order to arrive at a value of the index as if it had not been modified, e.g., as
if a split had not occurred.
"Market Disruption Event" means the occurrence or existence on any Overseas
Index Business Day with respect to a sub-index during the one-half hour period
that ends at the regular official weekday time at which trading on the Index
Exchange related to that sub-index occurs of any suspension of, or limitation
imposed on, trading (by reason of movements in price exceeding limits permitted
by the relevant exchange or otherwise) on (1) the Index Exchange in securities
that comprise 20% or more of the value of such sub-index or (2) any exchanges on
which futures or options on such sub-index are traded in such options or futures
if, in the determination of the calculation agent, such suspension or limitation
is material.
For the purpose of the foregoing definition, (1) a limitation on the hours
and number of days of trading will not constitute a Market Disruption Event if
it results from an announced change in the regular hours of the relevant
exchange and (2) a limitation on trading imposed during the course of a day by
reason of movements in price otherwise exceeding levels permitted by the
relevant exchange will constitute a Market Disruption Event.
"Overseas Index Business Day" means, with respect to any sub-index, any day
that is, or, but for the occurrence of a Market Disruption Event, would have
been, a trading day on the relevant Index Exchange or on any exchanges on which
futures or options on the sub-index are traded, other than a day on which
trading on any exchange is scheduled to close before its regular weekday closing
time.
"Index Exchange" means, with respect to any sub-index, the principal
exchange on which the shares comprising that sub-index are traded.
Discontinuance of the Index
If the AMEX discontinues publication of the index and the AMEX or another
entity publishes a successor or substitute index that the calculation agent
determines, in its sole discretion, to be comparable to the 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 the AMEX or any other entity for the index and calculate
the Ending Index Value as described above under "Payment at
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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.
If the AMEX discontinues publication of the 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 substituted for the 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 index before any discontinuance.
If a Successor Index is selected or the calculation agent calculates a value as
a substitute for the Index as described below, the Successor Index or value
shall be substituted for the index for all purposes, including for purposes of
determining whether a Market Disruption Event exists.
If the AMEX discontinues publication of the 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 such time, then on each
Business Day until the earlier to occur of
. the determination of the Ending Index 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
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.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the 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 shall have
occurred and be 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 each unit, 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 MITTS Securities--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 were the maturity date of the
MITTS Securities.
In case of default in payment at the maturity date of the MITTS Securities,
whether at their stated maturity or upon acceleration, from and after the
maturity date the MITTS Securities shall bear interest, payable upon demand of
the beneficial owners thereof, at the rate of 6.25% per annum to the extent that
payment of any 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 that amount has been made or duly provided for.
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Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by
one or more fully registered global securities. Each global security was
deposited with, or on behalf of, The Depository Trust Company or 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 such
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 a 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 the 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
under the 1983 Indenture, 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 such 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 any action, and the participants
would authorize beneficial owners owning through those participants to give or
take action or would otherwise act upon the instructions of beneficial owners.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC 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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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
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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 written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in 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 the 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 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 identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments 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 the 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
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
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. 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.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form 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
All payments of principal and the Supplemental Redemption Amount, if any,
will be made by ML&Co. in immediately available funds so long as the MITTS
Securities are maintained in book-entry form.
THE INDEX
The AMEX calculates and disseminates the value of the Major 11
International Index on each Index Business Day. The AMEX generally calculates
and disseminates the value of the Major 11 International Index based on the most
recently reported values of the sub-indices, at approximately 15-second
intervals during the AMEX's business hours and the end of each Index Business
Day via the Consolidated Tape Association's Network B. The Major 11
International Index value is reported by the AMEX and Bloomberg under the symbol
"EUX" and by Reuters under the symbol ".EUX".
Determination of Index Multiplier for each Sub-Index
The initial weighting of each sub-index was determined at the close of
business on the Pricing Date based on its relative market capitalization. The
market capitalization of a stock equals the product of the total number of
shares outstanding and the price per share of that stock. The total market
capitalization of the stocks comprising each sub-index was determined using the
most recently available information concerning the number of shares outstanding
for each stock contained in a sub-index and the most recently available price
for each share of that stock. Current exchange rates were used to translate
this market capitalization information into U.S. dollars. The market
capitalizations expressed in U.S. dollars of each sub-index were totaled (the
"Total Market Capitalization"). The weighting of each sub-index was then
determined and equals the percentage of the market capitalization for such sub-
index relative to the Total Market Capitalization. The Index Multiplier for
each sub-index was then calculated and equals:
. the weighting for such sub-index multiplied by 100, divided by
. the most recently available value of such sub-index.
The Index Multipliers were calculated in this way so that the index would equal
100.00 on the Pricing Date.
The Index Multiplier for each sub-index will remain fixed, except that the
AMEX may adjust the Index Multiplier in the event of a significant change in how
a sub-index is calculated. There will be no periodic rebalancing of the index
to reflect changes in the relative market capitalizations of the sub-indices.
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Computation of the Major 11 International Index
The AMEX calculates the Major 11 International Index by totaling the
products of the most recently available value of each sub-index and the index
multiplier applicable to each sub-index. Because the sub-indices are based on
stocks traded on exchanges in Europe, Asia and Australia, once the applicable
exchanges close and the values of the sub-indices become fixed until these
exchanges reopen, the value of the Major 11 International Index will be fixed.
The following is a list of the sub-indices and certain information
concerning each sub-index. All disclosure contained in this prospectus
supplement regarding the sub-indices is derived from publicly available
information.
Financial Times 100 Index--"FTSE 100"
Description of FTSE 100: The FTSE 100 is intended to provide an indication
of the pattern of common stock price movement of the 100 common stocks with
the largest market capitalization on the London Stock Exchange.
Publisher: FTSE International Limited
Required Disclosure: The FTSE is a registered trademark of the London
Stock Exchange Limited and the Financial Times Limited.
Nikkei Stock Average, "Nikkei 225"
Description of Nikkei 225: The Nikkei 225 is intended to provide an
indication of the pattern of common stock price movement of the 225 most
actively traded common stocks on the Tokyo Stock Exchange. The Nikkei 225
is a modified price-weighted index which means that an underlying stock's
weight in the Nikkei 225 is based on its price per share rather than the
total market capitalization of the issuer.
Publisher: Nihon Keizai Shimbun, Inc. ("NKS")
Required Disclosure: NKS is under no obligation to continue the
calculation and dissemination of the Nikkei 225. The MITTS Securities are
not sponsored, endorsed, sold or promoted by NKS. No inference should be
drawn from the information contained in this prospectus supplement that NKS
makes any representation or warranty, implied or express, to ML&Co., 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 in particular or the ability of the Nikkei 225 to track general
stock market performance. NKS 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 Nikkei 225. NKS is not
responsible for, and has not participated in the determination of the
timing of, prices for, 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 settled in cash. NKS has no obligation or liability
in connection with the administration, marketing or trading of the MITTS
Securities.
NKS has consented to the use of and reference to the Nikkei 225 in
connection with the MITTS Securities.
Deutscher Aktienindex--"DAX(R)"
Description of DAX: The DAX is a total rate of return index measuring the
performance of 30 common stocks on the Frankfurt Stock Exchange selected on
the basis of their market capitalization
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and trading volume. A total rate of return index reflects both the price
performance of the relevant common stocks as well as the dividends paid on
these common stocks.
Publisher: Deutsche Borse AG
"DAX" is a registered trademark of Deutsche Borse AG.
Swiss Market Index--"SMI(R)"
Description of SMI: The SMI is intended to provide an indication of the
pattern of common stock price movement of common stocks with the largest
market capitalization and greatest liquidity on the Geneva, Zurich and
Basle Stock Exchanges.
Publisher: Swiss Exchange SWX
Required Disclosure: These MITTS Securities are not in any way sponsored,
endorsed, sold or promoted by the Swiss Exchange SWX and the Swiss Exchange
SWX makes no warranty or representation whatsoever, express or implied,
either as to the results to be obtained from the use of the SMI index (the
"Index") and/or the figure at which the said Index stands at any particular
time on any particular day or otherwise. The Index is compiled and
calculated solely by the Swiss Exchange SWX. However, the Swiss Exchange
SWX shall not be liable (whether in negligence or otherwise) to any person
for any error in the Index and the Swiss Exchange SWX shall not be under
any obligation to advise any person of any error therein.
SMI(R) is a registered trademark of the Swiss Exchange SWX.
Compagnie des Agents de Change 40 Index--"CAC 40"
Description of CAC 40: The CAC 40 is intended to provide an indication of
the pattern of common stock price movement of the 40 common stocks with the
largest market capitalization on the Paris Bourse.
Publisher: SBF-Paris Bourse
Required Disclosure: "CAC 40" is a registered trademark of the Societe des
Bourses Francaises-Paris Bourse, which designates the index that the SBF-
Paris Bourse calculates and publishes. Authorization to use the index and
the "CAC 40" trademark in connection with the MITTS Securities has been
granted by license.
The SBF-Paris Bourse, owner of the trademark and of the index, does not
sponsor, endorse or participate in the marketing of the MITTS Securities.
The SBF-Paris Bourse makes no warranty or representation to any person,
express or implied, as to the figure at which the said index stands at any
particular time, nor as to the results or performance of the MITTS
Securities. Neither shall the SBF-Paris Bourse be under any obligation to
advise any person of any error in the published level of the index.
Amsterdam Exchanges-index(R)--"AEX-index(R)"
Description of AEX: The AEX is intended to provide an indication of the
pattern of common stock price movement of the 25 common stocks with the
largest market capitalization on the Amsterdam Stock Exchange.
Publisher: AEX-Optiebeurs nv
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Required Disclosure: "The AEX-index is a registered trademark of ASX
Operations Pty Limited ("ASXO"), a wholly owned subsidiary of the
Australian Stock Exchange Limited. ASXO has granted a license for the use
of the index on the basis that ASXO does not expressly or impliedly
approve, endorse, make any judgement or express any opinion in respect of
the MITTS Securities or any Index Products issued by the Licensee."
Milano Italia Borsa 30 Index--"MIB 30"
Description of MIB 30: The MIB 30 is intended to provide an indication of
the pattern of common stock price movement of common stocks with the
largest market capitalization and greatest liquidity on the Italian Stock
Exchange.
Publisher: Borsa Italiana S.p.A.
Australia All Ordinaries Index--"XAO"
Description of XAO: The XAO is a capitalization-weighted index of 274
common stocks listed on the Australian Stock Exchange.
Publisher: ASX Operations Pty Limited
Required Disclosure: The XAO is a registered trade mark of ASX Operations
Pty Limited or ASXO, a wholly-owned subsidiary of the Australian Stock
Exchange Limited or ASX. ASXO has granted a license for the use of the XAO
on the basis that ASXO does not expressly or by implication approve,
endorse, make any judgment or express any opinion in respect of the ML&Co.
or the MITTS Securities. ASX and its related corporations, shall have no
liability for any claim whatsoever where the claim arises wholly or
substantially out of accident or negligence of ASX, its related
corporations and their servants and agents as the case may be or acts of
third parties; and without in any way limiting the generality of the
foregoing, arising out of unavailability of the All Ordinaries Index or
non-supply of the All Ordinaries Index.
OM Stockholm Exchange Index--"OMX index"
Description of OMX index: The OMX index is intended to provide an
indication of the pattern of common stock price movement of the 30 common
stocks with the largest volume of trading on the Stockholm Stock Exchange.
Publisher: OM Gruppen AB
Required Disclosure: The MITTS Securities are not in any way sponsored,
endorsed, sold or promoted by OM Gruppen AB or OM and OM makes no warranty
or representation whatsoever, express or implied, either as to the results
to be obtained from the use of the OMX index and/or the figure at which the
said OMX index stands at any particular time on any particular day or
otherwise. The OMX index is compiled and calculated solely by an indexer
on behalf of OM. However, OM shall not be liable whether in negligence or
otherwise to any person for any error in the OMX index and OM shall not be
under any obligation to advise any person of any error in the OMX index.
All rights to the trademark OMX, OMX INDEX are vested in OM Gruppen AB and
are used under a license agreement with OM.
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IBEX 35 Index--"IBEX 35"
Description of IBEX 35: The IBEX 35 is intended to provide an indication
of the pattern of common stock price movement of the 35 common stocks with
the greatest liquidity continuously traded and quoted on the Joint Stock
Exchange System made up of the Barcelona, Bilbao, Madrid and Valencia stock
exchanges.
Publisher: Sociedad de Bolsas, S.A.
Required Disclosure: Sociedad de Bolsas, S.A. does not warrant in any case
nor for any reason whatsoever:
(a) the continuity of the composition of the IBEX 35 exactly as it is
today;
(b) the continuity of the method for calculating the IBEX 35 exactly as it
is calculated today;
(c) the continuity of the calculation, formula and publication of the IBEX
35;
(d) the precision, integrity or freedom from errors or mistakes in the
composition and calculation of the IBEX 35; and
(e) the adequacy of the IBEX 35 for the purposes expected in the issue of
the MITTS Securities nor for dealing in the same.
AMEX Hong Kong 30 Index--"HK30"
Description of HK30: The HK30 is intended to provide an indication of the
pattern of common stock price movement of 30 common stocks listed on the
Hong Kong Stock Exchange and selected on the basis of market weight,
trading liquidity and representation of business industry.
Publisher: The American Stock Exchange
Required Disclosure: The "AMEX Hong Kong 30 Index" is a service mark of
the AMEX. The AMEX in no way sponsors, endorses or is otherwise involved
in the issuance of the MITTS Securities, other than the fact that the MITTS
Securities will be listed and traded on the AMEX and the AMEX will
calculate and disseminate the Major 11 International Index, and the AMEX
disclaims any liability to any party for any inaccuracy in the data on
which the HK30 is based, for any mistakes, errors or omissions in the
calculation, and/or dissemination of the HK30, or for the manner in which
it is applied in connection with the issuance of the MITTS Securities.
AMEX has consented to the use and reference to the term "AMEX Hong Kong 30
Index".
The publisher of each sub-index will add or delete stocks due to events
such as the bankruptcy or merger of the issuer of a stock. The publisher of a
sub-index may reevaluate the composition of the stocks underlying the sub- index
at specified intervals to assure that they still meet the selection criteria or
any ongoing eligibility criteria.
The publisher of a sub-index is under no obligation to continue the
calculation and dissemination of that sub-index and that publisher may change
the method by which that sub-index is calculated. The publishers of the sub-
indices are under no obligation to take the needs of ML&Co. or the holders of
the MITTS into consideration in determining, composing or calculating the sub-
indices.
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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.
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In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe of all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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
22
<PAGE>
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".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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.
23
<PAGE>
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.
24
<PAGE>
PROJECTED PAYMENT SCHEDULE
Solely for purposes of applying the final Treasury Department Regulations
(the "Final Regulations") concerning the United States Federal income tax
treatment of contingent payment debt instruments to 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 $3.6261 per unit. This
represents an estimated yield on the MITTS Securities equal to 6.25% per annum
(compounded semiannually).
The projected payment schedule, including both 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 a term of five years and ten days for the MITTS Securities
based upon the projected payment schedule for the MITTS Securities, including
both the projected Supplemental Redemption Amount and the estimated yield equal
to 6.25% 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
Interest Securities as of
Deemed to End
Accrue During of Accrual
Accrual Period Period
Accrual Period (per unit) (per unit)
-------------- ---------- ----------
<S> <C> <C>
November 26, 1997 through December 6, 1997... $0.0169 $0.0169
December 7, 1997 through June 6, 1998........ $0.3130 $0.3299
June 7, 1998 through December 6, 1998........ $0.3228 $0.6527
December 7, 1998 through June 6, 1999........ $0.3329 $0.9856
June 7, 1999 through December 6, 1999........ $0.3433 $1.3289
December 7, 1999 through June 6, 2000........ $0.3540 $1.6829
June 7, 2000 through December 6, 2000........ $0.3651 $2.0480
December 7, 2000 through June 6, 2001........ $0.3765 $2.4245
June 7, 2001 through December 6, 2001........ $0.3883 $2.8128
December 7, 2001 through June 6, 2002........ $0.4004 $3.2132
June 7, 2002 through December 6, 2002........ $0.4129 $3.6261
</TABLE>
--------------
Projected Supplemental Redemption Amount = $3.6261 per unit.
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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
25
<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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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.
26
<PAGE>
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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
27
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
<TABLE>
<S> <C>
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
</TABLE>
Merrill Lynch & Co., Inc.
Major 11 International Market Index Target-Term Securities(R)
due May 26, 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>
The MITTS Securities: Payment at maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the Major 11 International any, in the value of the Major 11 International Index,
Index. as reduced by an annual adjustment factor of 1.5%.
. The MITTS Securities are listed on the American . At maturity, you will receive no less than the
Stock Exchange under the trading symbol "EUM". principal amount of your MITTS Securities.
</TABLE>
Investing in the MITTS Securities involves risks.
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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
of Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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 MAJOR 11 INTERNATIONAL INDEX.......................................... 20
OTHER TERMS............................................................... 24
PROJECTED PAYMENT SCHEDULE................................................ 28
WHERE YOU CAN FIND MORE INFORMATION....................................... 28
INCORPORATION OF INFORMATION WE FILE WITH THE SEC......................... 29
PLAN OF DISTRIBUTION...................................................... 30
EXPERTS................................................................... 30
</TABLE>
2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Major 11
International Market Index Target-Term Securities due May 26, 2006. You should
carefully read the this prospectus to fully understand the terms of the MITTS
Securities, the Major 11 International Index and the tax and other
considerations that should be 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 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 May 26, 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 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 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 value
of the Major 11 International Index, a compilation of eleven equity indices
reflecting select stocks listed on certain exchanges in Europe, Asia and
Australia. 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 126.56, the closing value of the Major 11
International Index on May 20, 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 Major 11
International Index at the close of the market on five business days before the
maturity of the MITTS Securities as reduced on each day by the application of
the Adjustment Factor. 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 a sufficient number of the component stocks
included in any of the sub-indices comprising the Major 11 International Index
or certain futures or options relating to those sub-indices.
3
<PAGE>
The "Adjustment Factor" equals 1.5% per year and will be applied over the
entire term of the MITTS Securities to reduce the closing values of the Major 11
International Index used to calculate the Supplemental Redemption Amount during
the calculation period. As a result of the cumulative effect of this reduction,
the values used to calculate the Supplemental Redemption Amount during the
calculation period will be approximately 9.99% less than the actual closing
value of the Major 11 International Index on each day during the calculation
period. For a detailed discussion of how the Adjustment Factor will affect the
value of the Major 11 International Index used to calculate your Supplemental
Redemption Amount, see "Description of the MITTS Securities--Payment at
Maturity" in this prospectus.
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 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 1.5% per year and an investment term of seven
years:
Example 1--The Major 11 International Index, as adjusted, is below the Starting
Value at maturity:
<TABLE>
<S> <C> <C>
Starting Value: 126.56
Hypothetical closing value of the Major 11 International Index at maturity: 132.89
Hypothetical Adjusted Ending Value: 119.61
(Supplemental
( 119.61 - 126.56 ) Redemption
Supplemental Redemption Amount (per unit) = $10 X (------------------) = $0.00 Amount cannot
( 126.56 ) be less than zero)
Total payment at maturity (per unit) = $10 + $0 = $10
Example 2--The Major 11 International Index, as adjusted, is above the Starting
Value at maturity:
Starting Value: 126.56
Hypothetical closing value of the Major 11 International Index at maturity: 202.50
Hypothetical Adjusted Ending Value: 182.26
</TABLE>
<TABLE>
<S> <C>
( 182.26 - 126.56 )
Supplemental Redemption Amount (per unit) = $10 X (------------------) = $4.40
( 126.56 )
</TABLE>
Total payment at maturity (per unit) = $10 + $4.40 = $14.40
4
<PAGE>
Who publishes the Major 11 International Index and what does the Major 11
International Index measure?
The AMEX publishes the Major 11 International Index, which measures the
performance of various European, Australian and Asian stock indices. Each sub-
index that comprises the Major 11 International Index measures the performance
of certain common stocks in Australia or in a designated European or Asian
country. The publishers of the sub-indices use various methods to select and
maintain stocks in a sub-index. The sub-indices comprising the Major 11
International Index represent common stocks of issuers traded principally on
stock exchanges located in England, Japan, Germany, Switzerland, France, the
Netherlands, Italy, Australia, Sweden, Spain and Hong Kong.
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 sub-indices
comprising the Major 11 International Index.
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are listed on the AMEX under the trading symbol "EUM".
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 this prospectus.
What is the role of MLPF&S?
Our subsidiary, MLPF&S, was the underwriter for the offering and sale of
the MITTS Securities. MLPF&S intends to buy and sell the MITTS Securities to
create and maintain a secondary market for holders 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.
MLPF&S is also 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' status as our subsidiary 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 this 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.
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.
5
<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 Adjusted Ending Value does not exceed the
Starting Value at the stated maturity date, the Supplemental Redemption Amount
will be zero. This will be true even if the value of the Major 11 International
Index, as reduced by the Adjustment Factor over the term of the MITTS
Securities, 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 debt security of Merrill Lynch &
Co., Inc. 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
Major 11 International Index
The AMEX calculates the value of the Major 11 International Index by
reference to the values of eleven major international market indices that
reflect the prices of the common stocks included in those indices without taking
into consideration the value of dividends paid on those stocks, except in the
case of the Deutscher Aktienindex whose value reflects dividends paid on its
underlying common stocks. The return on your MITTS Securities will not reflect
the return you would realize if you actually owned all of the stocks underlying
each of the sub-indices comprising the Major 11 International Index and received
the dividends paid on those stocks because of the cumulative effect of the
reduction caused by the Adjustment Factor and because, except as noted above,
the value of the Major 11 International Index is calculated by reference to the
prices of the stocks included in the sub-indices without taking into
consideration the value of any dividends paid on those stocks.
Your return may be affected by factors affecting international securities
markets
The sub-indices that comprise the Major 11 International Index measure the
value of the equity securities of companies listed on various European,
Australian and Asian exchanges. The return of your MITTS Securities will be
affected by factors affecting the value of securities in these markets. The
European, Australian and Asian 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 a particular non-U.S. securities market and
cross-shareholdings in European, Australian and Asian companies on these markets
may affect prices and the volume of trading on those markets. Also, there is
generally less publicly available information about non-U.S. companies than
about U.S. companies that are subject to the reporting requirements of the SEC.
Additionally, non-U.S. companies are subject to accounting, auditing and
financial reporting standards and requirements that differ from those applicable
to U.S. reporting companies.
The prices and performance of securities of companies in Europe, Australia
and Asia may be affected by political, economic, financial and social factors in
those regions. In addition, recent or future changes in a
6
<PAGE>
country's government, economic and fiscal policies, the possible imposition of,
or changes in, currency exchange laws or other laws or restrictions applicable
to non-U.S. companies or investments in non-U.S. equity securities, and possible
fluctuations in the rate of exchange between currencies are factors that could
negatively affect the international securities markets. Moreover, the relevant
European, Australian and Asian economies may differ favorably or unfavorably
from the U.S. economy in economic factors such as growth of gross national
product, rate of inflation, capital reinvestment, resources and self-
sufficiency. Because some of the sub-indices comprising the Major 11
International Index have a greater weighting than others in calculating the
value of the Major 11 International Index, fluctuations in the securities
markets that those sub-indices measure will have a greater relative effect on
the value of the Major 11 International Index than will fluctuations in
securities markets measured by sub-indices with a lesser weighting.
Your return may be affected by currency exchange rates
Although the stocks included in the sub-indices are traded in currencies
other than U.S. dollars and the MITTS Securities are denominated in U.S.
dollars, we will not adjust the amount payable at maturity for currency exchange
rates 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 Major 11 International Index as adjusted by
the Adjustment Factor. Changes in exchange rates, however, may reflect changes
in the relevant European, Australian and Asian economies which in turn may
affect the value of the sub-indices, the Major 11 International Index and the
MITTS Securities.
There may be an uncertain trading market for the MITTS Securities
Although the MITTS Securities are listed on the AMEX under the trading
symbol "EUM", you cannot assume that a trading market will continue to exist for
the MITTS Securities. If a trading market does continue to exist, there can be
no assurance that there will be liquidity in the trading market. The continued
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 Major 11 International 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 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 Major 11 International
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 Major 11 International 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 by which the Major 11
International Index, as reduced by the Adjustment Factor over the term of the
MITTS Securities, exceeds the Starting Value. If you choose to sell your MITTS
Securities when the value of the Major 11 International Index, as reduced by the
Adjustment Factor over the term of the MITTS Securities, 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 Major 11
International Index will continue to fluctuate until the Adjusted Ending Value
is determined. If you choose to sell your MITTS Securities when
7
<PAGE>
the value of the Major 11 International 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 dividend rates, or
dividends per share, in the countries in which the stocks included in the sub-
indices comprising the Major 11 International Index trade, may increase the
value of the Major 11 International Index while falling dividend rates in these
countries may decrease the value of the Major 11 International Index.
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 U.S.
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.
Additionally, changes in non-U.S. interest rates will affect the trading value
of the MITTS Securities. In general, if interest rates increase in the
countries in which the stocks included in the sub-indices trade, we expect the
trading value of the MITTS Securities will increase and, conversely, if interest
rates in these countries decrease, we expect the trading value of the MITTS
Securities will decrease. The level of interest rates in these countries may
also affect the applicable economies and, in turn, the value of the Major 11
International Index. Rising interest rates may lower the value of the Major 11
International Index and, thus, the MITTS Securities. Falling interest rates may
increase the value of the Major 11 International Index and, thus, may increase
the value of the MITTS Securities.
Changes in volatility of the Major 11 International Index are expected to
affect the trading value of the MITTS Securities. Volatility is the term used
to describe the size and frequency of market fluctuations. Generally, if the
volatility of the Major 11 International Index increases, we expect that the
trading value of the MITTS Securities will increase and, conversely, if the
volatility of the Major 11 International 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 Major 11 International Index. This difference will reflect a "time
premium" due to expectations concerning the value of the Major 11 International
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 the dividend yields of the stocks included in the sub-indices
are expected to affect the trading value of the MITTS Securities. Generally, if
dividend yields on the stocks included in the sub-indices comprising the Major
11 International 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 Major 11 International Index at
maturity, an improvement in our credit ratings will not reduce the 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 Major 11 International
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.
8
<PAGE>
Amounts payable on the MITTS Securities may be limited by state law
New York State laws govern 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.
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 sub-indices or futures or options in the sub-indices 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, the value of the sub-indices and, in turn, the value of the Major 11
International Index in a manner that would be adverse to your investment in the
MITTS Securities.
Potential conflicts of interests
Our subsidiary, MLPF&S, is our agent for the purposes of calculating the
Adjusted 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 Major 11
International 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 Major 11 International Index. See "Description of the
MITTS Securities--Adjustments to the Major 11 International Index; Market
Disruption Events" and "--Discontinuance of the Major 11 International 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.
There are uncertain tax consequences associated with an investment in the MITTS
Securities
You should also consider the tax consequences of investing in the MITTS
Securities, aspects of which are uncertain. See "United States Federal Income
Taxation".
9
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
10
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
11
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
ML&Co. issued the MITTS Securities 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 May 26, 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 "--Payment at Maturity".
The MITTS Securities are not subject to redemption by ML&Co. or at the
option of any beneficial owner before maturity. Upon the occurrence of an Event
of Default 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"
and "Other Terms--Events of Default" in this prospectus.
ML&Co. issued the MITTS Securities in denominations of whole units.
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 Supplemental
Redemption Amount is not greater than zero, a beneficial owner of a MITTS
Security will be entitled to receive only the principal amount of its MITTS
Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<CAPTION>
<S> <C>
( Adjusted Ending - Starting Value )
principal amount of each MITTS Security ($10 per unit)=$10 x ( -------------------------------- )
( Starting Value )
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" equals 126.56, the closing value of the Major 11
International Index on May 20, 1999, the date the MITTS Securities were priced
for initial sale to the public.
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 Major 11
International 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 Major 11 International Index on those Calculation Days, as
reduced by the application of the Adjustment Factor on each Calculation Day, and
if there is only one Calculation Day, then the Adjusted Ending Value will equal
the closing value of the Major 11 International 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 Major 11 International Index
determined on the last scheduled Index Business Day in the Calculation Period,
as reduced by the application of the Adjustment Factor on that day, regardless
of the occurrence of a Market Disruption Event on that day.
The "Adjustment Factor" equals 1.5% per year and will be applied over the
entire term of the MITTS Securities. On each calendar day during the term of
the MITTS Securities, we will apply this percentage on a pro-rated basis based
on a 365-day year to reduce the value used to calculate the Supplemental
Redemption Amount on each Calculation Day during the Calculation Period. As a
result of the cumulative
12
<PAGE>
effect of this reduction, the values used to calculate the Supplemental
Redemption Amount during the Calculation Period will be approximately 9.99% less
than the actual closing value of the Major 11 International Index on each
Calculation 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.
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" is any day on which the New York Stock Exchange and
the AMEX are open for trading and the Major 11 International 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 beneficial owners of the MITTS Securities.
13
<PAGE>
Hypothetical Returns
The following table illustrates, for a range of hypothetical closing values
of the Major 11 International Index during the Calculation Period:
. the percentage change from the Starting Value to the hypothetical
closing value,
. the Adjusted Ending Value used to calculate the Supplemental
Redemption Amount,
. the total amount payable at maturity for each unit of MITTS
Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
included in each sub-index comprising the Major 11 International
Index, which includes an assumed aggregate dividend yield of 1.51% per
annum, as more fully described below.
For the purposes of calculating this table, we have applied an Adjustment
Factor of 1.5% per annum.
<TABLE>
<CAPTION>
Hypothetical Percentage Change Pretax Pretax
Closing From the Starting Total Amount Total Annualized Annualized
Value Value to the Payable at Rate of Rate of Rate of
During the Hypothetical Adjusted Maturity per Return on Return on Return of Stocks
Calculation Closing Ending Unit of the the MITTS the MITTS Underlying each
Period Value Value(1) MITTS Securities Securities Securities(2) Sub-Index(2)(3)
------------- ----------------- -------- ---------------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
25.31 -80.00% 22.78 $10.00 0.00% 0.00% -20.05%
50.62 -60.00% 45.56 $10.00 0.00% 0.00% -11.15%
75.94 -40.00% 68.35 $10.00 0.00% 0.00% -5.68%
101.25 -20.00% 91.13 $10.00 0.00% 0.00% -1.67%
126.56(4) 0.00% 113.91 $10.00 0.00% 0.00% 1.51%
151.87 20.00% 136.69 $10.80 8.01% 1.10% 4.16%
177.18 40.00% 159.48 $12.60 26.01% 3.32% 6.43%
202.50 60.00% 182.26 $14.40 44.01% 5.26% 8.42%
227.81 80.00% 205.04 $16.20 62.01% 6.99% 10.20%
253.12 100.00% 227.82 $18.00 80.01% 8.55% 11.81%
278.43 120.00% 250.61 $19.80 98.01% 9.97% 13.27%
303.74 140.00% 273.39 $21.60 116.02% 11.28% 14.62%
329.06 160.00% 296.17 $23.40 134.02% 12.49% 15.87%
354.37 180.00% 318.95 $25.20 152.02% 13.61% 17.04%
379.68 200.00% 341.74 $27.00 170.02% 14.66% 18.14%
</TABLE>
___________________
(1) The Adjusted Ending Values specified in this column are approximately 9.99%
less than the hypothetical closing values of the Major 11 International
Index as a result of the cumulative effect of the application of an
Adjustment Factor of 1.5% per annum 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) an investment of a fixed amount in the stocks included in the sub-
indices with the allocation of this amount reflecting the current
relative weights of these stocks in the sub-indices;
(b) a percentage change in the aggregate price of the stocks that equals
the percentage change in the Major 11 International Index from the
Starting Value to the relevant hypothetical closing value;
(c) a constant dividend yield of 1.51% per annum, paid quarterly from the
date of initial delivery of the MITTS Securities, applied to the value
of the Major 11 International Index at the end of each quarter
assuming this value increases or decreases linearly from the Starting
Value to the applicable hypothetical closing value;
(d) no transaction fees or expenses in connection with purchasing and
holding stocks included in each sub-index;
(e) an investment term from May 26, 1999 to May 26, 2006, and
(f) a final value of the Major 11 International Index equal to the
hypothetical closing value.
(4) This is the Starting Value of the Major 11 International Index.
14
<PAGE>
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 Adjusted
Ending Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Major 11 International Index; Market Disruption Events
If at any time the AMEX changes its method of calculating the Major 11
International Index, or the value of the Major 11 International Index changes,
in any material respect, or if the Major 11 International Index is in any other
way modified so that the Major 11 International Index does not, in the opinion
of the calculation agent, fairly represent the value of the Major 11
International Index had any 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 Major 11
International 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 Major 11
International Index as if no changes or modifications had been made, and
calculate the closing value with reference to the Major 11 International Index,
as so adjusted. Accordingly, if the method of calculating the Major 11
International Index is modified so that the value of the Major 11 International
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
Major 11 International Index in order to arrive at a value of the Major 11
International Index as if it had not been modified, e.g., as if a split had not
occurred.
"Market Disruption Event" means, with respect to any sub-index, the
occurrence or existence of any suspension of, or limitation imposed on, trading,
by reason of movements in price exceeding limits permitted by the relevant
exchange or otherwise, during the one-half hour period that ends at the regular
official weekday time at which trading on the Index Exchange related to that
sub-index occurs, on:
(A) the Index Exchange in securities that comprise 20% or more of the
value of that sub-index or
(B) any exchanges on which futures or options on that sub-index are
traded in those options or futures if, in the determination of the
calculation agent, that suspension or limitation is material.
For the purpose of the above definition:
(1) a limitation on the hours and number of days of trading will not
constitute a Market Disruption Event if it results from an announced change
in the regular hours of the relevant exchange and
(2) a limitation on trading imposed during the course of a day by
reason of movements in price otherwise exceeding levels permitted by the
relevant exchange will constitute a Market Disruption Event.
"Index Exchange" means, with respect to any sub-index, the principal
exchange on which the shares comprising that sub-index are traded.
Discontinuance of the Major 11 International Index
If the AMEX discontinues publication of the Major 11 International Index
and the AMEX or another entity publishes a successor or substitute index that
the calculation agent determines, in its sole discretion, to be comparable to
the Major 11 International 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 the
AMEX or any other entity for the Major 11 International 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.
15
<PAGE>
In the event that the AMEX discontinues publication of the Major 11
International Index and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the Major 11
International Index in accordance with the procedures last used to calculate the
Major 11 International Index before any discontinuance. If a successor index is
selected or the calculation agent calculates a value as a substitute for the
Major 11 International Index as described below, the successor index or value
will be used as a substitute for the Major 11 International Index for all
purposes, including for purposes of determining whether a Market Disruption
Event exists.
If the AMEX discontinues publication of the Major 11 International 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 Ending Value and
. 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 Major 11 International 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 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 was the stated maturity date of the MITTS
Securities, provided, however, that the Adjustment Factor will be applied to the
values used to calculate the Supplemental Redemption Amount as if the MITTS
Securities had not been accelerated and had remained outstanding to the stated
maturity date. See "--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 at the maturity date 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 6.45% 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.
16
<PAGE>
Depositary
Description of the Global Securities
Upon issuance, all MITTS Securities will be represented by one or more
fully registered global securities. Each global security will be deposited
with, or on behalf of, DTC (DTC, together with any successor, being a
"depositary"), as depositary, registered in the name of Cede & Co., DTC's
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 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 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 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.
17
<PAGE>
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 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 shall be the
responsibility of DTC, and disbursement of any payments to the beneficial owners
will be the responsibility of direct participants and indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to 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
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<PAGE>
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.
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.
19
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THE MAJOR 11 INTERNATIONAL INDEX
The AMEX calculates and disseminates the value of the Major 11
International Index on each Index Business Day. The AMEX generally calculates
and disseminates the value of the Major 11 International Index based on the most
recently reported values of the sub-indices, at approximately 15-second
intervals during the AMEX's business hours and the end of each Index Business
Day via the Consolidated Tape Association's Network B. The Major 11
International Index value is reported by the AMEX and Bloomberg under the symbol
"EUX" and by Reuters under the symbol ".EUX".
Determination of Index Multiplier for each sub-index
The AMEX determined the initial weighting of each sub-index at the close of
business on November 20, 1997 based on the relative total market capitalization
of each sub-index as of that date. The market capitalization of a stock equals
the product of the total number of shares outstanding and the price per share of
that stock. The total market capitalization of the stocks comprising each sub-
index was determined using the most recently available information at that time
concerning the number of shares outstanding for each stock contained in a sub-
index and the most recently available price for each share of that stock. Then-
current exchange rates were used to translate this market capitalization
information into U.S. dollars. The market capitalizations expressed in U.S.
dollars of each sub-index were totaled. The weighting of each sub-index was
then determined and equaled the percentage of the market capitalization for that
sub-index relative to the total market capitalization. The index multiplier for
each sub-index was then calculated and equaled:
. the weighting for the sub-index multiplied by 100, divided by
. the most recently available value of the sub-index.
The index multipliers were calculated in this way so that the index would equal
100.00 on November 20, 1997. The AMEX may adjust the index multiplier of any
sub-index in the event of a significant change in how that sub-index is
calculated, however, there will not be any periodic rebalancing of the Major 11
International Index to reflect changes in the relative market capitalizations of
the sub-indices.
Computation of the Major 11 International Index
The AMEX calculates the Major 11 International Index by totaling the
products of the most recently available value of each sub-index and the index
multiplier applicable to each sub-index. Because the sub-indices are based on
stocks traded on exchanges in Europe, Asia and Australia, once the applicable
exchanges close and the values of the sub-indices become fixed until these
exchanges reopen, the value of the Major 11 International Index will be fixed.
20
<PAGE>
The following is a list of the sub-indices and certain information
concerning each sub-index. All disclosure contained in this prospectus
supplement regarding the sub-indices is derived from publicly available
information.
Financial Times 100 Index--"FTSE 100"
Description of FTSE 100: The FTSE 100 is intended to provide an indication
of the pattern of common stock price movement of the 100 common stocks with
the largest market capitalization on the London Stock Exchange.
Publisher: FTSE International Limited
Required Disclosure: The FTSE is a registered trademark of the London
Stock Exchange Limited and the Financial Times Limited.
Nikkei Stock Average, "Nikkei 225"
Description of Nikkei 225: The Nikkei 225 is intended to provide an
indication of the pattern of common stock price movement of the 225 most
actively traded common stocks on the Tokyo Stock Exchange. The Nikkei 225
is a modified price-weighted index which means that an underlying stock's
weight in the Nikkei 225 is based on its price per share rather than the
total market capitalization of the issuer.
Publisher: Nihon Keizai Shimbun, Inc. ("NKS")
Required Disclosure: NKS is under no obligation to continue the calculation
and dissemination of the Nikkei 225. The MITTS Securities are not
sponsored, endorsed, sold or promoted by NKS. No inference should be drawn
from the information contained in this prospectus supplement that NKS makes
any representation or warranty, implied or express, to ML&Co., 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 in particular or the ability of the Nikkei 225 to track general
stock market performance. NKS 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 Nikkei 225. NKS is not responsible for, and
has not participated in the determination of the timing of, prices for, 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 settled
in cash. NKS has no obligation or liability in connection with the
administration, marketing or trading of the MITTS Securities.
NKS has consented to the use of and reference to the Nikkei 225 in
connection with the MITTS Securities.
Deutscher Aktienindex--"DAX(R)"
Description of DAX: The DAX is a total rate of return index measuring the
performance of 30 common stocks on the Frankfurt Stock Exchange selected on
the basis of their market capitalization and trading volume. A total rate
of return index reflects both the price performance of the relevant common
stocks as well as the dividends paid on these common stocks.
Publisher: Deutsche Borse AG
"DAX" is a registered trademark of Deutsche Borse AG.
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Swiss Market Index--"SMI(R)"
Description of SMI: The SMI is intended to provide an indication of the
pattern of common stock price movement of common stocks with the largest
market capitalization and greatest liquidity on the Geneva, Zurich and
Basle Stock Exchanges.
Publisher: Swiss Exchange SWX
Required Disclosure: These MITTS Securities are not in any way sponsored,
endorsed, sold or promoted by the Swiss Exchange SWX and the Swiss Exchange
SWX makes no warranty or representation whatsoever, express or implied,
either as to the results to be obtained from the use of the SMI index (the
"Index") and/or the figure at which the said Index stands at any particular
time on any particular day or otherwise. The Index is compiled and
calculated solely by the Swiss Exchange SWX. However, the Swiss Exchange
SWX shall not be liable (whether in negligence or otherwise) to any person
for any error in the Index and the Swiss Exchange SWX shall not be under
any obligation to advise any person of any error therein.
SMI(R) is a registered trademark of the Swiss Exchange SWX.
Compagnie des Agents de Change 40 Index--"CAC 40"
Description of CAC 40: The CAC 40 is intended to provide an indication of
the pattern of common stock price movement of the 40 common stocks with the
largest market capitalization on the Paris Bourse.
Publisher: SBF-Paris Bourse
Required Disclosure: "CAC 40" is a registered trademark of the Societe des
Bourses Francaises-Paris Bourse, which designates the index that the SBF-
Paris Bourse calculates and publishes. Authorization to use the index and
the "CAC 40" trademark in connection with the MITTS Securities has been
granted by license.
The SBF-Paris Bourse, owner of the trademark and of the index, does not
sponsor, endorse or participate in the marketing of the MITTS Securities.
The SBF-Paris Bourse makes no warranty or representation to any person,
express or implied, as to the figure at which the said index stands at any
particular time, nor as to the results or performance of the MITTS
Securities. Neither shall the SBF-Paris Bourse be under any obligation to
advise any person of any error in the published level of the index.
Amsterdam Exchanges-index(R)--"AEX-index(R)"
Description of AEX: The AEX is intended to provide an indication of the
pattern of common stock price movement of the 25 common stocks with the
largest market capitalization on the Amsterdam Stock Exchange.
Publisher: AEX-Optiebeurs nv
Required Disclosure: "The AEX-index is a registered trademark of ASX
Operations Pty Limited ("ASXO"), a wholly owned subsidiary of the
Australian Stock Exchange Limited. ASXO has granted a licence for the use
of the index on the basis that ASXO does not expressly or impliedly
approve, endorse, make any judgement or express any opinion in respect of
the MITTS Securities or any Index Products issued by the Licensee."
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Milano Italia Borsa 30 Index--"MIB 30"
Description of MIB 30: The MIB 30 is intended to provide an indication of
the pattern of common stock price movement of common stocks with the
largest market capitalization and greatest liquidity on the Italian Stock
Exchange.
Publisher: Borsa Italiana S.p.A.
Australia All Ordinaries Index--"XAO"
Description of XAO: The XAO is a capitalization-weighted index of 274
common stocks listed on the Australian Stock Exchange.
Publisher: ASX Operations Pty Limited
Required Disclosure: The XAO is a registered trade mark of ASX Operations
Pty Limited or ASXO, a wholly-owned subsidiary of the Australian Stock
Exchange Limited or ASX. ASXO has granted a license for the use of the XAO
on the basis that ASXO does not expressly or by implication approve,
endorse, make any judgment or express any opinion in respect of the ML&Co.
or the MITTS Securities. ASX and its related corporations, shall have no
liability for any claim whatsoever where the claim arises wholly or
substantially out of accident or negligence of ASX, its related
corporations and their servants and agents as the case may be or acts of
third parties; and without in any way limiting the generality of the
foregoing, arising out of unavailability of the All Ordinaries Index or
non-supply of the All Ordinaries Index.
OM Stockholm Exchange Index--"OMX index"
Description of OMX index: The OMX index is intended to provide an
indication of the pattern of common stock price movement of the 30 common
stocks with the largest volume of trading on the Stockholm Stock Exchange.
Publisher: OM Gruppen AB
Required Disclosure: The MITTS Securities are not in any way sponsored,
endorsed, sold or promoted by OM Gruppen AB or OM and OM makes no warranty
or representation whatsoever, express or implied, either as to the results
to be obtained from the use of the OMX index and/or the figure at which the
said OMX index stands at any particular time on any particular day or
otherwise. The OMX index is compiled and calculated solely by an indexer on
behalf of OM. However, OM shall not be liable whether in negligence or
otherwise to any person for any error in the OMX index and OM shall not be
under any obligation to advise any person of any error in the OMX index.
All rights to the trademark OMX, OMX INDEX are vested in OM Gruppen AB and
are used under a license agreement with OM.
IBEX 35 Index--"IBEX 35"
Description of IBEX 35: The IBEX 35 is intended to provide an indication of
the pattern of common stock price movement of the 35 common stocks with the
greatest liquidity continuously traded and quoted on the Joint Stock
Exchange System made up of the Barcelona, Bilbao, Madrid and Valencia stock
exchanges.
Publisher: Sociedad de Bolsas, S.A.
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Required Disclosure: Sociedad de Bolsas, S.A. does not warrant in any case
nor for any reason whatsoever:
(a) the continuity of the composition of the IBEX 35 exactly as it is
today;
(b) the continuity of the method for calculating the IBEX 35 exactly as it
is calculated today;
(c) the continuity of the calculation, formula and publication of the IBEX
35;
(d) the precision, integrity or freedom from errors or mistakes in the
composition and calculation of the IBEX 35; and
(e) the adequacy of the IBEX 35 for the purposes expected in the issue of
the MITTS Securities nor for dealing in the same.
AMEX Hong Kong 30 Index--"HK30"
Description of HK30: The HK30 is intended to provide an indication of the
pattern of common stock price movement of 30 common stocks listed on the
Hong Kong Stock Exchange and selected on the basis of market weight,
trading liquidity and representation of business industry.
Publisher: The American Stock Exchange
Required Disclosure: The "AMEX Hong Kong 30 Index" is a service mark of the
AMEX. The AMEX in no way sponsors, endorses or is otherwise involved in the
issuance of the MITTS Securities, other than the fact that the MITTS
Securities will be listed and traded on the AMEX and the AMEX will
calculate and disseminate the Major 11 International Index, and the AMEX
disclaims any liability to any party for any inaccuracy in the data on
which the HK30 is based, for any mistakes, errors or omissions in the
calculation, and/or dissemination of the HK30, or for the manner in which
it is applied in connection with the issuance of the MITTS Securities.
AMEX has consented to the use and reference to the term "AMEX Hong Kong 30
Index".
The publisher of each sub-index will add or delete stocks due to events
such as the bankruptcy or merger of the issuer of a stock. The publisher of a
sub-index may reevaluate the composition of the stocks underlying the sub- index
at specified intervals to assure that they still meet the selection criteria or
any ongoing eligibility criteria.
The publisher of a sub-index is under no obligation to continue the
calculation and dissemination of that sub-index and that publisher may change
the method by which that sub-index is calculated. The publishers of the sub-
indices are under no obligation to take the needs of ML&Co. or the holders of
the MITTS into consideration in determining, composing or calculating the sub-
indices.
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.
24
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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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
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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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe of all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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".
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Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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.
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PROJECTED PAYMENT SCHEDULE
Solely for purposes of applying the final Treasury Department Regulations
(the "Final Regulations") concerning the United States Federal income tax
treatment of contingent payment debt instruments to 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 $5.5992 per unit. This
represents an estimated yield on the MITTS Securities equal to 6.45% 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 the projected
payment schedule for the MITTS Securities (including both the Projected
Supplemental Redemption Amount and an estimated yield equal to 6.45% 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
Interest Deemed to Accrue MITTS Securities as of
During Accrual Period End of Accrual Period
Accrual Period (per unit) (per unit)
--------------- --------------------------- -----------------------
<S> <C> <C>
May 26, 1999 through November 26, 1999....................... $0.3252 $0.3252
November 27, 1999 through May 26, 2000....................... $0.3330 $0.6582
May 27, 2000 through November 26, 2000....................... $0.3437 $1.0019
November 27, 2000 through May 26, 2001....................... $0.3548 $1.3567
May 27, 2001 through November 26, 2001....................... $0.3663 $1.7230
November 27, 2001 through May 26, 2002....................... $0.3780 $2.1010
May 27, 2002 through November 26, 2002....................... $0.3903 $2.4913
November 27, 2002 through May 26, 2003....................... $0.4028 $2.8941
May 27, 2003 through November 26, 2003....................... $0.4159 $3.3100
November 27, 2003 through May 26, 2004....................... $0.4292 $3.7392
May 27, 2004 through November 26, 2004....................... $0.4431 $4.1823
November 27, 2004 through May 26, 2005....................... $0.4574 $4.6397
May 27, 2005 through November 26, 2005....................... $0.4721 $5.1118
November 27, 2005 through May 26, 2006....................... $0.4874 $5.5992
</TABLE>
______________________
Projected Supplemental Redemption Amount = $5.5992 per unit.
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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. You may also read and copy any
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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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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.
29
<PAGE>
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., 17th
Floor, 222 Broadway, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
30
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
Market Index Target-Term Securities(R)
based upon the Dow Jones Industrial Average(SM)
due January 14, 2003
"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>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity . On the maturity date, for each unit of the MITTS
. No payments before the maturity date Securities you own, we will pay you an amount
. Senior unsecured debt securities of Merrill equal to the sum of the principal amount of each
Lynch & Co., Inc. unit and an additional amount based on the
. Linked to the value of the index measuring the percentage increase, if any, in the value of the
Dow Jones Industrial Average index, above a benchmark value of 8,594, as
. The MITTS Securities are listed on the New described in this prospectus
York Stock Exchange under the symbol "DJM" . You will receive no less than the principal
amount of your MITTS Securities
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
owned by Merrill Lynch & Co., Inc.
"Dow Jones", "Dow Jones Industrial Average (SM)", and "DJIA(SM)" are service
marks of Dow Jones & Company, Inc. ("Dow Jones") and have been licensed for use
for certain purposes by Merrill Lynch, Pierce, Fenner & Smith Incorporated.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS............................................................. 3
MERRILL LYNCH & CO., INC................................................. 6
RATIO OF EARNINGS TO FIXED CHARGES....................................... 7
DESCRIPTION OF THE MITTS SECURITIES...................................... 8
THE INDEX................................................................ 15
OTHER TERMS.............................................................. 16
PROJECTED PAYMENT SCHEDULE............................................... 19
WHERE YOU CAN FIND MORE INFORMATION...................................... 20
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........................ 21
PLAN OF DISTRIBUTION..................................................... 21
EXPERTS.................................................................. 22
</TABLE>
2
<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 at maturity we will pay you no more than $10 for
each unit of the MITTS Securities you own if the average value of the index over
five trading days shortly before the maturity date is less than 8,594. This
will be true even if at some time during the life of the MITTS Securities, the
value of the index, as adjusted, was higher than 8,594 but later falls below
8,594.
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 maturity date. Your investment may not reflect the full
opportunity cost to you when you take into account inflation and other factors
that affect the time value of money.
Your return will not reflect the return of owning the stocks included in the
index.
Your return will not reflect the return you would realize if you actually
owned the stocks underlying the index and received the dividends paid on those
stocks. This is because the value of the index is calculated by reference to the
prices of the common stocks included in the index without taking into
consideration the value of dividends paid on those stocks.
Your return will not reflect the payment of dividends.
The index is calculated with reference to the prices of the common stocks
comprising the index without taking into consideration the value of dividends
paid on those stocks. Therefore, the return you earn on your MITTS Securities,
if any, will not be the same as the return that you would earn if you actually
owned each of the common stocks underlying the index and received the dividends
paid on those stocks.
There may be an uncertain trading market for the MITTS Securities in the future.
Although the MITTS Securities are listed on the NYSE under the symbol
"DJM," you cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS Securities continues to
exist, you cannot assume that there will be liquidity in the trading market.
The continued existence of a trading market for the MITTS Securities will depend
on our financial performance and other factors such as the appreciation, if any,
of the value of the index.
If the trading market for the MITTS Securities is limited and you do not
wish to hold your investment until maturity, there may be a limited number of
buyers for your MITTS Securities. This may affect the price you receive if you
sell before maturity.
3
<PAGE>
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 MITS 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
magnify 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 index. 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.
The value of the 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 by which the index does or does not exceed 8,594. If
you choose to sell your MITTS Securities when the value of the index exceeds
8,594, you may receive substantially less than the amount that would be payable
at maturity based on that index value because of the expectation that the index
will continue to fluctuate until shortly before the maturity date when the
average value of the index is determined. If you choose to sell your MITTS
Securities when the value of the index is below 8,594, you may receive less than
the $10 principal amount per unit of MITTS Securities. In general, rising U.S.
dividend rates, or dividends per share, may increase the value of the index
while falling U.S. dividend rates may decrease the value of the index.
Political, economic and other developments that affect the stocks underlying the
index may also affect the value of the index and the value of the MITTS
Securities.
Changes in the levels of U.S. 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 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
index. Rising interest rates may lower the value of the index and, thus, may
lower the value of the MITTS Securities. Falling interest rates may increase the
value of the index and, thus, may increase the value of the MITTS Securities.
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. Volatility is the term used to describe the size
and frequency of market fluctuations. Generally, if the volatility of the index
increases, we expect that the trading value of the MITTS Securities will
increase. If the volatility of the 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 prior to the maturity of the MITTS Securities, the MITTS Securities may
trade at a value above that which would be expected based on the level of
interest rates and the index. This difference will reflect a "time premium" due
to expectations concerning the value of the index during the period prior to
January 14, 2003, the stated maturity of the MITTS Securities. However, as the
time remaining to 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 index are expected
to affect the trading value of the MITTS Securities. If dividend yields on the
stocks comprising the index increase, we expect that the value of the MITTS
Securities will decrease. Conversely, if dividend yields on the stock comprising
the index 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,
4
<PAGE>
such as the percentage increase in the value of the index at maturity, an
improvement in our credit ratings will not reduce 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 except that we expect that the effect on the trading value of the
MITTS Securities of a given increase in the value of the 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 laws govern the indenture under which the MITTS Securities
are 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 affiliates may from time to time buy or sell the stocks
underlying the 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 index in a manner
that would be adverse to your investment.
Potential conflicts of interest.
Our subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated or
MLPF&S, is our agent for the purposes of calculating the value of the index and
the amount payable to you at maturity. In some 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 its determination as to whether the
value of the 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 index. See "Description of the MITTS Securities--
Adjustments to the Index; Market Disruption Events" and "--Discontinuance of the
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.
5
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
7
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On December 23, 1997, ML&Co. issued an aggregate principal amount of
$90,000,000 or 9,000,000 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 January 14, 2003.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of the MITTS Security plus the Supplemental Redemption Amount
described below, if any, ML&Co. will make 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. Upon the occurrence of an Event
of Default 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.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of each unit plus the Supplemental
Redemption Amount, if any, all as provided below. If the Supplemental Redemption
Amount is not greater than zero, a beneficial owner of a MITTS Security will be
entitled to receive only the principal amount of its MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<CAPTION>
<S> <C>
Principal Amount of each MITTS Security ($10 per unit) X Ending Index Value - Benchmark Index Value
------------------------------------------
Benchmark Index Value
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Benchmark Index Value" equals 8,594, which was determined on the
pricing date by multiplying 7,957.41, the value of the index on the pricing date
by 108%.
The "Ending Value" will be determined by the calculation agent and will
equal the average or arithmetic mean of the closing values of the Dow Jones
Industrial Average Index (the "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 Index on these Calculation Days, and if there
is only one Calculation Day, then the Ending Value will equal the closing value
of the 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
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.
8
<PAGE>
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 Index or any Successor Index, as defined on page 10 below,
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.
9
<PAGE>
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending Index
Values:
. the percentage change from the starting index value to the Ending
Index 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 underlying the
Index, which includes an assumed aggregate dividend yield of
1.72% per annum, as more fully described below.
<TABLE>
<CAPTION>
Total Amount
Payable at Pretax
Percentage Maturity per Annualized Pretax Annualized
Change $10 Principal Total Rate of Rate Rate of Return of
Hypothetical Over the Amount of Return on of Return on Stocks Underlying
Ending Starting MITTS the MITTS the MITTS the
Index Value Index Value Securities Securities Securities(1) Index(1)(2)
----------- ----------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
3,182.96 -60.00% $10.00 0.00% 0.00% -14.21%
3,978.71 -50.00% $10.00 0.00% 0.00% -10.67%
4,774.45 -40.00% $10.00 0.00% 0.00% -7.63%
5,570.19 -30.00% $10.00 0.00% 0.00% -4.95%
6,365.93 -20.00% $10.00 0.00% 0.00% -2.55%
7,161.67 -10.00% $10.00 0.00% 0.00% -0.37%
7,957.41(3) 0.00% $10.00 0.00% 0.00% 1.64%
8,753.15 10.00% $10.19 1.85% 0.36% 3.49%
9,548.89 20.00% $11.11 11.11% 2.09% 5.22%
10,344.63 30.00% $12.04 20.37% 3.70% 6.84%
11,140.37 40.00% $12.96 29.63% 5.19% 8.36%
11,936.12 50.00% $13.89 38.89% 6.59% 9.80%
12,731.86 60.00% $14.81 48.15% 7.92% 11.17%
13,527.60 70.00% $15.74 57.41% 9.16% 12.48%
14,323.34 80.00% $16.67 66.67% 10.35% 13.72%
15,119.08 90.00% $17.59 75.93% 11.47% 14.91%
15,914.82 100.00% $18.52 85.19% 12.55% 16.05%
16,710.56 110.00% $19.44 94.44% 13.57% 17.15%
17,506.30 120.00% $20.37 103.70% 14.56% 18.21%
</TABLE>
--------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) an investment of a fixed amount in the stocks underlying the Index
with the allocation of an amount reflecting the current relative
weights of the stocks in the Index;
(b) a percentage change in the aggregate price of the stocks that equals
the percentage change in the Index from the starting index value to
the relevant hypothetical Ending Index Value;
10
<PAGE>
(c) a constant dividend yield of 1.72% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of
the Index at the end of each quarter assuming this value increases or
decreases linearly from the starting index value to the hypothetical
Ending Index Value;
(d) no transaction fees or expenses;
(e) the term of the MITTS Securities is from December 23, 1997 to January
14, 2003; and
(f) a final Index value equal to the hypothetical Ending Index Value. The
aggregate dividend yield of the stocks underlying the Index as of
December 17, 1997 was approximately 1.72%.
(3) The starting index value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by investors and the respective total
and pretax annualized rate of return will depend entirely on the actual Ending
Index Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Index; Market Disruption Events
If at any time the method of calculating the Index, or its value, is
changed in any material respect, or if the Index is in any other way modified so
that the Index does not, in the opinion of the calculation agent, fairly
represent the value of the Index had the 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 Ending Index 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 Index as
if any changes or modifications had not been made, and calculate the closing
value with reference to the Index, as adjusted. Accordingly, if the method of
calculating the Index is modified so that the value of the 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 Index, then the calculation agent shall adjust
the Index in order to arrive at a value of the 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 each case, in 20% or more of the stocks
which then comprise the 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
(1) futures contracts related to the Index, or options on these
futures contracts, which are traded on any major U.S. exchange or
(2) option contracts related to the Index which are traded on
any major U.S. exchange.
For the purposes of clause (a) above, any limitations on trading
during significant market fluctuations under New York Stock Exchange 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".
For the purposes of this definition, 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.
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Discontinuance of the Index
If Dow Jones discontinues publication of the Index and Dow Jones or another
entity publishes a successor or substitute index that the calculation agent
determines, in its sole discretion, to be comparable to the Index, this index
being referred to in this prospectus as a "Successor Index", then, upon the
calculation agent's notification of its determination to the trustee and ML&Co.,
the calculation agent will substitute the Successor Index as calculated by Dow
Jones or any other entity for the 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 Dow Jones discontinues publication of the 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 substituted for the 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 Index before any discontinuance.
If a Successor Index is selected or the calculation agent calculates a value as
a substitute for the Index as described below, the Successor Index or value
shall be substituted for the 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 Index, "Index Calculation Day" shall
mean any day on which the calculation agent is able to calculate a value.
If Dow Jones discontinues publication of the 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 Ending Index Value and
. a determination by 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 value to be published not less
often than once each month in The Wall Street Journal (the "WSJ"), or another
newspaper of general circulation, and arrange for information with respect to
these values to be made available by telephone. Notwithstanding these
alternative arrangements, discontinuance of the publication of the Index may
adversely affect trading in the MITTS Securities.
Events of Default and Acceleration
If 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 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". 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 at the maturity date of the MITTS Securities,
whether at their stated maturity or upon acceleration, from and after the
maturity date the MITTS Securities shall bear interest, payable upon demand of
their beneficial owners, at the rate of 6.18% per annum, to the extent that
payment of any interest shall be legally enforceable, on the unpaid amount due
and payable on any date in accordance with the terms of the MITTS Securities to
the date payment of any amount has been made or duly provided for.
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<PAGE>
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by
one or more fully registered global securities. Each global security was
deposited with, or on behalf of, The Depository Trust Company or DTC, (DTC,
together with any successor to DTC, 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 a
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 a 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 the 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
under the 1983 Indenture, 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 any action, and the participants
would authorize beneficial owners owning through those participants to give or
take action or would otherwise act upon the instructions of beneficial owners.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC 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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 other organizations. DTC is owned by a
number of its direct
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<PAGE>
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 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
participants or indirect participants through which the 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 the 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 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 identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments 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 the 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
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
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. 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.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form 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
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 INDEX
Unless otherwise stated, all information in this prospectus on the Index is
derived from Dow Jones or other publicly available sources. This information
reflects the policies of Dow Jones as stated in these sources and these policies
are subject to change by Dow Jones. Dow Jones is under no obligation to
continue to publish the Index and may discontinue publication of the Index at
any time.
The Index is a price-weighted index, meaning that the weight of a component
stock in the Index is based on its price per share rather than the total market
capitalization of the issuer of a component stock, comprised of 30 common stocks
chosen by the editors of the WSJ as representative of the broad market of U.S.
industry. The corporations represented in the Index tend to be leaders within
their respective industries and their stocks are typically widely held by
individuals and institutional investors. Changes in the composition of the
Index are made entirely by the editors of the WSJ without consultation with the
corporations represented in the Index, any stock exchange, any official agency
or ML&Co.. Changes to the common stocks included in the Index tend to be made
infrequently. Historically, most substitutions have been the result of mergers,
but from time to time, changes may be made to achieve what the editors of the
WSJ deem to be a more accurate representation of the broad market of U.S.
industry. In choosing a new corporation for the Index, the editors of the WSJ
look for leading industrial companies with a successful history of growth and
wide interest among investors. The WSJ may change the component stocks of the
Index at any time for any reason. Dow Jones, publisher of the WSJ, is not
affiliated with ML&Co. and has not participated in any way in the creation of
the MITTS Securities.
The Index initially consisted of 12 common stocks and was first published
in the WSJ in 1896. The Index was increased to include 20 common stocks in 1916
and to 30 common stocks in 1928. The number of common stocks in the Index has
remained at 30 since 1928, and, in an effort to maintain continuity, the
constituent corporations represented in the Index have been changed on a
relatively infrequent basis.
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<PAGE>
The value of the Index is the sum of the primary exchange prices of each of
the 30 common stocks included in the Index, divided by a divisor that is
designed to provide a meaningful continuity in the value of the Index. Because
the Index is price-weighted, stock splits or changes in the component stocks
could result in distortions in the Index value. In order to prevent these
distortions related to extrinsic factors, the divisor is changed in accordance
with a mathematical formula that reflects adjusted proportions within the Index.
The current divisor of the Index is published daily in the WSJ and other
publications. In addition, other statistics based on the Index may be found in
a variety of publicly available sources.
ML&Co. or its affiliates may presently or from time to time engage in
business with one or more of the issuers of the component stocks of the Index,
including extending loans to, or making equity investments in these issuers or
providing advisory services to these issuers, including merger and acquisition
advisory services. In the course of this business, ML&Co. or its affiliates may
acquire non-public information with respect to these issuers. ML&Co. does not
make any representation to any purchaser of MITTS Securities with respect to any
matters whatsoever relating to these issuers. Any prospective purchaser of
MITTS Securities should undertake an independent investigation of the issuers of
the component stocks of the Index as in its judgment is appropriate to make an
informed decision with respect to an investment in the MITTS Securities. The
composition of the Index does not reflect any investment or sell recommendations
of ML&Co. or its affiliates.
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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.
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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 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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However,
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without the consent of each holder of any outstanding senior debt security
affected, no amendment or modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. any other Event of Default provided with respect to senior debt
securities of that series which are not inconsistent with the 1983
Indenture.
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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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior 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 final Treasury Department Regulations,
the "Final Regulations", concerning the proper United States Federal income tax
treatment of contingent payment debt instruments 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 and a projected
Supplemental Redemption Amount equal to $3.6070 per unit, the "Projected
Supplemental Redemption Amount". This represents an estimated yield on the
MITTS Securities equal to 6.18% 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, 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 a term of five years and twenty-two days
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for the MITTS Securities based upon the projected payment schedule for the MITTS
Securities, including both the Projected Supplemental Redemption Amount and the
estimated yield equal to 6.18% per annum, compounded semiannually, as determined
by ML&Co. for purposes of applying the Final Regulations to the MITTS
Securities:
<TABLE>
<CAPTION>
Total Interest
Deemed to
Have Accrued
Interest Deemed to On the MITTS Securities
Accrue During as of End of
Accrual Period Accrual Period
Accrual Period (per Unit) (per Unit)
-------------- ---------- ----------
<S> <C> <C>
January 15, 1998 through July 14, 1998.......................... $0.3101 $0.3470
July 15, 1998 through January 14, 1999.......................... $0.3197 $0.6667
January 15, 1999 through July 14, 1999.......................... $0.3296 $0.9963
July 15, 1999 through January 14, 2000.......................... $0.3398 $1.3361
January 15, 2000 through July 14, 2000.......................... $0.3503 $1.6864
July 15, 2000 through January 14, 2001.......................... $0.3611 $2.0475
January 15, 2001 through July 14, 2001.......................... $0.3723 $2.4198
July 15, 2001 through January 14, 2002.......................... $0.3837 $2.8035
January 15, 2002 through July 14, 2002.......................... $0.3957 $3.1992
July 15, 2002 through January 14, 2003.......................... $0.4078 $3.6070
</TABLE>
_____________
Projected Supplemental Redemption Amount = $3.6070 per Unit.
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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement of which this prospectus is a part.
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INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
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.
21
<PAGE>
MLPF&S may act as principal or agent in these market-making transactions.
The MITTS Securities may be offered on the NYSE 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
22
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
7 7/8% STRUCTURED YIELD PRODUCT EXCHANGEABLE FOR STOCK(SM)
Due February 1, 2001
"STRYPES(SM)"
Payable with Shares of Common Stock of CIBER, Inc.
or cash with an equal value
___________
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, our wholly-owned subsidiary, will use this prospectus when making
offers and sales related to market-making transactions in the STRYPES.
The issue price of each STRYPES was $54.125, which was the last sale
price of one share of common stock, par value $.01 per share, of CIBER on
January 26, 1998, as reported on the New York Stock Exchange. The STRYPES will
mature on February 1, 2001.
What you will receive before the maturity date:
. On each February 1, May 1, August 1 and November 1, beginning May 1, 1998, we
will pay you interest on the STRYPES in cash at the rate of 7 7/8% per year.
What you will receive on the maturity date:
. For each STRYPES you own, you will receive a number of shares of common stock
of CIBER or an equivalent amount of cash according to the maturity price. The
maturity price is the average closing price per share of common stock of CIBER
on a number of days before the maturity date. The amount you will receive is
also subject to adjustments, which are more fully described in this
prospectus.
<TABLE>
<S> <C>
If the maturity price is: You will receive:
(a) greater than $91.4713 .7692 shares of common stock of CIBER
(b) less than $91.4713 but greater than $70.3625 a fractional share of the common stock of CIBER
equal to $70.3625
(c) less than $70.3625 but greater than or equal one share of common stock of CIBER
to $54.125
(d) less than $54.125 but greater than $51.4188 a number of shares of common stock equal to
$54.125, based on the maturity price
(e) less than $51.4188 1.0526 shares of common stock of CIBER
</TABLE>
Investing in the STRYPES involves risks, including the risk that your investment
may result in a loss. See "Risk Factors" beginning on page 3.
The STRYPES are listed on the NYSE under the trading symbol "BOB".
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 STRYPES will be the prevailing price at the time of
sale.
___________
Merrill Lynch & Co.
___________
The date of this prospectus is , .
"STRYPES" and "Structured Yield Product Exchangeable for Stock" are registered
service marks owned by ML&Co.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS........................................................... 3
MERRILL LYNCH & CO., INC............................................... 7
RATIO OF EARNINGS TO FIXED CHARGES..................................... 8
CIBER, INC............................................................. 9
DESCRIPTION OF THE STRYPES............................................. 9
OTHER TERMS............................................................ 18
CERTAIN ARRANGEMENTS WITH THE CONTRACTING STOCKHOLDER.................. 22
WHERE YOU CAN FIND MORE INFORMATION.................................... 22
INCORPORATION OF INFORMATION WE FILE WITH THE SEC...................... 24
PLAN OF DISTRIBUTION................................................... 24
EXPERTS................................................................ 25
</TABLE>
2
<PAGE>
RISK FACTORS
Your investment in the STRYPES will involve risks. You should carefully
consider the following discussion of risks before investing in the STRYPES. In
addition, you should reach an investment decision with regard to the STRYPES
only after consulting with your legal and tax advisers and considering the
suitability of the STRYPES in the light of your particular circumstances.
You may suffer a loss on your investment
You should be aware that at maturity the amount you will receive may be
less than the amount you paid for the STRYPES, which was $54.125 per STRYPES.
Although your investment in the STRYPES may be protected from a depreciation in
the value of the common stock of CIBER, if the maturity price does not fall
below the downside protection threshold price of $51.4188, you will have only
limited protection from a depreciation below 95% of the initial price of
$54.125. If the maturity price of the common stock of CIBER is less than the
downside protection threshold price, the amount you may receive on the maturity
date will be less than the issue price you paid for the STRYPES and, therefore,
your investment in the STRYPES will result in a loss to you. Accordingly, you
assume the risk that the market value of the common stock of CIBER may decline
below 95% of the initial price of $54.125, and that the decline could be
substantial.
Your investment in the STRYPES may differ from an investment in other debt
securities
The terms of the STRYPES differ from those of ordinary debt securities
because the value of the common stock of CIBER or the equivalent amount in cash
that you will receive on the maturity date is not fixed, but is based on the
maturity price of the common stock of CIBER. Please review the section entitled
"Description of the STRYPES".
There may be a limited opportunity for equity appreciation
Your opportunity for equity appreciation may be greater if you made a
direct investment in the common stock of CIBER because the amount you may
receive on the maturity date will exceed the initial appreciation cap of
$70.3625, which represents an appreciation of 30% over the initial price of
$54.125, only if the maturity price of the common stock of CIBER exceeds the
threshold appreciation price of $91.4713, which represents an appreciation of
69% over the initial price. Moreover, you will be entitled to receive on the
maturity date only 76.92%, which is the percentage equal to the initial
appreciation cap of $70.3625 divided by the threshold appreciation price of
$91.4713, of any appreciation of the value of common stock of CIBER above the
threshold appreciation price.
Because the price of the common stock of CIBER is subject to market
fluctuations, the value of the common stock of CIBER or the amount of cash you
may receive on the maturity date may be more or less than the issue price of the
STRYPES. If the maturity price is less than the downside protection threshold
price, you will have only limited protection from a depreciation below 95% of
the initial price of $54.125. Please review the section entitled "Description of
the STRYPES".
There are many factors affecting the trading prices of the STRYPES
The trading prices of the STRYPES in the secondary market will be directly
affected by the trading prices of the common stock of CIBER in the secondary
market. It is impossible to predict whether the price of the common stock of
CIBER will rise or fall because several factors may influence the trading prices
of the common stock of CIBER. These factors include:
. CIBER's operating results and prospects,
3
<PAGE>
. complex and interrelated political, economic, financial and other
factors and market conditions that can affect (1) the capital markets
generally, (2) the market segment of which CIBER is a part, or (3) the
NYSE, on which the common stock of CIBER is traded, including the
level of, and fluctuations in, the trading prices of stocks generally
and sales of substantial amounts of the common stock of CIBER in the
market subsequent to the offering of the STRYPES or the perception
that these sales could occur, and
. other events that are difficult to predict and are beyond our control.
There may be illiquidity of the STRYPES in the secondary market
It is not possible to predict how the STRYPES will trade in the secondary
market or whether the secondary market for the STRYPES will be liquid or
illiquid. The STRYPES are novel securities and there is currently no secondary
market for the STRYPES. Although the STRYPES are listed on the NYSE under the
symbol "BOB", you cannot assume
. that an active trading market for the STRYPES will develop,
. that listing on the NYSE will provide you with liquidity of
investment,
. that the STRYPES will not later be delisted, or
. that trading of the STRYPES on the NYSE will not be suspended.
If the NYSE delists the STRYPES or suspends the trading of the STRYPES, we
will apply for listing of the STRYPES on another national securities exchange or
for quotation on another trading market. If the STRYPES are not listed or
traded on any securities exchange or trading market, or if trading of the
STRYPES is suspended, it may be more difficult to obtain pricing information for
the STRYPES and the liquidity of the STRYPES may be adversely affected.
Investing in the STRYPES may affect the market for the common stock of CIBER
Any market that develops for the STRYPES is likely to influence and be
influenced by the market for common stock of CIBER. For example, the price of
common stock of CIBER could become more volatile and could be depressed
. by investors' anticipation of the potential distribution into the
market of substantial amounts of common stock of CIBER on the maturity
date,
. by possible sales of common stock of CIBER by investors who view the
STRYPES as a more attractive means of equity participation in CIBER,
and
. by hedging or arbitrage trading activity that may develop involving
the STRYPES and the common stock of CIBER.
As a holder of STRYPES, you have no stockholder's rights with respect to the
common stock of CIBER
You will not be entitled to any rights, including voting rights and rights
to receive any dividends, interest or other distributions, with respect to the
common stock of CIBER until we have delivered the shares of common stock of
CIBER on the maturity date. In addition, you will not be entitled to any rights
if the applicable record date for the exercise of any rights occurs before we
deliver the shares. For example, if an amendment is proposed to the amended and
restated certificate of incorporation of CIBER and the record date for
determining the stockholders of record entitled to vote on the amendment occurs
before we deliver the
4
<PAGE>
shares of common stock of CIBER, you, as a holder of the STRYPES, will not be
entitled to vote on the proposed amendment.
CIBER has no obligations with respect to the STRYPES
We are not affiliated with CIBER. CIBER has no obligations with respect to
the STRYPES or amounts to be paid to you, including any obligation to take our
needs or yours, as a holder of the STRYPES, into consideration for any reason.
CIBER will not receive any of the proceeds of this offering of the STRYPES.
CIBER is not responsible for, and has not participated in, the determination of
the timing of, prices for or quantities of the STRYPES to be issued, or the
determination or calculation of the amount you will receive, as a holder of the
STRYPES, on the maturity date. In addition, CIBER is not involved with the
administration or trading of the STRYPES.
There may be a dilution of common stock of CIBER
The number of shares of common stock of CIBER or the equivalent amount of
cash that you are entitled to receive on the maturity date is subject to
adjustment for events such as:
. a merger or consolidation in which CIBER is not the surviving or
resulting corporation,
. a sale or transfer of substantially all of the assets of CIBER,
. the liquidation, dissolution, winding up or bankruptcy of CIBER,
. stock splits and combinations, stock dividends, and
. other actions of CIBER that modify its capital structure.
Please review the section entitled "Description of the STRYPES--Dilution
Adjustments".
The number of shares of common stock of CIBER or the cash amount that you
may receive as a holder of the STRYPES on the maturity date will not be adjusted
for other events not specifically provided, such as offerings of common stock of
CIBER by CIBER for cash or in connection with acquisitions.
In addition, no adjustments will be made for any sales of common stock of
CIBER by any principal stockholder of CIBER, including the contracting
stockholder. The contracting stockholder is Bobby G. Stevenson, who individually
and as settlor, beneficiary and trustee of the 1998 Bobby G. Stevenson Revocable
Trust, is the contracting stockholder. At December 31, 1997, the contracting
stockholder owned beneficially approximately 27% of the outstanding common stock
of CIBER. CIBER is not restricted from issuing additional shares of common stock
of CIBER during the term of the STRYPES. Because the contracting stockholder can
exercise significant influence on the business and affairs of CIBER, any
decision to issue additional shares of common stock of CIBER will be influenced
by the contracting stockholder. The principal stockholders of CIBER, including
the contracting stockholder, are also not precluded from selling shares of
common stock of CIBER under Rule 144 under the Securities Act or by causing
CIBER to register shares.
Neither CIBER nor any stockholder of CIBER, including the contracting
stockholder, has any duty or obligation to consider the interests of the holders
of the STRYPES for any reason. Additional issuances or sales may materially and
adversely affect the price of the common stock of CIBER. Because of the
relationship of the number of shares of common stock of CIBER or the cash amount
you will receive on the maturity date to the price of the common stock of CIBER,
other events may adversely affect the trading price of the STRYPES. You cannot
assume that CIBER will not take any of the foregoing actions or that CIBER or
any of its principal stockholders, including the contracting stockholder, it
will not make offerings of, or that will not sell any, common stock of CIBER in
the future, or as to the amount of any such offerings or sales.
5
<PAGE>
The tax treatment of STRYPES is uncertain
Because of an absence of authority as to the proper characterization of the
STRYPES, their ultimate tax treatment is uncertain. Accordingly, you cannot
assume that any particular characterization and tax treatment of the STRYPES
will be accepted by the Internal Revenue Service or upheld by a court. However,
it is the opinion of Brown & Wood LLP, counsel to ML&Co., that the
characterization and tax treatment of the STRYPES described in this prospectus,
while not the only reasonable characterization and tax treatment, is based on
reasonable interpretations of law currently in effect and, even if successfully
challenged by the IRS, will not result in the imposition of penalties. Under the
1983 indenture, which is more fully described in this prospectus, if you are
subject to United States Federal income tax, you must include currently in
income, for United States Federal income tax purposes, payments denominated as
interest that are made with respect to a STRYPES in accordance with your regular
method of tax accounting. In addition, ML&Co. and you, as a holder of the
STRYPES, are required to treat each STRYPES for tax purposes as a unit
consisting of:
. a debt instrument with a fixed principal amount unconditionally payable
on the maturity date equal to the issue price of the STRYPES and bearing
interest at the stated interest rate on the STRYPES and
. a forward purchase contract under which you agree to use the principal
payment due on the debt instrument to purchase on the maturity date the
common stock of CIBER which ML&Co. is obligated to deliver at that time,
subject to ML&Co.'s right to deliver cash instead of common stock of
CIBER.
Upon the acquisition of a STRYPES and upon your sale or other disposition
of a STRYPES before the maturity date, the amount paid or realized be allocated
between the debt instrument and the forward contract based upon their relative
fair market values, as determined on the date of acquisition or disposition.
For these purposes, with respect to acquisitions of STRYPES in connection with
the original issuance thereof, ML&Co. and you agree, under the terms of the 1983
indenture, to assign $56.78 or 104.91% of the initial purchase price of a
STRYPES to the debt instrument and to assign $2.655 or 4.91% of the initial
purchase price of a STRYPES to the forward contract.
Because the appropriate character and timing of income, gain or loss to be
recognized on a STRYPES is uncertain, you should consult your own tax advisors
concerning the application of the United States Federal income tax laws to your
particular situation and any consequences of the purchase, ownership and
disposition of the STRYPES arising under the laws of any other taxing
jurisdiction.
Our holding company structure may affect your right to participate in any
distribution of assets of any subsidiary
Since we are a holding company, our right and the right of our creditors,
including you, as a holder of STRYPES, to participate in any distribution of the
assets of any subsidiary upon its liquidation or reorganization or otherwise is
necessarily subject to the prior claims of creditors of the subsidiary, except
to the extent a bankruptcy court may recognize our claims as a creditor of the
subsidiary. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to us are restricted by net capital requirements
under the Exchange Act and under rules of exchanges and other regulatory bodies.
6
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
STRYPES described in this prospectus.
7
<PAGE>
PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
8
<PAGE>
CIBER, INC.
CIBER is a nationwide provider of information technology consulting,
including application software staff supplementation, management consulting
solutions for "business/IT" problems, package software implementation services,
system life-cycle project responsibility, millennium date change conversion
services and networking procurement and engineering services. CIBER's revenues
are generated from two areas, the CIBER Information Services ("CIS") Division
and CIBER's Solutions Consulting Group ("CIBER Solutions"). The CIS Division
provides application software development and maintenance services and, through
its CIBR2000 Division, millennium date change solutions. CIBER Solutions
provides services through CIBER's wholly-owned subsidiaries Spectrum Technology
Group, Inc. ("Spectrum"), Business Information Technology, Inc. ("BIT") and
CIBER Network Services, Inc. ("CNSI"). Spectrum provides information technology
consulting solutions to business problems, specifically in the areas of data
warehousing, data modeling and enterprise architecture, as well as project
management and system integration services. BIT specializes in the
implementation and integration of human resource and financial software
application products, plus workflow automation and manufacturing/distribution
software systems, primarily for client/server networks. A substantial portion of
BIT's revenues is derived from assisting clients implementing PeopleSoft, Inc.
software. CNSI provides a wide range of local-area and wide-area network
solutions, from design and procurement to installation and maintenance, with
services including Internet and intranet connectivity.
CIBER is subject to the informational requirements of the Exchange Act.
Accordingly, CIBER files reports, proxy and information statements and other
information with the SEC. Copies of such material can be inspected and copied at
the public reference facilities maintained by the SEC. Reports, proxy and
information statements and other information concerning CIBER may also be
inspected at the offices of the NYSE. The SEC maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including CIBER, that file
electronically with the SEC.
ML&CO. is not affiliated with CIBER, and CIBER has no obligations with
respect to the STRYPES. This prospectus relates only to the STRYPES offered
hereby and does not relate to the common stock of CIBER. CIBER has filed a
registration statement on Form S-3 with the SEC with respect to the shares of
common stock of CIBER that may be received by a holder of STRYPES on the
maturity date. The prospectus of CIBER constituting a part of such registration
statement includes information relating to CIBER and the common stock of CIBER,
as well as a discussion of certain risk factors relevant to an investment in
common stock of CIBER. The prospectus of CIBER does not constitute a part of
this prospectus nor is it incorporated by reference in this prospectus.
DESCRIPTION OF THE STRYPES
ML&Co. issued the STRYPES as a series of Senior Debt Securities issued
under the 1983 indenture, which is more fully described in this prospectus. The
following summary of material provisions of the 1983 indenture does not purport
to be complete and is qualified in its entirety by reference to the 1983
indenture. A copy of the 1983 indenture is filed as an exhibit to the
registration statement of which this prospectus is a part.
Each STRYPES, which was issued at an issue price of $54.125 (the "Initial
Price"), bears interest at the rate of 70% of the issue price per annum, or
$4.2623 per annum, from January 30, 1998, or from the most recent Interest
Payment Date to which interest has been paid or provided for, until the maturity
date or the earlier date on which the issue price of the STRYPES is repaid
pursuant to the terms of the STRYPES. Interest on the STRYPES is payable in cash
quarterly in arrears on February 1, May 1, August 1 and November 1, beginning
May 1, 1998, and on the maturity date (each, an "Interest Payment Date"), to the
persons in whose names the STRYPES are registered at the close of business on
the fifteenth calendar day, whether or not a Business Day, immediately preceding
the Interest Payment Date. Interest on the STRYPES will be computed on the basis
of a 360-day year of twelve 30-day months. If an Interest Payment Date falls on
a day that is not a Business Day, the interest payment to be made on the
Interest Payment Date will be made on
9
<PAGE>
the next succeeding Business Day with the same force and effect as if made on
the Interest Payment Date, and no additional interest will accrue as a result of
the delayed payment.
The maturity date of the STRYPES is February 1, 2001. On the maturity
date, ML&Co. will pay and discharge each STRYPES by delivering to the holder of
the STRYPES a number of shares of common stock of CIBER, subject to ML&Co.'s
right to deliver, with respect to all, but not less than all, shares of common
stock of CIBER deliverable on the maturity date, cash with an equal value. The
number of shares that ML&Co. will deliver is referred to in this prospectus as
the "Payment Rate". ML&Co. will determine the Payment Rate according to the
following Payment Rate Formula, which is subject to adjustment as a result of
dilution events described in this prospectus.
(a) If the Maturity Price (as defined below) is greater than or equal to
$91.4713 (the "Threshold Appreciation Price"), the holder of STRYPES
will receive 0.7692 shares of common stock of CIBER per STRYPES;
(b) If the Maturity Price is less than the Threshold Appreciation Price
but is greater than $70.3625 (the "Initial Appreciation Cap"), the
holder of STRYPES will receive a fractional share of common stock of
CIBER per STRYPES so that the value of the fractional share, which
will be determined based on the Maturity Price, equals the Initial
Appreciation Cap;
(c) If the Maturity Price is less than or equal to the Initial
Appreciation Cap but is greater than or equal to the Initial Price,
the holder of STRYPES will receive one share of common stock of CIBER
per STRYPES;
(d) If the Maturity Price is less than the Initial Price but is greater
than or equal to $51.4188 (the "Downside Protection Threshold
Price"), the holder of STRYPES will receive a number of shares of
common stock of CIBER per STRYPES so that the value of the shares,
which will be determined based on the Maturity Price, equals the
Initial Price; and
(e) If the Maturity Price is less than the Downside Protection Threshold
Price, the holder of STRYPES will receive 1.0526 shares of common
stock of CIBER per STRYPES.
The Maturity Price will represent a determination of the value of a share of
common stock of CIBER immediately before the maturity date. You, as a holder of
the STRYPES, cannot assume that the amount you will receive on the maturity date
will be equal to or greater than the issue price of the STRYPES. If the Maturity
Price of the common stock of CIBER is less than the Downside Protection
Threshold Price, the amount you will receive on the maturity date will be less
than the issue price paid for the STRYPES, in which case your investment in
STRYPES will result in a loss. The numbers of shares of common stock of CIBER
per STRYPES specified in clauses (a), (c) and (e) of the Payment Rate Formula
are referred to in this prospectus as the "Share Components".
Notwithstanding the foregoing, ML&Co. may, in lieu of delivering shares of
common stock of CIBER, deliver cash in an amount equal to the value of the
number of shares of common stock of CIBER at the Maturity Price, subject to
ML&Co.'s agreement contained in the forward purchase contract to deliver on the
maturity date the form of consideration that the ML&Co. Subsidiary receives from
the contracting stockholder. The right to deliver cash, if exercised by ML&Co.,
must be exercised with respect to all shares of common stock of CIBER otherwise
deliverable on the maturity date in payment of all Outstanding STRYPES. On or
before the sixth Business Day before the maturity date, ML&Co. will notify the
Securities Depository and the trustee and publish a notice in The Wall Street
Journal or another daily newspaper of national circulation stating whether the
STRYPES will be paid and discharged with shares of common stock of CIBER or
cash. At the time the notice is published, the Maturity Price will not have been
determined. If ML&Co. delivers shares of common stock of CIBER, holders of the
STRYPES will be responsible for the payment of any and all brokerage costs upon
the subsequent sale of the common stock.
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The "Maturity Price" means the average Closing Price per share of common
stock of CIBER on the 20 Trading Days immediately before, but not including, the
second Trading Day preceding the maturity date.
The "Closing Price" of any security on any date of determination means (1)
the closing sale price or, if no closing price is reported, the last reported
sale price, of such security on the NYSE on such date, or (2) if such security
is not listed for trading on the NYSE on any date of determination, as reported
in the composite transactions for the principal United States securities
exchange on which the security is so listed, or (3) if the security is not so
listed on a United States national or regional securities exchange, as reported
by the National Association of Securities Dealers, Inc. Automated Quotation
System, (4) or if the security is not so reported, the last quoted bid price for
the security in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, or (5) if the bid price is not
available, the market value of the security on the date of determination as
determined by a nationally recognized independent investment banking firm
retained for this purpose by ML&Co. In the event that the Payment Rate Formula
is adjusted as described under "-Dilution Adjustments" below, each of the
Closing Prices used in determining the Maturity Price will be similarly adjusted
to derive, for purposes of determining which clause of the Payment Rate Formula
will apply on the maturity date, a Maturity Price stated on a basis comparable
to the Downside Protection Threshold Price, the Initial Price, the Initial
Appreciation Cap and the Threshold Appreciation Price.
A "Trading Day" means a day on which the security the Closing Price of
which is being determined (A) is not suspended from trading on any national or
regional securities exchange or association or over-the-counter market at the
close of business and (B) has traded at least once on the national or regional
securities exchange or association or over-the-counter market that is the
primary market for the trading of the security.
The term "Business Day" means any day that is not a Saturday, a Sunday or a
day on which the NYSE or banking institutions or trust companies in The City of
New York are authorized or obligated by law or executive order to close.
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<PAGE>
Hypothetical Payments at Maturity
For illustrative purposes only, the following table shows the number of
shares of common stock of CIBER or the amount of cash that a holder of STRYPES
would receive for each STRYPES at various hypothetical Maturity Prices. The
table assumes that there will be no dilution adjustments to the Payment Rate
Formula as described below. Given the Downside Protection Threshold Price of
$51.42, the Initial Price of $54.13, the Initial Appreciation Cap of $70.36 and
the Threshold Appreciation Price of $91.47, a STRYPES holder would receive on
the maturity date the following number of shares of common stock of CIBER or, if
ML&Co. elects to pay and discharge the STRYPES with cash, the amount of cash per
STRYPES:
<TABLE>
<CAPTION>
Maturity Price Number of
of Shares of
Common Stock Common Stock of
of CIBER CIBER Amount of Cash*
-------- ----- --------------
<S> <C> <C>
$45.13 1.0526 $47.50
49.13 1.0526 51.71
51.42 1.0526 54.13
52.13 1.0384 54.13
54.13 1.0000 54.13
59.13 1.0000 59.13
64.13 1.0000 64.13
70.36 1.0000 70.36
74.13 0.9492 70.36
79.13 0.8893 70.36
84.13 0.8364 70.36
91.47 0.7692 70.36
94.13 0.7692 72.40
99.13 0.7692 76.25
</TABLE>
___________
* The preceding table does not take into account interest payable on the
STRYPES. Dollar amounts in the table have been rounded to two decimal places
and share amounts have been rounded to four decimal places.
Dilution Adjustments
The Payment Rate Formula is subject to adjustment if CIBER shall:
(1) pay a stock dividend or make a distribution with respect to common
stock of CIBER in shares of the stock;
(2) subdivide or split the outstanding shares of common stock of CIBER
into a greater number of shares;
(3) combine the outstanding shares of common stock of CIBER into a smaller
number of shares;
(4) issue by reclassification of shares of common stock of CIBER any
shares of common stock of CIBER;
(5) issue rights or warrants to all holders of common stock of CIBER
entitling them to subscribe for or purchase shares of common stock of
CIBER at a price per share less than the then current market price of
the common stock of CIBER, other than rights to purchase common stock
of CIBER pursuant to a plan for the reinvestment of dividends or
interest; or
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(6) pay a dividend or make a distribution to all holders of common stock
of CIBER of evidences of its indebtedness or other assets, excluding
any stock dividends or distributions referred to in clause (1) above
or any cash dividends other than any Extraordinary Cash Dividend (as
defined below), or issue to all holders of common stock of CIBER
rights or warrants to subscribe for or purchase any of its securities,
other than those referred to in clause (5) above.
In the case of the events referred to in clauses (1), (2), (3) and (4)
above, the Payment Rate Formula shall be adjusted so that each holder of any
STRYPES shall thereafter be entitled to receive, upon payment and discharge of
the STRYPES, the number of shares of common stock of CIBER or, in the case of a
reclassification referred to in clause (4) above, the number of shares of other
common stock of CIBER issued pursuant to the reclassification, which the holder
would have owned or been entitled to receive immediately following any event had
the STRYPES been paid and discharged immediately before the event in clauses
(1), (2), (3) and (4) or any record date with respect to the event.
In the case of the event referred to in clause (5) above, the Payment Rate
Formula shall be adjusted by multiplying each of the Share Components in the
Payment Rate Formula in effect immediately before the date of issuance of the
rights or warrants referred to in clause (5) above by a fraction, (A) the
numerator of which shall be the number of shares of common stock of CIBER
outstanding on the date of issuance of the rights or warrants, immediately
before the issuance, plus the number of additional shares of common stock of
CIBER offered for subscription or purchase pursuant to the rights or warrants,
and (B) the denominator of which shall be the number of shares of common stock
of CIBER outstanding on the date of issuance of the rights or warrants,
immediately before the issuance, plus the number of additional shares of common
stock of CIBER which the aggregate offering price of the total number of shares
of common stock of CIBER so offered for subscription or purchase pursuant to the
rights or warrants would purchase at the current market price, which shall be
determined by multiplying the total number of shares by the exercise price of
the rights or warrants and dividing the product so obtained by the current
market price. The current market price shall be the average Closing Price per
share of common stock of CIBER on the 20 Trading Days immediately before the
date the rights or warrants are issued, subject to certain adjustments. To the
extent that shares of common stock of CIBER are not delivered after the
expiration of the rights or warrants, the Payment Rate Formula shall be
readjusted to the Payment Rate Formula which would then be in effect had the
adjustments for the issuance of the rights or warrants been made upon the basis
of delivery of only the number of shares of common stock of CIBER actually
delivered.
In the case of the event referred to in clause (6) above, the Payment Rate
Formula shall be adjusted by multiplying each of the Share Components in the
Payment Rate Formula in effect on the record date referred to below by a
fraction, (A) the numerator of which shall be the market price per share of the
common stock of CIBER on the record date for the determination of stockholders
entitled to receive the dividend or distribution or the rights or warrants
referred to in clause (6) above, and (B) the denominator of which shall be the
market price per share of common stock of CIBER less the fair market value as of
the record date of the portion of the assets or evidences of indebtedness to be
distributed or of the subscription rights or warrants applicable to one share of
common stock of CIBER. The market price in the above fraction shall be the
average Closing Price per share of common stock of CIBER on the 20 Trading Days
immediately before the record date, subject to certain adjustments. The Board of
Directors of ML&Co. shall determine the fair market value in the above fraction;
their determination of the fair market value shall be conclusive and described
in a resolution adopted with respect thereto.
An "Extraordinary Cash Dividend" means, with respect to any consecutive 12-
month period, the amount, if any, by which the aggregate amount of all cash
dividends on the common stock of CIBER occurring in the 12-month period,
excluding any the dividends occurring in the period for which a prior adjustment
to the Payment Rate Formula was previously made, exceeds on a per share basis
10% of the average of the Closing Prices per share of the common stock of CIBER
over the 12-month period. All adjustments to the Payment Rate Formula will be
calculated to the nearest 1/10,000th of a share of common stock of CIBER or, if
there is not a nearest 1/10,000th of a share, to the next lower 1/10,000th of a
share. No adjustment in the Payment
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<PAGE>
Rate Formula shall be required unless the adjustment would require an increase
or decrease of at least one percent therein; provided, however, that any
adjustments which by reason of the foregoing are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. If an
adjustment is made to the Payment Rate Formula as described above, an adjustment
will also be made to the Maturity Price solely to determine which clause of the
Payment Rate Formula will apply on the maturity date. The required adjustment to
the Maturity Price will be made by multiplying each of the Closing Prices used
in determining the Maturity Price by a fraction, the numerator of which shall be
the Share Component in clause (c) of the Payment Rate Formula immediately after
the adjustment described above, and the denominator of which shall be the Share
Component in clause (c) of the Payment Rate Formula immediately before the
adjustment described above. Each adjustment to the Payment Rate Formula shall be
made successively.
In the event of a "Reorganization Event", which is:
(A) any consolidation or merger of CIBER, or any surviving entity or
subsequent surviving entity of CIBER (a "CIBER Successor"), with or
into another entity, other than a consolidation or merger in which
CIBER is the continuing corporation and in which the common stock of
CIBER outstanding immediately before the consolidation or merger is
not exchanged for cash, securities or other property of CIBER or
another corporation,
(B) any sale, transfer, lease or conveyance to another entity of the
property of CIBER or any CIBER Successor as an entirety or
substantially as an entirety,
(C) any statutory exchange of securities of CIBER or any CIBER Successor
with another entity, other than in connection with a merger or
acquisition, or
(D) any liquidation, dissolution, winding up or bankruptcy of CIBER or any
CIBER Successor,
the Payment Rate Formula used to determine the amount payable on the maturity
date for each STRYPES will be adjusted to provide that each holder of STRYPES
will receive cash on the maturity date for each STRYPES. The holder will
receive cash in an amount equal to
(a) if the Transaction Value (as defined below) is greater than or equal
to the Threshold Appreciation Price, 0.7692, subject to adjustment in
the same manner and to the same extent as the Share Components in the
Payment Rate Formula are adjusted as described above, multiplied by
the Transaction Value,
(b) if the Transaction Value is less than the Threshold Appreciation Price
but greater than the Initial Appreciation Cap, the Initial
Appreciation Cap,
(c) if the Transaction Value is less than or equal to the Initial
Appreciation Cap but is greater than or equal to the Initial Price,
the Transaction Value,
(d) if the Transaction Value is less than the Initial Price but is greater
than or equal to the Downside Protection Threshold Price, the Initial
Price and
(e) if the Maturity Price is less than the Downside Protection Threshold
Price, 1.0526, subject to adjustment in the same manner and to the
same extent as the Share Components in the Payment Rate Formula are
adjusted as described above, multiplied by the Transaction Value.
"Transaction Value" means (1) for any cash received in any the
Reorganization Event, the amount of cash received per share of common stock of
CIBER, (2) for any property other than cash or securities received in any
Reorganization Event, an amount equal to the market value on the third Business
Day preceding the maturity date of the property received per share of common
stock of CIBER as determined by a nationally
14
<PAGE>
recognized independent investment banking firm retained for this purpose by
ML&Co. and (3) for any securities received in any Reorganization Event, an
amount equal to the average Closing Price per unit of the securities on the 20
Trading Days immediately before, but not including, the second Trading Day
preceding the maturity date multiplied by the number of the securities, subject
to adjustment on a basis consistent with the adjustment provisions described
above, received for each share of common stock of CIBER; provided, however, if
one or more adjustments to the Payment Rate Formula shall have become effective
before the effective date for the Reorganization Event, then the Transaction
Value determined in accordance with the foregoing shall be adjusted by
multiplying the Transaction Value by the Share Component in clause (c) of the
Payment Rate Formula immediately before the effective date for the
Reorganization Event. Notwithstanding the foregoing, if any Marketable
Securities (as defined below) are received by holders of common stock of CIBER
in the Reorganization Event, then in lieu of delivering cash as provided above,
ML&Co. may at its option deliver a proportional amount of the Marketable
Securities. If ML&Co. elects to deliver Marketable Securities, holders of the
STRYPES will be responsible for the payment of any and all brokerage and other
transactional costs upon the sale of the securities.
"Marketable Securities" means any securities listed on a U.S. national
securities exchange or reported by NASDAQ.
No adjustments will be made for other events, such as offerings of common
stock of CIBER by CIBER for cash or in connection with acquisitions. Likewise,
no adjustments will be made for any sales of common stock of CIBER by any
principal stockholder of CIBER, including the contracting stockholder.
ML&Co. is required, within ten Business Days following the occurrence of an
event that requires an adjustment to the Payment Rate Formula or, if ML&Co. is
not aware of the occurrence of an event, as soon as practicable after becoming
so aware, to provide written notice to the trustee and to the holders of the
STRYPES of the occurrence of the event and a statement in reasonable detail
setting forth the adjusted Payment Rate Formula and the method by which the
adjustment to the Payment Rate Formula was determined; provided that, in respect
of any adjustment to the Maturity Price, the notice will only disclose the
factor by which each of the Closing Prices used in determining the Maturity
Price is to be multiplied in order to determine the Payment Rate on the maturity
date. Until the maturity date, the Payment Rate itself cannot be determined.
Securities Depository
Description of the Global Securities
The STRYPES are represented by one or more fully registered global
securities. Each global security has been deposited with, or on behalf of, The
Depository Trust Company or 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
STRYPES 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 the
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 STRYPES represented by a global security for all purposes under
the 1983 indenture. Except as provided below, the beneficial owners of the
STRYPES represented by a global security are not entitled to have the STRYPES
represented by the global security registered in their names, will not receive
or be entitled to receive physical delivery of the STRYPES in definitive form
and are not considered the owners or holders under the 1983 indenture, including
for purposes of receiving any reports delivered by ML&Co. or the trustee
pursuant to the 1983 indenture. Accordingly, each person owning a beneficial
interest in a global security must rely on the procedures of DTC and, if the
person is not a participant of DTC on the procedures of the participant through
which the person owns its interest, to
15
<PAGE>
exercise any rights of a holder under the 1983 indenture. ML&Co. understands
that under existing industry practices, in the event that ML&Co. requests any
action of holders or that an owner of a beneficial interest in a global security
desires to give or take any action which a holder is entitled to give or take
under the 1983 indenture, DTC would authorize the participants holding the
relevant beneficial interests to give or take action, and the participants would
authorize beneficial owners owning through the participants to give or take the
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 are 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 STRYPES. The STRYPES have been
issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One or more fully registered global securities
have been issued for the STRYPES in the aggregate principal amount of such
issue, and has been 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 1934 Act. 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 STRYPES under DTC's system must be made by or through direct
participants, which will receive a credit for the STRYPES 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 participants
or indirect participants through which such beneficial owner entered into the
transaction. Transfers of ownership interests in the STRYPES are to be
accomplished by entries made on the books of participants acting on behalf of
beneficial owners.
To facilitate subsequent transfers, all STRYPES deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
STRYPES 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 STRYPES; DTC's records reflect only the identity of the direct
participants to whose accounts such STRYPES are credited, which may or may not
be the beneficial owners. The participants are 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 and
indirect participants to beneficial owners are governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
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<PAGE>
Neither DTC nor Cede & Co. will consent or vote with respect to the
STRYPES. 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 STRYPES are
credited on the record date.
Principal, premium, if any, and/or interest, if any, payments on the
STRYPES 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 is the responsibility of DTC, and disbursement
of such payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
(a) 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,
(b) ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, and
(c) an Event of Default under the 1983 indenture has occurred and is
continuing with respect to the STRYPES,
the global securities will be exchangeable for STRYPES in definitive form of
like tenor and of an equal aggregate principal amount. The definitive STRYPES
will be registered in such name or names as the depositary shall instruct the
trustee. It is expected that such instructions may be based upon directions
received by the depositary from participants with respect to ownership of
beneficial interests in the global securities.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, STRYPES in definitive
form 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.
Fractional Shares
No fractional shares of common stock of CIBER will be delivered if ML&Co.
pays and discharges the STRYPES by delivering shares of common stock of CIBER.
In lieu of any fractional share otherwise deliverable in respect of all STRYPES
of any holder on the maturity date, the holder shall be entitled to receive an
amount in cash equal to the value of the fractional share at the Maturity Price.
No Redemption, Sinking Fund or Payment Before Maturity
The STRYPES are not subject to redemption before the maturity date at the
option of ML&Co. and do not contain sinking fund or other mandatory redemption
provisions. The STRYPES are not subject to payment before the maturity date at
the option of the holder.
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<PAGE>
Ranking
The STRYPES are unsecured obligations and rank equally with all other
unsecured and unsubordinated indebtedness of ML&Co.
There are no contractual restrictions on the ability of ML&Co. or its
subsidiaries to incur additional secured or unsecured debt. However, borrowings
by certain subsidiaries, including MLPF&S, are restricted by net capital
requirements under the Exchange Act and under rules of exchanges and other
regulatory bodies.
Listing
The STRYPES are listed on the NYSE under the trading symbol "BOB".
OTHER TERMS
ML&Co. issued the STRYPES 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 STRYPES 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.
ML&Co. may issue series of senior debt securities from time to time 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 STRYPES 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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
18
<PAGE>
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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional
19
<PAGE>
Amounts payable on any senior debt security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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 1983 indenture and waive compliance by
ML&Co. with provisions in the 1983 indenture, except as described under
"--Events of Default".
20
<PAGE>
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 that series may waive any Event of Default
with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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 STRYPES 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.
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<PAGE>
CERTAIN ARRANGEMENTS WITH THE CONTRACTING STOCKHOLDER
Pursuant to the forward purchase contract, the contracting stockholder is
obligated to deliver to the ML&Co. Subsidiary on the Business Day immediately
preceding the maturity date a number of shares of common stock of CIBER equal to
the number required by ML&Co. to pay and discharge all of the STRYPES, including
any STRYPES issued pursuant to the over-allotment option granted by ML&Co. to
the Underwriter. In lieu of delivering shares of common stock of CIBER on the
Business Day immediately preceding the maturity date, the contracting
stockholder has the right to satisfy his obligation under the forward purchase
contract by delivering cash in an amount equal to the value of the number of
shares of common stock of CIBER at the Maturity Price. The right to deliver
cash, if exercised by the contracting stockholder, must be exercised with
respect to all shares of common stock of CIBER then deliverable pursuant to the
forward purchase contract. Under the forward purchase contract, ML&Co. has
agreed to pay and discharge the STRYPES by delivering to the holders thereof on
the maturity date the form of consideration that the ML&Co. Subsidiary receives
from the contracting stockholder.
The consideration to be paid by the ML&Co. Subsidiary under the forward
purchase contract is $71,315,820 in the aggregate which was paid to the
contracting stockholder on January 30, 1998. No other consideration is payable
by the ML&Co. Subsidiary to the contracting stockholder in connection with its
acquisition of the common stock of CIBER or the performance of the forward
purchase contract by the contracting stockholder. ML&Co. has agreed with the
contracting stockholder that, without the prior consent of the contracting
stockholder, it will not amend, modify or supplement the 1983 indenture or the
STRYPES in any respect that would adversely affect any obligation of the
contracting stockholder under the forward purchase contract, including, without
limitation, increasing the consideration that the contracting stockholder is
obligated to deliver pursuant to the forward purchase contract.
Until such time, if any, as the contracting stockholder shall have
delivered shares of common stock of CIBER to the ML&Co. Subsidiary pursuant to
the terms of the forward purchase contract, the contracting stockholder will
retain all ownership rights with respect to the common stock of CIBER held by
him. The ownership rights include, among others, voting rights and rights to
receive any dividends or other distributions.
The contracting stockholder has no duties or obligations with respect to
the STRYPES or amounts to be paid to holders thereof, including any duty or
obligation to take the needs of ML&Co. or holders of the STRYPES into
consideration in determining whether to deliver shares of common stock of CIBER
or cash or for any other reason. The forward purchase contract among ML&Co.,
the ML&Co. Subsidiary, The Bank of New York, as agent for and on behalf of the
ML&Co. Subsidiary, and the contracting stockholder is a commercial transaction
and does not create any rights in, or for the benefit of, any third party,
including any holder of STRYPES.
To the extent that the contracting stockholder does not perform under the
forward purchase contract, ML&Co. will be required to otherwise acquire shares
of common stock of CIBER for delivery to holders of the STRYPES on the maturity
date, unless, in the case of shares deliverable on the maturity date, it elects
to exercise its option to deliver cash with an equal value.
Merrill Lynch Capital Corporation, a wholly owned subsidiary of ML&Co., has
entered into a secured loan agreement with Bobby G. Stevenson, as trustee of the
1998 Bobby G. Stevenson Revocable Trust. Under the loan agreement, Mr.
Stevenson, as trustee of the 1998 Bobby G. Stevenson Revocable Trust, will
borrow approximately $20,567,930 for a term of three years.
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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,
22
<PAGE>
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 have filed a registration statement on Form S-3 with the SEC
covering the STRYPES and other securities. For further information on ML&Co.
and the STRYPES, 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement of which this prospectus is a part.
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<PAGE>
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
STRYPES and is to be used by MLPF&S when making offers and sales related to
market-making transactions in the STRYPES.
MLPF&S may act as principal or agent in these market-making transactions.
24
<PAGE>
The STRYPES may be offered on the NYSE or off the exchange in negotiated
transactions or otherwise.
The distribution of the STRYPES 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We may+
+ not sell these securities until the registration statement filed with the +
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
Oracle Corporation Indexed Callable Protected Growth(SM) Securities
due March 31, 2003
"ProGroS(SM) 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 ProGroS
Securities.
<TABLE>
<CAPTION>
<S> <C>
The ProGroS Securities: Payment at Maturity:
. 100% principal protected if held to maturity. . On the maturity date, for each unit of the ProGroS
Securities you own, we will pay you an amount equal
. Callable before the stated maturity date by Merrill to the sum of the principal amount of each unit and
Lynch & Co., Inc. an additional amount based on the percentage increase,
if any, in the price of a share of the common stock of
. No payments before the stated maturity date unless Oracle Corporation above a value of $29.1875.
called by Merrill Lynch & Co., Inc.
. Senior unsecured debt securities of Merrill Lynch & . You will receive no less than the principal
Co., Inc. amount of your ProGroS Securities.
. The ProGroS Securities are listed on the American
Stock Exchange under the trading symbol "OPG".
</TABLE>
Investing in the ProGroS Securities involves risks.
See "Risk Factors" beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if of
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The sale price of the ProGroS Securities will be the prevailing market
price at the time of sale.
________________
Merrill Lynch & Co.
________________
The date of this prospectus is , .
"Protected Growth" and "ProGroS" are registered service marks of
Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS............................................................ 3
MERRILL LYNCH & CO., INC................................................ 7
RATIO OF EARNINGS TO FIXED CHARGES...................................... 8
DESCRIPTION OF PROGROS SECURITIES....................................... 9
ORACLE COMMON STOCK..................................................... 17
OTHER TERMS............................................................. 17
WHERE YOU CAN FIND MORE INFORMATION..................................... 20
INCORPORATION OF INFORMATION WE FILE WITH THE SEC....................... 21
PLAN OF DISTRIBUTION.................................................... 22
EXPERTS................................................................. 22
</TABLE>
2
<PAGE>
RISK FACTORS
Your investment in the ProGroS Securities will involve risks. You should
carefully consider the following discussion of risks before investing in the
ProGroS Securities. In addition, you should reach an investment decision with
regard to the ProGroS Securities only after consulting with your legal and tax
advisors and considering the suitability of the ProGroS Securities in the light
of your particular circumstances.
We may redeem the ProGroS Securities before the stated maturity date
We may elect to redeem all of the ProGroS Securities in the manner and
times described in this prospectus. We are likely to call the ProGroS Securities
during a period when the secondary market price of the ProGroS Securities is
approximately equal to the applicable redemption price. We can, however, call
the ProGroS Securities during the specified periods described in this prospectus
at our option regardless of the secondary market price of the ProGroS
Securities. In the event that we elect to call the ProGroS Securities, you will
receive only the relevant redemption price and no additional amount based on the
price of the common stock of Oracle Corporation.
You may not earn a return on your investment
You should be aware that if the ending value of Oracle common stock,
determined as described in this prospectus, does not exceed $29.1875, the
closing price of Oracle common stock on the date the ProGroS Securities were
initially priced for sale to the public, at the stated maturity, you will only
receive the principal amount of your ProGroS Securities. This will be true even
if the value of Oracle common stock, at some time during the life of the ProGroS
Securities, was higher than $29.1875 but later falls below $29.1875.
You should compare the features of the ProGroS Securities to other
available investments before deciding to purchase the ProGroS Securities. Due to
the uncertainty as to whether the ProGroS Securities will earn a return or be
redeemed before the stated maturity date, the returns which you may receive with
respect to the ProGroS Securities may be higher or lower than the returns
available on other investments. You should reach an investment decision only
after carefully considering the suitability of the ProGroS Securities in light
of your particular circumstances.
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 consider the effect of factors that
affect the time value of money.
Your return will not reflect the payment of dividends
The calculation of the starting and ending values of the Oracle common
stock does not take into consideration the value of dividends paid on that
stock, if any. Therefore, the return you earn on the ProGroS Securities, if any,
will not be the same as the return that you would earn if you actually owned
shares of Oracle common stock and received any dividends paid on that stock.
There may be an uncertain trading market for the ProGroS Securities in the
future
Although the ProGroS Securities are listed on the AMEX under the symbol
"OPG", you cannot assume that a trading market will continue to exist for the
ProGroS Securities. If a trading market in the ProGroS Securities continues to
exist, you cannot assume that there will be liquidity in that trading market.
The continued
3
<PAGE>
existence of a trading market for the ProGroS Securities will depend on our
financial performance and other factors such as the appreciation, if any, of the
price of Oracle common stock.
If the trading market for the ProGroS Securities is limited, there may be a
limited number of buyers if you decide to sell your ProGroS Securities. This may
affect the price you receive. Furthermore, it is unlikely that the secondary
market price of the ProGroS Securities will correlate exactly with the market
price of the Oracle common stock.
Many factors affect the trading value of the ProGroS Securities; these factors
interrelate in complex ways and the effect of any one factor may offset or
magnify the effect of another factor
Our ability to call the ProGroS Securities before their stated maturity
date is likely to limit the secondary market price at which the ProGroS
Securities will trade. In particular, we expect that the secondary market price
of the ProGroS Securities generally will not exceed the applicable redemption
price because of our ability to call the ProGroS Securities and pay only that
redemption price. We believe that if we did not have the right to call the
ProGroS Securities, the secondary market price of the ProGroS Securities would
likely be significantly different.
We believe that the market value of the ProGroS Securities will be affected
by the price of Oracle common stock and by a number of other factors in addition
to our ability to call the ProGroS Securities before their stated maturity date.
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 market value of the
ProGroS Securities given a change in a specific factor, assuming all other
conditions remain constant.
The Value of Oracle Common Stock Will Affect the Value of the Securities.
We expect that the market value of the ProGroS Securities will depend on the
amount by which the price of Oracle common stock exceeds $29.1875, the value of
Oracle common stock on the date the ProGroS Securities were initially priced for
sale to the public. If you choose to sell your ProGroS Securities when the price
of Oracle common stock exceeds $29.1875, you may receive substantially less than
the amount that would be payable at the stated maturity date based on that price
because of the expectation that the price of Oracle common stock will continue
to fluctuate until its final value as described in this prospectus is
determined.
If you choose to sell your ProGroS Securities when the price of Oracle
common stock is below $29.1875, you may receive less than the principal amount
of your ProGroS Securities. As of the date of this prospectus, Oracle has not
paid dividends on its common stock. As a general matter, if dividends are ever
paid on Oracle common stock, a rising dividend rate, i.e., dividends per share,
may increase the price of Oracle common stock while a falling dividend rate may
decrease its price. Political, economic and other developments may also affect
the price of Oracle common stock and the value of the ProGroS Securities.
Changes in the levels of U.S. interest rates are expected to affect the
trading value of the ProGroS Securities. We expect that the trading value of
the ProGroS Securities will be affected by changes in interest rates. As a
general matter during the earlier years of the ProGroS Securities, if U.S.
interest rates increase, we expect that the trading value of the ProGroS
Securities will decrease and if U.S. interest rates decrease, we expect the
trading value of the ProGroS Securities will increase. However, interest rates
may also affect the economy and, in turn, the price of Oracle common stock.
Rising interest rates may lower the price of Oracle common stock and the ProGroS
Securities. Falling interest rates may increase the value of Oracle common stock
and the value of the ProGroS Securities.
Changes in volatility of Oracle common stock are expected to affect the
trading value of the ProGroS Securities. Volatility is the term used to
describe the size and frequency of market fluctuations. If the volatility of
Oracle common stock increases, we expect that the trading value of the ProGroS
Securities will increase. If the volatility of Oracle common stock decreases, we
expect that the trading value of the ProGroS Securities will decrease.
As the time remaining to maturity of the ProGroS Securities decreases, the
"time premium" associated with the ProGroS Securities will decrease. The
ProGroS Securities may trade at a value above that which would be expected based
on the level of interest rates and the price of Oracle common stock. This
difference will reflect a "time premium" due to expectations concerning the
price of Oracle common stock during the period prior to the stated
4
<PAGE>
maturity date of the ProGroS Securities. However, as the time remaining to the
stated maturity date of the ProGroS Securities decreases, we expect that this
time premium will decrease, potentially lowering the trading value of the
ProGroS Securities.
Changes in dividend yields of Oracle common stock are expected to affect
the trading value of the ProGroS Securities. If dividends are ever paid on
Oracle common stock, the dividend yield that would result would likely affect
the value of the ProGroS Securities. If the dividend yield on Oracle common
stock were to increase, we expect that the value of the ProGroS Securities would
decrease. Conversely, if the dividend yield on Oracle common stock were to
decrease, we expect that the value of the ProGroS Securities would increase.
Changes in our credit ratings may affect the trading value of the ProGroS
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 ProGroS Securities. However, because your
return on your ProGroS Securities is dependent upon factors in addition to our
ability to pay our obligations under the ProGroS Securities, such as the
percentage increase in the value of Oracle common stock at maturity, an
improvement in our credit ratings will not reduce investment risks related to
the ProGroS 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 ProGroS Securities attributable to
another factor, such as an increase in the price of Oracle common stock.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the ProGroS Securities of a given change in
most of the factors listed above will be less if it occurs later in the term of
the ProGroS Securities than if it occurs earlier in the term of the ProGroS
Securities except that we expect that the effect on the trading value of the
ProGroS Securities of a given increase in the value of Oracle common stock will
be greater if it occurs later in the term of the ProGroS Securities than if it
occurs earlier in the term of the ProGroS Securities.
You will not have any stockholder's rights with respect to the Oracle common
stock
Beneficial owners of the ProGroS Securities are not entitled to any rights
with respect to Oracle common stock, including, voting rights and rights to
receive any dividends or other distributions in respect of that stock.
No affiliation between ML&Co. and Oracle Corporation
ML&Co. has no affiliation with Oracle Corporation, and Oracle Corporation
has no obligations with respect to the ProGroS Securities or amounts to be paid
to you, including any obligation to take the needs of ML&Co. or of beneficial
owners of the ProGroS Securities into consideration for any reason. Oracle
Corporation did not receive any of the proceeds of the initial offering of the
ProGroS Securities and is not responsible for, and has not participated in, the
determination or calculation of the amount receivable by beneficial owners of
the ProGroS Securities on the stated maturity date or upon an earlier
redemption. In addition, Oracle Corporation is not involved with the
administration or trading of the ProGroS Securities.
There may be state law limits on the payment of amounts payable on the ProGroS
Securities
New York State law governs the indenture under which the ProGroS Securities
are 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 ProGroS
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 ProGroS Securities holders, to the
extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
5
<PAGE>
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell Oracle common stock
for our own accounts for business reasons or in connection with hedging our
obligations under the ProGroS Securities. These transactions could affect the
price of Oracle common stock and the return on your ProGroS Securities.
Potential conflicts
The calculation agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated
or MLPF&S, is our subsidiary. Under some circumstances, MLPF&S's role as our
subsidiary and its responsibilities as calculation agent for the ProGroS
Securities could give rise to conflicts of interests. You should be aware that
because we control the calculation agent, potential conflicts of interest could
arise.
6
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
ProGroS Securities described in this prospectus.
7
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
8
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DESCRIPTION OF PROGROS SECURITIES
The ProGroS Securities were issued as a series of Senior debt securities
under the 1983 indenture which is more fully described in this prospectus.
The ProGroS Securities will mature on March 31, 2003 unless called earlier
at the option of ML&Co.
Unless called, while at maturity a beneficial owner will receive the
principal amount of each ProGroS Security plus the Supplemental Redemption
Amount described below, if any, there will be no other payment of interest,
periodic or otherwise. See "-Payment at Maturity" below.
The ProGroS Securities may be called by ML&Co. as described below, but are
not subject to redemption at the option of any beneficial owner before the
stated maturity date. Upon the occurrence of an Event of Default with respect to
the ProGroS Securities, beneficial owners of the ProGroS Securities may
accelerate the maturity of the ProGroS Securities, as described under "-Events
of Default and Acceleration" and "Other Terms-Events of Default" in this
Prospectus.
The ProGroS Securities were issued in denominations of whole units.
Payment at Maturity
At the stated maturity date, a beneficial owner of a ProGroS Security will
be entitled to receive the principal amount of each unit plus a Supplemental
Redemption Amount, if any, all as provided below. If the Supplemental Amount is
not greater than zero, a beneficial owner of a ProGroS Security will be entitled
to receive only the principal amount of its ProGroS Securities.
The "supplemental redemption amount" for a ProGroS Security will be
determined by the calculation agent and will equal:
<TABLE>
<S> <C>
(Ending Value - Starting Value)
principal amount of each ProGros 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 $29.1875.
The "ending value" will be determined by the calculation agent and will
equal the arithmetic average or arithmetic mean of the last prices of Oracle
common stock determined on each of the first five calculation days during the
calculation period. If there are fewer than five calculation days in the
calculation period, then the ending value will equal the arithmetic average or
arithmetic mean of the last prices of Oracle common stock on these calculation
days, and if there is only one calculation day, then the ending value will equal
the Last price of Oracle common stock on that calculation day. If no calculation
days occur during the calculation period, then the ending value will equal the
last price of Oracle common stock determined on the last scheduled calculation
day in the calculation period, regardless of the occurrence of a Market
disruption event on that day.
The "calculation period" means the period from and including the seventh
scheduled calculation day prior to the stated maturity date to and including the
second scheduled calculation day before the stated maturity date.
"calculation day" means any trading day during the calculation period on
which a Market disruption event has not occurred.
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"trading day" is a day on which shares of Oracle common stock
(a) are not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of
business and
(b) have traded at least once on a national or regional securities
exchange or association or over-the-counter market that is the primary
market for the trading of Oracle common stock.
"market disruption event" means the occurrence or existence on any trading
day during the one-half hour period that ends when the last price is determined
of any suspension of, or limitation imposed on, trading in Oracle common stock
on the National Association of Securities Dealers, Inc. Automated Quotation
System or other market or exchange, if applicable.
"last price" means the last sales price of Oracle common stock as reported
by the NASDAQ NMS or, if that security is not trading on the NASDAQ NMS on any
date, as reported in the composite transactions for the principal United States
securities exchange on which that security is so listed, or if that security is
not so listed on a United States national or regional securities exchange, the
last quoted bid price for that security in the over-the-counter market as
reported by the National Quotation Bureau or similar organization, or, if the
bid price is not available, the market value of that security on that date as
determined by a nationally recognized independent investment banking firm
retained for this purpose by the calculation agent.
"business day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law to close and that is a trading day on the NYSE.
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 ProGroS Securities.
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Early Call of the ProGroS Securities at the Option of ML&Co.
Beginning April 1, 1999, ML&Co., in its sole discretion, may elect to call
the ProGroS Securities offered hereby, in whole but not in part, before the
stated maturity date by giving notice to the Trustee of ML&Co.'s election on any
business day within the month of April in 1999, 2000, 2001 or 2002, at the
related call price:
Call Period Call Price
------------- -----------------------------
April, 1999 116% of principal amount
April, 2000 132% of principal amount
April, 2001 148% of principal amount
April, 2002 164% of principal amount
If we elect to call your ProGroS Securities prior to the stated maturity
date, you will receive only the relevant call price and you will not receive a
supplemental redemption amount based on the price of Oracle common stock. If we
do not call the ProGroS Securities prior to the stated maturity date, the
principal amount plus the supplemental redemption amount, if any, that you
receive at the stated maturity may be greater than or less than any of the call
prices. ML&Co. may elect to call the ProGroS Securities on any business day
during a call period by giving notice to the Trustee and specifying the date on
which the call price shall be paid. The call date shall be no later than the
20th Business day after any call election. The Trustee will provide notice of
any call election to the registered holders of the ProGroS Securities,
specifying the call date, no later than 15, nor more than 30, days before the
call date. While the ProGroS Securities are held at the Depositary, the
registered holder will be the Depositary, and the Depositary will receive the
notice of the call. As more fully described below under "Description of ProGroS
Securities--Depositary", the Depositary will forward any notice to its
participants which will pass any notice on to the beneficial owners.
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Hypothetical Returns
The following table illustrates, for a range of hypothetical ending values:
. the total amount payable at the stated maturity date for each unit of
ProGroS Securities,
. the total rate of return to beneficial owners of the ProGroS
Securities and
. the pretax annualized rate of return to beneficial owners of ProGroS
Securities.
This table assumes that the ProGroS Securities are not called prior to the
stated maturity date.
<TABLE>
<CAPTION>
Total Amount
Percentage Change Payable at the
Hypothetical Over the Starting Stated Maturity Total Rate of Pretax Annualized
Ending value value Date per Unit Return Rate of Returns(1)
------------ ----- --------------- ------------- ------------------
<S> <C> <C> <C> <C>
11.68 -60% $10.00 0.00% 0.00%
14.60 -50% $10.00 0.00% 0.00%
17.51 -40% $10.00 0.00% 0.00%
20.43 -30% $10.00 0.00% 0.00%
23.35 -20% $10.00 0.00% 0.00%
26.27 -10% $10.00 0.00% 0.00%
29.19 0% $10.00 0.00% 0.00%
32.11 10% $11.00 10.00% 1.90%
35.03 20% $12.00 20.00% 3.65%
37.95 30% $13.00 30.00% 5.28%
40.87 40% $14.00 40.00% 6.79%
43.79 50% $15.00 50.00% 8.22%
46.70 60% $16.00 60.00% 9.55%
49.62 70% $17.00 70.00% 10.82%
52.54 80% $18.00 80.00% 12.02%
55.46 90% $19.00 90.00% 13.16%
58.38 100% $20.00 100.00% 14.25%
61.30 110% $21.00 110.00% 15.29%
64.22 120% $22.00 120.00% 16.29%
</TABLE>
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) The starting value equals $29.1875.
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 on the actual
ending value determined by the calculation agent as provided in this prospectus.
Dilution Adjustments
The Last prices used to determine the ending value are subject to
adjustment if Oracle Corporation shall:
(a) pay a stock dividend or make a distribution with respect to Oracle
common stock in shares of Oracle common stock;
(b) subdivide or split the outstanding shares of Oracle common stock into
a greater number of shares;
(c) combine the outstanding shares of Oracle common stock into a smaller
number of shares;
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(d) issue by reclassification of shares of Oracle common stock any shares
of common stock of Oracle Corporation;
(e) issue rights or warrants to all holders of Oracle common stock
entitling them to subscribe for or purchase shares of Oracle common
stock at a price per share less than the then current market price of
Oracle common stock (other than rights to purchase Oracle common stock
pursuant to a plan for the reinvestment of dividends or interest); or
(f) pay a dividend or make a distribution to all holders of Oracle common
stock of evidences of its indebtedness or other assets, excluding any
stock dividends or distributions referred to in clause (a) above or
any cash dividends other than any extraordinary cash dividend or issue
to all holders of Oracle common stock rights or warrants to subscribe
for or purchase any of its securities, other than those referred to in
clause (e) above, any of the foregoing are referred to as the
"Distributed Assets". The effect of the foregoing is that there will
not be any adjustments to the ending value for the issuance by Oracle
Corporation of options, warrants, stock purchase rights or securities
in connection with the employee benefit plans of Oracle Corporation.
All adjustments will be calculated to the nearest 1/10,000th of a share of
Oracle common stock or if there is not a nearest 1/10,000th of a share to the
next lower 1/10,000th of a share. No adjustment shall be required unless any
adjustment would require an increase or decrease of at least one percent in the
last price; provided, however, that any adjustments which by reason of the
foregoing are not required to be made shall be carried forward and taken into
account in any subsequent adjustment.
An "Extraordinary cash dividend" means, with respect to any consecutive 12-
month period, all cash dividends on Oracle common stock during that period to
the extent any dividends exceed on a per share basis 10% of the average last
price of Oracle common stock over that period less any dividends for which a
prior adjustment was previously made.
In the event of
(a) any consolidation or merger of Oracle Corporation, or any surviving
entity or subsequent surviving entity of Oracle Corporation, a
"Successor Company", with or into another entity, other than a merger
or consolidation in which Oracle Corporation is the continuing
corporation and in which Oracle common stock outstanding immediately
prior to the merger or consolidation is not exchanged for cash,
securities or other property of Oracle Corporation or another
corporation,
(b) any sale, transfer, lease or conveyance to another corporation of the
property of Oracle Corporation or any Successor Company as an entirety
or substantially as an entirety,
(c) any statutory exchange of securities of Oracle Corporation or any
Successor Company with another corporation, other than in connection
with a merger or acquisition or
(d) any liquidation, dissolution, winding up or bankruptcy of Oracle
Corporation or any Successor Company, any event described in clause
(a), (b), (c) or (d), a "reorganization event", the ending value shall
equal the reorganization event value.
The "reorganization event value" shall be determined by the calculation
agent and shall equal
. the transaction value related to the relevant Reorganization Event,
plus
. interest on the transaction value accruing from the date of the
payment or delivery of the consideration, if any, received in
connection with that Reorganization Event until the stated maturity
date at a fixed interest rate determined on the date of that payment
or delivery equal
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to the interest rate that would be paid on a standard senior non-
callable debt security of ML&Co. with a term equal to the remaining
term of the ProGroS Securities.
The "transaction value" means
. for any cash received in any reorganization event, the amount of cash
received per share of Oracle common stock,
. for any property other than cash or securities received in any
reorganization event, an amount equal to the market value of property
received per share on the date that the property is received by
holders of Oracle common stock as determined by the calculation agent,
and
. for any securities received in any reorganization event, an amount
equal to the last price per unit of securities on the date the
securities are received by holders of Oracle common stock multiplied
by the number of the securities received for each share of Oracle
common stock, subject to adjustment on a basis consistent with the
adjustment provisions described above.
The foregoing adjustments shall be made by MLPF&S, as calculation agent,
and all adjustments shall be final.
No adjustments will be made for other events, such as offerings of Oracle
common stock by Oracle Corporation for cash or in connection with acquisitions.
ML&Co. will, within ten business days following the occurrence of an event
that requires an adjustment or if ML&Co. is not aware of occurrence, as soon as
practicable after becoming so aware, provide written notice to the Trustee,
which shall provide notice to the holders of the ProGroS Securities of the
occurrence of any event and, if applicable, a statement in reasonable detail
setting forth the adjusted last price to be used in determining the ending
value.
Events of Default and Acceleration
In case an event of default with respect to any ProGroS Securities has
occurred and is continuing, the amount payable to a beneficial owner of a
ProGroS Security upon any acceleration permitted by the ProGroS Securities, with
respect to each unit, 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 ProGroS Securities. See "Description of ProGroS
Securities--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
ProGroS Security may be limited, under Section 502(b)(2) of Title 11 of the
United States Code, to the principal amount of the ProGroS Security plus an
additional amount of contingent interest calculated as though the date of the
commencement of the proceeding were the stated maturity date of the ProGroS
Securities.
In case of default in payment of the ProGroS Securities whether at the call
date, at the stated maturity date, or upon acceleration, from and after the
stated maturity date the ProGroS Securities shall bear interest, payable upon
demand of their beneficial owners, at the rate of 5.96% per annum to the extent
that payment of interest shall be legally enforceable on the unpaid amount due
and payable on that date in accordance with the terms of the ProGroS Securities
to the date payment of that amount has been made or duly provided for.
Global Securities
Description of the Global Securities.
The ProGroS Securities are represented by one or more fully registered
global securities. Each global security has been deposited with, or on behalf
of, The Depository Trust Company or DTC, together with any successor thereto,
being a "depositary", as depositary, registered in the name of Cede & Co., DTC's
partnership
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<PAGE>
nominee. Unless and until it is exchanged in whole or in part for ProGroS
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 ProGros Securities represented by the global security for all
purposes under the 1983 Indenture. Except as provided below, the beneficial
owners of the ProGros Securities represented by a global security will not be
entitled to have the ProGros Securities represented by a global security
registered in their names, will not receive or be entitled to receive physical
delivery of the ProGros Securities in definitive form and will not be considered
the owners or holders of the ProGros 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 ProGroS Securities. The ProGroS
Securities have been issued as fully registered securities registered in the
name of Cede & Co., DTC's partnership nominee. One or more fully registered
global securities have been issued for the ProGroS Securities in the aggregate
principal amount of that issue, and has been 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 1934 Act. 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 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 ProGroS Securities under DTC's system must be made by or
through direct participants, which will receive a credit for the ProGroS
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 participants or indirect participants through which
that beneficial owner entered into the transaction. Transfers of ownership
interests in the ProGroS Securities are to be accomplished by entries made on
the books of participants acting on behalf of beneficial owners.
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To facilitate subsequent transfers, all ProGroS Securities deposited with
DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of ProGroS 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 ProGroS Securities; DTC's records reflect only
the identity of the direct participants to whose accounts the ProGroS Securities
are credited, which may or may not be the beneficial owners. The participants
are 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 and
indirect participants to beneficial owners are 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 ProGroS
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 to whose
accounts the ProGroS Securities are credited on the record date, identified in a
listing attached to the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments on the
ProGroS 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 the 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 the payments to direct participants is the responsibility of
DTC, and disbursement of the payments to the beneficial owners is the
responsibility of direct and indirect participants.
Exchange for Certificated Securities
If:
(a) 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,
(b) ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, and
(c) an event of default under the 1983 indenture has occurred and is
continuing with respect to the ProGroS Securities,
the global securities will be exchangeable for ProGroS 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 ProGroS Securities will be
registered in the name or names as the depositary shall instruct the trustee. It
is expected that these instructions may be based upon directions received by the
depositary from participants with respect to ownership of beneficial interests
in the global securities.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the Depositary. In that event, ProGroS Securities in
definitive form 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.
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Same-Day Payment
All payments of principal and the supplemental redemption amount, and call
price if any, and will be made by ML&Co. in immediately available funds so long
as the ProGroS Securities are maintained in book-entry form.
ORACLE COMMON STOCK
Oracle Corporation
Oracle Corporation supplies software for information management. Oracle
Corporation offers its database, tools and application products, along with
related consulting, education, and support services in more than 140 countries
around the world.
Oracle Corporation is subject to the informational requirements of the
Exchange Act. Accordingly, Oracle Corporation files reports, proxy and other
information statements and other information with the SEC. Information provided
to or filed with the SEC by Oracle Corporation is available at the offices of
the Commission. ML&Co. makes no representation or warranty as to the accuracy or
completeness of these reports.
ML&Co. is not affiliated with Oracle Corporation and Oracle Corporation has
no obligations with respect to the ProGroS Securities. This prospectus relates
only to the ProGroS securities offered by this prospectus and does not relate to
Oracle common stock or other securities of Oracle Corporation. The information
contained in this prospectus regarding Oracle Corporation has been derived from
the publicly available documents described in the preceding paragraph. ML&Co.
has not participated in the preparation of these documents or made any due
diligence inquiries with respect to Oracle Corporation in connection with the
initial offering of the ProGroS Securities. ML&Co. makes no representation that
any publicly available documents or any other publicly available information
regarding Oracle Corporation are accurate or complete. Furthermore, there can be
no assurance that all events occurring prior to the date of this prospectus,
including events that would affect the accuracy or completeness of the publicly
available documents described in the preceding paragraph, that would affect the
trading price of Oracle common stock have been publicly disclosed. Subsequent
disclosure of any events or the disclosure of or failure to disclose material
future events concerning Oracle Corporation could affect the Supplemental
Redemption Amount to be received at the stated maturity date and therefore the
trading value of the ProGroS Securities.
From time to time, in the ordinary course of business, affiliates of ML&Co.
have engaged in investment banking activities on behalf of the Oracle
Corporation as well as served as counterparty in other transactions.
Oracle common stock is traded on the NASDAQ NMS under the trading symbol
"ORCL".
OTHER TERMS
ML&Co. issued the ProGroS Securities 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
ProGroS 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.
ML&Co. may issue series of senior debt securities from time to time 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.
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The 1983 indenture and the ProGroS 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 some
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 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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
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. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe of all of ML&Co.'s obligations under the 1983
indenture, and
. 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
The 1983 indenture may be modified and amended by ML&Co. and the trustee
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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or additional amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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".
Events of Default
Each of the following will be events of default with respect to senior debt
securities of any series:
. default in the payment of any interest or additional amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
19
<PAGE>
. default in the performance of any other obligation of ML&Co. contained
in the 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 that series may waive any event of default
with respect to any series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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 ProGroS 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.
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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.
20
<PAGE>
We have filed a registration statement on Form S-3 with the SEC covering
the ProGroS Securities and other securities. For further information on ML&Co.
and the ProGroS 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 the prospectus may not contain all
the information that you may find important, you should review the full text
of these documents. We have included copies of these documents as exhibits to
our registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
21
<PAGE>
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
ProGroS Securities and is to be used by MLPF&S when making offers and sales
related to market-making transactions in the ProGroS Securities.
MLPF&S may act as principal or agent in these market-making transactions.
The ProGroS Securities may be offered on the AMEX or off the exchange in
negotiated transactions or otherwise.
The distribution of the ProGroS 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
22
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
Telebras Indexed Callable
Protected Growth(SM) Securities due May 19, 2005
"ProGroS(SM) 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 ProGroS
Securities.
<TABLE>
<CAPTION>
The ProGroS Securities: Payment at Maturity:
<S> <C>
. 100% principal protected if held to maturity . On the maturity date, for each unit of the ProGroS
Securities you own, we will pay you an amount equal to
. Callable prior to the stated maturity date by the sum of principal amount of each unit and an
Merrill Lynch & Co., Inc. additional amount based on the percentage increase, if
any, in the price of an American Depositary Receipt which
. No payments before the stated maturity date unless trades on the NYSE representing the common stock of
called by Merrill Lynch & Co., Inc. Telecommunicacoes Brasileiras S.A. - Telebras and the
value of securities, cash or property received by holders
. Senior unsecured debt securities of Merrill Lynch & of ADR in corporate reorganizations of Telebras over the
Co., Inc. term of the ProGroS Securities.
. The ProGroS Securities are listed on the American . You will receive no less than principal amount of
Stock Exchange under the symbol "PGT". your ProGroS Securities.
</TABLE>
Investing in the ProGroS Securities involves risks.
See "Risk Factors" beginning on page 3.
Neither the Securities and Exchange SEC 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 ProGroS Securities will be the prevailing market
price at the time of sale.
________________
Merrill Lynch & Co.
________________
The date of this prospectus is , .
"Protected Growth" and "ProGroS" are registered service marks of Merrill Lynch &
Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C>
RISK FACTORS............................................................ 3
MERRILL LYNCH & CO., INC................................................ 8
RATIO OF EARNINGS TO FIXED CHARGES...................................... 9
DESCRIPTION OF THE PROGROS SECURITIES................................... 10
THE TELEBRAS RECEIPT.................................................... 21
OTHER TERMS............................................................. 22
WHERE YOU CAN FIND MORE INFORMATION..................................... 25
INCORPORATION OF INFORMATION WE FILE WITH THE SEC....................... 25
PLAN OF DISTRIBUTION.................................................... 26
EXPERTS................................................................. 26
</TABLE>
2
<PAGE>
RISK FACTORS
Your investment in the ProGroS Securities will involve risks. You should
carefully consider the following discussion of risks before investing in the
ProGroS Securities. In addition, you should reach an investment decision with
regard to the ProGroS Securities only after consulting with your legal and tax
advisers and considering the suitability of the ProGroS Securities in the light
of your particular circumstances.
We may call the ProGroS Securities before the stated maturity date
We may elect to call all of the ProGroS Securities in the manner and times
described in this prospectus. We are likely to call the ProGroS Securities
during the month of June 2004 when the secondary market price of the ProGroS
Securities is approximately equal to the applicable call price during such
period. We can, however, call the ProGroS Securities during the specified
periods at our option regardless of the secondary market price of the ProGroS
Securities. In the event that we elect to call the ProGroS Securities, you will
receive only the relevant call price and no additional amount based on the price
of the American Depository Receipt representing Common Stock Telebras or
Telebras Receipt.
You may not earn a return on your investment
You should be aware that if the ending value of Telebras Receipt determined
as described in this prospectus, does not exceed $115.4375 at the stated
maturity, you will only receive the principal of your ProGroS Securities. This
will be true even if the value of the Telebras Receipt, at some time during the
life of the ProGroS Securities was higher than the $115.4375.
You should compare the features of the ProGroS Securities to other
available investments before deciding to purchase the ProGroS Securities. Due to
the uncertainty as to whether the ProGroS Securities will earn a return or be
called before the stated maturity date, the returns which you may receive with
respect to the ProGroS Securities may be higher or lower than the returns
available on other investments. You should reach an investment decision only
after carefully considering the suitability of the ProGroS Securities in light
of your particular circumstances.
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 ML&Co. with the
same stated maturity date. Your investment may not reflect the full opportunity
cost to you when you consider the effect of factors that affect the time value
of money.
Your return will not reflect the payment of dividends
The calculation of the starting and ending values of the Telebras Receipt
does not take into consideration the value of dividends paid on the Telebras
Receipt, if any. Therefore, the return you earn on the ProGroS Securities, if
any, will not be the same as the return that you would earn if you actually
owned the Telebras Receipt and received any dividends paid on the common stock
of Telebras.
There may be an uncertain trading market for the ProGroS Securities in the
future
Although the ProGroS Securities are listed on the AMEX under the symbol
"PGT", you cannot assume that a trading market will continue to exist for the
ProGroS Securities. If a trading market in the ProGroS Securities continues to
exist, you cannot assume that there will be liquidity in the trading market. The
continued existence of a trading market for the ProGroS Securities will depend
on the financial performance and other factors such as the appreciation, if any,
of the price of Telebras Receipt.
If the trading market for the ProGroS Securities is limited, there may be a
limited number of buyers if you decide to sell your ProGroS Securities. This may
affect the price you receive. Furthermore, it is unlikely that
3
<PAGE>
the secondary market price of the ProGroS Securities will correlate exactly with
the market price of the Telebras Receipt.
Many factors affect the trading value of the ProGroS Securities; these factors
interrelate in complex ways and the effect of any one factor may offset or
magnify the effect of another factor.
Our ability to call the ProGroS Securities before the stated maturity date
is likely to limit the secondary market price at which the ProGroS Securities
will trade. In particular, we expect that the secondary market price of the
ProGroS Securities will not exceed the applicable call price because of our
ability to call the ProGroS Securities and pay only the call price. We believe
that if we did not have the right to call the ProGroS Securities, the secondary
market price of the ProGroS Securities would likely be significantly different.
We believe that the market value of the ProGroS Securities will be affected
by the value of the Telebras Receipt and by a number of other factors in
addition to our ability to call the ProGroS Securities before the stated
maturity date. 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
market value of the ProGroS Securities given a change in a specific factor,
assuming all other conditions remain constant.
Value of the Telebras Receipt. We expect that the market value of the
ProGroS Securities will depend on the amount by which the price of Telebras
Receipt exceeds $115.4375, the value of Telebras Receipt on the date the ProGroS
Securities were initially priced for sale to the public. If you choose to sell
your ProGroS Securities when the price of Telebras Receipt exceeds $115.4375,
you may receive substantially less than the amount that would be payable at the
stated maturity date based on that price because of the expectation that the
price of Telebras Receipt will continue to fluctuate until its final value as
described in this prospectus is determined.
If you choose to sell your ProGroS Securities when the price of Telebras
Receipt is below $115.4375, you may receive less than the principal amount of
your ProGroS Securities. As a general matter, if dividends are ever paid on
Telebras Receipt, a rising dividend rate, i.e., dividends per share, may
increase the price of Telebras Receipt while a falling dividend rate may
decrease its price. Political, economic and other developments may also affect
the price of Telebras Receipt and the value of the ProGroS Securities.
Changes in the levels of U.S. interest rates and Brazilian interest rates
are expected to affect the trading value of the ProGroS Securities. We expect
that the trading value of the ProGroS Securities will be affected by changes in
interest rates. As a general matter during the earlier years of the ProGroS
Securities, if U.S. interest rates increase, we expect that the trading value of
the ProGroS Securities will decrease and if U.S. interest rates decrease, we
expect the trading value of the ProGroS Securities will increase. However,
interest rates in Brazil and the U.S. may also affect the economies of Brazil
and the U.S. and, in turn, the prices of the reference securities. Rising
interest rates may lower the prices of the reference securities and the ProGroS
Securities. Falling interest rates may increase the prices of the reference
securities and the value of the ProGroS Securities.
Changes in volatility of the reference securities are expected to affect
the trading value of the ProGroS Securities. Volatility is the term used to
describe the size and frequency of market fluctuations. If the volatility of the
reference securities increases, we expect that the trading value of the ProGroS
Securities will increase. If the volatility of the reference securities
decreases, we expect that the trading value of the ProGroS Securities will
decrease.
As the time remaining to maturity of the ProGroS Securities decreases, the
"time premium" associated with the ProGroS Securities will decrease. The ProGroS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the price of the Telebras Receipt. This difference
will reflect a "time premium" due to expectations concerning the price of the
Telebras Receipt during the period prior to the stated maturity date of the
ProGroS Securities. However, as the time remaining to the stated
4
<PAGE>
maturity date of the ProGroS Securities decreases, we expect that this time
premium will decrease, potentially lowering the trading value of the ProGroS
Securities.
Changes in dividend yields of a reference security are expected to affect
the trading value of the ProGroS Securities. If dividends are ever paid on
reference security, the dividend yield that would result would likely to affect
the value of the ProGroS Securities. If the dividend yield on a reference
security were to increase, we expect that the value of the ProGroS Securities
would decrease. Conversely, if the dividend yield on a Telebras Receipt were to
decrease, we expect that the value of the ProGroS Securities would increase.
Changes in our credit ratings may affect the trading value of the ProGroS
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 ProGroS Securities. However, because your
return on your ProGroS Securities is dependent upon factors in addition to our
ability to pay our obligations under the ProGroS Securities, such as the
percentage increase in the value of Telebras Receipt at maturity, an improvement
in our credit ratings will not reduce investment risks related to the ProGroS
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 ProGroS Securities attributable to
another factor, such as an increase in the value of the Telebras Receipt.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the ProGroS Securities of a given change in
most of the factors listed above will be less if it occurs later in the term of
the ProGroS Securities than if it occurs earlier in the term of the ProGroS
Securities except that we expect that the effect on the trading value of the
ProGroS Securities of a given increase in the value of the Telebras Receipt will
be greater if it occurs later in the term of the ProGroS Securities than if it
occurs earlier in the term of the ProGroS Securities.
American Depositary Receipts
The Telebras Receipt is an ADR representing 1,000 shares of common stock of
Telebras. If Telebras is reorganized, the Telebras Receipt will be adjusted as
described below to reflect certain distributions of cash, securities and/or
other property. Some of the reference securities distributed in any such
reorganization may be ADRs. An ADR is a negotiable receipt which is issued by a
depositary, generally a bank, representing shares, such as the common stock of
Telebras, of a non-U.S. issuer that have been deposited and are held, on behalf
of the holders of the ADRs, at a custodian bank in the non-U.S. issuer's home
country. While the market for shares underlying an ADR generally will be in the
country in which the non-U.S. issuer is organized and trading in such market
generally will be based on that country's currency, ADRs will trade in U.S.
dollars.
Although ADRs are distinct securities from the shares of stock underlying
such ADRs, the trading characteristics and valuations of ADRs will usually, but
not necessarily, mirror the characteristics and valuations of such shares
represented by the ADRs. Inasmuch as holders of ADRs may surrender the ADR in
order to take delivery of and trade the shares underlying such ADR, a
characteristic that allows investors in ADRs to take advantage of price
differentials between different markets, a market for the shares of stock
underlying an ADR that is not liquid generally will result in an illiquid market
for the ADR representing such underlying shares.
The depositary bank that issues an ADR generally charges a fee, based on
the price of the ADR, upon issuance and cancellation of the ADR. This fee would
be in addition to the brokerage commissions paid upon the acquisition or
surrender of the security. In addition, the depositary bank incurs expenses in
connection with the conversion of dividends or other cash distributions paid in
local currency into U.S. dollars and such expenses are deducted from the amount
of the dividend or distribution paid to holders, resulting in a lower payout per
share of stock underlying an ADR represented by the ADR than would be the case
if such share were held directly. Certain tax considerations, including tax rate
differentials, arising from application of the tax laws of one nation to the
nationals of another and from certain practices in the ADR market may also exist
5
<PAGE>
with respect to an ADR. In varying degrees, any or all of these factors may
affect the value of the ADR compared with the value of the shares of stock
underlying an ADR in the local market.
Foreign Currency Exchange Rate and Foreign Market Considerations
The ProGroS Securities are U.S. dollar-denominated securities issued by
ML&Co., a United States corporation. Investments in the ProGroS Securities do
not give the beneficial owners any right to receive a reference security or any
Telebras Receipt or any other ownership right or interest in a reference
security or any Telebras Receipt or the shares of common stock represented by
the Telebras Receipt, although the return on the investment in the ProGroS
Securities is based on the ending value of the Telebras Receipt. The price of
the common stock of Telebras underlying the Telebras Receipt is quoted in
Brazilian currency. To the extent there are other reference securities, the
prices of such other reference securities may also be quoted in currency other
than U.S. dollars. The U.S. dollar price of a reference security that is an ADR
will depend on the price of the shares underlying such ADR and the exchange rate
between the non-U.S. dollar currency and the U.S. dollar. Even if the price of
the shares underlying an ADR is unchanged, changes in the rates of exchange
between the U.S. dollar and the non-U.S. dollar currency will affect the U.S.
dollar price of such ADR. Furthermore, even if the price in non-U.S. dollar
currency of the shares underlying an ADR increases, the U.S. dollar price of the
ADR may decrease as a result of changes in the rates of exchange between the
U.S. dollar and non-U.S. dollar currency.
Rates of exchange between the U.S. dollar and a non-U.S. dollar currency
are determined by forces of supply and demand in the foreign exchange markets.
These forces are, in turn, affected by international balance of payments and
other economic and financial conditions, government intervention, speculation
and other factors. Fluctuations in foreign exchange rates, future U.S. and non-
U.S. political and economic developments and the possible imposition of exchange
controls or other foreign governmental laws or restrictions applicable to such
investments may affect the U.S. dollar value of an ADR. Moreover, individual
foreign economies, such as Brazil's, 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, self-sufficiency and balance of
payments position. There is the possibility of expropriation of assets,
confiscatory taxation, political or social instability or diplomatic
developments which could affect the value of investments in countries, such as
Brazil. There may be less publicly available information about a non-U.S.
company, such as Telebras, than about a U.S. company, and non-U.S. companies are
not typically subject to accounting, auditing and financial reporting standards
and requirements comparable to those to which U.S. entities are subject. Non-
U.S. investments may be subject to foreign withholding taxes which could affect
the value of investment. In addition, investment laws in certain non-U.S.
countries such as Brazil may limit or restrict ownership of certain securities
by foreign nationals by restricting or eliminating voting or other rights or
limiting the amount of securities that may be so owned, and such limitations or
restrictions may affect the prices of such securities.
Brazil's financial markets, while growing in volume, have substantially
less volume than U.S. markets. The securities of many non-U.S. companies trading
in foreign markets are generally less liquid and their prices more volatile in
such markets than securities of comparable U.S. companies trading in the
domestic financial markets. Foreign markets have different trading practices
that may affect the prices of securities. Non-U.S. markets have different
clearance and settlement procedures than those in the U.S., and in certain
countries, such as Brazil, there have been instances when such procedures have
been insufficient to accommodate the volume of securities transactions, making
it difficult to conduct such transactions. There is generally less government
supervision and regulation of exchanges, brokers and issuers in Brazil than in
the U.S. In addition, the terms and conditions of depositary facilities may
result in less liquidity or lower market values for the ADRs than for the
securities underlying the ADRs.
The price of the common stock of Telebras and the price of the securities
of any spin-offs from Telebras, will depend on the financial condition and
results of operations of Telebras and such spin-offs. The financial condition
and results of operations of such entities will be affected by general economic,
political, financial and social conditions in Brazil, and in particular, by
prospects for future economic growth and its impact on demand for
telecommunications services in Brazil. Brazil has in the past experienced
economic and political
6
<PAGE>
instability and there can be no assurance that current government programs to
stabilize the economy will succeed.
You will not have any stockholder's rights with respect to Telebras Receipt
Beneficial owners of the ProGroS Securities are not entitled to any rights
with respect to any Telebras Receipt, including, voting rights and rights to
receive any dividends or other distributions in respect of the Telebras Receipt.
No affiliation between ML&Co. and Telebras
ML&Co. has no affiliation with Telebras, and Telebras has no obligations
with respect to the ProGroS Securities or amounts to be paid to beneficial
owners thereof, including any obligation to take the needs of ML&Co. or of
beneficial owners of the ProGroS Securities into consideration for any reason.
Telebras did not receive any of the proceeds of the initial offering of the
ProGroS Securities made hereby and is not responsible for, and has not
participated in, the determination or calculation of the amount receivable by
beneficial owners of the ProGroS Securities on the stated maturity date or upon
an earlier call. In addition, Telebras is not involved with the administration
or trading of the ProGroS Securities.
There may be state law limits on the payment of amounts payable on the ProGroS
Securities
New York State law governs the 1983 indenture under which the ProGroS
Securities are 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 ProGroS 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 ProGroS Securities holders, 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 affiliates may from time to time buy or sell the reference
securities, including shares of Telebras stock, for their own accounts for
business reasons or in connection with hedging our obligations under the ProGroS
Securities. These transactions could affect the price of the reference
securities.
Potential conflicts
The calculation agent is our subsidiary, the issuer of the ProGroS
Securities. Under certain circumstances, MLPF&S's role as our subsidiary and its
responsibilities as calculation agent for the ProGroS Securities could give rise
to conflicts of interests. You should be aware that because the calculation
agent is controlled by us, potential conflicts of interest could arise.
7
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
ProGroS Securities described in this prospectus.
8
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
9
<PAGE>
DESCRIPTION OF THE PROGROS SECURITIES
The ProGroS Securities were issued as a series of senior debt securities
under the 1983 indenture which is more fully described in this prospectus.
The ProGroS Securities will mature on May 19, 2005 unless called earlier at
the option of ML&Co.
Unless called, while at maturity a beneficial owner will receive the
principal amount of such ProGroS Security plus the supplemental redemption
amount described below, if any, there will be no other payment of interest,
periodic or otherwise. See "--Payment at Maturity" below.
The ProGroS Securities may be called by ML&Co. as described below, but are
not subject to redemption at the option of any beneficial owner prior to the
stated maturity date. Upon the occurrence of an Event of Default with respect to
the ProGroS Securities, beneficial owners of the ProGroS Securities may
accelerate the maturity of the ProGroS Securities, as described under "--Events
of Default and Acceleration" and "Other Terms--Events of Default" in this
prospectus.
The ProGroS Securities were issued in denominations of whole units.
Payment at Maturity
At the stated maturity date, a beneficial owner of a ProGroS Security will
be entitled to receive the principal amount of each unit plus a supplemental
redemption amount, if any, as provided below. If the supplemental redemption
amount is not greater than zero, a beneficial owner of a ProGroS Security will
be entitled to receive only the principal amount of its ProGroS Securities.
The "supplemental redemption amount" for a ProGroS Security will be
determined by the calculation agent and will equal:
<TABLE>
<S> <C>
ending value - starting value
principal amount of such ProGroS 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 $115.4375.
The "ending value" will be determined by the calculation agent and will
equal the Reorganization Event Value with respect to a reorganization event, if
any, plus the value of the Telebras Receipt determined as follows:
(a) for any portion of the Telebras Receipt consisting of cash, the U.S.
dollar equivalent of such cash plus interest on such amount accruing
from the date of the payment of such cash to holders of the relevant
Telebras Receipt for which such cash was paid until the stated
maturity date at a fixed interest rate determined on the date of such
payment equal to the interest rate that would be paid on a fixed rate
senior non-callable debt security of ML&Co. with a term equal to the
remaining term for the ProGroS Securities as determined by the
calculation agent;
(b) for any portion of the Telebras Receipt consisting of property other
than cash or reference securities, the U.S. dollar equivalent of the
market value of such property on the date that such property was
delivered to holders of the relevant Telebras Receipt for which such
property was distributed plus interest on the U.S. dollar amount
accruing from the date of the
10
<PAGE>
delivery until the stated maturity date at a fixed interest rate
determined as described in (a) above; and
(c) for any portion of the Telebras Receipt consisting of reference
securities, the average or arithmetic mean of the closing prices of
each such reference security determined on each of the first five
calculation days during the calculation period. If there are fewer
than five calculation days in the calculation period with respect to
any reference security, then the ending value shall be calculated
using the average or arithmetic mean of the closing prices of such
reference security on such calculation days, and if there is only one
calculation day, then the ending value shall be calculated using the
closing price of such reference security on such calculation day. If
no calculation days occur during the calculation period with respect
to such reference security, then the ending value shall be calculated
using the closing price of such reference security determined on the
last scheduled calculation day in the calculation period, regardless
of the occurrence of a market disruption event on such day.
"U.S. dollar equivalent" means, with respect to cash not denominated in
U.S. dollars, such cash amount multiplied by the spot rate, defined below, for
the currency in which such cash is denominated at approximately the date of
payment or date of valuation of such cash.
The "calculation period" means the period from and including the seventh
scheduled calculation day prior to the stated maturity date to and including the
second scheduled calculation day prior to the stated maturity date.
"calculation day" means any trading day during the calculation period on
which a market disruption event has not occurred.
"trading day" means a day on which the AMEX, the New York Stock Exchange or
the "NYSE" and the NASDAQ National Market System or "NASDAQ NMS" are open for
trading.
"market disruption event" means, with respect to a reference security, the
occurrence or existence on any business day during the one-half hour period that
ends when the closing price is determined, of any suspension of, or limitation
imposed on, trading in such reference security on the NYSE (or other market or
exchange, if applicable).
"closing price" with respect to a reference security means, for a
calculation day the following:
(a) If the reference security is listed on a national securities exchange
in the United States, is a NASDAQ NMS security or is included in the OTC
Bulletin Board Service or OTC Bulletin Board operated by the National
Association of Securities Dealers, Inc., closing price means:
(1) the last reported sale price, regular way, on such day on the
principal United States securities exchange registered under the
Exchange Act, on which such reference security is listed or admitted
to trading, or
(2) if not listed or admitted to trading on any such securities exchange
or if such last reported sale price is not obtainable, the last
reported sale price on the over-the-counter market as reported on the
NASDAQ NMS or OTC Bulletin Board on such day, or
(3) if the last reported sale price is not available in accordance with
(1) and (2) above, the mean of the last reported bid and offer price
on the over-the-counter market as reported on the NASDAQ NMS or OTC
Bulletin Board on such day as determined by the calculation agent. The
term "NASDAQ NMS security" includes a security included in any
successor to such system and the term "OTC Bulletin Board" shall
include any successor service thereto.
11
<PAGE>
(b) If such reference security is not listed on a national securities
exchange in the United States or is not a NASDAQ NMS security or included in
the OTC Bulletin Board operated by the NASD, closing price means the last
reported sale price on such day on the securities exchange on which such
reference security is listed or admitted to trading with the greatest volume
of trading for the calendar month preceding such day as determined by the
calculation agent, provided that if such last reported sale price is for a
transaction which occurred more than four hours prior to the close of such
exchange, then the closing price shall mean the average of the last available
bid and offer price on such exchange. If such reference security is not listed
or admitted to trading on any such securities exchange or if such last
reported sale price or bid and offer are not obtainable, the closing price
shall mean the last reported sale price for a transaction which occurred more
than four hours prior to when trading in such over-the-counter market
typically ends, then the closing price shall mean the average of the last
available bid and offer prices in such market of the three dealers which have
the highest volume of transactions in such reference security in the
immediately preceding calendar month as determined by the calculation agent
based on information that is reasonably available to it. If such prices are
quoted in a currency other than in U.S. dollars, such prices will be
translated into U.S. dollars for purposes of calculating the average market
price using the spot rate on the same calendar day as the date of any such
price.
The "spot rate" on any date will be determined by the calculation agent
and will equal the spot rate of such currency per U.S. $1.00 on such date at
approximately 3:00 p.m., New York City time, as reported by a recognized
reporting service for such spot rate, provided that if the calculation agent
shall determine that such reported rate is not indicative of actual rates of
exchange that may be obtained in the currency exchange rate market, then the
spot rate shall equal the spot rate of such currency per U.S. $1.00 on such date
at approximately 3:00 p.m., New York City time at which the calculation agent is
able to convert such currency into U.S. dollars.
"business day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law to close and that is a trading day on the NYSE
and the AMEX.
All determinations made by the calculation agent are at the sole discretion
of the calculation agent and, absent a determination by the calculation agent of
a manifest error, are conclusive for all purposes and binding on ML&Co. and
beneficial owners of the ProGroS Securities.
Early Call of the ProGroS Securities at the Option of ML&Co.
During the month of June 2004, the call period, ML&Co., in its sole
discretion, may elect to call the ProGroS Securities offered hereby, in whole
but not in part, before the stated maturity date by giving notice to the Trustee
of ML&Co.'s election on any business day within the month of June 2004, at the
call price or $20 per unit.
If we elect to call your ProGroS Securities before the stated maturity
date, you will receive only the call price and you will not receive a
supplemental redemption amount based on the value of the Telebras Receipt. If we
do not call the ProGroS Securities prior to the stated maturity date, the
principal amount plus the supplemental redemption amount, if any, that you
receive at the stated maturity may be greater than or less than the call price.
ML&Co. may elect to call the ProGroS Securities on any business day during the
call period by giving notice to the Trustee and specifying the date on which the
call price shall be paid. Such Payment Date shall be no later than the 20th
Business Day after such call election. The Trustee will provide notice of such
call election to the registered holders of the ProGroS Securities, specifying
the Payment Date, no less than 15, nor more than 30, calendar days prior to such
Payment Date. While the ProGroS Securities are held at the Depositary, the
registered holder will be the Depositary, and the Depositary will receive the
notice of the call. As more fully described below under "Description of the
ProGroS Securities--Depositary", the Depositary will forward such notice to its
participants which will pass such notice on to the beneficial owners.
12
<PAGE>
Hypothetical Returns
The following table illustrates, for a range of hypothetical ending values,
. the percentage change over the starting value;
. the total amount payable at the stated maturity date for each $10
principal amount of ProGroS Securities;
. the total rate of return to beneficial owners of the ProGroS
Securities;
. the pretax annualized rate of return to beneficial owners of ProGroS
Securities and
. the pretax annualized rate of return of the Telebras Receipt.
This table assumes that the ProGroS Securities are not called prior to the
stated maturity date.
<TABLE>
<CAPTION>
Total Amount Pretax Pretax Rate
Percentage Change Payable at the Annualized of Return of
Hypothetical Over the Stated Maturity Total Rate Rate of the Telebras
Ending Value Starting Value Date per Unit of Return Return(1) Receipt(1)(2)
------------ -------------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
$ 46.18 -60.00% $10.00 0.00% 0.00% -10.94%
$ 57.72 -50.00% $10.00 0.00% 0.00% -7.96%
$ 69.26 -40.00% $10.00 0.00% 0.00% -5.48%
$ 80.81 -30.00% $10.00 0.00% 0.00% -3.35%
$ 92.35 -20.00% $10.00 0.00% 0.00% -1.48%
$103.89 -10.00% $10.00 0.00% 0.00% 0.18%
$115.44 0.00% $10.00 0.00% 0.00% 1.69%
$126.98 10.00% $11.00 10.00% 1.37% 3.06%
$138.53 20.00% $12.00 20.00% 2.62% 4.33%
$150.07 30.00% $13.00 30.00% 3.78% 5.50%
$161.61 40.00% $14.00 40.00% 4.86% 6.60%
$173.16 50.00% $15.00 50.00% 5.87% 7.62%
$184.70 60.00% $16.00 60.00% 6.82% 8.58%
$196.24 70.00% $17.00 70.00% 7.72% 9.50%
$207.79 80.00% $18.00 80.00% 8.57% 10.36%
$219.33 90.00% $19.00 90.00% 9.38% 11.18%
$230.88 100.00% $20.00 100.00% 10.14% 11.96%
</TABLE>
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes
(a) a constant dividend yield of 1.69% per annum, paid quarterly from the
date of initial delivery of ProGroS Securities, applied to the value
of the Telebras Receipt at the end of each such
13
<PAGE>
quarter assuming such value increases or decreases linearly from the
starting value to the applicable hypothetical ending value;
(b) no transaction fees or expenses;
(c) a term for the ProGroS Securities from May 19, 1998 to May 19, 2005;
and
(d) a final Telebras Receipt value equal to the ending value.
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 on the actual
ending value determined by the calculation agent as provided herein.
Dilution and Reorganization Adjustments
The Telebras Receipt is subject to adjustment if an issuer of any reference
security or the custodian in the case of reference security that is an ADR
shall:
(a) pay a stock dividend or make a distribution with respect to such
reference security in reference securities;
(b) subdivide or split the outstanding units of such reference security
into a greater number of units;
(c) combine the outstanding units of such reference security into a
smaller number of units;
(d) issue by reclassification of units of such reference security any
units of another security of such issuer;
(e) issue rights or warrants to all holders of such reference security
entitling them to subscribe for or purchase shares, in the aggregate,
for more than 5% of the number of such reference securities
outstanding prior to the issuance of such rights or warrants at a
price per share less than the then current market price of such
reference security, other than rights to purchase such reference
security pursuant to a plan for the reinvestment of dividends or
interest; or
(f) pay a dividend or make a distribution to all holders of such reference
security of evidences of its indebtedness or other assets excluding
any stock dividends or distributions referred to in clause (a) above
or any cash dividends other than any Extraordinary Cash Dividend or
issue to all holders of such reference security rights or warrants to
subscribe for or purchase any of its securities, other than those
referred to in clause (e) above. Any of the foregoing assets are
referred to as the "Distributed Assets" and any of the foregoing
events are referred to as the "dilution events".
Notwithstanding provision (f) in the foregoing sentence, if a reference
security is an ADR and the holder of such ADR would receive cash or other
property other than securities in the circumstances described in (f) above, but
the holder of the securities underlying such ADR could receive securities as a
result of a dilution event or the 'Distributed securities and the calculation
agent or its affiliates would be eligible to receive the Distributed securities,
then ML&Co. can elect for purposes of provision (f) to include the Distributed
securities in the Telebras Receipt instead of the cash or property distributed
to holders of the ADR in an amount equal to the amount of the Distributed
securities that would have been received had the Telebras Receipt consisted of
the securities underlying the ADRs instead of the ADRs. For purposes of
provision (f), if the holder of a reference security can elect to receive
securities in lieu of cash or property other than securities,
14
<PAGE>
then for purposes of provision (f) the holders of the reference security shall
be deemed to receive only the securities.
In the case of the dilution events referred to in clauses (a), (b), (c) and
(d) above, the Telebras Receipt shall be adjusted to include the number of units
of such reference security and/or security of such issuer which a holder of
units of such reference security would have owned or been entitled to receive
immediately following any such event had such holder held, immediately prior to
such event, the number of units of such reference security constituting part of
the Telebras Receipt immediately prior to such event. Each such adjustment shall
become effective immediately after the effective date for such subdivision,
split, combination or reclassification, as the case may be. Each such adjustment
shall be made successively.
In the case of the dilution event referred to in clause (e) above where the
rights or warrants are for more than 5% of the number of shares outstanding
prior to the issuance of such rights or warrants, the Telebras Receipt shall be
adjusted by multiplying the number of reference securities constituting Telebras
Receipt immediately prior to the date of issuance of the rights or warrants
referred to in clause (e) above by a fraction,
. the numerator of which shall be the number of reference securities
outstanding on the date immediately prior to such issuance, plus the
number of additional reference securities offered for subscription or
purchase pursuant to such rights or warrants, and
. the denominator of which shall be the number of reference securities
outstanding on the date immediately prior to such issuance, plus the
number of additional reference securities which the aggregate offering
price of the total number of reference securities so offered for
subscription or purchase pursuant to such rights or warrants would
purchase at the current market price determined as the average Closing
Price per reference security for the 20 Trading Days immediately prior
to the date of such rights or warrants are issued, subject to certain
adjustments, which shall be determined by multiplying such total
number of reference securities by the exercise price of such rights or
warrants and dividing the product so obtained by such current market
price.
To the extent that reference securities are not delivered after the expiration
of such rights or warrants, or if such rights or warrants are not issued, the
Telebras Receipt shall be readjusted to the Telebras Receipt which would then be
in effect had such adjustments for the issuance of such rights or warrants been
made upon the basis of delivery of only the number of reference securities
actually delivered.
In the case of the dilution event referred to in clause (f) above, the
Telebras Receipt shall be adjusted to include, from and after such dividend,
distribution or issuance,
. in respect of that portion, if any, of the Distributed Assets
consisting of cash, the amount of such Distributed Assets consisting
of cash received for each unit of such reference security multiplied
by the number of units of such Reference Security constituting part of
the Telebras Receipt on the date of such dividend, distribution or
issuance, immediately prior to such dividend, distribution or
issuance, plus
. in respect of that portion, if any, of the Distributed Assets which
are other than cash, the number or amount of each type of Distributed
Assets other than cash received with respect to each unit of such
reference security multiplied by the number of units of such reference
security constituting part of the Telebras Receipt on the date of such
dividend, distribution or issuance, immediately prior to such
dividend, distribution or issuance.
For example, where a reorganization of Telebras results in the distribution
to holders of the Telebras Receipt of ADRs representing shares of common stock
in various companies formed to operate various spin-
15
<PAGE>
off businesses of Telebras, then the Telebras Receipt shall include such ADRs in
amounts specified pursuant to provision (f) above. If in any such reorganization
of Telebras, holders of Telebras Receipts receive cash or property while holders
of the shares of common stock underlying the Telebras Receipts receive
distributed securities and the calculation agent or an affiliate can receive and
hold the distributed securities, then the calculation agent can elect to have
the Telebras Receipt include the Distributed securities instead of such cash or
property.
An "extraordinary cash dividend" means, with respect to any consecutive
12-month period, all cash dividends or any other distribution made by the issuer
of a reference security or made pursuant to an arrangement effecting a
distribution of distributable profits or reserves, whether in cash or in specie,
on any reference security occurring in such 12-month period or, if such
reference security was not outstanding at the commencement of such 12-month
period or was not then a part of the Telebras Receipt, occurring in such shorter
period during which such reference security was outstanding and was part of the
Telebras Receipt, exceeds on a per share basis 10% of the average of the closing
prices per share of such reference security over such 12-month period or such
shorter period during which such reference security was outstanding and was part
of the Telebras Receipt; provided that, for purposes of the foregoing
definition, the amount of cash dividends paid on a per share basis will be
appropriately adjusted to reflect the occurrence during such period of any stock
dividend or distribution of shares of capital stock of the issuer of such
reference security or any subdivision, split, combination or reclassification of
shares of such reference security.
All adjustments will be calculated to the nearest 1/10,000th of a share
of the reference security or if there is not a nearest 1/10,000th of a share to
the next lower 1/10,000th of a share. No adjustment shall be required unless
such adjustment would require an increase or decrease of at least one percent in
the Closing Price; provided, however, that any adjustments which by reason of
the foregoing are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
If any of the Distributed Assets are cash, property or reference
securities that will be distributed only to holders of the relevant Telebras
Receipt who or which can certify as to a certain nationality or formation under
the laws of a certain jurisdiction, as the case may be, and a corporation formed
in the United States or an affiliate of such corporation formed elsewhere cannot
receive such distribution, the Telebras Receipt will reflect only those
distributed assets available for distribution to such United States corporation
or its affiliates.
In the event of
(a) any consolidation or merger of an issuer of a reference security, or any
surviving entity or subsequent surviving entity of such issuer , a
"Successor Company", with or into another entity, other than a merger
or consolidation in which the issuer is the continuing corporation and in
which the reference security outstanding immediately before the merger or
consolidation is not exchanged for cash, securities or other property of
the issuer or another corporation,
(b) any sale, transfer, lease or conveyance to another corporation of the
property of an issuer of a reference security or any Successor Company as
an entirety or substantially as an entirety,
(c) any statutory exchange of securities of an issuer of a reference security
or any Successor Company with another corporation, other than in
connection with a merger or acquisition or
(d) any liquidation, dissolution, winding up or bankruptcy of an issuer of a
reference security or any Successor Company, any such event described in
clause (a), (b), (c) or (d), a "reorganization event", the ending value
shall be calculated by including the reorganization event value.
The "reorganization event value" shall be determined by the calculation
agent and shall equal
. the transaction value related to the relevant reorganization event,
plus
16
<PAGE>
. interest on such transaction value accruing from the date of the
payment or delivery of the consideration, if any, received in
connection with such reorganization event until the stated maturity
date at a fixed interest rate determined on the date of such payment
or delivery equal to the interest rate that would be paid on a fixed
rate senior non-callable debt security of ML&Co. with a term equal to
the remaining term of the ProGroS Securities.
The "transaction value" means
. for any cash received in any such reorganization event, the amount of
cash received per unit of reference security,
. for any property other than cash or securities received in any such
reorganization event, an amount equal to the market value of such
property per unit of reference security on the date that such property
is received by holders of such reference security as determined by the
calculation agent, and
. for any securities received in any reorganization event, an amount
equal to the closing price per unit of the securities on the date the
securities are received by holders of the reference security
multiplied by the number of such securities received for each unit of
the reference security subject to adjustment on a basis consistent
with the adjustment provisions described above.
The foregoing adjustments are made by MLPF&S, as calculation agent, and all
such adjustments are final.
No adjustments will be made for other events, such as offerings of Deposit
Reference Shares by Telebras for cash or in connection with acquisitions.
ML&Co. will, within ten business days following the occurrence of an event
that requires an adjustment or if ML&Co. is not aware of such occurrence, as
soon as practicable after becoming so aware, provide written notice to the
Trustee, which shall provide notice to the holders of the ProGroS Securities of
the occurrence of such event and, if applicable, a statement in reasonable
detail setting forth the adjusted closing price to be used in determining the
ending value.
Events of Default and Acceleration
In case an event of default with respect to any ProGroS Securities has
occurred and is continuing, the amount payable to a beneficial owner of a
ProGroS Security upon any acceleration permitted by the ProGroS Securities, with
respect to each $10 principal amount thereof, will be equal to the principal
amount of the ProGroS Securities and the supplemental redemption amount, if any,
calculated as though the date of early repayment were the stated maturity date
of the ProGroS Securities. See "Description of the ProGroS Securities,Payment
at Maturity" herein. If a bankruptcy proceeding is commenced in respect of
ML&Co., the claim of the beneficial owner of a ProGroS Security may be limited,
under Section 502(b)(2) of Title 11 of the United States Code, to the principal
amount of the ProGroS Security plus an additional amount of contingent interest
calculated as though the date of the commencement of the proceeding were the
stated maturity date of the ProGroS Securities.
In case of default in payment of the ProGroS Securities whether at the call
date, at the stated maturity date, or upon acceleration, from and after the
stated maturity date the ProGroS Securities shall bear interest, payable upon
demand of the beneficial owners thereof, at the rate of 6.25% per annum to the
extent that payment of such interest shall be legally enforceable on the unpaid
amount due and payable on such date in
17
<PAGE>
accordance with the terms of the ProGroS Securities to the date payment of such
amount has been made or duly provided for.
Global Securities
Description of the Global Securities.
The ProGroS Securities are represented by one or more fully registered
global securities. Each global security has been deposited with, or on behalf
of, The Depository Trust Company or 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
ProGroS 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 such 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 ProGroS Securities represented by a global security for all
purposes under the 1983 indenture. Except as provided below, the beneficial
owners of the ProGroS Securities represented by a global security are not
entitled to have the ProGroS Securities represented by the global security
registered in their names, will not receive or be entitled to receive physical
delivery of the ProGroS Securities in definitive form and are not considered the
owners or holders under the 1983 indenture, including for purposes of receiving
any reports delivered by ML&Co. or the trustee pursuant to the 1983 indenture.
Accordingly, each person owning a beneficial interest in a global security must
rely on the procedures of DTC and, if such person is not a participant of DTC on
the procedures of the participant through which such 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 such 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 such action, and such
participants would authorize beneficial owners owning through such participants
to give or take such 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 are 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 ProGroS Securities. The ProGroS
Securities have been issued as fully registered securities registered in the
name of Cede & Co., DTC's partnership nominee. One or more fully registered
global securities have been issued for the ProGroS Securities in the aggregate
principal amount of such issue, and has been 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 1934 Act. 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 NASD. Access to the DTC's system
is also available to others such as securities
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<PAGE>
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 ProGroS Securities under DTC's system must be made by or
through direct participants, which will receive a credit for the ProGroS
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 participants or indirect participants through which
such beneficial owner entered into the transaction. Transfers of ownership
interests in the ProGroS Securities are to be accomplished by entries made on
the books of participants acting on behalf of beneficial owners.
To facilitate subsequent transfers, all ProGroS Securities deposited with
DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of ProGroS 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 ProGroS Securities; DTC's records reflect only
the identity of the direct participants to whose accounts the ProGroS Securities
are credited, which may or may not be the beneficial owners. The participants
are 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 and
indirect participants to beneficial owners are 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 ProGroS
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 to whose
accounts the ProGroS Securities are credited on the record date, identified in a
listing attached to the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments on the
ProGroS 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 is the responsibility of
DTC, and disbursement of such payments to the beneficial owners is the
responsibility of direct and indirect participants.
Exchange for Certificated Securities
If the depositary is at any time unwilling or unable to continue as
depositary and
(a) a successor depositary is not appointed by ML&Co. within 60 days,
(b) ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, and
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<PAGE>
(c) an Event of Default under the 1983 indenture has occurred and is
continuing with respect to the ProGroS Securities,
the global securities will be exchangeable for ProGroS Securities in definitive
form of like tenor and of an equal aggregate principal amount, in denominations
of $10 and integral multiples thereof. The definitive ProGroS Securities will
be registered in such name or names as the Depositary shall instruct the
Trustee. It is expected that such instructions may be based upon directions
received by the Depositary from participants with respect to ownership of
beneficial interests in the global securities.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the Depositary. In that event, ProGroS Security in
definitive form 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 Payment
All payments of principal and the supplemental redemption amount, and call
price if any, and will be made by ML&Co. in immediately available funds so long
as the ProGroS Securities are maintained in book-entry form.
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THE TELEBRAS RECEIPT
Telecomunicacoes Brasileiras S.A.-Telebras
Telecomunicacoes Brasileiras S.A.-Telebras was the primary supplier of
public telecommunications services in Brazil. Telebras owned and operated all of
the inter-state and international telephone transmission facilities in Brazil,
and was the primary provider of intra-state service and provides telephone-
related services such as data transmission, cellular mobile telephone service,
and sound, image, videotext and telex transmission.
In 1998, Telebras was privatized by the federal government of Brazil and
reorganized into 12 separate corporations. These spin-offs resulted in the
distribution to holders of a Telebras Receipt of cash, securities and other
property, including common stock and/or warrants to purchase common stock in the
new corporations. An investor in the ProGroS Securities should carefully review
the adjustments to be made in the case of these reorganization events contained
in "--Dilution and Reorganization Adjustments."
Before the reorganization, Telebras was subject to the informational
requirements of the Exchange Act. Accordingly, Telebras filed reports, proxy
and other information statements and other information with the SEC. There is
no assurance that the 12 separate corporations that previously made up Telebras
will be subject to the informational requirements of the Exchange Act or make
any information relating to their business widely or publicly available. In the
event that this information, if any, is not widely or publicly available during
the term of the ProGroS Securities, pricing information for the ProGroS
Securities may be more difficult to obtain and the value and liquidity of the
ProGroS Securities may be adversely affected.
ML&Co. is not affiliated with Telebras and Telebras has no obligations with
respect to the Progros securities. This prospectus relates only to the Progros
securities offered hereby and does not relate to the Telebras receipt or other
securities of Telebras. The information contained in this prospectus regarding
Telebras has been derived from the publicly available documents described in the
preceding paragraph. ML&Co. Has not participated in the preparation of such
documents or made any due diligence inquiries with respect to Telebras in
connection with the initial offering of the Progros securities. ML&Co. Makes no
representation that such publicly available documents or any other publicly
available information regarding Telebras are accurate or complete. Furthermore,
there can be no assurance that all events occurring prior to the date hereof,
including events that would affect the accuracy or completeness of the publicly
available documents described in the preceding paragraph, that would affect the
trading price of the Telebras receipt have been publicly disclosed. Subsequent
disclosure of any such events or the disclosure of or failure to disclose
material future events concerning Telebras could affect the supplemental
redemption amount to be received at the stated maturity date and therefore the
trading value of the progros securities.
From time to time, in the ordinary course of business, affiliates of ML&Co.
engaged in certain investment banking activities on behalf of the Telebras as
well as served as counterparty in certain other transactions.
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<PAGE>
OTHER TERMS
ML&Co. issued the ProGroS Securities 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
ProGroS 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.
ML&Co. may issue series of senior debt securities from time to time 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 ProGroS 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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.
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In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any past default
to less than a majority.
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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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior 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
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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 ProGroS 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.
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 have filed a registration statement on Form S-3 with the SEC covering
the ProGroS Securities and other securities. For further information on ML&Co.
and the ProGroS 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 the prospectus may not contain
all the information that you may find important, you should review the full text
of these documents. We have included copies of these documents as exhibits to
our registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
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<PAGE>
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
ProGroS Securities and is to be used by MLPF&S when making offers and sales
related to market-making transactions in the ProGroS Securities.
MLPF&S may act as principal or agent in these market-making transactions.
The ProGroS Securities may be offered on the AMEX or off the exchange in
negotiated transactions or otherwise.
The distribution of the ProGroS 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
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+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
Merrill Lynch & Co., Inc.
S&P 500(R) Market Index Target-Term Securities(R)
due July 1, 2005
"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:
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the S&P 500 Index. any, in the value of the index, adjusted as described
. The MITTS Securities are listed on the American in this prospectus.
Stock Exchange under the symbol "MLF". . You will receive no less than the principal amount
of the MITTS Securities.
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , ____.
"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 ML&Co. is an authorized
sublicensee.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS..................................................... 3
MERRILL LYNCH & CO., INC......................................... 6
RATIO OF EARNINGS TO FIXED CHARGES............................... 7
DESCRIPTION OF THE MITTS SECURITIES.............................. 8
THE INDEX........................................................ 15
OTHER TERMS...................................................... 17
PROJECTED PAYMENT SCHEDULE....................................... 20
WHERE YOU CAN FIND MORE INFORMATION.............................. 21
INCORPORATION OF INFORMATION WE FILE WITH THE SEC................ 22
PLAN OF DISTRIBUTION............................................. 22
EXPERTS.......................................................... 23
</TABLE>
2
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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 at maturity we will pay you no more than $10 for
each unit of the MITTS Securities you own if the average value of the index over
five trading days shortly before the maturity date is less than 1,119.49, the
value of the index on the date the MITTS Securities were priced. This will be
true even if at some time during the life of the MITTS Securities, the value of
the index, as adjusted, was higher than 1,119.49 but later falls below 1,119.49.
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 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 underlying the
index
Your return will not reflect the return you would realize if you actually
owned the stocks underlying the index and received the dividends paid on those
stocks because of the reduction caused by the adjustment factor described in
this prospectus and because the index is calculated by reference to the prices
of the common stocks included in the 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
Although the MITTS Securities are listed on the AMEX under the symbol
"MLF", you cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS Securities continues to
exist, you cannot assume that that there will be liquidity in the trading
market. The continued existence of a trading market for the MITTS Securities
will depend on our financial performance and other factors such as the
appreciation, if any, of the value of the index.
If the trading market for the MITTS Securities is limited and you do not
wish to hold your investment until maturity, there may be a limited number of
buyers for your MITTS Securities. This may affect the price you receive if you
sell before maturity.
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
magnify 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
3
<PAGE>
factor, such as an increase in the value of the index. 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.
The value of the 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 by which the index, as reduced by the adjustment
factor, exceeds 1,119.49. If you choose to sell your MITTS Securities when the
value of the index, as reduced by the adjustment factor, exceeds 1,119.49, you
may receive substantially less than the amount that would be payable at maturity
based on this value because of the expectation that the index will continue to
fluctuate until shortly before the maturity date when the average value of the
index is determined. If you choose to sell your MITTS Securities when the value
of the index is below 1,119.49, you may receive less than the $10 principal
amount per unit of MITTS Securities. In general, rising U.S. dividend rates, or
dividends per share, may increase the value of the index while falling U.S.
dividend rates may decrease the value of the index. Political, economic and
other developments that affect the stocks underlying the index may also affect
the value of the index and the value of the MITTS Securities.
Changes in the levels of U.S. 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 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
index. Rising interest rates may lower the value of the index and, thus, the
MITTS Securities. Falling interest rates may increase the value of the index
and, thus, may increase the value of the MITTS Securities.
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. Volatility is the term used to describe the size
and frequency of market fluctuations. Generally, if the volatility of the index
increases, we expect that the trading value of the MITTS Securities will
increase. If the volatility of the 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. The MITTS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the index. This difference will reflect a "time
premium" due to expectations concerning the value of the index during the period
prior to 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 index are expected
to affect the trading value of the MITTS Securities. If dividend yields on the
stocks included in the index increase, we expect that the value of the MITTS
Securities will decrease. Conversely, if dividend yields on the stock comprising
the index 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 index at maturity, an improvement in our
credit ratings will not reduce 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 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.
4
<PAGE>
Amounts payable on the MITTS Securities may be limited by state law
New York State law governs the senior indenture under which the MITTS
Securities were 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 affiliates may from time to time buy or sell the stocks
underlying the 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 index in a manner
that would be adverse to your investment in the MITTS Securities.
Potential conflicts of interest
Our subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated or
MLPF&S, is our agent for the purposes of calculating the value of the index and
the amount payable to you at maturity. In some 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 its determination as to whether the
value of the 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 index. See "Description of the MITTS Securities--
Adjustments to the Index; Market Disruption Events" and "--Discontinuance of the
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 a 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.
5
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
7
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On June 26, 1998, ML&Co. issued $285,000,000 aggregate principal amount of
S&P 500 MITTS Securities due July 1, 2005. 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 July 1, 2005.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of the MITTS Security plus the Supplemental Redemption Amount
described below, 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 prior to maturity. Upon the occurrence of an
Event of Default 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.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of each unit 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 of its MITTS Securities.
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 1,119.49.
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 (the "Index") as adjusted by the Adjustment Factor (the "Adjusted Index
Value") determined on each of the first five Calculation Days during the
Calculation Period. If there are fewer than five but more than one Calculation
Days, then the Adjusted Ending Value will equal the average or arithmetic mean
of the closing values of the Adjusted Index Value on these Calculation Days. If
there is only one Calculation Day, then the Adjusted Ending Value will equal the
closing value of the Adjusted Index Value 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 Adjusted Index Value 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 "Adjustment Factor" equals 1.3% per annum 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 Index. As a result of the application of the Adjustment
Factor, the adjusted value of the Index used to calculate your Supplemental
Redemption Amount at the stated maturity of the MITTS Securities will be
approximately 8.78% less than the actual Index value on any day during the
Calculation Period.
8
<PAGE>
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.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
For purposes of determining the Adjusted Ending Value, an "Index Business
Day" is a day on which the NYSE and the AMEX are open for trading and the Index
or any Successor Index, as defined on page 11 below, 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.
9
<PAGE>
Hypothetical Returns
The following table illustrates, for a range of hypothetical values of the
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 underlying the
Index, which includes an assumed aggregate dividend yield of
1.40% per annum, as more fully described below.
<TABLE>
<CAPTION>
Percentage
Change Total Amount Pretax
of Adjusted Payable at Maturity Annualized Pretax Annualized
Hypothetical Index Adjusted Ending Per $10 Principal Total Rate of Rate of Rate of Return on
Value During the Ending Value Over the Amount of Return on the Return on the Stocks Underlying
Calculation Period Value Starting Value MITTS Securities MITTS Securities MITTS Securities(1) the Index(1)(2)
------------------ ----- -------------- ---------------- ---------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
559.75 510.62 -54.39% $10.00 0.00% 0.00% -8.25%
671.69 612.75 -45.27% $10.00 0.00% 0.00% -5.77%
783.64 714.87 -36.14% $10.00 0.00% 0.00% -3.64%
895.59 817.00 -27.02% $10.00 0.00% 0.00% -1.77%
1,007.54 919.12 -17.90% $10.00 0.00% 0.00% -0.11%
1,119.49 1,021.25 -8.78% $10.00 0.00% 0.00% 1.40%
1,231.44 1,123.37 0.35% $10.03 0.35% 0.05% 2.77%
1,343.39 1,225.50 9.47% $10.95 9.47% 1.29% 4.04%
1,455.34 1,327.62 18.59% $11.86 18.59% 2.44% 5.21%
1,567.29 1,429.75 27.71% $12.77 27.71% 3.52% 6.30%
1,679.24 1,531.87 36.84% $13.68 36.84% 4.52% 7.32%
1,791.18 1,634.00 45.96% $14.60 45.96% 5.46% 8.28%
1,903.13 1,736.12 55.08% $15.51 55.08% 6.35% 9.19%
2,015.08 1,838.25 64.20% $16.42 64.20% 7.19% 10.05%
2,127.03 1,940.37 73.33% $17.33 73.33% 7.99% 10.87%
2,238.98 2,042.50 82.45% $18.24 82.45% 8.75% 11.65%
2,350.93 2,144.62 91.57% $19.16 91.57% 9.48% 12.40%
2,462.88 2,246.75 100.69% $20.07 100.69% 10.17% 13.11%
2,574.83 2,348.87 109.82% $20.98 109.82% 10.84% 13.80%
2,686.78 2,451.00 118.94% $21.89 118.94% 11.48% 14.46%
2,798.73 2,553.12 128.06% $22.81 128.06% 12.10% 15.09%
</TABLE>
_________________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) a constant dividend yield of 1.40% per annum, paid quarterly from
the date of initial delivery of MITTS Securities, applied to the
value of the Index at the end of each quarter assuming this value
increases or decreases linearly from the Starting Value to the
hypothetical Index value during the Calculation Period;
(b) no transaction fees or expenses;
(c) an investment term from June 26, 1998 to July 1, 2005; and
(d) a final Index value equal to the hypothetical Index value during the
Calculation Period.
(3) The Starting Value equals 1,119.49.
10
<PAGE>
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 will depend entirely on the actual Adjusted Ending
Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Index; Market Disruption Events
If at any time the method of calculating the Index, or its value, is
changed in any material respect, or if the Index is in any other way modified so
that the Index does not, in the opinion of the calculation agent, fairly
represent the value of the Index had such 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
Index as if any changes or modifications had not been made, and calculate the
closing value with reference to the Index, as adjusted. Accordingly, if the
method of calculating the Index is modified so that the value of the Index is a
fraction or a multiple of what it would have been if it had not been modified,
due to a split in the Index, then the calculation agent shall adjust the Index
in order to arrive at a value of the 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 each case, in 20% or more of the stocks
which then comprise the 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
(1) futures contracts related to the Index, or options on
futures contracts, which are traded on any major U.S.
exchange or
(2) option contracts related to the Index which are traded on
any major U.S. exchange.
For the purposes of clause (a) above, any limitations on trading during
significant market fluctuations under New York Stock Exchange 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".
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.
Discontinuance of the Index
If Standard & Poor's ("S&P") discontinues publication of the 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 Index (any
successor or substitute index is referred to as a "Successor Index"), then,
upon the calculation agent's notification of the determination to the trustee
and ML&Co., the calculation agent will substitute the Successor Index as
calculated by S&P or any other entity for the 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 S&P discontinues publication of the 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 substituted for the Index for any
11
<PAGE>
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 Index before the
discontinuance. If a Successor Index is selected or the calculation agent
calculates a value as a substitute for the Index as described below, the
Successor Index or value shall be substituted for the 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 Index,
"Index Calculation Day" shall mean any day on which the calculation agent is
able to calculate the value.
If S&P discontinues publication of the 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
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 the values to be made available by telephone.
Despite these alternative arrangements, discontinuance of the publication
of the 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 per unit, will be equal to the principal amount per
unit 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 "- 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 per unit 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
thereof, at the rate of 5.90% per annum, to the extent that payment of any
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 any amount has been made or duly provided for.
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by one
or more fully registered global securities. Each global security was deposited
with, or on behalf of, The Depository Trust Company or DTC (DTC, together with
any successor thereto, being a "depositary"), as
12
<PAGE>
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 a 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 the 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
under the 1983 Indenture, 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 any action, and the participants
would authorize beneficial owners owning through those participants to give or
take action or would otherwise act upon the instructions of beneficial owners.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC 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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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 written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership
13
<PAGE>
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 the 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 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 identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments 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 the 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
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to 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.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form will be printed and delivered.
14
<PAGE>
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
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 INDEX
S&P publishes the Index. The Index is intended to provide an indication of
the pattern of common stock price movement. The calculation of the value of the
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. S&P
chooses companies for inclusion in the 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 S&P uses as an
assumed model for the composition of the total market. Relevant criteria
employed by S&P 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. The Index is
comprised of the common stocks of companies in four main groups: Industrials,
Utilities, Transportation and Financial. S&P may from time to time, in its sole
discretion, add companies to, or delete companies from, the Index to achieve the
objectives stated above.
The Index does not reflect the payment of dividends on the stocks included
in the 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 Index
S&P currently computes the 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 S&P currently employs the above methodology to calculate the Index,
no assurance can be given that S&P 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.
15
<PAGE>
S&P adjusts the foregoing formula to offset the effects of changes in the
market value of a component stock that are determined by S&P to be arbitrary or
not due to true market fluctuations. These changes may result from causes such
as
. 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,
. consolidations and acquisitions,
. the granting to shareholders of rights to purchase other securities of
ML&Co.,
. the substitution by S&P of particular component stocks in the Index,
and
. other reasons.
In these cases, S&P 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 of that stock
or both, as the case may be, and then determines the new base value in
accordance with the following formula:
New Market Value
Old Base Value X ---------------- = New Base 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 Index.
License Agreement
S&P does not guarantee the accuracy and/or the completeness of the Index or
any data included in the Index. S&P 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 of the S&P index or any data included in
the Index in connection with the rights licensed under the license agreement
described herein or for any other use. S&P 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 Index or any data
included in the Index. Without limiting any of the above information, in no
event shall S&P have any liability for any special, punitive, indirect or
consequential damage, including lost profits, even if notified of the
possibility of these damages.
S&P 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 S&P in connection with some securities, including the MITTS
Securities, and ML&Co. is an authorized sublicensee thereof.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this prospectus:
"The MITTS Securities are not sponsored, endorsed, sold or promoted by S&P.
S&P 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
16
<PAGE>
the Index to track general stock market performance. S&P'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 S&P and of the Index which is determined,
composed and calculated by S&P without regard to ML&Co. or the MITTS Securities.
S&P 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
Index. S&P 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. S&P 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
Index, including its make-up, method of calculation and changes in its
components, are derived from publicly available information prepared by S&P.
ML&Co. and MLPF&S do not assume any responsibility for the accuracy or
completeness of this information.
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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.
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<PAGE>
"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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to all the
senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
18
<PAGE>
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
19
<PAGE>
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior 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 Treasury Department Final Regulations
(the "Final Regulations") concerning the United States Federal income tax
treatment of contingent payment debt instruments 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 and a projected
Supplemental Redemption Amount equal to $5.0390 per unit. This represents an
estimated yield on the MITTS Securities equal to 5.90% 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 a term of seven years and one day for the MITTS Securities
based upon the projected payment schedule for the MITTS Securities (including
both the projected Supplemental Redemption Amount and the estimated yield equal
to 5.90% per annum (compounded semiannually)) as determined by ML&Co. for
purposes of application of the Final Regulations to the MITTS Securities:
20
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<TABLE>
<CAPTION>
Total Interest
Deemed to
Have Accrued
on the MITTS
Interest Deemed to Securities
Accrue During as of End of
Accrual Period Accrual Period
Accrual Period (per unit) (per unit)
-------------- ---------- ----------
<S> <C> <C>
June 26, 1998 through January 1, 1999....................... $0.3057 $0.3057
January 2, 1999 through July 1, 1999........................ $0.3040 $0.6097
July 2, 1999 through January 1, 2000........................ $0.3130 $0.9227
January 2, 2000 through July 1, 2000........................ $0.3222 $1.2449
July 2, 2000 through January 1, 2001........................ $0.3317 $1.5766
January 2, 2001 through July 1, 2001........................ $0.3415 $1.9181
July 2, 2001 through January 1, 2002........................ $0.3516 $2.2697
January 2, 2002 through July 1, 2002........................ $0.3620 $2.6317
July 2, 2002 through January 1, 2003........................ $0.3726 $3.0043
January 2, 2003 through July 1, 2003........................ $0.3836 $3.3879
July 2, 2003 through January 1, 2004........................ $0.3950 $3.7829
January 2, 2004 through July 1, 2004........................ $0.4066 $4.1895
July 2, 2004 through January 1, 2005........................ $0.4186 $4.6081
January 2, 2005 through July 1, 2005........................ $0.4309 $5.0390
</TABLE>
_____________________
Projected Supplemental Redemption Amount = $5.0390 per unit.
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 information to Merrill Lynch & Co., Inc., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement of which this prospectus is a part.
21
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INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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.
22
<PAGE>
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer and sale is not permitted.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
P R O S P E C T U S
-------------------
Merrill Lynch & Co., Inc.
Merrill Lynch EuroFund Market Index Target-Term Securities(R)
due February 28, 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:
. 100% principal protection at maturity . On the maturity date, for each unit of the
. No payments before the maturity date MITTS Securities you own, we will pay you
. Senior unsecured debt securities of Merrill Lynch & Co., Inc. an amount equal to the sum of the principal
. Linked to the value of the Merrill Lynch amount of each unit and an additional amount
EuroFund, a registered mutual fund based on the percentage increase, if any, in
. The MITTS Securities are listed on the total return value of the Class B shares of the
the American Stock Exchange under the symbol . Merrill Lynch EuroFund, reduced by an
"EFM" adjustment factor of 2.6% of the EuroFund's value each
year, as described in this prospectus
. ML&Co. will pay you by delivering to you
a number of Class D shares of the Merrill Lynch
EuroFund with an equal value, based upon the
market price for Class D Shares shortly before
the stated maturity of the MITTS Securities
. You will receive no less than the principal
amount of your MITTS Securities
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these MITTS 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 , .
-----------
"MITTS" and "Market Index Target-Term Securities" are registered service marks
owned by Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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----
<S> <C>
RISK FACTORS......................................................................................................3
MERRILL LYNCH & CO., INC..........................................................................................6
RATIO OF EARNINGS TO FIXED CHARGES................................................................................7
DESCRIPTION OF THE MITTS SECURITIES...............................................................................8
THE EUROFUND INDEX...............................................................................................15
OTHER TERMS......................................................................................................16
PROJECTED PAYMENT SCHEDULE.......................................................................................20
WHERE YOU CAN FIND MORE INFORMATION..............................................................................21
INCORPORATION OF INFORMATION WE FILE WITH THE SEC................................................................21
PLAN OF DISTRIBUTION.............................................................................................22
EXPERTS..........................................................................................................22
</TABLE>
2
<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 at maturity you will receive no more than a
number of Class D shares of the EuroFund in an amount equal in value, determined
based on the market price of the Class D shares shortly before the maturity
date, to the principal amount, if these shares are available, if the average
value of the index over five trading days shortly before the maturity date is
less than 15.53. This will be true even if, at some time during the life of the
MITTS Securities, the value of the EuroFund index, as adjusted, was higher than
15.53, the value of the EuroFund Index on the date the MITTS Securities were
priced for initial sale to the public, but later falls below 15.53.
Your yield on the MITTS Securities will not equal the yield on Class B Shares or
the securities held by the EuroFund
The yield you earn on the MITTS Securities, if any, will not be the
same as the yield that you would earn if you directly owned Class B Shares of
the EuroFund. In calculating the value of the EuroFund index, the AMEX will
reduce the value of the EuroFund index by 2.6% each year. This annual reduction
will be applied on a pro rata basis each calendar day. Because of these
cumulative daily reductions, the value of the EuroFund index over time will
increasingly diverge from the actual value of the Class B Shares and their
distributions had you directly owned the Class B Shares. These reductions would
not apply if you directly owned the Class B Shares of the EuroFund.
In addition, the yield you earn on the MITTS Securities, if any, will
not be the same yield that you would earn if you directly owned the securities
held by the EuroFund. Because the EuroFund's return, as measured by the index,
is determined after deductions for annual fees and expenses and transaction
fees, the EuroFund's return, and consequently the return on the MITTS
Securities, will be less than the return you would realize if you directly owned
the securities held by the EuroFund.
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 similar 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 maturity date. Your investment may not reflect
the full opportunity cost to you when you consider inflation or other factors
that affect the time value of money.
There may be an uncertain trading market for the MITTS Securities in the future
Although the MITTS Securities are listed on the NYSE under the symbol
"EFM," you cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS Securities continues to
exist, you cannot assume that there will be liquidity in the trading market. The
continued existence of a trading market for the MITTS Securities will depend on
our financial performance and other factors including the appreciation, if any,
of the value of the index.
If a limited trading market for the MITTS Securities exists, and you do
not wish to hold your investment until maturity, fewer buyers may want to
purchase your MITTS Securities. This may affect the price you receive if you
sell before maturity.
3
<PAGE>
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
magnify 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 index. 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.
The value of the EuroFund 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 by which the value of the EuroFund index
exceeds or does not exceed 15.53. If you choose to sell your MITTS Securities
when the value of the EuroFund index exceeds 15.53 on any given date, you may
receive substantially less than the value that would be payable at maturity
based on that value of the EuroFund index because of the expectation that the
value of the EuroFund index will continue to fluctuate until shortly before the
maturity date when the average value of the index is determined. If you choose
to sell your MITTS Securities when the value of the EuroFund index is below, or
not sufficiently above, 15.53, you may receive less than the principal amount
per unit of MITTS Securities and lose a substantial portion of your investment.
Political, economic and other developments that affect the securities owned by
the EuroFund may also affect the value of the EuroFund Index and 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 the MITTS Securities at maturity, we expect that
changes in interest rates will affect the trading value of the MITTS Securities.
In general, if interest rates increase, we expect that the trading value of the
MITTS Securities will decrease, and, conversely, if interest rates decrease, we
expect the trading value of the MITTS Securities will increase.
Changes in the volatility of the index are expected to affect the
trading value of the MITTS Securities. Volatility is the term used to describe
the size and frequency of market fluctuations. Generally, if the volatility of
the EuroFund index increases, we expect that the trading value of the MITTS
Securities will increase. If the volatility of the EuroFund 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. The MITTS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the EuroFund index. This difference would reflect a
"time premium" due to expectations concerning the value of the EuroFund index
during the period before February 28, 2006, the stated maturity of the MITTS
Securities. However, as the time remaining to maturity of the MITTS Securities
decreases, we expect that this time premium will decrease, lowering the trading
value of the MITTS Securities.
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 index at maturity, an improvement in our credit ratings will
not reduce 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, except that we expect that the effect on the trading value of the
MITTS Securities of a given increase or decrease in
4
<PAGE>
the EuroFund 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.
No shareholder's rights
You will not be entitled to any rights with respect to any shares of
the EuroFund, including, without limitation, voting rights and rights to receive
any dividends or distributions on the shares, until we deliver Class D Shares at
the maturity of the MITTS Securities. For example, if the EuroFund sets a record
date for a matter to be voted on by holders of Class D Shares prior to our
delivery of Class D Shares to you, you will not be entitled to vote on that
matter. You should be aware that if Class D Shares of the EuroFund are not
available for sale to new investors immediately prior to the stated maturity
date, we will pay you the amounts due to you for your MITTS Securities in cash
instead of delivering Class D Shares on the stated maturity date.
Amounts payable on the MITTS Securities may be limited by state law
New York State laws govern the indenture under which the MITTS
Securities are 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 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 affiliates may from time to time buy or sell shares of the
EuroFund or shares of the companies in which the EuroFund invests, for our own
accounts, for business reasons or in connection with hedging our obligations
under the MITTS Securities. These transactions could affect the EuroFund index
in a manner that would be adverse to your investment in the MITTS Securities.
Potential conflicts of interest
Our subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated or
MLPF&S, is our agent for the purposes of calculating the value of the index and
the amount payable to you at maturity. In some 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 its determination as to whether the
value of the 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 index. See "Description of the MITTS Securities--
Adjustments to the Index; Market Disruption Events" and "--Discontinuance of the
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.
5
<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 LP and Mercury Asset Management Ltd,
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;
o brokerage and related activities in 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;
o insurance sales and underwriting services; and
o investment advisory and related recordkeeping 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 4 World Financial Center,
New York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
7
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On September 3, 1998, ML&Co. issued an aggregate principal amount of
$77,000,000 or 7,700,000 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 February 28, 2006.
While at maturity a beneficial owner of a MITTS Security will receive,
if available, the number of Class D Shares of the EuroFund equal in value,
determined based on the Maturity NAV, to 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 "--Delivery at Maturity".
The MITTS Securities are not subject to redemption by ML&Co. or at the
option of any beneficial owner before maturity. Upon the occurrence of an Event
of Default 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.
The MITTS Securities were issued in denominations of whole units.
Delivery at Maturity
At maturity, a beneficial owner of a MITTS Security will be entitled to
receive the number of Class D Shares of the EuroFund equal in value, determined
based on the Maturity NAV, to the principal amount of each MITTS Security plus
the Supplemental Redemption Amount, if any, all as provided below. The number of
Class D Shares delivered by ML&Co. will be rounded to the nearest one-thousandth
of a share. If the Ending Index Value does not exceed the Starting Index Value,
a beneficial owner of a MITTS Security will be entitled to receive only the
number of Class D Shares of the EuroFund equal in value to the principal amount
of each MITTS Security, determined based on the Maturity NAV.
"Maturity NAV" shall mean the net asset value for the Class D Shares of
the EuroFund as calculated by the EuroFund on the first Calculation Day during
the Calculation Period; provided, however, if no Calculation Days occur during
the Calculation Period because of Market Disruption Events, then Maturity NAV
shall mean the net asset value for the Class D Shares of the EuroFund as
calculated by the EuroFund on the last scheduled Index Business Day in the
Calculation Period regardless of the occurrence of a Market Disruption Event on
that day.
Notwithstanding the foregoing, if the EuroFund is not issuing Class D
Shares to new investors in the EuroFund on the date Maturity NAV is to be
determined, ML&Co. may, in lieu of delivering Class D Shares of the EuroFund,
pay cash in an amount equal to the sum of the principal amount of the MITTS
Securities and the Supplemental Redemption Amount, if any.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<CAPTION>
<S> <C> <C>
Principal amount of each MITTS Security ($10 per unit) X (Ending Index Value - Starting Index Value)
(-----------------------------------------)
( Starting Index Value )
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
8
<PAGE>
The "Starting Index Value" equals 15.53, which was the value of the
EuroFund Index on the date the MITTS Securities were initially priced for sale
to the public (the "Pricing Date"). The value of the EuroFund Index on the
Pricing Date was set to match the net asset value of Class B Shares of the
EuroFund on the Pricing Date.
The "Ending Index Value" will be determined by the calculation agent
and will the equal the closing value of the EuroFund Index determined on the
first Calculation Day during the Calculation Period. If no Calculation Days
occur during the Calculation Period because of Market Disruption Events, then
the Ending Index Value will equal the closing value of the EuroFund 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 "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.
"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 AMEX calculates and publishes the EuroFund Index.
"Market Disruption Event" means the EuroFund
o is unable or otherwise fails to issue a net asset value for any
series of shares of the EuroFund after the close of business on the
NYSE but before 11:00 p.m., New York City time on the same day or
o suspends redemption of shares of the EuroFund.
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.
9
<PAGE>
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending
Values:
o the Ending Index Value used to calculate the Supplemental
Redemption Amount;
o the percentage change from the Starting Index Value to the Ending
Index Value;
o the total value of Class D Shares deliverable at maturity for each
$10 principal amount of MITTS Securities;
o the total rate of return to beneficial owners of the MITTS
Securities;
o the pretax annualized rate of return on the MITTS Securities; and
o the pretax annualized rate of return of class B Shares.
<TABLE>
<CAPTION>
Total Value of
Class D Shares
Percentage Change Deliverable at Pretax Pretax
of Ending Index Maturity per $10 Total Rate of Annualized Rate Annualized Rate
Hypthetical Value Principal Amount Return on the of Return on the of Return of
Ending Index Over the Starting of MITTS MITTS MITTS Class B
Value Index Value Securities Securities Securities(1) Shares(1)(2)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3.11 -80.00% $10.00 0.00% 0.00% -18.02%
6.21 -60.00% $10.00 0.00% 0.00% -9.40%
9.32 -40.00% $10.00 0.00% 0.00% -4.17%
12.42 -20.00% $10.00 0.00% 0.00% -0.38%
15.53(3) 0.00% $10.00 0.00% 0.00% 2.62%
18.64 20.00% $12.00 20.00% 2.45% 5.10%
21.74 40.00% $14.00 40.00% 4.54% 7.22%
24.85 60.00% $16.00 60.00% 6.37% 9.07%
27.95 80.00% $18.00 80.00% 8.00% 10.72%
31.06 100.00% $20.00 100.00% 9.47% 12.21%
34.17 120.00% $22.00 120.00% 10.80% 13.56%
37.27 140.00% $24.00 140.00% 12.03% 14.81%
40.38 160.00% $26.00 160.00% 13.17% 15.96%
43.48 180.00% $28.00 180.00% 14.22% 17.03%
46.59 200.00% $30.00 200.00% 15.21% 18.03%
</TABLE>
-------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) an initial investment of a fixed amount in the Series B Shares of
the EuroFund;
(b) a reinvestment of all cash dividends and distributions in the
Series B Shares of the EuroFund;
(c) no transaction fees or expenses;
(d) an investment term from September 3, 1998 to February 28, 2006; and (e)
a final EuroFund Index value equal to the Ending Index Value.
(3) This is the Starting Index Value.
The above figures are for purposes of illustration only. The actual
investment term, Supplemental Redemption Amount received by investors, and the
resulting total and pretax annualized rate of return will
10
<PAGE>
depend entirely on the Starting Index Value and the actual Ending Index Value
determined by the calculation agent as provided in this prospectus.
Adjustments to the EuroFund Index
If at any time the AMEX changes the method of calculating the EuroFund
Index, or the index's value changes, in any material respect, or if the EuroFund
Index is in any other way modified so that the EuroFund Index does not, in the
opinion of the calculation agent, fairly represent the value of the EuroFund
Index had the 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 Ending Index 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 an index comparable to the EuroFund Index as if any changes or
modifications had not been made, and calculate the closing value with reference
to the EuroFund Index, as adjusted. Accordingly, if the method of calculating
the EuroFund Index is modified so that the value of the EuroFund 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 EuroFund Index, then the calculation agent
shall adjust the EuroFund Index in order to arrive at a value of the EuroFund
Index as if it had not been modified, for example, as if the split had not
occurred.
Discontinuance of the EuroFund Index
If the AMEX discontinues publication of the EuroFund Index and the AMEX
or another entity publishes a successor or substitute index that the calculation
agent determines, in its sole discretion, to be comparable to the EuroFund Index
(a "Successor Index") then, upon the calculation agent's notification of its
determination to the Trustee and ML&Co., the calculation agent will substitute
the Successor Index as calculated by the AMEX or any other entity for the
EuroFund Index and calculate the Ending Index Value as described above under
"Delivery 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.
If the AMEX discontinues publication of the EuroFund 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 substituted for the
EuroFund 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 EuroFund Index before any discontinuance. If a Successor Index is
selected or the calculation agent calculates a value as a substitute for the
EuroFund Index as described below, the Successor Index or value shall be
substituted for the EuroFund Index for all purposes, including for purposes of
determining whether a Market Disruption Event exists.
If the AMEX discontinues publication of the 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 Adjusted Ending Value and
o 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
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.
11
<PAGE>
Notwithstanding these alternative arrangements, discontinuance of the
publication of the 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 of a MITTS Security, 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 "Delivery 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 were the maturity date of the MITTS Securities.
In case of default in payment at the maturity date of the MITTS
Securities, whether at their 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 5.97% per annum, to the extent
that payment of any 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 any amount has been made or duly provided for.
Global Securities
Description of the Global Securities.
Beneficial owners of the MITTS Securities may not receive physical
delivery of the MITTS Securities nor may they be entitled to have the MITTS
Securities registered in their names. The MITTS Securities currently are
represented by one or more fully registered global securities. Each global
security was deposited with, or on behalf of, The Depository Trust Company or
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 a 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 the 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 under the 1983 Indenture, 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 any action, and the participants would authorize beneficial owners owning
through those participants to give or take action or would otherwise act upon
the instructions of beneficial owners. Conveyance of notices and other
communications by DTC to participants, by participants to indirect participants
and by participants and indirect participants to beneficial owners will be
governed by
12
<PAGE>
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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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 written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the direct participants or indirect participants through which
the beneficial owner entered into the transaction. Transfers of ownership
interests in 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 the 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 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 identified in a listing
attached to the omnibus proxy.
13
<PAGE>
Principal, premium, if any, and/or interest, if any, payments 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 the 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 payments to direct participants is the responsibility of DTC,
and disbursement of payments to the beneficial owners is the responsibility of
direct 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.
In addition, ML&Co. may decide to discontinue use of the system of
book-entry transfers through the depositary. In that event, MITTS Securities in
definitive form 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
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.
14
<PAGE>
THE EUROFUND INDEX
Calculation of the EuroFund Index
The AMEX has set the starting value of the EuroFund Index to equal the
net asset value of one Class B Share of the EuroFund on the Pricing Date.
Thereafter, the AMEX will calculate the value of the EuroFund Index on any day
by multiplying the current Index Share Multiplier by the most recent net asset
value per Class B Share announced by the EuroFund. For purposes of this
calculation, any declared but unpaid Cash Distribution ,as defined below, will
be added back and included in the "net asset value" of the EuroFund from and
including the ex-dividend date related to any Cash Distribution to but excluding
the date that any Cash Distribution is paid to holders of the Class B Shares.
The value of the EuroFund Index is reported on the AMEX and Bloomberg
under the symbol "EFI" and on the Reuters under the symbol ".EFI".
Calculation of the Index Share Multiplier
The Index Share Multiplier shall initially be set to one, representing
one Class B Share of the EuroFund. If the EuroFund distributes any cash
dividends or distributions of any character to holders of the Class B Shares (a
"Cash Distribution"), then the Index Share Multiplier shall be increased by a
percentage of Class B Shares equal to the Cash Distribution divided by the net
asset value for Class B Shares calculated by the EuroFund on the date that any
Cash Distribution is paid to holders of Class B Shares. If a Market Disruption
Event has occurred on the day any Cash Distribution is paid, the adjustment to
the Index Share Multiplier shall be postponed until the next succeeding Index
Business Day on which a Market Disruption Event has not occurred. The Index
Share Multiplier shall also be adjusted by the AMEX to reflect certain stock
splits, reverse stock splits or share dividends that may occur with respect to
the Class B Shares.
Each calendar day, the AMEX shall reduce the value of the EuroFund
Index by a percentage equal to 2.6% divided by 365 and reset the Index Share
Multiplier so that the product of the net asset value and the revised Index
Share Multiplier equals the value of the EuroFund Index so reduced. If a Market
Disruption Event occurs on any day on which the EuroFund Index value is to be
determined, then the foregoing adjustment to the Index Share Multiplier shall
occur on the next succeeding Index Business Day on which a Market Disruption
Event has not occurred.
The EuroFund
ML&Co. has attached the fund prospectus describing the EuroFund and is
delivering it to purchasers of the MITTS Securities together with this
prospectus of ML&Co. for the convenience of reference only. The fund prospectus
does not constitute a part of this prospectus of ML&Co., nor is it incorporated
by reference in this prospectus of ML&Co. The summary description below is
qualified in its entirety by the information describing EuroFund and the
EuroFund Index included in the attached fund prospectus.
The EuroFund has stated that its investment objectives are to seek
capital appreciation primarily through investment in equities of corporations
domiciled in European countries. Current income from dividends and interest will
not be an important consideration in selecting portfolio securities. The
EuroFund has stated that it anticipates that under normal market conditions at
least 80% of its net assets will consist of European corporate securities,
primarily common stocks and securities convertible into common stock.
The EuroFund is a diversified, open-end management investment company
under the Investment Company Act.
The EuroFund has publicly disclosed its intention to distribute all of
its net investment income, if any. The EuroFund has indicated that dividends
from the net investment income are paid at least annually and all net realized
capital gains, if any, are distributed to the shareholders of the EuroFund
annually.
The EuroFund is subject to the registration requirements of the
Securities Act and the Investment Company Act. Accordingly, the EuroFund files
prospectuses, statements of additional information, reports, proxy and other
information statements and other information with the SEC. ML&Co. makes no
representation or warranty as to the accuracy or completeness of that
information.
15
<PAGE>
The foregoing summary of the policies of the EuroFund reflect certain
investment restrictions which are subject to change by shareholders of the
EuroFund at any time.
The EuroFund is managed by Merrill Lynch Asset Management, L.P., an
affiliate of ML&Co. The EuroFund itself is governed by an independent board of
directors.
The EuroFund has no obligations with respect to the MITTS Securities.
This prospectus relates only to the MITTS Securities offered hereby and does not
relate to the Class B or Class D shares of the EuroFund. The information
contained in this prospectus regarding the EuroFund has been derived from the
publicly available documents described above. ML&Co. has not participated in the
preparation of these documents or made any due diligence inquiries with respect
to the EuroFund in connection with the offering of the MITTS Securities. ML&Co.
makes no representation that these publicly available documents or any other
publicly available information regarding the EuroFund are accurate or complete.
Furthermore, there can be no assurance that all events occurring prior to the
date of this prospectus, including events that would affect the accuracy or
completeness of the publicly available documents described in the preceding
paragraph, that would affect the EuroFund index, and therefore the trading price
of the MITTS securities, have been publicly disclosed. Subsequent disclosure of
any events or the disclosure of or failure to disclose material future events
concerning the EuroFund could affect the supplemental redemption amount to be
received at the stated maturity date and therefore the trading value of the
MITTS Securities.
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time
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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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.
16
<PAGE>
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 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 senior debt securities affected. However,
17
<PAGE>
without the consent of each holder of any outstanding senior debt security
affected, no amendment or modification to the 1983 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under
"--Events of Default".
Events of Default
Each of the following will be Events 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
18
<PAGE>
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 senior debt securities of that series 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 the 1983 Indenture
which cannot be modified under the terms of that Indenture without
the consent of each holder of each outstanding security of each
series of senior 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.
19
<PAGE>
PROJECTED PAYMENT SCHEDULE
Solely for purposes of applying the final Treasury Department
Regulations (the "Final Regulations") concerning the United States Federal
income tax treatment of contingent payment debt instruments 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 and a projected Supplemental Redemption Amount equal to $5.5344 per unit,
the "Projected Supplemental Redemption Amount". This represents an estimated
yield on the MITTS Securities equal to 5.97% per annum (compounded
semiannually).
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 a term of seven years and six months for the MITTS
Securities based upon the projected payment schedule for the MITTS Securities,
including both the Projected Supplemental Redemption Amount and the estimated
yield equal to 5.97% per annum, compounded semiannually, as determined by ML&Co.
for purposes of applying the Final Regulations to the MITTS Securities:
<TABLE>
<CAPTION>
Total Interest Deemed
Interest Deemed to to Have Accrued on
Accrue During MITTS Securities as of
Accrual Period End of Accrual Period
Accrual Period (per unit) (per unit)
-------------- -------------------- --------------------------
<S> <C> <C>
September 3, 1998 through February 28, 1999................... $0.2910 $0.2910
March 1, 1999 through August 28, 1999......................... $0.3072 $0.5982
August 29, 1999 through February 28, 2000..................... $0.3164 $0.9146
February 29, 2000 through August 28, 2000..................... $0.3258 $1.2404
August 29, 2000 through February 28, 2001..................... $0.3355 $1.5759
March 1, 2001 through August 28, 2001......................... $0.3455 $1.9214
August 29, 2001 through February 28, 2002..................... $0.3559 $2.2773
March 1, 2002 through August 28, 2002......................... $0.3665 $2.6438
August 29, 2002 through February 28, 2003..................... $0.3774 $3.0212
March 1, 2003 through August 28, 2003......................... $0.3887 $3.4099
August 29, 2003 through February 28, 2004..................... $0.4003 $3.8102
February 29, 2004 through August 28, 2004..................... $0.4122 $4.2224
August 29, 2004 through February 28, 2005..................... $0.4245 $4.6469
March 1, 2005 through August 28, 2005......................... $0.4372 $5.0841
August 29, 2005 through February 28, 2006..................... $0.4503 $5.5344
</TABLE>
---------
Projected Supplemental Redemption Amount = $5.5344 per unit.
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 this 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.
20
<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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain
all the information that you may find important, you should review the full text
of these documents. We have included copies of these documents as exhibits to
our registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to
those documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31,
2000, June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3,
2000, March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000,
June 29, 2000, July 18, 2000, August 2, 2000, August 4, 2000,
September 13, 2000, October 6, 2000, October 17, 2000, November
1, 2000, November 20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14
of the Exchange Act in connection with any subsequent
stockholders' meeting; and
. 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
21
<PAGE>
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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year
ended December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
22
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may sell these securities until the registration statement filed with the +
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
<TABLE>
<S> <C>
PROSPECTUS [LOGO] Merrill Lynch
----------
PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
</TABLE>
Merrill Lynch & Co., Inc.
S&P 500(R) Market Index Target-Term Securities(R)
due September 28, 2005
"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>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the S&P 500 Index. any, in the value of the index, adjusted as described
. The MITTS Securities are listed on the New York in this prospectus.
Stock Exchange under the symbol "MIJ". . You will receive no less than the principal amount
of the MITTS Securities.
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , .
____________
"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 ML&Co. is an authorized sublicensee.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS............................................................. 3
MERRILL LYNCH & CO., INC................................................. 6
RATIO OF EARNINGS TO FIXED CHARGES....................................... 7
DESCRIPTION OF THE MITTS SECURITIES...................................... 8
THE INDEX................................................................ 14
OTHER TERMS.............................................................. 16
PROJECTED PAYMENT SCHEDULE............................................... 20
WHERE YOU CAN FIND MORE INFORMATION...................................... 21
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........................ 21
PLAN OF DISTRIBUTION..................................................... 22
EXPERTS.................................................................. 22
</TABLE>
2
<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 at maturity we will pay you no more than $10 for
each unit of the MITTS Securities you own if the average value of the index over
five trading days shortly before the maturity date is less than 1,066.09, the
value of the index on the date the MITTS Securities were priced. This will be
true even if at some time during the life of the MITTS Securities, the value of
the index, as adjusted, was higher than 1,066.09 but later falls below 1,066.09.
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 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 underlying the
Index
Your return will not reflect the return you would realize if you actually
owned the stocks underlying the index and received the dividends paid on those
stocks because of the reduction caused by the adjustment factor described in
this prospectus and because the index is calculated by reference to the prices
of the common stocks included in the 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
Although the MITTS Securities are listed on the NYSE under the symbol
"MIJ", you cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS Securities continues to
exist, you cannot assume that there will be liquidity in the trading
market. The continued existence of a trading market for the MITTS Securities
will depend on our financial performance and other factors such as the
appreciation, if any, of the value of the index.
If the trading market for the MITTS Securities is limited and you do not
wish to hold your investment until maturity, there may be a limited number of
buyers for your MITTS Securities. This may affect the price you receive if you
sell before maturity.
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
magnify 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 index. 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.
3
<PAGE>
The value of the 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 by which the index, as reduced by the adjustment
factor, exceeds 1,066.09. If you choose to sell your MITTS Securities when the
value of the index, as reduced by the adjustment factor, exceeds 1,066.09, you
may receive substantially less than the amount that would be payable at maturity
based on this value because of the expectation that the index will continue to
fluctuate until shortly before the maturity date when the average value of the
index is determined. If you choose to sell your MITTS Securities when the value
of the index is below 1,066.09, you may receive less than the $10 principal
amount per unit of MITTS Securities. In general, rising U.S. dividend rates, or
dividends per share, may increase the value of the index while falling U.S.
dividend rates may decrease the value of the index. Political, economic and
other developments that affect the stocks underlying the index may also affect
the value of the index and the value of the MITTS Securities.
Changes in the levels of U.S. 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 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
index. Rising interest rates may lower the value of the index and, thus, the
MITTS Securities. Falling interest rates may increase the value of the index
and, thus, may increase the value of the MITTS Securities.
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. Volatility is the term used to describe the size
and frequency of market fluctuations. Generally, if the volatility of the index
increases, we expect that the trading value of the MITTS Securities will
increase. If the volatility of the 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. The MITTS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the index. This difference will reflect a "time
premium" due to expectations concerning the value of the index during the period
prior to 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 index are expected
to affect the trading value of the MITTS Securities. If dividend yields on the
stocks included in the index increase, we expect that the value of the MITTS
Securities will decrease. Conversely, if dividend yields on the stock comprising
the index 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 index at maturity, an improvement in our
credit ratings will not reduce 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 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 senior indenture under which the MITTS
Securities were issued. New York has usury laws that limit the amount of
interest that can be charged and paid on loans, which
4
<PAGE>
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 affiliates may from time to time buy or sell the stocks
underlying the 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 index in a manner
that would be adverse to your investment in the MITTS Securities.
Potential conflicts of interest
Our subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated or
MLPF&S, is our agent for the purposes of calculating the value of the index and
the amount payable to you at maturity. In some 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 its determination as to whether the
value of the 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 index. See "Description of the MITTS Securities--
Adjustments to the Index; Market Disruption Events" and "--Discontinuance of the
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 a 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.
5
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
7
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On September 29, 1998, ML&Co. issued $82,000,000 aggregate principal amount
of S&P 500 MITTS Securities due September 28, 2005. 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 September 28, 2005.
While at maturity ML&Co. will pay a beneficial owner of a MITTS Security
the principal amount of each MITTS Security plus the Supplemental Redemption
Amount described below, if any, ML&Co. will make 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. Upon the occurrence of an Event
of Default 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.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, ML&Co. will pay a beneficial owner of a MITTS
Security the principal amount of each unit plus the Supplemental Redemption
Amount, if any, all as provided below. If the Adjusted Ending Value does not
exceed the Starting Value, ML&Co. will pay a beneficial owner of a MITTS
Security only the principal amount of its MITTS Securities.
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 each 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 1,066.09.
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 (the "Index") as adjusted by the Adjustment Factor (the "Adjusted Index
Value") 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 Adjusted Index Value on these Calculation Days. If there is only
one Calculation Day, then the Adjusted Ending Value will equal the closing value
of the Adjusted Index Value 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 Adjusted Index Value 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 "Adjustment Factor" equals 1.9% per annum 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 Index. As a result of the application of the Adjustment
Factor, the adjusted value of the Index used to calculate your Supplemental
Redemption Amount at the stated maturity of the MITTS Securities will be
approximately 12.48% less than the actual Index value on any day during the
Calculation Period.
8
<PAGE>
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.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
For purposes of determining the Adjusted Ending Value, an "Index Business
Day" is a day on which the NYSE and the AMEX are open for trading and the Index
or any Successor Index, as defined on page 10 below, 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.
Hypothetical Returns
The following table illustrates, for a range of hypothetical values of the
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 underlying the
Index, which includes an assumed aggregate dividend yield of
1.49% per annum, as more fully described below.
<TABLE>
<CAPTION>
Pretax
Adjusted Ending Total Amount Annualized Pretax Annualized
Hypothetical Index Value Percentage Payable at Maturity Total Rate of Rate of Rate of Return of
Value During the Adjusted Change Over the per unit of Return on the Return on the Stocks Underlying
Calculation Period Ending Value Starting Value MITTS Securities MITTS Securities MITTS Securities(1) the Index(1)(2)
------------------ ------------ -------------- ---------------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
533.05 466.49 -56.24% $10.00 0.00% 0.00% -8.16%
639.65 559.79 -47.49% $10.00 0.00% 0.00% -5.68%
746.26 653.09 -38.74% $10.00 0.00% 0.00% -3.55%
852.87 746.39 -29.99% $10.00 0.00% 0.00% -1.68%
959.48 839.68 -21.24% $10.00 0.00% 0.00% -0.02%
1,066.09(3) 932.98 -12.49% $10.00 0.00% 0.00% 1.49%
1,172.70 1,026.28 -3.73% $10.00 0.00% 0.00% 2.86%
1,279.31 1,119.58 5.02% $10.50 5.02% 0.70% 4.13%
1,385.92 1,212.88 13.77% $11.38 13.77% 1.85% 5.30%
1,492.53 1,306.17 22.52% $12.25 22.52% 2.91% 6.39%
1,599.14 1,399.47 31.27% $13.13 31.27% 3.91% 7.41%
1,705.74 1,492.77 40.02% $14.00 40.02% 4.85% 8.38%
1,812.35 1,586.07 48.77% $14.88 48.77% 5.74% 9.29%
1,918.96 1,679.37 57.53% $15.75 57.53% 6.58% 10.15%
2,025.57 1,772.66 66.28% $16.63 66.28% 7.38% 10.97%
2,132.18 1,865.96 75.03% $17.50 75.03% 8.14% 11.75%
2,238.79 1,959.26 83.78% $18.38 83.78% 8.86% 12.50%
2,345.40 2,052.56 92.53% $19.25 92.53% 9.55% 13.21%
2,452.01 2,145.86 101.28% $20.13 101.28% 10.22% 13.90%
2,558.62 2,239.16 110.03% $21.00 110.03% 10.86% 14.56%
2,665.23 2,332.45 118.79% $21.88 118.79% 11.47% 15.19%
</TABLE>
______________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) a constant dividend yield of 1.49% per annum, paid quarterly from
the date of initial delivery of MITTS Securities, applied to the
value of the Index at the end of each quarter
9
<PAGE>
assuming this value increases or decreases linearly from the
Starting Value to the hypothetical Index value during the
Calculation Period;
(b) no transaction fees or expenses;
(c) an investment term from September 23, 1998 to September 28, 2005;
and
(d) a final Index value equal to the hypothetical Index value during
the Calculation Period.
(3) The Starting Value equals 1,066.09.
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 will depend entirely on the actual Adjusted Ending
Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Index; Market Disruption Events
If at any time the method of calculating the Index, or its value, is
changed in any material respect, or if the Index is in any other way modified so
that the Index does not, in the opinion of the calculation agent, fairly
represent the value of the Index had any 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 Index as
if any changes or modifications had not been made, and calculate the closing
value with reference to the Index, as adjusted. Accordingly, if the method of
calculating the Index is modified so that the value of the Index is a fraction
or a multiple of what it would have been if it had not been modified, due to a
split in the Index, then the calculation agent shall adjust the Index in order
to arrive at a value of the 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 each case, in 20% or more of the stocks
which then comprise the 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
(1) futures contracts related to the Index, or options on futures
contracts, which are traded on any major U.S. exchange or
(2) option contracts related to the Index which are traded on any
major U.S. exchange.
For the purposes of clause (a) above, any limitations on trading during
significant market fluctuations under New York Stock Exchange 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".
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.
Discontinuance of the Index
If S&P discontinues publication of the 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 Index (any successor or
substitute index is referred to as a "Successor Index"), then, upon the
calculation agent's notification of the determination to the trustee and ML&Co.,
the calculation agent will substitute the Successor
10
<PAGE>
Index as calculated by S&P or any other entity for the 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 S&P discontinues publication of the 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 substituted for the 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 Index before the discontinuance.
If a Successor Index is selected or the calculation agent calculates a value as
a substitute for the Index as described below, the Successor Index or value
shall be substituted for the 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 Index, "Index Calculation Day"
shall mean any day on which the calculation agent is able to calculate the
value.
If S&P discontinues publication of the 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
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 the values to be made available by telephone.
Despite these alternative arrangements, discontinuance of the publication
of the 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 per unit, will be equal to the principal amount per
unit 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 "- 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 per unit 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
thereof, at the rate of 5.78% per annum, to the extent that payment of any
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 any amount has been made or duly provided for.
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by one
or more fully registered global securities. Each global security was deposited
with, or on behalf of, The Depository Trust Company or DTC (DTC, together with
any successor thereto, being a "depositary"), as depositary, registered in the
name of Cede & Co. (DTC's partnership nominee).
11
<PAGE>
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 a 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 the 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
under the 1983 Indenture, 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 any action, and the participants
would authorize beneficial owners owning through those participants to give or
take action or would otherwise act upon the instructions of beneficial owners.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC 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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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 written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into
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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 the 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 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 identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments 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 the 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
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to
the effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to 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.
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In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form 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
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 INDEX
Standard & Poor's publishes the Index. The Index is intended to provide an
indication of the pattern of common stock price movement. The calculation of
the value of the 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. Standard & Poor's chooses companies for inclusion in
the 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. The Index is comprised of
the common stocks of companies in four main groups: Industrials, Utilities,
Transportation and Financial. Standard & Poor's may from time to time, in its
sole discretion, add companies to, or delete companies from, the Index to
achieve the objectives stated above.
The Index does not reflect the payment of dividends on the stocks included
in the 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 Index
Standard & Poor's currently computes the 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.
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While Standard & Poor's currently employs the above methodology to
calculate the 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. These changes
may result from causes such as
. 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,
. 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 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
of that stock or both, as the case may be, and then determines the new base
value in accordance with the following formula:
New Market Value
Old Base Value X ---------------- = New Base 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 Index.
License Agreement
Standard & Poor's ("S&P") does not guarantee the accuracy and/or the
completeness of the Index or any data included in the Index. S&P 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 of
the S&P Index or any data included in the Index in connection with the rights
licensed under the license agreement described in this prospectus or for any
other use. S&P 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 Index or any data included in the Index. Without
limiting any of the information above, in no event shall S&P have any liability
for any special, punitive, indirect or consequential damage, including lost
profits, even if notified of the possibility of these damages.
S&P 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 S&P in connection with particular securities, including the MITTS
Securities, and ML&Co. is an authorized sublicensee thereof.
The license agreement between S&P and Merrill Lynch Capital Services, Inc.
provides that the following language must be stated in this prospectus:
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<PAGE>
"The MITTS Securities are not sponsored, endorsed, sold or promoted by S&P.
S&P 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 Index to track general stock market performance. S&P'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 S&P and of the Index which is
determined, composed and calculated by S&P without regard to ML&Co. or the MITTS
Securities. S&P 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 Index. S&P 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. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the MITTS Securities."
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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
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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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
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. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
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<PAGE>
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior 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.
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PROJECTED PAYMENT SCHEDULE
Solely for purposes of applying the final Treasury Department Regulations
(the "Final Regulations") concerning the United States Federal income tax
treatment of contingent payment debt instruments 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 and a projected
Supplemental Redemption Amount equal to $4.8955 per unit (the ``Projected
Supplemental Redemption Amount''). This represents an estimated yield on the
MITTS Securities equal to 5.78% 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, 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 the projected
payment schedule for the MITTS Securities (including both the Projected
Supplemental Redemption Amount and the estimated yield equal to 5.78% per annum
(compounded semiannually)) as determined by ML&Co. for purposes of applying the
Final Regulations to the MITTS Securities:
<TABLE>
<CAPTION>
Total Interest
Deemed to
Have Accrued
On the MITTS
Interest Deemed to Securities
Accrue During as of End of
Accrual Period Accrual Period
Accrual Period (per unit) (per unit)
-------------- --------- ----------
<S> <C> <C>
September 29, 1998 through March 28, 1999....................... $0.2850 $0.2850
March 29, 1999 through September 28, 1999....................... $0.2972 $0.5822
September 29, 1999 through March 28, 2000....................... $0.3058 $0.8880
March 29, 2000 through September 28, 2000....................... $0.3147 $1.2027
September 29, 2000 through March 28, 2001....................... $0.3238 $1.5265
March 29, 2001 through September 28, 2001....................... $0.3331 $1.8596
September 29, 2001 through March 28, 2002....................... $0.3427 $2.2023
March 29, 2002 through September 28, 2002....................... $0.3527 $2.5550
September 29, 2002 through March 28, 2003....................... $0.3628 $2.9178
March 29, 2003 through September 28, 2003....................... $0.3733 $3.2911
September 29, 2003 through March 28, 2004....................... $0.3842 $3.6753
March 29, 2004 through September 28, 2004....................... $0.3952 $4.0705
September 29, 2004 through March 28, 2005....................... $0.4066 $4.4771
March 29, 2005 through September 28, 2005....................... $0.4184 $4.8955
</TABLE>
____________
Projected Supplemental Redemption Amount = $4.8955 per unit.
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 the information to Merrill Lynch & Co., Inc., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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.
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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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 NYSE 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
22
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with the+
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy these+
+ securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
Merrill Lynch & Co., Inc.
Nikkei 225 Market Index Target-Term Securities(R)
due September 21, 2005
"MITTS(R) Securities"
$10 principal amount per unit
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
our wholly-owned subsidiary, will use this prospectus when making offers and
sales related to market-making transactions in the following securities.
<TABLE>
<CAPTION>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on any percentage increase in
. Linked to the value of the Nikkei 225 Index that the value of the index as described in this prospectus.
measures the composite price performance of selected . You will receive no less than the principal amount
Japanese stocks. of the MITTS Securities.
. The MITTS Securities are listed on the American
Stock Exchange under the symbol "MLN".
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 3.
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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
owned by Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS............................................................... 3
MERRILL LYNCH & CO., INC................................................... 7
RATIO OF EARNINGS TO FIXED CHARGES......................................... 8
DESCRIPTION OF THE MITTS SECURITIES........................................ 9
THE NIKKEI 225 INDEX....................................................... 15
OTHER TERMS................................................................ 18
PROJECTED PAYMENT SCHEDULE................................................. 21
WHERE YOU CAN FIND MORE INFORMATION........................................ 22
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.......................... 22
PLAN OF DISTRIBUTION....................................................... 23
EXPERTS.................................................................... 23
</TABLE>
2
<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 at maturity we will pay you no more than $10 for
each unit of the MITTS Securities you own if the average value of the index over
five trading days shortly before the maturity date is less than 14,152.95, the
value of the index on the date the MITTS Securities were priced. This will be
true even if, at some time during the life of the MITTS Securities, the value of
the index was higher than 14,152.95 but later falls below 14,152.95.
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
Index
Your return will not reflect the return you would realize if you actually
owned the stocks underlying the index and received the dividends paid on those
stocks. This is because the value of the index is calculated by reference to the
prices of the common stocks included in the index without taking into
consideration the value of dividends paid on those stocks.
Your return may be affected by currency exchange rates
Although the stocks included in the 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 index. Changes in the currency exchange rate,
however, may reflect changes in the Japanese economy that may affect the value
of the index and the MITTS Securities.
Your return may be affected by factors affecting the value of Japanese stocks
Because the underlying stocks included in the index have been issued by
Japanese companies, the return on your MITTS Securities will be affected by
risks relating to an investment in Japanese equity securities. 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 U.S. Securities and Exchange Commission, 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. In addition, recent or future changes in
the Japanese government's economic and fiscal policies, the
3
<PAGE>
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 fluctuations in the rate of exchange between currencies
may negatively affect the Japanese securities markets. Moreover, the Japanese
economy may differ favorably or unfavorably from the U.S. economy in economic
factors such as growth in gross national product, rates of inflation, capital
reinvestment, resources and self-sufficiency.
There may be an uncertain trading market for the MITTS Securities in the future
Although the MITTS Securities are listed on the AMEX under the symbol
"MLN," you cannot assume that a trading market will continue to exist for the
MITTS Securities. If a trading market in the MITTS Securities continues to
exist, you cannot assume that there will be liquidity in the trading market. The
continued existence of a trading market for the MITTS Securities will depend on
our financial performance and other factors such as the appreciation, if any, of
the value of the index.
If the trading market for the MITTS Securities is limited and you do not
wish to hold your investment until maturity, there may be a limited number of
buyers for your MITTS Securities. This may affect the price you receive if you
sell before maturity.
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
magnify 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 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 index is expected to affect the trading value of the MITTS
Securities. The trading value of the MITTS Securities will depend substantially
on the amount by which the value of the index exceeds or does not exceed
14,152.95, the value of the index on the pricing date. If you choose to sell
your MITTS Securities at a time when the value of the index exceeds 14,152.95,
you may receive substantially less than the amount that would be payable at
maturity based on that value because of the expectation that the index will
continue to fluctuate until shortly before the maturity date when the average
value of the index over five trading days is determined. If you choose to sell
your MITTS Securities when the value of the index is below, or not sufficiently
above, 14.152.95, you may receive less than $10 per unit of your MITTS
Securities. In general, rising Japanese dividend rates, or dividends per share,
may increase the value of the index while falling Japanese dividend rates may
decrease the value of the index. Additionally, political, economic and other
developments that affect the stocks underlying the index may also affect the
value of the index and 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 the MITTS Securities at maturity, we expect that the trading
value of the MITTS Securities will be affected by changes in interest rates. 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. In
general, if interest rates in Japan increase, we expect that the trading value
of the MITTS Securities will increase and, conversely, if interest rates in
Japan decrease, we expect the trading value of the MITTS Securities will
decrease. However, interest rates in Japan may also affect the Japanese economy
and, in turn, the value of the index. Rising interest rates in Japan may lower
the value of the index and, as a result, may decrease the value of the MITTS
Securities. Falling interest rates in Japan may increase the value of the index
and, as a result, may increase the value of the MITTS Securities.
4
<PAGE>
Changes in the volatility of the Japanese yen/U.S. dollar exchange rate are
expected to affect the trading value of the MITTS Securities. 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 and is expressed
as a rate that reflects the amount of Japanese yen that can be purchased for one
U.S. dollar. The Japanese yen/U.S. dollar rate increases when the U.S. dollar
appreciates relative to the Japanese yen. Volatility is the term used to
describe the size and frequency of market fluctuations. In general, if the
volatility of the Japanese yen/U.S. dollar rate increases, we expect that the
trading value of the MITTS Securities will increase and, conversely, if the
volatility of the Japanese yen/U.S. dollar rate decreases, we expect that the
trading value of the MITTS Securities will decrease.
Correlation between the Japanese yen/U.S. dollar exchange rate and the
index. Correlation is the term used to describe the relationship between the
percentage changes in the Japanese yen/U.S. dollar exchange rate and the
percentage changes in the index. In general, if the correlation between the
Japanese yen/U.S. dollar exchange rate and the index increases, we expect that
the trading value of the MITTS Securities will increase and, conversely, if the
correlation between the Japanese yen/U.S. dollar exchange rate and the index
decreases, we expect that the trading value of the MITTS Securities will
decrease.
Changes in the volatility of the index are expected to affect the trading
value of the MITTS Securities. Generally, if the volatility of the index
increases, we expect that the trading value of the MITTS Securities will
increase and, conversely, if the volatility of the 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 prior to 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 index. This difference would reflect a "time premium" due to
expectations concerning the value of the index during the period before
September 21, 2005, 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 index are expected
to affect the trading value of the MITTS Securities. Generally, if dividend
yields on the stocks included in the index increase, we expect that the value of
the MITTS Securities will decrease and, conversely, if dividend yields on the
stocks included in the index 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 index at maturity, an improvement in our
credit ratings will not reduce 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, except that we expect that the effect on the trading value of the
MITTS Securities of a given increase or decrease in the value of the 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
The indenture under which the MITTS Securities are issued is governed by
New York State law. 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%
5
<PAGE>
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 affiliates may from time to time buy or sell the stocks
underlying the index for their 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 index
in a manner that would be adverse to your investment in the MITTS Securities.
Potential conflicts of interest
Our subsidiary, Merrill Lynch, Pierce, Fenner & Smith Incorporated or
MLPF&S, is our agent for the purposes of calculating the value of the index and
the amount payable to you at maturity. 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 its determination as to whether
the value of the 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 index. See "Description of the MITTS Securities--
Adjustments to the Index; Market Disruption Events" and "--Discontinuance of the
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 a 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.
6
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically to
Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
MITTS Securities described in this prospectus.
7
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
8
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On December 28, 1998, ML&Co. issued an aggregate principal amount of
$70,000,000 or 7,000,000 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 September 21, 2005.
While at maturity a beneficial owner of a MITTS Security will receive the
principal amount of the MITTS Security plus the Supplemental Redemption Amount
described below, 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. Upon the occurrence of an Event
of Default 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.
The MITTS Securities were issued in denominations of whole units.
Payment at Maturity
At the maturity date, a beneficial owner of a MITTS Security will be
entitled to receive the principal amount of each unit plus the Supplemental
Redemption Amount, if any, all as provided below. If the Supplemental Redemption
Amount is not greater than zero, a beneficial owner of a MITTS Security will be
entitled to receive only the principal amount of its MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<S> <C>
( Ending Value - Starting Value )
Principal amount of each 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 14,152.95.
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 (the "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 Index on these Calculation Days, and if there is only one Calculation Day,
then the Ending Value will equal the closing value of the 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 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 "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.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
9
<PAGE>
An "Index Business Day" is a day on which the NYSE and the AMEX are open
for trading and the Index or any Successor Index, as defined on page 11 below,
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.
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending Values:
. the percentage change from the Starting Value to the 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 underlying the
Index, which includes an assumed aggregate dividend yield of 1.04%
per annum, as more fully described below.
<TABLE>
<CAPTION>
Total
Ending Amount
Value Payable Total Pretax
Percentage at Rate of Annualized
Change Maturity Return on Rate of Pretax Annualized
Over the Per Unit the Return on the Rate of Return of
Hypothetical Starting of MITTS MITTS MITTS Stocks Underlying
Ending Value Value Securities Securities Securities(1) the Index (1)(2)
------------ ----- ---------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
7,076.48 -50.00% $10.00 0.00% 0.00% -9.00%
8,491.77 -40.00% $10.00 0.00% 0.00% -6.41%
9,907.07 -30.00% $10.00 0.00% 0.00% -4.20%
11,322.36 -20.00% $10.00 0.00% 0.00% -2.25%
12,737.66 -10.00% $10.00 0.00% 0.00% -0.52%
14,152.95(3) 0.00% $10.00 0.00% 0.00% 1.04%
15,568.25 10.00% $11.00 10.00% 1.42% 2.47%
16,983.54 20.00% $12.00 20.00% 2.72% 3.79%
18,398.84 30.00% $13.00 30.00% 3.93% 5.00%
19,814.13 40.00% $14.00 40.00% 5.06% 6.14%
21,229.43 50.00% $15.00 50.00% 6.11% 7.20%
22,644.72 60.00% $16.00 60.00% 7.10% 8.20%
24,060.02 70.00% $17.00 70.00% 8.03% 9.15%
25,475.31 80.00% $18.00 80.00% 8.92% 10.04%
26,890.61 90.00% $19.00 90.00% 9.76% 10.89%
28,305.90 100.00% $20.00 100.00% 10.56% 11.70%
29,721.20 110.00% $21.00 110.00% 11.32% 12.48%
31,136.49 120.00% $22.00 120.00% 12.05% 13.22%
32,551.79 130.00% $23.00 130.00% 12.75% 13.93%
33,967.08 140.00% $24.00 140.00% 13.43% 14.61%
35,382.38 150.00% $25.00 150.00% 14.07% 15.27%
</TABLE>
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
10
<PAGE>
(a) a constant dividend yield of 1.04% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of
the Index at the end of each quarter assuming the value increases or
decreases linearly from the Starting Value to the hypothetical Ending
Value;
(b) no transaction fees or expenses;
(c) the term of the MITTS Securities is from December 28, 1998 to
September 21, 2005; and
(d) a final Index value equal to the hypothetical Ending Value.
(3) The Starting Value of the Index.
The above figures are for purposes of illustration only. The actual
investment term, Supplemental Redemption Amount received by investors, and the
respective total and pretax annualized rate of return will depend entirely on
the Starting Value and the actual Ending Value determined by the calculation
agent as provided herein.
Adjustments to the Index; Market Disruption Events
If at any time the method of calculating the Index, or its value, is
changed in any material respect, or if the Index is in any other way modified so
that the Index does not, in the opinion of the calculation agent, fairly
represent the value of the Index had the 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 Ending Value is to be calculated, make such 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 Index as if the
changes or modifications had not been made, and calculate the closing value with
reference to the Index, as adjusted. Accordingly, if the method of calculating
the Index is modified so that the value of the 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 in
the Index), then the calculation agent shall adjust the Index in order to arrive
at a value of the Index as if it had not been modified, e.g., as if the split
had not occurred.
"Market Disruption Event" means either of the following events, as
determined by the calculation agent:
. a suspension, material limitation or absence of trading on the
Tokyo Stock Exchange (the "TSE") of 20% or more of the underlying
stocks which then comprise the Index or a Successor Index during
the one-half hour period preceding the close of trading on the
applicable exchange; or
. 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 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:
. 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,
. a decision to permanently discontinue trading in the relevant
futures or options contract will not constitute a Market Disruption
Event,
. a suspension in trading in a futures or options contract on the
Index by a major securities market by reason of
. a price change violating limits set by the securities market,
. an imbalance of orders relating to futures or options
contracts or
11
<PAGE>
. a disparity in bid and ask quotes relating to futures or options
contracts will constitute a suspension or material limitation of
trading in futures or options contracts related to the Index, and
. an absence of trading on the TSE will not include any time when the
TSE is closed for trading under ordinary circumstances.
Under certain circumstances, the duties of MLPF&S as calculation agent in
determining the existence of Market Disruption Events could conflict with the
interests of MLPF&S as a subsidiary of ML&Co..
Based on the information currently available to ML&Co., the opening of
trading on the OSE was delayed on January 17, 1995 because of the earthquake in
Kobe. If this delay had occurred during the one-half hour period preceding the
close of trading on the OSE, it would have constituted a Market Disruption
Event. In addition, because of movements in the price for futures contracts for
the Index, the OSE imposed price limits on futures contracts on January 23, 1995
that were in effect during the one-half hour period preceding the close of
trading on the OSE and that would have constituted a Market Disruption Event. On
January 31 and February 1 of 1994, prices for futures contracts for the Index
reached price limits imposed by the OSE, which would have been a Market
Disruption Event. Other than the foregoing events, to ML&Co.'s knowledge no
circumstances have arisen since the inception of the Index that could have
constituted a Market Disruption Event. The existence or nonexistence of these
circumstances, however, is not necessarily indicative of the likelihood of these
circumstances arising or not arising in the future.
Discontinuance of the Index
If the publisher of the Nikkei 225 Index, Nihon Keizai Shimbum, Inc.
("NKS"), discontinues publication of the 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 Index (any successor or
substitute index is referred to as 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 NKS or such other entity for the Index and calculate the Ending 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.
If NKS discontinues publication of the 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 substituted for the 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 Index before any discontinuance.
If a Successor Index is selected or the calculation agent calculates a value as
a substitute for the Index as described below, that Successor Index or value
shall be substituted for the 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 Index, "Calculation Day" shall mean
any day on which the Calculation Agent is able to calculate a substitute value.
If NKS discontinues publication of the 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 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
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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 the values to be made available by telephone.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Index may adversely affect trading in the MITTS Securities.
Events of Default and Acceleration
If 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 per unit, will be equal to the principal amount per unit
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 "-
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 per unit 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 6.01% per annum (to the extent that payment of such interest shall
be legally enforceable) on the unpaid amount due and payable on such date in
accordance with the terms of the MITTS Securities to the date payment of that
amount has been made or duly provided for.
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical delivery
of the MITTS Securities nor may they be entitled to have the MITTS Securities
registered in their names. The MITTS Securities currently are represented by one
or more fully registered global securities. Each global security was deposited
with, or on behalf of, The Depository Trust Company or 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 such 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 a 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 the 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
under the 1983 Indenture, 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 such 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 any action, and the participants
would authorize beneficial owners owning through those participants to give or
take action or would otherwise act upon the instructions of beneficial owners.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect
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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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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 written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in 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 the 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 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 identified in a listing attached to
the omnibus proxy.
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Principal, premium, if any, and/or interest, if any, payments 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 the 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
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to 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.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form 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
All payments of principal and the Supplemental Redemption Amount, if any,
will be made by ML&Co. in immediately available funds so long as the MITTS
Securities are maintained in book-entry form.
THE NIKKEI 225 INDEX
Unless otherwise stated, all information relating to the Nikkei 225 Index
in this prospectus has been derived from the Stock Market Indices Data Book
published by NKS and other publicly-available sources. This information reflects
the policies of NKS as stated in these sources; these 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 (the "Underlying Stocks") trading on the TSE and represents a broad
cross-section of Japanese industry. All 225 Underlying Stocks are stocks listed
in the First Section of the TSE. Stocks listed in
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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 Nikkei 225 Index is a modified, price-weighted index (i.e., an
Underlying Stock's weight in the index is based on its price per share rather
than the total market capitalization of the issuer) which is calculated 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 the sum by a divisor.
Each Weight Factor is computed by dividing (Yen)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 (Yen)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, 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 and is subject to periodic
adjustment. 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. Thereafter, 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 so
that the sum of all share prices immediately after the change multiplied by the
applicable Weight Factor and divided by the new divisor, which will be 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. The current divisor is
available on Bloomberg under the symbol "NKY".
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 from the Underlying Stocks,
NKS will select, in accordance with criteria established by it, a replacement
for 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. In such case, 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 or any member of the
public regarding the advisability of investing in securities generally or in the
MITTS Securities in particular or the ability of the Nikkei 225 Index to track
general stock market performance. NKS has no obligation to take the needs of
ML&Co. or 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 that have been issued or in the
determination or
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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 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 such trading day
will generally be available in the United States by the opening of business on
the same calendar day.
The TSE has adopted 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. 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 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, which limitations may, in turn, adversely affect
the value of the MITTS Securities.
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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 is
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.
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In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe of all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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
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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".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 senior debt securities may
waive an Event of Default under that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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.
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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 final Treasury Department Regulations
(the "Final Regulations") concerning the United States Federal income tax
treatment of contingent payment debt instruments 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 and a projected
Supplemental Redemption Amount equal to $4.8938 per Unit (the "Projected
Supplemental Redemption Amount"). This represents an estimated yield on the
MITTS Securities equal to 6.01% 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 the projected
payment schedule for the MITTS Securities (including both the Projected
Supplemental Redemption Amount and the estimated yield equal to 6.01% per annum
(compounded semiannually)) as determined by ML&Co. for purposes of applying the
Final Regulations to the MITTS Securities:
<TABLE>
<CAPTION>
Total Interest
Interest Deemed Deemed to Have Accrued
to on the MITTS Securities
Accrue During as of End of Accrual
Accrual Period Period
Accrual Period (per Unit) (per Unit)
-------------- --------------- -----------------------
<S> <C> <C>
December 28, 1998 through March 21, 1999........... $0.1356 $0.1356
March 22, 1999 through September 21, 1999.......... $0.3045 $0.4401
September 22, 1999 through March 21, 2000.......... $0.3138 $0.7539
March 22, 2000 through September 21, 2000.......... $0.3231 $1.0770
September 22, 2000 through March 21, 2001.......... $0.3329 $1.4099
March 22, 2001 through September 21, 2001.......... $0.3428 $1.7527
September 22, 2001 through March 21, 2002.......... $0.3532 $2.1059
March 22, 2002 through September 21, 2002.......... $0.3638 $2.4697
September 22, 2002 through March 21, 2003.......... $0.3747 $2.8444
March 22, 2003 through September 21, 2003.......... $0.3860 $3.2304
September 22, 2003 through March 21, 2004.......... $0.3976 $3.6280
March 22, 2004 through September 21, 2004.......... $0.4095 $4.0375
September 22, 2004 through March 21, 2005.......... $0.4218 $4.4593
March 22, 2005 through September 21, 2005.......... $0.4345 $4.8938
</TABLE>
Projected Supplemental Redemption Amount = $ 4.8938 per Unit.
21
<PAGE>
All prospective investors in the 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 to Merrill Lynch & Co., Inc., Corporate Secretary's Office, 222
Broadway, 17th Floor, New York, New York 10038, (212) 670-0432,
[email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
22
<PAGE>
. 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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
23
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus not is +
+ an offer to sell these securities and is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
Merrill Lynch & Co., Inc.
Energy Select Sector SPDR(R) Fund
Market Index Target-Term Securities(R)
due February 21, 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>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments prior to the maturity date. Securities you own, you will receive a number of
. Senior unsecured debt securities of Merrill Lynch shares of the Energy Select Sector SPDR Fund, or
& Co., Inc. cash with an equal value, equal to the sum of the
. Linked to the value of the Energy Select Sector principal amount of each unit and an additional
SPDR Fund. amount based on any percentage increase in the value
. The MITTS Securities are listed on the American of the fund as described in this prospectus.
Stock Exchange under the symbol "ESM".
. You will receive no less than the principal
amount of your MITTS Securities.
</TABLE>
Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page 8 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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
owned by Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION--Q&A....................................................................... 3
RISK FACTORS................................................................................... 8
MERRILL LYNCH & CO., INC....................................................................... 13
RATIO OF EARNINGS TO FIXED CHARGES............................................................. 14
DESCRIPTION OF THE MITTS SECURITIES............................................................ 15
THE ENERGY SPDR FUND........................................................................... 23
OTHER TERMS.................................................................................... 25
PROJECTED PAYMENT SCHEDULE..................................................................... 28
WHERE YOU CAN FIND MORE INFORMATION............................................................ 29
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.............................................. 30
PLAN OF DISTRIBUTION........................................................................... 31
EXPERTS........................................................................................ 31
</TABLE>
2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from the prospectus to help you understand The Energy Select Sector
SPDR(R) Fund Market Index Target-Term Securities(R) due February 21, 2006. You
should carefully read this prospectus to understand fully the terms of the MITTS
Securities as well as the tax and other considerations that should be 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 some risks
associated with an investment in the MITTS Securities, to determine whether an
investment in the MITTS Securities is appropriate for you.
References 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.
References in this prospectus to "Energy SPDR Fund" are to the Energy
Select Sector SPDR Fund.
We have attached the prospectus for the Energy SPDR Fund dated January
28, 2000 (the "Fund Prospectus"). You should carefully read the Fund Prospectus
to fully understand the operation and management of the Energy SPDR Fund,
particularly the fees and expenses associated with shares of the Energy SPDR
Fund which affect the Net Asset Value per share of the Energy SPDR Fund and
which will directly apply to you if we choose to deliver these shares to you at
maturity of the MITTS Securities. Our affiliate, MLPF&S, is both a soliciting
dealer in the shares of the Energy SPDR Fund and the index compilation agent for
the Energy Select Sector Index . However, we are not affiliated with the Energy
SPDR Fund or the Energy Select Sector Index. The Energy SPDR Fund will not
receive any of the proceeds from the sale of the MITTS Securities and will not
have any obligations with respect to the MITTS Securities. We have attached the
Fund Prospectus and are delivering it to you together with this prospectus for
the convenience of reference only. The Fund Prospectus does not constitute a
part of prospectus, nor is it incorporated by reference in this prospectus.
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 February 21, 2006 and cannot be redeemed at an earlier date. You will
not receive any shares of the Energy SPDR Fund or any other 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, the MITTS Securities were
issued 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 record beneficial ownership of the MITTS Securities by
individual investors. You should refer to the section "Description of the MITTS
Securities--Depositary" in this prospectus.
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 the appreciation, if
any, in the Net Asset Value per share of the Energy SPDR Fund. At maturity, you
will receive a number of shares, and an amount of cash equal to the value of any
fractional shares, of the Energy SPDR Fund, or cash with an equal value, equal
in value to the sum of the Principal Amount and the Supplemental Redemption
Amount, if any. We will determine the number of shares to be delivered to you
based on the Ending Value.
3
<PAGE>
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 22.4936, the Net Asset Value of one share of
the Energy SPDR Fund on February 11, 1999, the date the MITTS Securities were
priced for initial sale to the public.
"Adjusted Ending Value" means the Ending Value, as reduced by the
application of the Adjustment Factor on each calculation day.
"Ending Value" means the average of the Net Assets Values per share of
the Energy SPDR Fund at the close of the market on five Calculation Days shortly
before the maturity of the MITTS Securities. We may calculate the Ending Value
by reference to fewer than five or even a single day's Net Asset Value if,
during the calculation period, there is a disruption in the trading of a number
of the component stocks of the Energy Select Sector Index or options relating to
the shares of the Energy SPDR Fund, the Energy SPDR Fund is unable or otherwise
fails to issue a Net Asset Value for the shares of the Energy SPDR Fund or the
Energy SPDR Fund suspends the creation or redemption of its shares. Please see
the section entitled "Description of the MITTS Securities--Adjustments to the
Net Asset Value; Market Disruption Events" in this prospectus.
The "Adjustment Factor" equals 0.85% per year and will reduce the Net
Asset Value per share of the Energy SPDR Fund used to calculate the Supplemental
Redemption Amount. As a result of the application of the Adjustment Factor, the
adjusted Net Asset Value per share of the Energy SPDR Fund used to calculate
your Supplemental Redemption Amount at the maturity of the MITTS Securities will
be approximately 5.8% less than the actual Net Asset Value per share of the
Energy SPDR Fund on any day during the Calculation Period. For a detailed
discussion of how the Adjustment Factor will affect the Net Asset Value per
share of the Energy SPDR Fund used to calculate your Supplemental Redemption
Amount, i.e., the Adjusted Ending Value, see "Description of the MITTS
Securities--Delivery at Maturity" and "--Hypothetical Returns" in this
prospectus.
For more specific information about the Supplemental Redemption Amount,
please see the section "Description of the MITTS Securities" in this prospectus.
4
<PAGE>
Examples
Here are two examples of Supplemental Redemption Amount calculations
assuming an Adjustment Factor of 0.85% per year:
Example 1--Adjusted Ending Value is less than the Starting Value at the maturity
date:
Starting Value: 22.49
Hypothetical Ending Value: 23.62
Hypothetical Adjusted Ending Value: 22.25
<TABLE>
<S> <C> <C>
(Supplemental
( 22.25 - 22.49 ) Redemption
Supplemental Redemption Amount (per unit) = $10 X ( ------------- ) = $0.00 Amount cannot
( 22.49 ) be less than zero)
</TABLE>
Total value of shares delivered at maturity (per unit) = $10 + $0 = $10
Example 2--Adjusted Ending Value is greater than the Starting Value at the
maturity date:
Starting Value: 22.49
Hypothetical Ending Value: 35.99
Hypothetical Adjusted Ending Value: 33.90
<TABLE>
<S> <C>
( 33.90 - 22.49 )
Supplemental Redemption Amount (per unit) = $10 X ( ------------- ) = $5.07
( 22.49 )
</TABLE>
Total value of shares delivered at maturity (per unit) = $10 + $5.07 =
$15.07
How is the Net Asset Value determined?
The "Net Asset Value" means the net asset value per share of the Energy
SPDR Fund as determined by the Energy SPDR Fund. The Energy SPDR Fund calculates
its Net Asset Value per share by dividing the value of its net assets, i.e., the
value of its total assets less total liabilities, by its total number of shares
outstanding. Expenses and fees, including the management, administration and
distribution fees, of the Energy SPDR Fund are accrued daily and taken into
account for purposes of determining Net Asset Value. The Net Asset Value per
share of the Energy SPDR Fund is determined by the Energy SPDR Fund each
Business Day after the close of trading on the New York Stock Exchange,
ordinarily 4:00 p.m., New York time. Shares of the Energy SPDR Fund are listed
on the AMEX under the trading symbol "XLE".
When will I receive cash instead of shares of the Energy SPDR Fund?
If we choose to pay you the amount due to you at maturity in cash instead
of in shares of the Energy SPDR Fund which you would otherwise be entitled to
receive, we will pay you an amount of cash equal to the sum of the Principal
Amount and the Supplemental Redemption Amount, if any. In addition, if at any
time MLPF&S ceases to be a soliciting dealer in the shares of the Energy SPDR
Fund, we will pay the amount due to you in cash instead of shares. Please see
the section entitled "Description of the MITTS Securities--Delivery at Maturity"
in this prospectus.
In addition, in the event that we choose to deliver shares of the Energy
SPDR Fund at maturity, we will not distribute any fractional shares to you. We
will aggregate all amounts due to you in respect of the total number of units
you hold on the stated maturity date, and in lieu of delivering to you any
fractional shares of the Energy SPDR Fund to which you would otherwise
5
<PAGE>
be entitled, we will pay you the cash value of these fractional shares based on
the Net Asset Value per share of the Energy SPDR Fund shortly before maturity.
Will I be charged any transaction fees or expenses with respect to the shares of
the Energy SPDR Fund?
Unless and until we deliver shares of the Energy SPDR Fund to you in
satisfaction of our obligations under the MITTS Securities, you will not be
directly charged any management, administration, distribution or other
transaction fees or other expenses with respect to the shares of the Energy SPDR
Fund. However, because the Energy SPDR Fund accrues these fees and expenses
daily for purposes of determining the Net Asset Value of its shares, the Net
Asset Values used to calculate your Supplemental Redemption Amount will reflect
the deduction of these fees and expenses as well as the reduction resulting from
the application of the Adjustment Factor.
If at maturity we deliver to you shares of the Energy SPDR Fund, you
will then become directly subject to ongoing account maintenance fees and some
other transaction expenses with respect to your shares so long as you hold these
shares.
The accompanying Fund Prospectus describes the fees and expenses
charged by the Energy SPDR Fund in greater detail.
What is the Energy SPDR Fund?
The Energy SPDR Fund is an index fund whose stated investment objective
is to provide investment results that, before expenses, correspond generally to
the price and yield performance of the publicly traded equity securities
comprising the Energy Select Sector Index. The Energy Select Sector Index
consists of the equity securities of publicly traded companies that are
components of the S&P 500 Index and are involved in the development and
production of energy products. Companies in the Energy Select Sector Index
develop and produce crude oil and natural gas, and provide drilling and other
energy related services. As of February 11, 1999, the Energy Select Sector Index
included 31 component stocks. A list of these securities and their index
weightings as of that date is set forth under the section "The Energy SPDR Fund"
in this prospectus. Our affiliate, MLPF&S, is both a soliciting dealer in the
shares of the Energy SPDR Fund and the Index Compilation Agent for the Energy
Select Sector Index. We are not affiliated with the Energy SPDR Fund or the
Energy Select Sector Index. The Energy SPDR Fund does not receive any of the
proceeds from the sale of, or have any obligations under, the MITTS Securities.
You should independently decide whether an investment in the MITTS Securities
and the Energy SPDR Fund is appropriate for you.
The Energy SPDR Fund is one of nine investment funds comprising the
Select Sector SPDR Trust (the "Trust"), a management investment company
registered under the Investment Company Act of 1940, as amended. Each fund's
investment portfolio is comprised principally of constituent companies whose
equity securities are components of the S&P 500 Index, each representing one of
nine specified market sector indices. Each stock in the S&P 500 Index is
allocated to only one Select Sector Index. The combined companies of the nine
Select Sector Indices represent all of the companies whose stocks are components
of the S&P 500 Index.
You should carefully read the Fund Prospectus accompanying this
prospectus to fully understand the operation and management of the Energy SPDR
Fund. In addition, because the Trust is subject to the registration requirements
of the Securities Act of 1933, as amended, and the Investment Company Act, the
Trust is required to file periodically information specified by the SEC. For
more information about the Energy SPDR Fund and the shares that you may receive
at maturity, information provided to or filed with the SEC by the Trust can be
inspected at the SEC's public reference facilities or accessed over the Internet
through a web site maintained by the SEC at http://www.sec.gov. You may also
obtain copies of these documents at no cost by calling the Trust at (800)
843-2639 or by writing the Trust c/o ALPS Mutual Funds Services, Inc., at 370
17th Street, Suite 3100, Denver, CO 80202. Neither the Fund Prospectus nor these
other documents are incorporated by reference in this prospectus, and we make no
representation or warranty as to the accuracy or completeness of that
information.
6
<PAGE>
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are listed on the AMEX under the symbol "ESM".
What is the role of MLPF&S?
Our subsidiary, MLPF&S, was the underwriter for the offering and sale
of the MITTS Securities.
MLPF&S is our agent for purposes of calculating the Adjusted Ending
Value and the Supplemental Redemption Amount. Under some circumstances, these
duties could result in a conflict of interest between MLPF&S's status as our
subsidiary and its responsibilities as calculation agent.
MLPF&S also is a soliciting dealer in the shares of the Energy SPDR
Fund and is the index compilation agent for the Energy Select Sector Index.
Under some circumstances, these duties could result in a conflict of interest
between MLPF&S' status as our subsidiary and its responsibilities to the Energy
SPDR Fund and the Energy Select Sector Index. Please see the section entitled
"Risk Factors--Potential conflicts" in this prospectus.
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 entitled "Merrill Lynch & Co., Inc." in this 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.
Are there any risks associated with my investment?
Yes, an investment in the MITTS Securities is subject to risks. Please
refer to the section "Risk Factors" in this prospectus.
7
<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.
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, the Supplemental Redemption Amount will
be based on the increase, if any, in the Net Asset Value per share of the Energy
SPDR Fund. However, as a holder of the MITTS Securities, you will not be
entitled to receive distributions that would be payable on the shares of the
Energy SPDR Fund if you had made a direct investment in the shares. 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 at maturity is not a fixed amount, but is based on the
Net Asset Value per share of the Energy SPDR Fund, as reduced by the Adjustment
Factor, determined on five, or, under particular circumstances, fewer than five
days shortly before the maturity date.
You may not earn a return on your investment
You should be aware that at maturity we will pay you no more than $10
for each unit of the MITTS Securities you own if the average value of the index
over five trading days shortly before the maturity does not exceed 22.4936. This
will be true even if, at some time during the life of the MITTS Securities, the
Net Asset Value per share of the Energy SPDR Fund, as reduced by the Adjustment
Factor, was higher than 22.4936 but later falls below 22.4936.
Your return will not reflect the return of owning shares of the Energy SPDR Fund
or the securities and other assets comprising the Energy SPDR Fund's investment
portfolio
When determining the Supplemental Redemption Amount, if any, paid to
you at maturity, the Energy SPDR Fund's Net Asset Value per share, which
reflects the reduction of fund assets resulting from the accrual of the Energy
SPDR Fund's fees and expenses and any distributions made by the Energy SPDR
Fund, will also be reduced by the application of the Adjustment Factor.
Consequently, your return on the MITTS Securities will not reflect the return of
owning the shares of the Energy SPDR Fund or the securities and other assets
comprising the Energy SPDR Fund's investment portfolio.
Changes in the Net Asset Value per share of the Energy SPDR Fund will not
exactly mirror changes in the Energy Select Sector Index
As indicated in the Fund Prospectus, the Energy SPDR Fund's investment
objective is to provide investment results that, before expenses, correspond
generally to the price and yield performance of the publicly traded equity
securities comprising the Energy Select Sector Index. However, because the
Energy SPDR Fund's investment portfolio may not hold all of the stocks in the
Energy Select Sector Index or may not hold each stock in the same weighting as
the Energy Select Sector Index, because the Energy SPDR Fund may hold other
assets and because the Net Asset Value per share of the Energy SPDR Fund
reflects the reduction of fund assets resulting from the accrual of fees and
expenses and the payment of distributions, if any, changes in the value of the
Energy Select Sector Index and in the Net Asset Value per share of the Energy
SPDR Fund are not expected to be identical. As stated in the Fund Prospectus,
the investment adviser to the Energy SPDR Fund believes that "over time, the
`tracking error' of the Energy SPDR Fund relative to the performance of the
8
<PAGE>
Energy Select Sector Index, adjusted for the effect of the Energy SPDR Fund's
expenses, will be less than 5%". There is no assurance that the tracking error
will not be greater than 5% at any time, including the time that you may wish to
sell your MITTS Securities before the maturity date or at the time the
calculation agent determines the Supplemental Redemption Amount, if any.
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.
There may be an uncertain trading market for the MITTS Securities
Although the MITTS Securities are listed on the AMEX under the trading
symbol "ESM", you cannot assume that a trading market will continue to exist for
the MITTS Securities. If a trading market in the MITTS Securities continues to
exist, there can be no assurance that there will be liquidity in the trading
market. The continued 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 Net Asset Value per share of the Energy SPDR Fund.
If a limited trading market for the MITTS Securities exists, and you do
not wish to hold your investment until maturity, fewer buyers may want to
purchase your MITTS Securities. This may affect the price you receive if you
sell before maturity.
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
magnify 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 Net Asset Value per share of the
Energy SPDR Fund. 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.
The Net Asset Value per share of the Energy SPDR Fund 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 by which
the Net Asset Value per share of the Energy SPDR Fund, as reduced by the
Adjustment Factor, exceeds the Starting Value. Even if you choose to sell your
MITTS Securities when the Net Asset Value per share of the Energy SPDR Fund, 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 Net Asset Value will continue to
fluctuate until shortly before the maturity date when the Adjusted Ending Value
is determined. If you choose to sell your MITTS Securities before the maturity
date when the Net Asset Value per share of the Energy SPDR Fund, as adjusted by
the Adjustment Factor, is below or not sufficiently above the Starting Value,
you may receive less than the $10 Principal Amount per unit of MITTS Securities.
Changes in the levels of U.S. 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 the MITTS Securities at maturity, we expect that
changes in interest rates will effect 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
9
<PAGE>
and, conversely, if U.S. interest rates decrease, we expect that the trading
value of the MITTS Securities will increase. Interest rates may also affect the
U.S. economy and, in turn, the Net Asset Value of the Energy SPDR Fund. Rising
interest rates may lower the Net Asset Value per share of the Energy SPDR Fund
and, as a result, lower the trading value of the MITTS Securities and,
conversely, falling interest rates may increase the Net Asset Value per share of
the Energy SPDR Fund and, as a result, may increase the trading value of the
MITTS Securities.
Changes in the volatility of the Fund are expected to affect the
trading value of the MITTS Securities. Volatility is the term used to describe
the size and frequency of market fluctuations. Generally, if the volatility of
the Net Asset Value per share of the Energy SPDR Fund increases, we expect that
the trading value of the MITTS Securities will increase and, conversely, if the
volatility of the Net Asset Value per share of the Energy SPDR Fund 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. The MITTS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the Net Asset Value per share of the Energy SPDR
Fund. This difference will reflect a "time premium" due to expectations
concerning the Net Asset Value per share of the Energy SPDR Fund during the
period before the maturity of the MITTS Securities. However, as the time
remaining to the 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 Fund are
expected to affect the trading value of the MITTS Securities. Generally, if
dividend yields on the stocks comprising the Energy SPDR Fund increase, we
expect that the trading value of the MITTS Securities will decrease, and
conversely, if dividend yields on the stocks comprising the Energy SPDR Fund's
investment portfolio decrease, we expect that the trading 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 Net Asset Value per share of the Energy SPDR Fund at maturity, an
improvement in our credit ratings will not reduce other investment risks related
to the MITTS Securities.
In general, assuming all other relevant factors are held constant, we
expect that the effect on the trading value of the MITTS Securities of a given
change in any one 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 an increase or decrease in the Net Asset Value per share of
the Energy SPDR Fund 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.
Absence of prior active market for shares of the Energy SPDR Fund
The Energy SPDR Fund is a recently organized investment company and
there is limited operating history available. Although these shares are listed
for trading on the AMEX and a number of similar products have been traded on the
AMEX for varying periods of time, there is no assurance that an active trading
market will continue to exist for the shares of the Energy SPDR Fund. If a
trading market does continue to exist, there is no assurance that there will be
liquidity in the trading market.
10
<PAGE>
Concentration in energy-related securities
Because the Energy SPDR Fund's investment portfolio is predominantly
comprised of securities of companies in the energy-producing field, the value of
the MITTS Securities may be adversely affected by an economic downturn in the
energy industry. The companies whose securities comprise the Energy SPDR Fund's
investment portfolio produce crude oil and natural gas and provide drilling and
other energy production and distribution related services. Stock prices for
these types of companies are affected by supply and demand both for their
specific product or service and for energy products in general. The price of oil
and gas, exploration and production spending, government regulation, political
events and economic conditions will likewise affect the performance of these
companies. Correspondingly, companies in the energy field are subject to swift
energy price and supply fluctuations caused by events relating to international
politics, energy conservation, the results of exploration projects, and tax and
other governmental policies. Weak demand for these companies' products or
services or for energy products and services in general, as well as negative
developments in these other areas, would adversely affect the performance of the
Energy SPDR Fund and in turn, the trading value of the MITTS Securities.
No affiliation between ML&Co. and the Energy SPDR Fund
Our affiliate MLPF&S is both a soliciting dealer in the shares of the
Energy SPDR Fund and the Index Compilation Agent for the Energy Select Sector
Index. However, we are not affiliated with the Energy SPDR Fund or the Energy
Select Sector Index. The Energy SPDR Fund has no obligations with respect to the
MITTS Securities or amounts to be paid to you, including any obligation to take
the needs of ML&Co. or of beneficial owners of the MITTS Securities into
consideration for any reason. The Energy SPDR Fund did not receive any of the
proceeds from this offering and is not responsible for, and has not participated
in, the determination or calculation of the amount you will receive on your
MITTS Securities at maturity. In addition, the Energy SPDR Fund is not involved
with the administration or trading of the MITTS Securities and has no
obligations with respect to any amounts due under the MITTS Securities.
You will not have shareholder's rights until you receive share of the Energy
SPDR Fund
Unless and until we deliver shares of the Energy SPDR Fund to you at
the maturity of the MITTS Securities, you will not be entitled to any rights
with respect to these shares including, without limitation, the right to receive
distributions on, to vote or to redeem these shares. For example, if the Energy
SPDR Fund sets a record date for a matter to be voted on by shareholders before
our delivery of the shares of the Energy SPDR Fund to you, you will not be
entitled to vote on that matter.
Amounts payable on the MITTS Securities may be limited by state law
New York State law governs the indenture under which the MITTS
Securities were 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.
11
<PAGE>
Potential conflicts of interests
The calculation agent for the MITTS Securities is one of our
subsidiaries. In some 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 between the calculation agent and the holders of the
MITTS Securities. These conflicts could occur, for instance, in connection with
its determination as to whether a Market Disruption Event (as defined below) has
occurred.
MLPF&S is a soliciting dealer in the shares of the Energy SPDR Fund. In
some circumstances, MLPF&S's role as calculation agent for the MITTS Securities
and its role as a soliciting dealer in the shares could give rise to conflicts
of interests between the calculation agent and holders of the MITTS Securities.
These conflicts could occur in connection with its determination as to the
Adjusted Ending Value and the number of shares to be delivered at maturity.
Additionally, MLPF&S serves as Index Compilation Agent for the Energy
Select Sector Index. In its capacity as Index Compilation Agent, MLPF&S
determines, in consultation with S&P, which securities of the S&P 500 it will
include in the Energy Select Sector Index. In some circumstances, MLPF&S's role
as calculation agent for the MITTS Securities and its role as Index Compilation
Agent could give rise to conflicts of interests between the calculation agent
and holders of the MITTS Securities.
MLPF&S is required to carry out its duties as calculation agent in good
faith and using its reasonable judgment. However, you should be aware that
because we control MLPF&S, potential conflicts of interest could arise.
We anticipate entering into an arrangement with one of our subsidiaries
to hedge the market risks associated with our obligation to pay amounts due
under the MITTS Securities. This subsidiary expects to make a profit in
connection with the arrangement. We did not seek competitive bids for the
arrangement from unaffiliated parties.
12
<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 LP and Mercury Asset Management Ltd,
provides investment, financing, advisory, insurance, and related products on a
global basis, including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards,
futures and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center,
New York, New York 10080; 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.
13
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
14
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On February 18, 1999, ML&Co. issued $51,000,000 aggregate principal
amount, or 5,100,000 units, of Energy Select Sector SPDR Fund MITTS Securities
due February 21, 2006. The MITTS Securities were issued as a series of senior
debt securities under the Senior Indenture, referred to as the 1983 Indenture,
which is more fully described in this prospectus. The MITTS Securities will
mature on February 21, 2006.
While at maturity a beneficial owner of a MITTS Security will receive
the number of shares of the Energy SPDR Fund, or cash with an equal value, equal
in value, determined based on the Ending Value, to 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 "Delivery
at Maturity".
The MITTS Securities are not subject to redemption by ML&Co. or at the
option of any beneficial owner prior to maturity. Upon the occurrence of an
Event of Default 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.
The MITTS Securities were issued in denominations of whole units.
The MITTS Securities do not have the benefit of any sinking fund.
Delivery at Maturity
At maturity, a beneficial owner of a MITTS Security will be entitled to
receive the number of shares of the Energy SPDR Fund, or cash with an equal
value, equal in value as determined based on the Ending Value, to the Principal
Amount of each MITTS Security plus the Supplemental Redemption Amount, if any,
all as provided below. The amount to be paid by ML&Co. to any holder of the
MITTS Securities on the maturity date will be aggregated based on the total
number of units then held by each holder and rounded to the nearest cent. 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 number of shares of the
Energy SPDR Fund, or cash with an equal value, equal in value as determined
based on the Ending Value, to the Principal Amount of each MITTS Security.
If ML&Co. chooses to deliver shares of the Energy SPDR Fund to holders
of the MITTS Securities at the maturity date, ML&Co. or one of its affiliates
will deliver shares of the Energy SPDR Fund that are then newly issued by the
Energy SPDR Fund.
ML&Co. may, at its option, in lieu of delivering shares of the Energy
SPDR Fund, pay cash in an amount equal to the sum of the Principal Amount of the
MITTS Securities and the Supplemental Redemption Amount, if any. In addition, if
at any time MLPF&S ceases to be a soliciting dealer in the shares of the Energy
SPDR Fund, ML&Co. will pay the amount due to holders of the MITTS Securities in
cash instead of shares.
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 each MITTS Security ($10 per unit) X (--------------------------------------)
( Starting Value )
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
15
<PAGE>
The "Starting Value" equals 22.4936, the Net Asset Value of one share
of the Energy SPDR Fund on the Pricing Date.
"Net Asset Value" means the net asset value per share of the Energy
SPDR Fund as determined by the Energy SPDR Fund. The Energy SPDR Fund calculates
its Net Asset Value per share by dividing the value of its net assets, i.e., the
value of its total assets less total liabilities, by its total number of shares
outstanding. Expenses and fees, including the management, administration and
distribution fees, of the Energy SPDR Fund are accrued daily and taken into
account for purposes of determining its Net Asset Value. The Net Asset Value per
share of the Energy SPDR Fund is determined by the Energy SPDR Fund each
Business Day after the close of trading on the New York Stock Exchange,
ordinarily 4:00 p.m., New York time. Shares of the Energy SPDR Fund are listed
on the AMEX under the trading symbol "XLE".
The "Adjusted Ending Value" will be determined by the calculation agent
and will equal the Ending Value, as reduced by the application of the Adjustment
Factor on each Calculation Day.
The "Ending Value" will equal the average, or the arithmetic mean, of
the Net Asset Values per share of the Energy SPDR Fund on each of the first five
Calculation Days during the Calculation Period. If there are fewer than five
Calculation Days in the Calculation Period, the Ending Value will equal the
average, or the arithmetic mean, of the Net Asset Values of the Energy SPDR Fund
on each of the Calculation Days, and if there is only one Calculation Day, then
the Ending Value will be equal to the Net Asset Value per share of the Energy
SPDR Fund on that Calculation Day. If no Calculation Days occur during the
Calculation Period because of Market Disruption Events, then the Ending Value
shall mean the Net Asset Value per share of the Energy SPDR Fund on the last
Trading Day prior to the Calculation Period for which a Net Asset Value per
share of the Energy SPDR Fund was determined.
The Adjustment Factor equals 0.85% per year and will be prorated based
on a 365-day year and applied each calendar day to reduce the Ending Value used
to calculate the Supplemental Redemption Amount. As a result of the application
of the Adjustment Factor, the adjusted Net Asset Value of one share of the
Energy SPDR Fund used to calculate the Supplemental Redemption Amount at the
maturity of the MITTS Securities will be approximately 5.8% less than the actual
Net Asset Value per share of the Energy SPDR Fund on any day during the
Calculation Period.
The "Calculation Period" means the period from and including the
seventh scheduled Calculation Day prior to the Maturity Date to and including
the second scheduled Calculation Day prior to maturity.
"Calculation Day" means any Trading Day on which a Market Disruption
Event has not occurred.
"Trading Day" is a day on which the shares of the Energy SPDR Fund:
. are not suspended from trading on any national or regional
securities exchange or association or over-the-counter market at
the close of business and
. have traded at least once on a national or regional securities
exchange or association or over-the-counter market that is the
primary market for the trading of the shares of the Energy SPDR
Fund.
Fractional Shares
ML&Co. will not deliver fractional shares of the Energy SPDR Fund at
maturity. In the event ML&Co. elects to pay holders of the MITTS Securities in
shares of the Energy SPDR Fund, all amounts due to any holder of the MITTS
Securities in respect of the total number of units held by that holder will be
aggregated, and in lieu of delivering any fractional share to that holder, that
holder will receive the cash value of the fractional share based on the Ending
Value.
16
<PAGE>
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending Values,
. the Adjusted Ending Value used to calculate the Supplemental Redemption
Amount,
. the percentage change from the Starting Value to the Adjusted Ending
Value,
. the principal amount and Supplemental Redemption Amount, if any, paid
at maturity for each unit,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. the pretax annualized rate of return of an investment in shares of
the Energy SPDR Fund. This table assumes an Adjustment Factor of
0.85% per annum.
<TABLE>
<CAPTION>
Hypothetical Percentage Principal Amount
Ending Value Change of and Supplemental Pretax Annualized Pretax Annualized
During the Hypothetical Adjusted Ending Redemption Total Rate of Rate of Return on Rate of Return of
Calculation Adjusted Ending Value Over the Amount Paid at Return on the the MITTS Shares of the Energy
Period Value Starting Value Maturity per Unit MITTS Securities Securities(1) SPDR Fund(1)(2)
------ ----- -------------- ----------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
4.50 4.24 -81.16% $ 10.00 0.00% 0.00% -18.69%
9.00 8.48 -62.32% $ 10.00 0.00% 0.00% -9.93%
13.50 12.71 -43.48% $ 10.00 0.00% 0.00% -4.50%
17.99 16.95 -24.64% $ 10.00 0.00% 0.00% -0.51%
22.49(3) 21.19 -5.80% $ 10.00 0.00% 0.00% 2.67%
26.99 25.43 13.04% $ 11.30 13.04% 1.75% 5.32%
31.49 29.66 31.88% $ 13.19 31.88% 3.97% 7.60%
35.99 33.90 50.72% $ 15.07 50.72% 5.92% 9.60%
40.49 38.14 69.55% $ 16.96 69.55% 7.65% 11.40%
44.99 42.38 88.39% $ 18.84 88.39% 9.21% 13.02%
49.49 46.61 107.23% $ 20.72 107.23% 10.63% 14.50%
53.98 50.85 126.07% $ 22.61 126.07% 11.94% 15.87%
58.48 55.09 144.91% $ 24.49 144.91% 13.15% 17.14%
62.98 59.33 163.75% $ 26.38 163.75% 14.28% 18.32%
67.48 63.56 182.59% $ 28.26 182.59% 15.33% 19.43%
</TABLE>
______________________________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes,
(a) a constant dividend yield of 2.67% per annum, paid quarterly from the
date of the initial delivery of the MITTS Securities, applied to the
Net Asset Value per share of the Energy SPDR Fund at the end of each
quarter, assuming the Net Asset Value per share of the Energy SPDR
Fund increases or decreases linearly from the Starting Value to the
hypothetical Ending Value during the Calculation Period;
(b) no transaction fees or expenses in connection with the purchase of the
MITTS Securities;
(c) a term from February 11, 1999 to February 21, 2006; and
(d) a Net Asset Value per share of the Energy SPDR Fund on the maturity
date equal to the Ending Value.
(3) The Starting Value equals 22.4936, the Net Asset Value per share of the
Energy SPDR Fund on the Pricing Date.
17
<PAGE>
The figures on the previous page are for purposes of illustration only.
The actual Supplemental Redemption Amount and the total and pretax annualized
rate of return resulting therefrom will depend entirely on actual Adjusted
Ending Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Net Asset Value; Market Disruption Events
If at any time the shares of the Energy SPDR Fund are subject to a
split or reverse split, the calculation agent shall adjust the Net Asset Value
per share of the Energy SPDR Fund used to calculate the Ending Value in order to
arrive at a Net Asset Value per share of the Energy SPDR Fund as if the split or
reverse split, as the case may be, 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
each case, in 20% or more of the stocks which then comprise
the 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,
(A) futures contracts related to the Index, or options on
these futures contracts, which are traded on any
major U.S. exchange, or
(B) option contracts related to the Index which are
traded on any major U.S. exchange, or
(c) the Energy SPDR Fund (1) is unable or otherwise fails to issue
a Net Asset Value for any shares of the Energy SPDR Fund after
the close of business on the NYSE or (2) suspends the creation
or redemption of shares of the Energy SPDR Fund.
For the purposes of paragraphs (a) and (b) of this definition, 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 purposes of clause (a) above, any limitations on trading
during significant market fluctuations under New York Stock Exchange 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".
Termination of the Energy SPDR Fund
If the Energy SPDR Fund is liquidated or otherwise terminated, for
purposes of calculating the Supplemental Redemption Amount payable at the
maturity of the MITTS Securities, the "Net Asset Value" will be calculated by
the calculation agent as follows: The Net Asset Value per share of the Energy
SPDR Fund on the Trading Day occurring immediately before any liquidating
distribution will equal the Net Asset Value for that day (the "Pre-liquidation
Date"). The calculation agent will then calculate the Net Asset Value after the
close of trading on each Trading Day, each applicable date defined as a
"Determination Date", after the Pre-liquidation Date by increasing or
decreasing, as the case may be, the Net Asset Value as of the immediately
preceding Trading Day by the percentage by which the closing value of the Energy
Select Sector Index increases or decreases from that immediately preceding
Trading Day to the Determination Date and further decreasing the Net Asset Value
by fees, expenses and non-liquidating distributions, together, "Fund
18
<PAGE>
Expenses", that the calculation agent, in its sole judgment but with reference
to the Fund Expenses actually incurred by the Energy SPDR Fund before its
liquidation or termination, deems would reasonably have been accrued and
included in the calculation of the Net Asset Value per share of the Energy SPDR
Fund had it not been liquidated or terminated, from the immediately preceding
Trading Day to the Determination Date. 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 the values to be made available by telephone.
If the Energy SPDR Fund is liquidated or otherwise terminated and the
Energy Select Sector Index is no longer calculated or published, an "Index
Termination Event", the calculation agent will select a successor index that it
determines, in its sole discretion, to be comparable to the Energy Select Sector
Index, and, upon the calculation agent's notification of its determination to
the Trustee and ML&Co., the calculation agent will substitute the successor
index for the Energy Select Sector Index and calculate the Net Asset Value in
accordance with the procedures referred to in the immediately preceding
paragraph with reference to the successor index. Upon any selection by the
calculation agent of a successor index, ML&Co. shall cause notice thereof to be
given to holders of the MITTS Securities.
In the event that an Index Termination Event occurs and a successor
index to the Energy Select Sector Index is not selected by the calculation agent
or is no longer published on any of the Calculation Days, the calculation agent
shall compute a substitute index for the Energy Select Sector Index for any
Calculation Day in accordance with the procedures last used to calculate the
Energy Select Sector Index prior to any discontinuance. The calculation agent
will calculate the Net Asset Value in accordance with the procedures referred to
in the first paragraph of this section with reference to the substitute index.
Upon any selection by the calculation agent of the substitute index, ML&Co.
shall cause notice thereof to be given to holders of the MITTS Securities.
If S&P discontinues publication of the S&P 500 Index subsequent to an
Index Termination Event and
. a successor index to the Energy Select Sector Index is not
selected by the calculation agent or is no longer published on any
of the Calculation Days and
. the calculation agent is unable to calculate a substitute index
for the Energy Select Sector Index, then
the calculation agent will compute a substitute index for the S&P 500 Index for
any Calculation Day in accordance with the procedures last used to calculate the
S&P 500 Index prior to any discontinuance. If the calculation agent calculates
the substitute index for the S&P 500 Index, the calculation agent will use the
substitute index to calculate the substitute index for the Energy Select Sector
Index.
Notwithstanding these alternative arrangements, liquidation or
termination of the Energy SPDR Fund or the discontinuance of the publication of
the Energy Select Sector Index or 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 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 thereof, will be equal to the Principal Amount and
the Supplemental Redemption Amount, if any, calculated assuming:
. the date of early repayment is the maturity date of the MITTS
Securities and
19
<PAGE>
. the Adjustment Factor is prorated based on a 365-day year and
applied each calendar day to reduce the Net Asset Value per share
of the Energy SPDR Fund used to calculate the Supplemental
Redemption Amount. See "Delivery 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 were the maturity date of the
MITTS Securities.
In case of default in payment at the maturity date of the MITTS
Securities, whether at their stated maturity or upon acceleration, from and
after the maturity date the MITTS Securities shall bear interest, payable upon
demand of the beneficial owners thereof, at the rate of 5.83% per annum, to the
extent that payment of any 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 any amount has been made or duly provided for.
Global Securities
Description of the Global Securities
Beneficial owners of the MITTS Securities may not receive physical
delivery of the MITTS Securities nor may they be entitled to have the MITTS
Securities registered in their names. The MITTS Securities currently are
represented by one or more fully registered global securities. Each global
security was deposited with, or on behalf of, The Depository Trust Company or
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 a 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 the 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 under the 1983 Indenture, 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 any action, and the participants would authorize beneficial owners owning
through those participants to give or take action or would otherwise act upon
the instructions of beneficial owners. Conveyance of notices and other
communications by DTC to participants, by participants to indirect participants
and by participants and indirect participants to beneficial owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
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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 the MITTS Securities, 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 under to the provisions of Section 17A of the Securities and 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 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 written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in the MITTS Securities
will 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 the 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 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 identified in a listing attached to
the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments 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
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<PAGE>
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 the 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 payments to direct
participants is the responsibility of DTC, and disbursement of payments to the
beneficial owners is the responsibility of direct and indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to 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.
In addition, ML&Co. may decide to discontinue use of the system of book-
entry transfers through the depositary. In that event, MITTS Securities in
definitive form 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 Delivery
All payments of principal and the Supplemental Redemption Amount, if any,
will be made by ML&Co., by delivery of shares of the Energy SPDR Fund in an
equivalent value. In the event ML&Co. elects, at its option, to pay cash in lieu
of delivering shares of the Energy SPDR Fund, ML&Co. will make that payment in
immediately available funds so long as the MITTS Securities are maintained in
book-entry form.
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<PAGE>
THE ENERGY SPDR FUND
ML&Co. has attached the Fund Prospectus describing the Energy SPDR Fund and
is delivering it to purchasers of the MITTS Securities together with this
prospectus for the convenience of reference only. The Fund Prospectus does not
constitute a part of this prospectus, nor is it incorporated by reference in
this prospectus. The summary description below is qualified in its entirety by
the information describing the Energy SPDR Fund and the Energy Select Sector
Index included in the attached Fund Prospectus.
As stated in the Fund Prospectus, the Energy SPDR Fund is an index fund
whose investment objective is to provide investment results that, before
expenses, correspond generally to the price and yield performance of the
publicly traded equity securities included in the Energy Select Sector Index.
The Energy Select Sector Index consists of the equity securities of publicly
traded companies that are components of the S&P 500 Index and are involved in
the development and production of energy products. Companies in the Energy
Select Sector Index develop and produce crude oil and natural gas, and provide
drilling and other energy related services.
Although ML&Co.'s subsidiary, MLPF&S, provides services to the Energy SPDR
Fund and the Energy Select Sector Index, ML&Co. is not affiliated with the
Energy SPDR Fund or the Energy Select Sector Index, and the Energy SPDR Fund did
not receive any of the proceeds from the sale of, or have any obligations under,
the MITTS Securities. A prospective purchaser of the MITTS Securities should
independently decide whether an investment in the MITTS Securities and the
Energy SPDR Fund is appropriate.
The Energy SPDR Fund is one of nine investment funds comprising the Trust.
Each fund's investment portfolio is comprised principally of constituent
companies whose equity securities are components of the S&P 500 Index, each
representing one of nine specified market sector indices. Each stock in the S&P
500 Index is allocated to only one Select Sector Index. The combined companies
of the nine indices represent all of the companies whose stocks are components
of the S&P 500 Index. The Energy SPDR Fund's initial public offering occurred on
December 16, 1998 and therefore it has limited operating history.
Because the Trust is subject to the registration requirements of the
Securities Act and the Investment Company Act, the Trust is required to file
periodically information specified by the SEC. For more information about the
Energy SPDR Fund and the shares that a holder of the MITTS Securities may
receive at maturity, information provided to or filed with the SEC by the Trust
can be inspected at the SEC's public reference facilities or accessed over the
Internet through a web site maintained by the SEC at http://www.sec.gov. Copies
of these documents may also be obtained at no cost by calling the Trust at (800)
843-2639 or by writing the Trust c/o ALPS Mutual Funds Services, Inc., at 370
17th Street, Suite 3100, Denver, CO 80202. Neither the Fund Prospectus nor these
other documents are incorporated by reference in this prospectus, and ML&Co.
makes no representation or warranty as to the accuracy or completeness of any of
these other documents.
ML&Co. is not affiliated with the Energy SPDR Fund, and the Energy SPDR
Fund has no obligations with respect to the MITTS Securities. This prospectus
relates only to the MITTS Securities offered hereby and does not relate to the
shares of the Energy SPDR Fund or any other securities relating to the Energy
SPDR Fund. The information contained in this prospectus regarding the Energy
SPDR Fund has been derived from the publicly available documents described in
the preceding paragraph. ML&Co. makes no representation that these publicly
available documents or any other publicly available information regarding the
Energy SPDR Fund are accurate or complete. Furthermore, there can be no
assurance that all events occurring prior to the date of this prospectus,
including events that would affect the accuracy or completeness of the publicly
available documents described in the preceding paragraph, that would affect the
trading price of the shares of the Energy SPDR Fund, and therefore the trading
price of the MITTS Securities, have been publicly disclosed. Subsequent
disclosure of any material events or the disclosure of or failure to disclose
material future events
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<PAGE>
concerning the Energy SPDR Fund could affect the Supplemental Redemption Amount,
if any, to be received at maturity and therefore the trading value of the MITTS
Securities.
MLPF&S, a subsidiary of ML&Co., is a soliciting dealer in the shares of the
Energy SPDR Fund. Additionally, MLPF&S serves as Index Compilation Agent for the
Energy Select Sector Index. In its capacity as Index Compilation Agent, MLPF&S
determines, in consultation with S&P, the composition of the securities measured
by the Energy Select Sector Index.
License Agreement
S&P, the AMEX and MLPF&S have entered into a non-exclusive license
agreement providing for the license to MLPF&S, in exchange for a fee, of the
right to use indices owned and published by S&P in connection with some
securities, including the MITTS Securities, and ML&Co. is an authorized
sublicensee of MLPF&S.
The license agreement among S&P, the AMEX and MLPF&S provides that the
following language must be stated in this prospectus:
"Standard & Poor's(R)", "Standard & Poor's 500", "S&P 500(R)", "S&P(R)",
"500", "Standard & Poor's Depositary Receipts", "SPDRs", "Select Sector SPDR"
and "Select Sector Standard & Poor's Depositary Receipts" are trademarks of
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., and have been
licensed for use by MLPF&S. ML&Co., is an authorized sublicensee of MLPF&S. The
stocks comprising the Energy Select Sector Index were selected by MLPF&S, as
Index Compilation Agent, in consultation with S&P from the universe of companies
represented by the S&P 500 Index. The composition and weightings of the stocks
included in the Energy Select Sector Index can be expected to differ from the
composition and weighting of stocks included in any similar S&P 500 sector index
published and disseminated by S&P.
The MITTS Securities, the Energy SPDR Fund and the Energy Select Sector
Index are not sponsored, endorsed, sold or promoted by S&P. S&P 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 in the
ability of the Energy SPDR Fund to track the performance and yield of the Energy
Select Sector Index or in the ability of the Energy Select Sector Index to track
the performance of the energy sector represented in the stock market. The stocks
included in the Energy Select Sector Index were selected by MLPF&S as the Index
Compilation Agent in consultation with S&P from a universe of companies involved
in the development and production of energy products and represented by the S&P
500 Index. The composition and weightings of the stocks included in the Energy
Select Sector Index can be expected to differ from the composition and weighting
of stocks included in any corresponding S&P 500 sector index that is published
and disseminated by S&P. S&P's only relationship to the Index Compilation Agent
is the licensing of some trademarks and trade names of S&P and of the S&P 500
Index which is determined, composed and calculated by S&P without regard to the
index compilation agent or the MITTS Securities. S&P has no obligation to take
the needs of the Index Compilation Agent, ML&Co. or the holders of the MITTS
Securities into consideration in determining, composing or calculating the S&P
500 Index. S&P is not responsible for and has not participated in any
determination of the timing of the sale of the MITTS Securities, prices at which
the MITTS Securities are initially to be sold, or quantities of the MITTS
Securities to be issued or in the determination or calculation of the equation
by which ML&Co. will convert the MITTS Securities ML&Co. into shares of the
Energy SPDR Fund or cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of the MITTS Securities.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index, the Energy Select Sector Index or any data included therein. S&P makes no
warranty, express or implied, as to results to be obtained by ML&Co., MLPF&S,
the holders of the MITTS Securities, or any other person or entity from the use
of the S&P 500 Index, the Energy Select Sector Index or any data included
therein in connection with
24
<PAGE>
the rights licensed under the license agreement described herein or for any
other use. S&P makes no express or implied warranties, and expressly disclaims
all warranties of merchantability or fitness for a particular purpose with
respect to the S&P 500 Index, the Energy Select Sector Index or any data
included therein. Without limiting the generality of the foregoing, in no event
shall S&P have any liability for any special, punitive, indirect or
consequential damages (including lost profits), even if notified of the
possibility of these damages.
All disclosures contained in this prospectus regarding the S&P 500 Index or
the Energy Select Sector Index, including its respective make-up, method of
calculation and changes in its components, are derived from publicly available
information prepared by S&P and the Trust, respectively. ML&Co. and MLPF&S do
not assume any responsibility for the accuracy or completeness of this
information.
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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
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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 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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
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. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under
"--Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
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. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior 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 final Treasury Department Regulations
(the "Final Regulations") concerning the United States Federal income tax
treatment of contingent payment debt instruments 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 and a projected
Supplemental Redemption Amount equal to $4.9556 per Unit (the "Projected
Supplemental Redemption Amount"). This represents an estimated yield on the
MITTS Securities equal to 5.83% 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 an assumed term of approximately seven years for 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 5.83% per annum (compounded semiannually, as determined by ML&Co.
for purposes of illustrating the application of the Final Regulations to the
MITTS Securities:
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<TABLE>
<CAPTION>
Total Interest
Deemed to Have
Accrued on MITTS
Interest Deemed to Accrue Securities as of End
During Accrual Period of Accrual Period
Accrual Period (per Unit) (per Unit)
-------------- ---------- ----------
<S> <C> <C>
February 18, 1999 through August 21, 1999.......................... $ 0.2939 $ 0.2939
August 22, 1999 through February 21, 2000.......................... $ 0.3001 $ 0.5940
February 22, 2000 through August 21, 2000.......................... $ 0.3088 $ 0.9028
August 22, 2000 through February 21, 2001.......................... $ 0.3178 $ 1.2206
February 22, 2001 through August 21, 2001.......................... $ 0.3271 $ 1.5477
August 22, 2001 through February 21, 2002.......................... $ 0.3366 $ 1.8843
February 22, 2002 through August 21, 2002.......................... $ 0.3465 $ 2.2308
August 22, 2002 through February 21, 2003.......................... $ 0.3565 $ 2.5873
February 22, 2003 through August 21, 2003.......................... $ 0.3669 $ 2.9542
August 22, 2003 through February 21, 2004.......................... $ 0.3776 $ 3.3318
February 22, 2004 through August 21, 2004.......................... $ 0.3886 $ 3.7204
August 22, 2004 through February 21, 2005.......................... $ 0.4000 $ 4.1204
February 22, 2005 through August 21, 2005.......................... $ 0.4116 $ 4.5320
August 22, 2005 through February 21, 2006.......................... $ 0.4236 $ 4.9556
</TABLE>
_____________
Projected Supplemental Redemption Amount=$4.9556 per unit.
All prospective investors in the 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 to Merrill Lynch & Co., Inc., Corporate Secretary's Office, 222
Broadway, 17th Floor, New York, New York 10038, (212) 670-0432,
[email protected].
WHERE YOU CAN FIND MORE INFORMATION
ML&Co.
We file reports, proxy statements and other information with the SEC. Our
SEC filings are also available over the Internet at the SEC's web site at
http://www.sec.gov. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement of which this prospectus is a part.
The Energy SPDR Fund
The Trust is subject to the registration requirements of the Securities Act
and the Investment Company Act and is required to file periodically information
specified by the SEC. For more information about the
29
<PAGE>
Energy SPDR Fund and the shares that you may receive at maturity, information
provided to or filed with the SEC by the Trust can be inspected at the SEC's
public reference facilities or accessed over the Internet through its web site.
You may also obtain copies of these documents at no cost by calling the Trust at
(800) 843-2639 or by writing the Trust c/o ALPS Mutual Funds Services, Inc., at
370 17th Street, Suite 3100, Denver, CO 80202. Neither the Fund Prospectus nor
these other documents are incorporated by reference in this prospectus, and we
make no representation or warranty as to the accuracy or completeness of this
information.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
30
<PAGE>
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus Supplement dated December 27, 2000
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH (SM) INVESTING
Pursuit of Growth, Protection of Principal
Merrill Lynch & Co., Inc.
Callable Market Index Target-Term Securities(R)
due March 5, 2007
based upon Internet HOLDRs(SM)
"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 the stated maturity or upon exercise of the
call option:
. 100% principal protection at maturity. . On the maturity date, if the Callable MITTS
. Callable prior to the stated maturity by Merrill Securities have not been called, for each unit of the
Lynch & Co., Inc. MITTS Securities you own we will pay you an amount
. No payments before the maturity date unless called. equal to the sum of the principal amount of each unit
. Senior unsecured debt securities of Merrill Lynch & Co., Inc. and an additional amount based on the percentage
. Linked to the price of Internet HOLDRs (trading increase, if any, in the price of Internet HOLDRs.
symbol "HHH")
. The Callable MITTS Securities are listed on the . At maturity, you will receive no less than the
American Stock Exchange under the trading symbol principal amount of your MITTS Securities.
"IHM". . If Merrill Lynch & Co., Inc. elects to call your
. Closing date: March 3, 2000. Callable MITTS Securities prior to the stated
maturity, you will receive $22.50 per unit.
</TABLE>
Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page 7 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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
and "Protected Growth", "HOLDRs" and "Holding Company Depositary Receipts" are
service marks of Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION--Q&A................................................... 3
RISK FACTORS............................................................... 7
MERRILL LYNCH & CO., INC................................................... 11
RATIO OF EARNINGS TO FIXED CHARGES......................................... 12
DESCRIPTION OF THE CALLABLE MITTS SECURITIES............................... 13
THE INTERNET HOLDRS TRUST.................................................. 24
OTHER TERMS................................................................ 24
PROJECTED PAYMENT SCHEDULE................................................. 27
ERISA CONSIDERATIONS....................................................... 28
WHERE YOU CAN FIND MORE INFORMATION........................................ 28
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.......................... 29
EXPERTS.................................................................... 30
</TABLE>
2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Callable Market
Index Target-Term Securities(R) due March 5, 2007 based upon Internet
HOLDRs(SM). You should carefully read this prospectus to fully understand the
terms of the Callable MITTS Securities and the tax and other considerations that
are important to you in making a decision about whether to invest in the
Callable MITTS Securities. You should carefully review the "Risk Factors"
section, which highlights certain risks associated with an investment in the
Callable MITTS Securities, to determine whether an investment in the Callable
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 supplement to "MLPF&S" are to Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
"Internet HOLDRs" are depositary receipts issued by the Internet HOLDRs
Trust. We have attached the prospectus dated and the
prospectus supplement dated , 2000 for Internet HOLDRs (the "HOLDRs
Prospectus"). From time to time the Internet HOLDRs Trust updates the prospectus
supplement. You should carefully read the HOLDRs Prospectus and any updated
prospectus supplements including the section entitled "Risk Factors" to fully
understand the operation and management of the Internet HOLDRs Trust and risks
that may affect the price of Internet HOLDRs. The Internet HOLDRs Trust will not
receive any of the proceeds from the sale of the Callable MITTS Securities and
will not have any obligations with respect to the Callable MITTS Securities.
We have attached the HOLDRs Prospectus and are delivering it to you
together with this prospectus for the convenience of reference only. The HOLDRs
Prospectus does not constitute a part of this prospectus nor is it incorporated
by reference into this prospectus.
What are the Callable MITTS Securities?
The Callable MITTS Securities are a series of senior debt securities issued
by ML&Co. and are not secured by collateral. The Callable MITTS Securities rank
equally with all of our other unsecured and unsubordinated debt. The Callable
MITTS Securities will mature on March 5, 2007.
Each unit of Callable MITTS Securities represents $10 principal amount of
Callable MITTS Securities. You may transfer the Callable 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 issued
the Callable MITTS Securities in the form of a global certificate, which are
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 Callable
MITTS Securities. You should refer to the section entitled "Description of the
Callable MITTS Securities--Depositary" in this prospectus.
What will I receive on the stated maturity date of the Callable MITTS
Securities?
We have designed the Callable MITTS Securities for investors who want to
protect their investment by receiving at least the $10 principal amount at
maturity and who also want to participate in possible increases in the price of
Internet HOLDRs. On the stated maturity date, if we have not called the Callable
MITTS Securities, you will receive a cash payment equal to the sum of two
amounts: the "principal amount" and the "Supplemental Redemption Amount", if
any.
Principal amount
The "principal amount" per unit is $10.
Supplemental Redemption Amount
The "Supplemental Redemption Amount" per unit will equal:
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<PAGE>
( Ending Value - Starting Value )
$10 x ( ----------------------------- )
( Starting Value )
but will not be less than zero.
"Starting Value" equals 156.44, the closing price of one unit of Internet
HOLDRs on February 29, 2000, the date the Callable MITTS Securities were priced
for initial sale to the public.
"Ending Value" will be the average of the closing prices of Internet
HOLDRs, as adjusted for dilution and reorganization events described in this
prospectus, on five business days shortly before the maturity of the Callable
MITTS Securities. We may calculate the Ending Value by reference to fewer than
five or even a single day's closing price if, during the period shortly before
the stated maturity date of the Callable MITTS Securities, there is a disruption
in the trading of Internet HOLDRs.
For more specific information about the Supplemental Redemption Amount,
please see the section entitled "Description of the Callable MITTS Securities"
in this prospectus.
We will pay you a Supplemental Redemption Amount only if we do not call the
Callable MITTS Securities prior to the maturity date and 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 your Callable MITTS Securities regardless of whether
any Supplemental Redemption Amount is payable.
Examples
Here are two examples of Supplemental Redemption Amount, calculations
assuming the Callable MITTS Securities have not been called prior to the stated
maturity:
Example 1--The Ending Value is less than the Starting Value on the stated
maturity date:
Starting Value: $156.44
Hypothetical Ending Value at maturity: $140.79
<TABLE>
<S> <C> <C>
(Supplemental
( 140.79 - 156.44 ) Redemption
Supplemental Redemption Amount (per unit) = $10 x ( --------------- ) x = $0.00 Amount cannot
( 156.44 ) be less than
zero)
</TABLE>
Total payment at maturity (per unit) = $10.00 + $0.00 = $10.00
Example 2-- The Ending Value is less than the Starting Value on the stated
maturity date:
Starting Value: $156.44
Hypothetical Ending Value at maturity: $281.59
<TABLE>
<S> <C>
( 281.59 - 156.44 )
Supplemental Redemption Amount (per unit) = $10 x ( --------------- ) x = $8.00
( 156.44 )
</TABLE>
Total payment at maturity (per unit) = $10.00 + $8.00 = $18.00
4
<PAGE>
How does the call feature work?
We may elect to call the Callable MITTS Securities at $22.50 per unit (the
"Call Price") on any Business Day during the month of February 2006 (the "Call
Period") by giving notice to the trustee of the Callable MITTS Securities as
described herein and specifying the date on which the Call Price shall be paid
(the "Payment Date"). The Payment Date shall be no later than the twentieth
Business Day after the call election.
If we elect to call your Callable MITTS Securities prior to the stated
maturity date, you will receive only the Call Price and you will not receive a
Supplemental Redemption Amount based on the price of Internet HOLDRs. If we do
not call the Callable MITTS Securities prior to the stated maturity date, the
principal amount plus the Supplemental Redemption Amount, if any, that you
receive at the stated maturity date may be greater than or less than the Call
Price.
What is the Internet HOLDRs Trust?
The Internet HOLDRs Trust was formed under the depositary trust agreement,
dated September 2, 1999, among The Bank of New York, as trustee, MLPF&S, as the
initial depositor, other depositors and the owners of Internet HOLDRs. The trust
is not a registered investment company under the Investment Company Act of 1940.
The trust holds shares of common stock issued by companies generally
considered to be involved in various segments of the Internet industry. The
trust issues Internet HOLDRs that represent an undivided beneficial ownership
interest in the shares of common stock held by the trust. Internet HOLDRs are
separate from the underlying common stocks that are represented by Internet
HOLDRs.
Internet HOLDRs are listed on the AMEX under the trading symbol "HHH".
You should carefully read the HOLDRs Prospectus accompanying this
prospectus to fully understand the operation and management of the Internet
HOLDRs Trust. The risks described in the HOLDRs Prospectus under the section
entitled "Risk Factors" may affect the prices of Internet HOLDRs and, therefore,
the value of the Callable MITTS Securities. The HOLDRs Prospectus is not
incorporated by reference into this prospectus and we make no representation or
warranty as to the accuracy or completeness of the information.
Please note that an investment in the Callable MITTS Securities does not
entitle you to an ownership interest in Internet HOLDRs or in the stocks held by
the Internet HOLDRs Trust.
Are the Callable MITTS Securities listed on a stock exchange?
The Callable MITTS Securities are listed on the AMEX under the trading
symbol "IHM". You should be aware that the listing of the Callable MITTS
Securities on the AMEX will not necessarily ensure that a liquid trading market
will be available for the Callable MITTS Securities. You should review the
section entitled "Risk Factors--There may be an uncertain trading market for the
Callable 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 Callable MITTS Securities. MLPF&S intends to buy and sell Callable
MITTS Securities to create a secondary market for holders of the Callable MITTS
Securities. However, MLPF&S is not obligated to engage in any of these market
activities.
MLPF&S is also be 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 a subsidiary of ML&Co. and its responsibilities as calculation
agent. In addition, MLPF&S also acted as the initial depositor for the Internet
HOLDRs Trust.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiaries
and affiliated companies that provide investment, financing,
5
<PAGE>
insurance and related services on a global basis. For information about ML&Co.,
see the section entitled "Merrill Lynch & Co., Inc." in this prospectus. You
should also read the other documents we have 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 Callable MITTS Securities is subject to risk.
Please refer to the section entitled "Risk Factors" in this prospectus.
6
<PAGE>
RISK FACTORS
Your investment in the Callable MITTS Securities will involve risks. You
should carefully consider the following discussion of risks before investing in
the Callable MITTS Securities. In addition, you should reach an investment
decision with regard to the Callable MITTS Securities only after consulting your
legal and tax advisers and considering the suitability of the Callable MITTS
Securities in 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 price of Internet HOLDRs was higher than the
Starting Value at some time during the life of the Callable 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 Callable MITTS
Securities.
The Callable MITTS Securities are subject to early call
We may elect to call all of the Callable MITTS Securities by giving notice
on any Business Day during February 2006. We are likely to call the Callable
MITTS Securities during the Call Period if the secondary market price of the
Callable MITTS Securities is approximately equal to or above the Call Price
during that period. We can, however, call the Callable MITTS Securities during
the Call Period at our option regardless of the secondary market price of the
Callable MITTS Securities. In the event that we elect to call the Callable MITTS
Securities, you will receive only the Call Price and no Supplemental Redemption
Amount based on the price of Internet HOLDRs.
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 ML&Co. 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 Internet HOLDRs or the
securities held by the Internet HOLDRs Trust
The return on your Callable MITTS Securities will not reflect the return
you would realize if you actually owned Internet HOLDRs and received the
dividends, if any, paid on Internet HOLDRs because the value of Internet HOLDRs
is calculated by reference to the price of Internet HOLDRs without taking into
consideration the value of any normal dividends paid on Internet HOLDRs. In
addition, if Callable MITTS Securities are called prior to the stated maturity
date, you will receive only the Call Price and you will not receive any
additional amount based upon the appreciation, if any, in the price of Internet
HOLDRs.
There may be an uncertain trading market for the Callable MITTS Securities
The Callable MITTS Securities are listed on the AMEX under the trading
symbol "IHM". You cannot assume that a trading market exists for the Callable
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 Callable MITTS Securities depends on our financial performance and other
factors such as the increase, if any, in the price of Internet HOLDRs.
7
<PAGE>
If the trading market for the Callable MITTS Securities is limited, there
may be a limited number of buyers for your Callable 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 Callable 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 Callable 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 Callable MITTS Securities caused by another factor and that the effect of
one factor may exacerbate the decrease in the trading value of the Callable
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 Callable MITTS Securities attributable to another factor, such as an
increase in the price of Internet HOLDRs. The following paragraphs describe the
expected impact on the market value of the Callable MITTS Securities given a
change in a specific factor, assuming all other conditions remain constant.
The price of Internet HOLDRs is expected to affect the trading value of the
Callable MITTS Securities. We expect that the market value of the Callable MITTS
Securities will depend substantially on the amount, if any, by which the price
of Internet HOLDRs, as adjusted for certain dilution and reorganization events
described in this prospectus supplement, exceeds the Starting Value. If you
choose to sell your Callable MITTS Securities when the price of Internet HOLDRs,
as adjusted, exceeds the Starting Value, you may receive substantially less than
the amount that would be payable at maturity based on that price because of the
expectation that the price of Internet HOLDRs will continue to fluctuate until
the Ending Value is determined. If you choose to sell your Callable MITTS
Securities when the price of Internet HOLDRs, as adjusted, is below, or not
sufficiently above, the Starting Value, you may receive less than the $10
principal amount per unit of Callable MITTS Securities.
Changes in the levels of interest rates are expected to affect the trading
value of the Callable MITTS Securities. Because we will pay, at a minimum, the
principal amount per unit of Callable MITTS Securities at maturity, we expect
that changes in interest rates will affect the trading value of the Callable
MITTS Securities. In general, if U.S. interest rates increase, we expect that
the trading value of the Callable MITTS Securities will decrease and,
conversely, if U.S. interest rates decrease, we expect that the trading value of
the Callable MITTS Securities will increase.
Changes in the volatility of Internet HOLDRs are expected to affect the
trading value of the Callable MITTS Securities. Volatility is the term used to
describe the size and frequency of price and/or market fluctuations. If the
volatility of Internet HOLDRs increases or decreases, the trading value of the
Callable MITTS Securities may be adversely affected.
As the time remaining to maturity of the Callable MITTS Securities
decreases, the "time premium" associated with the Callable MITTS Securities will
decrease. We anticipate that before their maturity, the Callable MITTS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the price of Internet HOLDRs. This difference will
reflect a "time premium" due to expectations concerning the price of Internet
HOLDRs during the period before the stated maturity of the Callable MITTS
Securities. However, as the time remaining to the stated maturity of the
Callable MITTS Securities decreases, we expect that this time premium will
decrease, lowering the trading value of the Callable MITTS Securities.
Changes in dividend yields of the stocks held by the Internet HOLDRs Trust
are expected to affect the trading value of the Callable MITTS Securities. If
the dividend yields on the stocks held by the Internet HOLDRs Trust increase, we
expect that the value of the Callable MITTS Securities will decrease and,
conversely, if the dividend yields on the stocks held by the Internet HOLDRs
Trust decrease, we expect that the value of the Callable MITTS Securities will
increase.
8
<PAGE>
Changes in our credit ratings may affect the trading value of the Callable
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 Callable MITTS Securities. However, because your
return on your Callable MITTS Securities is dependent upon factors in addition
to our ability to pay our obligations under the Callable MITTS Securities, such
as the percentage increase in the price of Internet HOLDRs at maturity, an
improvement in our credit ratings will not reduce the other investment risks
related to the Callable MITTS Securities.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the Callable 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 Callable MITTS Securities than if it occurs earlier in the term
of the Callable MITTS Securities. However, we expect that the effect on the
trading value of the Callable MITTS Securities of a given change in the price of
Internet HOLDRs will be greater if it occurs later in the term of the Callable
MITTS Securities than if it occurs earlier in the term of the Callable MITTS
Securities.
Amounts payable on the Callable MITTS Securities may be limited by state law
New York State law governs the 1983 Indenture under which the Callable
MITTS Securities were 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 Callable 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 promise, for the benefit of the holders of the Callable MITTS Securities, to
the extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
No stockholder's rights
Beneficial owners of the Callable MITTS Securities are not entitled to any
rights in Internet HOLDRs including, for example, voting rights and rights to
receive any dividends or other distributions and rights to cancel Internet
HOLDRs and receive the underlying securities.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell Internet HOLDRs or
stocks of the companies held by the Internet HOLDRs Trust for our own accounts,
for business reasons or in connection with hedging our obligations under the
Callable MITTS Securities. These transactions could affect the price of Internet
HOLDRs in a manner that could be adverse to your investment in the Callable
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 Callable MITTS Securities could
give rise to conflicts of interests. 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 the amounts due at
maturity. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
9
<PAGE>
Risks related to Internet HOLDRs
Internet HOLDRs are subject to various risks which are described under the
section entitled "Risk Factors" in the HOLDRs Prospectus. Any loss of value to
Internet HOLDRs attributable to such risks could adversely affect the value of
the Callable MITTS Securities. You should carefully consider those risks before
deciding whether an investment in the Callable MITTS Securities is suitable for
you.
10
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
11
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
12
<PAGE>
DESCRIPTION OF THE CALLABLE MITTS SECURITIES
On March 3, 2000 ML&Co. issued an aggregate principal amount of $40,000,000
or 4,000,000 units of Callable MITTS Securities. The Callable MITTS Securities
were issued as a series of senior debt securities under the 1983 Indenture,
which is more fully described in this prospectus.
The Callable MITTS Securities will mature on March 5, 2007 unless called
earlier at the option of ML&Co.
Unless called, at the stated maturity a beneficial owner of a Callable
MITTS Security will receive the sum of the principal amount of the Callable
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".
The Callable MITTS Securities may be called by ML&Co. as described below,
but are not subject to redemption at the option of any beneficial owner before
maturity. If an Event of Default occurs with respect to the Callable MITTS
Securities, beneficial owners of the Callable MITTS Securities may accelerate
the maturity of the Callable MITTS Securities, as described under the sections
entitled "--Events of Default and Acceleration" in this prospectus supplement
and "Description of Debt Securities--Events of Default" in the accompanying
prospectus.
ML&Co. will issue the Callable MITTS Securities in denominations of whole
units each with a principal amount of $10.00.
The Callable MITTS Securities will not have the benefit of any sinking
fund.
Payment at maturity
If we do not call the Callable MITTS Securities at an earlier date, at the
stated maturity, a beneficial owner of a Callable MITTS Security will be
entitled to receive the $10 principal amount of each Callable MITTS Security
plus the Supplemental Redemption Amount, if any, all as provided below. If the
Ending Value does not exceed the Starting Value, a beneficial owner of a
Callable MITTS Security will be entitled to receive only the principal amount of
the Callable MITTS Security.
The "Supplemental Redemption Amount" for a Callable MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<S> <C>
( Ending Value - Starting Value )
principal amount of each Callable 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 156.44, the Closing Price of one unit of
Internet HOLDRs on February 29, 2000, 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 value of the Reference Property determined as follows:
(A) for any portion of the Reference Property consisting of cash:
. that cash, plus
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<PAGE>
. interest on the amount accruing from and including the date of the
payment of that cash to holders of the Reference Property for which
that cash was paid to but excluding the stated maturity date at a
fixed interest rate determined on the date of the payment equal to
the interest rate that would be paid on a fixed rate senior non-
callable debt security of ML&Co. with a term equal to the remaining
term for the Callable MITTS Securities as determined by the
calculation agent;
(B) for any portion of the Reference Property consisting of property other
than cash or Reference Securities:
. the market value of that property, as determined by the calculation
agent on the date that the property was delivered to holders of the
relevant Reference Property for which the property was distributed,
plus
. interest on the amount accruing from and including the date of
delivery to but excluding the stated maturity date at a fixed
interest rate determined as described in (A) above; and
(C) for any portion of the Reference Property consisting of Reference
Securities, the average, arithmetic mean, of the Closing Prices of each
such Reference Security determined on each of the first five
Calculation Days during the Calculation Period. If there are fewer than
five Calculation Days in the Calculation Period with respect to any
Reference Security, then the Ending Value shall be calculated using the
average, arithmetic mean, of the Closing Prices of that Reference
Security on those Calculation Days, and if there is only one
Calculation Day, then the Ending Value shall be calculated using the
Closing Price of that Reference Security on such Calculation Day. If no
Calculation Days occur during the Calculation Period with respect to
that Reference Security, then the Ending Value shall be calculated
using the Closing Price of that Reference Security determined on the
last scheduled Calculation Day in the Calculation Period, regardless of
the occurrence of a Market Disruption Event on that day.
"Reference Property" initially shall mean one unit of Internet HOLDRs, and
shall be subject to adjustment from time to time to reflect the distribution of
cash, securities and/or other property in accordance with the adjustment
provisions described below under "--Dilution and Reorganization Adjustments".
"Reference Securities" shall mean any securities included in the Reference
Property.
"Calculation Period" means the period from and including the seventh
scheduled Calculation Day prior to the stated maturity date to and including the
second scheduled Calculation Day prior to the stated maturity date.
"Calculation Day" means, with respect to any Reference Security, any
Trading Day during the Calculation Period on which a Market Disruption Event has
not occurred.
"Market Disruption Event" means, for any Reference Security, the occurrence
or existence on any Business Day during the one-half hour period that ends when
the Closing Price is determined, of any suspension of, or limitation imposed on,
trading in that Reference Security on the New York Stock Exchange, or other
market or exchange, if applicable.
"Trading Day" means a day on which the AMEX, the NYSE and the NASDAQ
National Market System ("NASDAQ NMS") are open for trading.
"Closing Price" of a Reference Security means, for a Calculation Day the
following:
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<PAGE>
(a) If the Reference Security is listed on a national securities exchange
in the United States, is a NASDAQ NMS security or is included in the
OTC Bulletin Board Service ("OTC Bulletin Board") operated by the
National Association of Securities Dealers, Inc. (the "NASD"), Closing
Price means:
(i) the last reported sale price, regular way, on that day on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), on which that Reference Security is listed or admitted to
trading, or
(ii) if not listed or admitted to trading on any such securities
exchange or if the last reported sale price is not obtainable,
the last reported sale price on the over-the-counter market as
reported on the NASDAQ NMS or OTC Bulletin Board on that day, or
(iii) if the last reported sale price is not available pursuant to
(i) and (ii) above, the mean of the last reported bid and
offer price on the over-the-counter market as reported on the
NASDAQ NMS or OTC Bulletin Board on that day as determined by
the calculation agent.
The term "NASDAQ NMS security" shall include a security included in any
successor to that system and the term "OTC Bulletin Board" shall include
any successor service to that service.
(b) If the Reference Security is not listed on a national securities
exchange in the United States or is not a NASDAQ NMS security or
included in the OTC Bulletin Board operated by the NASD, Closing Price
means the last reported sale price on that day on the securities
exchange on which the Reference Security is listed or admitted to
trading with the greatest volume of trading for the calendar month
preceding that day as determined by the calculation agent, provided
that if the last reported sale price is for a transaction which
occurred more than four hours prior to the close of that exchange,
then the Closing Price shall mean the average, mean, of the last
available bid and offer price on that exchange. If the Reference
Security is not listed or admitted to trading on any such securities
exchange or if the last reported sale price or bid and offer are not
obtainable, the Closing Price shall mean the last reported sale price
for a transaction which occurred more than four hours prior to when
trading in such over-the-counter market typically ends, then the
Closing Price shall mean the average, mean, of the last available bid
and offer prices in such market of the three dealers which have the
highest volume of transactions in the Reference Security in the
immediately preceding calendar month as determined by the calculation
agent based on information that is reasonably available to it.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law to close and that is a day on the NYSE and the
AMEX are open for trading.
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 Callable MITTS Securities.
Early call of the Callable MITTS Securities at the option of ML&Co.
During the Call Period, the month of February 2006, ML&Co., in its sole
discretion, may elect to call the Callable MITTS Securities, in whole but not in
part, before the stated maturity date by giving notice to the trustee of
ML&Co.'s election on any Business Day within the month of February 2006, at
$22.50 per unit.
If we elect to call your Callable MITTS Securities before the stated
maturity date, you will receive only the Call Price and you will not receive a
Supplemental Redemption Amount based on the price of Internet
15
<PAGE>
HOLDRs. If we do not call the Callable MITTS Securities before the stated
maturity date, the principal amount plus the Supplemental Redemption Amount, if
any, that you receive at the stated maturity may be greater than or less than
the Call Price. ML&Co. may elect to call the Callable MITTS Securities on any
Business Day during the Call Period by giving notice to the trustee and
specifying the date on which the Call Price shall be paid. The Payment Date
shall be no later than the twentieth Business Day after the call election. The
trustee will provide notice of the call election to the registered holders of
the Callable MITTS Securities, specifying the Payment Date, no less than 15, nor
more than 30, calendar days prior to the Payment Date. While the Callable MITTS
Securities are held at the depositary, the registered holder will be the
depositary, and the depositary will receive the notice of the call. As more
fully described below under "--Depositary", the depositary will forward this
notice to its participants which will pass in on the beneficial owners.
You should compare the features of the Callable MITTS Securities to other
available investments before deciding to purchase the Callable MITTS Securities.
Due to the uncertainty as to whether the Callable MITTS Securities will earn a
Supplemental Redemption Amount or be called prior to the stated maturity date,
the return on investment with respect to the Callable MITTS Securities may be
higher or lower than the return available on other securities issued by ML&Co.
or issued by others and available through MLPF&S. It is suggested that you reach
an investment decision only after carefully considering the suitability of the
Callable MITTS Securities in light of your particular circumstances.
Hypothetical returns
The following table illustrates, for a range of hypothetical Ending Values
during the Calculation Period:
. the percentage change from the Starting Value to the hypothetical
Ending Value,
. the total amount payable at maturity for each unit of Callable MITTS
Securities,
. the total rate of return to beneficial owners of the Callable MITTS
Securities,
. the pretax annualized rate of return to the beneficial owners of the
Callable MITTS Securities, and
. pretax annualized rate of return of an investment in Internet HOLDRs.
16
<PAGE>
<TABLE>
<CAPTION>
Pretax
Total amount Total rate annualized
Percentage change payable at of return rate of Pretax
from the maturity per on the return on annualized
Starting Value unit of the Callable the Callable rate of return
Hypothetical to the hypothetical Callable MITTS MITTS MITTS on Internet
Ending Value Ending Value Securities Securities Securities(1) HOLDRs(1)(2)
------------------ ------------------- -------------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
31.29 -80% 10.00 0.00% 0.00% -21.72%
62.58 -60% 10.00 0.00% 0.00% -12.67%
93.86 -40% 10.00 0.00% 0.00% -7.17%
125.15 -20% 10.00 0.00% 0.00% -3.16%
156.44(3) 0% 10.00 0.00% 0.00% 0.00%
187.73 20% 12.00 20.00% 2.62% 2.62%
219.01 40% 14.00 40.00% 4.86% 4.86%
250.30 60% 16.00 60.00% 6.82% 6.82%
281.59 80% 18.00 80.00% 8.57% 8.57%
312.88 100% 20.00 100.00% 10.14% 10.14%
344.16 120% 22.00 120.00% 11.57% 11.57%
375.45 140% 24.00 140.00% 12.89% 12.89%
406.74 160% 26.00 160.00% 14.11% 14.11%
</TABLE>
___________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) a dividend yield of 0% per annum;
(b) no transaction fees or expenses;
(c) an investment term of seven years; and
(d) a percentage change in the aggregate price of Internet HOLDRs, as
adjusted for any dilution or reorganization events described below,
that equals the percentage change from the Starting Value to the
relevant hypothetical Ending Value.
(3) This is the Closing Price of a unit of Internet HOLDRs on February 29, 2000
and the Starting Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rates of return will depend entirely on the actual Ending
Value determined by the calculation agent as provided in this prospectus
supplement.
Events of Default and Acceleration
In case an Event of Default with respect to any Callable MITTS Securities
has occurred and is continuing, the amount payable to a beneficial owner of a
Callable MITTS Security upon any acceleration permitted by the Callable MITTS
Securities, with respect to each $10 principal amount of the Callable MITTS
Securities, will be equal to the principal amount and the Supplemental
Redemption Amount, if any, calculated as though the date of early repayment was
the stated maturity date of the Callable MITTS Securities, provided, however, if
the acceleration occurs before the end of the Call Period, the maximum amount
payable with respect to the Callable MITTS Securities will be the Call Price. If
a bankruptcy proceeding is commenced in respect of ML&Co., the claim of the
beneficial owner of a Callable MITTS Security may be limited, under Section
502(b)(2) of Title 11 of the United States Code, to the principal amount of the
Callable 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 Callable MITTS Securities.
In case of default in payment of the Callable MITTS Securities, whether at
the stated maturity or upon acceleration, from and after the maturity date the
Callable MITTS Securities will bear interest, payable upon demand of their
beneficial owners, at the rate of 6.68% per annum, to the extent that payment of
any interest is
17
<PAGE>
legally enforceable, on the unpaid amount due and payable on that date in
accordance with the terms of the Callable MITTS Securities to the date payment
of that amount has been made or duly provided for.
Dilution and Reorganization Adjustments
The Reference Property is subject to adjustment if an issuer of any
Reference Security shall:
(i) pay a stock dividend or make a distribution on that Reference
Security in Reference Securities;
(ii) subdivide or split the outstanding units of that Reference Security
into a greater number of units;
(iii) combine the outstanding units of that Reference Security into a
smaller number of units;
(iv) issue by reclassification of units of that Reference Security any
units of another security of that issuer;
(v) issue rights or warrants to all holders of that Reference Security
entitling them to subscribe for or purchase shares, in the aggregate,
for more than 5% of the number of those Reference Securities
outstanding prior to the issuance of the rights or warrants at a
price per share less than the then current market price of that
Reference Security (other than rights to purchase that Reference
Security pursuant to a plan for the reinvestment of dividends or
interest); or
(vi) pay a dividend or make a distribution to all holders of that
Reference Security of evidences of its indebtedness or other assets:
. including in the case where the Reference Security is Internet
HOLDRs, any of the securities underlying Internet HOLDRs that may
be distributed by the Internet HOLDRs Trust, but,
. excluding any stock dividends or distributions referred to in
clause (i) above or any cash dividends other than any
Extraordinary Cash Dividend or issue to all holders of that
Reference Security rights or warrants to subscribe for or
purchase any of its securities (other than those referred to in
clause (v) above) (any of the foregoing assets are referred to as
the "Distributed Assets" and any of the foregoing events are
referred to as the "Dilution Events").
For purposes of provision (vi) above, if the holder of a Reference Security can
elect to receive securities in lieu of cash or property other than securities,
then for purposes of provision (vi) above, the holders of the Reference Security
shall be deemed to receive only the securities.
In the case of the Dilution Events referred to in clauses (i), (ii), (iii)
and (iv) above, the Reference Property shall be adjusted to include the number
of units of the Reference Security and/or security of that issuer which a holder
of units of that Reference Security would have owned or been entitled to receive
immediately following any the event had the holder held, immediately prior to
such event, the number of units of that Reference Security constituting part of
the Reference Property immediately prior to the event. Each adjustment shall
become effective immediately after the effective date for the subdivision,
split, combination or reclassification, as the case may be. Each adjustment
shall be made successively.
In the case of the Dilution Event referred to in clause (v) above where the
rights or warrants are for more than 5% of the number of shares outstanding
prior to the issuance of the rights or warrants, the Reference
18
<PAGE>
Property shall be adjusted by multiplying the number of Reference Securities
constituting Reference Property immediately prior to the date of issuance of the
rights or warrants referred to in clause (v) above by a fraction:
. the numerator of which shall be the number of Reference Securities
outstanding on the date immediately prior to such issuance, plus the
number of additional Reference Securities offered for subscription or
purchase pursuant to the rights or warrants, and
. the denominator of which shall be the number of Reference Securities
outstanding on the date immediately prior to such issuance, plus the
number of additional Reference Securities which the aggregate offering
price of the total number of Reference Securities so offered for
subscription or purchase pursuant to the rights or warrants would
purchase at the current market price, determined as the average
Closing Price per Reference Security for the 20 Trading Days
immediately prior to the date of such rights or warrants are issued,
subject to certain adjustments, which shall be determined by
multiplying such total number of Reference Securities by the exercise
price of the rights or warrants and dividing the product so obtained
by the current market price.
To the extent that Reference Securities are not delivered after the expiration
of the rights or warrants, or if the rights or warrants are not issued, the
Reference Property shall be readjusted to the Reference Property which would
then be in effect had such adjustments for the issuance of the rights or
warrants been made upon the basis of delivery of only the number of Reference
Securities actually delivered.
In the case of the Dilution Event referred to in clause (vi) above, the
Reference Property shall be adjusted to include, from and after the dividend,
distribution or issuance,
. for the portion of the Distributed Assets consisting of cash, the
amount of such Distributed Assets consisting of cash received for each
unit of that Reference Security multiplied by the number of units of
that Reference Security constituting part of the Reference Property on
the date of the dividend, distribution or issuance, immediately prior
to the dividend, distribution or issuance, plus
. for the portion of the Distributed Assets which are other than cash,
the number or amount of each type of Distributed Assets other than
cash received with respect to each unit of that Reference Security
multiplied by the number of units of that Reference Security
constituting part of the Reference Property on the date of the
dividend, distribution or issuance, immediately prior to the dividend,
distribution or issuance.
An "Extraordinary Cash Dividend" means, with respect to any consecutive 12-
month period, the amount, if any, by which the aggregate amount of all cash
dividends or any other distribution made by the issuer of a Reference Security
or made pursuant to an arrangement effecting a distribution of distributable
profits or reserves, whether in cash or in specie, on any Reference Security
occurring in such 12-month period (or, if the Reference Security was not
outstanding at the commencement of such 12-month period or was not then a part
of the Reference Property, occurring in such shorter period during which such
Reference Security was outstanding and was part of the Reference Property)
exceeds on a per share basis 10% of the average of the Closing Prices per share
of such Reference Security over such 12-month period (or shorter period during
which such Reference Security was outstanding and was part of the Reference
Property); provided that, for purposes of the foregoing definition, the amount
of cash dividends paid on a per share basis will be appropriately adjusted to
reflect the occurrence during such period of any stock dividend or distribution
of shares of capital stock of the issuer of such Reference Security or any
subdivision, split, combination or reclassification of shares of such Reference
Security.
If the Reference Security is Internet HOLDRs, the determination as to
whether any cash dividend on such Internet HOLDRs is an Extraordinary Cash
Dividend shall be made
19
<PAGE>
. by examining which of the stocks underlying Internet HOLDRs is responsible
for all or a portion of such cash dividend on Internet HOLDRs, and
. treating each such stock underlying Internet HOLDRs as if it were a Reference
Security only for this purpose and then determining whether such cash
dividend would be an Extraordinary Cash Dividend as defined above with
respect to such deemed Reference Security.
A "Reorganization Event" shall mean:
. any consolidation or merger of an issuer of a Reference Security, or
any surviving entity or subsequent surviving entity of that issuer (a
"Successor Company"), with or into another entity, other than a merger
or consolidation in which such issuer is the continuing corporation
and in which the Reference Security outstanding immediately prior to
the merger or consolidation is not exchanged for cash, securities or
other property of such issuer or another corporation;
. any sale, transfer, lease or conveyance to another corporation of the
property of an issuer of a Reference Security or any Successor Company
as an entirety or substantially as an entirety;
. any statutory exchange of securities of an issuer of a Reference
Security or any Successor Company with another corporation, other than
in connection with a merger or acquisition; or
. any liquidation, dissolution, winding up or bankruptcy of an issuer of
a Reference Security or any Successor Company.
If a Reorganization Event occurs, the Reference Property shall include:
. for any cash received in that Reorganization Event, the cash received
for each unit of a Reference Security multiplied by the number of
units of that Reference Security constituting part of the Reference
Property on the date of the Reorganization Event;
. for any property other than cash or securities received in that
Reorganization Event, the property received for each unit of a
Reference Security multiplied by the number of units of that Reference
Security constituting part of the Reference Property on the date of
the Reorganization Event as determined by the calculation agent; and
. for any securities received in that Reorganization Event, the
securities received for each unit of a Reference Security multiplied
by the number of units of that Reference Security constituting part of
the Reference Property on the date of the Reorganization Event
(subject to adjustment on a basis consistent with the adjustment
provisions described above)
All adjustments will be calculated to the nearest 1/10,000th of a share of
the Reference Security, or if there is not a nearest 1/10,000th of a share to
the next lower 1/10,000th of a share. No adjustment shall be required unless
that adjustment would require an increase or decrease of at least one percent in
the Closing Price; provided, however, that any adjustments which by reason of
the foregoing are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
The foregoing adjustments shall be made by MLPF&S, as calculation agent,
and all adjustments shall be final.
ML&Co. will, within ten Business Days following the occurrence of an event
that requires an adjustment, or if ML&Co. is not aware of such occurrence, as
soon as practicable after becoming so aware, provide written notice to the
trustee, which shall provide notice to the holders of the Callable MITTS
20
<PAGE>
Securities of the occurrence of the event and, if applicable, a statement in
reasonable detail setting forth the adjusted Closing Price to be used in
determining the Ending Value.
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
21
<PAGE>
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:
. 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
22
<PAGE>
. 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.
23
<PAGE>
THE INTERNET HOLDRs TRUST
ML&Co. has attached the HOLDRs Prospectus describing the Internet HOLDRs
Trust and is delivering it to purchasers of the Callable MITTS Securities
together with this prospectus for the convenience of reference only. The HOLDRs
Prospectus does not constitute a part of this prospectus, nor is it incorporated
by reference into this prospectus. The summary description below is qualified in
its entirety by the information describing the Internet HOLDRs Trust and the
securities held by the Trust included in the attached HOLDRs Prospectus.
The Internet HOLDRs Trust was formed under the depositary trust agreement,
dated as of September 2, 1999, among The Bank of New York, as trustee, MLPF&S,
as the initial depositor, other depositors and the owners of Internet HOLDRs.
The trust is not a registered investment company under the Investment Company
Act of 1940.
The trust holds shares of common stock issued by companies generally
considered to be involved in various segments of the Internet industry. The
trust issues Internet HOLDRs that represent an undivided beneficial ownership
interest in the shares of common stock held by the trust. Internet HOLDRs are
separate from the underlying common stocks that are represented by Internet
HOLDRs.
Internet HOLDRs are listed on the AMEX under the trading symbol "HHH".
You should carefully read the HOLDRs Prospectus accompanying this
prospectus to fully understand the operation and management of the Internet
HOLDRs Trust. Neither the HOLDRs Prospectus nor these other documents are
incorporated by reference into this prospectus, and we make no representation or
warranty as to the accuracy or completeness of the information.
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,
24
<PAGE>
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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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
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<PAGE>
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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. any other Event of Default provided with respect to senior debt
securities of that series which are not inconsistent with the 1983
Indenture.
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<PAGE>
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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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
$5.8501 per unit. This represents an estimated yield on the MITTS Securities
equal to 6.68% 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 Callable MITTS Securities
during each accrual period over the term of the Callable MITTS Securities based
upon a projected payment schedule for the Callable MITTS Securities (including
both the
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<PAGE>
Projected Supplemental Redemption Amount and an estimated yield equal to 6.68%
per annum (compounded semiannually)) as determined by ML&Co. for purposes of
illustrating the application of the Final Regulations to the Callable MITTS
Securities:
<TABLE>
<CAPTION>
Total interest
deemed to have
accrued on the
Callable MITTS
Interest deemed Securities as of
to accrue during the end of
Accrual accrual period accrual period
Period (per unit) (per unit)
------- ---------------- ----------------
<S> <C> <C>
March 3, 2000 through September 5, 2000............................... $0.3405 $0.3405
September 6, 2000 through March 5, 2001............................... $0.3454 $0.6859
March 6, 2001 through September 5, 2001............................... $0.3569 $1.0428
September 6, 2001 through March 5, 2002............................... $0.3688 $1.4116
March 6, 2002 through September 5, 2002............................... $0.3812 $1.7928
September 6, 2002 through March 5, 2003............................... $0.3939 $2.1867
March 6, 2003 through September 5, 2003............................... $0.4070 $2.5937
September 6, 2003 through March 5, 2004............................... $0.4206 $3.0143
March 6, 2004 through September 5, 2004............................... $0.4347 $3.4490
September 6, 2004 through March 5, 2005............................... $0.4492 $3.8982
March 6, 2005 through September 5, 2005............................... $0.4642 $4.3624
September 6, 2005 through March 5, 2006............................... $0.4797 $4.8421
March 6, 2006 through September 5, 2006............................... $0.4957 $5.3378
September 6, 2006 through March 5, 2007............................... $0.5123 $5.8501
</TABLE>
___________
Projected Supplemental Redemption Amount = $5.8501 per unit.
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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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
28
<PAGE>
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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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.
29
<PAGE>
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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
<TABLE>
<S> <C>
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH (SM) INVESTING
Pursuit of Growth, Protection of Principal
</TABLE>
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
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>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
Securities you own, we will pay you an amount of
. No payments before the maturity date. each unit and an additional amount based on the
percentage increase, if any, in the value of the
. Senior unsecured debt securities of Merrill S&P 500 Index adjusted by an adjustment factor as
Lynch & Co., Inc. described in this prospectus.
. Linked to the value of the S&P 500 Index. . You will receive no less than the principal amount
of the MITTS Securities.
. The MITTS Securities are listed on the American
Stock Exchange under the trading symbol "FML".
</TABLE>
Investing in the MITTS Securities involves risks.
See "Risk Factors" beginning on page 6.
_______________
Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or passed upon the adequacy of this
prospectus. 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 , .
"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>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
SUMMARY INFORMATION--Q&A................................................... 3
RISK FACTORS............................................................... 6
MERRILL LYNCH & CO., INC................................................... 9
RATIO OF EARNINGS TO FIXED CHARGES......................................... 10
DESCRIPTION OF THE MITTS SECURITIES........................................ 11
THE S&P 500 INDEX.......................................................... 18
OTHER TERMS................................................................ 20
PROJECTED PAYMENT SCHEDULE................................................. 24
WHERE YOU CAN FIND MORE INFORMATION........................................ 25
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.......................... 25
PLAN OF DISTRIBUTION....................................................... 26
EXPERTS.................................................................... 26
</TABLE>
2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the S&P 500 Market
Index Target-Term Securities due March 27, 2006. You should carefully read this
prospectus 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 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 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 have issued 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.
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 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 affects 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.
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 Adjusted
Ending Value is greater than the Starting Value. If the Adjusted Ending Value is
less than, or equal to, the Starting Value, the
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<PAGE>
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>
( 1,157.08-1,262.14 )
Supplemental Redemption Amount (per unit) = $10 X ( ----------------- ) = $0.00 (Supplemental Redemption Amount cannot
( 1,262.14 ) be 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>
( 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. 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.
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are listed on the AMEX under the trading symbol "FML".
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, was the underwriter for the initial offering and
sale of the MITTS Securities. MLPF&S is also our agent for purposes of
calculating, among other things, the Adjusted Ending
4
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Value and the Supplemental Redemption Amount. Under certain circumstances, these
duties could result in a conflict of interest between MLPF&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.
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.
5
<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 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, at some time during the life of the MITTS
Securities the value of the S&P 500 Index, as reduced by the Adjustment Factor,
was higher than Starting Value 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, like inflation, 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
Although the MITTS Securities are listed on the AMEX under the trading
symbol "FML", you cannot assume that a trading market will continue to exist for
the MITTS Securities. If a trading market in the MITTS Securities continues to
exist, you cannot assume that there will be liquidity in the trading market. The
continued existence 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 and you do not
wish to hold your investment until maturity, there may be a limited number of
buyers for your MITTS Securities. This may affect the price you receive if you
sell before maturity.
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 effected 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 index. 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.
The value of the index will affect the trading value of the MITTS
Securities. We expect that the market value of the MITTS Securities will depend
substantially on the amount by which the index, as reduced by the adjustment
factor, exceeds the Starting Value. If you choose to sell your MITTS Securities
when the value of the index, as reduced
6
<PAGE>
by the adjustment factor, 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 index will continue to fluctuate
until shortly before the maturity date when the average value of the index is
determined. If you choose to sell your MITTS Securities when the value of the
index is below the Starting Value, you may receive less than the $10 principal
amount per unit of MITTS Securities. In general, rising U.S. dividend rates, or
dividends per share, may increase the value of the index while falling U.S.
dividend rates may decrease the value of the index. Political, economic and
other developments that affect the stocks included in the index may also affect
the value of the index and the value of the MITTS Securities.
Changes in the levels of U.S. interest rates may 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 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 index. Rising
interest rates may lower the value of the index and, thus, the MITTS Securities.
Falling interest rates may increase the value of the index and, thus, may
increase the value of the MITTS Securities.
Changes in the volatility of the index may affect the trading value of the
MITTS Securities. Volatility is the term used to describe the size and frequency
of market fluctuations. Generally, if the volatility of the index increases, we
expect that the trading value of the MITTS Securities will increase. If the
volatility of the 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
trading value of the MITTS Securities may decrease. We anticipate that before
the maturity of the MITTS Securities the MITTS Securities may trade at a value
above that which would be expected based on the level of interest rates and the
index value. This difference will reflect a "time premium" due to expectations
concerning the value of the 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 index may affect
the trading value of the MITTS Securities. If dividend yields on the stocks
included in the index increase, we expect that the value of the MITTS Securities
will decrease. Conversely, if dividend yields on the stock included in the index
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 index at maturity, an improvement in our credit ratings will
not reduce 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 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
7
<PAGE>
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. 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.
8
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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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
9
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
10
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DESCRIPTION OF THE MITTS SECURITIES
On March 26, 1999, ML&Co. issued an aggregate principal amount of
$70,000,000 or 7,000,000 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 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
described below, 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. Upon the occurrence of an Event
of Default 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.
The MITTS Securities were issued in denominations of whole units.
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.
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 "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
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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.
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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.
This table assumes an Adjustment Factor of 2.6% per year.
<TABLE>
<CAPTION>
Pretax
Hypothetical Adjusted Total Amount Annualized
Closing Value Ending Value Payable at Pretax Rate of Return
of S&P 500 Percentage Maturity per Total Rate of Annualized Rate of Stocks
Index During Adjusted Change Over Unit of Return on the of Return on the Included in
the Calculation Ending the Starting MITTS MITTS MITTS The S&P 500
Period Value Value Securities Securities Securities(1) Index(1)(2)
--------------- -------- ------------- ------------ ------------- ---------------- --------------
<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 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
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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 resulting total and
pretax annualized rate of return will depend entirely on the actual Adjusted
Ending Value determined by the calculation agent as provided in this prospectus.
Historical data regarding the S&P 500 Index is included in this prospectus 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
(1) 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
(2) 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 purposes 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".
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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 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 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 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.
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 any 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.
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Depositary
Upon issuance, all MITTS Securities will be represented by one or more
fully registered global securities. Each global security will be deposited
with, or on behalf of, DTC, (DTC, together with any successor thereto, being a
"depositary"), as depositary, registered in the name of Cede & Co., DTC's
partnership nominee. Unless and until it is exchanged in whole or in part for
MITTS Securities in definitive form, no global security may be transferred
except as a whole by the depositary to a nominee of depositary or by a nominee
of the depositary to 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.
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
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fully registered global securities will be issued for the MITTS Securities in
the aggregate principal amount of that 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 written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
or indirect participants through which that 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 the 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 the 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 these payments to direct
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participants shall be the responsibility of DTC, and disbursement of these
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 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.
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.
THE S&P 500 INDEX
Standard & Poor's publishes the S&P 500 Index. The S&P 500 Index 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. 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. The
Index is comprised of the common stocks of companies in four main groups:
Industrials, Utilities, Transportation and Financial. 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;
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(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. These changes
may result from causes such as
. 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,
. 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
of that stock or both, as the case may be, and then determines the new base
value in accordance with the following formula:
old base value x new base value = 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.
License Agreement
Standard & Poor's does not guarantee the accuracy and/or the completeness
of the S&P 500 Index or any data included in that index. 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
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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 under
that agreement.
The license agreement between Standard & Poor's and Merrill Lynch Capital
Services, Inc. provides that the following language must be stated in this
prospectus:
"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 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.
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
ML&Co. may issue series of senior debt securities from time to time 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.
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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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
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. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
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. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior 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.
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PROJECTED PAYMENT SCHEDULE
Solely for purposes of applying the final Treasury Department Regulations
(the "Final Regulations") concerning the proper United States Federal income tax
treatment of contingent payment debt instruments 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).
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 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.
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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
24
<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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. any reports filed under Section 15(d) of the Exchange Act.
25
<PAGE>
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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 NYSE 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
26
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
Merrill Lynch & Co., Inc.
Consumer Staples Select Sector SPDR(R) Fund
Market Index Target-Term Securities(R)
due April 19, 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>
The MITTS Securities: Payment at Maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the increase, if any, in the
. Linked to the net asset value per share of the net asset value per share of the Consumer Staples
Consumer Staples Select Sector SPDR Fund, a Select Sector SPDR Fund, as adjusted by an adjustment
registered index fund. factor as described in this prospectus.
. The MITTS Securities are listed on the American . At maturity, we will pay you all amounts due under
Stock Exchange under the trading symbol "CSM". the MITTS Securities by delivering to you shares of the
. Closing: April 19, 1999. Consumer Staples Select Sector SPDR Fund or paying you
cash with an equal value.
</TABLE>
Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page 9.
_______________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus or the accompanying prospectus of Merrill Lynch & Co., Inc. 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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
owned by Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION--Q&A.................................................. 3
RISK FACTORS.............................................................. 8
MERRILL LYNCH & CO., INC.................................................. 13
RATIO OF EARNINGS TO FIXED CHARGES........................................ 14
DESCRIPTION OF THE MITTS SECURITIES....................................... 15
THE CONSUMER STAPLES SPDR FUND............................................ 22
OTHER TERMS............................................................... 24
PROJECTED PAYMENT SCHEDULE................................................ 27
WHERE YOU CAN FIND MORE INFORMATION....................................... 29
INCORPORATION OF INFORMATION WE FILE WITH THE SEC......................... 30
PLAN OF DISTRIBUTION...................................................... 30
EXPERTS................................................................... 31
</TABLE>
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Consumer Staples
Select Sector SPDR(R) Fund Market Index Target-Term Securities(R) due April 19,
2006. You should carefully read this prospectus to understand fully the terms of
the MITTS Securities as well as the tax and other considerations that should be
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.
References in this prospectus to the "Consumer Staples SPDR Fund" are to
the Consumer Staples Select Sector SPDR Fund.
We have attached the prospectus for the Consumer Staples SPDR Fund dated
January 28, 2000 (the "Fund Prospectus"). You should carefully read the Fund
Prospectus to fully understand the operation and management of the Consumer
Staples SPDR Fund, particularly the fees and expenses associated with shares of
the Consumer Staples SPDR Fund which affect the Net Asset Value per share of the
Consumer Staples SPDR Fund and which will directly apply to you if we choose to
deliver these shares to you at maturity of the MITTS Securities. Our affiliate,
MLPF&S, is both a soliciting dealer in the shares of the Consumer Staples SPDR
Fund and the index compilation agent for the Consumer Staples Select Sector
Index. However, we are not affiliated with the Consumer Staples SPDR Fund or the
Consumer Staples Select Sector Index. The Consumer Staples SPDR Fund will not
receive any of the proceeds from the sale of the MITTS Securities and will not
have any obligations with respect to the MITTS Securities.
We have attached the Fund Prospectus and are delivering it to you together
with this prospectus and the accompanying prospectus of ML&Co. for the
convenience of reference only. The Fund Prospectus does not constitute a part of
this prospectus or the accompanying prospectus of ML&Co., nor is it incorporated
by reference in this prospectus or in the accompanying prospectus of ML&Co.
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 April 19, 2006 and cannot be redeemed at an earlier date. You will not
receive any shares of the Consumer Staples SPDR Fund or any other 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.
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 the appreciation, if any, in the
Net Asset Value per share of the Consumer Staples
3
<PAGE>
SPDR Fund. At maturity, you will receive a number of shares of the Consumer
Staples SPDR Fund equal in value to the sum of the principal amount and the
Supplemental Redemption Amount, if any, and an amount of cash equal to the value
of any fractional shares. We will determine the number of shares to be delivered
to you based on the Ending Value. At our option, instead of delivering to you
the shares to which you would otherwise be entitled, we may pay you cash.
Principal Amount
The principal amount per unit is $10.
Supplemental Redemption Amount
The Supplemental Redemption Amount per unit will equal:
( Adjusted Ended Value - Starting Value )
$10 x ( ------------------------------------- )
( Starting Value )
but will not be less than zero.
"Starting Value" equals 27.4089, the Net Asset Value of one share of the
Consumer Staples SPDR Fund on April 13, 1999, the date the MITTS Securities were
priced for initial sale to the public.
"Adjusted Ending Value" means the Ending Value, as reduced by the
application of the Adjustment Factor to the Net Asset Value used to calculate
the Ending Value on each calculation day during the calculation period.
"Ending Value" means the average of the Net Asset Values per share of the
Consumer Staples SPDR Fund at the close of the market on five calculation days
shortly before the maturity of the MITTS Securities. We may calculate the Ending
Value by reference to fewer than five or even a single day's Net Asset Value if,
during the calculation period, there is a disruption in the trading of a number
of the component stocks of the Consumer Staples Select Sector Index or options
relating to the shares of the Consumer Staples SPDR Fund, the Consumer Staples
SPDR Fund is unable or otherwise fails to issue a Net Asset Value for the shares
of the Consumer Staples SPDR Fund or the Consumer Staples SPDR Fund suspends the
creation or redemption of its shares. Please see the section entitled
"Description of the MITTS Securities-Adjustments to the Net Asset Value; Market
Disruption Events" in this prospectus.
The "Adjustment Factor" equals 1.95% per year and will be applied over the
term of the MITTS Securities to reduce the Net Asset Value per share of the
Consumer Staples SPDR Fund used to calculate the Supplemental Redemption Amount
on each calculation day during the calculation period. As a result of the
cumulative effect of this reduction, the values used to calculate your
Supplemental Redemption Amount at the maturity of the MITTS Securities will be
approximately 12.77% less than the actual Net Asset Values per share of the
Consumer Staples SPDR Fund on each day during the calculation period. For a
detailed discussion of how the Adjustment Factor will affect the Net Asset Value
per share of the Consumer Staples SPDR Fund used to calculate your Supplemental
Redemption Amount, see "Description of the MITTS Securities-Delivery at
Maturity" and "-Hypothetical Returns" in this prospectus.
For more specific information about the Supplemental Redemption Amount,
please see the section "Description of the MITTS Securities" in this prospectus.
4
<PAGE>
Examples
Here are two examples of Supplemental Redemption Amount calculations assuming
an Adjustment Factor of 1.95% per year.
Example 1-Adjusted Ending Value is less than the Starting Value at the maturity
date:
Starting Value: 27.41
Hypothetical Ending Value: 28.78
Hypothetical Adjusted Ending Value: 25.10
( 25.10 - 27.41 )
Supplemental Redemption Amount (per unit) = $10 x ( ------------- )=$0.00
( 27.41 )
Total value of shares delivered at maturity (per unit) = $10 + $0 = $10
Example 2-Adjusted Ending Value is greater than the Starting Value at the
maturity date:
Starting Value: 27.41
Hypothetical Ending Value: 43.85
Hypothetical Adjusted Ending Value: 38.25
( 38.25 - 27.41 )
Supplemental Redemption Amount (per unit) =$10 x ( ------------- )=$3.96
( 27.41 )
Total value of shares delivered at maturity (per unit) = $10 + $3.96 = $13.96
How is the Net Asset Value determined?
The "Net Asset Value" means the net asset value per share of the Consumer
Staples SPDR Fund as determined by the Consumer Staples SPDR Fund. The Consumer
Staples SPDR Fund calculates its Net Asset Value per share by dividing the value
of its net assets, i.e., the value of its total assets less total liabilities,
by its total number of shares outstanding. Expenses and fees, including the
management, administration and distribution fees, of the Consumer Staples SPDR
Fund are accrued daily and taken into account for purposes of determining Net
Asset Value. The Net Asset Value per share of the Consumer Staples SPDR Fund is
determined by the Consumer Staples SPDR Fund each Business Day after the close
of trading on the New York Stock Exchange, ordinarily 4:00 p.m., New York City
time. Shares of the Consumer Staples SPDR Fund are listed on the AMEX under the
trading symbol "XLP".
When will I receive cash instead of shares of the Consumer Staples SPDR Fund?
If we choose to pay you the amount due to you at maturity in cash instead
of in shares of the Consumer Staples SPDR Fund which you would otherwise be
entitled to receive, we will pay you an amount of cash equal to the sum of the
principal amount and the Supplemental Redemption Amount, if any. In addition, if
at any time MLPF&S ceases to be a soliciting dealer in the shares of the
Consumer Staples SPDR Fund, we will pay the amount due to you in cash instead of
shares. Please see the section entitled "Description of the MITTS Securities--
Delivery at Maturity" in this prospectus.
In addition, in the event that we choose to deliver shares of the Consumer
Staples SPDR Fund at maturity, we will not distribute any fractional shares to
you. We will aggregate all amounts due to you in respect of the total number
5
<PAGE>
of units you hold on the stated maturity date, and in lieu of delivering to you
any fractional shares of the Consumer Staples SPDR Fund to which you would
otherwise be entitled, we will pay you the cash value of these fractional shares
based on the Ending Value.
Will I be charged any transaction fees or expenses with respect to the shares of
the Consumer Staples SPDR Fund?
Unless and until we deliver shares of the Consumer Staples SPDR Fund to you
in satisfaction of our obligations under the MITTS Securities, you will not be
directly charged any management, administration, distribution or other
transaction fees or other expenses with respect to the shares of the Consumer
Staples SPDR Fund. However, because the Consumer Staples SPDR Fund accrues these
fees and expenses daily for purposes of determining the Net Asset Value of its
shares, the Net Asset Values used to calculate your Supplemental Redemption
Amount will reflect the deduction of these fees and expenses as well as the
reduction resulting from the application of the Adjustment Factor.
If at maturity we deliver to you shares of the Consumer Staples SPDR Fund,
you will then become directly subject to ongoing account maintenance fees and
certain other transaction expenses with respect to your shares so long as you
hold those shares.
The accompanying Fund Prospectus describes the fees and expenses charged by
the Consumer Staples SPDR Fund in greater detail.
What is the Consumer Staples SPDR Fund?
The Consumer Staples SPDR Fund is an index fund whose stated investment
objective is to provide investment results that, before expenses, correspond
generally to the price and yield performance of the publicly traded equity
securities comprising the Consumer Staples Select Sector Index. The Consumer
Staples Select Sector Index consists of the equity securities of publicly traded
companies that are components of the S&P 500 Index and are involved in the
development and production of consumer staples, including cosmetic and personal
care products, pharmaceuticals, soft drinks, tobacco and food products. As of
April 13, 1999, the Consumer Staples Select Sector Index included 71 component
stocks. A list of these securities and their index weightings as of April 13,
1999 is set forth under the section entitled "The Consumer Staples SPDR Fund" in
this prospectus. Our affiliate, MLPF&S, is both a soliciting dealer in the
shares of the Consumer Staples SPDR Fund and the index compilation agent for the
Consumer Staples Select Sector Index. We are not affiliated with the Consumer
Staples SPDR Fund or the Consumer Staples Select Sector Index. The Consumer
Staples SPDR Fund will not receive any of the proceeds from the sale of, or have
any obligations under, the MITTS Securities. You should independently decide
whether an investment in the MITTS Securities and the Consumer Staples SPDR Fund
is appropriate for you.
The Consumer Staples SPDR Fund is one of nine investment funds comprising
the Select Sector SPDR Trust, a management investment company registered under
the Investment Company Act of 1940, as amended. Each fund's investment portfolio
is comprised principally of constituent companies whose equity securities are
components of the S&P 500 Index, each representing one of nine specified market
sector indices. Each stock in the S&P 500 Index is allocated to only one Select
Sector Index. The combined companies of the nine Select Sector Indices represent
all of the companies whose stocks are components of the S&P 500 Index.
You should carefully read the Fund Prospectus accompanying this prospectus
and prospectus of ML&Co. to fully understand the operation and management of the
Consumer Staples SPDR Fund. In addition, because the Select Sector SPDR Trust is
subject to the registration requirements of the Securities Act of 1933, as
amended, and the Investment Company Act, the Select Sector SPDR Trust is
required to file periodically certain information specified by the SEC. For more
information about the Consumer Staples SPDR Fund and the shares that you may
receive at maturity, information provided to or filed with the SEC by the Select
Sector SPDR Trust can be inspected at the SEC's public reference facilities or
accessed over the Internet through a web site maintained by the SEC at
http://www.sec.gov. You may also obtain copies of these documents at no cost by
calling the Select Sector SPDR Trust at (800) 843-2639 or by writing the Select
Sector SPDR Trust c/o ALPS Mutual Funds Services, Inc., at 370 17th Street,
Suite 3100, Denver, CO 80202. Neither the Fund Prospectus nor these other
documents are incorporated by reference in this prospectus, and we make no
representation or warranty as to the accuracy or completeness of this
information.
6
<PAGE>
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are listed on the AMEX under the trading symbol "CSM".
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 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 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, 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.
MLPF&S also is our agent for purposes of calculating the Adjusted 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.
MLPF&S also is a soliciting dealer in the shares of the Consumer Staples
SPDR Fund and is the index compilation agent for the Consumer Staples Select
Sector Index. Under certain circumstances, these duties could result in a
conflict of interest between MLPF&S' status as our subsidiary and its
responsibilities to the Consumer Staples SPDR Fund and the Consumer Staples
Select Sector Index. Please see the section entitled "Risk Factors-Potential
conflicts of interests" in this prospectus.
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
entitled "Merrill Lynch & Co., Inc." in this 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.
Are there any risks associated with my investment?
Yes, an investment in the MITTS Securities is subject to risks. Please
refer to the section "Risk Factors" in this prospectus.
7
<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.
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, the Supplemental Redemption Amount will be
based on the increase, if any, in the Net Asset Value per share of the Consumer
Staples SPDR Fund. However, as a holder of the MITTS Securities, you will not be
entitled to receive distributions that would be payable on the shares of the
Consumer Staples SPDR Fund as if you had made a direct investment in those
shares. 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 at maturity is not a fixed amount, but is
based on the Net Asset Value per share of the Consumer Staples SPDR Fund, as
reduced by the Adjustment Factor over the term of the MITTS Securities.
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 date, the Supplemental Redemption Amount
will be zero. This will be true even if the Net Asset Value per share of the
Consumer Staples SPDR Fund, as reduced by the Adjustment Factor over the term of
the MITTS Securities, 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 return will not reflect the return of owning shares of the Consumer Staples
SPDR Fund or the securities and other assets comprising the Consumer Staples
SPDR Fund's investment portfolio
When determining the Supplemental Redemption Amount, if any, paid to you at
maturity, the Consumer Staples SPDR Fund's Net Asset Value per share, which
reflects the reduction of fund assets resulting from the accrual of the Consumer
Staples SPDR Fund's fees and expenses and any distributions made by the Consumer
Staples SPDR Fund, will also be reduced by the application of the Adjustment
Factor over the term of the MITTS Securities. Consequently, your return on the
MITTS Securities will not reflect the return of owning the shares of the
Consumer Staples SPDR Fund or the securities and other assets included in the
Consumer Staples SPDR Fund's investment portfolio.
Changes in the Net Asset Value per share of the Consumer Staples SPDR Fund will
not exactly mirror changes in the Consumer Staples Select Sector Index
As indicated in the Fund Prospectus, the Consumer Staples SPDR Fund's
investment objective is to provide investment results that, before expenses,
correspond generally to the price and yield performance of the publicly traded
equity securities included in the Consumer Staples Select Sector Index. However,
changes in the value of the Consumer Staples Select Sector Index and in the Net
Asset Value per share of the Consumer Staples SPDR Fund are not expected to be
identical because:
. the Consumer Staples SPDR Fund's investment portfolio may not hold all
of the stocks in the Consumer Staples Select Sector Index or may not
hold each stock in the same weighting as the Consumer Staples Select
Sector Index,
. the Consumer Staples SPDR Fund may hold assets other than equity
securities, and
. the Net Asset Value per share of the Consumer Staples SPDR Fund reflects
the reduction of fund assets resulting from the accrual of fees and
expenses and the payment of distributions, if any.
8
<PAGE>
As stated in the Fund Prospectus, the investment adviser to the Consumer
Staples SPDR Fund believes that "over time, `the tracking error' of the Consumer
Staples SPDR Fund relative to the performance of the Consumer Staples Select
Sector Index, adjusted for the effect of the Consumer Staples SPDR Fund's
expenses, will be less than 5%". There is no assurance that the tracking error
will not be greater than 5% at any time, including the time that you may wish to
sell your MITTS Securities before the maturity date or at the time the
calculation agent determines the Supplemental Redemption Amount, if any.
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.
There may be an uncertain trading market for the MITTS Securities
Although the MITTS Securities are listed on the AMEX under the trading
symbol "CSM", you cannot assume that a trading market will continue to exist for
the MITTS Securities. If a trading market does develop, there can be no
assurance that there will be liquidity in the trading market. The continued
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
Net Asset Value per share of the Consumer Staples SPDR Fund.
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.
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
magnify 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 Net Asset Value per share of the
Consumer Staples SPDR Fund. 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.
The Net Asset Value per share of the Consumer Staples SPDR Fund 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 by which
the Net Asset Value per share of the Consumer Staples SPDR Fund, as reduced by
the Adjustment Factor, exceeds the Starting Value. Even if you choose to sell
your MITTS Securities when the Net Asset Value per share of the Consumer Staples
SPDR Fund, 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 Net Asset Value will
continue to fluctuate until the Adjusted Ending Value is determined. If you
choose to sell your MITTS Securities before the maturity date when the Net Asset
Value per share of the Consumer Staples SPDR Fund, as adjusted by the Adjustment
Factor, is below or not sufficiently above the Starting Value, you may receive
less than the $10 principal amount per unit of MITTS Securities.
Changes in the levels of U.S. interest rates are expected to affect the
trading value of the MITTS Securities. Because the MITTS Securities repay, at a
minimum, the principal amount at the maturity date, we expect that the trading
value of the MITTS Securities will be affected by changes in interest rates. 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. Interest rates may also affect the U.S. economy and, in turn, the Net
Asset Value of the Consumer
9
<PAGE>
Staples SPDR Fund. Rising interest rates may lower the Net Asset Value per share
of the Consumer Staples SPDR Fund and, as a result, lower the trading value of
the MITTS Securities and, conversely, falling interest rates may increase the
Net Asset Value per share of the Consumer Staples SPDR Fund and, as a result,
may increase the trading value of the MITTS Securities.
Changes in the volatility of the Fund are expected to affect the trading
value of the MITTS Securities. Volatility is the term used to describe the size
and frequency of market fluctuations. Generally, if the volatility of the Net
Asset Value per share of the Consumer Staples SPDR Fund increases, we expect
that the trading value of the MITTS Securities will increase and, conversely, if
the volatility of the Net Asset Value per share of the Consumer Staples SPDR
Fund 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 Net Asset
Value per share of the Consumer Staples SPDR Fund. This difference will reflect
a "time premium" due to expectations concerning the Net Asset Value per share of
the Consumer Staples SPDR Fund during the period before the maturity of the
MITTS Securities. However, as the time remaining to the 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 Fund are expected
to affect the trading value of the MITTS Securities. Generally, if dividend
yields on the stocks comprising the Consumer Staples SPDR Fund increase, we
expect that the trading value of the MITTS Securities will decrease, and
conversely, if dividend yields on the stocks comprising the Consumer Staples
SPDR Fund's investment portfolio decrease, we expect that the trading 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 the 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 increase in the Net
Asset Value per share of the Consumer Staples SPDR Fund at maturity, an
improvement in our credit ratings will not reduce other investment risks related
to the MITTS Securities.
In general, assuming all other relevant factors are held constant, we
expect that the effect on the trading value of the MITTS Securities of a given
change in any one 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 an increase or decrease in the Net Asset Value per share of
the Consumer Staples SPDR Fund 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.
Absence of prior active market for shares of the Consumer Staples SPDR Fund
The Consumer Staples SPDR Fund is a recently organized investment company
and has a limited operating history. Although its shares are listed for trading
on the AMEX and a number of similar products have been traded on the AMEX for
varying periods of time, there is no assurance that an active trading market
will develop for the shares of the Consumer Staples SPDR Fund. If a trading
market does develop, there is no assurance that there will be liquidity in the
trading market.
Concentration in consumer-related securities
Because the Consumer Staples SPDR Fund's investment portfolio is
predominantly comprised of securities of companies involved in the development
and production of consumer staples, the value of the MITTS Securities may be
adversely affected by several factors. These companies are subject to government
10
<PAGE>
regulation affecting the permissibility of using various food additives and
production methods, which regulations could affect their earnings and
profitability. Tobacco companies may be adversely affected by the adoption of
proposed legislation and/or by litigation. Also, the success of food, soft
drink, and fashion-related products may be strongly affected by fads, marketing
campaigns and other factors affecting supply and demand. Weak demand for these
companies' products or services, as well as negative developments in these other
areas, would adversely affect the performance of the Consumer Staples SPDR Fund
and in turn, the trading value of the MITTS Securities.
No affiliation between ML&Co. and the Consumer Staples SPDR Fund
Our affiliate MLPF&S is both a soliciting dealer in the shares of the
Consumer Staples SPDR Fund and the Index Compilation Agent for the Consumer
Staples Select Sector Index. However, we are not affiliated with the Consumer
Staples SPDR Fund or the Consumer Staples Select Sector Index. The Consumer
Staples SPDR Fund has no obligations with respect to the MITTS Securities or
amounts to be paid to you, including any obligation to take the needs of ML&Co.
or of beneficial owners of the MITTS Securities into consideration for any
reason. The Consumer Staples SPDR Fund will not receive any of the proceeds from
this offering and is not responsible for, and has not participated in, the
determination or calculation of the amount you will receive on your MITTS
Securities at maturity. In addition, the Consumer Staples SPDR Fund is not
involved with the administration or trading of the MITTS Securities and has no
obligations with respect to any amounts due under the MITTS Securities.
You will have no shareholder's rights unless and until you receive shares of the
Consumer Staples SPDR Fund
Unless and until we deliver shares of the Consumer Staples SPDR Fund to you
at the maturity of the MITTS Securities, you will not be entitled to any rights
with respect to these shares including, without limitation, the right to receive
distributions on, to vote or to redeem these shares. For example, if the
Consumer Staples SPDR Fund sets a record date for a matter to be voted on by
shareholders before our delivery of the shares of the Consumer Staples SPDR Fund
to you, you will not be entitled to vote on that matter.
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 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 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.
Potential conflicts of interests
The calculation agent for the MITTS Securities is one of our subsidiaries.
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 between the calculation agent and the holders of the
MITTS Securities. These conflicts could occur, for instance, in connection with
its determination as to whether a Market Disruption Event, as defined below, has
occurred.
MLPF&S is a soliciting dealer in the shares of the Consumer Staples SPDR
Fund. Under certain circumstances, MLPF&S' role as calculation agent for the
MITTS Securities and its role as a soliciting dealer in these shares could give
rise to conflicts of interests between the calculation agent and holders of the
MITTS Securities. These conflicts could occur in connection with its
determination as to the Adjusted Ending Value and the number of shares to be
delivered at maturity.
11
<PAGE>
Additionally, MLPF&S serves as index compilation agent for the Consumer
Staples Select Sector Index. In its capacity as index compilation agent, MLPF&S
determines, in consultation with S&P, which securities of the S&P 500 are to be
included in the Consumer Staples Select Sector Index. Under certain
circumstances, MLPF&S' role as calculation agent for the MITTS Securities and
its role as index compilation agent could give rise to conflicts of interests
between the calculation agent and holders of the MITTS Securities.
MLPF&S is required to carry out its duties as calculation agent in good
faith and using its reasonable judgment. However, you should be aware that
because we control MLPF&S, potential conflicts of interest could arise.
We have entered into an arrangement with one of our subsidiaries to hedge
the market risks associated with our obligation to pay amounts due under 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.
12
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
13
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
14
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On April 19, 1999, ML&Co. issued $72,000,000 aggregate principal amount, or
7,200,000 units, of Consumer Staples Select Sector SPDR Fund MITTS Securities
due April 19, 2006. The MITTS Securities were issued as a series of senior debt
securities under the Senior Indenture, referred to as the 1983 Indenture, which
is more fully described in this prospectus. The MITTS Securities will mature on
April 19, 2006.
While at maturity a beneficial owner of a MITTS Security will receive the
number of shares of the Consumer Staples SPDR Fund, or cash with an equal value,
equal in value, determined based on the Ending Value, to 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
"Delivery at Maturity".
The MITTS Securities are not subject to redemption by ML&Co. or at the
option of any beneficial owner prior to maturity. Upon the occurrence of an
Event of Default with respect to the MITTS Securities, beneficial owners of the
MITTS Securities may accelerate the maturity of the MITTS Securities, as
described under "Other Terms--Events of Default and Acceleration" in this
prospectus.
The MITTS Securities were issued in denominations of whole units.
The MITTS Securities do not have the benefit of any sinking fund.
Delivery at Maturity
At maturity, a beneficial owner of a MITTS Security will be entitled to
receive the number of shares of the Consumer Staples SPDR Fund, or cash with an
equal value, equal in value to the principal amount of each MITTS Security plus
the Supplemental Redemption Amount, if any, all as provided below. The amount to
be paid by ML&Co. to any holder of the MITTS Securities on the maturity date
will be aggregated based on the total number of units then held by that holder
and rounded to the nearest cent. 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 number of shares of the Consumer Staples SPDR Fund, or cash
with an equal value, equal in value to the principal amount of the MITTS
Security. The number of shares to be delivered at maturity will be determined
based on the Ending Value.
If ML&Co. chooses to deliver shares of the Consumer Staples SPDR Fund to
holders of the MITTS Securities at the maturity date, ML&Co. or one of its
affiliates will deliver shares of the Consumer Staples SPDR Fund that are then
newly issued by the Consumer Staples SPDR Fund.
ML&Co. may, at its option, in lieu of delivering shares of the Consumer
Staples SPDR Fund, pay cash in an amount equal to the sum of the principal
amount of the MITTS Securities and the Supplemental Redemption Amount, if any.
In addition, if at any time MLPF&S ceases to be a soliciting dealer in the
shares of the Consumer Staples SPDR Fund, ML&Co. will pay the amount due to
holders of the MITTS Securities in cash instead of shares.
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.
15
<PAGE>
The "Starting Value" equals 27.4089, the Net Asset Value of one share of
the Consumer Staples SPDR Fund on April 13, 1999, the date the MITTS Securities
were priced for initial sale to the public.
"Net Asset Value" means the net asset value per share of the Consumer
Staples SPDR Fund as determined by the Consumer Staples SPDR Fund. The Consumer
Staples SPDR Fund calculates its Net Asset Value per share by dividing the value
of its net assets, i.e., the value of its total assets less total liabilities,
by its total number of shares outstanding. Expenses and fees, including the
management, administration and distribution fees, of the Consumer Staples SPDR
Fund are accrued daily and taken into account for purposes of determining its
Net Asset Value. The Net Asset Value per share of the Consumer Staples SPDR Fund
is determined by the Consumer Staples SPDR Fund each Business Day after the
close of trading on the New York Stock Exchange, ordinarily 4:00 p.m., New York
City time. Shares of the Consumer Staples SPDR Fund are listed on the AMEX under
the trading symbol "XLP".
The "Adjusted Ending Value" will be determined by the calculation agent and
will equal the Ending Value, as reduced by the application of the Adjustment
Factor to the Net Asset Value used to calculate the Ending Value on each
Calculation Day during the Calculation Period.
The "Ending Value" will equal the average, or arithmetic mean, of the Net
Asset Values per share of the Consumer Staples SPDR Fund on each of the first
five Calculation Days during the Calculation Period. If there are fewer than
five Calculation Days in the Calculation Period, the Ending Value will equal the
average, or arithmetic mean, of the Net Asset Values of the Consumer Staples
SPDR Fund on each of these Calculation Days, and if there is only one
Calculation Day, then the Ending Value will be equal to the Net Asset Value per
share of the Consumer Staples SPDR Fund on that Calculation Day. If no
Calculation Days occur during the Calculation Period because of Market
Disruption Events, then the Ending Value shall mean the Net Asset Value per
share of the Consumer Staples SPDR Fund on the last Trading Day before the
Calculation Period for which a Net Asset Value per share of the Consumer Staples
SPDR Fund was determined.
The "Adjustment Factor" equals 1.95% per year and will be applied over the
entire term of the MITTS Securities. On each calendar day during the term of the
MITTS Securities, we will apply this percentage on a prorated basis based on a
365-day year to reduce the values used to calculate the Supplemental Redemption
Amount. As a result of the cumulative effect of this reduction, the values used
to calculate the Supplemental Redemption Amount at the maturity of the MITTS
Securities will be approximately 12.77% less than the actual Net Asset Values
per share of the Consumer Staples SPDR Fund on each Calculation Day during the
Calculation Period.
The "Calculation Period" means the period from and including the seventh
scheduled Calculation Day before the maturity date to and including the second
scheduled Calculation Day before maturity.
"Calculation Day" means any Trading Day on which a Market Disruption Event
has not occurred.
"Trading Day" is a day on which the shares of the Consumer Staples SPDR
Fund:
. are not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of
business and
. have traded at least once on a national or regional securities
exchange or association or over-the-counter market that is the primary
market for the trading of the shares of the Consumer Staples SPDR
Fund.
Fractional Shares
ML&Co. will not distribute fractional shares of the Consumer Staples SPDR
Fund at maturity. In the event ML&Co. elects to pay holders of the MITTS
Securities in shares of the Consumer Staples SPDR Fund, all amounts due to any
holder of the MITTS Securities in respect of the total number of units held by
that
16
<PAGE>
holder will be aggregated, and in lieu of delivering any fractional share to
that holder, that holder will receive the cash value of that fractional share
based on the Ending Value.
Hypothetical Returns
The following table illustrates, for a range of hypothetical Ending
Values:
. the percentage change from the Starting Value to the hypothetical
Ending Value,
. the Adjusted Ending Value used to calculate the Supplemental
Redemption Amount,
. the principal amount and Supplemental Redemption Amount, if any, paid
at maturity per unit,
. the total rate of return to beneficial owners of the MITTS
Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
securities, and
. the pretax annualized rate of return of an investment in shares of
the Consumer Staples SPDR Fund.
<TABLE>
<CAPTION>
Principal Pretax
Percentage Amount and Pretax Annualized
Hypothetical Change from the Supplemental Total Rate of Annualized Rate of Return
Ending Value Starting Value to Redemption Return on the Rate of Return of Shares of the
During the the Hypothetical Adjusted Ending Amount paid at MITTS on the MITTS Consumer Staples
Calculation Period Ending Value Value(1) Maturity per unit Securities Securities(2) SPDR Fund(2)(3)
------------------ ----------------- --------------- ----------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
5.48 -80.00% 4.78 $10.00 0.00% 0.00% -20.32%
10.96 -60.00% 9.56 $10.00 0.00% 0.00% -11.39%
16.45 -40.00% 14.35 $10.00 0.00% 0.00% -5.91%
21.93 -20.00% 19.13 $10.00 0.00% 0.00% -1.91%
27.41(4) 0.00% 23.91 $10.00 0.00% 0.00% 1.27%
32.89 20.00% 28.69 $10.47 4.68% 0.65% 3.91%
38.37 40.00% 33.47 $12.21 22.12% 2.87% 6.18%
43.85 60.00% 38.25 $13.96 39.57% 4.82% 8.17%
49.34 80.00% 43.04 $15.70 57.02% 6.55% 9.94%
54.82 100.00% 47.82 $17.45 74.46% 8.10% 11.54%
60.30 120.00% 52.60 $19.19 91.91% 9.52% 13.00%
65.78 140.00% 57.38 $20.94 109.35% 10.83% 14.35%
71.26 160.00% 62.16 $22.68 126.80% 12.04% 15.60%
76.74 180.00% 66.95 $24.42 144.25% 13.16% 16.76%
82.23 200.00% 71.73 $26.17 161.69% 14.21% 17.85%
</TABLE>
___________
(1) The Adjusted Ending Values specified in this column are approximately
12.77% less than the hypothetical Ending Values as a result of the
cumulative effect of the application of the Adjustment Factor of 1.95% per
annum 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 constant dividend yield of 1.27% per annum, paid quarterly during
the investment term and applied to the Net Asset Value per share of
the Consumer Staples SPDR Fund at the end of each quarter, assuming
the Net Asset Value per share of the Consumer Staples SPDR Fund
increases or decreases linearly from the Starting Value to the
hypothetical Ending Value during the Calculation Period;
(b) no transaction fees or expenses in connection with purchasing and
holding shares of the Consumer Staples SPDR Fund;
(c) an investment term equal to the term of the MITTS Securities; and
(d) a Net Asset Value per share of the Consumer Staples SPDR Fund on the
maturity date equal to the Ending Value.
17
<PAGE>
(4) The Starting Value equals 27.4089.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount and the resulting total and pretax annualized
rate of return will depend entirely on the actual Adjusted Ending Value
determined by the calculation agent as provided in this prospectus.
Adjustments to the Net Asset Value; Market Disruption Events
If at any time the shares of the Consumer Staples SPDR Fund are subject to
a split or reverse split, the calculation agent shall adjust the Net Asset Value
per share of the Consumer Staples SPDR Fund used to calculate the Ending Value
in order to arrive at a Net Asset Value per share of the Consumer Staples SPDR
Fund as if such split or reverse split, as the case may be, had not occurred.
"Market Disruption Event" means any 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 Consumer Staples Select Sector Index;
(b) the suspension or material limitation on trading, 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 option contracts related to the shares of the Consumer
Staples SPDR Fund which are traded on any major U.S. exchange; or
(c) the Consumer Staples SPDR Fund (1) is unable or otherwise fails to
issue a Net Asset Value for any shares of the Consumer Staples SPDR
Fund after the close of business on the NYSE or (2) suspends the
creation or redemption of shares of the Consumer Staples SPDR Fund.
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".
For the purposes of clauses (a) and (b) of this definition, 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.
Termination of the Consumer Staples SPDR Fund
If the Consumer Staples SPDR Fund is liquidated or otherwise terminated,
for purposes of calculating the Supplemental Redemption Amount payable at the
maturity of the MITTS Securities, the calculation agent will calculate the Net
Asset Value as follows: The Net Asset Value per share of the Consumer Staples
SPDR Fund on the Trading Day occurring immediately before any liquidating
distribution will equal the Net Asset Value for that day (the "Pre-liquidation
Date"). The calculation agent will then calculate the Net Asset Value after the
close of trading on each Trading Day following the Pre-liquidation Date (each
date, a "Determination Date") by increasing or decreasing, as the case may be,
the Net Asset Value as of the immediately preceding Trading Day by the
percentage by which the closing value of the Consumer Staples Select Sector
Index increases or decreases from the immediately preceding Trading Day to that
Determination Date and further decreasing the Net Asset Value by fees, expenses
and non-liquidating distributions (together, "Fund Expenses") that the
calculation agent, in its sole judgment but with reference to the Fund Expenses
actually incurred by the Consumer Staples SPDR Fund before its liquidation or
termination, deems would reasonably have been accrued and included in the
calculation of the Net Asset Value per share of the Consumer Staples SPDR Fund
had it not been liquidated or terminated, from the immediately preceding Trading
Day to that Determination Date. The calculation agent will cause notice of each
value to be published not less often than
18
<PAGE>
once each month in The Wall Street Journal, or another newspaper of general
circulation, and arrange for information with respect to such values to be made
available by telephone.
If the Consumer Staples SPDR Fund is liquidated or otherwise terminated and
the Consumer Staples Select Sector Index is no longer calculated or published
(an "Index Termination Event"), the calculation agent will select a successor
index that it determines, in its sole discretion, to be comparable to the
Consumer Staples Select Sector Index, and, upon the calculation agent's
notification of such determination to the trustee and ML&Co., the calculation
agent will substitute the successor index for the Consumer Staples Select Sector
Index and calculate the Net Asset Value in accordance with the procedures
referred to in the immediately preceding paragraph with reference to the
successor 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.
In the event that an Index Termination Event occurs and a successor index
to the Consumer Staples Select Sector Index is not selected by the calculation
agent or is no longer published on any of the Calculation Days, the calculation
agent shall compute a substitute index for the Consumer Staples Select Sector
Index for that Calculation Day in accordance with the procedures last used to
calculate the Consumer Staples Select Sector Index before any discontinuance.
The calculation agent will calculate the Net Asset Value in accordance with the
procedures referred to in the first paragraph of this section with reference to
a substitute index. Upon any selection by the calculation agent of a substitute
index, ML&Co. shall cause notice to be given to holders of the MITTS Securities.
If S&P discontinues publication of the S&P 500 Index subsequent to an Index
Termination Event and
. a successor index to the Consumer Staples Select Sector Index is not
selected by the calculation agent or is no longer published on any of
the Calculation Days and
. the calculation agent is unable to calculate a substitute index for
the Consumer Staples Select Sector Index,
the calculation agent will compute a substitute index for the S&P 500 Index for
that Calculation Day in accordance with the procedures last used to calculate
the S&P 500 Index prior to any discontinuance. If the calculation agent
calculates a substitute index for the S&P 500 Index, the calculation agent will
use that substitute index to calculate the substitute index for the Consumer
Staples Select Sector Index.
Notwithstanding these alternative arrangements, liquidation or termination
of the Consumer Staples SPDR Fund or the discontinuance of the publication of
the Consumer Staples Select Sector Index or 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 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 thereof, will be equal to the principal amount and
the Supplemental Redemption Amount, if any, calculated assuming:
. the date of early repayment is the maturity date of the MITTS Securities and
. the Adjustment Factor is prorated based on a 365-day year and applied each
calendar day to reduce the Net Asset Value per share of the Consumer Staples
SPDR Fund used to calculate the Supplemental Redemption Amount. See "Delivery
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 were the maturity date of the
MITTS Securities.
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In case of default in payment at the maturity date of the MITTS Securities,
whether at their stated maturity or upon acceleration, from and after the
maturity date the MITTS Securities shall bear interest, payable upon demand of
the beneficial owners thereof, at the rate of 5.83% per annum, to the extent
that payment of any 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 any amount has been made or duly provided for.
Depositary
Description of the Global Securities
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, 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 by 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 the 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 such person is not a
participant of DTC, on the procedures of the participant through which such
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 such 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 such action, and such participants would authorize beneficial owners owning
through such participants to give or take such action or would otherwise act
upon the instructions of beneficial owners. Conveyance of notices and other
communications by DTC to participants, by participants to indirect participants
and by participants and indirect participants to beneficial owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
DTC Procedures
The following is based on information furnished by DTC:
DTC will act as securities depositary for the MITTS Securities. The MITTS
Securities will be issued as fully registered securities registered in the name
of Cede & Co., DTC's nominee. One or more fully registered global securities
will be issued for the MITTS Securities in the aggregate principal amount of the
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
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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 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 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 these payments to direct participants shall be the
responsibility of DTC, and disbursement of these payments to the beneficial
owners shall be the responsibility of direct and indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co. within
60 days,
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. 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 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. These definitive MITTS Securities will be
registered in the name or names as the depositary shall instruct the trustee. It
is expected that the instructions may be based upon directions received by the
depositary from participants with respect to ownership of beneficial interests
in such 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 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 the accuracy of this information.
Same-Day Settlement and Delivery
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, by delivery of shares of the Consumer
Staples SPDR Fund in an equal value. If ML&Co. elects, at its option, to pay
cash in lieu of delivering shares of the Consumer Staples SPDR Fund, ML&Co. will
make payment in immediately available funds so long as the MITTS Securities are
maintained in book-entry form.
THE CONSUMER STAPLES SPDR FUND
ML&Co. has attached the Fund Prospectus describing the Consumer Staples
SPDR Fund and is delivering it to purchasers of the MITTS Securities together
with this prospectus and the accompanying prospectus of ML&Co. for the
convenience of reference only. The Fund Prospectus does not constitute a part of
this prospectus or the accompanying prospectus of ML&Co., nor is it incorporated
by reference in this prospectus or the accompanying prospectus of ML&Co. The
summary description below is qualified in its entirety by the information
describing the Consumer Staples SPDR Fund and the Consumer Staples Select Sector
Index included in the attached Fund Prospectus.
As stated in the Fund Prospectus, the Consumer Staples SPDR Fund is an
index fund whose investment objective is to provide investment results that,
before expenses, correspond generally to the price and yield performance of the
publicly traded equity securities included in the Consumer Staples Select Sector
Index. The Consumer Staples Select Sector Index consists of the equity
securities of publicly traded companies that are components of the S&P 500 Index
and are involved in the development and production of consumer staples,
including cosmetic and personal care products, pharmaceuticals, soft drinks,
tobacco and food products.
Although ML&Co.'s subsidiary, MLPF&S, provides certain services to the
Consumer Staples SPDR Fund and the Consumer Staples Select Sector Index, ML&Co.
is not affiliated with the Consumer Staples SPDR Fund or the Consumer Staples
Select Sector Index, and the Consumer Staples SPDR Fund will not receive any of
the proceeds from the sale of, or have any obligations under, the MITTS
Securities. A prospective purchaser of the MITTS Securities should independently
decide whether an investment in the MITTS Securities and the Consumer Staples
SPDR Fund is appropriate.
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The Consumer Staples SPDR Fund is one of nine investment funds comprising
the Select Sector SPDR Trust. Each fund's investment portfolio is comprised
principally of constituent companies whose equity securities are components of
the S&P 500 Index, each representing one of nine specified market sector
indices. Each stock in the S&P 500 Index is allocated to only one Select Sector
Index. The combined companies of the nine indices represent all of the companies
whose stocks are components of the S&P 500 Index. The Consumer Staples SPDR
Fund's initial public offering occurred on December 16, 1998 and therefore has
limited operating history.
Because the Select Sector SPDR Trust is subject to the registration
requirements of the Securities Act and the Investment Company Act, the Select
Sector SPDR Trust is required to file periodically certain information specified
by the SEC. For more information about the Consumer Staples SPDR Fund and the
shares that a holder of the MITTS Securities may receive at maturity,
information provided to or filed with the SEC by the Select Sector SPDR Trust
can be inspected at the SEC's public reference facilities or accessed over the
Internet through a web site maintained by the SEC at http://www.sec.gov. Copies
of these documents may also be obtained at no cost by calling the Select Sector
SPDR Trust at (800) 843-2639 or by writing the Select Sector SPDR Trust c/o ALPS
Mutual Funds Services, Inc., at 370 17th Street, Suite 3100, Denver, CO 80202.
Neither the Fund Prospectus nor these other documents are incorporated by
reference in this prospectus, and ML&Co. makes no representation or warranty as
to the accuracy or completeness of these documents.
ML&Co. is not affiliated with the Consumer Staples SPDR Fund, and the
Consumer Staples SPDR Fund has no obligations with respect to the MITTS
Securities. This prospectus relates only to the MITTS Securities offered by this
prospectus and does not relate to the shares of the Consumer Staples SPDR Fund
or any other securities relating to the Consumer Staples SPDR Fund. The
information contained in this prospectus regarding the Consumer Staples SPDR
Fund has been derived from the publicly available documents described in the
preceding paragraph. ML&Co. makes no representation that these publicly
available documents or any other publicly available information regarding the
Consumer Staples SPDR Fund are accurate or complete. Furthermore, there can be
no assurance that all events occurring prior to the date of this prospectus,
including events that would affect the accuracy or completeness of the publicly
available documents described in the preceding paragraph, that would affect the
trading price of the shares of the Consumer Staples SPDR Fund, and therefore the
trading price of the MITTS Securities, have been publicly disclosed. Subsequent
disclosure of any of these events or the disclosure of or failure to disclose
material future events concerning the Consumer Staples SPDR Fund could affect
the Supplemental Redemption Amount, if any, to be received at maturity and
therefore the trading value of the MITTS Securities.
MLPF&S, a subsidiary of ML&Co., is a soliciting dealer in the shares of the
Consumer Staples SPDR Fund. Additionally, MLPF&S serves as index compilation
agent for the Consumer Staples Select Sector Index. In its capacity as index
compilation agent, MLPF&S determines, in consultation with S&P, the composition
of the securities measured by the Consumer Staples Select Sector Index.
License Agreement
S&P, the AMEX and MLPF&S have entered into a non-exclusive license
agreement providing for the license to MLPF&S, in exchange for a fee, of the
right to use indices owned and published by S&P in connection with certain
securities, including the MITTS Securities, and ML&Co. is an authorized
sublicensee of MLPF&S.
The license agreement among S&P, the AMEX and MLPF&S provides that the
following language must be stated in this prospectus:
"Standard & Poor's(R)", "Standard & Poor's 500(R), "S&P 500(R)", "S&P(R)",
"500", "Standard & Poor's Depositary Receipts", "SPDRs", "Select Sector SPDR"
and "Select Sector Standard & Poor's Depositary Receipts" are registered
trademarks of Standard & Poor's, a division of The McGraw-Hill Companies, Inc.,
and have been licensed for use by MLPF&S. ML&Co. is an authorized sublicensee of
MLPF&S. The stocks comprising the Consumer Staples Select Sector Index were
selected by MLPF&S, as index compilation agent, in consultation with S&P from
the universe of companies represented by the S&P 500 Index. The composition
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and weightings of the stocks included in the Consumer Staples Select Sector
Index can be expected to differ from the composition and weighting of stocks
included in any similar S&P 500 sector index published and disseminated by S&P.
The MITTS Securities, the Consumer Staples SPDR Fund and the Consumer
Staples Select Sector Index are not sponsored, endorsed, sold or promoted by
S&P. S&P 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
in the ability of the Consumer Staples SPDR Fund to track the performance and
yield of the Consumer Staples Select Sector Index or in the ability of the
Consumer Staples Select Sector Index to track the performance of the consumer
staples sector represented in the stock market. The stocks included in the
Consumer Staples Select Sector Index were selected by MLPF&S as the index
compilation agent in consultation with S&P from a universe of companies involved
in the development and production of consumer staples products and represented
by the S&P 500 Index. The composition and weightings of the stocks included in
the Consumer Staples Select Sector Index can be expected to differ from the
composition and weighting of stocks included in any corresponding S&P 500 sector
index that is published and disseminated by S&P. S&P's only relationship to the
index compilation agent is the licensing of certain trademarks and trade names
of S&P and of the S&P 500 Index which is determined, composed and calculated by
S&P without regard to the index compilation agent or the MITTS Securities. S&P
has no obligation to take the needs of the index compilation agent, ML&Co. or
the holders of the MITTS Securities into consideration in determining, composing
or calculating the S&P 500 Index. S&P is not responsible for and has not
participated in any determination of the timing of the sale of the MITTS
Securities, prices at which the MITTS Securities are initially to 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 shares of the Consumer Staples SPDR Fund or cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of the
MITTS Securities.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index, the Consumer Staples Select Sector Index or any data included therein.
S&P makes no warranty, express or implied, as to results to be obtained by
ML&Co., MLPF&S, the holders of the MITTS Securities, or any other person or
entity from the use of the S&P 500 Index, the Consumer Staples Select Sector
Index or any data included therein in connection with the rights licensed under
the license agreement described herein or for any other use. S&P makes no
express or implied warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to the S&P 500
Index, the Consumer Staples Select Sector Index or any data included therein.
Without limiting the generality of the foregoing, in no event shall S&P have any
liability for any special, punitive, indirect or consequential damages,
including lost profits, even if notified of the possibility of such damages.
All disclosures contained in this prospectus regarding the S&P 500 Index or
the Consumer Staples Select Sector Index, including its respective make-up,
method of calculation and changes in its components, are derived from publicly
available information prepared by S&P and the Select Sector SPDR Trust,
respectively. ML&Co. and MLPF&S do not assume any responsibility for the
accuracy or completeness of this information.
OTHER TERMS
ML&Co. issued the MITTS Securities 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.
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ML&Co. may issue series of senior debt securities from time to time 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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 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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
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. 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:
. pay any amounts due and payable or deliverable with respect to
all the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under "--
Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
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. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior 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 final Treasury Department Regulations
(the "Final Regulations") concerning the United States Federal income tax
treatment of contingent payment debt instruments 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 and a projected
Supplemental Redemption Amount equal to $5.0655 per Unit (the "Projected
Supplemental Redemption Amount"). This represents an estimated yield on the
MITTS Securities equal to 5.83% per annum, compounded semiannually.
27
<PAGE>
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 an assumed term of approximately seven years for 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 5.83% 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
Interested Accrued on MITTS
Deemed to Securities as
Accrue During of End
Accrual Period of Accrual Period
Accrual Period (per unit) (per unit)
-------------- -------------- -----------------
<S> <C> <C>
April 19, 1999 through October 19, 1999.............................. $0.2978 $0.2978
October 20, 1999 through April 19, 2000.............................. $0.3059 $0.6037
April 20, 2000 through October 19, 2000.............................. $0.3149 $0.9186
October 20, 2000 through April 19, 2001.............................. $0.3243 $1.2429
April 20, 2001 through October 19, 2001.............................. $0.3339 $1.5768
October 20, 2001 through April 19, 2002.............................. $0.3438 $1.9206
April 20, 2002 through October 19, 2002.............................. $0.3541 $2.2747
October 20, 2002 through April 19, 2003.............................. $0.3645 $2.6392
April 20, 2003 through October 19, 2003.............................. $0.3754 $3.0146
October 20, 2003 through April 19, 2004.............................. $0.3865 $3.4011
April 20, 2004 through October 19, 2004.............................. $0.3981 $3.7992
October 20, 2004 through April 19, 2005.............................. $0.4098 $4.2090
April 20, 2005 through October 19, 2005.............................. $0.4220 $4.6310
October 20, 2005 through April 19, 2006.............................. $0.4345 $5.0655
</TABLE>
_____________
Projected Supplemental Redemption Amount = $5.0655 per unit.
28
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
ML&Co.
We file reports, proxy statements and other information with the SEC. Our
SEC filings are also available over the Internet at the SEC's web site at
http://www.sec.gov. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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. The prospectus of ML&Co. accompanying this prospectus summarizes
material provisions of contracts and other documents that we refer you to.
Because the prospectus of ML&Co. may not contain all the information that you
may find important, you should review the full text of these documents. We have
included copies of these documents as exhibits to our registration statement.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have 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 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.
The Consumer Staples SPDR Fund
The Select Sector SPDR Trust is subject to the registration requirements of
the Securities Act and the Investment Company Act and is required to file
periodically certain information specified by the SEC. For more information
about the Consumer Staples SPDR Fund and the shares that you may receive at
maturity, information provided to or filed with the SEC by the Select Sector
SPDR Trust can be inspected at the SEC's public reference facilities or accessed
over the Internet through its web site. You may also obtain copies of these
documents at no cost by calling the Select Sector SPDR Trust at (800) 843-2639
or by writing the Select Sector SPDR Trust c/o ALPS Mutual Funds Services, Inc.,
at 370 17th Street, Suite 3100, Denver, CO 80202. Neither the Fund Prospectus
nor these other documents are incorporated by reference in this prospectus, and
we make no representation or warranty as to the accuracy or completeness of that
information.
29
<PAGE>
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29, 2000, July
18, 2000, August 2, 2000, August 4, 2000, September 13, 2000, October 6,
2000, October 17, 2000, November 1, 2000, November 20, 2000 and December
6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. 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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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.
30
<PAGE>
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
31
<PAGE>
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
Merrill Lynch & Co., Inc.
Select Sector SPDR Fund Growth Portfolio
Market Index Target-Term Securities(R)
due May 25, 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>
The MITTS Securities: Payment at maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the Select Sector SPDR Fund any, in the value of the Select Sector SPDR Fund
Growth Portfolio Index, an index tracking the value Growth Portfolio Index, reduced by an annual
of various Select Sector SPDR Funds. Each Select adjustment factor of 2.35%.
Sector SPDR Fund is an index fund whose stated . At maturity, you will receive no less than the
investment objective is to provide investment principal amount of your MITTS Securities.
results that, before expenses, correspond generally
to the price and yield performance of
publicly-traded equity securities involved in a
specific market sector comprising the relevant
sector index.
. The MITTS Securities have been approved for
listing on the American Stock Exchange under the
trading symbol "GWM".
</TABLE>
Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page 9 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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
of Merrill Lynch & Co., Inc.
"SPDRs", "Select Sector SPDR", "Select Sector SPDRs", and "Select Sector
Standard & Poor's Depositary Receipts" are trademarks of The McGraw-Hill
Companies, Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION -- Q&A....................................... 3
RISK FACTORS..................................................... 7
MERRILL LYNCH & CO., INC......................................... 11
RATIO OF EARNINGS TO FIXED CHARGES............................... 12
DESCRIPTION OF THE MITTS SECURITIES.............................. 13
THE SELECT SECTOR SPDR FUND GROWTH PORTFOLIO INDEX............... 20
OTHER TERMS...................................................... 22
PROJECTED PAYMENT SCHEDULE....................................... 26
WHERE YOU CAN FIND MORE INFORMATION.............................. 27
INCORPORATION OF INFORMATION WE FILE WITH THE SEC................ 27
PLAN OF DISTRIBUTION............................................. 28
EXPERTS.......................................................... 28
</TABLE>
2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Select Sector SPDR
Fund Growth Portfolio Market Index Target- Term Securities due May 25, 2006. You
should carefully read the prospectus and the accompanying fund prospectus to
fully understand the terms of the MITTS Securities, the Select Sector SPDR Fund
Growth Portfolio Index (the "SPDR Fund Growth Portfolio Index") and the tax and
other considerations that should be 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 the material 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.
We have attached the prospectus for the Select Sector SPDR Funds. You
should carefully read the fund prospectus to fully understand the operation and
management of the Select Sector SPDR Funds, including the fees and expenses
associated with shares of the Select Sector SPDR Funds which affect the value
per share of the Select Sector SPDR Funds and which will therefore indirectly
affect the value of the SPDR Fund Growth Portfolio Index.
Our affiliate, MLPF&S, is both a soliciting dealer in the shares of the
Select Sector SPDR Funds and the index compilation agent for each of the indices
related to the Select Sector SPDR Funds. However, we are not affiliated with any
of the Select Sector SPDR Funds. The Select Sector SPDR Funds did not receive
any of the proceeds from the initial sale of the MITTS Securities and does not
have any obligations with respect to the MITTS Securities.
We have attached the fund prospectus and are delivering it to you
together with this prospectus of ML&Co. for the convenience of reference only.
The fund prospectus does not constitute a part of this prospectus, nor is it
incorporated by reference in this prospectus.
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 May 25, 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 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 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 value
of the SPDR Fund Growth Portfolio Index. 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.
3
<PAGE>
The "Starting Value" equals 100, the value to which the SPDR Fund Growth
Portfolio Index was set on May 25, 1999, the date the MITTS Securities were
priced for initial sale to the public (the "Pricing Date").
"Adjusted Ending Value" means the average of the closing values of the SPDR
Fund Growth Portfolio Index at the close of the market on five business days
before the maturity of the MITTS Securities as reduced on each day by the
application of the Adjustment Factor. 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 a sufficient number of the component
stocks included in any of the funds underlying the SPDR Fund Growth Portfolio
Index or certain futures or options relating to those funds or the S&P 500
Index.
The "Adjustment Factor" equals 2.35% and will be applied over the entire
term of the MITTS Securities to reduce the closing values of the SPDR Fund
Growth Portfolio Index used to calculate the Supplemental Redemption Amount
during the Calculation Period. As a result of the cumulative effect of this
reduction, the values used to calculate the Supplemental Redemption Amount
during the Calculation Period will be approximately 15.18% less than the actual
value of the SPDR Fund Growth Portfolio Index on each day during the Calculation
Period. For a detailed discussion of how the Adjustment Factor will affect the
value of the SPDR Fund Growth Portfolio Index used to calculate your
Supplemental Redemption Amount, see "Description of the MITTS Securities--
Payment at maturity" in this prospectus.
For more specific information about the Supplemental Redemption Amount,
please see the section "Description of the MITTS Securities--Payment at
maturity" in this prospectus.
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.
4
<PAGE>
Examples
Here are two examples of Supplemental Redemption Amount calculations
assuming an Adjustment Factor of 2.35% per year and a term equal to that of the
MITTS Securities:
Example 1--The SPDR Fund Growth Portfolio Index, as adjusted, is below
the Starting Value at maturity:
Starting Value: 100.00
Hypothetical closing value of the SPDR Fund Growth Portfolio Index at
maturity: 105.00
Hypothetical Adjusted Ending Value: 89.06
<TABLE>
<S> <C> <C>
( 89.06 - 100 ) (Supplemental Redemption Amount cannot
Supplemental Redemption Amount (per unit) = $10 X ( ------------------- ) = $0.00 be less than zero)
( 100 )
</TABLE>
Total payment at maturity (per unit) = $10 + $0 = $10
Example 2--The SPDR Fund Growth Portfolio Index, as adjusted, is
above the Starting Value at maturity:
Starting Value: 100.00
Hypothetical closing value of the SPDR Fund Growth Portfolio Index at
maturity: 180.00
Hypothetical Adjusted Ending Value: 152.68
<TABLE>
<S> <C>
( 152.68 - 100 )
Supplemental Redemption Amount (per unit) = $10 X ( ------------ ) = $5.27
( 100 )
</TABLE>
Total payment at maturity (per unit) = $10 + $5.27 = $15.27
What is the SPDR Fund Growth Portfolio Index?
The AMEX publishes the SPDR Fund Growth Portfolio Index under the symbol
"GWI". The index measures the performance of eight underlying funds (each a
"Select Sector SPDR Fund") that each tracks the performance of stocks in a
particular sector or group of industries selected from a universe of companies
defined in the S&P 500 Index.
Each Select Sector SPDR Fund is an index fund whose stated investment
objective is to provide investment results that, before expenses, correspond
generally to the price and yield performance of publicly-traded equity
securities comprising the relevant sector index (each a "Select Sector Index").
Each Select Sector Index consists of the equity securities of publicly-traded
companies that are components of the S&P 500 Index and are involved in a
specific market sector. The Select Sector SPDR Funds are eight of the nine
investment funds comprising the Select Sector SPDR Trust, a management
investment company registered under the Investment Company Act of 1940, as
amended. The combined companies constituting the nine Select Sector Indexes
represent all of the companies whose stocks are components of the S&P 500 Index.
The funds included in the SPDR Fund Growth Portfolio Index include all sectors
of stock included in the S&P 500 Index except one, the utilities sector.
Our affiliate, MLPF&S, is both a soliciting dealer in the shares of the
Select Sector SPDR Funds and the index compilation agent for the Select Sector
Indexes underlying the Select Sector SPDR Funds. The Select Sector SPDR Funds
did not receive any of the proceeds from the initial sale of, and does not have
any obligations under, the MITTS Securities.
You should carefully read the fund prospectus accompanying this prospectus
to fully understand the operation and management of the Select Sector SPDR
Funds, including the fees and expenses charged by the Select Sector SPDR Funds.
In addition, because the Select Sector SPDR Trust is subject to the registration
requirements of the Securities Act of 1933, as amended, and the Investment
Company Act, the Select Sector SPDR Trust is required to file periodically
certain information specified by the SEC. For more information about the Select
Sector SPDR Funds you
5
<PAGE>
can inspect information provided to or filed with the SEC by the Select Sector
SPDR Trust at the SEC's public reference facilities or accessed over the
Internet through a web site maintained by the SEC at http://www.sec.gov. You may
also obtain copies of these documents at no cost by calling the Select Sector
SPDR Trust at (800) 843-2639 or by writing the Select Sector SPDR Trust c/o ALPS
Mutual Funds Services, Inc., 370 17th Street, Suite 3100, Denver, CO 80202.
Neither the fund prospectus nor these other documents are incorporated by
reference in this prospectus, and we make no representation or warranty as to
the accuracy or completeness of this information.
Please note that an investment in the MITTS Securities does not entitle you
to any ownership interest in the Select Sector SPDR Funds comprising the SPDR
Fund Growth Portfolio Index.
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are listed on the AMEX under the trading symbol "GWM".
You should be aware that the listing of the MITTS Securities on the AMEX does
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 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 the MITTS
Securities to create and maintain a secondary market for holders of the MITTS
Securities. However, MLPF&S is not be obligated to engage in any of these market
activities or continue them once it has started.
MLPF&S is 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' status as our subsidiary and its responsibilities as calculation
agent.
MLPF&S also is a soliciting dealer in the shares of the Select Sector SPDR
Funds and is the index compilation agent for the indices related to the Select
Sector SPDR Funds. Under certain circumstances, these duties could result in a
conflict of interest between MLPF&S's status as our subsidiary and its
responsibilities to the Select Sector SPDR Funds and the Select Sector Indexes.
Please see the section entitled "Risk Factors-Potential conflicts of interests"
in this prospectus.
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.
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.
6
<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 light of
your particular circumstances.
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 date, the Supplemental Redemption Amount
will be zero. This will be true even if the value of the SPDR Fund Growth
Portfolio Index, as reduced by the Adjustment Factor over the term of the MITTS
Securities, 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 repay 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 debt security of ML&Co. with the
same maturity date. Your investment may not reflect the full opportunity cost to
you when you take into account factors that affect the time value of money.
Your return will not reflect the return of owning the Select Sector SPDR Funds
comprising the SPDR Fund Growth Portfolio Index
The AMEX calculates the value of the SPDR Fund Growth Portfolio Index by
reference to the values of eight Select Sector SPDR Funds that reflect the
prices of those funds without taking into consideration the value of dividends
paid on those funds. The return on your MITTS Securities will not reflect the
return you would realize if you actually owned all of the Select Sector SPDR
Funds comprising the SPDR Fund Growth Portfolio Index and received the dividends
paid on those funds because of the cumulative effect of the reduction caused by
the Adjustment Factor and because the value of the SPDR Fund Growth Portfolio
Index is calculated by reference to the values of the Select Sector SPDR Funds
included in the SPDR Fund Growth Portfolio Index without taking into
consideration the value of any dividends paid on those funds.
Changes in the value per share of a Select Sector SPDR Fund will not exactly
mirror changes in the related Select Sector Index
As indicated in the fund prospectus, a Select Sector SPDR Fund's investment
objective is to provide investment results that, before expenses, correspond
generally to the price and yield performance of the publicly-traded equity
securities included in the related Select Sector Index. However, changes in the
value of a Select Sector Index and in the value per share of the related Select
Sector SPDR Fund are not expected to be identical because:
. a Select Sector SPDR Fund's investment portfolio may not hold all of
the stocks in the related Select Sector Index or may not hold each
stock in the same weighting as the related Select Sector Index,
. a Select Sector SPDR Fund may hold assets other than equity
securities, and
. the value per share of a Select Sector SPDR Fund reflects the
reduction of fund assets resulting from the accrual of fees and
expenses and the payment of distributions, if any.
As stated in the fund prospectus, the investment adviser to the Select
Sector SPDR Funds believes that "over time, 'the tracking error' of a Select
Sector SPDR Fund relative to the performance of the related Select Sector Index,
adjusted for the effect of that Select Sector SPDR Fund's expenses, will be less
than 5%". There is no
7
<PAGE>
assurance that the tracking error will not be greater than 5% at any time,
including the time that you may wish to sell your MITTS Securities before the
maturity date or at the time the calculation agent determines the Supplemental
Redemption Amount, if any.
The SPDR Fund Growth Portfolio Index is expected to be indirectly affected
by fees charged by the underlying Select Sector SPDR Funds to their shareholders
which will reduce the value of the Select Sector SPDR Fund shares.
There may be an uncertain trading market for the MITTS Securities
Although the MITTS Securities are listed on the AMEX under the trading
symbol "GWM", you cannot assume that a trading market will continue to exist for
the MITTS Securities. If a trading market does continue to exist, there can be
no assurance that there will be liquidity in the trading market. The continued
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 SPDR Fund Growth Portfolio 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 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 SPDR Fund Growth
Portfolio 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 SPDR Fund Growth Portfolio 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 by which the SPDR Fund
Growth Portfolio Index, as reduced by the Adjustment Factor over the term of the
MITTS Securities, exceeds the Starting Value. If you choose to sell your MITTS
Securities when the value of the SPDR Fund Growth Portfolio Index, as reduced by
the Adjustment Factor over the term of the MITTS Securities, 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 SPDR
Fund Growth Portfolio 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 SPDR Fund Growth Portfolio 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 dividend rates, or dividends per
share, may increase the value of the SPDR Fund Growth Portfolio Index while
falling dividend rates may decrease the value of the SPDR Fund Growth Portfolio
Index.
Changes in the levels of U.S. 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 U.S. 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. Rising interest rates may lower the value of the SPDR Fund Growth
Portfolio Index and, thus, the MITTS Securities. Falling interest rates may
increase the value of the SPDR Fund Growth Portfolio Index and, thus, may
increase the value of the MITTS Securities.
Changes in the volatility of the SPDR Fund Growth Portfolio 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
8
<PAGE>
fluctuations. Generally, if the volatility of the SPDR Fund Growth Portfolio
Index increases, we expect that the trading value of the MITTS Securities will
increase and, conversely, if the volatility of the SPDR Fund Growth Portfolio
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 SPDR Fund Growth Portfolio Index. This difference will reflect a "time
premium" due to expectations concerning the value of the SPDR Fund Growth
Portfolio 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 underlying Select
Sector SPDR Funds are expected to affect the trading value of the MITTS
Securities. Generally, if dividend yields on the stocks included in the Select
Sector SPDR Funds comprising the SPDR Fund Growth Portfolio 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 SPDR Fund Growth Portfolio Index at maturity, an improvement
in our credit ratings will not reduce the 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 SPDR Fund Growth Portfolio
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.
No affiliation between ML&Co. and the Select Sector SPDR Funds
Our affiliate MLPF&S is both a soliciting dealer in the shares of the
Select Sector SPDR Funds and the index compilation agent for the related Select
Sector Indexes. However, we are not affiliated with the Select Sector SPDR Funds
or the related Select Sector Indexes. The Select Sector SPDR Funds have no
obligations with respect to the MITTS Securities or amounts to be paid to you,
including any obligation to take the needs of ML&Co. or of beneficial owners of
the MITTS Securities into consideration for any reason. The Select Sector SPDR
Funds will not receive any of the proceeds from this offering and are not
responsible for, and have not participated in, the determination or calculation
of the amount you will receive on your MITTS Securities at maturity. In
addition, the Select Sector SPDR Funds are not involved with the administration
or trading of the MITTS Securities and have no obligations with respect to any
amounts due under the MITTS Securities.
Amounts payable on the MITTS Securities may be limited by state law
New York State laws govern 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
9
<PAGE>
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.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell shares of the
Select Sector SPDR Funds comprising the SPDR Fund Growth Portfolio Index or the
stocks underlying those funds 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 the underlying stocks, the value of the
Select Sector SPDR Funds and, in turn, the value of the SPDR Fund Growth
Portfolio Index in a manner that would be adverse to your investment in the
MITTS Securities.
Potential conflicts of interests
Our subsidiary, MLPF&S, is our agent for the purposes of calculating the
Adjusted 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 SPDR Fund
Growth Portfolio 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 SPDR Fund Growth Portfolio Index. See "Description of the
MITTS Securities--Adjustments to the SPDR Fund Growth Portfolio Index; Market
Disruption Events" and "Discontinuance of the SPDR Fund Growth Portfolio Index"
in this prospectus.
MLPF&S is a soliciting dealer in the shares of the Select Sector SPDR
Funds. Under certain circumstances, MLPF&S' role as calculation agent for the
MITTS Securities and its role as a soliciting dealer in these shares could give
rise to conflicts of interests between the calculation agent and holders of the
MITTS Securities. These conflicts could occur in connection with its
determination as to the Adjusted Ending Value and the amount we owe you at
maturity.
Additionally, MLPF&S serves as Index Compilation Agent for each Select
Sector Index. In its capacity as Index Compilation Agent, MLPF&S determines, in
consultation with S&P, which securities of the S&P 500 are to be included in
each Select Sector Index. Under certain circumstances, MLPF&S' role as
calculation agent for the MITTS Securities and its role as Index Compilation
Agent could give rise to conflicts of interests between the calculation agent
and holders of the MITTS Securities.
MLPF&S is required to carry out its duties as calculation agent in good
faith and using its reasonable judgment. However, you should be aware that
because we control MLPF&S, potential conflicts of interest could arise.
We 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.
10
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
11
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
12
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
ML&Co. issued the MITTS Securities as a series of senior debt securities
under the senior indenture, referred to as the 1983 Indenture, which is more
fully described in this prospectus. The MITTS Securities will mature on May 25,
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 "--Payment at maturity".
The MITTS Securities are not subject to redemption by ML&Co. or at the
option of any beneficial owner before maturity. Upon the occurrence of an Event
of Default 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"
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 Supplemental Redemption
Amount is not greater than zero, a beneficial owner of a MITTS Security will be
entitled to receive only the principal amount of its MITTS Securities.
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 each 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 100.
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 SPDR Fund
Growth Portfolio 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 SPDR Fund Growth Portfolio 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 SPDR Fund Growth Portfolio 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 SPDR Fund
Growth Portfolio Index determined on the last scheduled Index Business Day in
the Calculation Period, as reduced by the application of the Adjustment Factor
on that day, regardless of the occurrence of a Market Disruption Event on that
day.
The "Adjustment Factor" equals 2.35% per year and will be applied over the
entire term of the MITTS Securities. On each calendar day during the term of the
MITTS Securities, we will apply this percentage on a pro-rated basis based on a
365-day year to reduce the value used to calculate the Supplemental Redemption
Amount on each Calculation Day during the Calculation Period. As a result of the
cumulative effect of this reduction, the values used to calculate the
Supplemental Redemption Amount during the Calculation Period will be
approximately
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<PAGE>
15.18% less than the actual closing value of the SPDR Fund Growth Portfolio
Index on each Calculation 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.
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" is any day on which the NYSE and the AMEX are open
for trading and the SPDR Fund Growth Portfolio 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 beneficial owners of the MITTS Securities.
Hypothetical returns
The following table illustrates, for a range of hypothetical closing values
of the SPDR Fund Growth Portfolio Index during the Calculation Period:
. the percentage change from the Starting Value to the hypothetical
closing value of the SPDR Fund Growth Portfolio Index,
. the Adjusted Ending Value used to calculate the Supplemental
Redemption Amount,
. the total amount payable at maturity for each unit of MITTS
Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. the pretax annualized rate of return of an investment in the shares of
the Select Sector SPDR Funds included in the SPDR Fund Growth
Portfolio Index, which includes an assumed aggregate dividend yield of
1.09% per annum, as more fully described below.
14
<PAGE>
For the purposes of calculating this table, we have applied an Adjustment
Factor of 2.35% per annum.
<TABLE>
<CAPTION>
Percentage Pretax annualized
Hypothetical change from the Total amount rate of return of
closing value Starting Value payable at Pretax annualized the shares of the
during the to the Adjusted maturity per unit Total rate of rate of return on Select Sector SPDR
Calculation hypothetical Ending of the MITTS return on the the MITTS Funds in the
Period closing value Value(1) Securities MITTS Securities Securities(2) index(2)(3)
--------------- -------------- ---------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
20.00 -80.00% 16.96 $10.00 0.00% 0.00% -20.52%
40.00 -60.00% 33.93 $10.00 0.00% 0.00% -11.58%
60.00 -40.00% 50.89 $10.00 0.00% 0.00% -6.09%
80.00 -20.00% 67.86 $10.00 0.00% 0.00% -2.09%
100.00(4) 0.00% 84.82 $10.00 0.00% 0.00% 1.09%
120.00 20.00% 101.78 $10.18 1.78% 0.25% 3.73%
140.00 40.00% 118.75 $11.87 18.75% 2.47% 5.99%
160.00 60.00% 135.71 $13.57 35.71% 4.41% 7.98%
180.00 80.00% 152.68 $15.27 52.68% 6.13% 9.74%
200.00 100.00% 169.64 $16.96 69.64% 7.69% 11.34%
220.00 120.00% 186.60 $18.66 86.60% 9.11% 12.80%
240.00 140.00% 203.57 $20.36 103.57% 10.41% 14.14%
260.00 160.00% 220.53 $22.05 120.53% 11.61% 15.38%
280.00 180.00% 237.50 $23.75 137.50% 12.74% 16.54%
300.00 200.00% 254.46 $25.45 154.46% 13.79% 17.63%
</TABLE>
(1) The Adjusted Ending Values specified in this column are approximately
15.18% less than the hypothetical closing values of the SPDR Fund Growth
Portfolio Index as a result of the cumulative effect of the application of
an Adjustment Factor of 2.35% per annum 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) an investment of a fixed amount in the shares of the Select Sector
SPDR Funds comprising the SPDR Fund Growth Portfolio Index with the
allocation of this amount reflecting the relative weights of each of
the Select Sector SPDR Funds in the SPDR Fund Growth Portfolio Index;
(b) a percentage change in the aggregate price of the shares that equals
the percentage change in the SPDR Fund Growth Portfolio Index from the
Starting Value to the relevant hypothetical closing value;
(c) a constant dividend yield of 1.09% per annum, paid quarterly from the
date of initial delivery of the MITTS Securities, applied to the value
of the shares of the Select Sector SPDR Funds comprising the SPDR Fund
Growth Portfolio Index at the end of each quarter assuming this value
increases or decreases linearly from the Starting Value to the
applicable hypothetical closing value;
(d) no transaction fees or expenses in connection with purchasing and
holding shares of the Select Sector SPDR Funds;
(e) an investment term from May 28, 1999 to May 25, 2006; and
(f) a final value of the SPDR Fund Growth Portfolio Index equal to the
hypothetical closing value.
(4) The Starting Value of the SPDR Fund Growth Portfolio Index equals 100.
15
<PAGE>
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 Adjusted
Ending Value determined by the calculation agent as provided in this prospectus.
Adjustments to the SPDR Fund Growth Portfolio Index; Market Disruption Events
If at any time the AMEX changes its method of calculating the SPDR Fund
Growth Portfolio Index, or the value of the SPDR Fund Growth Portfolio Index
changes, in any material respect, or if the SPDR Fund Growth Portfolio Index is
in any other way modified so that the SPDR Fund Growth Portfolio Index does not,
in the opinion of the calculation agent, fairly represent the value of the SPDR
Fund Growth Portfolio Index had any 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 SPDR
Fund Growth Portfolio 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 SPDR Fund
Growth Portfolio Index as if no changes or modifications had been made, and
calculate the closing value with reference to the SPDR Fund Growth Portfolio
Index, as so adjusted. Accordingly, if the method of calculating the SPDR Fund
Growth Portfolio Index is modified so that the value of the SPDR Fund Growth
Portfolio 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 SPDR Fund Growth Portfolio Index in order to arrive at a value of the SPDR
Fund Growth Portfolio Index as if it had not been modified, e.g., as if a split
had not occurred.
"Market Disruption Event" means any of the following events, with respect
to the Select Sector SPDR Funds, 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 Select Sector SPDR Funds underlying the
SPDR Fund Growth Portfolio Index; or
(b) the suspension or material limitation on trading, 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 option contracts or futures contracts related to the S&P
500 Index or the shares of a Select Sector SPDR Fund underlying the
SPDR Fund Growth Portfolio 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 purposes 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 SPDR Fund Growth Portfolio Index
If the AMEX discontinues publication of the SPDR Fund Growth Portfolio
Index and the AMEX or another entity publishes a successor or substitute index
that the calculation agent determines, in its sole discretion, to be comparable
to the SPDR Fund Growth Portfolio 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 the
AMEX or any other entity for the SPDR Fund Growth Portfolio 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.
16
<PAGE>
In the event that the AMEX discontinues publication of the SPDR Fund Growth
Portfolio Index and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the SPDR Fund Growth
Portfolio Index in accordance with the procedures last used to calculate the
SPDR Fund Growth Portfolio Index before any discontinuance. If a successor index
is selected or the calculation agent calculates a value as a substitute for the
SPDR Fund Growth Portfolio Index as described below, the successor index or
value will be used as a substitute for the SPDR Fund Growth Portfolio Index for
all purposes, including for purposes of determining whether a Market Disruption
Event exists.
If the AMEX discontinues publication of the SPDR Fund Growth Portfolio
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 Exchange 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 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.
An "Exchange 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 SPDR Fund Growth Portfolio 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 was the stated maturity date of the MITTS Securities, provided,
however, that the Adjustment Factor will be applied to the values used to
calculate the Supplemental Redemption Amount as if the MITTS Securities had not
been accelerated and had remained outstanding to the stated maturity date. See
"-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 at the maturity date 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 6.38% 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.
17
<PAGE>
Depositary
Description of Global Securities
Upon issuance, all MITTS Securities will be represented by one or more
fully registered global securities. Each global security will be deposited with,
or on behalf of, DTC (DTC, together with any successor, being a "depositary"),
as depositary, registered in the name of Cede & Co., DTC's 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 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 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 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
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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 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 shall be the
responsibility of DTC, and disbursement of any payments to the beneficial owners
will be the responsibility of direct participants and indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to 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.
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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.
THE SELECT SECTOR SPDR FUND GROWTH PORTFOLIO INDEX
The SPDR Fund Growth Portfolio Index is an index tracking the value of
eight underlying Select Sector SPDR Funds. Each Select Sector SPDR Fund is an
index fund whose stated investment objective is to provide investment results
that, before expenses, correspond generally to the price and yield performance
of the publicly-traded equity securities comprising the relevant sector index.
Each sector index consists of the equity securities of publicly-traded companies
that are components of the S&P 500 Index and that represent a specific market
sector. An investment in the MITTS Securities does not entitle you to any
ownership interest in any of the Select Sector SPDR Funds comprising the SPDR
Fund Growth Portfolio Index.
The initial multipliers were calculated so that the value of the SPDR Fund
Growth Portfolio Index equaled 100 on the Pricing Date. The initial multiplier
for each Select Sector SPDR Fund was determined by the calculation agent on the
Pricing Date and equalled:
. the initial weighting for the Select Sector SPDR Fund multiplied by
100, divided by
. the last sale price reported on the AMEX of that Select Sector SPDR
Fund on the Pricing Date.
The respective multipliers will remain constant for the term of the MITTS
Securities unless adjusted for certain events such as splits, reverse splits or
capital gains distributions of any Select Sector SPDR Fund. The AMEX will have
the sole discretion as to whether to make any adjustments and the amount of any
adjustments.
The AMEX calculates and disseminates the value of the SPDR Fund Growth
Portfolio Index that equals the sum of the products, for each Select Sector SPDR
Fund, of the applicable multiplier and the most recently reported price at which
the Select Sector SPDR Fund has traded on its primary exchange. The AMEX
disseminates the SPDR Fund Growth Portfolio Index at approximately 15-second
intervals during the AMEX's business hours and at the end of each Index Business
Day via the Consolidated Tape Association's Network B. The SPDR Fund Growth
Portfolio Index is reported by the AMEX and Bloomberg under the symbol "GWI" and
by Reuters under the symbol ".GWI".
Select Sector SPDR Funds
ML&Co. has attached the fund prospectus describing the Select Sector SPDR
Funds and is delivering it to purchasers of the MITTS Securities together with
this prospectus of ML&Co. for the convenience of reference only. The fund
prospectus does not constitute a part of this prospectus of ML&Co., nor is it
incorporated by reference in this prospectus of ML&Co. The summary description
below is qualified in its entirety by the information describing the Select
Sector SPDR Funds and the Select Sector Indexes included in the attached fund
prospectus.
The investment objective of each Select Sector SPDR Fund is to provide
investment results that, before expenses, correspond generally to the price and
yield performance of publicly traded equity securities of companies in a
particular sector or group of industries as represented by a specified Select
Sector Index published by the AMEX. The companies included in each Select Sector
SPDR Index are selected on the basis of general industry classification from a
universe of companies defined by the S&P 500. For further information on the
Select Sector
20
<PAGE>
SPDR Funds and the Select Sector Indexes you should carefully read the fund
prospectus accompanying this prospectus.
Although ML&Co.'s subsidiary, MLPF&S, provides certain services to the
Select Sector SPDR Funds and the provider of the Select Sector Indexes, ML&Co.
is not affiliated with the Select Sector SPDR Funds or the Select Sector
Indexes, and the Select Sector SPDR Funds will not receive any of the proceeds
from the sale of, or have any obligations under, the MITTS Securities. A
prospective purchaser of the MITTS Securities should independently decide
whether an investment in the MITTS Securities is appropriate.
The Select Sector SPDR Trust is subject to the registration requirements of
the Securities Act and the Investment Company Act, and is required to file
periodically certain information specified by the SEC. For more information
about the Select Sector SPDR Funds, the information provided to or filed with
the SEC by the Trust can be inspected at the SEC's public reference facilities
or accessed over the Internet through a web site maintained by the SEC at
http://www.sec.gov. Copies of these documents may also be obtained at no cost by
calling the Trust at (800) 843-2639 or by writing the Trust c/o ALPS Mutual
Funds Services, Inc., 370 17th Street, Suite 3100, Denver, CO 80202. Neither the
fund prospectus nor such other documents are incorporated by reference in this
prospectus, and ML&Co. makes no representation or warranty as to the accuracy or
completeness of any such documents.
ML&Co. is not affiliated with any of the Select Sector SPDR Funds, and the
Select Sector SPDR Funds do not have obligations with respect to the MITTS
Securities. This prospectus relates only to the MITTS Securities offered by this
prospectus and does not relate to the shares of the Select Sector SPDR Funds or
any other securities relating to the Select Sector SPDR Funds. The information
contained in this prospectus regarding the Select Sector SPDR Funds has been
derived from the publicly available documents described in the preceding
paragraph. ML&Co. makes no representation that these publicly available
documents or any other publicly available information regarding the Select
Sector SPDR Funds are accurate or complete. Furthermore, there can be no
assurance that all events occurring prior to the date of this prospectus,
including events that would affect the accuracy or completeness of the publicly
available documents described in the preceding paragraph, that would affect the
trading price of the shares of the Select Sector SPDR Funds, and therefore the
trading price of the MITTS Securities, have been publicly disclosed. Subsequent
disclosure of any of these events or the disclosure of or failure to disclose
material future events concerning the Select Sector SPDR Funds could affect the
Supplemental Redemption Amount, if any, to be received at maturity and therefore
the trading value of the MITTS Securities.
MLPF&S, a subsidiary of ML&Co., is a soliciting dealer in the shares of the
Select Sector SPDR Funds. Additionally, MLPF&S serves as index compilation agent
for the Select Sector Indexes. In its capacity as index compilation agent,
MLPF&S determines, in consultation with S&P, the composition of the securities
measured by the Select Sector Indexes.
License Agreement
S&P, the AMEX and MLPF&S have entered into a non-exclusive license
agreement providing for the license to MLPF&S, in exchange for a fee, of the
right to use Select Sector Indexes owned and published by S&P in connection with
certain securities, including the MITTS Securities, and ML&Co. is an authorized
sublicensee of MLPF&S.
The license agreement among S&P, the AMEX and MLPF&S provides that the
following language must be stated in this prospectus:
"Standard & Poor's(R)", "Standard & Poor's 500(R)", "S&P 500(R)", "S&P(R)",
"500", "Standard & Poor's Depositary Receipts", "SPDRs", "Select Sector SPDR"
and "Select Sector Standard & Poor's Depositary Receipts" are registered
trademarks of Standard & Poor's, a division of The McGraw-Hill Companies, Inc.,
and have been licensed for use by MLPF&S. ML&Co. is an authorized sublicensee of
MLPF&S. The stocks comprising the Select Sector Indexes were selected by MLPF&S,
as index compilation agent, in consultation with S&P from the universe of
companies represented by the S&P 500 Index. The composition and weightings of
the stocks included in the Select Sector Indexes can be expected to differ from
the composition and weighting of stocks included in any similar S&P 500 sector
indexes published and disseminated by S&P.
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The MITTS Securities, the SPDR Fund Growth Portfolio Index, the Select
Sector SPDR Funds and the Select Sector Indexes are not sponsored, endorsed,
sold or promoted by S&P. S&P 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 in the ability of the SPDR Fund Growth Portfolio
Index to track the performance and yield of the Select Sector Indexes or in the
ability of the Select Sector Indexes to track the performance of the
corresponding sectors represented in the stock market. The stocks included in
the Select Sector Indexes were selected by MLPF&S as the index compilation agent
in consultation with S&P. The composition and weightings of the stocks included
in each Select Sector Index can be expected to differ from the composition and
weighting of stocks included in any corresponding S&P 500 sector index that is
published and disseminated by S&P. S&P's only relationship to the index
compilation agent is the licensing of certain trademarks and trade names of S&P
and of the S&P 500 Index which is determined, composed and calculated by S&P
without regard to the index compilation agent or the MITTS Securities. S&P has
no obligation to take the needs of the index compilation agent, ML&Co. or the
holders of the MITTS Securities into consideration in determining, composing or
calculating the S&P 500 Index. S&P is not responsible for and has not
participated in any determination of the timing of the sale of the MITTS
Securities, prices at which the MITTS Securities are initially to be sold, or
quantities of the MITTS Securities to be issued or in the calculation of the
Supplemental Redemption Amount. S&P has no obligation or liability in connection
with the administration, marketing or trading of the MITTS Securities.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index, the Select Sector Indexes or any data included therein. S&P makes no
warranty, express or implied, as to results to be obtained by ML&Co., MLPF&S,
the holders of the MITTS Securities, or any other person or entity from the use
of the S&P 500 Index, the Select Sector Indexes or any data included therein in
connection with the rights licensed under the license agreement described herein
or for any other use. S&P makes no express or implied warranties, and expressly
disclaims all warranties of merchantability or fitness for a particular purpose
with respect to the S&P 500 Index, the Select Sector Indexes or any data
included therein. Without limiting the generality of the foregoing, in no event
shall S&P have any liability for any special, punitive, indirect or
consequential damages, including lost profits, even if notified of the
possibility of such damages.
All disclosures contained in this prospectus regarding the S&P 500 Index or
the Select Sector Indexes, including its respective make-up, method of
calculation and changes in its components, are derived from publicly available
information prepared by S&P and the Select Sector SPDR Trust, respectively.
ML&Co. and MLPF&S do not assume any responsibility for the accuracy or
completeness of this information.
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
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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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe of all of ML&Co.'s obligations under the 1983
Indenture, and
. 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.
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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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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".
Events of Default
Each of the following will be Events of Default with respect to senior debt
securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. default in the performance of any other obligation of ML&Co. contained
in the 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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
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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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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.
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PROJECTED PAYMENT SCHEDULE
Solely for purposes of applying the final Treasury Department Regulations
(the "Final Regulations") concerning the United States Federal income tax
treatment of contingent payment debt instruments to 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 $5.5253 per unit. This
represents an estimated yield on the MITTS Securities equal to 6.38% per annum
(compounded semiannually).
The projected payment schedule, including both 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 a term of five years and ten days for the MITTS Securities
based upon the projected payment schedule for the MITTS Securities, including
both the projected Supplemental Redemption Amount and the estimated yield equal
to 6.38% 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
Interest deemed to to have accrued on
accrue during accrual MITTS Securities as of
period end of accrual period
Accrual Period (per unit) (per unit)
-------------- ---------- ----------
<S> <C> <C>
May 28, 1999 through November 28, 1999.......................... $0.3217 $0.3217
November 29, 1999 through May 28, 2000.......................... $0.3292 $0.6509
May 29, 2000 through November 28, 2000.......................... $0.3398 $0.9907
November 29, 2000 through May 28, 2001.......................... $0.3506 $1.3413
May 29, 2001 through November 28, 2001.......................... $0.3618 $1.7031
November 29, 2001 through May 28, 2002.......................... $0.3733 $2.0764
May 29, 2002 through November 28, 2002.......................... $0.3852 $2.4616
November 29, 2002 through May 28, 2003.......................... $0.3976 $2.8592
May 29, 2003 through November 28, 2003.......................... $0.4102 $3.2694
November 29, 2003 through May 28, 2004.......................... $0.4233 $3.6927
May 29, 2004 through November 28, 2004.......................... $0.4368 $4.1295
November 29, 2004 through May 28, 2005.......................... $0.4507 $4.5802
May 29, 2005 through November 28, 2005.......................... $0.4651 $5.0453
November 29, 2005 through May 25, 2006.......................... $0.4800 $5.5253
</TABLE>
__________
Projected Supplemental Redemption Amount = $5.5253 per unit.
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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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.
27
<PAGE>
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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
28
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may sell these securities until the registration statement filed with the +
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
Russell 2000(R) Index* Call Warrants
Expiring May 25, 2001
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
our wholly-owned subsidiary, will use this prospectus when making offers and
sales related to market-making transactions in the warrants.
The Russell 2000 Index Call Warrants: Exercise and payment upon exercise:
. Unsecured contractual obligations . Upon exercise, we will pay you,
of ML&Co. for each Russell 2000 Index Call
Warrant that you own, an amount in
. Your return upon exercise is U.S. dollars equal to the product,
linked to the performance of the if positive, of the percentage
Russell 2000 Index, an index change in the Russell 2000 Index
designed to track the price as described in this prospectus,
performance of the common stock of and the Dollar Multiplier which is
2,000 corporations with small an amount equal to $21.75.
capitalizations relative to other
stocks in the U.S. equity market. . You will be able to exercise the
warrants from the date they are
. The warrants are listed on the issued until shortly before their
American Stock Exchange under the expiration, subject to the
trading symbol "RSY.WS". possibility that your right to
exercise may be postponed or that
the warrants may be cancelled.
Investing in the warrants involves a high degree of risk, including the risk
that the warrants will expire worthless and you may sustain a total loss of the
purchase price. Please see "Risk Factors" beginning on page 7 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 warrants will be the prevailing market price at the
time of sale.
________________
Merrill Lynch & Co.
________________
The date of this prospectus is , .
* The use of, and reference to, the term "Russell 2000 Index" in this prospectus
has been consented to by Frank Russell Company.
<PAGE>
TABLE OF CONTENTS
Prospectus
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION -- Q&A................................................. 3
RISK FACTORS............................................................... 7
MERRILL LYNCH & CO., INC................................................... 12
RATIO OF EARNINGS TO FIXED CHARGES......................................... 13
DESCRIPTION OF THE WARRANTS................................................ 14
THE INDEX.................................................................. 29
WHERE YOU CAN FIND MORE INFORMATION........................................ 31
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.......................... 31
PLAN OF DISTRIBUTION....................................................... 32
EXPERTS.................................................................... 32
</TABLE>
2
<PAGE>
SUMMARY INFORMATION -- Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Russell 2000 Index
Call Warrants expiring May 25, 2001. You should carefully read this prospectus
to understand fully the terms of the warrants as well as the tax and other
considerations that should be important to you in making a decision about
whether to invest in the warrants. You should carefully review the "Risk
Factors" section, which highlights certain risks associated with an investment
in the warrants, to determine whether an investment in the warrants 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 warrants?
The warrants are contractual obligations of ML&Co. and are not secured by
collateral. The warrants rank equally with all other unsecured contractual
obligations of ML&Co. and ML&Co.'s unsecured and unsubordinated debt. The
warrants will entitle you to receive a cash settlement upon exercise. The
warrants will expire on May 25, 2001.
You will not have the right to receive physical certificates evidencing
your ownership except under limited circumstances. Instead, we have issued the
warrants in the form of a global certificate, which is being held by The
Depository Trust Company, also known as DTC, or its nominee. Direct and indirect
participants in DTC will record beneficial ownership of the warrants by
individual investors. Direct and indirect participants in DTC will include
participants in the Euroclear System ("Euroclear") and Clearstream Banking,
societe anonyme (formerly Cedelbank) ("Clearstream, Luxembourg"). clearing
systems. You should refer to the section "Description of the warrants--
Depositary" in this prospectus.
When can I exercise my warrants and when are they subject to automatic exercise
or cancellation?
At your option, you may exercise your warrants on any New York Business Day
during the period from May 28, 1999 until 1:00 p.m., New York City time on the
second scheduled Index Calculation Day immediately preceding their expiration,
whether on May 25, 2001 or on the date of earlier expiration. See "Description
of the warrants--Exercise and settlement of warrants".
If you do not exercise your warrants during that period, your warrants will
be automatically exercised on the Expiration Date or, in the case of delisting
or the imposition of a permanent trading suspension on trading of warrants, on
the Delisting Date or the date of trading suspension. See "Description of the
warrants--Automatic Exercise".
Your warrants are subject to cancellation if the calculation agent
determines that an extraordinary event that materially affects the trading of
securities generally has occurred and is continuing, as described in
"Description of the warrants--Extraordinary Events and Market Disruption
Events". If your warrants are cancelled, you will receive the Alternative
Settlement Amount determined by the calculation agent as described under
"Description of the warrants--Extraordinary Events and Market Disruption
Events".
How do I exercise my warrants?
To exercise your warrants, you must cause a broker, who may, in turn, need
to direct a participant in DTC:
. to transfer the warrants to the Warrant Agent on the records of DTC, and
. to deliver a duly completed and executed exercise notice on your behalf
to the Warrant Agent.
In order for a New York Business Day to constitute the Exercise Date for the
warrants you are exercising, you must cause your warrants to be
3
<PAGE>
transferred to, and the exercise notice to be received by, the Warrant Agent at
or prior to 1:00 p.m., New York City time, on that New York Business Day,
provided that if you hold the warrants through Clearstream, Luxembourg or
Euroclear, the warrants must be transferred to the Warrant Agent by 1:00 p.m.,
New York City time, on the applicable Valuation Day.
Are there limits on how and when I can exercise my warrants?
You may exercise no fewer than 100 warrants at any one time, except in the
case of automatic exercise. See "Description of the warrants--Minimum Exercise
Amount". Any exercise of warrants, other than on the Expiration Date or an
earlier expiration date, are subject, at ML&Co.'s option, to:
. the limitation that no more than 20% of the warrants originally issued
may be exercised on any Exercise Date, and
. no more than 10% of the warrants originally issued may be exercised by
you, either individually or in concert with any other beneficial owner,
on any Exercise Date, other than automatic exercise.
See "Description of the warrants--Maximum Exercise Amount" in this prospectus.
What will I receive when I exercise my warrants or they are automatically
exercised?
When you exercise your warrants or they are automatically exercised, we
will pay you an amount in U.S. dollars based on the percentage change in the
Russell 2000 Index, the Cash Settlement Amount, determined on the Valuation Day
relating to the Exercise Date for those warrants, as described in this
prospectus. See "Description of the warrants--Cash Settlement Amount upon
exercise".
Cash Settlement Amount
The "Cash Settlement Amount" will equal an amount in U.S. dollars equal to
the product, if positive, of the Percentage Change, in the Russell 2000 Index
multiplied by the Dollar Multiplier. In no event will the Cash Settlement Amount
be less than zero.
Percentage Change
The "Percentage Change" will equal:
Index Spot Value - Index Strike
--------------------------------
Value Index Strike Value
You will receive no payment if the Cash Settlement Amount is equal to zero;
however the Cash Settlement Amount cannot be less than zero. In certain
circumstances, you may receive an Alternative Settlement Amount rather than the
Cash Settlement Amount.
The "Index Strike Value" equals 434.45, the closing value of the index in
New York on the date the warrants were priced for initial sale to the public.
The "Index Spot Value" means the closing value of the index in New York on
the Valuation Day relating to an exercise of warrants. The Valuation Day will
generally be the day on which your exercise of warrants is effective, if that
day is also an Index Calculation Day. An "Index Calculation Day" means any day
on which the NYSE and the AMEX are open for trading and the index, or any
successor index, is calculated and published.
Dollar Multiplier
The "Dollar Multiplier" equals $21.75.
We will pay you a Cash Settlement Amount only if the Index Spot Value is
greater than the Index Strike Value. If the Index Spot Value is less than, or
equal to the Index Strike Value, the Cash Settlement Amount will be zero. If the
Cash Settlement Amount is zero, you will sustain a total loss of the purchase
price.
For more specific information about the amount you will receive when you
exercise your warrants, please see the section "Description of the warrants--
Cash Settlement Amount upon exercise" in this prospectus.
4
<PAGE>
Examples
Here are three examples of hypothetical Cash Settlement Amount
calculations:
Example 1--Index Spot Value is less than the Index Strike Value on the
Valuation Day relating to the relevant Exercise Date:
Index Strike Value: 434.45
Hypothetical Index Spot Value: 327.08
<TABLE>
<S> <C> <C>
( 327.08 - 434.45 )
Cash Settlement Amount per warrant = $21.75 X ( --------------- ) = $0.00 (The Cash Settlement Amount cannot
( 434.45 ) be less than zero)
</TABLE>
Total Cash Settlement Amount per warrant = $0 and the exercise of the warrant
at that time is worthless.
Example 2--Index Spot Value is greater than the Index Strike Value on the
Valuation Day relating to the relevant Exercise Date, however the Cash
Settlement Amount is less than the initial offering price of $5.00:
Index Strike Value: 434.45
Hypothetical Index Spot Value: 501.52
<TABLE>
<S> <C>
( 501.52 - 434.45 )
Cash Settlement Amount per warrant = $21.75 X ( --------------- ) = $3.36
( 434.45 )
</TABLE>
Total Cash Settlement Amount per warrant = $3.36 and the exercise of the
warrant results in a payment that is less than the initial offering price.
Example 3--Index Spot Value is greater than the Index Strike Value on the
Valuation Day relating to the relevant Exercise Date:
Index Strike Value: 434.45
Hypothetical Index Spot Value: 545.14
<TABLE>
<S> <C>
( 545.14 - 434.45 )
Cash Settlement Amount per warrant = $21.75 X ( --------------- ) = $5.54
( 434.45 )
</TABLE>
Total Cash Settlement Amount per warrant = $5.54.
Who publishes the index and what does the index measure?
The Russell 2000 Index is published by Frank Russell Company ("FRC") and is
designed to track the performance of 2,000 common stocks of corporations with
small capitalizations relative to other stocks in the U.S. equity market. Market
capitalization is the value of a corporation's stock in the public market
determined by multiplying the number of outstanding shares by the current price
of a share. As of April 30, 1999, the market capitalization of the stocks in the
Russell 2000 Index ranged from approximately $12.2 million to
5
<PAGE>
$13.2 billion, with the average market capitalization being $593.7 million. The
corporations in the Russell 2000 Index are domiciled in the U.S. and its
territories and their stocks are traded on the NYSE, on the AMEX, or in the
over-the-counter market.
Please note that an investment in the warrants does not entitle you to any
ownership interest in the stocks of the companies included in the Russell 2000
Index.
Are the warrants listed on a stock exchange?
The warrants are listed on the AMEX under the trading symbol "RSY.WS". You
should be aware that the listing of the warrants on the AMEX will not
necessarily ensure that a liquid trading market will be available for the
warrants, or that it will remain available throughout the term of the warrants.
You should review the section entitled "Risk Factors--There may be an uncertain
trading market for the warrants" in this prospectus.
What is the role of MLPF&S?
Our subsidiary, MLPF&S, was the underwriter for the offering and sale of
the warrants. MLPF&S intends to buy and sell warrants to create a secondary
market for holders of the warrants, and may stabilize or maintain the market
price of the warrants during the initial distribution of the warrants. However,
MLPF&S will not be obligated to engage in any of these market activities, or
continue them once it has started.
MLPF&S is our agent for purposes of calculating the Index Spot Value and
the Cash Settlement Amount or Alternative Settlement 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.
Please see the section entitled "Risk Factors--Potential conflicts of interests"
in this prospectus.
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
entitled "Merrill Lynch & Co., Inc." in the accompanying prospectus of ML&Co.
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.
Are there any risks associated with my
investment?
Yes, an investment in the warrants is subject to risks, including the risk
that you will lose your entire purchase price. Please refer to the section "Risk
Factors" in this prospectus.
6
<PAGE>
RISK FACTORS
Your investment in the warrants will involve a high degree of risk. For
example, there is the risk that you might not earn a return on your investment
and the risk that the warrants will expire worthless. You should be prepared to
sustain a total loss of the purchase price of your warrants. We suggest that
you, as a potential purchaser of warrants, be experienced with respect to
options and option transactions. In addition, you should reach an investment
decision with regard to the Warrants only after consulting with your legal and
tax advisers and considering the suitability of the Warrants in the light of
your particular circumstances.
The warrants are long-term options and may expire worthless
You will receive a cash payment upon exercise only if the warrants have a
Cash Settlement Amount greater than zero on the relevant Valuation Day. At
pricing, the Cash Settlement Amount of the warrants will equal zero. The
warrants will be "in-the-money", i.e., their Cash Settlement Amount will exceed
zero, on the relevant Valuation Day only if, as of that date, the closing value
of the index is greater than the Index Strike Value. You may incur transaction
costs in connection with any exercise of the warrants. Therefore, you may
receive no return, even if the warrants are in-the-money, if the Cash Settlement
Amount does not exceed any transaction costs and the price you paid for the
warrants.
An increase in the level of the index from the date the warrants are priced
for initial sale to the public will result in a Cash Settlement Amount for the
warrants, and a decrease in the level of the index from that date will result in
a zero Cash Settlement Amount for your warrants. If a warrant is not exercised
prior to its expiration and, on the Valuation Day with respect to its
expiration, the value of the index is less than or equal to the Index Strike
Value, the warrant will expire worthless and you will have sustained a total
loss of the purchase price of the warrant. You should therefore be prepared to
sustain a total loss of the purchase price of your warrants.
The value of the warrants is closely related to changes in the value of the
index
The warrants provide opportunities for investment but also pose risks to
you as a result of fluctuations in the value of the underlying investment. In
general, certain risks associated with the warrants are similar to those
generally applicable to other options or warrants of private corporate issuers.
However, unlike options or warrants on equity or debt securities, which are
traded primarily on the basis of the value of a single underlying security, the
trading value of the warrants being offered by this prospectus is likely to
reflect primarily the extent of the appreciation or depreciation of the index.
You may lose your entire investment. This risk reflects the nature of a
warrant as an asset which tends to decline in value over time and which may,
depending on the relative value of the index, be worthless when it expires. A
warrant is "out-of-the-money" when the Index Spot Value is less than the Index
Strike Value. Assuming all other factors are held constant, the more a warrant
is out-of-the-money and the shorter its remaining term to expiration, the
greater the risk that you will lose all of your investment. This means that if
you do not sell your warrants in the secondary market or exercise your warrants
prior to expiration you will necessarily lose your entire investment in the
warrant if it expires when the Index Spot Value is less than or equal to the
Index Strike Value.
Since warrants may become worthless upon expiration, you must generally be
correct about the direction, timing and magnitude of anticipated changes in the
value of the index in order to recover and realize a return upon your
investment. If the value of the index does not increase to an extent sufficient
to cover the costs of your warrants, i.e., the purchase price plus transaction
costs, if any, before the warrants expire, you will lose all or a part of your
investment in the warrants upon expiration.
In general, the stocks comprising the index have smaller market
capitalizations, greater price fluctuations, and less trading liquidity than
stocks in other larger capitalization indices which are designed to
7
<PAGE>
measure the broad movement of the U.S. stock market. These factors may adversely
affect the value of the index and the warrants.
The stocks underlying the index are traded on the NYSE, AMEX and in the
over-the-counter market. Some of these markets have adopted measures intended to
prevent extreme short-term price fluctuations resulting from order imbalances.
As a result, variations in the index may be limited by price limitations on, or
by suspension of trading in, individual stocks which comprise the index which
may, in turn, adversely affect the value of the warrants or result in a Market
Disruption Event. See "Description of the warrants--Extraordinary Events and
Market Disruption Events".
The warrants are suitable only for investors with experience in options
transactions
The AMEX requires that warrants be sold only to investors with options-
approved accounts and that its members and member organizations and their
registered employees make certain suitability determinations before recommending
transactions in warrants. We suggest that investors considering purchasing
warrants be experienced with respect to options and option transactions and
understand the risks of stock index transactions and reach an investment
decision only after carefully considering, with their advisers, the suitability
of the warrants in light of their particular circumstances. Warrants are not
suitable for persons solely dependent upon a fixed income for individual
retirement plan accounts or for accounts under the Uniform Transfers/Gifts to
Minors Act. Investors should be prepared to sustain a total loss of the purchase
price of their warrants.
Restrictions on the minimum and maximum number of warrants you may exercise
. Minimum Exercise Amount. Except for cases of automatic exercise, you
must tender at least 100 warrants at any one time in order to exercise
your warrants. Thus, except in cases of automatic exercise, if you own
fewer than 100 warrants you will need either to sell your warrants or
purchase additional warrants, incurring transaction costs in either
case, in order to realize proceeds from your investment. At any time
you must purchase additional warrants in order to have the minimum
number of warrants necessary to elect to exercise, you will be exposed
to the conditions of the secondary market for warrants at the time of
that purchase, including the risk that there may be a limited number
of warrants available in the market at that time, and the other
factors affecting the secondary market discussed above. Furthermore,
you incur the risk that there may be differences between the trading
value of the warrants and the Cash Settlement Amount of the warrants.
. Maximum Exercise Amount. All exercises of warrants, other than on
automatic exercise, are subject, at our option, to the limitation that
not more than 20% of the warrants originally issued may be exercised
on any Exercise Date and not more than 10% of the warrants originally
issued may be exercised by you or on your behalf, either individually
or in concert with any other beneficial owner, on any Exercise Date.
If any New York Business Day would otherwise be the Exercise Date for
more than 20% of the warrants originally issued, then at our election
20% of the warrants originally issued shall be exercised on that
Exercise Date, subject to the following conditions: (a) no more than
10% of the warrants originally issued shall be exercised for the
account of any single beneficial owner, and, (b) the Warrant Agent
shall select the warrants to be exercised on a pro rata basis. If, as
a result of the pro rata selection, any beneficial owner of warrants
would be deemed to have exercised fewer than 100 warrants, the Warrant
Agent shall first select an additional amount of that beneficial
owner's warrants so that no beneficial owner shall be deemed to have
exercised fewer than 100 warrants, and the remainder of the warrants,
whether or not fewer than 100 warrants (the "Remaining Warrants"),
shall be deemed exercised on the following New York Business Day
subject to successive applications of this provision. In selecting
warrants to be exercised, the Warrant Agent shall deem any Remaining
Warrants which were exercised on a prior Exercise Date exercised
before any other warrants exercised on a subsequent Exercise Date.
8
<PAGE>
As a result of any postponed exercise, beneficial owners will receive
a Cash Settlement Amount determined as of a date later than the
otherwise applicable Valuation Day. In that case, as a result of any
postponement, the Cash Settlement Amount actually received by
beneficial owners may be lower (or higher) than the otherwise
applicable Cash Settlement Amount if the Valuation Day of the warrants
had not been postponed.
There may be a time lag after you give exercise instructions
In the case of any exercise of warrants, there will be a time lag between
the time you give instructions to exercise and the time the Index Spot Value
relating to the exercise is determined. Therefore, you will not be able to
determine, at the time of exercise of a warrant, the Index Spot Value that will
be used to calculate the Cash Settlement Amount of the warrant, and will thus be
unable to determine the Cash Settlement Amount. The delay will, at a minimum,
amount to several hours and could be much longer. For example, an exercise
notice received by the Warrant Agent after 1:00 p.m. Friday would generally
result in the Index Spot Value being determined the following Monday. Any
downward movement in the level of the index between the time you exercise a
warrant and the time the Index Spot Value for that exercise is determined will
result in your receiving a Cash Settlement Amount that is less than the Cash
Settlement Amount you anticipated based on the level of the index most recently
reported prior to exercise. If you have not exercised a warrant prior to 1:00
p.m. on the second scheduled Index Calculation Day preceding the Expiration Date
you will, pursuant to the provision for automatic exercise, have the Index Spot
Value with respect to the warrant determined on the Expiration Date. The value
of the index may change significantly during that period, and these movements
could adversely affect the Cash Settlement Amount of the warrants being
exercised.
Further delay may occur if a Market Disruption Event or Extraordinary Event
has occurred, in which case the Cash Settlement Amount in respect of exercised
warrants will be calculated as of the next succeeding Index Calculation Day on
which there is no Market Disruption Event or Extraordinary Event. If the
calculation agent determines that on a Valuation Day a Market Disruption Event
or Extraordinary Event has occurred, the Valuation Day shall be postponed to the
first succeeding Index Calculation Day on which no Market Disruption Event or
Extraordinary Event occurs; subject to the following conditions: (a) if the
Valuation Day has not occurred on or prior to the fifth scheduled Index
Calculation Day following an Exercise Date because of Market Disruption Events,
the fifth scheduled Index Calculation Day shall be the Valuation Day regardless
of whether a Market Disruption Event has occurred on that day, and (b) if an
Extraordinary Event has occurred and is continuing, and if the Extraordinary
Event is expected by ML&Co. to continue, ML&Co. may immediately cancel the
warrants as described below under "Description of the warrants--Extraordinary
Events and Market Disruption Events". During any period of delay due to a Market
Disruption Event or Extraordinary Event, the value of the index may change
significantly, and that change may adversely affect the amount paid on any
warrants exercised during that period.
The warrants will be automatically exercised if they are delisted
In the event that the warrants are delisted from, or permanently suspended
from trading on, the AMEX and the warrants are not simultaneously accepted for
trading pursuant to the rules of another regulated trading organization that are
filed with the SEC under U.S. securities laws, warrants not previously exercised
will expire on the date the delisting or trading suspension becomes effective
and will be deemed automatically exercised on the Delisting Date. At the
applicable Valuation Day with respect to the automatic exercise, the warrants
may be out-of-the-money so that the Cash Settlement Amount would equal zero.
The warrants are not standardized options issued by the Options Clearing
Corporation
The warrants are not standardized stock index options of the type issued by
the Options Clearing Corporation (the "OCC"), a clearing agency regulated by the
SEC. For example, unlike purchasers of OCC standardized options who have the
credit benefits of guarantees and margin and collateral deposits by OCC clearing
members to protect the OCC from a clearing member's failure, purchasers of
warrants must look solely to ML&Co. for performance of its obligations to pay
the Cash Settlement Amount or Alternative
9
<PAGE>
Settlement Amount on the exercise of warrants. Further, the market for the
warrants is not expected to be generally as liquid as the market for OCC
standardized options. The OCC does issue standardized stock index options in
which payments, if any, are determined based on changes in the index.
The warrants are unsecured contractual obligations of ML&Co. and will rank
equally with ML&Co.'s other unsecured contractual obligations and with ML&Co.'s
unsecured and unsubordinated debt. However, given that ML&Co. is a holding
company, the right of ML&Co., and hence the right of creditors of ML&Co.,
including beneficial owners of the warrants, to participate in any distribution
of the assets of any subsidiary upon its liquidation or reorganization or
otherwise is 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 certain
exchanges and other regulatory bodies.
There may be an uncertain trading market for the warrants
The warrants have been approved for listing on the AMEX under the trading
symbol "RSY.WS", subject to official notice of issuance. While there have been a
number of issuances of different warrants, trading volumes have varied
historically from one series to another, and it is therefore impossible to
predict how the warrants will trade. You cannot assume that a trading market
will develop for the warrants. If a trading market does develop, there can be no
assurance that there will be liquidity in the trading market. The development of
a trading market for the warrants will depend on the percentage change in the
Russell 2000 Index, and other factors such as our financial performance.
If the trading market for the warrants is limited, there may be a limited
number of buyers if you decide to sell your warrants, and as the number of
outstanding warrants decreases their value may decrease. This may affect the
price you receive upon exercise.
Many factors affect the trading value of the warrants; these factors interrelate
in complex ways and the effect of one factor may offset or magnify the effect of
another factor
The market value of the warrants will be affected by factors that
interelate 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
warrants caused by another factor and that the effect of one factor may
exacerbate the decrease in the trading value of the warrants caused by another
factor. For example, an increase in interest rates may offset some or all of any
increase in the trading value of the warrants attributable to another factor,
such as an increase in the value of the Russell 2000 Index. The following
paragraphs describe the expected impact on the market value of the warrants
given a change in a specific factor, assuming all other conditions remain
constant.
The value of the index is expected to affect the trading value of the
warrants. We expect that the trading value of the warrants will depend
substantially on the amount by which the index's value increases or decreases.
If the value of the index increases, the trading value of a warrant is expected
to increase. If the value of the index decreases, the trading value of a warrant
is expected to decrease. It is possible that the trading value of a warrant may
decline even if there is an increase in the value of the index.
Changes in the levels of U.S. interest rates are expected to affect the
trading value of the warrants. We expect that interest rates will affect the
trading value of the warrants. In general, if U.S. interest rates increase, we
expect that the trading value of the warrants will increase and, conversely, if
U.S. interest rates decrease, we expect that the trading value of the warrants
will decrease. Interest rates may also affect the U.S. economy and, in turn, the
index's value.
Changes in the volatility of the index are expected to affect the trading
value of the warrants. Volatility is the term used to describe the size and
frequency of price and/or market fluctuations. Generally, if the volatility of
the index increases, we expect that the trading value of the warrants will
increase and,
10
<PAGE>
conversely, if the volatility of the index decreases, we expect that the trading
value of the warrants will decrease.
As the time remaining to the expiration date of the warrants decreases, the
"time premium" associated with the warrants will decrease. We anticipate that
the warrants may trade at a value above that which would be expected based on
the level of the index due to a "time premium" resulting from expectations
concerning the value of the index prior to the expiration of the warrants.
Generally, as the time remaining to the expiration date of the warrants
decreases, we expect that this time premium will decrease, lowering the trading
value of the warrants.
Changes in dividend yields of the stocks underlying the index are expected
to affect the trading value of the warrants. Generally, if dividend yields on
the common stocks underlying the index increase, we expect that the trading
value of the warrants will decrease, and conversely, if dividend yields on the
stocks underlying the index decrease, we expect that the trading value of the
warrants will increase.
Changes in our credit ratings may affect the trading value of the warrants.
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 warrants. However, because the return on your warrants is
dependent upon factors in addition to our ability to pay our obligations under
the warrants, such as any increase in the index's value, an improvement in our
credit ratings will not reduce other investment risks related to warrants.
It is important for you to understand that the impact of one of the factors
specified above, such as a decrease in index volatility, may offset some or all
of any increase in the trading value of the warrants attributable to another
factor, such as any increase in the index's value.
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 Russell 2000 Index for our own accounts for business reasons or
in connection with hedging our obligations under the warrants. These
transactions could affect the price of these stocks and in turn the value of the
index in a manner that would be adverse to your investment in the warrants.
Potential conflicts of interests
Our subsidiary, MLPF&S, is the calculation agent for the warrants. Under
certain circumstances, MLPF&S' role as our subsidiary and its responsibilities
as calculation agent for the warrants could give rise to conflicts of interests
between the calculation agent and the holders of the warrants. These conflicts
could occur, for instance, in connection with its determination as to whether a
Market Disruption Event or Extraordinary Event, as defined below, has occurred.
See "Description of the warrants--Extraordinary Events and Market Disruption
Events" and "--Successor 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 under the
warrants. This subsidiary expects to make a profit in connection with the
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
11
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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 warrants described in this prospectus.
12
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
13
<PAGE>
DESCRIPTION OF THE WARRANTS
The warrants are contractual obligations controlled by a Warrant Agreement
(the "Warrant Agreement") dated May 28, 1999, between ML&Co. and Citibank, N.A.,
as Warrant Agent (the "Warrant Agent"). The warrants will expire on May 25,
2001. The following statements about the warrants are summaries of the detailed
provisions of the Warrant Agreement, the form of which was filed as an exhibit
to the registration statement relating to the warrants. Wherever particular
provisions of the Warrant Agreement or its terms are referred to, those
provisions or definitions are incorporated by reference as a part of the
statements made, and the statements are qualified in their entirety by those
references.
A warrant will not require, or entitle, you to sell or purchase any shares
of any stock underlying the index or any successor index or any other securities
to or from ML&Co. ML&Co. will make only a U.S. dollar cash settlement, if any,
upon exercise of a warrant. You will not receive any interest on any amount owed
on the warrants and the warrants will not entitle you to any of the rights of
holders of any underlying stock or other securities.
Period during which warrants may be exercised
You may exercise your warrants as early as the date of initial delivery of
the warrants. The warrants will expire on May 25, 2001, or on an earlier date as
described under "Automatic Exercise". Warrants not exercised at or prior to 1:00
p.m., New York City time, on the second scheduled Index Calculation Day
immediately preceding the Expiration Date or earlier expiration will be deemed
automatically exercised on the Expiration Date or, in the case of delisting, on
the Delisting Date. Warrants cancelled upon the occurrence and continuation of
an Extraordinary Event shall be exercised as described below under
"Extraordinary Events and Market Disruption Events". The term "New York Business
Day", as used in this prospectus, means any day other than a Saturday or a
Sunday or a day on which commercial banks in The City of New York are required
or authorized by law or executive order to be closed.
Cash Settlement Amount upon exercise
The Cash Settlement Amount of an exercised warrant is an amount in U.S.
dollars that results from the following formula:
Percentage Change x Dollar Multiplier
The "Percentage Change" will equal the following amount:
Index Spot Value - Index Strike Value
--------------------------------------
Index Strike Value
The "Dollar Multiplier" equals $21.75.
The "Index Spot Value" relating to any Exercise Date will be determined by
MLPF&S, the "calculation agent", and will equal the closing value of the index,
or, if applicable, the successor index, in New York on the Valuation Day
relating to such exercise of warrants.
The "Index Strike Value" equals 434.45, the closing value of the index in
New York the date the warrants were priced for initial sale to the public.
We will round the Cash Settlement Amount, if necessary, to the nearest
cent, with one-half cent being rounded upwards.
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<PAGE>
Set forth below are illustrations of the Cash Settlement Amounts for
warrants at exercise based upon various hypothetical percentage changes in the
closing value of the index. This table assumes a Dollar Multiplier of $21.75.
The index Percentage Change on Valuation Day column indicates the percentage
increase or decrease in the value of the Index Spot Value as compared to the
Index Strike Value at the time of exercise. The actual Cash Settlement Amount of
a warrant will depend entirely on the actual index Percentage Change on the
applicable Valuation Day relating to the Exercise Date. The Cash Settlement
Amounts in the table do not reflect any "time value" for a warrant, which may be
reflected in the trading value, and are not necessarily indicative of potential
profit or loss, which are also affected by purchase price and transaction costs.
<TABLE>
<CAPTION>
Hypothetical
Cash Settlement
Index Percentage Change on Valuation Day Amount
---------------------------------------- ---------------
<S> <C>
50% increase................................. $10.88
45% increase................................. 9.79
40% increase................................. 8.70
35% increase................................. 7.61
30% increase................................. 6.53
25% increase................................. 5.44
23% increase................................. 5.00*
20% increase................................. 4.35
15% increase................................. 3.26
10% increase................................. 2.18
5% increase.................................. 1.10
No change.................................... 0.00
5% decrease.................................. 0.00
10% decrease................................. 0.00
15% decrease................................. 0.00
20% decrease................................. 0.00
25% decrease................................. 0.00
30% decrease................................. 0.00
35% decrease................................. 0.00
40% decrease................................. 0.00
45% decrease................................. 0.00
50% decrease................................. 0.00
</TABLE>
_________
* This is the breakeven point (the point at which the Cash Settlement
Amount is equal to the initial purchase price per warrant).
Depositary
Description of the Global Warrants
All of the warrants are represented by one or more fully registered global
warrants. Each global warrant has been deposited with, or on behalf of, The
Depository Trust Company, otherwise known as DTC, or any successor to it (the
"depositary"), as depositary, and registered in the name of Cede & Co., DTC's
partnership nominee. Unless and until it is exchanged in whole or in part for
warrants in definitive form, no global warrant 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 its
successor. Investors may elect to hold interests in the global warrants through
either the depositary, in the United States, or Clearstream, Luxembourg, or
Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the
Euroclear, if they are participants in these systems, or indirectly through
organizations which are participants in these systems.
15
<PAGE>
Clearstream, Luxembourg and Euroclear will hold interests on behalf of their
participants through customers' securities accounts in Clearstream, Luxembourg's
and Euroclear's names on the books of their respective depositaries, which in
turn will hold interests in customers' securities accounts in the depositaries'
names on the books of the depositary. The Chase Manhattan Bank is acting as
depositary for Euroclear and Citibank, N.A, not in its capacity as Warrant Agent
under the Warrant Agreement, is acting as depositary for Clearstream, Luxembourg
(in these capacities, the "U.S. Depositaries").
So long as DTC, or its nominee, is a registered owner of a global warrant,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the warrants represented by the global warrant for all purposes under
the Warrant Agreement. Except as provided below, the beneficial owners of the
warrants represented by a global warrant are not entitled to have the warrants
represented by the global warrant registered in their names, will not receive or
be entitled to receive physical delivery of the warrants in definitive form and
are not considered the owners or holders of the warrants under the Warrant
Agreement, including for purposes of receiving any reports delivered by ML&Co.
or the Warrant Agent pursuant to the Warrant Agreement. Accordingly, each person
owning a beneficial interest in a global warrant 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 Warrant Agreement. 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 which a holder is entitled to give or
take under the Warrant Agreement, DTC would authorize the participants holding
the relevant beneficial interests to give or take any action, and these
participants would authorize beneficial owners owning through these participants
to give or take any action or would otherwise act upon the instructions of
beneficial owners. Conveyance of notices and other communications by the
depositary 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 acting as securities depositary for the warrants. The warrants were
issued as fully registered securities registered in the name of Cede & Co.,
DTC's nominee. One or more fully registered global warrants were issued for the
warrants 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 Exchange Act. 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 American Stock Exchange, Inc., and the NASD.
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 warrants under DTC's system must be made by or through
direct participants, which will receive a credit for the warrants 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 these beneficial owner entered into the
transaction. Transfers of ownership interests
16
<PAGE>
in the warrants are to be accomplished by entries made on the books of
participants acting on behalf of beneficial owners.
To facilitate subsequent transfers, all warrants deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
warrants 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 warrants; DTC's records reflect only the identity of the direct
participants to whose accounts the warrants 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.
Ownership of beneficial interests in the warrants is limited to persons
that have accounts with the depositary ("participants") or persons that may hold
interests through participants. The depositary has advised ML&Co. that after the
issuance of the global warrants representing the warrants, the depositary
credited, on its book-entry registration and transfer system, the participants'
accounts with the respective number of warrants represented by the global
warrant. Ownership of beneficial interests in the global warrant are shown on,
and the transfer of ownership interests are effected only through, records
maintained by the depositary, with respect to interests of participants, and on
the records of participants, with respect to interests of persons held through
participants. The laws of some states may require that certain purchasers of
securities take physical delivery of these securities in definitive form. These
limits and laws may impair the ability to own, transfer or pledge beneficial
interests in the global warrants.
The Cash Settlement Amount payable upon exercise of warrants registered in
the name of the depositary or its nominee will be paid by the Warrant Agent to
the participants or, in the case of automatic exercise, to the depositary. None
of ML&Co., the Warrant Agent or any other agent of ML&Co. or agent of the
Warrant Agent has any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests or for
supervising or reviewing any records relating to beneficial ownership interests.
ML&Co. expects that the Warrant Agent, upon the receipt of any payment of the
Cash Settlement Amount in respect of any portion of the global warrant, will pay
the relevant participant in an amount proportionate to its beneficial interest
in the global warrant being exercised and that the participant will credit the
accounts of the beneficial owners of the warrants. ML&Co. expects that the
depositary, in the case of automatic exercise, upon receipt of any payment of
the Cash Settlement Amount in respect of all or any portion of the global
warrant, will credit the accounts of the participants with payment in amounts
proportionate to their respective beneficial interests in the portion of the
global warrant so exercised, as shown on the records of the depositary. ML&Co.
also expects that payments by participants to owners of beneficial interests in
the global warrant will be governed by standing customer instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of the participants. It is suggested that a purchaser of warrants
with accounts at more than one brokerage firm effect transactions in the
warrants, including exercises, only through the brokerage firm or firms which
hold that purchaser's warrants.
Exchange for certificated warrants
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,
. if ML&Co. executes and delivers to the Warrant Agent a company order
to the effect that the global warrants shall be exchangeable, or
17
<PAGE>
. if ML&Co. is subject to certain events in bankruptcy, insolvency or
reorganization,
the global warrants will be exchangeable for warrants in definitive form of like
tenor. These definitive warrants will be registered in the name or names as the
depositary shall instruct the Warrant Agent. It is expected that the
instructions may be based upon directions received by the depositary from
participants with respect to ownership of beneficial interests in the global
warrants.
DTC may discontinue providing its services as securities depositary with
respect to the warrants at any time by giving reasonable notice to ML&Co. or the
Warrant Agent. Under these circumstances, in the event that a successor
securities depositary is not obtained, warrant 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, warrant
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 the accuracy of this information.
Clearstream, Luxembourg and Euroclear
Beneficial owners may hold their interests in warrants through Clearstream,
Luxembourg or Euroclear only if they are participants in these systems, or
indirectly through organizations which are participants in these systems.
Clearstream, Luxembourg and Euroclear will hold omnibus positions on behalf of
their participants through the facilities of DTC. All securities in Clearstream,
Luxembourg or Euroclear are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts.
Exercises of warrants by persons holding through Clearstream, Luxembourg or
Euroclear participants will be effected through DTC, in accordance with DTC
rules, on behalf of the relevant European international clearing system by its
depositary; however, these transactions will require delivery of exercise
instructions to the relevant European international clearing system by the
participant in that system in accordance with its rules and procedures and
within its established deadlines under European time. The relevant European
international clearing system will, if the exercise meets its requirements,
deliver instructions to its depositary to take action to effect its exercise of
the warrants on its behalf by delivering warrants through DTC and receiving
payment in accordance with its normal procedures for next-day funds settlement.
Payments with respect to the warrants held through Clearstream, Luxembourg or
Euroclear will be credited to the cash accounts of Clearstream, Luxembourg
participants or Euroclear participants in accordance with the relevant system's
rules and procedures, to the extent received by its depositary. See "Exercise
and settlement of warrants" in this prospectus.
Clearstream, Luxembourg advises that it is incorporated under the laws of
Luxembourg as a professional depositary. Clearstream, Luxembourg holds
securities for its participating organizations ("Clearstream, Luxembourg
Participants") and facilitates the clearance and settlement of securities
transactions between Clearstream, Luxembourg Participants through electronic
book-entry changes in accounts of Clearstream, Luxembourg Participants, thereby
eliminating the need for physical movement of certificates. Clearstream,
Luxembourg provides to Clearstream, Luxembourg Participants, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream, Luxembourg interfaces with domestic markets in several countries.
As a professional depositary, Clearstream, Luxembourg is subject to regulation
by the Luxembourg Monetary Institute. Clearstream, Luxembourg Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters. Indirect
access to Clearstream, Luxembourg is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream, Luxembourg Participant either directly or
indirectly.
18
<PAGE>
Distributions with respect to the warrants held beneficially through
Clearstream, Luxembourg will be credited to cash accounts of Clearstream,
Luxembourg Participants in accordance with its rules and procedures, to the
extent received by the U.S. depositary for Clearstream, Luxembourg.
Euroclear advises that it was created in 1968 to hold securities for
participants of Euroclear ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). The Euroclear Operator conducts all operations, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the underwriters.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation that is a member bank of the Federal Reserve System. It is regulated
and examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
All information in this prospectus on Clearstream, Luxembourg and Euroclear
is derived from Clearstream, Luxembourg or Euroclear, as the case may be, and
reflects the policies of these organizations; and these policies are subject to
change without notice.
Exercise and settlement of warrants
You may exercise warrants on any New York Business Day during the period
from the date of initial delivery of the warrants until 1:00 p.m., New York City
time, on the earlier of:
(a) the second scheduled Index Calculation Day immediately preceding
the Expiration Date, and
(b) the Delisting Date.
Your right to exercise warrants is subject to postponement upon the
occurrence of an Extraordinary Event or Market Disruption Event as described
under "Extraordinary Events and Market Disruption Events" in this prospectus. If
you do not exercise your warrants during the period specified above (including
by reason of any postponed exercise), your warrants will be automatically
exercised as described under "Automatic Exercise" in this prospectus, subject to
earlier cancellation as described below under "Extraordinary Events and Market
Disruption Events" in this prospectus. You exercise warrants by:
. transferring the warrants free to the Warrant Agent on the
records of DTC, and
19
<PAGE>
. causing a duly completed and executed exercise notice to be
delivered by a DTC participant on behalf of you to the Warrant
Agent.
A form of exercise notice is included as Appendix A to this prospectus, and
may be obtained from the Warrant Agent at the Warrant Agent's Office. The
Warrant Agent's telephone number and facsimile transmission number for this
purpose are (212) 657-9055 and (212) 825-3483, respectively.
In the case of warrants held through the facilities of Clearstream,
Luxembourg or Euroclear, a beneficial owner may exercise the warrants on any New
York Business Day during the period from the date of initial delivery of the
warrants until 1:00 p.m., New York City time, on the earlier of:
. the second scheduled Index Calculation Day immediately preceding
the Expiration Date and
. the Delisting Date by causing
(a) these warrants to be transferred to the Warrant Agent, by giving
appropriate instructions to the participant holding these warrants in
either the Clearstream, Luxembourg or Euroclear system, as the case may be,
and
(b) a duly completed and executed Exercise Notice to be delivered on
behalf of the beneficial owner by Clearstream, Luxembourg, in the case of
warrants held through Clearstream, Luxembourg, or the participant, in the
case of warrants held through Euroclear, to the Warrant Agent.
Forms of exercise notice for warrants held through the facilities of either
Clearstream, Luxembourg or Euroclear may be obtained from the Warrant Agent at
the Warrant Agent's Office or from Clearstream, Luxembourg or Euroclear.
The "Exercise Date" for a warrant will be:
. the New York Business Day on which the Warrant Agent receives the
warrant and exercise notice in proper form with respect to that
warrant, if received at or prior to 1:00 p.m., New York City
time, on that day, or
. if the Warrant Agent receives that warrant and exercise notice
after 1:00 p.m., New York City time, on a New York Business Day,
then the first New York Business Day following that New York
Business Day.
In the case of warrants held through the facilities of Clearstream,
Luxembourg or Euroclear, except for warrants subject to automatic exercise, the
"Exercise Date" for a warrant will be:
. the New York Business Day on which the Warrant Agent receives the
exercise notice in proper form with respect to the Warrant if the
exercise notice is received at or prior to 1:00 p.m., New York
City time, on that day, provided that the warrant is received by
the Warrant Agent by 1:00 p.m., New York City time, on the
Valuation Day, or
. if the Warrant Agent receives the exercise notice after 1:00
p.m., New York City time, on a New York Business Day, then the
first New York Business Day following that New York Business day,
provided that the warrant is received by 1:00 p.m., New York City
time, on the Valuation Day relating to exercises of warrants on
the succeeding New York Business Day.
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In the event that the warrant is received after 1:00 p.m., New York City
time, on the Valuation Day, then the Exercise Date for the warrants will be the
first New York Business Day following the day on which the warrants are
received.
If a beneficial owner of warrants held through the facilities of
Clearstream, Luxembourg or Euroclear has exercised warrants by delivering an
exercise notice in proper form with respect to the warrants and the Valuation
Day is expected not to be a New York Business Day, the beneficial owner should
make arrangements so that the warrants are delivered prior to the Valuation Day
in order to ensure that the Exercise Date for the warrants is not postponed as
described above. In the case of warrants held through the facilities of
Clearstream, Luxembourg or Euroclear, in order to ensure proper exercise on a
given New York Business Day, participants in Clearstream, Luxembourg or
Euroclear must submit exercise instructions to Clearstream, Luxembourg or
Euroclear, as the case may be, by 10:00 a.m., Luxembourg time, in the case of
Clearstream, Luxembourg and by 10:00 a.m., Brussels time (by telex), or 11:00
a.m., Brussels time (by EUCLID), in the case of Euroclear.
In addition, in the case of book-entry exercises by means of the Euroclear
System:
. participants must also transmit, by facsimile (facsimile number
(212) 825-3483), to the Warrant Agent a copy of the exercise
notice submitted to Euroclear by 1:00 p.m., New York City time,
on the desired Exercise Date and
. Euroclear must confirm by telex to the Warrant Agent by 9:00
a.m., New York City time, on the Valuation Day, that the warrants
will be received by the Warrant Agent on that date; provided,
that if the telex communication is received after 9:00 a.m., New
York City time, on the Valuation Day, ML&Co. will be entitled to
direct the Warrant Agent to reject the related exercise notice or
waive the requirement for timely delivery of the telex
communication.
To ensure that an exercise notice and the related warrants will be
delivered to the Warrant Agent before 1:00 p.m., New York City time, on a given
New York Business Day, you may need to give exercise instructions to your broker
or other intermediary substantially earlier than 1:00 p.m., New York City time,
on that day or even on the prior New York Business Day. Different brokerage
firms may have different cut-off times for accepting and implementing exercise
instructions from their customers. Therefore, you should consult with your
broker and other intermediaries, if applicable, as to applicable cut-off times
and other exercise mechanics.
Except in the case of warrants subject to automatic exercise and for
warrants that upon exercise will entitle you to receive an Alternative
Settlement Amount in lieu of the Cash Settlement Amount, if on any Valuation Day
the Cash Settlement Amount for any warrants would be zero, then the attempted
exercise of those warrants will be void and of no effect. These warrants will be
transferred back to the participant that submitted them free on the records of
DTC and, in that case, the beneficial owner will be permitted to re-exercise the
warrants as described in this prospectus.
The "Valuation Day" for a warrant will be the applicable Exercise Date, if
the Exercise Date is an Index Calculation Day, or the immediately succeeding
Index Calculation Day, if the Exercise Date is not an Index Calculation Day,
subject to postponement upon the occurrence of an Extraordinary Event or a
Market Disruption Event as described below under "Extraordinary Events and
Market Disruption Events" or as a result of the exercise of a number of warrants
exceeding the limits on exercise described below under "Maximum Exercise
Amount".
"Index Calculation Day" means any day on which the NYSE and the AMEX are
open for trading and the index or a successor index, if any, is calculated and
published. The following is an illustration of the timing of an Exercise Date
and the Valuation Day, assuming:
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. that all relevant dates are New York Business Days and Index
Calculation Days,
. the absence of any intervening Extraordinary Event or Market
Disruption Event and
. the number of exercised warrants does not exceed the maximum
permissible amount.
If the Warrant Agent receives a beneficial owner's warrants and exercise
notice in proper form at or prior to 1:00 p.m., New York City time, on July 21,
1999, the Exercise Date for these warrants will be July 21, 1999, and the
Valuation Day for these warrants will be July 21, 1999. However, in the case of
warrants held through the facilities of Clearstream, Luxembourg or Euroclear,
the warrants must be received by 1:00 p.m., New York City time, on the Valuation
Day; if the warrants are received after that time, then the Exercise Date for
the warrants will be the day on which the warrants are received or, if that day
is not a New York Business Day, the next succeeding New York Business Day, and
the Valuation Day for the warrants will be the Exercise Date, if it is an Index
Calculation Day, or the first Index Calculation Day following that Exercise
Date, if that Exercise Date is not an Index Calculation Day.
Calculation of Cash Settlement Amount
Following receipt of warrants and the related exercise notice in proper
form, the Warrant Agent will, not later than 10:00 a.m., New York City time, on
the New York Business Day following the applicable Valuation Day:
. obtain the Index Spot Value from the Calculation Agent,
. determine the Cash Settlement Amount of the warrants and
. advise ML&Co. of the aggregate Cash Settlement Amount of the exercised
warrants.
ML&Co. will be required to make available to the Warrant Agent, no later
than 3:00 p.m., New York City time, on the fourth New York Business Day
following the Valuation Day, funds in an amount sufficient to pay the aggregate
Cash Settlement Amount. If ML&Co. has made funds available by that time, the
Warrant Agent will thereafter be responsible for making funds available to each
of the appropriate participants, who will be responsible for disbursing that
payments to each of their respective participants, who, in turn, will be
responsible for disbursing payments to the beneficial owner it represents, and
the participant will be responsible for disbursing the payments to the
beneficial owner it represents and to each brokerage firm for which it acts as
agent. Each brokerage firm will be responsible for disbursing funds to the
beneficial owners it represents.
Automatic Exercise
All warrants for which the Warrant Agent has not received a valid Exercise
Notice at or prior to 1:00 p.m., New York City time, or for which the Warrant
Agent has received a valid Exercise Notice but with respect to which timely
delivery of the relevant warrant has not been made, together with any warrants
the Valuation Day for which has at that time been postponed as described under
"Extraordinary Events and Market Disruption Events" below, on
(a) the second scheduled Index Calculation Day immediately preceding the
Expiration Date, or
(b) the close of business on the New York Business Day on which the
warrants are delisted from, or permanently suspended from trading on,
the AMEX and the warrants are not simultaneously accepted for trading
pursuant to the rules of another regulated trading organization (the
"Delisting Date")
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<PAGE>
will be deemed automatically exercised on that Expiration Date or Delisting
Date, as the case may be (the Expiration Date will be deemed the Exercise Date),
and the Cash Settlement Amount, if any, determined as provided under "Exercise
and settlement of warrants", of the automatically exercised warrants will be
paid and settlement shall otherwise occur as described under "Book-Entry
procedures and settlement" and "Calculation of Cash Settlement Amount". ML&Co.
will notify holders as soon as practicable of the delisting or trading
suspension. ML&Co. will agree in the Warrant Agreement that it will not seek
delisting of the warrants or suspension of their trading on the AMEX.
In the event the warrants are canceled by ML&Co. because of the continuance
of an Extraordinary Event as described under "Extraordinary Events and Market
Disruption Events" below, warrants not previously exercised shall be
automatically exercised on the basis that the Valuation Day for the warrants
shall be the Cancellation Date, and the Alternative Settlement Amount of any
automatically exercised warrants will be paid on the fourth New York Business
Day following that Valuation Day. Settlement shall otherwise occur as described
under "Book-Entry procedures and settlement" and "Exercise and settlement of
warrants".
Minimum Exercise Amount
You must exercise at least 100 warrants at any one time, except in the case
of automatic exercise or exercise upon cancellation of the warrants as described
under "Extraordinary Events and Market Disruption Events" below. Accordingly,
except in the case of automatic exercise of the warrants or upon cancellation of
the warrants, if you own fewer than 100 warrants, you will need either to sell
your warrants or purchase additional warrants, in order to realize proceeds from
your investment. Warrants held through one participant, may not be combined with
warrants held through another participant in order to satisfy the minimum
exercise requirement.
Maximum Exercise Amount
All exercises of warrants, other than on automatic exercise, are subject,
at ML&Co.'s option, to the following limitations:
(a) not more than 20% of the warrants originally issued may be exercised
on any Exercise Date and
(b) not more than 10% of the warrants originally issued may be exercised
by or on behalf of any beneficial owner, either individually or in
concert with any other beneficial owner, on any Exercise Date.
If any New York Business Day would otherwise, under the terms of the
Warrant Agreement, be the Exercise Date in respect to more than 20% of the
warrants originally issued, then at ML&Co.'s election, 20% of the warrants
originally issued shall be deemed exercised on the Exercise Date, selected by
the Warrant Agent on a pro rata basis, subject to the following conditions: (a)
if, as a result of the pro rata selection, any beneficial owner of warrants
would be deemed to have exercised fewer than 100 warrants, then the Warrant
Agent shall first select an additional amount of the beneficial owner's warrants
so that no beneficial owner shall be deemed to have exercised fewer than 100
warrants, and the remainder of the warrants, whether or not fewer than 100
warrants, the Remaining Warrants, shall be deemed exercised on the following New
York Business Day, subject to successive applications of this provision; and (b)
any Remaining Warrants for which an Exercise Notice was delivered on a given
Exercise Date shall be deemed exercised before any other warrants for which an
Exercise Notice was delivered on a later Exercise Date. If any beneficial owner
attempts to exercise more than 10% of the warrants originally issued on any New
York Business Day, then, at ML&Co.'s election, 10% of the warrants shall be
deemed exercised on that New York Business Day and the remainder shall be deemed
exercised on the following New York Business Day, subject to successive
applications of this provision. As a result of any postponed exercise as
described above, the beneficial owners will receive a Cash Settlement Amount
determined as of a date later than the otherwise applicable Valuation Day. In
that case, as a result of any postponement, the Cash Settlement Amount actually
received by those
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beneficial owners may be lower than the otherwise applicable Cash Settlement
Amount if the Valuation Day of the warrants had not been postponed.
Successor Index
If FRC discontinues publication of the index and FRC or another entity
publishes a successor or substitute index that the calculation agent determines,
in its sole discretion, to be comparable to the index (a "successor index"),
then, upon the calculation agent's notification of its determination to the
Warrant Agent and ML&Co., the calculation agent will substitute the successor
index as calculated by FRC or another entity for the index and calculate the
Cash Settlement Amount upon an exercise as described above. Upon any selection
by the calculation agent of a successor index, ML&Co. shall promptly give notice
to the beneficial owners by publication in a United States newspaper with a
national circulation.
If at any time FRC changes its method of calculating the Russell 2000
Index, or the value of the Russell 2000 Index changes, in any material respect,
or if the Russell 2000 Index is in any other way modified so that the Russell
2000 Index does not, in the opinion of the calculation agent, fairly represent
the value of the Russell 2000 Index had any 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 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 Russell 2000 Index as if no changes or
modifications had been made, and calculate the Ending Value with reference to
the Russell 2000 Index, as so adjusted. Accordingly, if the method of
calculating the Russell 2000 Index is modified so that the value of the Russell
2000 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
Russell 2000 Index in order to arrive at a value of the Russell 2000 Index as if
it had not been modified, e.g., as if a split had not occurred.
In the event that the FRC discontinues publication of the Russell 2000
Index and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the Russell 2000 Index
in accordance with the procedures last used to calculate the Russell 2000 Index
before any discontinuance.
If a successor index is selected or the calculation agent calculates a
value as a substitute for the index, the successor index or value shall be
substituted for the index for all purposes, including for purposes of
determining whether a Market Disruption Event or Extraordinary Event exists. If
the calculation agent calculates a value as a substitute for the index, "Index
Calculation Day" shall mean any day on which the calculation agent is able to
calculate that value.
Extraordinary Events and Market Disruption Events
Extraordinary Events. If the calculation agent determines that an
Extraordinary Event has occurred and is continuing on the scheduled Index
Calculation Day with respect to which the Index Spot Value on a Valuation Day is
to be determined (the "Applicable Scheduled Index Calculation Day"), then the
Cash Settlement Amount in respect of an exercise shall be calculated on the
basis that the Valuation Day shall be the next Index Calculation Day following
an Applicable Scheduled Index Calculation Day on which there is no Extraordinary
Event or Market Disruption Event; provided that if a Valuation Day has not
occurred on or prior to the Expiration Date or the Delisting Date, the holders
will receive the Alternative Settlement Amount in lieu of the Cash Settlement
Amount which shall be calculated as if the warrants had been cancelled on the
Expiration Date or the Delisting Date, as the case may be. ML&Co. shall promptly
give notice to the beneficial owners by publication in a United States newspaper
with a national circulation, currently expected to be The Wall Street Journal,
if an Extraordinary Event shall have occurred.
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"Extraordinary Event" means any of the following events, as determined by
the calculation agent:
(i) a suspension or absence of trading on the NYSE, AMEX or the over-
the-counter market of all the underlying stocks which then comprise the
index or a successor index;
(ii) the enactment, publication, decree or other promulgation of any
statute, regulation, rule or order of any court or any other U.S. or non-
U.S. governmental authority that would make it unlawful for ML&Co. to
perform any of its obligations under the Warrant Agreement or the warrants;
or
(iii) any outbreak or escalation of hostilities or other national or
international calamity or crises, including, without limitation, natural
calamities that in the reasonable opinion of the calculation agent may
materially and adversely affect the economy of the United States or the
trading of securities generally on the NYSE, AMEX or the over- the-counter
market, that has or will have a material adverse effect on the ability of
ML&Co. to perform its obligations under the warrants or to modify the hedge
of its position with respect to the index or the common stocks which then
comprise the index or a successor index.
For the purposes of determining whether an Extraordinary Event has
occurred: (a) a limitation on the hours or number of days of trading on an
exchange will not constitute an Extraordinary Event if it results from an
announced change in the regular business hours of the exchange and (b) an
"absence of trading" on an exchange will not include any time when the exchange
itself is closed for trading under ordinary circumstances. If the calculation
agent determines that an Extraordinary Event has occurred and is continuing, and
if the Extraordinary Event is expected by the calculation agent to continue,
ML&Co. may immediately cancel all outstanding warrants by notifying the Warrant
Agent of the cancellation, the date notice is given being the "Cancellation
Date", and each beneficial owner's rights under the warrants and the Warrant
Agreement shall thereupon cease. Upon any cancellation, each warrant shall be
automatically exercised on the basis that the Valuation Day for the warrant
shall be the Cancellation Date, if the Cancellation Date is an Index Calculation
Day, or the immediately succeeding scheduled Index Calculation Day, if the
Cancellation Date is not an Index Calculation Day, and the beneficial owner of
each warrant will receive, in lieu of the Cash Settlement Amount of the warrant,
an amount (the "Alternative Settlement Amount"), determined by the calculation
agent, which is the greater of:
. the average of the last sale prices, as available, of the warrants on
the AMEX, or any successor securities exchange on which the warrants
are listed, on the 30 trading days preceding the date on which the
Extraordinary Event was declared; provided that, if the warrants were
not traded on the AMEX, or any successor securities exchange, on at
least 20 of these trading days, no effect will be given to this clause
for the purpose of determining the Alternative Settlement Amount, and
. the amount "X" calculated using the formula set forth below:
( T A )
X = I + ( ------- X -------- )
( 2 B )
where
I = The Cash Settlement Amount of the warrants determined as described
under "Cash Settlement Amount" above, but subject to the following
modifications:
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(1) if the Cancellation Date for the warrants is a date on which the
index or a successor index is calculated and published, for the
purpose of determining the Cash Settlement Amount, the Index Spot
Value will be determined as of the Cancellation Date except that, if
the Index Spot Value as of that day is less than 90% of the Index
Spot Value as of the immediately preceding Index Calculation Day,
then the Index Spot Value will be deemed to be 90% of the Index Spot
Value on the preceding Index Calculation Day; or
(2) if the Cancellation Date for the warrants is a date on which the
index or a successor index is not calculated or published, for the
purpose of determining the Cash Settlement Amount, the Index Spot
Value will be deemed to be the lesser of (i) the Index Spot Value as
of the first Index Calculation Day immediately preceding the
Cancellation Date except that, if the Index Spot Value as of that day
is less than 90% of the Index Spot Value as of the second Index
Calculation Day immediately preceding that Cancellation Date, 90% of
the Index Spot Value as of that second Index Calculation Day and (ii)
the arithmetic average of four amounts, being (a) the Index Spot
Value at each of the three successive Index Calculation Days
immediately preceding the Cancellation Date and (b) the Index Spot
Value at the next Index Calculation Day, provided that if an
Extraordinary Event continues for 30 consecutive days immediately
following the Cancellation Date, then the calculation agent shall
calculate an amount which, in its reasonable opinion, fairly reflects
the value of the underlying stocks on the scheduled Index Calculation
Day immediately following that Cancellation Date which, subject to
approval by ML&Co., ML&Co.'s approval not to be unreasonably
withheld, shall for purposes of calculating the amount under this
clause (2)(ii) be treated as the figure arrived at under clause
(2)(ii)(b) above;
T = U.S.$5.00, the initial offering price per warrant;
A = the total number of days from but excluding the Cancellation Date for
the warrants to and including the Expiration Date; and
B = the total number of days from but excluding the date the warrants were
initially sold to and including the Expiration Date.
For the purposes of determining "I" in the above formula, in the event that
the calculation agent and ML&Co. are required to have, but have not, after good
faith consultation with each other and within five days following the first day
upon which the Alternative Settlement Amount may be calculated in accordance
with the above formula, agreed upon a figure under clause (2)(ii)(b) which
fairly reflects the value of the Underlying Stocks on the Cancellation Date,
then the calculation agent shall promptly nominate a third party, subject to
approval by ML&Co., this approval not to be unreasonably withheld, to determine
the figure and calculate the Alternative Settlement Amount in accordance with
the above formula. This party shall act as an independent expert and not as an
agent of ML&Co. or the calculation agent, and its calculation and determination
of the Alternative Settlement Amount shall, absent manifest error, be final and
binding on ML&Co., the Warrant Agent, the calculation agent and the holders. The
Warrant Agent will have no duty of independent investigation with respect to the
calculation and determination of the Alternative Settlement Amount. Any
calculations will be made available to holders for inspection at the Warrant
Agent's Office. Neither ML&Co. nor the third party shall have any responsibility
for good faith errors or omissions in calculating the Alternative Settlement
Amount. Under certain circumstances, the duties of MLPF&S as calculation agent
in determining the existence of Extraordinary Events could conflict with the
interests of MLPF&S as an affiliate of the issuer of the warrants, ML&Co.
Market Disruption Events. If the calculation agent determines that on a
Valuation Day a Market Disruption Event has occurred and is continuing, the
Valuation Day shall be postponed to the first succeeding Index Calculation Day
on which no Market Disruption Event occurs; provided that, if the Valuation Day
has not occurred on or prior to the fifth scheduled Index Calculation Day
following an Exercise Date because of Market Disruption Events, the calculation
agent shall, on that fifth scheduled Index Calculation Day, calculate
26
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an amount which, in its reasonable opinion, fairly reflects the value of the
underlying stocks on that day in order to determine the Cash Settlement Amount.
"Market Disruption Event" means with respect to any Valuation Day the occurrence
or existence during the one-half hour period that ends at the determination of
the closing index value for that scheduled Index Calculation Day of:
(1) a suspension, material limitation or absence of trading on the NYSE,
AMEX or the over-the-counter market of 20% or more of the underlying
stocks which then comprise the index or a successor index during the
one-half hour period preceding the close of trading on the applicable
exchange; or
(2) the suspension or material limitation on the Chicago Board Options
Exchange (the "CBOE"), Chicago Mercantile Exchange (the "CME") or any
other major futures or securities market of trading in futures or
options contracts related to the 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 futures
or options contract will not constitute a Market Disruption Event,
(3) a suspension in trading in a futures or options contract on the index
by a major securities market by reason of (a) a price change violating
limits set by the securities market, (b) an imbalance of orders
relating to these contracts or (c) a disparity in bid and ask quotes
relating to these contracts will constitute a suspension or material
limitation of trading in futures or options contracts related to the
index,
(4) an absence of trading on an exchange will not include any time when
the exchange is closed for trading under ordinary circumstances, and
(5) the occurrence of an Extraordinary Event described in Clause (i) of
Extraordinary Event will not constitute, and will supersede the
occurrence of, a Market Disruption Event.
Under certain circumstances, the duties of MLPF&S as calculation agent in
determining the existence of Market Disruption Events could conflict with the
interests of MLPF&S as an affiliate of the issuer of the warrants, ML&Co.
Modification
The Warrant Agreement and the terms of the warrants may be amended by
ML&Co. and the Warrant Agent without the consent of the beneficial owners of any
warrants for the purpose of curing any ambiguity, or of curing, correcting or
supplementing any defective or inconsistent provision contained in the Warrant
Agreement or the terms of the warrants, or in any other manner which ML&Co. may
deem necessary or desirable and which will not materially and adversely affect
the interests of the beneficial owners of the warrants.
ML&Co. and the Warrant Agent also may modify or amend the Warrant Agreement
and the terms of the warrants, with the consent of the beneficial owners of not
less than a majority in number of the then outstanding warrants affected,
provided that no modification or amendment that changes the Index Strike Value
so as to adversely affect the beneficial owner, shortens the period of time
during which the warrants may be exercised or otherwise materially and adversely
affects the exercise rights of the beneficial owners of the
27
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warrants or reduces the percentage of the number of outstanding warrants, the
consent of whose beneficial owners is required for modification or amendment of
the Warrant Agreement or the terms of the warrants may be made without the
consent of the beneficial owners of warrants affected by these changes.
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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 the corporation, if other than ML&Co., formed by or
resulting from any consolidation or merger or which shall have received these
assets shall be a corporation organized and existing under the laws of the
United States of America or a state thereof and shall assume payment of the Cash
Settlement Amount or Alternative Settlement Amount with respect to all
unexercised warrants, according to their tenor, and the due and punctual
performance and observance of all of the covenants and conditions of the Warrant
Agreement and of the warrants to be performed by ML&Co.
THE INDEX
Unless otherwise stated, all information in this prospectus on the index is
derived from FRC or other publicly available sources. This information reflects
the policies of FRC as stated in these sources and these policies are subject to
change by FRC. FRC is under no obligation to continue to publish the index and
may discontinue publication of the index at any time.
The index is an index calculated, published and disseminated by FRC, and
measures the composite price performance of stocks of 2,000 companies domiciled
in the U.S. and its territories. All 2,000 stocks are traded on either the NYSE
or the AMEX or in the over-the-counter market and form a part of the Russell
3000(R) Index. The Russell 3000 Index is composed of the 3,000 largest U.S.
companies as determined by market capitalization and represents approximately
98% of the investable U.S. equity market.
The index consists of the smallest 2,000 companies included in the Russell
3000. The index is designed to track the performance of the small capitalization
segment of the U.S. equity market.
Selection of stocks underlying the index
Only common stocks belonging to corporations domiciled in the U.S. and its
territories are eligible for inclusion in the Russell 3000 Index and the index.
Stocks traded on U.S. exchanges but domiciled in other countries are excluded.
Preferred stock, convertible preferred stock, participating preferred stock,
paired shares, warrants and rights are also excluded. Trust receipts, Royalty
Trusts, limited liability companies, OTC Bulletin Board companies, pink sheets,
closed-end mutual funds, and limited partnerships that are traded on U.S.
exchanges, are also ineligible for inclusion. Real Estate Investment Trusts and
Beneficial Trusts are eligible for inclusion, however. Generally, only one class
of securities of a company is allowed in the Russell 3000 Index, although
exceptions to this general rule have been made where FRC has determined that
each class of securities acts independent of the other.
The primary criteria used to determine the initial list of securities
eligible for the Russell 3000 Index is total market capitalization, which is
defined as the price of the shares times the total number of shares outstanding.
Based on closing values on May 31 of each year, FRC reconstitutes the
composition of the Russell 3000 Index using the then existing market
capitalizations of eligible companies. As of June 30 of each year, the index is
adjusted to reflect the reconstitution of the Russell 3000 Index for that year.
Real-time dissemination of the index began on January 1, 1987.
As a capitalization-weighted index, the Russell 2000 Index reflects changes
in the capitalization, or market value, of the component stocks relative to the
capitalization on a base date. The current index value is calculated by adding
the market values of the index's component stocks, which are derived by
multiplying the price of each stock by the number of shares outstanding, to
arrive at the total market capitalization of the 2,000 stocks. The total market
capitalization is then divided by a divisor, which represents the "adjusted"
capitalization of the index on the base date of December 31, 1986. To calculate
the index, last sale prices will be used for exchange-traded and NASDAQ stocks.
If a component stock is not open for trading, the most recently traded price for
that security will be used in calculating the index. In order to provide
continuity for the index's value, the divisor is adjusted periodically to
reflect events including changes in the number of
29
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common shares outstanding for component stocks, company additions or deletions,
corporate restructurings and other capitalization changes.
The value of the index is reported on the AMEX under the Symbol "RTY", on
Bloomberg under the symbol "RTY" and on Reuters under the symbol ".RTY".
All disclosure contained in this prospectus regarding the index, or its
publisher, is derived from publicly available information. All copyrights and
other intellectual property rights relating to the index are owned by FRC. FRC
has no relationship with ML&Co. or the warrants; it does not sponsor, endorse,
authorize, sell or promote the warrants, and has no obligation or liability in
connection with the administration, marketing or trading of the warrants.
The index is a trademark of FRC and has been licensed for use by ML&Co. The
warrants are not sponsored, endorsed, sold or promoted by FRC and FRC makes no
representation regarding the advisability of investing in the warrants.
The warrants are not sponsored, endorsed, sold or promoted by FRC. FRC
makes no representation or warranty, express or implied, to the owners of the
warrants or any member of the public regarding the advisability of investing in
securities generally or in the warrants particularly or the ability of the index
to track general stock market performance or a segment of the same. FRC's
publication of the index in no way suggests or implies an opinion by FRC as to
the advisability of investment in any or all of the securities upon which the
index is based. FRC's only relationship to ML&Co. is the licensing of certain
trademarks, and trade names of FRC and of the index which is determined,
composed and calculated by FRC without regard to ML&Co. or the warrants. FRC is
not responsible for and has not reviewed the warrants or any associated
literature or publications and FRC makes no representation or warranty express
or implied as to their accuracy or completeness, or otherwise. FRC reserves the
right, at any time and without notice, to alter, amend, terminate or in any way
change the index. FRC has no obligation or liability in connection with the
administration, marketing or trading of the warrants.
FRC DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR
ANY DATA INCLUDED THEREIN AND FRC SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. FRC MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY ML&CO., INVESTORS, OWNERS OF THE WARRANTS, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED
THEREIN. FRC MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL FRC HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
30
<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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 have filed a registration statement on Form S-3 with the SEC covering
the STRYPES and other securities. For further information on ML&Co. and the
STRYPES, 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 the prospectus may not contain all the information that
you may find important, you should review the full text of these documents. We
have included copies of these documents as exhibits to our registration
statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June
29, 2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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.
31
<PAGE>
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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
warrants and is to be used by MLPF&S when making offers and sales related to
market-making transactions in the warrants.
MLPF&S may act as principal or agent in these market-making transactions.
The warrants may be offered on the AMEX or off the exchange in negotiated
transactions or otherwise.
The distribution of the warrants 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
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+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is +
+ not an offer to sell these securities and it is not soliciting an offer to +
+ buy these securities in any state where the offer and sale is not permitted.+
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
Merrill Lynch & Co., Inc.
Market Index Target-Term Securities(R)
based upon the Dow Jones Industrial Average(SM)
due June 26, 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>
The MITTS Securities: Payment at maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the Dow Jones Industrial any, in the value of the Dow Jones Industrial
Average(SM). Average(SM) reduced by an annual adjustment factor of
. The MITTS Securities are listed on the American 2.0%.
Stock Exchange under the trading symbol "MDJ". . At maturity, you will receive no less than the
. Closing date: June 25, 1999. 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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
and "Protected Growth" is a service mark of Merrill Lynch & Co., Inc.
"Dow Jones", "Dow Jones Industrial Average(SM)", and "DJIA(SM)" are service
marks of Dow Jones & Company, Inc. and have been licensed for use for certain
purposes by MLPF&S.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION-Q&A................................................ 3
RISK FACTORS........................................................... 6
MERRILL LYNCH & CO., INC............................................... 9
RATIO OF EARNINGS TO FIXED CHARGES..................................... 10
DESCRIPTION OF THE MITTS SECURITIES.................................... 11
THE INDEX.............................................................. 18
OTHER TERMS............................................................ 20
PROJECTED PAYMENT SCHEDULE............................................. 23
ERISA CONSIDERATIONS................................................... 24
WHERE YOU CAN FIND MORE INFORMATION.................................... 24
INCORPORATION OF INFORMATION WE FILE WITH THE SEC...................... 24
PLAN OF DISTRIBUTION................................................... 25
EXPERTS................................................................ 25
</TABLE>
2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Market Index Target-
Term Securities based upon the Dow Jones Industrial Average(SM) due June 26,
2006. You should carefully read this prospectus to fully understand the terms of
the MITTS Securities, the Dow Jones Industrial Average(SM) (the "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 June 26, 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 Index
as reduced by the Adjustment Factor. 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:
( Adjusted Ending Value - Starting Value )
$10 X ( -------------------------------------- )
( Starting Value )
but will not be less than zero.
"Starting Value" equals 10,721.63, the closing value of the Index on June
22, 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 Index at the
close of the market on five business days before the maturity of the MITTS
Securities as reduced on each day by the application of the Adjustment Factor.
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 a sufficient number of the component
3
<PAGE>
stocks included in the Index or certain future or option contracts relating to
the Index.
The "Adjustment Factor" equals 2.0% per year and will be prorated based on
a 365-day year and applied over the entire term of the MITTS Securities on each
calendar day to reduce the closing values of the Index used to calculate the
Supplemental Redemption Amount during the Calculation Period. As a result of the
cumulative effect of this reduction, the values used to calculate the
Supplemental Redemption Amount during the Calculation Period at the stated
maturity of the MITTS Securities will be approximately 13.09% less than the
actual closing value of the Index on each day during the Calculation Period. For
a detailed discussion of how the Adjustment Factor affects the value of the
Index used to calculate the Supplemental Redemption Amount, see "Description of
the MITTS Securities--Payment at maturity" in this prospectus.
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 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:
Example 1--The Index, as adjusted, is below the Starting Value at maturity:
Starting Value: 10,721.63
Hypothetical closing value of the Index at maturity: 11,793.79
Hypothetical Adjusted Ending Value: 10,249.62
<TABLE>
<S> <C> <C>
( 10,249.62 - 10,721.63 ) (Supplemental Redemption Amount cannot
Supplemental Redemption Amount (per unit) = $10 X ( --------------------- ) = $0.00 be less than zero)
( 10,721.63 )
</TABLE>
Total payment at maturity (Per Unit) = $10 + $0 = $10
Example 2--The Index, as adjusted, is below the Starting Value at maturity:
Starting Value: 10,721.63
Hypothetical closing value of the Index at maturity: 19,298.93
Hypothetical Adjusted Ending Value: 16,772.10
<TABLE>
<S> <C>
( 16,772.10 - 10,721.63 )
Supplemental Redemption Amount (per unit) = $10 X ( --------------------- ) = $5.64
( 10,721.63 )
</TABLE>
Total payment at maturity (Per Unit) = $10 + $5.64 = $15.64
4
<PAGE>
Who publishes the Index and what does the Index measure?
The Dow Jones Industrial Average(SM) is a price-weighted index published by
Dow Jones & Company, Inc. ("Dow Jones") which means a component stock's weight
in the Index is based on its price per share rather than the total market
capitalization of the issuer of that component stock. The Index is designed to
provide an indication of the composite price performance of 30 common stocks of
corporations representing a broad cross-section of U.S. industry. The component
stocks of the Index are selected by the editors of The Wall Street Journal
("WSJ"). The corporations represented in the Index tend to be market leaders in
their respective industries and their stocks are typically widely held by
individuals and institutional investors. The corporations currently represented
in the Index are incorporated in the U.S. and its territories and their stocks
are traded on the New York Stock Exchange.
The value of the Index is the sum of the primary exchange prices of each of
the 30 common stocks included in the Index, divided by a divisor that is
designed to provide a meaningful continuity in the value of the Index. Because
the Index is price-weighted, stock splits or changes in the component stocks
could result in distortions in the Index value. In order to prevent these
distortions related to extrinsic factors, the divisor may be changed in
accordance with a mathematical formula that reflects adjusted proportions within
the Index. The current divisor of the Index is published daily in the WSJ and
other publications. In addition, other statistics based on the Index may be
found in a variety of publicly available sources.
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 Index.
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are listed on the AMEX under the trading symbol "MDJ".
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 and maintain a secondary market for holders of the MITTS Securities.
However, MLPF&S is not obligated to engage in any of these market activities.
MLPF&S is also 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' 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 subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co. see the section
entitled "Merrill Lynch & Co., Inc." in this 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.
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.
5
<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 Adjusted Ending Value does not exceed the
Starting Value at the stated maturity date, the Supplemental Redemption Amount
will be zero. This will be true even if the value of the Index, as reduced by
the Adjustment Factor over the term of the MITTS Securities, 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 debt security of ML&Co. 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
Index
Dow Jones calculates the value of the Index by reference to the prices of
the common stocks included in the Index without taking into consideration the
value of dividends paid on those stocks. The return on your MITTS Securities
will not reflect the return you would realize if you actually owned the stocks
included in the Index and received the dividends paid on those stocks because of
the cumulative effect of the reduction caused by the Adjustment Factor and
because the value of the Index is calculated by reference to the prices of the
stocks included in the Index without taking into consideration the value of
dividends paid on those stocks.
There may be an uncertain trading market for the MITTS Securities
Although the MITTS Securities are listed on the AMEX under the trading
symbol "MDJ", 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 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 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 Index. The following
paragraphs describe the expected impact on
6
<PAGE>
the market value of the MITTS Securities given a change in a specific factor,
assuming all other conditions remain constant.
The value of the 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 by which the Index, as reduced by the Adjustment
Factor over the term of the MITTS Securities, exceeds the Starting Value. If you
choose to sell your MITTS Securities when the value of the Index, as reduced by
the Adjustment Factor over the term of the MITTS Securities, 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
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 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 or dividends per share may increase the value of the Index while
falling U.S. dividend rates may decrease the value of the Index.
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 U.S.
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.
Rising U.S. interest rates may lower the value of the Index and, thus, the MITTS
Securities. Falling U.S. interest rates may increase the value of the Index and,
thus, may increase the value of the MITTS Securities.
Changes in the volatility of the 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. Generally, if the volatility
of the Index increases, we expect that the trading value of the MITTS Securities
will increase and, conversely, if the volatility of the 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 Index. This
difference will reflect a "time premium" due to expectations concerning the
value of the 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 Index are expected
to affect the trading value of the MITTS Securities. In general, if dividend
yields on the stocks included in the Index increase, we expect that the value of
the MITTS Securities will decrease and, conversely, if dividend yields on the
stocks included in the Index 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 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
7
<PAGE>
value of the 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 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 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 affiliates may from time to time buy or sell the stocks included
in the Index or future or option contracts in the 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 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
Adjusted 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 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 Index. See the
sections entitled "Description of the MITTS Securities--Adjustments to the
Index; Market Disruption Events" and "--Discontinuance of the 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 the amounts due at
maturity. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
8
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
9
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
10
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On June 26, 1999, ML&Co. issued an aggregate principal amount of
$52,000,000 or 5,200,000 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 June 26, 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
the section "--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.
The MITTS Securities were issued in denominations of whole units.
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 Supplemental Redemption
Amount is not greater than zero, you will be entitled to receive only the
principal amount of your MITTS Securities.
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 each 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 10,721.63, the closing value of the Index on
June 22, 1999, the date the MITTS Securities were priced for initial sale to the
public.
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 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 during the Calculation
Period, then the Adjusted Ending Value will equal the average or arithmetic mean
of the closing values of the 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 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 Index determined on the last scheduled Index Business Day in the
Calculation Period, as reduced by the application of the Adjustment Factor on
that day, regardless of the occurrence of a Market Disruption Event on that day.
The "Adjustment Factor" equals 2.0% per year and will be applied over the
entire term of the MITTS Securities. On each calendar day during the term of the
MITTS Securities, we will apply this
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<PAGE>
percentage on a prorated basis based on a 365-day year to reduce the value used
to calculate the Supplemental Redemption Amount on each Calculation Day during
the Calculation Period. As a result of the cumulative effect of this reduction,
the values used to calculate the Supplemental Redemption Amount during the
Calculation Period will be approximately 13.09% less than the actual closing
value of the Index on each Calculation 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 New York Stock Exchange and
the AMEX are open for trading and the 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 beneficial owners of the MITTS Securities.
Hypothetical returns
The following table illustrates, for a range of hypothetical closing values
of the Index during the Calculation Period, assuming an initial investment of
$10 per unit and an investment term from June 22, 1999 to June 26, 2006:
. the percentage change from the Starting Value to the hypothetical
closing value,
. the Adjusted Ending Value used to calculate the Supplemental Redemption
Amount,
. the total amount payable at maturity for each unit of MITTS Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of the MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
underlying the Index, which includes an assumed aggregate dividend yield
of 1.61% per annum, as more fully described below.
For the purposes of calculating this table, we have applied an Adjustment
Factor of 2.0% per annum.
12
<PAGE>
<TABLE>
<CAPTION>
Percentage Total amount Pretax
Hypothetical change from payable at Pretax annualized
closing value of the Starting maturity Total rate of annualized rate of return
the Index during Value to the Adjusted per unit of return on the rate of return of stocks
the Calculation hypothetical Ending MITTS MITTS on the MITTS included in the
Period closing value Value(1) Securities Securities Securities(2) Index(2)(3)
------ ------------- -------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
2,144.33 -80% 1,863.57 $10.00 0.00% 0.00% -19.94%
4,288.65 -60% 3,727.14 $10.00 0.00% 0.00% -11.05%
6,432.98 -40% 5,590.70 $10.00 0.00% 0.00% -5.58%
8,577.30 -20% 7,454.27 $10.00 0.00% 0.00% -1.57%
10,721.63(4) 0% 9,317.84 $10.00 0.00% 0.00% 1.61%
12,865.96 20% 11,181.41 $10.43 4.29% 0.60% 4.26%
15,010.28 40% 13,044.97 $12.17 21.67% 2.82% 6.53%
17,154.61 60% 14,908.54 $13.91 39.05% 4.75% 8.53%
19,298.93 80% 16,772.11 $15.64 56.43% 6.48% 10.31%
21,443.26 100% 18,635.68 $17.38 73.81% 8.04% 11.92%
23,587.59 120% 20,499.24 $19.12 91.20% 9.45% 13.38%
25,731.91 140% 22,362.81 $20.86 108.58% 10.76% 14.74%
27,876.24 160% 24,226.38 $22.60 125.96% 11.96% 15.99%
30,020.56 180% 26,089.95 $24.33 143.34% 13.08% 17.16%
32,164.89 200% 27,953.51 $26.07 160.72% 14.13% 18.26%
</TABLE>
________
(1) The Adjusted Ending Values specified in this column are approximately 13.09%
less than the hypothetical closing values of the Index as a result of the
cumulative effect of the application of the Adjustment Factor of 2.0% per
annum 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 constant dividend yield of 1.61% per annum, paid quarterly from the
date of initial delivery of the MITTS Securities, applied to the value
of the Index at the end of each quarter assuming this value increases or
decreases linearly from the Starting Value to the applicable
hypothetical closing value;
(b) no transaction fees or expenses in connection with purchasing and
holding stocks included in the Index;
(c) an investment term from June 22, 1999 to June 26, 2006; and
(d) a final closing value of the Index equal to the hypothetical closing
value.
(4) This is the Starting Value of the Index.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rate of return will depend entirely on the actual Adjusted
Ending Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Index; Market Disruption Events
If at any time Dow Jones changes its method of calculating the Index, or
the value of the Index changes, in any material respect, or if the Index is in
any other way modified so that the Index does not, in the opinion of the
calculation agent, fairly represent the value of the 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 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 Index as
if those changes or modifications had not been made, and calculate the closing
value with reference to the Index, as adjusted. Accordingly, if the method of
calculating the Index is modified so that the value of the Index is a fraction
or a multiple of what it would have been if it had not been
13
<PAGE>
modified, e.g., due to a split, then the calculation agent shall adjust the
Index in order to arrive at a value of the Index as if it had not been modified,
e.g., 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 Index; or
(B) the suspension or material limitation, in each case, for more than two
hours of trading, or during the one-half hour period preceding the
close of trading on the applicable exchange, whether by reason of
movements in price otherwise exceeding levels permitted by the relevant
exchange or otherwise, in option contracts or futures contracts related
to the Index, or any successor index, which are traded on any major
U.S. exchange.
For the purpose of the above definition:
(1) 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 and
(2) 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 Index
If Dow Jones discontinues publication of the Index and Dow Jones or another
entity publishes a successor or substitute index that the calculation agent
determines, in its sole discretion, to be comparable to the Index (a "successor
index"), then, upon the calculation agent's notification of its determination to
the trustee and ML&Co., the calculation agent will substitute the successor
index as calculated by Dow Jones or another entity for the 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 promptly
give notice to the beneficial owners of the MITTS Securities by publication in a
United States newspaper with a national circulation.
In the event that Dow Jones discontinues publication of the Index and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the Index in
accordance with the procedures last used to calculate the Index before any
discontinuance. If a successor index is selected or the calculation agent
calculates a value as a substitute for the Index as described below, the
successor index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
If Dow Jones discontinues publication of the Index before the Calculation
Period 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:
14
<PAGE>
. the determination of the Adjusted Ending Value and
. 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 WSJ 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 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 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 was the stated maturity date of the MITTS
Securities, provided, however, the Adjustment Factor will be applied to the
values used to calculate the Supplemental Redemption Amount as if the MITTS
Securities had not been accelerated and had remained outstanding to the stated
maturity date. 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 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 will bear interest, payable upon demand of their beneficial owners,
at the rate of 6.90% 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
15
<PAGE>
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 the 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.
16
<PAGE>
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:
. 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.
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.
17
<PAGE>
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 INDEX
Unless otherwise stated, all information herein on the Index is derived
from Dow Jones or other publicly available sources. This information reflects
the policies of Dow Jones as stated in the publicly available sources and the
policies are subject to change by Dow Jones. Dow Jones is under no obligation to
continue to publish the Index and may discontinue publication of the Index at
any time.
The Index is a price-weighted index, i.e., the weight of a component stock
in the Index is based on its price per share rather than the total market
capitalization of the issuer of the component stock, comprised of 30 common
stocks chosen by the editors of the WSJ as representative of the broad market of
U.S. industry. The corporations represented in the Index tend to be leaders
within their respective industries and their stocks are typically widely held by
individuals and institutional investors. Changes in the composition of the Index
are made entirely by the editors of the WSJ without consultation with the
corporations represented in the Index, any stock exchange, any official agency
or ML&Co. Changes to the common stocks included in the Index tend to be made
infrequently. Historically, most substitutions have been the result of mergers,
but from time to time, changes may be made to achieve what the editors of the
WSJ deem to be a more accurate representation of the broad market of U.S.
industry. In choosing a new corporation for the Index, the editors of the WSJ
look for leading industrial companies with a successful history of growth and
wide interest among investors. The component stocks of the Index may be changed
at any time for any reason. Dow Jones, publisher of the WSJ, is not affiliated
with ML&Co. and has not participated in any way in the creation of the MITTS
Securities.
The Index initially consisted of 12 common stocks and was first published
in the WSJ in 1896. The Index was increased to include 20 common stocks in 1916
and to 30 common stocks in 1928. The number of common stocks in the Index has
remained at 30 since 1928, and, in an effort to maintain continuity, the
constituent corporations represented in the Index have been changed on a
relatively infrequent basis.
The value of the Index is the sum of the primary exchange prices of each of
the 30 common stocks included in the Index, divided by a divisor that is
designed to provide a meaningful continuity in the value of the Index. Because
the Index is price-weighted, stock splits or changes in the component stocks
could result in distortions in the Index value. In order to prevent these
distortions related to extrinsic factors, the divisor is changed in accordance
with a mathematical formula that reflects adjusted proportions within the Index.
The current divisor of the Index AND THE VALUE OF THE Index are published daily
in the WSJ and other publications. In addition, other statistics based on the
Index may be found in a variety of publicly available sources. The value of the
Index is also reported on Bloomberg under the symbol "indu".
ML&Co. or its affiliates may presently or from time to time engage in
business with one or more of the issuers of the component stocks of the Index,
including extending loans to, or making equity investments in, the issuers or
providing advisory services to the issuers, including merger and acquisition
advisory services. In the course of its business, ML&Co. or its affiliates may
acquire non-public information with respect to the issuers. ML&Co. does not make
any representation to any purchaser of the MITTS Securities with respect to any
matters whatsoever relating to the issuers. Any prospective purchaser of the
MITTS Securities should undertake an independent investigation of the issuers of
the component stocks of the Index as in its judgment is appropriate to make an
informed decision about an investment in the MITTS Securities. The composition
of the Index does not reflect any investment or sell recommendations of ML&Co.
or its affiliates.
18
<PAGE>
License Agreement
"Dow Jones", "Dow Jones Industrial Average(SM)", and "DJIA(SM)" are service
marks of Dow Jones & Company, Inc. Dow Jones has no relationship to MLPF&S or
ML&Co., other than the licensing of the Dow Jones Industrial Average(SM) and its
service marks for use in connection with the MITTS Securities.
Dow Jones does not:
. Sponsor, endorse, sell or promote the MITTS Securities.
. Recommend that any person invest in the MITTS Securities or any other
securities.
. Have any responsibility or liability for or make any decisions about
the timing, amount or pricing of MITTS Securities.
. Have any responsibility or liability for the administration, management
or marketing of the MITTS Securities.
. Consider the needs of the MITTS Securities or the owners of the MITTS
Securities in determining, composing or calculating the Dow Jones
Industrial Average(SM) or have any obligation to do so.
Dow Jones will not have any liability in connection with the MITTS
Securities. Specifically,
. Dow Jones does not make any warranty, express or implied, and Dow Jones
disclaims any warranty about:
. The results to be obtained by the MITTS Securities, the owner of the
MITTS Securities or any other person in connection with the use of
the Dow Jones Industrial Average(SM) and the data included in the
Dow Jones Industrial Average(SM);
. The accuracy or completeness of the Dow Jones Industrial Average(SM)
and its data;
. The merchantability and the fitness for a particular purpose or use
of the Dow Jones Industrial Average(SM) and its data;
. Dow Jones will have no liability for any errors, omissions or
interruptions in the Dow Jones Industrial Average(SM) or its data;
. Under no circumstances will Dow Jones be liable for any lost profits or
indirect, punitive, special or consequential damages or losses, even if
Dow Jones knows that they might occur.
The licensing agreement between MLPF&S and Dow Jones is solely for their
benefit and not for the benefit of the owners of the MITTS Securities or any
other third parties.
19
<PAGE>
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.
20
<PAGE>
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to all
the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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
21
<PAGE>
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:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. 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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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.
22
<PAGE>
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 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 $6.0823
per unit. This represents an estimated yield on the MITTS Securities equal to
6.90% per annum, compounded semiannually.
The projected payment schedule, including both 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 the projected
payment schedule for the MITTS Securities, including both the projected
Supplemental Redemption Amount and the estimated yield equal to 6.90% 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>
June 25, 1999 through December 26, 1999.................................. $0.3479 $0.3479
December 27, 1999 through June 26, 2000.................................. $0.3570 $0.7049
June 27, 2000 through December 26, 2000.................................. $0.3693 $1.0742
December 27, 2000 through June 26, 2001.................................. $0.3821 $1.4563
June 27, 2001 through December 26, 2001.................................. $0.3952 $1.8515
December 27, 2001 through June 26, 2002.................................. $0.4089 $2.2604
June 27, 2002 through December 26, 2002.................................. $0.4230 $2.6834
December 27, 2002 through June 26, 2003.................................. $0.4375 $3.1209
June 27, 2003 through December 26, 2003.................................. $0.4527 $3.5736
December 27, 2003 through June 26, 2004.................................. $0.4683 $4.0419
June 27, 2004 through December 26, 2004.................................. $0.4845 $4.5264
December 27, 2004 through June 26, 2005.................................. $0.5011 $5.0275
June 27, 2005 through December 26, 2005.................................. $0.5185 $5.5460
December 27, 2005 through June 26, 2006.................................. $0.5363 $6.0823
</TABLE>
____________
Projected Supplemental Redemption Amount = $6.0823 per unit.
23
<PAGE>
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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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
ghttp://www.sec.gov. The address of the SEC's Internet site is provided
solely for the information of prospective investors and is not intended to be an
active link. 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29, 2000,
July 18, 2000, August 2, 2000, August 4, 2000, September 13, 2000,
October 6, 2000, October 17, 2000, November 1, 2000, November 20,
2000 and December 6, 2000.
24
<PAGE>
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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
25
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
Merrill Lynch & Co., Inc.
Russell 2000(R) Market Index Target-Term Securities(R)
due July 21, 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>
The MITTS Securities: Payment at maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch & the sum of the principal amount of each unit and an
Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the Russell 2000 Index*, an any, in the value of the Russell 2000 Index reduced by
index designed to track the price performance of the an annual adjustment factor of 2.35%.
common stock of 2,000 corporations with small . At maturity, you will receive no less than the
capitalizations relative to other stocks in the U.S. principal amount of your MITTS Securities.
equity market.
. The MITTS Securities are listed on the American
Stock Exchange under the trading symbol "RSM".
. Closing date: July 21, 1999.
</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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
and "Protected Growth" is a service mark of Merrill Lynch & Co., Inc.
* The use of, and reference to, the terms "Russell 2000" and "Russell 2000
Index" in this prospectus has been consented to by Frank Russell Company.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION-Q&A..................................................... 3
RISK FACTORS................................................................ 6
MERRILL LYNCH & CO., INC.................................................... 9
RATIO OF EARNINGS TO FIXED CHARGES.......................................... 10
DESCRIPTION OF THE MITTS SECURITIES......................................... 11
THE RUSSELL 2000 INDEX...................................................... 18
OTHER TERMS................................................................. 20
PROJECTED PAYMENT SCHEDULE.................................................. 23
ERISA CONSIDERATIONS........................................................ 24
WHERE YOU CAN FIND MORE INFORMATION......................................... 24
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........................... 24
PLAN OF DISTRIBUTION........................................................ 25
EXPERTS..................................................................... 25
</TABLE>
2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Russell 2000 Market
Index Target-Term Securities due July 21, 2006. You should carefully read this
prospectus to fully understand the terms of the MITTS Securities, the Russell
2000 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 July 21, 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
Russell 2000 Index as reduced by the Adjustment Factor. 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:
(Adjusted Ending Value - Starting Value)
$10 x (--------------------------------------)
( Starting Value )
but will not be less than zero.
"Starting Value" equals 465.80, which was the closing value of the Russell
2000 Index on July 15, 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 Russell 2000
Index at the close of the market on five business days before the maturity of
the MITTS Securities as reduced on each day by the application of the Adjustment
Factor. 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 a sufficient number of the component stocks included in the Russell
2000 Index or certain futures or options contracts relating to the Russell 2000
Index.
3
<PAGE>
The "Adjustment Factor" equals 2.35% per year and will be prorated based on
a 365-day year and applied over the entire term of the MITTS Securities on each
calendar day to reduce the closing values of the Russell 2000 Index used to
calculate the Supplemental Redemption Amount during the Calculation Period. As a
result of the cumulative effect of this reduction, the values used to calculate
the Supplemental Redemption Amount during the Calculation Period will be
approximately 15.18% less than the actual closing value of the Russell 2000
Index on each day during the Calculation Period. For a detailed discussion of
how the Adjustment Factor will affect the value of the Russell 2000 Index used
to calculate the Supplemental Redemption Amount, see "Description of the MITTS
Securities--Payment at maturity" in this prospectus.
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 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 investment term equal to that of the MITTS Securities and an
Adjustment Factor of 2.35% per year:
Example 1--The Russell 2000 Index, as adjusted, is below the Starting Value at
maturity:
Starting Value: 465.80
Hypothetical closing value of the Russell 2000 Index at maturity: 512.38
Hypothetical Adjusted Ending Value: 434.60
<TABLE>
<S> <C> <C>
(Supplemental
Redemption
(434.60 - 465.80) Amount cannot
Supplemental Redemption Amount (per unit) = $10.00 x (---------------) = $0.00 be less than
( 465.80 ) zero)
</TABLE>
Total payment at maturity (per unit) = $10 + $0 = $10
Example 2--The Russell 2000 Index, as adjusted, is above the Starting Value at
maturity:
Starting Value: 465.80
Hypothetical closing value of the Russell 2000 Index at maturity: 838.44
Hypothetical Adjusted Ending Value: 711.17
<TABLE>
<S> <C>
(711.17 - 465.80)
Supplemental Redemption Amount (per unit) = $10 x (---------------) = $5.27
( 465.80 )
</TABLE>
Total payment at maturity (per unit) = $10 + $5.27 = $15.27
4
<PAGE>
Who publishes the Russell 2000 Index and what does the Russell 2000 Index
measure?
The Russell 2000 Index is published by Frank Russell Company ("FRC") and is
designed to track the performance of 2,000 common stocks of corporations with
small capitalizations relative to other stocks in the U.S. equity market. Market
capitalization is the value of a corporation's stock in the public market
determined by multiplying the number of outstanding shares by the current price
of a share. The corporations in the Russell 2000 Index are domiciled in the U.S.
and its territories and their stocks are traded on the New York Stock Exchange,
on the AMEX, or in the over-the-counter 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 Russell
2000 Index.
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are listed on the AMEX under the trading symbol "RSM".
You should be aware that the listing of the MITTS Securities on the AMEX does
not necessarily ensure that a liquid trading market will be 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 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' 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 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 we have 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.
5
<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 light of
your particular circumstances.
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 on the stated maturity date, the Supplemental Redemption Amount
will be zero. This will be true even if the value of the Russell 2000 Index, as
reduced by the Adjustment Factor over the term of the MITTS Securities, 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 debt security of ML&Co. with the
same maturity date. Your investment may not reflect the full opportunity cost to
you when you take into account factors that affect the time value of money.
Your return will not reflect the return of owning the stocks included in the
Russell 2000 Index
FRC calculates the value of the Russell 2000 Index by reference to the
prices of the common stocks included in the Russell 2000 Index without taking
into consideration the value of the dividends paid on those stocks. The return
on your MITTS Securities will not reflect the return you would realize if you
actually owned the stocks included in the Russell 2000 Index and received the
dividends paid on those stocks because of the cumulative effect of the reduction
caused by the Adjustment Factor and because the value of the Russell 2000 Index
is calculated by reference to the prices of the stocks included in the Russell
2000 Index without taking into consideration the value of dividends paid on
those stocks.
There may be an uncertain trading market for the MITTS Securities
Although the MITTS Securities are listed on the AMEX, 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, of
the value of the Russell 2000 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 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 Russell 2000 Index. The
following paragraphs describe the
6
<PAGE>
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 Russell 2000 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 by which the Russell 2000
Index, as reduced by the Adjustment Factor over the term of the MITTS
Securities, exceeds the Starting Value. If you choose to sell your MITTS
Securities when the value of the Russell 2000 Index, as reduced by the
Adjustment Factor over the term of the MITTS Securities, 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 Russell 2000
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 Russell 2000
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 or dividends per share may increase the value of the
Russell 2000 Index while falling U.S. dividend rates may decrease the value of
the Russell 2000 Index.
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 U.S.
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. Rising U.S. interest rates may lower the value of the Russell 2000
Index and, thus, the MITTS Securities. Falling U.S. interest rates may increase
the value of the Russell 2000 Index and, thus, may increase the value of the
MITTS Securities.
Changes in the volatility of the Russell 2000 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 Russell 2000 Index increases, we expect that the
trading value of the MITTS Securities will increase and, conversely, if the
volatility of the Russell 2000 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
Russell 2000 Index. This difference would reflect a "time premium" due to
expectations concerning the value of the Russell 2000 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 Russell 2000 Index
are expected to affect the trading value of the MITTS Securities. In general,
if dividend yields on the stocks included in the Russell 2000 Index increase, we
expect that the value of the MITTS Securities will decrease and, conversely, if
dividend yields on the stocks included in the Russell 2000 Index 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 Russell 2000 Index at maturity, an improvement in our credit
ratings will not reduce the 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
7
<PAGE>
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 Russell 2000
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 usury laws that limit the amount of
interest that can be charged and paid on loans, which include 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 Russell 2000 Index or futures or options in the Russell 2000
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 Russell 2000 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
Adjusted 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 the calculation agent's determination as to whether the value of
the Russell 2000 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 Russell 2000 Index. See the sections entitled "Description
of the MITTS Securities--Adjustments to the Russell 2000 Index; Market
Disruption Events" and "--Discontinuance of the Russell 2000 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 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.
8
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
9
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
10
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On July 21, 1999, ML&Co. issued an aggregate principal amount of
$35,000,000 or 3,500,000 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 July 21, 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
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 Supplemental Redemption
Amount is not greater than zero, you will be entitled to receive only the
principal amount of your MITTS Securities.
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 each 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 465.80, which was the closing value of the
Russell 2000 Index on July 15, 1999, the date the MITTS Securities were priced
for initial sale to the public.
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 Russell
2000 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 during the
Calculation Period, then the Adjusted Ending Value will equal the average or
arithmetic mean of the closing values of the Russell 2000 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 Russell 2000 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 Russell 2000 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.
11
<PAGE>
The "Adjustment Factor" equals 2.35% per year and will be applied over the
entire term of the MITTS Securities. On each calendar day during the term of the
MITTS Securities, we will apply this percentage on a prorated basis based on a
365-day year to reduce the value used to calculate the Supplemental Redemption
Amount on each Calculation Day during the Calculation Period. As a result of the
cumulative effect of this reduction, the values used to calculate the
Supplemental Redemption Amount during the Calculation Period will be
approximately 15.18% less than the actual closing value of the Russell 2000
Index on each Calculation 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 New York Stock Exchange and
the AMEX are open for trading and the Russell 2000 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 beneficial owners of the MITTS Securities.
Hypothetical returns
The following table illustrates, for a range of hypothetical closing values
of the Russell 2000 Index during the Calculation Period, assuming an initial
investment of $10 per unit and an investment term from July 21, 1999 to July 21,
2006:
. the percentage change from the Starting Value to the hypothetical
closing value,
. the Adjusted Ending Value used to calculate the Supplemental Redemption
Amount,
. the total amount payable at maturity for each unit of MITTS Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of the MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
included in the Russell 2000 Index, which includes an assumed aggregate
dividend yield of 1.27% per annum, as more fully described below.
For the purposes of calculating this table, we have applied an Adjustment
Factor of 2.35% per annum.
12
<PAGE>
<TABLE>
<CAPTION>
Hypothetical
closing value of Percentage Pretax
the Russell change Total amount Pretax annualized
2000 from the payable at annualized rate of return
Index during Starting Value maturity per Total rate of rate of return of stocks
the to the Adjusted unit of return on the on the included in the
Calculation hypothetical Ending MITTS MITTS MITTS Russell 2000
Period closing value Value(1) Securities Securities Securities(2) Index(2)(3)
------------- ------------- ------------- ----------- ----------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
93.16 -80% 79.02 $10.00 0.00% 0.00% -20.32%
186.32 -60% 158.04 $10.00 0.00% 0.00% -11.39%
279.48 -40% 237.06 $10.00 0.00% 0.00% -5.91%
372.64 -20% 316.07 $10.00 0.00% 0.00% -1.91%
465.80(4) 0% 395.09 $10.00 0.00% 0.00% 1.27%
558.96 20% 474.11 $10.18 1.78% 0.25% 3.91%
652.12 40% 553.13 $11.87 18.75% 2.47% 6.18%
745.28 60% 632.15 $13.57 35.71% 4.41% 8.17%
838.44 80% 711.17 $15.27 52.68% 6.13% 9.94%
931.60 100% 790.19 $16.96 69.64% 7.69% 11.54%
1,024.76 120% 869.21 $18.66 86.60% 9.11% 13.00%
1,117.92 140% 948.22 $20.36 103.57% 10.41% 14.35%
1,211.08 160% 1,027.24 $22.05 120.53% 11.61% 15.60%
1,304.24 180% 1,106.26 $23.75 137.50% 12.74% 16.76%
1,397.40 200% 1,185.28 $25.45 154.46% 13.79% 17.85%
</TABLE>
_________
(1) The Adjusted Ending Values specified in this column are approximately
15.18% less than the hypothetical closing values of the Russell 2000 Index
as a result of the cumulative effect of the application of an Adjustment
Factor of 2.35% per annum 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 constant dividend yield of 1.27% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of
the Russell 2000 Index at the end of each quarter assuming this value
increases or decreases linearly from the Starting Value to the
applicable hypothetical closing value;
(b) no transaction fees or expenses in connection with purchasing and
holding stocks included in the index;
(c) an investment term from July 21, 1999 to July 21, 2006; and
(d) a final closing value of the Russell 2000 Index equal to the
hypothetical closing value.
(4) This is the Starting Value of the Russell 2000 Index.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rates of return will depend entirely on the actual Adjusted
Ending Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Russell 2000 Index; Market Disruption Events
If at any time FRC changes its method of calculating the Russell 2000
Index, or the value of the Russell 2000 Index changes, in any material respect,
or if the Russell 2000 Index is in any other way modified so that the Russell
2000 Index does not, in the opinion of the calculation agent, fairly represent
the value of the Russell 2000 Index if no changes or modifications had 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 Russell 2000 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
13
<PAGE>
comparable to the Russell 2000 Index as if no changes or modifications had been
made, and calculate the closing value with reference to the Russell 2000 Index,
as adjusted. Accordingly, if the method of calculating the Russell 2000 Index is
modified so that the value of the Russell 2000 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 Russell 2000 Index in order to
arrive at a value of the Russell 2000 Index as if it had not been modified,
e.g., 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 Russell 2000 Index; or
(b) the suspension or material limitation, in each case, for more than two
hours of trading, or during the one-half hour period preceding the
close of trading on the applicable exchange, whether by reason of
movements in price otherwise exceeding levels permitted by the
relevant exchange or otherwise, in option contracts or futures
contracts related to the Russell 2000 Index, or any successor index,
traded on any major U.S. exchange.
For the purpose of the above definition:
(1) 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 and
(2) 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 Russell 2000 Index
If FRC discontinues publication of the Russell 2000 Index and FRC or
another entity publishes a successor or substitute index that the calculation
agent determines, in its sole discretion, to be comparable to the Russell 2000
Index (a "successor index"), then, upon the calculation agent's notification of
its determination to the trustee and ML&Co., the calculation agent will
substitute the successor index as calculated by FRC or another entity for the
Russell 2000 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 promptly give notice to the beneficial owners of the MITTS
Securities by publication in a United States newspaper with a national
circulation.
In the event that the FRC discontinues publication of the Russell 2000
Index and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the Russell 2000 Index
in accordance with the procedures last used to calculate the Russell 2000 Index
before any discontinuance. If a successor index is selected or the calculation
agent calculates a value as a substitute for the Russell 2000 Index as described
below, the successor index or value shall be substituted for the Russell 2000
Index for all purposes, including for purposes of determining whether a Market
Disruption Event exists.
14
<PAGE>
If FRC discontinues publication of the Russell 2000 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 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 value 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 Russell 2000 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, provided,
however, that the Adjustment Factor will be applied to the values used to
calculate the Supplemental Redemption Amount as if the MITTS Securities had not
been accelerated and had remained outstanding to the stated maturity date. 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 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 6.70% 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
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.
15
<PAGE>
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.
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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 the 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:
. 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.
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.
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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 RUSSELL 2000 INDEX
Unless otherwise stated, all information in this prospectus on the index is
derived from FRC or other publicly available sources. This information reflects
the policies of FRC as stated in these sources and these policies are subject to
change by FRC. FRC is under no obligation to continue to publish the Russell
2000 Index and may discontinue publication of the Russell 2000 Index at any
time.
The Russell 2000 Index is an index calculated, published and disseminated
by FRC, and measures the composite price performance of stocks of 2,000
companies domiciled in the U.S. and its territories. All 2,000 stocks are traded
on either the NYSE or the AMEX or in the over-the-counter market and form a part
of the Russell 3000(R) Index. The Russell 3000(R) Index is composed of the 3,000
largest U.S. companies as determined by market capitalization.
The Russell 2000 Index consists of the smallest 2,000 companies included in
the Russell 3000(R) Index. The Russell 2000 Index is designed to track the
performance of the small capitalization segment of the U.S. equity market.
Only common stocks belonging to corporations domiciled in the U.S. and its
territories are eligible for inclusion in the Russell 3000 Index and the Russell
2000 Index. Stocks traded on U.S. exchanges but domiciled in other countries are
excluded. Preferred stock, convertible preferred stock, participating preferred
stock, paired shares, warrants and rights are also excluded. Trust receipts,
Royalty Trusts, limited liability companies, OTC Bulletin Board companies, pink
sheets, closed-end mutual funds, and limited partnerships that are traded on
U.S. exchanges, are also ineligible for inclusion. Real Estate Investment Trusts
and Beneficial Trusts are eligible for inclusion, however. In general, only one
class of securities of a company is allowed in the Russell 3000 Index, although
exceptions to this general rule have been made where FRC has determined that
each class of securities acts independent of the other.
The primary criteria used to determine the initial list of securities
eligible for the Russell 3000 Index is total market capitalization, which is
defined as the price of the shares times the total number of shares outstanding.
Based on closing values on May 31 of each year, FRC reconstitutes the
composition of the Russell 3000 Index using the then existing market
capitalizations of eligible companies. As of June 30 of each year, the Russell
2000 Index is adjusted to reflect the reconstitution of the Russell 3000 Index
for that year. Real-time dissemination of the Russell 2000 Index began on
January 1, 1987.
As a capitalization-weighted index, the Russell 2000 Index reflects changes
in the capitalization, or market value, of the component stocks relative to the
capitalization on a base date. The current Russell 2000 Index value is
calculated by adding the market values of the Russell 2000 Index's component
stocks, which are derived by multiplying the price of each stock by the number
of shares outstanding, to arrive at the total market capitalization of the 2,000
stocks. The total market capitalization is then divided by a divisor, which
represents the "adjusted" capitalization of the Russell 2000 Index on the base
date of December 31, 1986. To calculate the Russell 2000 Index, last sale prices
will be used for exchange-traded and NASDAQ stocks. If a component stock is not
open for trading, the most recently traded price for that security will be used
in calculating the
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<PAGE>
Russell 2000 Index. In order to provide continuity for the Russell 2000 Index's
value, the divisor is adjusted periodically to reflect events including changes
in the number of common shares outstanding for component stocks, company
additions or deletions, corporate restructurings and other capitalization
changes.
The value of the Russell 2000 Index is reported on the AMEX under the
symbol "RTY", on Bloomberg under the symbol "RTY" and on Reuters under the
symbol ".RUT".
All disclosure contained in this prospectus regarding the Russell 2000
Index, or its publisher, is derived from publicly available information. All
copyrights and other intellectual property rights relating to the Russell 2000
Index are owned by FRC. FRC has no relationship with ML&Co. or the MITTS
Securities; it does not sponsor, endorse, authorize, sell or promote the MITTS
Securities, and has no obligation or liability in connection with the
administration, marketing or trading of the MITTS Securities.
The Russell 2000 Index is a trademark of FRC and has been licensed for use
by ML&Co. The MITTS Securities are not sponsored, endorsed, sold or promoted by
FRC and FRC makes no representation regarding the advisability of investing in
the MITTS Securities.
The MITTS Securities are not sponsored, endorsed, sold or promoted by FRC.
FRC makes no representation or warranty, express or implied, to the owners 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 Russell 2000 Index to track general stock market performance or a
segment of the same. FRC's publication of the Russell 2000 Index in no way
suggests or implies an opinion by FRC as to the advisability of investment in
any or all of the securities upon which the Russell 2000 Index is based. FRC's
only relationship to ML&Co. is the licensing of certain trademarks, and trade
names of FRC and of the Russell 2000 Index which is determined, composed and
calculated by FRC without regard to ML&Co. or the MITTS Securities. FRC is not
responsible for and has not reviewed the MITTS Securities or any associated
literature or publications and FRC makes no representation or warranty express
or implied as to their accuracy or completeness, or otherwise. FRC reserves the
right, at any time and without notice, to alter, amend, terminate or in any way
change the Russell 2000 Index. FRC has no obligation or liability in connection
with the administration, marketing or trading of the MITTS Securities.
FRC DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE RUSSELL
2000 INDEX OR ANY DATA INCLUDED THEREIN AND FRC SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. FRC MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY ML&CO., INVESTORS, OWNERS OF THE MITTS
SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RUSSELL 2000 INDEX
OR ANY DATA INCLUDED THEREIN. FRC MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RUSSELL 2000 INDEX OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL FRC
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
19
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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.
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In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect
to all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the
1983 Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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
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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:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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.
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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 United States
Federal income tax treatment of contingent payment debt instruments to 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$5.8659 per unit.
This represents an estimated yield on the MITTS Securities equal to 6.70% per
annum, compounded semiannually.
The projected payment schedule, including both 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 the projected
payment schedule for the MITTS Securities, including both the projected
Supplemental Redemption Amount and the estimated yield equal to 6.70% 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>
July 21, 1999 through January 21, 2000........................... $0.3378 $0.3378
January 22, 2000 through July 21, 2000........................... $0.3463 $0.6841
July 22, 2000 through January 21, 2001........................... $0.3579 $1.0420
January 22, 2001 through July 21, 2001........................... $0.3699 $1.4119
July 22, 2001 through January 21, 2002........................... $0.3823 $1.7942
January 22, 2002 through July 21, 2002........................... $0.3951 $2.1893
July 22, 2002 through January 21, 2003........................... $0.4084 $2.5977
January 22, 2003 through July 21, 2003........................... $0.4220 $3.0197
July 22, 2003 through January 21, 2004........................... $0.4362 $3.4559
January 22, 2004 through July 21, 2004........................... $0.4507 $3.9066
July 22, 2004 through January 21, 2005........................... $0.4659 $4.3725
January 22, 2005 through July 21, 2005........................... $0.4815 $4.8540
July 22, 2005 through January 21, 2006........................... $0.4976 $5.3516
January 22, 2006 through July 21, 2006........................... $0.5143 $5.8659
</TABLE>
_____________
Projected Supplemental Redemption Amount = $5.8659 per unit.
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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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
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<PAGE>
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000,
June 29, 2000, July 18, 2000, August 2, 2000, August 4, 2000,
September 13, 2000, October 6, 2000, October 17, 2000, November 1,
2000, November 20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
25
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection
of Principal
Merrill Lynch & Co., Inc.
S&P 500(R) 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>
The MITTS Securities: Payment at maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the S&P 500 Index. any, in the value of the S&P 500 Index reduced by an
. The MITTS Securities are listed on the American annual adjustment factor of 2.2%.
Stock Exchange under the trading symbol "MPF". . At maturity, you will receive no less than the
. Closing date: August 4, 1999. 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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
and "Protected Growth" is a service mark of 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
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION-Q&A..................................................... 3
RISK FACTORS................................................................ 6
MERRILL LYNCH & CO., INC.................................................... 9
RATIO OF EARNINGS TO FIXED CHARGES.......................................... 10
DESCRIPTION OF THE MITTS SECURITIES......................................... 11
THE S&P 500 INDEX........................................................... 18
OTHER TERMS................................................................. 20
PROJECTED PAYMENT SCHEDULE.................................................. 23
ERISA CONSIDERATIONS........................................................ 24
WHERE YOU CAN FIND MORE INFORMATION......................................... 24
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........................... 25
PLAN OF DISTRIBUTION........................................................ 26
EXPERTS..................................................................... 26
</TABLE>
2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the S&P 500(R) 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 S&P
500(R) 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 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. 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 value
of the S&P 500 Index as reduced by the Adjustment Factor. 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:
( Adjusted Ending Value - Starting Value )
$10 X (------------------------------------------)
( Starting Value )
but will not be less than zero.
The "Starting Value" equals 1,341.03, the closing value of the S&P 500
Index on July 29, 1999, the date the MITTS Securities were priced for initial
sale to the public.
The "Adjusted Ending Value" means the average or arithmetic mean of the
values of the S&P 500 Index at the close of the market on five business days
before the maturity of the MITTS Securities as reduced on each day by the
application of the Adjustment Factor. 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 a sufficient number of the
stocks included in the S&P 500 Index or certain futures or options contracts
relating to the S&P 500 Index.
The "Adjustment Factor" equals 2.2% per year and will be prorated based on
a 365-day
3
<PAGE>
year and applied over the entire term of the MITTS Securities on each calendar
day to reduce the closing values of the S&P 500 Index used to calculate the
Supplemental Redemption Amount during the Calculation Period. As a result of the
cumulative effect of this reduction, the values of the S&P 500 Index used to
calculate the Supplemental Redemption Amount during the Calculation Period will
be approximately 14.28% less than the actual closing value of the S&P 500 Index
on each 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
the Supplemental Redemption Amount, see "Description of the MITTS Securities--
Payment at maturity" in this prospectus.
For more specific information about the Supplemental Redemption Amount,
please see the section entitled "Description of the MITTS Securities--Payment at
maturity" in this prospectus.
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 investment term equal to that of the MITTS Securities and an
Adjustment Factor of 2.2% per year:
Example 1--The S&P 500 Index, as adjusted, is below the Starting Value at
maturity:
Starting Value: 1,341.03
Hypothetical closing value of the S&P 500 Index at maturity: 1,475.13
Hypothetical Adjusted Ending Value: 1,264.43
<TABLE>
<S> <C> <C>
( 1,264.43 - 1,341.03 )
Supplemental Redemption Amount (per unit) = $10 X (-------------------- ) = $0.00 (Supplemental Redemption Amount cannot
( 1,341.03 ) be 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: 1,341.03
Hypothetical closing value of the S&P 500 Index at maturity: 2,413.85
Hypothetical Adjusted Ending Value: 2,069.07
<TABLE>
<S> <C>
( 2,069.07 - 1,341.03 )
Supplemental Redemption Amount (per unit) = $10 X (-------------------- ) = $5.43
( 1,341.03 )
</TABLE>
Total payment at maturity (per unit) = $10 + $5.43 = $15.43
Who publishes the S&P 500 Index and what does the S&P 500 Index measure?
The S&P 500 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 in the United States. The value of the S&P 500 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
4
<PAGE>
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. Standard & Poor's chooses companies for inclusion in the S&P
500 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.
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are listed on the AMEX under the trading symbol "MPF".
You should be aware that the listing of the MITTS Securities on the AMEX does
not necessarily ensure that a liquid trading market will be 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 the 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 or continue them once it has started.
MLPF&S is also our agent for purposes of calculating, among other things,
Supplemental Redemption Amount. Under certain circumstances, these duties could
result in a conflict of interest between MLPF&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 subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co. see the section
entitled "Merrill Lynch & Co., Inc." in this 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.
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.
5
<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 Adjusted 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 S&P 500 Index, as
reduced by the Adjustment Factor over the term of the MITTS Securities, 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 debt security of ML&Co. 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 S&P
500 Index
The return on your MITTS Securities 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 cumulative effect of
the reduction caused by the Adjustment Factor and because the value of the S&P
500 Index is calculated by reference to the prices of the 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
Although the MITTS Securities are listed on the AMEX under the trading
symbol "MPF", 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 S&P 500 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 S&P 500 Index. The
following paragraphs describe the expected
6
<PAGE>
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 S&P 500 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 by which the S&P 500 Index, as reduced
by the Adjustment Factor over the term of the MITTS Securities, exceeds 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 over the term of the
MITTS Securities, 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 or 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.
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 U.S.
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.
Rising U.S. interest rates may lower the value of the S&P 500 Index and, thus,
the MITTS Securities. Falling U.S. interest rates may increase the value of the
S&P 500 Index and, thus, may increase the value of the MITTS Securities.
Changes in the volatility of the S&P 500 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 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.
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 U.S. interest rates and the S&P
500 Index. This difference will 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.
Changes in dividend yields of the stocks included in the S&P 500 Index are
expected to affect the trading value of the MITTS Securities. In general, 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 stocks included in the S&P 500 Index 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 S&P 500 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
7
<PAGE>
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 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 1983 Indenture under which the MITTS
Securities were 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 affiliates may from time to time buy or sell the stocks included
in the S&P 500 Index or futures or options contracts on 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, in turn, the value of the S&P 500 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
Adjusted 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 S&P 500 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 S&P
500 Index. See the sections entitled "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. 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 the 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.
8
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
9
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
10
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On August 4, 1999, ML&Co. issued an aggregate principal amount of
$90,000,000 or 9,000,000 units of 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 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".
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
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 Adjusted 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>
<S> <C>
( Adjusted Ending Value - Starting Value )
principal amount of each 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 1,341.03, the closing value of the S&P 500
Index on July 29, 1999, the day the MITTS Securities were priced for initial
sale to the public.
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 during the
Calculation Period, 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 during the Calculation Period, 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 day,
regardless of the occurrence of a Market Disruption Event on that Index Business
Day.
11
<PAGE>
The "Adjustment Factor" equals 2.2% per year and will be applied over the
entire term of the MITTS Securities. On each calendar day during the term of the
MITTS Securities, we will apply this percentage on a prorated basis based on a
365-day year to reduce the value of the S&P 500 Index used to calculate the
Supplemental Redemption Amount during the Calculation Period. As a result of the
cumulative effect of this reduction, the values of the S&P 500 Index used to
calculate your Supplemental Redemption Amount during the Calculation Period will
be approximately 14.28% less than the actual value of the S&P 500 Index on each
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.
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" is any day on which the NYSE and the AMEX are open
for trading and the S&P 500 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 closing values
of the S&P 500 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:
. the percentage change from the Starting Value to the hypothetical
closing value,
. the Adjusted Ending Value used to calculate the Supplemental
Redemption Amount,
. the total amount payable at maturity for each unit of MITTS
Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
included in the S&P 500 Index, which includes an assumed aggregate
dividend yield of 1.22% per annum, as more fully described below.
For the purposes of calculating this table, we have applied the Adjustment
Factor of 2.2% per annum.
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<TABLE>
<CAPTION>
Pretax
Hypothetical Percentage Total amount Pretax annualized rate
closing value change from the payable at annualized rate of return of
during the Starting Value Adjusted maturity per Total rate of of return on the stocks included
calculation to hypothetical Ending unit of the return on the MITTS in the S&P 500
period closing value Value(1) MITTS Securities MITTS Securities Securities(2) Index(2)(3)
------------- --------------- ---------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
268.21 -80.00% 229.90 $10.00 0.00% 0.00% -20.37%
536.41 -60.00% 459.79 $10.00 0.00% 0.00% -11.44%
804.62 -40.00% 689.69 $10.00 0.00% 0.00% -5.96%
1,072.82 -20.00% 919.59 $10.00 0.00% 0.00% -1.95%
1,341.03(4) 0.00% 1,149.48 $10.00 0.00% 0.00% 1.22%
1,609.24 20.00% 1,379.38 $10.29 2.86% 0.40% 3.86%
1,877.44 40.00% 1,609.28 $12.00 20.00% 2.62% 6.13%
2,145.65 60.00% 1,839.17 $13.71 37.15% 4.56% 8.12%
2,413.85 80.00% 2,069.07 $15.43 54.29% 6.29% 9.89%
2,682.06 100.00% 2,298.97 $17.14 71.43% 7.84% 11.49%
2,950.27 120.00% 2,528.86 $18.86 88.58% 9.26% 12.95%
3,218.47 140.00% 2,758.76 $20.57 105.72% 10.57% 14.29%
3,486.68 160.00% 2,988.66 $22.29 122.86% 11.77% 15.54%
3,754.88 180.00% 3,218.55 $24.00 140.01% 12.90% 16.70%
4,023.09 200.00% 3,448.45 $25.71 157.15% 13.95% 17.79%
</TABLE>
_________
(1) The Adjusted Ending Values specified in this column are approximately
14.28% less than the hypothetical closing values of the S&P 500 Index as a
result of the application of the Adjustment Factor of 2.2% per annum 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 percentage change in the aggregate price of the stocks that equals
the percentage change in the S&P 500 Index from the Starting Value to
the relevant hypothetical closing value;
(b) a constant dividend yield of 1.22% per annum, paid quarterly from the
date of initial delivery of the 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
applicable hypothetical closing value;
(c) no transaction fees or expenses; and
(d) an investment term from August 4, 1999 to August 4, 2006.
(4) This is 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 you and the resulting total and
pretax annualized rates of return will depend entirely on the actual Adjusted
Ending Value determined by the calculation agent as provided in this prospectus.
Adjustments to the S&P 500 Index; Market Disruption Events
If at any time Standard & Poor's changes its method of calculating the S&P
500 Index, or the value of the S&P 500 Index changes, 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 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 S&P 500 Index is
to be calculated, make those 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 those changes or
modifications had not been made, and calculate the closing value with reference
to the S&P 500 Index, as so 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
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<PAGE>
modified, e.g., due to a split, 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, 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) 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, or during the one-half hour period preceding the
close of trading on the applicable exchange, whether by reason of
movements in price otherwise exceeding levels permitted by the relevant
exchange or otherwise, in option contracts or futures contracts related
to the S&P 500 Index, or any successor index, which are traded on any
major U.S. exchange.
For the purpose of the above definition:
(1) 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 and
(2) 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
Standard & Poor's 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 its 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 and calculate the Adjusted Ending Value
as described above under "Payment at maturity". Upon any selection by the
calculation agent of a successor index, ML&Co. shall promptly give notice to the
beneficial owners of the MITTS Securities by publication in a United States
newspaper with a national circulation.
In the event that Standard & Poor's discontinues publication of the S&P 500
Index and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the S&P 500 Index in
accordance with the procedures last used to calculate the S&P 500 Index before
any 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, the
successor index or value will be used as a substitute for the S&P 500 Index for
all purposes, including for purposes of determining whether a Market Disruption
Event exists.
If Standard & Poor's discontinues publication of the S&P 500 Index before
the Calculation Period 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:
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<PAGE>
. the determination of the Ending Value and
. 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 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 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 of 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,
provided, however, the Adjustment Factor will be applied to the values used to
calculate the Supplemental Redemption Amount as if the MITTS Securities had not
been accelerated and had remained outstanding to the stated maturity date. 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 were the maturity date of the MITTS Securities.
In case of default in payment of the MITTS Securities, whether at the
stated maturity date 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
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<PAGE>
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 the 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.
16
<PAGE>
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:
. 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.
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.
17
<PAGE>
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 S&P 500 INDEX
Standard & Poor's publishes the S&P 500 Index. The S&P 500 Index 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. 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. The
Index is comprised of the common stocks of companies in four main groups:
Industrials, Utilities, Transportation and Financial. 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 value of the S&P 500 Index is reported on the AMEX and on Bloomberg
under the symbol "SPX".
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
return 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
18
<PAGE>
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. These changes
may result from causes such as:
. 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,
. 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
of that stock 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.
License Agreement
Standard & Poor's does not guarantee the accuracy and/or the completeness
of the S&P 500 Index or any data included in that index. 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 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 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 under
that agreement.
The license agreement between Standard & Poor's and Merrill Lynch Capital
Services, Inc. provides that the following language must be stated in this
prospectus:
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<PAGE>
"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 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.
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
20
<PAGE>
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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
21
<PAGE>
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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
22
<PAGE>
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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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 applying the
Final Regulations to the MITTS Securities:
23
<PAGE>
<TABLE>
<CAPTION>
Total interest
deemed to have
accrued on
Interest deemed MITTS Securities
to accrue during as of end of
accrual period accrual 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
</TABLE>
_____________
Projected Supplemental Redemption Amount = $6.1915 per unit.
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 Merrill Lynch & Co., Inc., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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
24
<PAGE>
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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000 ; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
25
D3
<PAGE>
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
26
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with the+
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and is not soliciting an offer to buy these +
+ securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
<TABLE>
<S> <C>
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
</TABLE>
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>
The MITTS Securities: Payment at maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the Nikkei 225 Index. any, in the value of the Nikkei 225 Index, multiplied
. The MITTS Securities are listed on the American by a participation rate of 120%.
Stock Exchange under the trading symbol "NKM". . At maturity, you will receive no less than the
. Closing date: August 4, 1999. 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 , .
"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
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
2
<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%.
3
<PAGE>
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.
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>
<S> <C> <C>
( 16,976.42 - 17,869.92 )
Supplemental Redemption Amount (per unit) = $10 x ( --------------------- ) x 120% = $0.00 (Supplemental 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>
<S> <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
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
4
<PAGE>
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.
5
<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.
6
<PAGE>
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.
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<PAGE>
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
8
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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.
9
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
10
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
11
<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>
<S> <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%.
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<PAGE>
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:
. the percentage change from the Starting Value to the hypothetical
Ending Value,
. the total amount payable at maturity for each unit of MITTS
Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. 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
Hypothetical Percentage payable at Pretax rate of return
Ending Value Change from the maturity per Total rate of annualized rate of stocks
during the Starting Value to unit of the return on the of return on the underlying the
Calculation the hypothetical MITTS MITTS MITTS Nikkei 225
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>
13
<PAGE>
________________
(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;
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<PAGE>
(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:
. the calculation agent does not select a successor index, or
. 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:
. the determination of the Ending Value and
. 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.
15
<PAGE>
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
16
<PAGE>
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.
17
<PAGE>
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:
. 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.
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.
18
<PAGE>
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 (Yen)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 (Yen)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 and is subject to periodic
adjustment. 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. The current divisor is
available on Bloomberg under the symbol "NKY".
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.
19
<PAGE>
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.
20
<PAGE>
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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
21
<PAGE>
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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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.
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<PAGE>
Events of Default
Each of the following will be an Event of Default with respect to senior
debt securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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.
23
<PAGE>
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
Interest Deemed to Have
Deemed Accrued on MITTS
to Accrue Securities as of
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
</TABLE>
___________
Projected Supplemental Redemption Amount = $6.1915 per unit.
24
<PAGE>
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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 2000.
25
<PAGE>
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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
26
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information contained in this prospectus is not complete and may be +
+ changed. We may not sell these securities until the registration statement +
+ filed with the Securities and Exchange Commission is effective. This +
+ prospectus is not an offer to sell these securities and it is not soliciting +
+ an offer to buy these securities in any state where the offer and sale is +
+ not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
Merrill Lynch & Co., Inc.
Nikkei 225 Market Index Target-Term Securities(R)
due September 20, 2002
"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>
The MITTS Securities: Payment at maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the Nikkei 225 Index. any, in the value of the Nikkei 225 Index reduced by
. The MITTS Securities are listed on the American an annual adjustment factor of 1.95%.
Stock Exchange under the trading symbol "MNN". . At maturity, you will receive no less than the
. Closing date: September 20, 1999. 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 , .
"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
<TABLE>
<CAPTION>
Page
----
<S> <C>
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....................................................... 20
OTHER TERMS................................................................ 22
PROJECTED PAYMENT SCHEDULE................................................. 25
ERISA CONSIDERATIONS....................................................... 26
WHERE YOU CAN FIND MORE INFORMATION........................................ 26
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.......................... 26
PLAN OF DISTRIBUTION....................................................... 27
EXPERTS.................................................................... 27
</TABLE>
2
<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 September 20, 2002. 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 September 20, 2002. 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 as reduced by the Adjustment Factor. 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:
( Adjusted Ending Value - Starting Value )
$10 X ( ------------------------------------- )
( Starting Value )
but will not be less than zero.
The "Starting Value" equals 17,777.22, the closing value of the Nikkei 225
Index on September 14, 1999, the date the MITTS Securities were priced for
initial sale to the public.
The "Adjusted Ending Value" will be the average of the values of the Nikkei
225 Index at the close of the market on five business days before the maturity
of the MITTS Securities as reduced on each day by the application of the
Adjustment Factor. 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 a sufficient number of the component stocks
included in the Nikkei 225 Index or certain
3
<PAGE>
future or option contracts relating to the Nikkei 225 Index.
The "Adjustment Factor" equals 1.95% per year and will be prorated based on
a 365-day year and applied over the entire term of the MITTS Securities on each
calendar day to reduce the closing values of the Nikkei 225 Index used to
calculate the Supplemental Redemption Amount during the Calculation Period. As a
result of the cumulative effect of this reduction, the values used to calculate
the Supplemental Redemption Amount during the Calculation Period at the stated
maturity of the MITTS Securities will be approximately 5.69% less than the
actual closing value of the Nikkei 225 Index on each day during the Calculation
Period. For a detailed discussion of how the Adjustment Factor will affect the
value of the Nikkei 225 Index used to calculate the Supplemental Redemption
Amount, see "Description of the MITTS Securities--Payment at maturity" in this
prospectus.
For more specific information about the Supplemental Redemption Amount,
please see the section entitled "Description of the MITTS Securities" in this
prospectus.
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 investment term equal to that of the MITTS Securities and an
Adjustment Factor of 1.95% per year:
Example 1--The hypothetical Adjusted Ending Value is below the Starting Value at
maturity:
Starting Value: 17,777.22
Hypothetical closing value of the Nikkei 225 Index at maturity: 18,666.08
Hypothetical Adjusted Ending Value: 17,604.47
<TABLE>
<S> <C> <C>
( 17,604.47 - 17,777.22 )
Supplemental Redemption Amount (per unit) = $10 X ( --------------------- ) = $0.00 (Supplemental Redemption Amount cannot be
( 17,777.22 ) less than zero)
</TABLE>
Total payment at maturity (per unit) = $10 + $0 = $10
Example 2--The hypothetical Adjusted Ending Value is above the Starting Value at
maturity:
Starting Value: 17,777.22
Hypothetical closing value of the Nikkei 225 Index at maturity: 23,110.39
Hypothetical Adjusted Ending Value: 21,796.01
<TABLE>
<S> <C>
( 21,796.01 - 17,777.22 )
Supplemental Redemption Amount (per unit) = $10 X ( --------------------- ) = $2.26
( 17,777.22 )
</TABLE>
Total payment at maturity (per unit) = $10 + $2.26 = $12.26
4
<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 trading symbol "MNN".
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 Adjusted Ending Value and the Supplemental Redemption Amount. Under certain
circumstances, these duties could result in a conflict of interest between
MLPF&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 subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co. see the section
entitled "Merrill Lynch & Co., Inc." in this prospectus. You should also read
the other documents we have 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 entitled "Risk Factors" in this prospectus.
5
<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 Adjusted 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, as
reduced by the Adjustment Factor over the term of the MITTS Securities, 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 debt security of ML&Co. 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
NKS calculates the value of the Nikkei 225 Index by reference to the
prices of the common stocks included in the Nikkei 225 Index without taking into
consideration the value of dividends paid on those stocks. The return on your
MITTS Securities will not reflect the return you would realize if you actually
owned the stocks included in the Nikkei 225 Index and received the dividends
paid on those stocks because of the cumulative effect of the reduction caused by
the Adjustment Factor and because the value of the Nikkei 225 Index is
calculated by reference to the prices of the stocks included in 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 "MNN".
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.
6
<PAGE>
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, as reduced by the Adjustment Factor over the term of the MITTS
Securities, exceeds the Starting Value. If you choose to sell your MITTS
Securities when the value of the Nikkei 225 Index, as reduced by the Adjustment
Factor over the term of the MITTS Securities, 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 Nikkei 225 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 Nikkei 225 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
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.
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 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
7
<PAGE>
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 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 the stocks included in the Nikkei 225 Index 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 change 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 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 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.
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
8
<PAGE>
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 with regard to 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 included
in the Nikkei 225 Index or future or option contracts on 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 could be adverse to your investment in the MITTS Securities.
Potential conflicts
Our subsidiary, MLPF&S, is our agent for the purposes of calculating the
Adjusted 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 the amounts due at
maturity. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
9
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
10
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
11
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On September 20, 1999, ML&Co. issued an aggregate principal amount of
$47,000,000 or 4,700,000 units of 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 September 20, 2002.
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
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.
The MITTS Securities were issued 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 Adjusted Ending Value
does not exceed the Starting Value, you will be entitled to receive only the
principal amount of your MITTS Securities.
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 each 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 17,777.22, the closing value of the Nikkei 225
Index on September 14, 1999, the date the MITTS Securities were priced for
initial sale to the public.
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 Nikkei
225 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 during the
Calculation Period, then the Adjusted Ending Value will equal the average or
arithmetic mean of the closing values of the Nikkei 225 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 Nikkei 225 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 Nikkei 225 Index
determined on the last scheduled Index Business Day in the Calculation Period,
as reduced by the application of the Adjustment Factor on that Index Business
Day, regardless of the occurrence of a Market Disruption Event on that Index
Business Day.
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<PAGE>
The "Adjustment Factor" equals 1.95% per year, and will be applied over the
entire term of the MITTS Securities. On each calendar day during the term of the
MITTS Securities, we will apply this percentage on a prorated basis based on a
365-day year to reduce the value used to calculate the Supplemental Redemption
Amount on each Calculation Day during the Calculation Period. As a result of the
cumulative effect of this reduction, the values used to calculate the
Supplemental Redemption Amount during the Calculation Period will be
approximately 5.69% less than the actual closing value of the Nikkei 225 Index
on each Calculation 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 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 closing values
of the Nikkei 225 Index during the Calculation Period, assuming an initial
investment of $10 per unit and an investment term from September 20, 1999 to
September 20, 2002:
. the percentage change from the Starting Value to the hypothetical
closing value,
. the Adjusted Ending Value used to calculate the Supplemental
Redemption Amount,
. the total amount payable at maturity for each unit of MITTS
Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. 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 .67% per annum, as more fully described below.
13
<PAGE>
<TABLE>
<CAPTION>
Pretax
Hypothetical Total amount Pretax annualized
closing value Percentage change payable at Total rate annualized rate of return
of the Nikkei from the maturity per of return rate of of stocks
225 Index during Starting Value of Adjusted unit of on the return on included in
the Calculation the hypothetical Ending the MITTS MITTS the MITTS the Nikkei 225
Period closing value Value(1) Securities Securities Securities(2) Index(2)(3)
---------------- ------------------ ------- ------------ ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
12,444.05 -30% 11,736.32 10.00 0.00% 0.00% -10.90%
14,221.78 -20% 13,412.93 10.00 0.00% 0.00% -6.65%
15,999.50 -10% 15,089.55 10.00 0.00% 0.00% -2.82%
16,888.36 -5% 15,927.86 10.00 0.00% 0.00% -1.04%
17,777.22(4) 0% 16,766.17 10.00 0.00% 0.00% 0.67%
18,666.08 5% 17,604.47 10.00 0.00% 0.00% 2.31%
19,554.94 10% 18,442.78 10.37 3.74% 1.23% 3.88%
21,332.66 20% 20,119.40 11.32 13.18% 4.16% 6.86%
23,110.39 30% 21,796.01 12.26 22.61% 6.90% 9.64%
24,888.11 40% 23,472.63 13.20 32.04% 9.47% 12.25%
26,665.83 50% 25,149.25 14.15 41.47% 11.89% 14.71%
28,443.55 60% 26,825.86 15.09 50.90% 14.18% 17.04%
30,221.27 70% 28,502.48 16.03 60.33% 16.36% 19.24%
31,999.00 80% 30,179.10 16.98 69.76% 18.42% 21.35%
33,776.72 90% 31,855.71 17.92 79.19% 20.40% 23.35%
</TABLE>
______________
(1) The Adjusted Ending Values specified in this column are approximately 5.69%
less than the hypothetical closing values of the Nikkei 225 Index as a
result of the cumulative effect of the application of the Adjustment Factor
of 1.95% per annum 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 percentage change in the aggregate price of the stocks that equals
the percentage change in the Nikkei 225 Index from the Starting Value
to the relevant hypothetical closing value;
(b) a constant dividend yield of .67% 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 closing value;
(c) no transaction fees or expenses in connection with purchasing and
holding stocks included in the Nikkei 225 Index;
(d) an investment term from September 20, 1999 to September 20, 2002; and
(e) a final closing value of the Nikkei 225 Index equal to the
hypothetical closing value.
(4) This is the Starting Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rates of return will depend entirely on the actual Adjusted
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
14
<PAGE>
if those changes or modifications had not been made, and calculate the closing
value with reference to the Nikkei 225 Index, as 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 the split had not occurred.
"Market Disruption Event" means either of the following events as
determined by the calculation agent:
(a) the 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 future or option 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:
. the calculation agent does not select a successor index, or
15
<PAGE>
. the successor index is no longer published on any of the Index Business
Days during the Calculation Period,
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 shall be substituted for the Nikkei 225
Index for all purposes, including for purposes of determining whether a Market
Disruption Event exists.
If 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:
. the determination of the Adjusted Ending Value and
. 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 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 was the stated maturity date of the MITTS
Securities, provided, however, the Adjustment Factor will be applied to the
values used to calculate the Supplemental Redemption Amount as if the MITTS
Securities had not been accelerated and had remained outstanding to the stated
maturity date. 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 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 will bear interest, payable upon demand of their beneficial owners,
at the rate of 6.65% 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.
16
<PAGE>
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
17
<PAGE>
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 the 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:
. 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
18
<PAGE>
. 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.
19
<PAGE>
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 Underlying Stocks 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 (Yen)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 (Yen)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 and is subject to periodic
adjustment. 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. The current divisor is
available on Bloomberg under the symbol "NKY".
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 from the Underlying Stocks,
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.
20
<PAGE>
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 or any member of the
public regarding the advisability of investing in securities generally or in the
MITTS Securities in particular or the ability of the Nikkei 225 Index to track
general stock market performance. NKS has no obligation to take the needs of
ML&Co. or 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, Adjusted
Ending Value 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 The City of New York 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.
21
<PAGE>
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.
22
<PAGE>
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to all the
Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any senior debt security;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any senior debt security;
. 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
. 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
23
<PAGE>
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:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. 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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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.
24
<PAGE>
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
$2.1673 per unit This represents an estimated yield on the MITTS Securities
equal to 6.65% 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 6.65% per annum,
compounded semiannually, as determined by ML&Co. for purposes of applying the
Final Regulations to the MITTS Securities:
<TABLE>
<CAPTION>
Total interest
deemed to have
accrued on the
Interest deemed MITTS
to accrue Securities
during as of the end of
accrual period accrual period
Accrual Period (per unit) (per unit)
-------------- -------------- ----------------
<S> <C> <C>
September 20, 1999 through March 20, 2000.......................... $0.3316 $0.3316
March 21, 2000 through September 20, 2000.......................... $0.3435 $0.6751
September 21, 2000 through March 20, 2001.......................... $0.3549 $1.0300
March 21, 2001 through September 20, 2001.......................... $0.3668 $1.3968
September 21, 2001 through March 20, 2002.......................... $0.3789 $1.7757
March 21, 2002 through September 20, 2002.......................... $0.3916 $2.1673
</TABLE>
_________________
Projected Supplemental Redemption Amount = $2.1673 per unit.
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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
25
<PAGE>
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000 ; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000, March
31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29, 2000,
July 18, 2000, August 2, 2000, August 4, 2000, September 13, 2000,
October 6, 2000, October 17, 2000, November 1, 2000, November 20,
2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
26
<PAGE>
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
27
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is +
+ not an offer to sell these securities and is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<TABLE>
<S> <C> <C>
Subject to Completion [LOGO] Merrill Lynch
PROSPECTUS Preliminary Prospectus dated December 27, 2000 PROTECTED GROWTH(SM) INVESTING
---------- Pursuit of Growth, Protection of Principal
</TABLE>
Merrill Lynch & Co., Inc.
Energy Select Sector SPDR(R) Fund
Market Index Target-Term Securities(R)
due September 20, 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>
The MITTS Securities: Payment at maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS Securities you own,
. No payments before the maturity date. we will pay you an amount equal to the sum
. Senior unsecured debt securities of Merrill Lynch of the principal amount of each unit and an additional
& Co., Inc. amount based on the percentage increase,
. Linked to the net asset value per share of the if any, in the net asset value per share of
Energy Select Sector SPDR Fund, a registered index the Energy Select Sector SPDR Fund, reduced by
fund. an annual adjustment factor of 1.25%.
. The MITTS Securities are listed on the American . At maturity, you will receive no less than the principal amount of
Stock Exchange under the trading symbol "ESY". your MITTS Securities.
. Closing date: September 20, 1999. . At maturity, we will pay you all amounts due under the MITTS Securities
by delivering to you shares of the Energy Select Sector SPDR Fund or
paying you cash with an equal value.
</TABLE>
Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page 8 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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
and "Protected Growth" is a service mark of Merrill Lynch & Co., Inc.
"SPDRs", "Select Sector SPDR", "Select Sector SPDRs" and "Select Sector Standard
& Poor's Depositary Receipts" are trademarks of The McGraw-Hill Companies,
Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION-Q&A................................................................... 3
RISK FACTORS.............................................................................. 8
MERRILL LYNCH & CO., INC.................................................................. 13
RATIO OF EARNINGS TO FIXED CHARGES........................................................ 14
DESCRIPTION OF THE MITTS SECURITIES....................................................... 15
THE ENERGY SPDR FUND...................................................................... 23
OTHER TERMS............................................................................... 25
PROJECTED PAYMENT SCHEDULE................................................................ 28
ERISA CONSIDERATIONS...................................................................... 29
WHERE YOU CAN FIND MORE INFORMATION....................................................... 29
INCORPORATION OF INFORMATION WE FILE WITH THE SEC......................................... 30
PLAN OF DISTRIBUTION...................................................................... 31
EXPERTS................................................................................... 31
</TABLE>
2
<PAGE>
SUMMARY INFORMATION -- Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Energy SPDR(R) Fund
Market Index Target-Term Securities(R) due September 20, 2006. You should
carefully read this prospectus to fully understand the terms of the MITTS
Securities 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.
References in this prospectus to the "Energy SPDR Fund" are to the Energy
Select Sector SPDR Fund.
We have attached the prospectus for the Energy SPDR Fund dated January 28,
2000, (the "Fund Prospectus"). You should carefully read the Fund Prospectus to
fully understand the operation and management of the Energy SPDR Fund,
particularly the fees and expenses associated with shares of the Energy SPDR
Fund which affect the net asset value per share of the Energy SPDR Fund and
which will directly apply to you if we choose to deliver these shares of the
Energy SPDR Fund to you at maturity of the MITTS Securities. Our affiliate,
MLPF&S, is both a soliciting dealer in the shares of the Energy SPDR Fund and
the index compilation agent for the Energy Select Sector Index. However, we are
not affiliated with the Energy SPDR Fund or the Energy Select Sector Index. The
Energy SPDR Fund will not receive any of the proceeds from the sale of the MITTS
Securities and will not have any obligations with respect to the MITTS
Securities.
We have attached the Fund Prospectus and are delivering it to you together
with this prospectus for the convenience of reference only. The Fund Prospectus
does not constitute a part of this prospectus, nor is it incorporated by
reference into this prospectus.
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 September 20, 2006. We cannot redeem the MITTS Securities at any
earlier date. We will not deliver to you any shares of the Energy SPDR Fund or
make any other 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 the appreciation, if any, in the
Net Asset Value per share of the Energy SPDR Fund as reduced by the Adjustment
Factor. On the stated maturity date, you will receive a number of shares of the
Energy SPDR Fund equal in value to the sum of the principal amount and the
Supplemental Redemption Amount, if any, and an amount of
3
<PAGE>
cash equal to the value of any fractional shares. We will determine the number
of shares to be delivered to you based on the Ending Value. At our option,
instead of delivering to you the shares of the Energy SPDR Fund to which you
would otherwise be entitled, we may pay you cash.
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)
$10x (--------------------------------------)
( Starting Value )
but will not be less than zero.
The "Starting Value" equals 29.27, the Net Asset Value of one share of the
Energy SPDR Fund on September 14, 1999, the date the MITTS Securities were
priced for initial sale to the public.
The "Adjusted Ending Value" means the Ending Value as reduced by the
application of the Adjustment Factor to the Net Asset Value used to calculate
the Ending Value on each calculation day during the calculation period.
"Ending Value" means the average of the Net Asset Values of one share of
the Energy SPDR Fund as determined by the Energy SPDR Fund at the close of the
market on five calculation days shortly before the maturity of the MITTS
Securities. We may calculate the Ending Value by reference to fewer than five or
even a single day's Net Asset Value if, during the calculation period, there is
a disruption in the trading of a number of the component stocks of the Energy
Select Sector Index or options relating to the shares of the Energy SPDR Fund,
the Energy SPDR Fund is unable or otherwise fails to issue a Net Asset Value for
the shares of the Energy SPDR Fund or the Energy SPDR Fund suspends the creation
or redemption of its shares. Please see the section entitled "Description of the
MITTS Securities--Adjustments to the Energy SPDR Fund; Market Disruption Events"
in this prospectus.
The "Adjustment Factor" equals 1.25% per year and will be prorated based on
a 365-day year and applied over the entire term of the MITTS Securities on each
calendar day to reduce the Net Asset Value per share of the Energy SPDR Fund
used to calculate the Supplemental Redemption Amount on each Calculation Day
during the Calculation Period. As a result of the cumulative effect of this
reduction, the values used to calculate your Supplemental Redemption Amount at
the maturity of the MITTS Securities will be approximately 8.38% less than the
actual Net Asset Values per share of the Energy SPDR Fund on each day during the
Calculation Period. For a detailed discussion of how the Adjustment Factor will
affect the Net Asset Value per share of the Energy SPDR Fund used to calculate
your Supplemental Redemption Amount, see "Description of the MITTS Securities--
Delivery at maturity" and "--Hypothetical Returns" in this prospectus. For more
specific information about the Supplemental Redemption Amount, please see the
section entitled "Description of the MITTS Securities" in this prospectus.
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.
4
<PAGE>
--------------------------------------------------------------------------------
Examples
Here are two examples of Supplemental Redemption Amount calculations
assuming an investment term equal to that of the MITTS Securities and an
Adjustment Factor of 1.25% per year:
Example 1 -- The hypothetical Adjusted Ending Value is below the Starting Value
at maturity:
Starting Value: 29.27
Hypothetical Ending Value at maturity: 30.73
Hypothetical Adjusted Ending Value: 28.15
<TABLE>
<S> <C> <C>
(28.15 - 29.27)
Supplemental Redemption Amount (per unit) = $10 X (-------------) = $0.00 (Supplement Redemption Amount cannot
( 29.27 ) be less than zero)
</TABLE>
Total payment at maturity (per unit) = $10 + $0 = $10
Example 2 --The hypothetical Adjusted Ending Value is above the Starting Value
at maturity:
Starting Value: 29.27
Hypothetical Ending Value at maturity: 52.68
Hypothetical Adjusted Ending Value: 48.26
(48.26 - 29.27)
Supplemental Redemption Amount (per unit) = $10 X (-------------) = $6.49
( 29.27 )
Total payment at maturity (per unit) = $10 + $6.49 = $16.49
--------------------------------------------------------------------------------
How is the Net Asset Value determined?
The "Net Asset Value" means the net asset value per share of the Energy
SPDR Fund as determined by the Energy SPDR Fund. The Energy SPDR Fund calculates
its Net Asset Value per share by dividing the value of its net assets, i.e., the
value of its total assets less total liabilities, by its total number of shares
outstanding. Expenses and fees, including the management, administration and
distribution fees, of the Energy SPDR Fund are accrued daily and taken into
account for purposes of determining Net Asset Value. The Net Asset Value per
share of the Energy SPDR Fund is determined by the Energy SPDR Fund on each
Business Day after the close of trading on the New York Stock Exchange,
ordinarily 4:00 p.m., New York City time. Shares of the Energy SPDR Fund are
listed on the AMEX under the trading symbol "XLE".
When will I receive cash instead of shares of the Energy SPDR Fund?
If we choose to pay you the amount due to you at maturity in cash instead
of in shares of the Energy SPDR Fund which you would otherwise be entitled to
receive, we will pay you an amount of cash equal to the sum of the principal
amount and the Supplemental Redemption Amount, if any. In addition, if at any
time MLPF&S ceases to be a soliciting dealer in the shares of the Energy SPDR
Fund, we will pay the amount due to you in cash instead of shares. Please see
the section entitled "Description of the MITTS Securities--Delivery at maturity"
in this prospectus.
In addition, in the event that we choose to deliver shares of the Energy
SPDR Fund at maturity, we will not distribute any fractional shares to you.
5
<PAGE>
We will aggregate all amounts due to you in respect of the total number of
units you hold on the stated maturity date, and, in lieu of delivering to you
any fractional shares of the Energy SPDR Fund to which you would otherwise be
entitled, we will pay you the cash value of these fractional shares based on the
Ending Value.
Will I be charged any transaction fees or expenses with respect to the shares of
the Energy SPDR Fund?
Unless and until we deliver shares of the Energy SPDR Fund to you in
satisfaction of our obligations under the MITTS Securities at maturity, you will
not be directly charged any management, administration, distribution or other
transaction fees or other expenses with respect to the shares of the Energy SPDR
Fund. However, because the Energy SPDR Fund accrues these fees and expenses
daily for purposes of determining the Net Asset Value of its shares, the Net
Asset Values used to calculate your Supplemental Redemption Amount will reflect
the deduction of these fees and expenses as well as the reduction resulting from
the application of the Adjustment Factor.
If at maturity we deliver to you shares of the Energy SPDR Fund, you will
then become directly subject to ongoing account maintenance fees and certain
other transaction expenses with respect to your shares so long as you hold those
shares.
The accompanying Fund Prospectus describes the fees and expenses charged by
the Energy SPDR Fund in greater detail.
What is the Energy SPDR Fund?
The Energy SPDR Fund is an index fund whose stated investment objective is
to provide investment results that, before expenses, correspond generally to the
price and yield performance of the publicly traded equity securities comprising
the Energy Select Sector Index. The Energy Select Sector Index consists of the
equity securities of publicly traded companies that are components of the S&P
500 Index and are involved in the development and production of energy products.
Companies in the Energy Select Sector Index develop and produce crude oil and
natural gas, and provide drilling and other energy related services. Our
affiliate, MLPF&S, is both a soliciting dealer in the shares of the Energy SPDR
Fund and the index compilation agent for the Energy Select Sector Index. We are
not affiliated with the Energy SPDR Fund or the Energy Select Sector Index. The
Energy SPDR Fund did not receive any of the proceeds from the sale of the MITTS
Securities and does not have any obligations with respect to the MITTS
Securities. You should independently decide whether an investment in the MITTS
Securities and the Energy SPDR Fund is appropriate for you.
The Energy SPDR Fund is one of nine investment funds comprising the Select
Sector SPDR Trust, a management investment company registered under the
Investment Company Act of 1940, as amended. Each fund's investment portfolio is
comprised principally of constituent companies whose equity securities are
components of the S&P 500 Index, each representing one of nine specified market
sector indices. Each stock in the S&P 500 Index is allocated to only one Select
Sector Index. The combined companies of the nine Select Sector Indices represent
all of the companies whose stocks are components of the S&P 500 Index.
You should carefully read the Fund Prospectus accompanying this prospectus
to fully understand the operation and management of the Energy SPDR Fund. In
addition, because the Select Sector SPDR Trust is subject to the registration
requirements of the Securities Act of 1933, as amended, and the Investment
Company Act, the Select Sector SPDR Trust is required to file periodically
certain information specified by the SEC. For more information about the Energy
SPDR Fund and the shares that you may receive at maturity, information provided
to or filed with the SEC by the Select Sector SPDR Trust can be inspected at the
SEC's public reference facilities or accessed over the Internet through a web
site maintained by the SEC at http://www.sec.gov. You may also obtain copies of
these documents at no cost by calling the Select Sector SPDR Trust at (800) 843-
2639 or by writing the Select Sector SPDR Trust c/o ALPS Mutual Funds Services,
Inc., at 370 17th Street, Suite 3100, Denver, CO
6
<PAGE>
80202. Neither the Fund Prospectus nor these other documents are incorporated by
reference into this prospectus, and we make no representation or warranty as to
the accuracy or completeness of the information.
Are the MITTS Securities be listed on a stock exchange?
The MITTS Securities have been approved for listing on the AMEX under the
trading symbol "ESY". You should be aware that the listing of the MITTS
Securities on the AMEX does 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 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 or continue
them once it has started.
MLPF&S is also 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' status as a subsidiary of ML&Co. and its responsibilities as calculation
agent.
MLPF&S also is a soliciting dealer in the shares of the Energy SPDR Fund
and is the index compilation agent for the Energy Select Sector Index. Under
certain circumstances, these duties could result in a conflict of interest
between MLPF&S' status as our subsidiary and its responsibilities to the Energy
SPDR Fund and the Energy Select Sector Index. Please see the section entitled
"Risk Factors--Potential conflicts" in this prospectus.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co., see the
section entitled "Merrill Lynch & Co., Inc." in this prospectus. You should also
read the other documents we have 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 entitled "Risk Factors" in this prospectus.
7
<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 Adjusted Ending Value does not exceed the
Starting Value at the stated maturity date, the Supplemental Redemption Amount
will be zero. This will be true even if the Net Asset Value per share of the
Energy SPDR Fund, as reduced by the Adjustment Factor over the term of the MITTS
Securities, 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 return will not reflect the return of owning shares of the Energy SPDR Fund
or the securities and other assets comprising the Energy SPDR Fund's investment
portfolio
When determining the Supplemental Redemption Amount, if any, paid to you at
maturity, the Energy SPDR Fund's Net Asset Value per share, which reflects the
reduction of fund assets resulting from the accrual of the Energy SPDR Fund's
fees and expenses and any distributions made by the Energy SPDR Fund, will also
be reduced by the application of the Adjustment Factor over the term of the
MITTS Securities. Consequently, your return on the MITTS Securities will not
reflect the return of owning the shares of the Energy SPDR Fund or the
securities and other assets included in the Energy SPDR Fund's investment
portfolio.
Changes in the Net Asset Value per share of the Energy SPDR Fund will not
exactly mirror changes in the Energy Select Sector Index
As indicated in the Fund Prospectus, the Energy SPDR Fund's investment
objective is to provide investment results that, before expenses, correspond
generally to the price and yield performance of the publicly traded equity
securities included in the Energy Select Sector Index. However, changes in the
value of the Energy Select Sector Index and in the Net Asset Value per share of
the Energy SPDR Fund are not expected to be identical because:
. the Energy SPDR Fund's investment portfolio may not hold all of the
stocks in the Energy Select Sector Index or may not hold each stock in
the same weighting as the Energy Select Sector Index,
. the Energy SPDR Fund may hold assets other than equity securities, and
. the Net Asset Value per share of the Energy SPDR Fund reflects the
reduction of fund assets resulting from the accrual of fees and
expenses and the payment of distributions, if any.
As stated in the Fund Prospectus, the investment adviser to the Energy SPDR
Fund believes that "over time, 'the tracking error' of the Energy SPDR Fund
relative to the performance of the Energy Select Sector Index, adjusted for the
effect of the Energy SPDR Fund's expenses, will be less than 5%". There is no
assurance that the tracking error will not be greater than 5% at any time,
including the time that you may wish to sell your MITTS Securities before the
maturity date or at the time the calculation agent determines the Supplemental
Redemption Amount, if any.
8
<PAGE>
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 ML&Co. 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.
There may be an uncertain trading market for the MITTS Securities
Although the MITTS Securities are listed on the AMEX under the trading
symbol "ESY", 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 Net Asset Value per share of the Energy
SPDR Fund.
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 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 Net Asset Value per share of the
Energy SPDR Fund. 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 Net Asset Value per share of the Energy SPDR Fund 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 Net Asset Value per share of the Energy SPDR Fund, as reduced by the
Adjustment Factor over the term of the MITTS Securities, exceeds the Starting
Value. If you choose to sell your MITTS Securities when the Net Asset Value per
share of the Energy SPDR Fund, as reduced by the Adjustment Factor over the term
of the MITTS Securities, 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 Net Asset Value per share of the
Energy SPDR Fund will continue to fluctuate until the Adjusted Ending Value is
determined. If you choose to sell your MITTS Securities when the Net Asset Value
per share of the Energy SPDR Fund 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 or dividends per share
may increase the Net Asset Value per share of the Energy SPDR Fund while falling
U.S. dividend rates may decrease the Net Asset Value per share of the Energy
SPDR Fund.
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 U.S.
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.
Rising U.S. interest rates may lower the Net Asset Value per share of the Energy
SPDR Fund and, as a result, may lower the trading value of the MITTS Securities.
Falling U.S. interest rates may increase the Net Asset Value per share of the
Energy SPDR Fund and, as a result, may increase the value of the MITTS
Securities.
9
<PAGE>
Changes in the volatility of the Net Asset Value per share of the Energy
SPDR Fund 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 Net Asset Value per
share of Energy SPDR Fund increases, we expect that the trading value of the
MITTS Securities will increase and, conversely, if the volatility of the Net
Asset Value per share of the Energy SPDR Fund 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 Net Asset
Value per share of the Energy SPDR Fund. This difference will reflect a "time
premium" due to expectations concerning the Net Asset Value per share of the
Energy SPDR Fund during the period before the stated maturity date of the MITTS
Securities. However, as the time remaining to the stated maturity date 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 Energy SPDR Fund
are expected to affect the trading value of the MITTS Securities. In general, if
dividend yields on the stocks included in the Energy SPDR Fund increase, we
expect that the value of the MITTS Securities will decrease and, conversely, if
dividend yields on the stocks included in the Energy SPDR Fund 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 Net Asset Value per share of the Energy SPDR Fund 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 Net Asset Value per share of the Energy
SPDR Fund 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.
Absence of prior active market for shares of the Energy SPDR Fund
The Energy SPDR Fund is a recently organized investment company and has a
limited operating history. Although its shares are listed for trading on the
AMEX and a number of similar products have been traded on the AMEX for varying
periods of time, there is no assurance that an active trading market will
continue to exist for the shares of the Energy SPDR Fund. If a trading market
does continue to exist, there is no assurance that there will be liquidity in
the trading market.
Concentration in energy-related securities
Because the Energy SPDR Fund's investment portfolio is predominantly
comprised of securities of companies in the energy-producing field, the value of
the MITTS Securities may be adversely affected by an economic downturn in the
energy industry. The companies whose securities comprise the Energy SPDR Fund's
investment portfolio produce crude oil and natural gas and provide drilling and
other energy production and distribution related services. Stock prices for
these types of companies are affected by supply and demand both for their
specific product or service and for energy products in general. The price of oil
and gas,
10
<PAGE>
exploration and production spending, government regulation, political events and
economic conditions will likewise affect the performance of these companies.
Correspondingly, companies in the energy field are subject to swift energy price
and supply fluctuations caused by events relating to international politics,
energy conservation, the results of exploration projects, and tax and other
governmental policies. Weak demand for these companies' products or services or
for energy products and services in general, as well as negative developments in
these other areas, would adversely affect the performance of the Energy SPDR
Fund and in turn, the trading value of the MITTS Securities.
No affiliation between ML&Co. and the Energy SPDR Fund
Our affiliate MLPF&S is both a soliciting dealer in the shares of the
Energy SPDR Fund and the index compilation agent for the Energy Select Sector
Index. However, we are not affiliated with the Energy SPDR Fund or the Energy
Select Sector Index. The Energy SPDR Fund has no obligations with respect to the
MITTS Securities or amounts to be paid to you, including any obligation to take
the needs of ML&Co. or of beneficial owners of the MITTS Securities into
consideration for any reason. The Energy SPDR Fund did not receive any of the
proceeds from the initial offering of the MITTS Securities and is not
responsible for, and has not participated in, the determination or calculation
of the amount you will receive on your MITTS Securities at maturity. In
addition, the Energy SPDR Fund is not involved with the administration or
trading of the MITTS Securities and has no obligations with respect to any
amounts due under the MITTS Securities.
No shareholder's rights
Unless and until we deliver shares of the Energy SPDR Fund to you at the
maturity of the MITTS Securities, you will not be entitled to any rights with
respect to these shares, including, without limitation, the right to receive
distributions on, to vote or to redeem these shares. For example, if the Energy
SPDR Fund sets a record date for a matter to be voted on by shareholders before
our delivery of the shares of the Energy SPDR Fund to you, you will not be
entitled to vote on that matter.
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 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 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 affiliates may from time to time buy or sell the stocks included
in the Energy SPDR Fund or futures or options in the Energy SPDR Fund 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 Energy SPDR Fund in a manner that could be
adverse to your investment in the MITTS Securities.
Potential conflicts
Our subsidiary, MLPF&S, is our agent for the purposes of calculating the
Adjusted Ending Value and the Supplemental Redemption Amount payable to you at
maturity. Under certain circumstances, MLPF&S'
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<PAGE>
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 Energy SPDR Fund 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 Energy SPDR Fund. See "Description of the MITTS
Securities--Adjustments to the Energy SPDR Fund; Market Disruption Events"
and "--Termination of the Energy SPDR Fund" 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.
MLPF&S is also a soliciting dealer in the shares of the Energy SPDR Fund.
Under certain circumstances, MLPF&S' role as calculation agent for the MITTS
Securities and its role as a soliciting dealer in these shares could give rise
to conflicts of interests between the calculation agent and holders of the MITTS
Securities. These conflicts could occur in connection with its determination as
to the Adjusted Ending Value and the number of shares to be delivered at
maturity.
Additionally, MLPF&S serves as index compilation agent for the Energy
Select Sector Index. In its capacity as index compilation agent, MLPF&S
determines, in consultation with S&P, which securities of the S&P 500 are to be
included in the Energy Select Sector Index. Under certain circumstances, MLPF&S'
role as calculation agent for the MITTS Securities and its role as index
compilation agent could give rise to conflicts of interests between the
calculation agent and holders of the MITTS Securities.
We have entered into an arrangement with one of our subsidiaries to hedge
the market risks associated with our obligation to pay the amounts due at
maturity. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
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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 LP and Mercury Asset Management Ltd,
provides investment, financing, advisory, insurance, and related products on a
global basis, including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center,
New York, New York 10080; 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.
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RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
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DESCRIPTION OF THE MITTS SECURITIES
On September 20, 1999, ML&Co. issued an aggregate principal amount of
$44,000,000 or 4,400,000 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 September 20, 2006.
While at maturity a beneficial owner of a MITTS Security will receive the
number of shares of the Energy SPDR Funds equal in value to the sum of 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. At
our option, instead of delivering to you the shares of the Energy SPDR Fund to
which you would otherwise be entitled, we may pay you cash with an equal value.
See the section entitled "--Delivery at maturity" below. The number of shares to
be delivered at maturity will be determined based on the Ending Value.
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.
Delivery at maturity
At maturity, a beneficial owner of a MITTS Security will be entitled to
receive the number of shares of the Energy SPDR Fund equal in value to the
principal amount of each MITTS Security plus the Supplemental Redemption Amount,
if any, all as provided below. The amount to be paid by ML&Co. to any holder of
the MITTS Securities on the maturity date will be aggregated based on the total
number of units then held by that holder and rounded to the nearest cent. 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 number of shares of the
Energy SPDR Fund or cash with value equal to the principal amount of the MITTS
Security. The number of shares to be delivered at maturity will be determined
based on the Ending Value.
If ML&Co. delivers shares of the Energy SPDR Fund to holders of the MITTS
Securities at the maturity date, ML&Co. or one of its affiliates will deliver
shares of the Energy SPDR Fund that are then newly issued by the Energy SPDR
Fund.
ML&Co. may, at its option, in lieu of delivering shares of the Energy SPDR
Fund, pay cash in an amount equal to the sum of the principal amount of the
MITTS Securities and the Supplemental Redemption Amount, if any. In addition, if
at any time MLPF&S ceases to be a soliciting dealer in the shares of the Energy
SPDR Fund, ML&Co. will pay the amount due to holders of the MITTS Securities in
cash instead of shares.
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.
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<PAGE>
The "Starting Value" equals 29.27, the Net Asset Value of one share of the
Energy SPDR Fund on February 14, 1999, the date the MITTS Securities were priced
for initial sale to the public.
"Net Asset Value" means the net asset value per share of the Energy SPDR
Fund as determined by the Energy SPDR Fund. The Energy SPDR Fund calculates its
Net Asset Value per share by dividing the value of its net assets, i.e., the
value of its total assets less total liabilities, by its total number of shares
outstanding. Expenses and fees, including the management, administration and
distribution fees, of the Energy SPDR Fund are accrued daily and taken into
account for purposes of determining Net Asset Value. The Net Asset Value per
share of the Energy SPDR Fund is determined by the Energy SPDR Fund on each
Business Day after the close of trading on the New York Stock Exchange,
ordinarily 4:00 p.m., New York City time. Shares of the Energy SPDR Fund are
listed on the AMEX under the trading symbol "XLE".
The "Adjusted Ending Value" will be determined by the calculation agent and
will equal the Ending Value as reduced by the application of the Adjustment
Factor to the Net Asset Value used to calculate the Ending Value on each
Calculation Day during the Calculation Period.
The "Ending Value" will equal the average, or arithmetic mean, of the Net
Asset Values per share of the Energy SPDR Fund as determined by the Energy SPDR
Fund on each of the first five Calculation Days during the Calculation Period.
If there are fewer than five Calculation Days in the Calculation Period, the
Ending Value will equal the average, or arithmetic mean, of the Net Asset Values
of the Energy SPDR Fund on each of these Calculation Days, and if there is only
one Calculation Day, then the Ending Value will be equal to the Net Asset Value
per share of the Energy SPDR Fund on that Calculation Day. If no Calculation
Days occur during the Calculation Period because of Market Disruption Events,
then the Ending Value shall mean the Net Asset Value per share of the Energy
SPDR Fund on the last Trading Day before the Calculation Period for which the
Net Asset value per share of the Energy SPDR Fund was determined.
The "Adjustment Factor" equals 1.25% per year and will be applied over the
entire term of the MITTS Securities. On each calendar day during the term of the
MITTS Securities, we will apply this percentage on a prorated basis based on a
365-day year to reduce the value used to calculate the Supplemental Redemption
Amount on each Calculation Day during the Calculation Period. As a result of the
cumulative effect of this reduction, the values used to calculate the
Supplemental Redemption Amount during the Calculation Period will be
approximately 8.38% less than the actual Net Asset Value per share of the Energy
SPDR Fund on each Calculation Day during the Calculation Period.
The "Calculation Period" means the period from and including the seventh
scheduled Trading Day before the maturity date to and including the second
scheduled Trading Day before the maturity date.
A "Calculation Day" means any Trading Day during the Calculation Period on
which a Market Disruption Event has not occurred.
A "Trading Day" is a day on which the shares of the Energy SPDR Fund:
. are not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of
business; and
. have traded at least once on a national or regional securities
exchange or association or over-the-counter market that is the primary
market for the trading of the shares of the Energy SPDR Fund.
Fractional Shares
ML&Co. will not distribute fractional shares of the Energy SPDR Fund at
maturity. In the event ML&Co. pays holders of the MITTS Securities in shares of
the Energy SPDR Fund, all amounts due to any holder of the MITTS Securities in
respect of the total number of units held by that holder will be aggregated,
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<PAGE>
and in lieu of delivering any fractional share to that holder, that holder will
receive the cash value of that fractional share based on the Ending Value.
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,
assuming an initial investment of $10 per unit and an investment term from
September 20, 1999 to September 20, 2006:
. the percentage change from the Starting Value to the hypothetical
Ending Value,
. the Adjusted Ending Value used to calculate the Supplemental
Redemption Amount,
. the total amount payable at maturity for each unit of MITTS
Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of the MITTS
Securities, and
. the pretax annualized rate of return of an investment in shares of the
Energy SPDR Fund which includes an assumed aggregate dividend yield of
2.04% per annum, as more fully described below.
<TABLE>
<CAPTION>
Pretax
annualized
Percentage Total amount Pretax rate of return
change from payable at Total rate annualized of stocks
the Starting maturity of return rate of included in
Hypothetical Value to the Adjusted per unit of the on the return on the Energy SPDR
Ending hypothetical Ending MITTS MITTS the MITTS Fund
Value Ending Value Value(1) Securities Securities Securities(2) Index(2)(3)
----- ------------ -------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
5.85 -80% 5.36 10.00 0.00% 0.00% -19.47%
11.71 -60% 10.73 10.00 0.00% 0.00% -10.62%
17.56 -40% 16.09 10.00 0.00% 0.00% -5.15%
23.41 -20% 21.45 10.00 0.00% 0.00% -1.14%
29.27(4) 0% 26.81 10.00 0.00% 0.00% 2.04%
35.12 20% 32.18 10.99 9.94% 1.36% 4.70%
40.97 40% 37.54 12.83 28.26% 3.58% 6.98%
46.83 60% 42.90 14.66 46.58% 5.53% 8.98%
52.68 80% 48.26 16.49 64.91% 7.27% 10.77%
58.54 100% 53.63 18.32 83.23% 8.83% 12.39%
64.39 120% 58.99 20.16 101.55% 10.26% 13.87%
70.24 140% 64.35 21.99 119.88% 11.57% 15.23%
76.10 160% 69.72 23.82 138.20% 12.78% 16.49%
81.95 180% 75.08 25.65 156.52% 13.91% 17.67%
87.80 200% 80.44 27.48 174.85% 14.97% 18.77%
</TABLE>
____________
(1) The Adjusted Ending Values specified in this column are approximately 8.38%
less than the hypothetical Ending Values as a result of the cumulative
effect of the application of the Adjustment Factor of 1.25% per annum over
the term of the MITTS Securities.
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<PAGE>
(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 constant dividend yield of 2.04% per annum, paid quarterly from the
date of initial delivery of the MITTS Securities, applied to the Net
Asset Value per share of the Energy SPDR Fund at the end of each
quarter assuming this Net Asset Value per share increases or decreases
linearly from the Starting Value to the applicable hypothetical Ending
Values;
(b) no transaction fees or expenses in connection with purchasing and
holding shares of the Energy SPDR Fund;
(c) an initial investment of $10 and an investment term from September 20,
1999 to September 20, 2006; and
(d) a final Net Asset Value per share of the Energy SPDR Fund equal to the
hypothetical Ending Value.
(4) This is the Starting Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rates of return will depend entirely on the actual Adjusted
Ending Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Energy SPDR Fund; Market Disruption Events
If at any time the shares of the Energy SPDR Fund are subject to a
split or reverse split, the calculation agent shall adjust the Net Asset Value
per share of the Energy SPDR Fund used to calculate the Ending Value in order to
arrive at a Net Asset Value per share of the Energy SPDR Fund as if a split or
reverse split, as the case may be, had not occurred.
"Market Disruption Event" means any 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 Energy Select
Sector Index;
(B) the suspension or material limitation, in each case, for more
than two hours of trading, or during the one-half hour period
preceding the close of trading on the applicable exchange,
whether by reason of movements in price otherwise exceeding
levels permitted by the relevant exchange or otherwise, in option
contracts related to the Energy SPDR Fund which are traded on any
major U.S. exchange; or
(C) the Energy SPDR Fund (1) is unable or otherwise fails to issue a
Net Asset Value for any shares of the Energy SPDR Fund after the
close of business on the NYSE, or (2)suspends the creation or
redemption of shares of the Energy SPDR Fund.
For the purposes of clauses (A) and (B) of this definition, 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 and 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".
Termination of the Energy SPDR Fund
If the Energy SPDR Fund is liquidated or otherwise terminated, for
purposes of calculating the Supplemental Redemption Amount payable at the
maturity of the MITTS Securities, the calculation agent will
18
<PAGE>
calculate the Net Asset Value per share of the Energy SPDR Fund as follows: the
Net Asset Value per share of the Energy SPDR Fund on the Trading Day occurring
immediately before any liquidating distribution will equal the Net Asset Value
for that day (the "Pre-liquidation Date"). The calculation agent will then
calculate the Net Asset Value after the close of trading on each Trading Day
following the Pre-liquidation Date (each date, a "Determination Date") by
increasing or decreasing, as the case may be, the Net Asset Value as of the
immediately preceding Trading Day by the percentage by which the closing value
of the Energy Select Sector Index increases or decreases from the immediately
preceding Trading Day to that Determination Date and further decreasing the Net
Asset Value by fees, expenses and non-liquidating distributions (together, "Fund
Expenses") that the calculation agent, in its sole judgment but with reference
to the Fund Expenses actually incurred by the Energy SPDR Fund before its
liquidation or termination, deems would reasonably have been accrued and
included in the calculation of the Net Asset Value per share of the Energy SPDR
Fund had it not been liquidated or terminated, from the immediately preceding
Trading Day to that Determination Date. 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 such values to be made available by telephone.
If the Energy SPDR Fund is liquidated or otherwise terminated and the
Energy Select Sector Index is no longer calculated or published (an "Index
Termination Event"), the calculation agent will select a successor index that it
determines, in its sole discretion, to be comparable to the Energy Select Sector
Index (a "successor index"), then, upon the calculation agent's notification of
its determination to the trustee and ML&Co., the calculation agent will
substitute the successor index for the Energy Select Sector Index and calculate
the closing value as described above under "--Delivery at maturity". Upon any
selection by the calculation agent of a successor index, ML&Co. shall promptly
give notice to the beneficial owners of the MITTS Securities by publication in a
United States newspaper with a general circulation.
In the event that an Index Termination Event occurs and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute index for the Energy Select
Sector Index for that Calculation Day in accordance with the procedures last
used to calculate the Energy Select Sector Index before any discontinuance. The
calculation agent will calculate the Net Asset Value in accordance with the
procedures referred to in the first paragraph of this section with reference to
a substitute index. Upon any calculation of a substitute index in accordance
with this paragraph, ML&Co. shall promptly give notice to the beneficial owners
of the MITTS Securities by publication in a United States newspaper with a
general circulation.
If Standard & Poor's ("S&P") discontinues publication of the S&P 500 Index
subsequent to an Index Termination Event and
. the calculation agent does not select a successor index or the successor
index is no longer published on any of the Calculation Days and
. the calculation agent is unable to calculate a substitute index for the
Energy Select Sector Index,
the calculation agent will compute a substitute index for the S&P 500 Index for
that Calculation Day in accordance with the procedures last used to calculate
the S&P 500 Index prior to any discontinuance. If the calculation agent
calculates a substitute index for the S&P 500 Index, the calculation agent will
use that substitute index to calculate the substitute index for the Energy
Select Sector Index.
19
<PAGE>
Notwithstanding these alternative arrangements, liquidation or termination
of the Energy SPDR Fund or the discontinuance of the publication of the Energy
Select Sector Index or the S&P 500 Index may adversely affect trading in the
MITTS Securities.
A "Business Day" is any day on which the NYSE and the AMEX are open for
trading.
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 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 was the stated maturity date of the MITTS
Securities, provided, however, the Adjustment Factor will be applied to the
values used to calculate the Supplemental Redemption Amount as if the MITTS
Securities had not been accelerated and had remained outstanding to the stated
maturity date. See the section entitled "--Delivery 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 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 will bear interest, payable upon demand of their beneficial owners,
at the rate of 7.08% 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
20
<PAGE>
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 the 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
21
<PAGE>
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:
. 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.
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.
22
<PAGE>
THE ENERGY SPDR FUND
ML&Co. has attached the Fund Prospectus describing the Energy SPDR Fund and
is delivering it to purchasers of the MITTS Securities together with this
prospectus for the convenience of reference only. The Fund Prospectus does not
constitute a part of this prospectus, nor is it incorporated by reference into
this prospectus. The summary description below is qualified in its entirety by
the information describing the Energy SPDR Fund and the Energy Select Sector
Index included in the attached Fund Prospectus.
As stated in the Fund Prospectus, the Energy SPDR Fund is an index fund
whose investment objective is to provide investment results that, before
expenses, correspond generally to the price and yield performance of the
publicly traded equity securities included in the Energy Select Sector Index.
The Energy Select Sector Index consists of the equity securities of publicly
traded companies that are components of the S&P 500 Index and are involved in
the development and production of energy products. Companies in the Energy
Select Sector Index develop and produce crude oil and natural gas, and provide
drilling and other energy related services.
Although ML&Co.'s subsidiary, MLPF&S, provides certain services to the
Energy SPDR Fund and the Energy Select Sector Index, ML&Co. is not affiliated
with the Energy SPDR Fund or the Energy Select Sector Index, and the Energy SPDR
Fund did not receive any of the proceeds from the sale of the MITTS Securities.
A prospective purchaser of the MITTS Securities should independently decide
whether an investment in the MITTS Securities and the Energy SPDR Fund is
appropriate.
The Energy SPDR Fund is one of nine investment funds comprising the Select
Sector SPDR Trust. Each fund's investment portfolio is comprised principally of
constituent companies whose equity securities are components of the S&P 500
Index, each representing one of nine specified market sector indices. Each stock
in the S&P 500 Index is allocated to only one Select Sector Index. The combined
companies of the nine indices represent all of the companies whose stocks are
components of the S&P 500 Index. The Energy SPDR Fund's initial public offering
occurred on December 16, 1998 and therefore it has limited operating history.
Because the Select Sector SPDR Trust is subject to the registration
requirements of the Securities Act and the Investment Company Act, the Trust is
required to file periodically certain information specified by the SEC. For more
information about the Energy SPDR Fund and the shares that a holder of the MITTS
Securities may receive at maturity, information provided to or filed with the
SEC by the Select Sector SPDR Trust can be inspected at the SEC's public
reference facilities or accessed over the Internet through a web site maintained
by the SEC at http://www.sec.gov. Copies of these documents may also be obtained
at no cost by calling the Select Sector SPDR Trust at (800) 843- 2639 or by
writing the Select Sector SPDR Trust c/o ALPS Mutual Funds Services, Inc., at
370 17th Street, Suite 3100, Denver, CO 80202. Neither the Fund Prospectus nor
such other documents are incorporated by reference into this prospectus, and
ML&Co. makes no representation or warranty as to the accuracy or completeness of
any such documents.
ML&Co. is not affiliated with the Energy SPDR Fund, and the Energy SPDR
Fund has no obligations with respect to the MITTS Securities. This prospectus
relates only to the MITTS Securities offered hereby and does not relate to the
shares of the Energy SPDR Fund or any other securities relating to the Energy
SPDR Fund. The information contained in this prospectus regarding the Energy
SPDR Fund has been derived from the publicly available documents described in
the preceding paragraph. ML&Co. makes no representation that these publicly
available documents or any other publicly available information regarding the
Energy SPDR Fund are accurate or complete. Furthermore, there can be no
assurance that all events occurring prior to the date of this prospectus
(including events that would affect the accuracy or completeness of the publicly
available documents described in the preceding paragraph) that would affect the
trading price of the shares of the Energy SPDR Fund, and therefore the trading
price of the MITTS Securities, have been publicly disclosed. Subsequent
disclosure of any such events or the disclosure of or failure to disclose
material future events
23
<PAGE>
concerning the Energy SPDR Fund could affect the Supplemental Redemption Amount,
if any, to be received at maturity and therefore the trading value of the MITTS
Securities.
MLPF&S, a subsidiary of ML&Co., is a soliciting dealer in the shares of the
Energy SPDR Fund. Additionally, MLPF&S serves as index compilation agent for the
Energy Select Sector Index. In its capacity as index compilation agent, MLPF&S
determines, in consultation with S&P, the composition of the securities measured
by the Energy Select Sector Index.
License Agreement
S&P, the AMEX and MLPF&S have entered into a non-exclusive license
agreement providing for the license to MLPF&S, in exchange for a fee, of the
right to use indices owned and published by S&P in connection with certain
securities, including the MITTS Securities, and ML&Co. is an authorized
sublicensee of MLPF&S.
The license agreement among S&P, the AMEX and MLPF&S provides that the
following language must be stated in this prospectus:
"Standard & Poor's(R)", "Standard & Poor's 500", "S&P 500(R)", "S&P(R)",
"500", "Standard & Poor's Depositary Receipts", "SPDRs", "Select Sector SPDR"
and "Select Sector Standard & Poor's Depositary Receipts" are trademarks of
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., and have been
licensed for use by MLPF&S. ML&Co., is an authorized sublicensee of MLPF&S. The
stocks comprising the Energy Select Sector Index were selected by MLPF&S, as
index compilation agent, in consultation with S&P from the universe of companies
represented by the S&P 500 Index. The composition and weightings of the stocks
included in the Energy Select Sector Index can be expected to differ from the
composition and weighting of stocks included in any similar S&P 500 sector index
published and disseminated by S&P.
The MITTS Securities, the Energy SPDR Fund and the Energy Select Sector
Index are not sponsored, endorsed, sold or promoted by S&P. S&P 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 in the
ability of the Energy SPDR Fund to track the performance and yield of the Energy
Select Sector Index or in the ability of the Energy Select Sector Index to track
the performance of the energy sector represented in the stock market. The stocks
included in the Energy Select Sector Index were selected by MLPF&S as the index
compilation agent in consultation with S&P from a universe of companies involved
in the development and production of energy products and represented by the S&P
500 Index. S&P's only relationship to the index compilation agent is the
licensing of certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without regard to the index
compilation agent or the MITTS Securities. S&P has no obligation to take the
needs of the index compilation agent, ML&Co. or the holders of the MITTS
Securities into consideration in determining, composing or calculating the S&P
500 Index. S&P is not responsible for and has not participated in any
determination of the timing of the sale of the MITTS Securities, prices at which
the MITTS Securities were initially sold, or quantities of the MITTS Securities
issued or in the determination or calculation of the equation by which the MITTS
Securities are to be converted into shares of the Energy SPDR Fund or cash. S&P
has no obligation or liability in connection with the administration, marketing
or trading of the MITTS Securities.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index, the Energy Select Sector Index or any data included therein. S&P makes no
warranty, express or implied, as to results to be obtained by ML&Co., MLPF&S,
the holders of the MITTS Securities, or any other person or entity from the use
of the S&P 500 Index, the Energy Select Sector Index or any data included
therein in connection with the rights licensed under the license agreement
described herein or for any other use. S&P makes no express or implied
warranties, and expressly disclaims all warranties of merchantability or fitness
for a particular purpose
24
<PAGE>
with respect to the S&P 500 Index, the Energy Select Sector Index or any data
included therein. Without limiting the generality of the foregoing, in no event
shall S&P have any liability for any special, punitive, indirect or
consequential damages (including lost profits), even if notified of the
possibility of such damages."
All disclosures contained in this prospectus regarding the S&P 500 Index or
the Energy Select Sector Index, including its respective make-up, method of
calculation and changes in its components, are derived from publicly available
information prepared by S&P and the Trust, respectively. ML&Co. and MLPF&S do
not assume any responsibility for the accuracy or completeness of such
information.
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.
25
<PAGE>
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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
26
<PAGE>
. 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
. 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:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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.
27
<PAGE>
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 United States
Federal income tax treatment of contingent payment debt instruments to 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 $6.2732 per
unit. This represents an estimated yield on the MITTS Securities equal to 7.08%
per annum, compounded semiannually.
The projected payment schedule, including both 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 the projected
payment schedule for the MITTS Securities, including both the projected
Supplemental Redemption Amount and the estimated yield equal to 7.08% per annum,
compounded semiannually, as determined by ML&Co. for purposes of illustrating
the application of the Final Regulations to the MITTS Securities:
28
<PAGE>
<TABLE>
<CAPTION>
Total interest
deemed to have
accrued on the
Interest deemed MITTS
to accrue Securities
during as of the end of
accrual period accrual period
Accrual Period (per unit) (per unit)
-------------- ----------------- -----------------
<S> <C> <C>
September 20, 1999 through March 20, 2000................................. $0.3530 $0.3530
March 21, 2000 through September 20, 2000................................. $0.3665 $0.7195
September 21, 2000 through March 20, 2001................................. $0.3795 $1.0990
March 21, 2001 through September 20, 2001................................. $0.3929 $1.4919
September 21, 2001 through March 20, 2002................................. $0.4068 $1.8987
March 21, 2002 through September 20, 2002................................. $0.4212 $2.3199
September 21, 2002 through March 20, 2003................................. $0.4361 $2.7560
March 21, 2003 through September 20, 2003................................. $0.4516 $3.2076
September 21, 2003 through March 20, 2004................................. $0.4675 $3.6751
March 21, 2004 through September 20, 2004................................. $0.4841 $4.1592
September 21, 2004 through March 20, 2005................................. $0.5013 $4.6605
March 21, 2005 through September 20, 2005................................. $0.5190 $5.1795
September 21, 2005 through March 20, 2006................................. $0.5373 $5.7168
March 21, 2006 through September 20, 2006................................. $0.5564 $6.2732
</TABLE>
___________
Projected Supplemental Redemption Amount = $6.2732 per unit.
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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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
29
<PAGE>
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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
30
<PAGE>
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
31
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is +
+ not an offer to sell these securities and it is not soliciting an offer to +
+ buy these securities in any state where the offer and sale is not +
+ permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
Merrill Lynch & Co., Inc.
Global Market Index Target-Term Securities(R)
due December 22, 2004
"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>
The MITTS Securities: Payment at maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on changes in the values of
. Linked to the values of the S&P 500(R) Index, the the S&P 500 Index, the Nikkei 225 Index and the Dow
Nikkei 225 Index and the Dow Jones Euro STOXX 50(SM) Jones Euro STOXX 50 Index, reduced by an annual
Index. adjustment factor of 1.75%.
. The MITTS Securities are listed on the American . At maturity, you will receive no less than the
Stock Exchange under the trading symbol "GMM". principal amount of your MITTS Securities.
. Closing date: December 22, 1999.
</TABLE>
Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page 7 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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
and "Protected Growth" is a service mark of 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.
The Dow Jones Euro STOXX 50 is owned by STOXX LIMITED. The Dow Jones Euro STOXX
50 is a service mark of DOW JONES & COMPANY, INC. and has been licensed for
certain purposes by Merrill Lynch & Co., Inc.
(C)1998 by STOXX LIMITED. All rights reserved.
Euro STOXX 50 is a mark of STOXX LIMITED and has been licensed for certain
purposes by Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION-Q&A.................................... 3
RISK FACTORS............................................... 7
MERRILL LYNCH & CO., INC................................... 11
RATIO OF EARNINGS TO FIXED CHARGES......................... 12
DESCRIPTION OF THE MITTS SECURITIES........................ 13
THE UNDERLYING INDICES..................................... 20
OTHER TERMS................................................ 26
PROJECTED PAYMENT SCHEDULE................................. 29
ERISA CONSIDERATIONS....................................... 30
WHERE YOU CAN FIND MORE INFORMATION........................ 30
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.......... 30
PLAN OF DISTRIBUTION....................................... 31
EXPERTS.................................................... 31
</TABLE>
2
<PAGE>
SUMMARY INFORMATION-Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Global Market Index
Target-Term Securities due December 22, 2004. You should carefully read this
prospectus to fully understand the terms of the MITTS Securities, the S&P 500
Index (the "S&P 500"), the Nikkei Stock Average (the "Nikkei 225 Index"), the
Dow Jones Euro STOXX 50 Index (the "Euro STOXX 50") 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.
The S&P 500, the Nikkei 225 Index and the Euro STOXX 50 are referred to
collectively as the "Underlying Indices" in this prospectus.
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 December 22, 2004. 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 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
Underlying Indices as reduced by the Adjustment Factor. 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 the sum of the
"Index Redemption Amounts" for each of the Underlying Indices but will not be
less than zero.
The "Index Redemption Amount" means, for each of the Underlying Indices:
( Adjusted Ending Value - Starting Value ) 1
$10 X ( -------------------------------------- ) X -
( Starting Value ) 3
The "Starting Value" equals 1,418.78 for the S&P 500, 18,111.31 for the
Nikkei 225 Index and 4,517.68 for the Euro STOXX 50, each the closing value of
that Underlying Index on December 16, 1999, the date the MITTS Securities were
priced for initial sale to the public.
The "Adjusted Ending Value", for each Underlying Index, will be the average
of the values of that Underlying Index at the close of the market on five
business days shortly before the maturity of the MITTS Securities as reduced on
each day by the application of the Adjustment Factor. We may
3
<PAGE>
calculate the Adjusted Ending Values 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 a
sufficient number of the component stocks included in any of the Underlying
Indices or certain futures or options contracts relating to any of the
Underlying Indices.
The "Adjustment Factor" equals 1.75% per year and will be prorated based on
a 365-day year and applied over the entire term of the MITTS Securities on each
calendar day to reduce the closing values of the Underlying Indices used to
calculate the Index Redemption Amounts during the Calculation Period. As a
result of the cumulative effect of this reduction, the values used to calculate
the Index Redemption Amounts during the Calculation Period at the stated
maturity of the MITTS Securities will be approximately 8.39% less than the
actual closing values of the Underlying Indices on each day during the
Calculation Period. For a detailed discussion of how the Adjustment Factor will
affect the value of the Underlying Indices used to calculate the Index
Redemption Amounts and the Supplemental Redemption Amount, see "Description of
the MITTS Securities--Payment at maturity" in this prospectus.
For more specific information about the Index Redemption Amounts and the
Supplemental Redemption Amount, please see the section entitled "Description of
the MITTS Securities" in this prospectus.
We will pay you a Supplemental Redemption Amount only if the sum of the
Index Redemption Amounts is greater than zero. If the sum of the Index
Redemption Amounts is less than, or equal to, zero, 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 investment term equal to that of the MITTS Securities and an
Adjustment Factor of 1.75% per year:
Example 1--The sum of the hypothetical Index Redemption Amounts is less than
zero at maturity:
S&P 500 Starting Value: 1,418.78
Hypothetical closing value of the S&P 500 at maturity: 1,702.54
Hypothetical Adjusted Ending Value of the S&P 500: 1,559.74
<TABLE>
<S> <C>
( 1,559.74 - 1,418.78 ) 1
S&P 500 Index Redemption Amount (per unit) = $10 X ( ------------------- ) X - = $0.33
( 1,418.78 ) 3
</TABLE>
Nikkei 225 Index Starting Value: 18,111.31
Hypothetical closing value of the Nikkei 225 Index at maturity: 21,733.57
Hypothetical Adjusted Ending Value of the Nikkei 225 Index: 19,910.76
<TABLE>
<S> <C>
( 19,910.76 - 18,111.31 ) 1
Nikkei 225 Index Redemption Amount (per unit) = $10 X ( --------------------- ) X - = $0.33
( 18,111.31 ) 3
</TABLE>
Euro STOXX 50 Starting Value: 4,517.68
Hypothetical closing value of the Euro STOXX 50 at maturity: 3,840.03
Hypothetical Adjusted Ending Value of the Euro STOXX 50: 3,517.96
4
<PAGE>
<TABLE>
<S> <C>
( 3,517.96 - 4,517.68 ) 1
Euro STOXX 50 Index Redemption Amount (per unit) = $10 X ( ------------------- ) X - = -$0.74
( 4,517.68 ) 3
</TABLE>
Supplemental Redemption Amount = $0.33 + $0.33 - $0.74 = $0.00
(Supplemental Redemption Amount cannot be less than zero)
Total payment at maturity (per unit) = $10 + $0 = $10
Example 2--The sum of the hypothetical Index Redemption Amounts is greater than
zero at maturity:
S&P 500 Starting Value: 1,418.78
Hypothetical closing value of the S&P 500 at maturity: 2,270.05
Hypothetical Adjusted Ending Value of the S&P 500: 2,079.66
<TABLE>
<S> <C>
( 2,079.66 - 1,418.78 ) 1
S&P 500 Index Redemption Amount (per unit) = $10 X ( ------------------- ) X - = $1.55
( 1,418.78 ) 3
</TABLE>
Nikkei 225 Index Starting Value: 18,111.31
Hypothetical closing value of the Nikkei 225 Index at maturity: 28,978.10
Hypothetical Adjusted Ending Value of the Nikkei 225 Index: 26,547.68
<TABLE>
<S> <C>
( 26,547.68 - 18,111.31 ) 1
Nikkei 225 Index Redemption Amount (per unit) = $10 X ( --------------------- ) X - = $1.55
( 18,111.31 ) 3
</TABLE>
Euro STOXX 50 Starting Value: 4,517.68
Hypothetical closing value of the Euro STOXX 50 at maturity: 6,776.52
Hypothetical Adjusted Ending Value of the Euro STOXX 50: 6,208.17
<TABLE>
<S> <C>
( 6,208.17 - 4,517.68 ) 1
Euro STOXX 50 Index Redemption Amount (per unit) = $10 X ( ------------------- ) X - = $1.25
( 4,517.68 ) 3
</TABLE>
Supplemental Redemption Amount = $1.55 + $1.55 + $1.25 = $4.35
Total payment at maturity (per unit) = $10 + $4.35 = $14.35
Will I receive interest payments on the MITTS Securities?
You will not receive any interest payments on the MITTS Securities, but
will instead receive the principal amount plus the Supplemental Redemption
Amount, if any, at maturity. We have designed the MITTS Securities for investors
who are willing to forego market interest payments on the MITTS Securities, such
as floating interest rates paid on standard senior non-callable debt securities,
in exchange for the ability to participate in possible increases in the
Underlying Indices.
Who publishes the Underlying Indices and what do they measure?
The S&P 500 is published by Standard & Poor's, a division of The
McGraw-Hill
5
<PAGE>
Companies, Inc., and is intended to provide an indication of the pattern of
common stock price movement in the United States. The value of the S&P 500 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. Standard & Poor's chooses
companies for inclusion in the S&P 500 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.
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.
The Euro STOXX 50 was created by STOXX, a joint venture founded by SWX-
Swiss Exchange, SBF-Bourse de Paris, Deutsche Borse AG and Dow Jones.
Publication of the Euro STOXX 50 began on February 26, 1998. The Euro STOXX 50
consists of the stocks of 50 European companies that are among the largest in
market capitalization, highest in liquidity and are the leaders of their
industrial sectors.
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
Underlying Indices.
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are listed on the AMEX under the trading symbol "GMM".
You should be aware that the listing of the MITTS Securities on the AMEX does
not necessarily ensure that a liquid trading market will be 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 or continue
them once it has started.
MLPF&S is also our agent for purposes of calculating, among other things,
the Adjusted Ending Values, the Index Redemption Amounts and the Supplemental
Redemption Amount. Under certain circumstances, these duties could result in a
conflict of interest between MLPF&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 subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co., see the
section entitled "Merrill Lynch & Co., Inc." in this prospectus. You should also
read the other documents we have 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 entitled "Risk Factors" in this prospectus.
6
<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 sum of the Index Redemption Amounts does
not exceed zero on the stated maturity date, the Supplemental Redemption Amount
will be zero. This will be true even if the value of one or more of the Index
Redemption Amounts is greater than zero but the sum of the Index Redemption
Amounts is less than zero at maturity. 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 debt security of ML&Co. 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
Underlying Indices
The value of each Underlying Index is calculated by reference to the prices
of the common stocks included in that Underlying Index without taking into
consideration the value of dividends paid on those stocks. The return on your
MITTS Securities will not reflect the return you would realize if you actually
owned the stocks included in each Underlying Index and received the dividends
paid on those stocks because of the cumulative effect of the reduction caused by
the Adjustment Factor applied to the closing values of each Underlying Index
used to calculate that Underlying Index's Index Redemption Amount and because
the value of each Underlying Index is calculated by reference to the prices of
the stocks included in that Underlying 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 and the Euro STOXX 50
are traded in various currencies 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 changes in the value of the Underlying Indices. Changes in
exchange rates, however, may reflect changes in a country's economy which in
turn may affect the value of an Underlying Index and the MITTS Securities.
There may be an uncertain trading market for the MITTS Securities
Although the MITTS Securities are listed on the AMEX under the trading
symbol "GMM", 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 Underlying Indices.
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.
7
<PAGE>
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 an Underlying 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 values of the Underlying Indices are 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 each
Underlying Index, as reduced by the Adjustment Factor over the term of the MITTS
Securities, exceeds the Starting Value for that Underlying Index. If you choose
to sell your MITTS Securities when the value of each Underlying Index, as
reduced by the Adjustment Factor over the term of the MITTS Securities, exceeds
the corresponding Starting Value of each Underlying Index, you may receive
substantially less than the amount that would be payable at maturity based on
that value because of the expectation that the Underlying Indices will continue
to fluctuate until the Adjusted Ending Value is determined. If you choose to
sell your MITTS Securities when the value of each Underlying Index is below, or
not sufficiently above, the corresponding Starting Value of each Underlying
Index, you may receive less than the $10 principal amount per unit of MITTS
Securities. Because the Supplemental Redemption Amount equals the sum of the
Index Redemption Amounts, an increase in the value of an Underlying Index may be
offset by a decrease in the value of another Underlying Index. In general,
rising dividend rates or dividends per share may increase the value of the
Underlying Indices, while falling dividend rates may decrease the value of the
Underlying Indices. Political, economic and other developments that affect the
stocks underlying the Underlying Indices may also affect the value of the
Underlying Indices 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 or Europe increase, we expect
that the trading value of the MITTS Securities will increase. If interest rates
in Japan or Europe decrease, we expect that the trading value of the MITTS
Securities will decrease. The level of interest rates in the U.S., Japan or
Europe may also affect the applicable economies and, in turn, the value of the
relevant Underlying Index. Rising interest rates may lower the value of an
Underlying Index and, thus, may decrease the value of the MITTS Securities.
Falling interest rates may increase the value of an Underlying Index and, thus,
may increase the value of the MITTS Securities.
Changes in the volatility of the Underlying Indices 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 Underlying Indices increases, we expect that the
trading value of the MITTS Securities will increase and, conversely, if the
volatility of the Underlying Indices 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 Underlying
Indices. This difference will reflect a "time premium" due to expectations
concerning the value of the Underlying Indices during the period before the
stated maturity of the MITTS Securities. However, as the
8
<PAGE>
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 Underlying Indices
are expected to affect the trading value of the MITTS Securities. In general, if
dividend yields on the stocks included in the Underlying Indices increase, we
expect that the value of the MITTS Securities will decrease and, conversely, if
dividend yields on the stocks included in the Underlying Indices 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 Underlying Indices 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 change in the value of each Underlying 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 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 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.
Risks associated with the Japanese and European securities markets
The stocks that constitute the Nikkei 225 Index and the Euro STOXX 50 have
been issued by companies in Japan and various European countries. You should be
aware that investments in securities indexed to the value of these equity
securities involve certain risks. The Japanese and European 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 and
European securities markets and cross-shareholdings in companies on those
markets may affect prices and volume of trading on those markets. Also, there is
generally less publicly available information about Japanese and European
companies than about those U.S. companies that are subject to the reporting
requirements of the SEC, and Japanese and European 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 each country are subject to political, economic,
financial and social factors that apply in that country. These factors, which
could negatively affect that country's securities markets, include the
possibility of recent or future changes in the government's economic and fiscal
policies, the possible
9
<PAGE>
imposition of, or changes in, currency exchange laws or other laws or
restrictions applicable to companies or investments in a country's equity
securities and the possibility of fluctuations in the rate of exchange between
currencies. Moreover, the economy of each country may differ favorably or
unfavorably from the U.S. economy with regard to 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 included
in the Underlying Indices or futures or options contracts on the Underlying
Indices 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 Underlying Indices in a
manner that could be adverse to your investment in the MITTS Securities.
Potential conflicts
Our subsidiary, MLPF&S, is our agent for the purposes of calculating the
Adjusted Ending Values, Index Redemption Amounts 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
values of the Underlying Indices 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 an Underlying Index. See the sections entitled
"Description of the MITTS Securities--Adjustments to the Underlying Indices;
Market Disruption Events" and "--Discontinuance of the Underlying Indices" 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 the amounts due at
maturity. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
10
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
11
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
12
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On December 22, 1999, ML&Co. issued an aggregate principal amount of
$47,000,000 or 4,700,000 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 December 22, 2004.
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
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 the
sections entitled "--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 Supplemental Redemption
Amount does not exceed zero, you will be entitled to receive only the principal
amount of your MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal the sum of the Index
Redemption Amounts, provided, however, that in no event will the Supplemental
Redemption Amount be less than zero.
The "Index Redemption Amount" means, for each of the Underlying Indices:
<TABLE>
<S> <C>
( Adjusted Ending Value - Starting Value ) 1
principal amount of each MITTS Security ($10 per unit) X ( -------------------------------------- ) X -
( Starting Value ) 3
</TABLE>
The "Starting Value" equals 1,418.78 for the S&P 500, 18,111.31 for the
Nikkei 225 Index and 4,517.68 for the Euro STOXX 50, each the closing value of
that Underlying Index on December 16, 1999, the day the MITTS Securities were
priced for initial sale to the public.
The "Adjusted Ending Value" for each Underlying Index will be determined by
the calculation agent and will equal the average or arithmetic mean of the
closing values of that Underlying 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 during the Calculation Period, then the Adjusted Ending Values
will equal the average or arithmetic mean of the closing values of the
applicable Underlying 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 Values will equal the closing
value of the applicable Underlying 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
Values will equal the closing value of the applicable Underlying Index
determined on the last scheduled Index Business Day in the Calculation Period,
as reduced by the
13
<PAGE>
application of the Adjustment Factor on that Index Business Day, regardless of
the occurrence of a Market Disruption Event on that Index Business Day.
The "Adjustment Factor" equals 1.75% per year and will be applied over the
entire term of the MITTS Securities. On each calendar day during the term of the
MITTS Securities, we will apply this percentage on a prorated basis based on a
365-day year to reduce the values used to calculate the Index Redemption Amounts
on each Calculation Day during the Calculation Period. As a result of the
cumulative effect of this reduction, the values used to calculate the Index
Redemption Amounts during the Calculation Period will be approximately 8.39%
less than the actual closing values of the Underlying Indices on each
Calculation 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 Underlying Indices or any successor indices are 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 average percentage changes
from the Starting Value to the hypothetical closing value for the Underlying
Indices, assuming an initial investment of $10 per unit and an investment term
from December 22, 1999 to December 22, 2004:
. the total amount payable at maturity for each unit of MITTS
Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of the MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
included in the Underlying Indices, which includes an assumed
aggregate dividend yield of 1.22% per annum, as more fully described
below.
14
<PAGE>
<TABLE>
<CAPTION>
Percentage change
from the Starting Pretax
Value to annualized rate
the hypothetical Total amount of return
closing value of payable at Total rate Pretax annualized of stocks
the maturity per of return rate of return included in the
Underlying unit of the MITTS on the MITTS on the MITTS Underlying
Indices(1) Securities(2) Securities(2) Securities(2)(3) Indices(3)(4)
----------------- ----------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
-80% 10.00 0.00% 0.00% -28.45%
-60% 10.00 0.00% 0.00% -16.32%
-40% 10.00 0.00% 0.00% -8.77%
-20% 10.00 0.00% 0.00% -3.21%
0% 10.00 0.00% 0.00% 1.22%
20% 10.99 9.94% 1.90% 4.93%
40% 12.83 28.26% 5.03% 8.12%
60% 14.66 46.58% 7.79% 10.93%
80% 16.49 64.90% 10.25% 13.44%
100% 18.32 83.23% 12.47% 15.72%
120% 20.15 101.55% 14.50% 17.80%
140% 21.99 119.87% 16.38% 19.72%
160% 23.82 138.19% 18.11% 21.50%
180% 25.65 156.52% 19.73% 23.17%
200% 27.48 174.84% 21.25% 24.73%
</TABLE>
_________
(1) The percentage change in the Starting Value and the hypothetical closing
value of each of the Underlying Indices does not reflect the application of
the Adjustment Factor.
(2) The total amount payable at maturity per unit of MITTS Securities and the
total and pretax annualized rates of return on the MITTS Securities assume
the application of an Adjustment Factor of 1.75%.
(3) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(4) This rate of return assumes:
(a) a percentage change in the aggregate price of the stocks that
equals the percentage change in the Underlying Indices from the
aggregate Starting Value to the relevant hypothetical aggregate
closing value;
(b) a constant dividend yield of 1.22% per annum, paid quarterly from
the date of initial delivery of the MITTS Securities, applied to
the value of the Underlying Indices at the end of each quarter
assuming this value increases or decreases linearly from the
hypothetical aggregate Starting Value to the applicable
hypothetical aggregate closing value;
(c) no transaction fees or expenses in connection with purchasing and
holding stocks included in the Underlying Indices; and
(d) an initial investment of $10 per unit and an investment term for
the MITTS Securities from December 22, 1999 to December 22, 2004.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rates of return will depend entirely on the actual Adjusted
Ending Value determined by the calculation agent as provided in this prospectus.
Adjustments to the Underlying Indices; Market Disruption Events
If at any time the publisher of an Underlying Index changes its method of
calculating that Underlying Index, or the value of an Underlying Index changes,
in any material respect, or if an Underlying Index is in any other way modified
so that the Underlying Index does not, in the opinion of the calculation agent,
fairly represent the value of that Underlying 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 that Underlying Index is to be calculated, make any
adjustments as, in the good faith
15
<PAGE>
judgment of the calculation agent, may be necessary in order to arrive at a
calculation of a value of a stock index comparable to that Underlying Index as
if those changes or modifications had not been made, and calculate the closing
value with reference to the Underlying Index, as adjusted. Accordingly, if the
method of calculating an Underlying Index is modified so that the value of that
Underlying 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 that Underlying Index in order to arrive at a value of that Underlying
Index as if it had not been modified, e.g., as if the split had not occurred.
"Market Disruption Event" means, with respect to any Underlying Index, the
occurrence or existence of any suspension of, or limitation imposed on, trading,
by reason of movements in price exceeding limits permitted by the relevant
exchange or otherwise, during the one-half hour period that ends at the regular
official weekday time at which trading on the Index Exchange related to that
Underlying Index occurs, on:
(A) the Index Exchange in securities that comprise 20% or more of the
value of that Underlying Index or
(B) any exchanges on which futures or options on that Underlying Index are
traded in those options or futures if, in the determination of the
calculation agent, that suspension or limitation is material.
For the purpose of the above definition:
(1) a limitation on the hours and number of days of trading will not
constitute a Market Disruption Event if it results from an announced
change in the regular hours of the relevant exchange, and
(2) a limitation on trading imposed during the course of a day by reason
of movements in price otherwise exceeding levels permitted by the
relevant exchange will constitute a Market Disruption Event.
"Index Exchange" means, with respect to any Underlying Index, the principal
exchange on which the shares comprising that Underlying Index are traded.
Discontinuance of an Underlying Index
If publication of any Underlying Index is discontinued and the calculation
agent determines, in its sole discretion, that a published successor or
substitute is comparable to that Underlying 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 for that
Underlying 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 the publication of any Underlying Index is discontinued
and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Index
Business Days during the Calculation Period,
the calculation agent will compute a substitute value for that Underlying Index
in accordance with the procedures last used to calculate that Underlying Index
before any discontinuance. If a successor index is selected or the calculation
agent calculates a value as a substitute for any Underlying Index as described
below, the successor index or value shall be substituted for that Underlying
Index for all purposes, including for purposes of determining whether a Market
Disruption Event exists.
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If the publication of any Underlying Index is discontinued before the
period during which the Index Redemption Amounts are 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 for that Underlying
Index and
. 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 Index 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 any Underlying 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 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 was the stated maturity date of the MITTS
Securities, provided, however, the Adjustment Factor will be applied to the
values used to calculate the Supplemental Redemption Amount as if the MITTS
Securities had not been accelerated and had remained outstanding to the stated
maturity date. 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 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 will bear interest, payable upon demand of their beneficial owners,
at the rate of 6.87% 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.
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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.
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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 the 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:
. 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.
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.
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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 UNDERLYING INDICES
The S&P 500 Index
Standard & Poor's publishes the S&P 500 Index. The S&P 500 Index 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. 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. The
Index is comprised of the common stocks of companies in four main groups:
Industrials, Utilities, Transportation and Financial. 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
return 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
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(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. These changes
may result from causes such as:
. 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,
. 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
of that stock 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.
License Agreement
Standard & Poor's does not guarantee the accuracy and/or the completeness
of the S&P 500 Index or any data included in that index. 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 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 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 under
that agreement.
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The license agreement between Standard & Poor's and Merrill Lynch Capital
Services, Inc. provides that the following language must be stated in this
prospectus:
"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 did not participate in the determination of the timing
of the sale of the MITTS Securities, prices at which the MITTS Securities were
initially sold, or quantities of the MITTS Securities 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 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.
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 Underlying Stocks 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 Singapore International Monetary Exchange, the Osaka Securities
Exchange 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 (Yen)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 (Yen)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.
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The divisor was initially set in 1949 at 225 and is subject to periodic
adjustment.
The divisor was initially set in 1949 at 225 and is subject to periodic
adjustment. 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. The current divisor is
available on Bloomber under the symbol "WKY". The current divisor is available
on Bloomberg under the symbol "NKY".
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 from the Underlying Stocks,
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 or any member of the
public regarding the advisability of investing in securities generally or in the
MITTS Securities in particular or the ability of the Nikkei 225 Index to track
general stock market performance. NKS has no obligation to take the needs of
ML&Co. or 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 to be 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 Adjusted
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.
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Due to the time zone difference, on any normal trading day, the TSE will
close prior to the opening of business in The City of New York 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.
The Euro STOXX 50
The Euro STOXX 50 was created by STOXX, a joint venture founded by SWX-
Swiss Exchange, SBF-Bourse de Paris, Deutsche Borse AG and Dow Jones.
Publication of the Euro STOXX 50 began on February 26, 1998, based on an initial
value of the Euro STOXX 50 of 1,000 at December 31, 1991.
The Euro STOXX 50 is currently calculated by (i) multiplying the per share
price of each underlying security by the number of outstanding shares (and, if
the stock is not quoted in euro, then multiplied by the country currency and an
exchange factor which reflects the exchange rate between the country currency
and the euro); (ii) calculating the sum of all these products (the "Index
Aggregate Market Capitalization"); and (iii) dividing the Index Aggregate Market
Capitalization by a divisor which represents the Index Aggregate Market
Capitalization on the base date of the Euro STOXX 50 and which can be adjusted
to allow changes in the issued share capital of individual underlying
securities, including the deletion and addition of stocks, the substitution of
stocks, stock dividends and stock splits, to be made without distorting the Euro
STOXX 50. Because of this capitalization weighting, movements in share prices of
the underlying securities of companies with relatively greater market
capitalization will have a greater effect on the value of the entire Euro STOXX
50 than will movements in share prices of the underlying securities of companies
with relatively smaller market capitalization.
The composition of the Euro STOXX 50 is reviewed annually, and changes are
implemented on the third Friday in September, using market data from the end of
July as the basis for the review process. Changes in the composition of the Euro
STOXX 50 are made to ensure that the Euro STOXX 50 includes those companies
which, within the eligible countries and within each industry sector, have the
greatest market capitalization. Changes in the composition of the Euro STOXX 50
are made entirely by STOXX without consultation with the corporations
represented in the Euro STOXX 50 or ML&Co. The Euro STOXX 50 is also reviewed on
an ongoing basis, and change in the composition of the Euro STOXX 50 may be
necessary if there have been extraordinary events for one of the issuers of the
underlying securities, e.g., delisting, bankruptcy, merger or takeover. In these
cases, the event is taken into account as soon as it is effective. The
underlying securities may be changed at any time for any reason. Neither STOXX
nor any of its founders is affiliated with ML&Co. and has participated in any
way in the creation of the MITTS Securities.
ML&Co. or its affiliates may presently or from time to time engage in
business with the publishers, owners, founders or creators of the Euro STOXX 50
or any of its successors or one or more of the issuers of the underlying
securities, including extending loans to, making equity investments in or
providing advisory services, including merger and acquisition advisory services,
to the publishers, their successors, founders or
24
<PAGE>
creators or to any of the issuers. In the course of business with issuers,
ML&Co. or its affiliates may acquire non-public information with respect to the
issuers. ML&Co. may also act as market maker for the common stocks of the
issuers. ML&Co. does not make any representation to any purchaser of MITTS
Securities with respect to any matters whatsoever relating to any of the
publishers, their successors, founders or creators or to any of the issuers. Any
prospective purchaser of MITTS Securities should undertake an independent
investigation of the issuers of the underlying securities and with respect to
the competency of its publisher to formulate and calculate the Euro STOXX 50 as
in its judgment is appropriate to make an informed decision with respect to an
investment in the MITTS Securities. The composition of the Euro STOXX 50 does
not reflect any investment or sell recommendations of ML&Co. or its affiliates.
A representative of an affiliate of ML&Co. may from time to time be a
member of the STOXX Limited Advisory Committee. STOXX states in its Guide to the
Dow Jones STOXX Indexes that STOXX's Advisory Committee advises the Supervisory
Board on matters relating to the Euro STOXX 50. This advisory committee proposes
changes in the composition of the Euro STOXX 50 to the Supervisory Board and
makes recommendations with respect to the accuracy and transparency of the index
computation. Decisions on the composition and changes in the Euro STOXX 50 are
reserved to the Supervisory Board.
STOXX Ltd. and ML&Co. have entered into a non-exclusive license agreement
providing for the license to ML&Co., in exchange for a fee, of the right to use
the Euro STOXX 50, which is owned and published by STOXX, in connection with
certain securities, including the MITTS Securities.
The license agreement between STOXX and ML&Co. provides that the following
language must be set forth in this prospectus:
"The MITTS Securities are not sponsored, endorsed, sold or promoted by
STOXX LIMITED or Dow Jones & Company, Inc. Neither STOXX nor Dow Jones makes any
representation or warranty, express or implied, to the owners of the MITTS
Securities or any member of the public regarding the advisability of investing
in securities generally or in the MITTS Securities particularly. The only
relationship of STOXX to ML&Co. is as the licensor of the Dow Jones STOXX, the
Dow Jones Euro STOXX 50 and of certain trademarks, trade names and service marks
of STOXX, and as the sublicensor of the Dow Jones STOXX, the Dow Jones Euro
STOXX and of certain trademarks, trade names and service marks of Dow Jones. The
aforementioned indices are determined, composed and calculated by STOXX or Dow
Jones, as the case may be, without regard to ML&Co. or the MITTS Securities.
Neither STOXX nor Dow Jones is responsible for or has participated in the
determination of the timing of, prices at, or quantities of the MITTS Securities
issued or in the determination or calculation of the equation by which the MITTS
Securities are to be converted into cash. Neither STOXX nor Dow Jones has any
obligation or liability in connection with the administration, marketing or
trading of the MITTS Securities.
NEITHER STOXX NOR DOW JONES GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS
OF THE INDICES OR ANY DATA INCLUDED THEREIN AND NEITHER SHALL HAVE ANY LIABILITY
FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. NEITHER STOXX NOR DOW JONES
MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY ML&CO.,
OWNERS OF THE MITTS SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE INDICES OR ANY DATA INCLUDED THEREIN. NEITHER STOXX NOR DOW JONES MAKES ANY
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OR
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN
NO EVENT SHALL EITHER STOXX OR DOW JONES HAVE ANY LIABILITY FOR ANY LOST PROFITS
OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF
NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF
ANY AGREEMENTS OR ARRANGEMENTS BETWEEN STOXX AND ML&CO."
25
<PAGE>
The Dow Jones Euro STOXX 50 is owned by STOXX Ltd. and is a service mark of
Dow Jones & Company, Inc., and has been licensed for certain purposes by ML&Co.
(C) 1998 by STOXX Ltd. All rights reserved.
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.
26
<PAGE>
"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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any past default
to less than a majority.
27
<PAGE>
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:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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
28
<PAGE>
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 United States
Federal income tax treatment of contingent payment debt instruments to 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 $4.0189 per
unit. This represents an estimated yield on the MITTS Securities equal to 6.87%
per annum (compounded semiannually).
The projected payment schedule, including both 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 the projected
payment schedule for the MITTS Securities, including both the projected
Supplemental Redemption Amount and the estimated yield equal to 6.87% 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 the
Interest deemed to MITTS Securities
accrue during as of the end of
accrual period accrual period
(per unit) (per unit)
----------------- ----------------
Accrual Period
--------------
<S> <C> <C>
December 23, 1999 through June 22, 2000............................... $0.3445 $0.3445
June 23, 2000 through December 22, 2000............................... $0.3553 $0.6998
December 23, 2000 through June 22, 2001............................... $0.3675 $1.0673
June 23, 2001 through December 22, 2001............................... $0.3802 $1.4475
December 23, 2001 through June 22, 2002............................... $0.3932 $1.8407
June 23, 2002 through December 22, 2002............................... $0.4067 $2.2474
December 23, 2002 through June 22, 2003............................... $0.4207 $2.6681
June 23, 2003 through December 22, 2003............................... $0.4352 $3.1033
December 23, 2003 through June 22, 2004............................... $0.4501 $3.5534
June 23, 2004 through December 22, 2004............................... $0.4655 $4.0189
</TABLE>
_______________________
Projected Supplemental Redemption Amount = $4.0189 per unit.
29
<PAGE>
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., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038,
(212) 670-0432, [email protected].
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
30
<PAGE>
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
31
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
Merrill Lynch & Co., Inc.
BOND INDEX NOTES
Domestic Master Series 1999A
____________________
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
our wholly-owned subsidiary, will use this prospectus when making offers and
sales related to market-making transactions in the following securities.
<TABLE>
<CAPTION>
Bond Index Notes: Maturity Amount:
<S> <C>
. Senior unsecured debt securities of Merrill Lynch & . On the maturity date for your series of Bond Index
Co. Inc. Notes, we will pay you an amount equal to a percentage
. Issued in series from time to time with terms and of the principal amount of your Bond Index Notes. We
conditions of each series specified in a pricing will calculate this percentage based on the change in
supplement. value of the price return component of the applicable
. Returns are based on the values of fixed income fixed income over a period of time starting on the date
indices sponsored and calculated by our subsidiary, that is four business days before the issue date and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, ending on the date that is four business days before
and published on the American Stock Exchange. the maturity date. AS A RESULT, THE MATURITY AMOUNT
. Issued with maturities of no greater than five years MAY BE GREATER THAN OR LESS THAN THE PRINCIPAL AMOUNT
from the date of original issuance. OF YOUR BOND INDEX NOTES AND MAY RESULT IN A LOSS TO
. All Bond Index Notes are listed on a national YOU.
securities exchange or the Nasdaq Stock Market.
Payment of Interest:
. On each interest payment date for your series of
Bond Index Notes, we will pay you an amount of
interest determined with reference to the index rate
of interest for the applicable fixed income index less
a fixed spread as specified in the pricing supplement
related to that series.
</TABLE>
Investing in Bond Index Notes involves risks, including the risk that on
the maturity date you may receive less than the principal amount of your Bond
Index Notes. For a discussion of the material risks related to an investment in
Bond Index Notes, you should review the pricing supplement related to your
series of Bond Index Notes and this prospectus, including the section entitled
"Risk Factors" on page 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.
As of the date of the prospectus there has been only one Series of Bond
Index Notes issued, the terms of which are discussed on page 7. For each series
of Bond Index Notes, we will specify the public offering price, underwriting
discount and the proceeds, before expenses, to Merrill Lynch & Co., Inc. in the
applicable pricing supplement and periodically update this prospectus.
________________
Merrill Lynch & Co.
__________
The date of this prospectus is , .
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION -- Q&A.............................................. 3
RISK FACTORS............................................................ 7
MERRILL LYNCH & CO., INC................................................ 10
RATIO OF EARNINGS TO FIXED CHARGES...................................... 11
DESCRIPTION OF BOND INDEX NOTES......................................... 12
THE FIXED INCOME INDICES................................................ 21
ERISA CONSIDERATIONS.................................................... 25
OTHER TERMS............................................................. 25
WHERE YOU CAN FIND MORE INFORMATION..................................... 28
INCORPORATION OF INFORMATION WE FILE WITH THE SEC....................... 28
PLAN DISTRIBUTION....................................................... 29
EXPERTS................................................................. 29
</TABLE>
2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Bond Index Notes. We
issue Bond Index Notes in separate series. All Bond Index Notes of a single
series have identical terms and provisions. The terms and conditions of each
series of Bond Index Notes are described in a separate final pricing supplement
at the time of the issuance of that series. The pricing supplement for each
series of Bond Index Notes includes the title and aggregate principal amount of
that series, the specific fixed income index to which that series is linked and
other information relevant to that series. You should carefully read this
prospectus and the applicable pricing supplement to fully understand the terms
of your Bond Index Notes, the applicable fixed income index to which those Bond
Index Notes are linked and the tax and other considerations that should be
important to you in making a decision about whether to invest in Bond Index
Notes. You should also carefully review the "Risk Factors" section included in
this prospectus on page which highlights certain risks associated with an
investment in Bond Index Notes to determine whether an investment in Bond Index
Notes is appropriate for you.
References in this prospectus 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 Bond Index Notes?
Each series of Bond Index Notes is a series of senior debt securities
issued by ML&Co. and is not secured by collateral. Bond Index Notes rank equally
with all of our other unsecured and unsubordinated debt. Each series of Bond
Index Notes will mature on a specified date as set forth in the applicable
pricing supplement, which will be no greater than five years from the date of
their original issuance. We may not redeem any series of Bond Index Notes before
their stated maturity date.
We issue Bond Index Notes in denominations of $20 and integral multiples of
$20. You may transfer your Bond Index Notes only in these denominations. You
will not have the right to receive physical certificates evidencing your
ownership except under limited circumstances. Instead, we issue Bond Index Notes
in the form of global certificates, which are held by The Depository Trust
Company, also known as DTC, or its nominee. Direct and indirect participants in
DTC record your ownership of the Bond Index Notes. For a description of the
global certificates and DTC, you should refer to the section entitled
"Description of Bond Index Notes--Depositary" in this prospectus.
To which fixed income index is my Bond Index Notes be linked?
Each series of Bond Index Notes is linked to one of the following Merrill
Lynch fixed income indices calculated and published by the Portfolio Strategies
Group of MLPF&S and published on the AMEX:
. U.S. Domestic Master Index,
. Mortgage Master Index,
. U.S. Corporate/Government Master Index,
. U.S. Corporate Master Index,
. U.S. Treasury/Agency Master Index,
. U.S. Treasury Master Index, and
. U.S. Agency Master Index.
Each fixed income index is more fully described in this prospectus under
the section entitled "The Fixed Income Indices". The specific fixed income index
to which your Bond Index Notes are linked is specified in the applicable pricing
supplement.
What form of interest payments will I receive on my Bond Index Notes?
You will not receive fixed interest payments on your Bond Index Notes. We
have designed the Bond Index Notes for investors who are willing to forego fixed
interest payments on the Bond Index Notes in exchange for (1) interest payments
which are paid on each interest payment date and which are based upon an index
of market rates of interest, less a fixed spread, and (2) participation on the
maturity date in any increase or decrease in the value of the price return
component of the fixed income index to which your Bond Index Notes are linked.
3
<PAGE>
What will I receive on each interest payment date?
On each interest payment date, we pay you interest on your Bond Index Notes
in an amount equal to the Index Rate of Interest less a fixed spread specified
in the final pricing supplement related to your series of Bond Index Notes.
For any interest period, the "Index Rate of Interest" for any fixed income
index is equal to the weighted average of the interest accrued and interest paid
on securities underlying that fixed income index less the amount of any interest
scheduled to have been paid but not paid during that interest period on those
underlying securities. For any interest period, the applicable Index Rate of
Interest for any fixed income index is calculated as the percentage change in
value of the total return of the applicable fixed income index less the
percentage change in value of the price return component of that fixed income
index over that interest period.
With respect to any specific interest payment date for any series of Bond
Index Notes, an interest period is the period from and including the fourth
business day immediately preceding the most recent prior interest payment date
to but excluding the fourth business day immediately preceding the subject
interest payment date, or in the case of the initial interest period, the period
from the fourth business day immediately preceding the original issue date of
that series of Bond Index Notes to but excluding the fourth business day
immediately preceding the initial interest payment date.
The interest payment dates on which interest payments are made are
specified in the applicable pricing supplement.
What will I receive on the maturity date?
We have designed Bond Index Notes for investors who want to benefit from an
investment in a selected broad-based fixed income sector as measured by a total
return fixed income index, without incurring the transaction costs associated
with investing in multiple fixed income securities in order to attain a broad-
based and diversified fixed income portfolio. The value of each fixed income
index takes into account both (1) interest paid on underlying fixed income
securities and (2) the price appreciation or depreciation of those underlying
fixed income securities. The price return component of Bond Index Notes
represents the price appreciation or depreciation of the underlying fixed income
securities. On the maturity date of any series of Bond Index Notes, in addition
to an interest payment for the final interest period, you will receive a payment
equal to the Maturity Amount, which will be based on the price return component
of that series.
The "Maturity Amount" for each $20 principal amount of Bond Index Notes for
any series will equal:
( Final Price Return Value )
$20 x ( -------------------------- )
( Initial Price Return Value )
For purposes of determining the Maturity Amount, the "Initial Price Return
Value" for any series of Bond Index Notes will equal the most recently published
value of the price return component for the applicable fixed income index on the
Bloomberg information system at 11:00 a.m., New York City time, on the fourth
business day immediately preceding the issue date. The Initial Price Return
Value for your Bond Index Notes appears in the applicable final pricing
supplement.
For purposes of determining the Maturity Amount, the "Final Price Return
Value" for any series of Bond Index Notes will equal the most recently published
value of the price return component for the applicable fixed income index on the
Bloomberg information system at 11:00 a.m., New York City time, on the fourth
business day immediately preceding the maturity date of the applicable series of
Bond Index Notes.
If the Final Price Return Value is greater than the Initial Price Return
Value, you will receive a Maturity Amount that is greater than the principal
amount of your Bond Index Notes. If the Final Price Return Value is less than
the Initial Price Return Value, you will receive a Maturity Amount that is less
than the principal amount of your Bond Index Notes, which would result in a loss
to you. You should refer to the section entitled "Risk Factors--Your Bond Index
Notes are not principal-protected and you may receive less than your principal
amount at maturity" in this prospectus.
Who publishes the fixed income index to which my Bond Index Notes are linked and
what does the fixed income index measure?
Each fixed income index is calculated, maintained and published by the
Portfolio Strategies Group of our subsidiary MLPF&S. The fixed income indices
are designed to reflect the value of debt
4
<PAGE>
obligations issued by the U.S. government, by corporate institutions in major
industry sectors or both. The fixed income indices are "total return" indices.
This means that the total return of a given fixed income index measures the
return of the underlying securities measured by that index based on the
appreciation or depreciation in the value for these underlying securities plus
the interest income paid on those underlying securities. The value of the "price
return" component is published as a separate price return index for each fixed
income index. A price return index is one component of a total return index and
measures the appreciation or depreciation in value of a fixed principal amount
of the underlying securities measured by the applicable fixed income index. The
price return component of the applicable fixed income index will be used in
determining the amount, if any, you will receive at maturity. Each fixed income
index has been calculated and published by the Portfolio Strategies Group for at
least 20 years and their respective price return components have been calculated
and published by the Portfolio Strategies Group since at least 1986. Each fixed
income index is also published on the AMEX.
An investment in Bond Index Notes does not entitle you to any ownership
interest in the underlying securities and other assets measured by any fixed
income index.
Are my Bond Index Notes listed on a securities exchange?
We will list each series of Bond Index Notes on a national securities
exchange or on the Nasdaq Stock Market. We disclose the securities exchange or
automated quotation system on which your Bond Index Notes are listed and the
assigned trading symbol in the applicable pricing supplement. You should be
aware that the listing of any series of Bond Index Notes on a securities
exchange or automated quotation system does not necessarily ensure that a liquid
trading market exists for any series of Bond Index Notes. You should review
"Risk Factors--There may be an uncertain trading market for Bond Index Notes" in
this prospectus.
What are the roles of MLPF&S?
Our subsidiary MLPF&S was the underwriter for the offering and sale of each
series of Bond Index Notes.
Additionally, the Portfolio Strategies Group, a group within MLPF&S, is
responsible for calculating, determining the ongoing composition of and
publishing the fixed income indices to which Bond Index Notes are linked.
MLPF&S also is the calculation agent for purposes of calculating the amount
of interest and the Maturity Amount payable with respect to each series of Bond
Index Notes. Under certain circumstances, these various duties could result in a
conflict of
5
<PAGE>
interest between MLPF&S' status as our subsidiary and its responsibilities as
calculator of the fixed income indices and calculation agent for Bond Index
Notes. Please see the section entitled "Risk Factors--Potential conflicts" in
this prospectus.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co., see the
section entitled "Merrill Lynch & Co., Inc." in this prospectus. You should also
read other documents we have filed with the SEC, which you can find by referring
to the section "Where You Can Find More Information" in this prospectus.
Are there any risks associated with my investment?
Yes, an investment in Bond Index Notes is subject to risk. Please refer to
the section entitled "Risk Factors" in this prospectus.
6
<PAGE>
RISK FACTORS
Your investment in Bond Index Notes will involve risks. You should
carefully consider the following discussion of risks before investing in the
Bond Index Notes. In addition, you should reach an investment decision with
regard to the Bond Index Notes only after consulting with your legal and tax
advisers and considering the suitability of the Bond Index Notes in the light of
your particular circumstances.
Your Bond Index Notes are not principal-protected and you may receive less than
your principal amount at maturity
For any series of Bond Index Notes, if the Final Price Return Value is less
than the Initial Price Return Value, the Maturity Amount paid to you will be
less than the principal amount of your Bond Index Notes. If you purchased your
Bond Index Notes at the principal amount under these circumstances, your
investment in Bond Index Notes would result in a loss to you. This will be true
even if the value of the price return component of the fixed income index to
which your Bond Index Notes are linked was higher than the Initial Price Return
Value at some time during the life of your Bond Index Notes but later falls
below the Initial Price Return Value.
Your yield may be lower than the yield on a standard debt security of comparable
maturity
Because the Maturity Amount you receive may be less than the principal
amount of your Bond Index Notes, the amount we pay you at maturity may be less
than the return you could earn on other investments. Your yield may be less than
the yield you would earn if you bought a standard senior non-callable debt
security of ML&Co. with the same maturity date. Your investment may not reflect
the full opportunity cost to you when you take into account factors that affect
the time value of money.
Changes in market interest rates are expected to have a greater effect on the
yield and trading value of your Bond Index Notes than such changes would have on
the yield and trading value of standard, non-indexed, coupon-bearing debt
securities of comparable maturity
The yield and trading value of your Bond Index Notes will be determined by
reference to the debt securities underlying the applicable fixed income index.
These underlying securities will have an average term to maturity that is
greater than the term to maturity of your Bond Index Notes. We therefore expect
that a change in market interest rates will have a greater effect on the yield
and trading value of your Bond Index Notes than such change would have on
standard, non-indexed, coupon-bearing debt securities having the same maturity
as your Bond Index Notes. In general, if you bought a standard, non-indexed,
coupon-bearing debt security with the same maturity date, the effect on the
trading value of that debt security due to a given change in market interest
rates would be less if it occurred later in the term of that debt security.
However, it is expected that the effect on the trading value of your Bond Index
Notes due to a given change in market interest rates will not be reduced as the
time remaining to maturity of your Bond Index Notes decreases.
The trading value of Bond Index Notes will depend on the value of the applicable
fixed income index
We expect that the trading value of any series of Bond Index Notes will
depend substantially on the amount by which the value of the price return
component for the applicable fixed income index exceeds or does not exceed the
Initial Price Return Value. If you choose to sell your Bond Index Notes when the
value of the applicable price return component exceeds the Initial Price Return
Value, you may receive substantially less than the amount that would be payable
at maturity because of, among other factors, the expectation that the value of
the applicable fixed income index will continue to fluctuate until the Final
Price Return Value for that series is determined. If before the maturity date
you choose to sell your Bond Index Notes when the value of the applicable price
return component is below, or not sufficiently above, the Initial Price Return
Value, you may receive less than the principal amount of your Bond Index Notes,
which would result in a loss to you.
7
<PAGE>
Changes in the level of U.S. interest rates are expected to affect the
value of the indices. We expect that changes in U.S. interest rates will affect
the value of the price return component of the fixed income index to which your
Bond Index Notes are linked and the value of any of the fixed income indices. In
general, if U.S. interest rates increase, we expect that the value of the fixed
income indices will decrease, and conversely, if U.S. interest rates decrease,
we expect the value of the fixed income indices will increase. However, in
certain circumstances, a decrease in interest rates may reduce the yield
associated with the underlying assets of any fixed income index and consequently
may lower the value of that index. For example, a decrease in interest rates may
increase the prepayment risk associated with certain mortgage assets underlying
the Mortgage Master Index and may reduce the value of the Mortgage Master Index.
In addition, any changes in U.S. interest rates may also affect the U.S. economy
and, in turn, the value of any fixed income index.
Changes in credit ratings of the underlying issuers will affect the value
of the indices. Real or anticipated changes in the credit ratings of the
companies or government agencies whose securities comprise the underlying asset
class of any fixed income index may affect the value of that fixed income index
and, in turn, the trading value of Bond Index Notes.
Changes in our credit ratings will affect the trading value of Bond Index Notes
Our credit ratings are an assessment of our ability to pay our obligations.
Consequently, real or anticipated changes in our credit ratings may affect the
trading value of Bond Index Notes. However, because your return on your Bond
Index Notes is dependent upon other factors in addition to our ability to pay
our obligations under Bond Index Notes, such as the increases or decreases in
the value of the applicable price return component, an improvement in our credit
ratings will not reduce the other investment risks related to Bond Index Notes.
There may be an uncertain trading market for Bond Index Notes
Each series of Bond Index Notes is listed on a national securities exchange
or the Nasdaq Stock Market. However, you cannot assume that a trading market
exists for any such series of the Bond Index Notes. 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 any series of Bond Index Notes
depends on our financial performance, and other factors like the increase or
decrease in the value of the applicable fixed income index over the life of the
Bond Index Notes.
If the trading market for Bond Index Notes is limited, there may be a
limited number of buyers for your Bond Index Notes if you do not wish to hold
your investment until maturity. This may affect the price you receive.
The rate at which interest accrues on your Bond Index Notes during any interest
period is determined only at the end of that period
Because we calculate the rate at which interest accrues on your Bond Index
Notes during any interest period on the fourth business day immediately
preceding the applicable interest payment date, the rate at which interest will
accrue during any interest period will be determined only at the end of that
period. As a result, if you sell your Bond Index Notes on any day prior to the
day on which the interest rate is determined for an interest period, the price
you obtain will not necessarily reflect the interest payment that you would have
received had you held your Bond Index Notes until the next interest payment
date. Because of this uncertainty throughout most of an interest period as to
the rate at which interest will accrue on Bond Index Notes during that interest
period, the prices at which Bond Index Notes are traded are expected to reflect
estimated interest accruals to the date of the applicable trades, and no other
accrued interest will be paid or received in connection with such transactions.
Potential conflicts
Our subsidiary MLPF&S has multiple responsibilities in connection with Bond
Index Notes. MLPF&S is the calculation agent for Bond Index Notes and is
required to carry out its duties as calculation agent for Bond Index Notes in
good faith and using its reasonable judgment. However, you should be aware that
because we control MLPF&S, potential conflicts of interest could arise.
8
<PAGE>
Additionally, the Portfolio Strategies Group, a group within MLPF&S, is
responsible for calculating, determining the ongoing composition of and
publishing the fixed income indices to which Bond Index Notes are linked.
Because the Portfolio Strategies Group is part of MLPF&S, a subsidiary of ours,
a conflict of interest could arise.
We expect that, from time to time, we will enter into arrangements with one
or more of our subsidiaries to hedge the market risks associated with our
payment obligations under Bond Index Notes. Each subsidiary would expect to make
a profit in connection with any arrangement of this kind. We will not seek
competitive bids for any arrangement from unaffiliated parties.
9
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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 Bond Index Notes described in this prospectus.
10
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
11
<PAGE>
DESCRIPTION OF BOND INDEX NOTES
Bond Index Notes may be issued in various series as senior unsecured debt
securities under ML&Co.'s 1983 Indenture, which is more fully described in the
accompanying prospectus. Each series of Bond Index Notes will mature on a
specified date as set forth in the applicable pricing supplement, which will be
no later than five years from the date of their original issuance.
Bond Index Notes are not be subject to redemption by ML&Co. or at the
option of any beneficial owner before their stated maturity date. Upon the
occurrence of an Event of Default with respect to a series of Bond Index Notes,
beneficial owners of that series of Bond Index Notes may accelerate the maturity
of Bond Index Notes, as described under "--Events of Default and Acceleration"
and "Other Terms--Events of Default" in this prospectus.
Bond Index Notes were issued in denominations of $20 and integral multiples
of $20.
Bond Index Notes do not have the benefit of any sinking fund.
The stated maturity date, the applicable fixed income index and the other
terms and conditions of each series of Bond Index Notes are set forth in the
applicable pricing supplement.
Payment of Interest
On each interest payment date specified in the applicable pricing
supplement, a beneficial owner of a Bond Index Note is entitled to an interest
payment in an amount equal to the Index Rate of Interest less a fixed spread
specified in the final pricing supplement (the "Spread"). The "Index Rate of
Interest" for any fixed income index is equal to the weighted average of the
interest accrued and interest paid on the securities underlying that fixed
income index less the amount of any interest scheduled to have been paid but not
paid during that interest period on those underlying securities. For any
interest period, the applicable Index Rate of Interest for any fixed income
index will be calculated as the percentage change in value of the total return
of the applicable fixed income index less the percentage change in value of the
price return component of that fixed income index over that interest period. For
each interest period, each interest payment will equal:
<TABLE>
<S> <C>
[ ( Ending Total Return Value ) ( Ending Price Return Value ) ]
$20 x [ ( ----------------------------- - 1 ) - ( ----------------------------- - 1 ) - Spread ]
[ ( Starting Total Return Value ) ( Starting Price Return Value ) ]
</TABLE>
Determination of the Interest Income
For any series of Bond Index Notes, for purposes of determining the amount
of interest payable on the initial interest payment date, the "Starting Total
Return Value" equals the value of the total return index for the applicable
fixed income index most recently published on the Bloomberg information system
at 11:00 a.m., New York City time, on the fourth Business Day immediately
preceding the original issue date for that series. For purposes of determining
the amount of interest payable on any other interest payment date, the Starting
Total Return Value for any series of Bond Index Notes equals the Ending Total
Return Value used in connection with the calculation of interest for the
immediately preceding interest payment date.
For purposes of determining the amount of interest payable on any interest
payment date, the "Ending Total Return Value" for any series of Bond Index Notes
equals the value of the total return index for the applicable fixed income index
most recently published for that series on the Bloomberg information system at
11:00 a.m., New York City time, on the fourth Business Day immediately preceding
the applicable interest payment date.
For purposes of determining the amount of interest payable on the initial
interest payment date, the "Starting Price Return Value" equals the value of the
price return index for the applicable fixed income index most recently published
on the Bloomberg information system at 11:00 a.m., New York City time, on the
fourth Business Day immediately preceding the issue date. For purposes of
determining the amount of interest payable on any other interest payment date,
the Starting Price Return Value for any series of Bond Index Notes equals the
Ending Price Return Value used in connection with the calculation of interest
for the immediately preceding interest payment
12
<PAGE>
date. The price return index level on any day is determined by reference to the
prices (exclusive of accrued interest) of the securities comprising the
applicable index on that day, as determined by the Portfolio Strategies Group of
MLPF&S.
For purposes of determining the amount of interest payable on any interest
payment date, the "Ending Price Return Value" for any series of Bond Index Notes
equals the value of the price return index for the applicable fixed income index
most recently published for such series on the Bloomberg information system at
11:00 a.m., New York City time, on the fourth Business Day immediately preceding
the applicable interest payment date.
With respect to any specific interest payment date for any series of Bond
Index Notes, an interest period is the period from and including the fourth
Business Day immediately preceding the most recent prior interest payment date
to but excluding the fourth Business Day immediately preceding the subject
interest payment date or, in the case of the initial interest period, the period
from the fourth Business Day immediately preceding the original issue date of
that series of Bond Index Notes to but excluding the fourth Business Day
immediately preceding the initial interest payment date.
Interest payments on the Bond Index Notes are payable to their holders as
they appear on the books and records of ML&Co. on the relevant record dates,
which will be the Business Day immediately preceding the applicable interest
payment date. In the event the Bond Index Notes do not remain in book-entry
form, the relevant record date will be the fifteenth calendar day, whether or
not a Business Day, immediately preceding the applicable interest payment date.
In the event that any interest payment date or the maturity date is not a
Business Day, interest or the Maturity Amount, as the case may be, payable on
that date will be made on the next succeeding day which is a Business Day,
without any interest or other payment with respect to such delay, in each case
with the same force and effect as if made on the scheduled payment date.
A "Business Day" means any day other than a Saturday or Sunday that is
neither a legal holiday nor a day on which banking institutions are authorized
or required by law or regulation to close in The City of New York.
The Spread is a fixed percentage which reduces the interest payable on the
Bond Index Notes. The Spread related to any series of Bond Index Notes is
specified in the final pricing supplement relating to that series.
Maturity Amount
On the maturity date of any series of Bond Index Notes, in addition to an
interest payment for the final interest period, a beneficial owner of a Bond
Index Note will receive a payment equal to the Maturity Amount. If the Final
Price Return Value is greater than the Initial Price Return Value, a beneficial
owner of a Bond Index Note will receive a Maturity Amount that is greater than
the principal amount of its Bond Index Note. If the Final Price Return Value is
less than the Initial Price Return Value, a beneficial owner of a Bond Index
Note will receive a Maturity Amount that is less than the principal amount of
its Bond Index Note, which would result in a loss to that beneficial owner.
Determination of the Maturity Amount
The Maturity Amount for each $20 principal amount of Bond Index Note for
any series will equal:
( Final Price Return Value )
$20 x ( -------------------------- )
( Initial Price Return Value )
For purposes of determining the Maturity Amount, the Initial Price Return
Value for any series of Bond Index Notes equals the most recently published
value of the price return component for the applicable fixed income index on the
Bloomberg information system at 11:00 a.m., New York City time, on the fourth
Business Day immediately preceding the issue date. The Initial Price Return
Value for any series of Bond Index Notes is set forth in the applicable pricing
supplement.
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<PAGE>
For purposes of determining the Maturity Amount, the Final Price Return
Value for any series of Bond Index Notes will equal the most recently published
value of the price return component for the applicable fixed income index on the
Bloomberg information system at 11:00 a.m., New York City time, on the fourth
Business Day immediately preceding the maturity date of the applicable series of
Bond Index Notes.
All determinations made by the calculation agent for Bond Index Notes shall
be at its sole discretion and, absent a determination by such calculation agent
of a manifest error, shall be conclusive for all purposes and binding on ML&Co.
and beneficial owners of Bond Index Notes.
Hypothetical Returns
The hypothetical returns calculated on the following pages are for purposes
of illustration only. The actual Maturity Amount and interest payments for a
Bond Index Note will depend entirely on the actual Spread, the price return
component and total return index value for the applicable fixed income index and
the relevant period. The actual Maturity Amount may be less than the principal
amount of your Bond Index Notes, which would result in a loss to you.
The following examples assume a hypothetical Bond Index Note having an
original issue date of December 6, 1999, a stated maturity date of December 6,
2002, annual interest payments and a Spread of 0.50%. The following examples
also assume a Bond Index Note is held from the original issue date until the
stated maturity date.
The specific terms of your Bond Index Note may differ. The actual terms of
each series of Bond Index Notes are set forth in the applicable pricing
supplement.
14
<PAGE>
Example One
<TABLE>
<CAPTION>
Maturity Amount
Total Return Price Return Annual Interest per $20
Date Index Index Percentage principal amount
---- ----- ----- ---------- ----------------
<S> <C> <C> <C> <C>
11/30/99 825.000 300.000 --- ---
11/30/00 890.000 303.000 6.38% ---
11/30/01 945.000 301.000 6.34% ---
12/02/02 1018.000 304.000 6.23% $20.27
</TABLE>
Interest Calculations:
<TABLE>
<S> <C>
( ( Ending Total Return Value ) ( Ending Price Return Value ) )
$20 x ( ( ----------------------------- - 1 ) - ( ----------------------------- - 1 ) - Spread )
( ( Starting Total Return Value ) ( Starting Total Return Value ) )
</TABLE>
First Interest Payment Date: 12/6/00
( 890 ) ( 303 )
6.38% = ( ---- - 1 ) - ( ---- - 1 ) - 0.50%
( 825 ) ( 300 )
Interest payable on 12/6/00 for each $20 principal amount = $1.28
Second Interest Payment Date: 12/6/01
( 945 ) ( 301 )
6.34% = ( ---- - 1 ) - ( ---- - 1 ) - 0.50%
( 890 ) ( 303 )
Interest payable on 12/6/01 for each $20 principal amount = $1.27
Third Interest Payment Date: 12/6/02
( 1018 ) ( 304 )
6.23% = ( ---- - 1 ) - ( ---- - 1 ) - 0.50%
( 945 ) ( 301 )
Interest payable on 12/6/02 for each $20 principal amount = $1.25
Maturity Amount Calculation:
( Final Price Return Value )
$20 x ( -------------------------- )
( Initial Price Return Value )
Maturity Date: 12/6/02
( 304 )
101.33% = ( --- )
( 300 )
Maturity Amount payable at the maturity date per $20 principal amount =
$20.27
Total amount payable per $20 principal amount = $24.07
Annualized Rate of Return: 6.70%
15
<PAGE>
Example Two
<TABLE>
<CAPTION>
Maturity Amount
Total Return Price Return Annual Interest per $20
Date Index Index Percentage principal amount
---- ----- ----- ---------- ----------------
<S> <C> <C> <C> <C>
11/30/99 825.000 300.000 --- ---
11/30/00 852.000 289.000 6.44% ---
11/30/01 895.000 283.000 6.62% ---
12/02/02 935.000 274.000 7.15% $18.27
</TABLE>
Interest Calculations:
<TABLE>
<S> <C>
( ( Ending Total Return Value ) ( Ending Price Return Value ) )
$20 x ( ( ----------------------------- - 1 ) - ( ----------------------------- - 1 ) - Spread )
( ( Starting Total Return Value ) ( Starting Total Return Value ) )
</TABLE>
First Interest Payment Date: 12/6/00
( 852 ) ( 289 )
6.38% = ( ---- - 1 ) - ( ---- - 1 ) - 0.50%
( 825 ) ( 300 )
Total interest payable on 12/6/00 for each $20 principal amount = $1.29
Second Interest Payment Date: 12/6/01
( 895 ) ( 283 )
6.62% = ( ---- - 1 ) - ( ---- - 1 ) - 0.50%
( 852 ) ( 289 )
Total interest payable on 12/6/01 for each $20 principal amount = $1.32
Third Interest Payment Date: 12/6/02
( 935 ) ( 274 )
7.15% = ( ---- - 1 ) - ( ---- - 1 ) - 0.50%
( 895 ) ( 283 )
Total interest payable on 12/6/02 for each $20 principal amount = $1.43
Maturity Amount Calculation:
( Final Price Return Value )
$20 x ( -------------------------- )
( Initial Price Return Value )
Maturity Date: 12/6/02
( 274 )
91.33% = ( --- )
( 300 )
Maturity Amount payable at the maturity date per $20 principal amount =
$18.27
Total amount payable per $20 principal amount = $22.31
Annualized Rate of Return: 4.13%
16
<PAGE>
Changes to the Fixed Income Indices
ML&Co. has agreed to use its reasonable efforts to cause MLPF&S, through
its Portfolio Strategies Group, to continue to calculate and publish the fixed
income indices for as long as Bond Index Notes remain outstanding.
From time to time, the Portfolio Strategies Group has changed, and may in
the future change, the methodology used to calculate and maintain the fixed
income indices in order to better reflect the value of the applicable fixed
income sector. The inclusion rules governing the characteristics of the
securities included in each fixed income index are set forth in the section "The
Fixed Income Indices--Inclusion Rules and Historical Information". Investors in
Bond Index Notes should be aware that any changes or modifications in the
methodology used to calculate the fixed income indices or the discontinuance of
and substitution for the fixed income indices may adversely affect the value or
Maturity Amount of any series of Bond Index Notes payable at maturity.
Events of Default and Acceleration
In case an Event of Default with respect to any Bond Index Notes has
occurred and is continuing, the amount payable to a beneficial owner of a Bond
Index Note upon any acceleration permitted by the Bond Index Notes, with respect
to each $20 principal amount of Bond Index Notes, will be equal to (1) accrued
but unpaid interest on the Bond Index Notes plus (2) the Maturity Amount, in
each case, calculated as though the date of early repayment was the stated
maturity date of the Bond Index Notes; provided, however, that the Spread will
be applied to the values used to calculate the accrued but unpaid interest on
the Bond Index Notes as if Bond Index Notes had not been accelerated and had
remained outstanding to the stated maturity date. See "Description of Bond Index
Notes--Maturity Amount" in this prospectus. If a bankruptcy proceeding is
commenced in respect of ML&Co., the claim of the beneficial owner of a Bond
Index Note may be limited, under Section 502(b)(2) of Title 11 of the United
States Code, to the principal amount of the Bond Index Notes plus an additional
amount of contingent interest calculated as though the date of the commencement
of the proceeding were the maturity date of Bond Index Notes.
In case of a default in payment on any Bond Index Notes, whether at the
maturity date or upon acceleration, from and after the maturity date or the date
of acceleration, as the case may be, Bond Index Notes will bear interest,
payable upon demand of their beneficial owners, at the London inter-bank offered
rate for one-month deposits as of the date of the final pricing supplement as
determined by ML&Co. (the "Default Rate"), to the extent that payment of
interest is legally enforceable, on the unpaid amount due and payable on that
date in accordance with the terms of Bond Index Notes to the date payment of
that amount has been made or duly provided for.
Bond Index Notes Issued December 22, 1999
The terms appearing in the Final Pricing Supplement for the Bond Index
Notes due December 23, 2002, are set forth below.
<TABLE>
<S> <C>
Issue: Bond Index Notes, Domestic Master Series 1999A
Principal Amount per Bond Index Note: $20
Public Offering Price: Per Bond Index Note Total
------------------- -----
$20.00 $30,000,000
Underwriting Discount: Per Bond Index Note Total
------------------- -----
$ .20 $ 300,000
Proceeds To Issuer Before Expenses: Per Bond Index Note Total
------------------- -----
$19.80 $29,700,000
Original Issue Date: December 22, 1999
</TABLE>
<PAGE>
Stated Maturity Date: December 23, 2002
Listing: AMEX
Trading Symbol: BNX
Fixed Income Index: Merrill Lynch U.S. Domestic Master Index
(American Stock Exchange Symbol "IDM")
Maturity Amount Calculation Period: Start Date End Date
---------- --------
Dec. 16, 1999 Dec. 17, 2002
Maturity Amount Payment Date: Dec. 23, 2002
Interest Payment Periods: Calculation Calculation Interest
Start Date End Date Payment Date
---------- -------- ------------
Dec. 16, 1999 June 16, 2000 June 22, 2000
June 16, 2000 Dec. 18, 2000 Dec. 22, 2000
Dec. 18, 2000 June 18, 2001 June 22, 2001
June 18, 2001 Dec. 18, 2001 Dec. 24, 2001
Dec. 18, 2001 June 18, 2002 June 24, 2002
June 18, 2002 Dec. 17, 2002 Dec. 23, 2002
Spread: 50% of the Principal Amount per annum (which
results in a Spread of .25% of the Principal Amount
per semi-annual Inter est Payment period)
Initial Price Return Value: 284.295
Starting Total Return Value: 825.081
Starting Price Return Value: 284.295 for the initial Interest Payment
Period
Depositary
Description of the Global Securities
Upon issuance, each series of Bond Index Notes will be represented by one
or more fully registered global securities. Each global security will be
deposited with, or on behalf of, DTC (DTC, together with any successor thereto,
being a "depositary"), as depositary, registered in the name of Cede & Co.,
DTC's partnership nominee. Unless and until it is exchanged in whole or in part
for Bond Index Notes in definitive form, no global security may be transferred
except as a whole by the depositary to a nominee of the depositary or by a
nominee of the depositary to the depositary or another nominee of the depositary
or by the depositary or any nominee to a successor of the depositary or a
nominee of that successor.
So long as DTC, or its nominee, is a registered owner of a global security,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of Bond Index Notes represented by the global security for all purposes
under the 1983 Indenture. Except as provided below, the beneficial owners of
Bond Index Notes represented by a global security will not be entitled to have
Bond Index Notes represented by a global security registered in their names,
will not receive or be entitled to receive physical delivery of Bond Index Notes
in definitive form and will not be considered the owners or holders of Bond
Index Notes, including for purposes of receiving any reports delivered by ML&Co.
or the trustee under the 1983 Indenture. Accordingly, each person owning a
beneficial interest in a global security must rely on the procedures of DTC and,
if that person is not a participant of DTC, on the procedures of the participant
through which that person owns its interest, to exercise any rights of a holder
under the 1983 Indenture. ML&Co. understands that under existing industry
practices, in the event that ML&Co. requests any action of holders or that an
owner of a beneficial interest in a global security desires to give or take any
action which a holder is entitled to give or take under the 1983 Indenture, DTC
would authorize the participants holding the relevant beneficial interests to
give or take action, and those participants would authorize beneficial owners
owning through those participants to give or take action or would otherwise act
upon the
18
<PAGE>
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 Bond Index Notes. The Bond Index
Notes 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 Bond Index Notes in the aggregate principal
amount of the Bond Index Notes, 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 under to the provisions of Section 17A of the Securities and 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 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 Bond Index Notes under DTC's system must be made by or through
direct participants, which will receive a credit for the Bond Index Notes on
DTC's records. The ownership interest of each beneficial owner is in turn to be
recorded on the records of direct and indirect participants. Beneficial owners
will not receive written confirmation from DTC of their purchase, but beneficial
owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
participants or indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in the Bond Index Notes
are to be accomplished by entries made on the books of participants acting on
behalf of beneficial owners.
To facilitate subsequent transfers, all Bond Index Notes deposited with DTC
are registered in the name of DTC's partnership nominee, Cede & Co. The deposit
of Bond Index Notes with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership. DTC has no knowledge of the actual
beneficial owners of the Bond Index Notes; DTC's records reflect only the
identity of the direct participants to whose accounts the Bond Index Notes are
credited, which may or may not be the beneficial owners. The participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Arrangements among participants, indirect participants and beneficial
owners, will govern conveyance of notices and other communications by DTC to
participants, by participants to indirect participants and by participants and
indirect participants to beneficial owners, subject to any statutory or
regulatory requirements in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the Bond
Index Notes. Under its usual procedures, DTC mails an omnibus proxy to ML&Co.
as soon as possible after the applicable record date. The omnibus proxy assigns
Cede & Co.'s consenting or voting rights to those direct participants identified
in a listing attached to the omnibus proxy to whose accounts the Bond Index
Notes are credited on the record date identified in a listing attached to the
omnibus proxy.
19
<PAGE>
Principal, premium, if any, and/or interest, if any, payments on the Bond
Index Notes will be made in immediately available funds to DTC. DTC's practice
is to credit direct participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the depositary's records
unless DTC has reason to believe that it will not receive payment on that date.
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", will govern payments by participants to beneficial owners, and these
payments will be the responsibility of the participant and not of DTC, the
trustee or ML&Co., subject to any statutory or regulatory requirements 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
payments to direct participants is the responsibility of DTC, and disbursement
of payments to the beneficial owners is the responsibility of direct and
indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to any series of Bond Index Notes,
the global securities representing these Bond Index Notes will be exchangeable
for Bond Index Notes in definitive form of like tenor and of an equal aggregate
principal amount, in denominations of $20 and integral multiples of $20. The
definitive Bond Index Notes will be registered in the name or names as the
depositary shall instruct the trustee. It is expected that instructions may be
based upon directions received by the depositary from participants with respect
to ownership of beneficial interests in the global securities.
DTC may discontinue providing its services as securities depositary with
respect to Bond Index Notes at any time by giving reasonable notice to ML&Co. or
the trustee. Under these circumstances, in the event that a successor depositary
is not obtained, Bond Index Note certificates are required to be printed and
delivered.
ML&Co. may decide to discontinue use of the system of book-entry transfers
through DTC or a successor securities depositary. In that event, Bond Index Note
certificates will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that ML&Co. believes to be reliable, but ML&Co. takes no
responsibility for its accuracy.
Same-Day Settlement and Payment
Settlement for Bond Index Notes will be made by the underwriter in
immediately available funds. All payments on Bond Index Notes will be made by
ML&Co. in immediately available funds so long as the Bond Index Notes are
maintained in book-entry form.
20
<PAGE>
THE FIXED INCOME INDICES
The Portfolio Strategies Group of our subsidiary MLPF&S calculates,
maintains and publishes approximately 800 separate fixed income indices designed
to track changing values of various classes of fixed income assets. Each series
of Bond Index Notes is indexed to one of seven of these fixed income indices.
Each of these seven indices is published on the AMEX. For purposes of
determining the Maturity Amount or the amount of interest payable on Bond Index
Notes, the value of each of these seven indices will be based on the applicable
fixed income index values published by Bloomberg at the end of each trading day.
Each fixed income index is designed to reflect the value of debt obligations
issued in various sectors of the U.S. domestic fixed income securities market.
The fixed income indices are broad-based indices weighted by issue size
(calculated by multiplying the total face value of the security currently
outstanding by its bid price, plus accrued interest). Each fixed income index
has inclusion rules designed to ensure a reasonable level of liquidity in the
underlying securities and to minimize the number of issues in a particular fixed
income index while capturing the majority of the capitalization of a given
market.
The name of each fixed income index, the AMEX trading symbol of each fixed
income index and the year in which the fixed income index began being calculated
and published, general terms of the securities underlying each fixed income
index and the market value of each fixed income index is set forth below.
Year
Index Name AMEX Symbol Commenced
-------------- -------------- ------------
U.S. Domestic Master IDM 1975
Index
Mortgage Master IGM 1975
Index
U.S. Corporate/ ICG 1972
Government
Master Index
U.S. Corporate IGD 1972
Master Index
U.S. Treasury/ IGG 1972
Agency Master
Index
U.S. Treasury ITM 1977
Master Index
U.S. Agency IGN 1977
Master Index
------------------------------------------------------
21
<PAGE>
Rebalancing of the fixed income indices
Securities included in the fixed income indices are held constant
throughout any given month. Qualifying securities are determined on the last
calendar day of each month based on security characteristics on that date.
Accordingly, on December 31st of each year, MLPF&S selects lists of qualifying
securities for each fixed income index for the following month of January. On
January 31st of each year, MLPF&S selects lists of qualifying securities for
each fixed income index for the following month of February. MLPF&S repeats this
selection process on the last calendar day of each month. Those issues that meet
the criteria for a fixed income index on a month-end selection date remain in
the fixed income index throughout the following month.
. New issues must settle on or before the rebalancing date to be included
in the fixed income index for the applicable month. For example, the
September 1999 U.S. Treasury Two-year auction took place on the 29th and
settled on September 30, 1999, thereby qualifying for inclusion in the
U.S. Treasury Master Index in October. However, the October 1999 Two-
year auction which took place on the 27th did not settle until November
1 and therefore did not qualify for the November 1999 index .
. Issues that meet the maturity requirements of a fixed income index on
the selection date are included, and remain in the index throughout the
month regardless of whether they subsequently fall short of the maturity
guidelines during the month. For example, the U.S. Treasury 5.75% due
October 31, 2000 had exactly one year remaining term to maturity (the
minimum maturity requirement for the fixed income indices) on October
31, 1999 and was included in the U.S. Treasury Master Index for the full
month of November 1999.
. Issues that meet the rating requirements of a fixed income index on the
selection date are included, and remain in a fixed income index
throughout the month regardless of whether their rating falls outside of
the required range as a result of an upgrade or downgrade during the
month. For example, an issue that is rated BBB on January 31st, but is
downgraded to BB on February 1st, will be part of the Investment Grade
Corporate Master Index for February, and then will move to the High
Yield Master Index in March. For purposes of fixed income index
selection criteria, ratings are based on a composite of Moody's
Investors Service Inc. and Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc.
. Bonds that are called during a month are removed from each fixed income
index at month-end at the call price.
. The principal amounts of fixed income in each fixed income index are
held constant throughout the month. Increases and decreases in issue
size that take place during the month as a result of partial redemptions
or re-opening of issues are captured at the next month-end rebalancing.
Calculating total returns between any two dates
Returns between any two dates can then be derived from the beginning of
period and end of period fixed income index value/1/ in the following fashion:
IV1
TRR = ------- - 1
IV\\0\\
where
TRR is the total rate of return from T\\0\\ to T\\1\\
IV\\n\\ is the total rate of return index value on day n
______________________________
/1/ Since fixed income index values represent closing levels, period returns
will include market movement on the end of period date but exclude market
movement on the beginning of period date. Therefore, to capture the
returns for the month of November, the November 30th fixed income index
value is divided by the October 31st fixed income index value.
22
<PAGE>
Merrill Lynch fixed income indices are calculated on a month-to-date basis,
with daily fixed income index value derived by applying each day's month to date
return percentage to the fixed income value at the beginning of the month.
Reinvestment assumptions
Cash flows that occur during the month are reinvested at the beginning-of-
month 1-month LIBID rate, with daily compounding. At the end of the month, cash
and reinvestment income are removed from the index and capitalization weights
are recalculated. Reinvestment rates will be sourced from the Merrill Lynch
LIBID 1-month Constant Maturity Index Series.
Pricing
Each of the above fixed income indices are calculated by the Portfolio
Strategies Group. Price levels of the underlying securities reflect the
Portfolio Strategies Group's determination of the appropriate bid-side price for
the applicable securities. All securities comprising the fixed income indices
are priced at approximately 3:00 p.m., New York City time, each trading day. The
prices of the underlying securities comprising the fixed income indices are
determined based on the prices of such securities and other similar securities
obtained from publicly-available information and MLPF&S' trading personnel. In
addition to using these prices in calculating the fixed income indices, MLPF&S
disseminates these prices to their customers, including mutual funds, custodians
and institutions who use these prices to determine the value of their positions.
When the Portfolio Strategies Group is not able to determine the price of an
underlying security comprising any of the fixed income indices, it will use a
security price from a third party vendor or other valuation methodology that, in
the best judgement of the Portfolio Strategies Group, will provide the most
accurate bid-side price. The resulting fixed income index values are published
by Bloomberg at the end of each trading day.
23
<PAGE>
U.S. Domestic Master Index
. The U.S. Domestic Master Index is computed daily and can be viewed on
Bloomberg at D0A0(INDEX)(GO).
. The U.S. Domestic Master Index is published on the AMEX under the symbol
"IDM".
Mortgage Master Index
. The Mortgage Master Index is computed daily and can be viewed on
Bloomberg at M0A0(INDEX)(GO).
. The Mortgage Master Index is published on the AMEX under the symbol
"IGM".
U.S. Corporate/Government Master Index
. The U.S. Corporate/Government Master Index is computed daily by MLPF&S.
The U.S. Corporate/Government Master Index can be viewed on Bloomberg at
B0A0(INDEX)(GO).
. The U.S. Corporate/Government Master Index is published on the AMEX
under the symbol "ICG".
U.S. Corporate Master Index
. The U.S. Corporate Master Index is computed daily by MLPF&S. The U.S.
Corporate Master Index can be viewed on Bloomberg at C0A0(INDEX)(GO).
. The U.S. Corporate Master Index is published on the AMEX under the
symbol "IGD".
U.S. Treasury/Agency Master Index
. The U.S. Treasury/Agency Master Index is computed daily and can be
viewed on Bloomberg at G0A0(INDEX)(GO).
. The U.S. Treasury/Agency Master Index is published on the AMEX under the
symbol "IGG".
U.S. Treasury Master Index
. The U.S. Treasury Master Index is computed daily and can be viewed on
Bloomberg at G0Q0(INDEX)(GO).
. The U.S. Treasury Master Index is published on the AMEX under the symbol
"ITM".
U.S. Agency Master Index
. The U.S. Agency Master Index is computed daily and can be viewed on
Bloomberg at G0Q0(INDEX)(GO).
. The U.S. Agency Master Index is published on the AMEX under the symbol
"IGN".
24
<PAGE>
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and Section 4975 of the Code prohibit various transactions between certain
parties and the assets of employee benefit plans, unless an exemption is
available; governmental plans may be subject to similar prohibitions. Because
transactions between a plan and ML&Co. may be prohibited absent an exemption,
each fiduciary, by its purchase of any Bond Index Notes on behalf of any plan,
represents on behalf of itself and the plan, that the acquisition, holding and
any subsequent disposition of Bond Index Notes will not result in a violation of
ERISA, the Code or any other applicable law or regulation.
OTHER TERMS
ML&Co. issued the Bond Index Notes 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
Bond Index Notes 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.
ML&Co. may issue series of senior debt securities from time to time 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 Bond Index Notes 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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.
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 transaction, MLPF&S remains a
Controlled Subsidiary.
25
<PAGE>
"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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to all
the senior debt securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 Indenture may:
. 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;
. 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;
. change the place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any senior debt security;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any senior debt security;
. 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
. 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
26
<PAGE>
securities of any series may, with respect to that series, waive past defaults
under the 1983 Indenture and waive compliance by ML&Co. with provisions in the
1983 Indenture, except as described under "--Events of Default".
Events of Default
Each of the following will be Events of Default with respect to senior
debt securities of any series:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. 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 senior debt securities of that series may waive any Event of
Default with respect to that series, except a default:
. in the payment of any amounts due and payable or deliverable under
the debt securities of that series; or
. in respect of an obligation or provision of the 1983 Indenture which
cannot be modified under the terms of that Indenture without the
consent of each holder of each outstanding security of each series of
senior 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 Bond Index Notes 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.
27
<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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13, 2000,
October 6, 2000, October 17, 2000, November 1, 2000, November 20,
2000, and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement.
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. 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.
28
<PAGE>
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) 670-0432.
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 a national securities exchange or
the Nasdaq Stock Market, as specified in the applicable pricing supplement, 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
29
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus Supplement dated December 27, 2000
<TABLE>
<CAPTION>
<S> <C>
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH/SM/ INVESTING
Pursuit of Growth, Protection of Principal
</TABLE>
Merrill Lynch & Co., Inc.
Nikkei 225 Market Index Target-Term Securities(R)
due March 30, 2007
"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>
The MITTS Securities: Payment at maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal to
. Senior unsecured debt securities of Merrill Lynch the sum of the principal amount of each unit and an
& Co., Inc. additional amount based on the percentage increase, if
. Linked to the value of the Nikkei 225 Index. any, in the value of the Nikkei 225 Index, multiplied
. The MITTS Securities are listed on the American by a participation rate of 130%.
Stock Exchange under the trading symbol "MLJ". . At maturity, you will receive no less than the
. Closing date: March 31, 2000. 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 , .
"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
2
<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 March 30, 2007. 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 supplement to "ML&Co." "we", "us" and "our"
are to Merrill Lynch & Co., Inc. and references 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 March 30, 2007. We cannot redeem the MITTS Securities at any earlier
date and 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 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
entitled "Description of the MITTS Securities--Depositary" in this prospectus
supplement.
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 value
of 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", if any.
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 "Starting Value" equals 20,374.34, the closing value of the Nikkei 225
Index on March 28, 2000, the date the MITTS Securities were priced for initial
sale to the public.
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 futures or options contracts relating to the Nikkei 225 Index.
The "Participation Rate" equals 130%.
For more specific information about the Supplemental Redemption Amount,
please see the section entitled "Description of the MITTS Securities" in this
prospectus.
3
<PAGE>
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.
Examples
Here are two examples of Supplemental Redemption Amount calculations
assuming an investment term equal to that of the MITTS Securities and a
Participation Rate of 130%:
Example 1--The Nikkei 225 Index is below the Starting Value at maturity:
Starting Value: 20,374.34
Hypothetical Ending Value: 19,355.62
<TABLE>
<CAPTION>
<S> <C> <C>
( Supplemental
Redemption
(19,355.62 - 20,374.34) Amount
Supplemental Redemption Amount (per unit) = $10 X (---------------------) X 130% = $0.00 cannot be
( 20,374.34 ) less than
zero)
</TABLE>
Total payment at maturity (per unit) = $10 + $0.00 = $10.00
Example 2--The Nikkei 225 Index is above the Starting Value at maturity:
Starting Value: 20,374.34
Hypothetical Ending Value: 27,505.36
<TABLE>
<CAPTION>
<S> <C>
(27,505.36 - 20,374.34)
Supplemental Redemption Amount (per unit) = $10 X (---------------------) X 130% = $4.55
( 20,374.34 )
</TABLE>
Total payment at maturity (per unit) = $10 + $4.55 = $14.55
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 "MLJ". 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".
What is the role of MLPF&S?
4
<PAGE>
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
is not obligated to engage in any of these market activities or continue them
once it has started.
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 subsidiary and
affiliated companies that provide investment, financing, insurance and related
services on a global basis.
For information about ML&Co., see the section entitled "Merrill Lynch & Co.,
Inc." in this prospectus. You should also read 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 entitled "Risk Factors" in this prospectus.
5
<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 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 "MLJ".
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 depends 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
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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 futures or options 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 interest. 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.
9
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and acquisitions
and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures and
other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and related
services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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.
10
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
11
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On March 31, 2000, ML & Co. issued an aggregate principal amount of
$25,000,000 or 2,500,000 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 March 30, 2007.
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".
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>
(Ending Value - Starting Value)
principal amount of each 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 20,374.34, the closing value of the Nikkei 225
Index on March 28, 2000, 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 130%.
12
<PAGE>
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:
. the percentage change from the Starting Value to the hypothetical Ending
Value,
. the total amount payable at maturity for each unit of MITTS Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. 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 0.59% per annum, as more fully described below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Pretax
annualized
Hypothetical Percentage change Total amount Pretax rate of return
Ending Value from the payable at maturity per Total rate of annualized of stocks
during the Starting Value to unit of the return on the rate of return underlying the
Calculation the hypothetical MITTS MITTS on the MITTS Nikkei 225
Period Ending Value Securities(1) Securities(1) Securities(1)(2) Index(2)(3)
----------------- ------------------ ----------------------- --------------- ---------------- ---------------
4,074.87 -80% 10.00 0.00% 0.00% -21.07%
8,149.74 -60% 10.00 0.00% 0.00% -12.08%
12,224.60 -40% 10.00 0.00% 0.00% -6.58%
16,299.47 -20% 10.00 0.00% 0.00% -2.58%
20,374.34(4) 0% 10.00 0.00% 0.00% 0.59%
24,449.21 20% 12.60 26.00% 3.33% 3.22%
28,524.08 40% 15.20 52.00% 6.06% 5.48%
32,598.94 60% 17.80 78.00% 8.40% 7.45%
36,673.81 80% 20.40 104.00% 10.44% 9.21%
40,748.68 100% 23.00 130.00% 12.24% 10.80%
44,823.55 120% 25.60 156.00% 13.87% 12.24%
48,898.42 140% 28.20 182.00% 15.35% 13.58%
52,973.28 160% 30.80 208.00% 16.71% 14.81%
57,048.15 180% 33.40 234.00% 17.97% 15.96%
61,123.02 200% 36.00 260.00% 19.14% 17.03%
</TABLE>
--------------
(1) The table assumes a Participation Rate of 130%.
(2) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
13
<PAGE>
(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 0.59% 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 March 31, 2000 to March 30, 2007.
(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 rates of return will depend entirely on the 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 futures or
options contract will not constitute a Market Disruption Event;
14
<PAGE>
(3) a suspension in trading in a futures or options 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:
. the calculation agent does not select a successor index, or
. 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:
. the determination of the Ending Value, or
. 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.
15
<PAGE>
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 7.48% 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:
16
<PAGE>
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
17
<PAGE>
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:
. 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.
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.
18
<PAGE>
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 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 (Yen)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
(Yen)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 and is subject to periodic
adjustment. 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, i.e., 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. The current divisor is
available on Bloomberg under the symbol "NKY".
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 from 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.
19
<PAGE>
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 or any member of the
public regarding the advisability of investing in securities generally or in the
MITTS Securities in particular or the ability of the Nikkei 225 Index to track
general stock market performance. NKS has no obligation to take the needs of
ML&Co. or 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 to be 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.
20
<PAGE>
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:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
21
<PAGE>
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:
. 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:
. pay any amounts due and payable or deliverable with respect to all
the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any premium,
interest or Additional Amounts payable on any senior debt security;
. impair the right to institute suit for the enforcement of any payment on
or with respect to any senior debt security;
. 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
. 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:
22
<PAGE>
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
. 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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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.
23
<PAGE>
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
$6.7221 per unit. This represents an estimated yield on the MITTS Securities
equal to 7.48% 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 a Projected
Supplemental Redemption Amount and an estimated yield equal to 7.48% 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 the
Interest deemed MITTS Securities
to accrue during as of the end of
accrual period accrual period
Accrual Period (per unit) (per unit)
-------------- ---------------- -----------------
<S> <C> <C>
March 31, 2000 through September 30, 2000................................ $0.3750 $0.3750
October 1, 2000 through March 30, 2001................................... $0.3881 $0.7631
March 31, 2001 through September 30, 2001................................ $0.4025 $1.1656
October 1, 2001 through March 30, 2002................................... $0.4176 $1.5832
March 31, 2002 through September 30, 2002................................ $0.4332 $2.0164
October 1, 2002 through March 30, 2003................................... $0.4494 $2.4658
March 31, 2003 through September 30, 2003................................ $0.4663 $2.9321
October 1, 2003 through March 30, 2004................................... $0.4836 $3.4157
March 31, 2004 through September 30, 2004................................ $0.5018 $3.9175
October 1, 2004 through March 30, 2005................................... $0.5205 $4.4380
March 31, 2005 through September 30, 2005................................ $0.5399 $4.9779
October 1, 2005 through March 30, 2006................................... $0.5602 $5.5381
March 31, 2006 through September 30, 2006................................ $0.5812 $6.1193
October 1, 2006 through March 30, 2007................................... $0.6028 $6.7221
</TABLE>
----------------
Projected Supplemental Redemption Amount = $6.7221 per unit.
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 the information to Merrill Lynch & Co., Inc., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
24
<PAGE>
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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 the prospectus may not contain all the
information that you may find important, you should review the full text of
these documents. We have included copies of these documents as exhibits to our
registration statement 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13, 2000,
October 6, 2000, October 17, 2000, November 1, 2000, November 20, 2000
and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting;
and
. 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.
25
<PAGE>
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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 offered on the NYSE 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
26
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
PROSPECTUS
----------
[LOGO OF MERRILL LYNCH]
Merrill Lynch & Co., Inc.
Euro Currency Warrants,
Expiring February 28, 2002
U.S. Dollar denominated warrants based on the USD/EUR Foreign Exchange Spot Rate
________________
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 warrants.
<TABLE>
<CAPTION>
The Euro Currency Warrants: Exercise and payment upon exercise:
<S> <C>
. Unsecured contractual obligations of ML&Co. . The warrants will be automatically exercised on the fourth
scheduled Business Day prior to the Expiration Date unless
. You must purchase a minimum of 100 warrants. early exercise occurs because of certain events as described
in this prospectus.
. You must have an options-approved account in order
to purchase warrants. . You do not have the right to exercise your warrants.
. Your return, if any, will be linked to the exchange rate . Upon automatic exercise, we will pay you, for each warrant
between the U.S. Dollar and the Euro. that you own, an amount in U.S. Dollars equal to the greater
of (i) zero or (ii) the product, if positive, of U.S.$50 and
. The warrants are listed on the American Stock Exchange the percentage increase in the U.S. Dollar/Euro Exchange Rate,
under the trading symbol "EUN.WS". i.e. the appreciation of the Euro, as described in this
prospectus.
. Closing Date: December 6, 2000. . The purchase price you pay for the warrants will be in U.S.
Dollars, and any Cash Settlement Amount we pay you will be in
U.S. Dollars.
</TABLE>
Investing in the warrants involves a high degree of risk, including the
risk that the warrants will expire worthless and you may sustain
a total loss of the purchase price.
See "Risk Factors" beginning on page 7 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 warrants will be the prevailing market price at the
time of sale.
_________________
Merrill Lynch & Co.
________________
The date of this prospectus is , .
<PAGE>
TABLE OF CONTENTS
Prospectus
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION -- Q&A.................................................... 3
RISK FACTORS.................................................................. 7
MERRILL LYNCH & CO., INC...................................................... 11
RATIO OF EARNINGS TO FIXED CHARGES............................................ 12
DESCRIPTION OF THE WARRANTS................................................... 13
THE USD/EUR RATE AND CASH SETTLEMENT AMOUNTS.................................. 20
ERISA CONSIDERATIONS.......................................................... 23
WHERE YOU CAN FIND MORE INFORMATION........................................... 23
INCORPORATION OF INFORMATION WE FILE WITH THE SEC............................. 23
PLAN OF DISTRIBUTION.......................................................... 25
EXPERTS....................................................................... 25
</TABLE>
S-2
<PAGE>
SUMMARY INFORMATION -- Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Euro Currency
Warrants, Expiring February 28, 2002 (the "warrants"). You should carefully read
this prospectus to understand fully the terms of the warrants as well as the tax
and other considerations that should be important to you in making a decision
about whether to invest in the warrants. You should carefully review the "Risk
Factors" section, which highlights certain risks associated with an investment
in the warrants, to determine whether an investment in the warrants is
appropriate for you.
References in this prospectus to "ML&Co.", "we", "us" and "our" are to
Merrill Lynch & Co., Inc. and references to "MLPF&S" are to Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
In this prospectus, unless otherwise specified or unless the context
otherwise requires, references to "Euro" or "EUR" are to the lawful currency of
the member states of the European Union that adopt the single currency in
accordance with the treaty establishing the European Community (the "EC") as
amended by the Treaty on European Union, and references to "Dollars", "$",
"U.S.$" or "USD" are to the lawful currency of the United States.
What are the warrants?
The warrants are contractual obligations of ML&Co. and are not secured by
collateral. The warrants rank equally with all other unsecured contractual
obligations of ML&Co. and ML&Co.'s unsecured unsubordinated debt. The warrants
will entitle you to receive a cash settlement upon automatic exercise. The
warrants will expire on February 28, 2002.
You will not have the right to receive physical certificates evidencing
your ownership except under limited circumstances. Instead, we have issued the
warrants in the form of a global certificate, which is being held by The
Depository Trust Company, also known as DTC, or its nominee. Direct and indirect
participants in DTC will record beneficial ownership of the warrants by
individual investors. Direct and indirect participants in DTC will include
participants in the Euroclear and Clearstream Banking, societe anonyme
("Clearstream, Luxembourg") clearing systems. You should refer to the section
"Description of the warrants--Depositary" in this prospectus.
When are my warrants subject to automatic exercise?
Your warrants will be automatically exercised on the earlier of:
(i) the fourth scheduled Business Day prior to the Expiration Date (the
"Exercise Date") or,
(ii) the Business Day immediately prior to the warrants' delisting, the
imposition of a permanent trading suspension on trading of the
warrants, or if certain events in bankruptcy, insolvency or
reorganization involving ML&Co. occur.
See "Description of the warrants--Exercise of the warrants and--Automatic
exercise prior to the Expiration Date".
What will I receive upon automatic exercise of my warrants?
When the warrants are automatically exercised, we will pay you a Cash
Settlement Amount in U.S. Dollars which will be the greater of
(i) zero, or
(Spot Value - Strike Value)
(ii) U.S. $50 x (-------------------------)
( Strike Value )
You will receive no payment if the Cash Settlement Amount is equal to zero.
The Cash Settlement Amount cannot be less than zero.
The "Strike Value" equals 0.8695, the offer rate of the U.S. Dollar per
Euro in the interbank market as reported by Reuters Group PLC ("Reuters") on
page FXFX at approximately
S-3
<PAGE>
3:00 p.m. London time on November 30, 2000, the date the warrants were priced
for initial sale to the public.
The "Spot Value" will be determined by MLPF&S, the calculation agent, and
will equal the bid rate of the U.S. Dollar per Euro in the interbank market as
reported by Reuters on page FXFX at approximately 3:00 p.m. London time on the
Exercise Date. If Reuters is not providing the exchange rate for U.S. Dollar per
Euro, then MLPF&S will determine such exchange rate using other sources as
described in "Description of the Warrants--Cash Settlement Amount".
We will pay you a Cash Settlement Amount only if the Spot Value is greater
than the Strike Value. If the Spot Value is less than or equal to the Strike
Value upon exercise, the Cash Settlement Amount will be zero. If the Cash
Settlement Amount is zero, you will sustain a total loss of the purchase price.
For more specific information about the amount you will receive upon
exercise of your warrants, please see the section "Description of the Warrants--
Cash Settlement Amount" in this prospectus.
Who can buy the warrants?
The AMEX requires that you have an options-approved account in order to
purchase the warrants. We recommend that you, as an investor in the warrants,
have experience with respect to options and options transactions. If you are
solely dependent upon fixed income, or if you intend to purchase the warrants
for your individual retirement plan account or for accounts under the Uniform
Transfers/Gifts to Minors Act, then the warrants are not a suitable investment
for you. Please see "Risk Factors" in this prospectus.
S-4
<PAGE>
--------------------------------------------------------------------------------
Examples
Here are three examples of Cash Settlement Amount calculations using the
initial offering price of $3.875 per warrant:
Example 1-- Spot Value is less than the Strike Value on the Exercise Date:
Strike Value: 0.8695 U.S.$/Euro
Hypothetical Spot Value: 0.8000 U.S.$/Euro
(0.8000 - 0.8695)
Cash Settlement Amount per warrant = $50 x (---------------) = $0.00
( 0.8695 )
Total Cash Settlement Amount per warrant = $0 and the exercise of the
warrant is worthless.
Example 2-- Spot Value is greater than the Strike Value on the Exercise Date,
however, the Cash Settlement Amount is less than the offering price:
Strike Value: 0.8695 U.S.$/Euro
Hypothetical Spot Value: 0.9000 U.S.$/Euro
(0.9000 - 0.8695)
Cash Settlement Amount per warrant = $50 x (---------------) = $1.75
( 0.8695 )
Total Cash Settlement Amount per warrant = $1.75 and the exercise of the
warrant results in a payment that is less than the initial offering price.
Example 3-- Spot Value is greater than the Strike Value on the Exercise Date:
Strike Value: 0.8695 U.S.$/Euro
Hypothetical Spot Value: 1.0000 U.S.$/Euro
(1.0000 - 0.8695)
Cash Settlement Amount per warrant = $50 x (---------------) = $7.50
( 0.8695 )
Total Cash Settlement Amount per warrant = $7.50.
--------------------------------------------------------------------------------
S-5
<PAGE>
What is the Euro?
The Euro is the official currency of the member states of the European
Economic and Monetary Union.
It was introduced in January 1999 and replaced the national currencies of
the 11 participating countries. The Euro is the official currency of the member
states of the European Economic and Monetary Union that adopted the single
currency in accordance with the treaty establishing the EC, as amended by the
Treaty on European Union. The following 11 countries use the Euro as their
official currency: Germany, Belgium, Luxembourg, Spain, France, Ireland, Italy,
the Netherlands, Austria, Portugal and Finland. There is a possibility that in
the future other EC countries may adopt the Euro as their official currency.
What does the USD/EUR Rate reflect?
The "USD/EUR Rate" is a foreign exchange spot rate that measures the
relative value of two currencies, the Euro and the U.S. Dollar. The USD/EUR Rate
increases when the Euro appreciates relative to the U.S. Dollar and decreases
when the Euro depreciates relative to the U.S. Dollar.
Are the warrants listed on a stock exchange?
The warrants are listed on the AMEX under the trading symbol "EUN.WS". You
should be aware that the listing of the warrants on the AMEX will not
necessarily ensure that a liquid trading market will be available for the
warrants, or that it will remain available throughout the term of the warrants.
You should review the section entitled "Risk Factors--There may be an uncertain
trading market for the warrants" 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 warrants. MLPF&S intends to buy and sell warrants to create a
secondary market for holders of the warrants. However, MLPF&S will not be
obligated to engage in any of these market activities, or to continue them once
it has started.
MLPF&S is also our agent for purposes of calculating the Spot Value and the
Cash Settlement 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. Please see the section entitled "Risk
Factors--Potential conflicts of interest" in this prospectus.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co., see the
section entitled "Merrill Lynch & Co., Inc." in this prospectus. You should also
read the other documents we have 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 warrants is subject to risks, including the risk
that you will lose your entire purchase price. Please refer to the section "Risk
Factors" in this prospectus.
S-6
<PAGE>
RISK FACTORS
Your investment in the warrants will involve a high degree of risk. For
example, there is foreign exchange risk, the risk that you might not earn a
return on your investment and the risk that the warrants will expire worthless.
You should be prepared to sustain a total loss of the purchase price of your
warrants. We suggest that you, as a potential purchaser of warrants, be
experienced with respect to options and option transactions and understand the
risks of foreign currency transactions. In addition, you should reach an
investment decision with regard to the warrants only after consulting with your
legal and tax advisers and considering the suitability of the warrants in the
light of your particular circumstances.
The warrants are long-term options and may expire worthless
Your warrants will be automatically exercised on the earlier of either the
Exercise Date, Delisting Date or Early Expiration Date and are not exercisable
at your option. You will receive a cash payment upon automatic exercise only if
the warrants have a Cash Settlement Amount greater than zero on the date of
exercise. On November 30, 2000 the Cash Settlement Amount of the warrants are
equal to zero. The warrants will be "in-the-money", i.e., their Cash Settlement
Amount will exceed zero, only if as of the date of automatic exercise, the Spot
Value is greater than the Strike Value.
If the Spot Value is less than or equal to the Strike Value on the date of
automatic exercise, the warrant will expire worthless and you will have
sustained a total loss of the purchase price of the warrant. You should
therefore be prepared to sustain a total loss of the purchase price of your
warrants.
The price of the warrants may be higher than the price a commercial user might
pay in certain circumstances
The price of the warrants may be greater than the price a commercial user
of, or dealer in options on, U.S. Dollars or Euro might pay for a comparable
option involving significantly larger amounts of U.S. Dollars and Euro.
The value of the warrants is closely related to changes in the USD/EUR Rate
The warrants provide opportunities for investment but also pose risks to
you as a result of fluctuations in the value of the currency underlying the
warrants. In general, certain risks associated with the warrants are similar to
those generally applicable to other options or warrants of private corporate
issuers. However, unlike options or warrants on equity or debt securities, which
are traded and priced primarily on the basis of the value of a single underlying
security, the trading value of the warrants being offered by this prospectus is
likely to reflect the current and anticipated USD/EUR Rate on the Exercise Date.
You may lose your entire investment. This risk reflects the nature of a
warrant as an asset which tends to decline in value over time and which may,
depending on the relative value of the Euro as compared with the U.S. Dollar, be
worthless when it expires. A warrant is "out-of-the-money" when the Spot Value
is less than the Strike Value. Assuming all other factors are held constant, the
more a warrant is out-of-the-money and the shorter its remaining term to
expiration, the greater the risk that you will lose all of your investment. This
means that if you do not sell your warrants in the secondary market, you will
lose your entire investment in the warrant if it expires when the Spot Value is
less than or equal to the Strike Value.
Since warrants may become worthless upon expiration, you must generally be
correct about the direction, timing and magnitude of anticipated exchange rate
changes affecting the Euro and the U.S. Dollar in order to recover and realize a
return upon your investment. If the value of the Euro as compared with the U.S.
Dollar does not increase to an extent sufficient to cover the cost of your
warrants, i.e., the purchase price, before the warrants expire, you will lose
all or a part of your investment in the warrants upon expiration. You will bear
the foreign exchange risks of the value of the U.S. Dollar in terms of the Euro.
S-7
<PAGE>
Currency Exchange Markets. The value of any currency, including the Euro
and the U.S. Dollar, may be affected by complex political and economic factors.
The spot exchange rate of the Euro in terms of the U.S. Dollar is at any moment
a result of the supply and demand for the two currencies, and changes in the
exchange rate result over time from the interaction of many factors directly or
indirectly affecting economic and political conditions in the European Union and
the United States, including economic and political developments in other
countries. Of particular importance are the relative rates of inflation,
interest rate levels, the balance of payments and the extent of governmental
surpluses or deficits in the European Union and in the United States, all of
which are in turn sensitive to the monetary, fiscal and trade policies pursued
by the European Union, the governments of the European Union, the United States
and other countries important to international trade and finance.
Foreign exchange rates can either be fixed by sovereign governments or
floating. Exchange rates of most economically developed nations, including the
European Union, are permitted to fluctuate in value relative to the U.S. Dollar.
However, governments sometimes do not allow their currencies to float freely in
response to economic forces. Governments, including the European Union, use a
variety of techniques, such as intervention by their central bank or imposition
of regulatory controls or taxes, to affect the exchange rates of their
respective currencies. They may also issue a new currency to replace an existing
currency or alter the exchange rate or relative exchange characteristics by
devaluation or revaluation of a currency. Thus, a special risk in purchasing the
warrants is that their liquidity, trading value and Cash Settlement Amount could
be affected by the actions of sovereign governments or the European Union which
could change or interfere with theretofore freely determined currency valuation,
fluctuations in response to other market forces and the movement of currencies
across borders. There will be no adjustment or change in the terms of the
warrants in the event that exchange rates should become fixed, or in the event
of any devaluation or revaluation or imposition of exchange or other regulatory
controls or taxes, or in the event of other developments affecting the Euro, the
U.S. Dollar or any other currency.
Even though currency trades around-the-clock, your warrants will trade on the
AMEX only during regular trading hours
The interbank market in foreign currencies is a global, around-the-clock
market. Therefore, the hours of trading for the warrants will not conform to the
hours during which the Euro and U.S. Dollar are traded. To the extent that the
AMEX is closed while the markets for the Euro remain open, significant price and
rate movements may take place in the underlying foreign exchange markets that
will not be reflected immediately in the price of a warrant on such exchange.
The possibility of these movements should be taken into account in relating
closing prices on the AMEX for the warrants to those in the underlying foreign
exchange markets.
There is no systematic reporting of last-sale information for foreign
currencies. Reasonably current bid and offer information is available in certain
brokers' offices, in bank foreign currency trading offices, and to others who
wish to subscribe for this information, but this information will not
necessarily reflect the EUR bid rate used to calculate the Spot Value. There is
no regulatory requirement that those quotations be firm or revised on a timely
basis. The absence of last-sale information and the limited availability of
quotations to individual investors may make it difficult for many investors to
obtain timely, accurate data about the state of the underlying foreign exchange
markets.
The warrants are suitable only for investors with options-approved accounts
The AMEX requires that warrants be sold only to investors with options-
approved accounts and that its members and member organizations and their
registered employees make certain suitability determinations before recommending
transactions in warrants. We suggest that investors considering purchasing
warrants be experienced with respect to options and option transactions and
understand the risks of foreign currency transactions and reach an investment
decision only after carefully considering, with their advisers, the suitability
of the warrants in light of their particular circumstances. Warrants are not
suitable for persons solely dependent upon a fixed income, for individual
retirement plan accounts or for accounts under the
S-8
<PAGE>
Uniform Transfers/Gifts to Minors Act. You should be prepared to sustain a total
loss of the purchase price of your warrants.
The warrants will be automatically exercised if they are delisted
In the event that the warrants are delisted from, or permanently suspended
from trading on, the AMEX and the warrants are not simultaneously accepted for
trading pursuant to the rules of another regulated trading organization that
files with the SEC under U.S. securities laws, the warrants will expire on the
date of the delisting or trading suspension becomes effective and will be deemed
automatically exercised on the Delisting Date. At the time of the automatic
exercise, the warrants may be out-of-the-money so that the Cash Settlement
Amount would equal zero.
The warrants are not standardized options issued by the Options Clearing
Corporation
The warrants are not standardized foreign currency options of the type
issued by the Options Clearing Corporation (the "OCC"), a clearing agency
regulated by the SEC. For example, unlike purchasers of OCC standardized options
who have the credit benefits of guarantees and margin and collateral deposits by
OCC clearing members to protect the OCC from a clearing member's failure,
purchasers of warrants must look solely to ML&Co. for performance of its
obligations to pay the Cash Settlement Amount on the exercise of warrants. In
addition, OCC standardized options provide for physical delivery of the
underlying foreign currency (rather than cash settlement in U.S. Dollars), and
permit immediate determination of value upon exercise. Further, the market for
the warrants is not expected to be generally as liquid as the market for some
OCC standardized options.
The warrants are unsecured contractual obligations of ML&Co. and rank
equally with ML&Co.'s other unsecured contractual obligations and with ML&Co.'s
unsecured and unsubordinated debt. However, given that ML&Co. is a holding
company, the right of ML&Co., and hence the right of creditors of ML&Co.,
including beneficial owners of the warrants, to participate in any distribution
of the assets of any subsidiary upon its liquidation or reorganization or
otherwise is 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 certain
exchanges and other regulatory bodies.
There may be an uncertain trading market for the warrants
The warrants are listed on the AMEX under the trading symbol "EUN.WS".
While there have been a number of issuances of different warrants, trading
volumes have varied historically from one series to another, and it is therefore
impossible to predict how the warrants will trade. You cannot assume that a
trading market exists for the warrants. If a trading market does exist, there
can be no assurance that there will be liquidity in the trading market.
Many factors affect the trading value of the warrants; these factors interrelate
in complex ways and the effect of one factor may offset or magnify the effect of
another factor
The market value of the warrants will be affected by factors that
interelate 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
warrants caused by another factor and that the effect of one factor may
exacerbate the decrease in the trading value of the warrants caused by another
factor. For example, an increase in the level of Euro interest rates may offset
some or all of any increase in the trading value of the warrants attributable to
another factor, such as an increase in the value of the USD/EUR Rate. The
following paragraphs describe the expected impact on the market value of the
warrants given a change in a specific factor, assuming all other conditions
remain constant.
The value of the USD/EUR Rate is expected to affect the trading value of
the warrants. We expect that the trading value of the warrants will depend
primarily on the current and anticipated USD/EUR Rate on
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<PAGE>
the Exercise Date. It is possible that the trading value of a warrant may
decline even if there is a increase in the value of the Euro as compared to the
U.S. Dollar prior to the Exercise Date.
Changes in the levels of interest rates are expected to affect the trading
value of the warrants. We expect that interest rates will affect the trading
value of the warrants. In general, if U.S. interest rates increase, we expect
that the trading value of the warrants will increase and, conversely, if U.S.
interest rates decrease, we expect that the trading value of the warrants will
decrease. In general, if Euro interest rates increase, we expect that the
trading value of the warrants will decrease and, conversely, if Euro interest
rates decrease, we expect that the trading value of the warrants will increase.
Interest rates may also affect the economies of the member countries of the
European Union or the United States, and, in turn, the USD/EUR Rate.
Changes in volatility of the USD/EUR Rate are expected to affect the
trading value of the warrants. Volatility is the term used to describe the size
and frequency of price and/or market fluctuations. Generally, if the volatility
of the USD/EUR Rate increases, we expect that the trading value of the warrants
will increase and, conversely, if the volatility of the USD/EUR Rate decreases,
we expect that the trading value of the warrants will decrease.
As the time remaining to the expiration date of the warrants decreases, the
"time premium" associated with the warrants will decrease. We anticipate that
the warrants may trade at a value above that which would be expected based on
the level of the USD/EUR Rate due to a "time premium" resulting from
expectations concerning the value of the USD/EUR Rate prior to the expiration of
the warrants. Generally, as the time remaining to the expiration date of the
warrants decreases, we expect that this time premium will decrease, lowering the
trading value of the warrants.
Changes in our credit ratings may affect the trading value of the warrants.
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 warrants. However, because the return on your warrants is
dependent upon factors in addition to our ability to pay our obligations under
the warrants, such as any increase in the USD/EUR Rate, an improvement in our
credit ratings will not reduce other investment risks related to warrants.
It is important for you to understand that the impact of one of the factors
specified above, such as a decrease in USD/EUR Rate volatility, may offset some
or all of any increase in the trading value of the warrants attributable to
another factor, such as any increase in the USD/EUR Rate. Before selling
warrants, beneficial owners should carefully consider the trading value of the
warrants, the value of the U.S. Dollar and the Euro, and the probable range of
Cash Settlement Amounts.
Potential conflicts of interests
Our subsidiary, MLPF&S, is the calculation agent for the warrants. Under
certain circumstances, MLPF&S' role as our subsidiary and its responsibilities
as calculation agent for the warrants could give rise to conflicts of interests
between the calculation agent and the holders of the warrants. 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 under the
warrants. This subsidiary expects to make a profit in connection with the
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
Tax consequences
You should also consider the tax consequences of investing in the warrants.
See "United States Federal Income Taxation" below.
S-10
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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 Warrants described in this prospectus.
S-11
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges for
the periods indicated:
<TABLE>
<CAPTION>
For the Nine
Year Ended Last Friday in December Months Ended
----------------------------------------
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges....... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
S-12
<PAGE>
DESCRIPTION OF THE WARRANTS
An aggregate of 1,600,000 warrants have been issued. The warrants are
contractual obligations controlled by a Warrant Agreement (the "Warrant
Agreement") dated December 6, 2000, between ML&Co. and Citibank, N.A., as
Warrant Agent (the "Warrant Agent"). The warrants will expire on February 28,
2002. The following statements about the warrants summarize the detailed
provisions of the Warrant Agreement, the form of which was filed as an exhibit
to the registration statement relating to the warrants. Wherever we refer to
particular provisions of the Warrant Agreement or its terms, those provisions or
definitions are incorporated by reference as a part of the statements made, and
the statements are qualified in their entirety by those references.
A warrant will not require, or entitle, a beneficial owner to sell or
purchase Euro to or from ML&Co. ML&Co. will make only a U.S. Dollar cash
settlement, if any, upon automatic exercise of the warrants.
The warrants will expire on February 28, 2002 (the "Expiration Date") or on
an earlier date as described under "-- Automatic exercise prior to the
Expiration Date". The warrants will be automatically exercised on the Exercise
Date, as set forth under "-- Exercise of warrants".
The warrants are unsecured contractual obligations of ML&Co. and rank
equally with its other unsecured contractual obligations and with its unsecured
and unsubordinated debt. Because ML&Co. is a holding company, the right of
ML&Co. and its creditors, including the currency warrant holders, to participate
in any distribution of the assets of any subsidiary upon its liquidation or
reorganization or otherwise is necessarily subject to the prior claims of
creditors of the subsidiary, except to the extent that a bankruptcy court may
recognize claims of ML&Co. itself as a creditor of the subsidiary. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
ML&Co. are restricted by net capital requirements under the Securities Exchange
Act of 1934, as amended, and under rules of certain exchanges and other
regulatory bodies.
Exercise of warrants
The warrants will expire on the Expiration Date. The warrants are not
exercisable at the option of the holder. The warrants will be automatically
exercised on the earlier of (i) the fourth scheduled Business Day prior to the
Expiration Date (the "Exercise Date") or, (ii) on the Delisting Date in the case
of delisting or a trading suspension or on the Early Expiration Date in the case
of certain events in bankruptcy, insolvency or reorganization.
The Warrant Agent will obtain the Cash Settlement Amount on the Exercise
Date from the calculation agent and will pay the Cash Settlement Amount of the
warrants to the depository on the Expiration Date and, if February 28, 2002 is
not a Business Day, on the next succeeding Business Day. If the warrants are
delisted or there is a trading suspension and the warrants are not
simultaneously accepted for listing on another national securities exchange, as
described below under "Automatic exercise prior to the Expiration Date", the
Warrant Agent will pay the Cash Settlement Amount of the warrants to the
depository on the fifth Business Day following the Delisting Date or Early
Expiration Date, as applicable. See "Description of the warrants--DTC
Procedures".
Cash Settlement Amount
The Cash Settlement Amount for each warrant you own will be determined on
the Exercise Date as an amount in U.S. Dollars equal to the greater of:
(i) zero, or
Spot Value - Strike value
(ii) U.S. $50 x -------------------------
Strike Value
The Cash Settlement Amount cannot be less than zero. You will never owe us
any money on the warrants you own.
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<PAGE>
The "Spot Value" will be determined by MLPF&S or any successor thereto, as
the calculation agent (the "calculation agent"), and will equal the bid rate of
the U.S. Dollar per Euro in the interbank market as reported by Reuters on page
FXFX at approximately 3:00 p.m. London time on the Exercise Date.
The "Strike Value" equals 0.8695, the offer rate of the U.S. Dollar per
Euro in the interbank market as reported by Reuters on page FXFX at
approximately 3:00 p.m. London time on November 30, 2000, the date the warrants
were priced for initial sale to the public.
However, if the USD/EUR Rate is not so quoted on the date of automatic
exercise, then the Spot Value will be the exchange rate between Euro and U.S.
Dollars, based upon the noon buying rate in New York for cable transfers in
foreign currencies as announced by the Federal Reserve Bank of New York for
customs purposes (the "Noon Buying Rate"). If the Noon Buying Rate is not
announced on such date of automatic exercise, then the Spot Value will be
calculated on the basis of the arithmetic mean of the applicable spot quotations
received by the calculation agent at approximately 3:00 p.m. London time on the
relevant date for the purchase or sale by the Reference Dealers of the Reference
Amount for settlement two Business Days later. If fewer than two Reference
Dealers provide such spot quotations, then the Spot Value will be calculated on
the basis of the arithmetic mean of the applicable spot quotations received by
the calculation agent at approximately 3:00 p.m. London time on the relevant
date from three leading commercial banks in New York (selected in the sole
discretion of the calculation agent), for the sale by such banks of the
Reference Amount for settlement two Business Days later. If these spot
quotations are available from fewer than three banks, then the calculation
agent, in its sole discretion, shall determine which spot rate is available and
reasonable to be used. If no such spot quotation is available, then the Spot
Value will be the rate the calculation agent, in its sole discretion, determines
to be fair and reasonable under the circumstances at approximately 3:00 p.m.,
London time, on the relevant date.
"Business Day", as used herein, means any day other than a Saturday or a
Sunday or a day on which commercial banks in The City of New York are required
or authorized by law or executive order to be closed.
"Reference Amount" is U.S.$869,500, which was equal to approximately EUR
1,000,000 on November 30, 2000.
"Reference Dealers", as used herein, means Citibank, N.A., Deutsche Bank
Securities, Inc. and The Chase Manhattan Bank, or their successors.
We will round the Cash Settlement Amount, if necessary, to the nearest
cent, with one-half cent being rounded upwards.
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 beneficial owners of the warrants.
Automatic exercise prior to the Expiration Date
In the event that the warrants are delisted from, or permanently suspended
from trading on, the AMEX and the warrants are not simultaneously accepted for
trading pursuant to the rules of another national securities exchange, the
warrants will expire on the Business Day immediately prior to the date on which
such delisting or trading suspension becomes effective (the "Delisting Date"),
and the warrants will be automatically exercised at the close of business on
such Delisting Date. The Cash Settlement Amount, if any, shall be determined by
the calculation agent as provided under "--Cash Settlement Amount" as if the
Delisting Date were the Exercise Date, and the Cash Settlement Amount will be
paid on the fifth Business Day following such Delisting Date. Settlement shall
otherwise occur as described under "--DTC Procedures". We will notify you as
soon as practicable of such delisting or trading suspension. We have agreed in
the Warrant Agreement that we will not seek delisting of the warrants or
suspension of their trading on the AMEX.
The warrants may also expire on the date of occurrence of certain events in
bankruptcy, insolvency or reorganization involving ML&Co. and the warrants will
be automatically exercised as of the Business Day
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immediately preceding such date (the "Early Expiration Date"). The Cash
Settlement Amount, if any (determined as provided under "--Cash Settlement
Amount" as if the Early Expiration Date were the Exercise Date), of such
automatically exercised warrants will be due and payable on the fifth Business
Day following such Early Expiration Date. Settlement will otherwise occur as
described under "--DTC Procedures".
Modification
The Warrant Agreement and the terms of the warrants may be amended by
ML&Co. and the Warrant Agent without the consent of the beneficial owners of any
warrants for the purpose of curing any ambiguity, or of curing, correcting or
supplementing any defective or inconsistent provision contained in the Warrant
Agreement or the terms of the warrants, or in any other manner which ML&Co. may
deem necessary or desirable and which will not materially and adversely affect
the interests of the beneficial owners of the warrants.
ML&Co. and the Warrant Agent also may modify or amend the Warrant Agreement
and the terms of the warrants, with the consent of the beneficial owners of not
less than a majority of the then outstanding warrants affected, provided that no
modification or amendment that changes the Strike Value so as to adversely
affect the beneficial owner, shortens the period of time during which the
warrants will be automatically exercised or otherwise materially and adversely
affects the exercise rights of the beneficial owners of the warrants or reduces
the number of outstanding warrants the consent of whose beneficial owners is
required for modification or amendment of the Warrant Agreement or the terms of
the warrants may be made without the consent of the beneficial owners of
warrants affected by these changes.
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:
. 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:
. pay or deliver the Cash Settlement Amount or any consideration
payable or deliverable upon exercise, if applicable with respect
to all the Warrants; and
. perform and observe all of the obligations and conditions of the
warrant agreement to be performed or observed by ML&Co.; and
. ML&Co. or the successor corporation, as the case may be, is not,
immediately after any merger or consolidation, in default under the
warrant agreement.
Depositary
Description of the Global Warrants
All of the warrants are represented by one or more fully registered global
warrants. Each global warrant has been deposited with, or on behalf of, The
Depository Trust Company, otherwise known as DTC, or any successor to it (the
"depositary"), as depositary, and registered in the name of Cede & Co., DTC's
partnership nominee. Unless and until it is exchanged in whole or in part for
warrants in definitive form, no global warrant 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 its
successor. Investors may elect to hold interests in the global warrants through
either the depositary, in the United States, or Clearstream, Luxembourg, or
Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the
Euroclear System ("Euroclear"), if they are participants in these systems, or
indirectly through organizations which are participants in these systems.
Clearstream, Luxembourg and Euroclear will hold interests on behalf of their
participants through customers' securities accounts in Clearstream, Luxembourg's
and Euroclear's names on
S-15
<PAGE>
the books of their respective depositaries, which in turn will hold interests in
customers' securities accounts in the depositaries' names on the books of the
depositary. The Chase Manhattan Bank is acting as depositary for Euroclear and
Citibank, N.A, not in its capacity as Warrant Agent under the Warrant Agreement,
is acting as depositary for Clearstream, Luxembourg (in these capacities, the
"U.S. Depositaries").
So long as DTC, or its nominee, is a registered owner of a global warrant,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the warrants represented by the global warrant for all purposes under
the Warrant Agreement. Except as provided below, the beneficial owners of the
warrants represented by a global warrant are not entitled to have the warrants
represented by the global warrant registered in their names, will not receive or
be entitled to receive physical delivery of the warrants in definitive form and
are not considered the owners or holders of the warrants under the Warrant
Agreement, including for purposes of receiving any reports delivered by ML&Co.
or the Warrant Agent pursuant to the Warrant Agreement. Accordingly, each person
owning a beneficial interest in a global warrant 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 Warrant Agreement. 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 which a holder is entitled to give or
take under the Warrant Agreement, DTC would authorize the participants holding
the relevant beneficial interests to give or take any action, and these
participants would authorize beneficial owners owning through these participants
to give or take any action or would otherwise act upon the instructions of
beneficial owners. Conveyance of notices and other communications by the
depositary 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 acting as securities depositary for the warrants. The warrants were
issued as fully registered securities registered in the name of Cede & Co.,
DTC's nominee. One or more fully registered global warrants were issued for the
warrants 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 Exchange Act. 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 American Stock Exchange, Inc., and the NASD.
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 warrants under DTC's system must be made by or through
direct participants, which will receive a credit for the warrants 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 these beneficial owner entered into the
transaction. Transfers of ownership interests in the warrants are to be
accomplished by entries made on the books of participants acting on behalf of
beneficial owners.
S-16
<PAGE>
To facilitate subsequent transfers, all warrants deposited with DTC are
registered in the name of DTC's partnership nominee, Cede & Co. The deposit of
warrants 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 warrants; DTC's records reflect only the identity of the direct
participants to whose accounts the warrants 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.
Ownership of beneficial interests in the warrants is limited to persons
that have accounts with the depositary ("participants") or persons that may hold
interests through participants. The depositary has advised ML&Co. that after the
issuance of the global warrants representing the warrants, the depositary
credited, on its book-entry registration and transfer system, the participants'
accounts with the respective number of warrants represented by the global
warrant. Ownership of beneficial interests in the global warrant is shown on,
and the transfer of ownership interests will be effected only through, records
maintained by the depositary, with respect to interests of participants, and on
the records of participants, with respect to interests of persons held through
participants. The laws of some states may require that certain purchasers of
securities take physical delivery of these securities in definitive form. These
limits and laws may impair the ability to own, transfer or pledge beneficial
interests in the global warrants.
The Cash Settlement Amount payable upon exercise of warrants registered in
the name of the depositary or its nominee will be paid by the Warrant Agent to
the participants or, in the case of automatic exercise, to the depositary. None
of ML&Co., the Warrant Agent or any other agent of ML&Co. or agent of the
Warrant Agent has any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests or for
supervising or reviewing any records relating to beneficial ownership interests.
ML&Co. expects that the Warrant Agent, upon the receipt of any payment of the
Cash Settlement Amount in respect of any portion of the global warrant, will pay
the relevant participant in an amount proportionate to its beneficial interest
in the global warrant being exercised and that the participant will credit the
accounts of the beneficial owners of the warrants. ML&Co. expects that the
depositary, in the case of automatic exercise, upon receipt of any payment of
the Cash Settlement Amount in respect of all or any portion of the global
warrant, will credit the accounts of the participants with payment in amounts
proportionate to their respective beneficial interests in the portion of the
global warrant so exercised, as shown on the records of the depositary. ML&Co.
also expects that payments by participants to owners of beneficial interests in
the global warrant will be governed by standing customer instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of the participants. It is suggested that a purchaser of warrants
with accounts at more than one brokerage firm effect transactions in the
warrants, including exercises, only through the brokerage firm or firms which
hold that purchaser's warrants.
Exchange for certificated warrants
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 Warrant Agent a company order
to the effect that the global warrants shall be exchangeable, or
. ML&Co. is subject to certain events in bankruptcy, insolvency or
reorganization,
S-17
<PAGE>
the global warrants will be exchangeable for warrants in definitive form of like
tenor. These definitive warrants will be registered in the name or names as the
depositary shall instruct the Warrant Agent. It is expected that the
instructions may be based upon directions received by the depositary from
participants with respect to ownership of beneficial interests in the global
warrants.
DTC may discontinue providing its services as securities depositary with
respect to the warrants at any time by giving reasonable notice to ML&Co. or the
Warrant Agent. Under these circumstances, in the event that a successor
securities depositary is not obtained, warrant 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, warrant
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 the accuracy of this information.
Clearstream, Luxembourg and Euroclear
Beneficial owners may hold their interests in warrants through Clearstream,
Luxembourg or Euroclear only if they are participants in these systems, or
indirectly through organizations which are participants in these systems.
Clearstream, Luxembourg and Euroclear will hold omnibus positions on behalf of
their participants through the facilities of DTC. All securities in Clearstream,
Luxembourg or Euroclear are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts.
Exercises of warrants by persons holding through Clearstream, Luxembourg or
Euroclear participants will be effected through DTC, in accordance with DTC
rules, on behalf of the relevant European international clearing system by its
depositary; however, these transactions will require delivery of exercise
instructions to the relevant European international clearing system by the
participant in that system in accordance with its rules and procedures and
within its established deadlines under European time. The relevant European
international clearing system will, if the exercise meets its requirements,
deliver instructions to its depositary to take action to effect its exercise of
the warrants on its behalf by delivering warrants through DTC and receiving
payment in accordance with its normal procedures for next-day funds settlement.
Payments with respect to the warrants held through Clearstream, Luxembourg or
Euroclear will be credited to the cash accounts of Clearstream, Luxembourg
participants or Euroclear participants in accordance with the relevant system's
rules and procedures, to the extent received by its depositary. See "--DTC
Procedures" in this prospectus supplement.
Clearstream, Luxembourg advises that it is incorporated under the laws of
Luxembourg as a professional depositary. Clearstream, Luxembourg holds
securities for its participating organizations ("Clearstream, Luxembourg
Participants") and facilitates the clearance and settlement of securities
transactions between Clearstream, Luxembourg Participants through electronic
book-entry changes in accounts of Clearstream, Luxembourg Participants, thereby
eliminating the need for physical movement of certificates. Clearstream,
Luxembourg provides to Clearstream, Luxembourg Participants, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing.
Clearstream, Luxembourg interfaces with domestic markets in several countries.
As a professional depositary, Clearstream, Luxembourg is subject to regulation
by the Luxembourg Monetary Institute. Clearstream, Luxembourg Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters. Indirect
access to Clearstream, Luxembourg is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream, Luxembourg Participant either directly or
indirectly.
Distributions with respect to the warrants held beneficially through
Clearstream, Luxembourg will be credited to cash accounts of Clearstream,
Luxembourg Participants in accordance with its rules and procedures, to the
extent received by the U.S. depositary for Clearstream, Luxembourg.
S-18
<PAGE>
Euroclear advises that it was created in 1968 to hold securities for
participants of Euroclear ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). The Euroclear Operator conducts all operations, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the underwriters.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation that is a member bank of the Federal Reserve System. It is regulated
and examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
All information in this prospectus on Clearstream, Luxembourg and Euroclear
is derived from Clearstream, Luxembourg or Euroclear, as the case may be, and
reflects the policies of these organizations; and these policies are subject to
change without notice.
S-19
<PAGE>
THE USD/EUR RATE AND CASH SETTLEMENT AMOUNTS
The USD/EUR Rate is a foreign exchange spot rate that measures the relative
values of two currencies, the Euro and the U.S. Dollar. The USD/EUR Rate
increases when the Euro appreciates relative to the U.S. Dollar and decreases
when the Euro depreciates relative to the U.S. Dollar. The USD/EUR Rate is
expressed as a rate that reflects the amount of U.S. Dollar that can be
purchased for one Euro. A USD/EUR Rate equal to 0.8695 USD/EUR thus indicates
that $0.8695 can be purchased for 1 Euro. The foreign exchange spot rate of the
U.S. Dollar per Euro on the Exercise Date will determine the Cash Settlement
Amount. Appreciation of the Euro relative to the U.S. Dollar, i.e., depreciation
of the U.S. Dollar relative to the Euro, will result in a greater Cash
Settlement Amount. Conversely, depreciation of the Euro relative to the U.S.
Dollar, i.e., appreciation of the U.S. Dollar relative to the Euro, will result
in a lesser Cash Settlement Amount. In no event will the Cash Settlement Amount
be less than zero.
S-20
<PAGE>
On November 30, 2000 the offer rate of the U.S. Dollar per Euro in the
interbank market as reported by Reuters on page FXFX at approximately 3:00 pm
London time was 0.8695.
The information presented in this prospectus relating to the exchange rates
of the U.S. Dollar relative to the Euro is furnished as a matter of information
only. The fluctuations in the USD/EUR Rate that have occurred in the past are
not necessarily indicative of fluctuations in that rate which may occur over the
term of the warrants.
Set forth below is an illustration of the Cash Settlement Amount of
warrants at exercise based on various hypothetical USD/EUR Rates. This table
assumes a dollar multiplier of U.S.$50. The Percentage Change column indicates
the percentage increase or decrease in the value of the Spot Value as compared
to the Strike Value at the time of exercise. The actual Cash Settlement Amount
of a warrant will depend entirely on the actual USD/EUR Rate on the Exercise
Date. The illustrative Cash Settlement Amounts in the table do not reflect any
"time value" for a warrant, which may be reflected in trading value, and are not
necessarily indicative of potential profit or loss, which are also affected by
purchase price.
S-21
<PAGE>
Hypothetical Cash Settlement Amount
USD/EUR Based on
Spot Values Percentage Change/(1)/ USD/EUR Spot Values/(1)/
--------------- ------------------------- -------------------------
1.2000 38.0% $19.01
1.1500 32.3% $16.13
1.1000 26.5% $13.25
1.0500 20.8% $10.38
1.0000 15.0% $ 7.50
0.9500 9.3% $ 4.63
0.9000 3.5% $ 1.75
0.8695 0.0% $ 0.00
0.8500 -2.2% $ 0.00
0.8000 -8.0% $ 0.00
0.7500 -13.7% $ 0.00
__________
/(1)/ Based upon a USD/EUR Strike Value of 0.8695.
S-22
<PAGE>
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the "Code" prohibit various transactions between certain
parties and the assets of employee benefit plans, unless an exemption is
available; governmental plans may be subject to similar prohibitions. Because
transactions between a plan and ML&Co. may be prohibited absent an exemption,
each fiduciary, by its purchase of any warrant on behalf of any plan, represents
on behalf of itself and the plan that the acquisition, holding and any
subsequent disposition of the warrant 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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 warrants and other securities. For further information on ML&Co. and the
warrants, 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 the prospectus may not contain all the information that
you may find important, you should review the full text of these documents. We
have included copies of these documents as exhibits to our registration
statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file with
them, which means:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to
those documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31,
2000, June 30, 2000 and September 29, 2000; and
S-23
<PAGE>
. current reports on Form 8-K dated January 25, 2000, March 3,
2000, March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June
29, 2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000,
November 20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14
of the Exchange Act in connection with any subsequent
stockholders' meeting; and
. 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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
S-24
<PAGE>
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
Warrants and is to be used by MLPF&S when making offers and sales related to
market-making transactions in the Warrants.
MLPF&S may act as principal or agent in these market-making transactions.
The Warrants may be offered on the AMEX or off the exchange in negotiated
transactions or otherwise.
The distribution of the Warrants 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
S-25
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We may+
+ not sell these securities until the registration statement filed with the +
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy these+
+ securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
<TABLE>
<S> <C>
[LOGO] Merrill Lynch
PROSPECTUS PROTECTED GROWTH(SM) INVESTING
---------- Pursuit of Growth, Protection of Principal
</TABLE>
Merrill Lynch & Co., Inc.
Callable Market Index Target-Term Securities(R)
due September 13, 2007
based upon Broadband HOLDRS(SM)
"Callable 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 Callable MITTS
Securities.
<TABLE>
<CAPTION>
The Callable MITTS Securities: Payment at the stated maturity or upon exercise of the
call option:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, if the Callable MITTS
. Callable prior to the stated maturity by Merrill Securities have not been called, for each unit of
Lynch & Co., Inc. the Callable MITTS Securities you own we will pay
. No payments before the maturity date unless called. you an amount equal to the sum of the principal
. Senior unsecured debt securities of Merrill Lynch amount of each unit and an additional amount based
& Co., Inc. on the percentage increase, if any, in the price of
. Linked to the price of Broadband HOLDRS (trading Broadband HOLDRS.
symbol "BDH") . At maturity, you will receive no less than the
. The Callable MITTS Securities are listed on the principal amount of your Callable MITTS Securities.
American Stock Exchange under the trading . If Merrill Lynch & Co., Inc. elects to call your
symbol "BDM". Callable MITTS Securities prior to the stated
. Closing date: September 13, 2000. maturity, you will receive $20.50 per unit.
</TABLE>
Investing in the Callable MITTS Securities involves risk.
See "Risk Factors" beginning on page 7 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 Callable MITTS Securities will be the prevailing
market price at the time of sale.
_______________
Merrill Lynch & Co.
_______________
The date of this prospectus is , .
"Callable MITTS" and "Market Index Target-Term Securities" are registered
service marks and "Protected Growth", "HOLDRS" and "Holding Company Depositary
Receipts" are service marks of Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION--Q&A....................................................................................... 3
RISK FACTORS................................................................................................... 7
MERRILL LYNCH & CO., INC....................................................................................... 11
RATIO OF EARNINGS TO FIXED CHARGES............................................................................. 12
DESCRIPTION OF THE CALLABLE MITTS SECURITIES................................................................... 13
THE BROADBAND HOLDRS TRUST..................................................................................... 24
OTHER TERMS.................................................................................................... 25
PROJECTED PAYMENT SCHEDULE..................................................................................... 29
ERISA CONSIDERATIONS........................................................................................... 30
WHERE YOU CAN FIND MORE INFORMATION............................................................................ 30
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.............................................................. 30
PLAN OF DISTRIBUTION........................................................................................... 31
EXPERTS........................................................................................................ 31
</TABLE>
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Callable Market
Index Target-Term Securities(R) due September 13, 2007 based upon Broadband
HOLDRS(SM). You should carefully read this prospectus to fully understand the
terms of the Callable MITTS Securities and the tax and other considerations that
are important to you in making a decision about whether to invest in the
Callable MITTS Securities. You should carefully review the "Risk Factors"
section, which highlights certain risks associated with an investment in the
Callable MITTS Securities, to determine whether an investment in the Callable
MITTS Securities is appropriate for you.
References in this prospectus to "ML&Co.", "we", "us" and "our" are to
Merrill Lynch & Co., Inc. and references to "MLPF&S" are to Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
"Broadband HOLDRS" are depositary receipts issued by the Broadband HOLDRS
Trust. We have attached the prospectus dated . and the prospectus supplement
dated . for Broadband HOLDRS (together, the "HOLDRS Prospectus"). From time to
time the Brodaband HOLDRS Trust updates the prospects supplement. You should
carefully read the HOLDRS Prospectus and any updated prospectus supplements
including the section entitled "Risk Factors" to fully understand the operation
and management of the Broadband HOLDRS Trust and risks that may affect the price
of Broadband HOLDRS. The Broadband HOLDRS Trust will not receive any of the
proceeds from the sale of the Callable MITTS Securities and will not have any
obligations with respect to the Callable MITTS Securities.
We have attached the HOLDRS Prospectus and are delivering it to you
together with this prospectus for the convenience of reference only. The HOLDRS
Prospectus does not constitute a part of this prospectus nor is it incorporated
by reference into this prospectus.
What are the Callable MITTS Securities?
The Callable MITTS Securities are a series of senior debt securities issued
by ML&Co. and are not secured by collateral. The Callable MITTS Securities rank
equally with all of our other unsecured and unsubordinated debt. The Callable
MITTS Securities will mature on September 13, 2007 unless called by ML&Co. in
September 2006.
Each unit of Callable MITTS Securities represents $10 principal amount of
Callable MITTS Securities. You may transfer the Callable 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 issued
the Callable 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 Callable MITTS
Securities. You should refer to the section entitled "Description of the
Callable MITTS Securities--Depositary" in this prospectus.
What will I receive on the stated maturity date of the Callable MITTS
Securities?
We have designed the Callable 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 price of Broadband HOLDRS. On the stated maturity date, if we have not
called the Callable MITTS Securities, you will receive a cash payment equal to
the sum of two amounts: the "principal amount" and the "Supplemental Redemption
Amount", if any.
Principal Amount
The "principal amount" per unit is $10.
Supplemental Redemption Amount
3
<PAGE>
The "Supplemental Redemption Amount" per unit will equal:
( Ending Value - Starting Value)
$10x (------------------------------)
( Starting Value )
but will not be less than zero.
The "Starting Value" equals $92.00, the closing price of Broadband HOLDRS
on September 7, 2000, the date the Callable MITTS Securities were priced for
initial sale to the public.
The "Ending Value" will be the average of the closing prices of
Broadband HOLDRS, as adjusted for dilution and reorganization events described
in this prospectus, on five business days shortly before the maturity of the
Callable MITTS Securities. We may calculate the Ending Value by reference to
fewer than five or even a single day's closing price if, during the period
shortly before the stated maturity date of the Callable MITTS Securities, there
is a disruption in the trading of Broadband HOLDRS.
For more specific information about the Supplemental Redemption Amount,
please see the section entitled "Description of the Callable MITTS Securities"
in this prospectus.
We will pay you a Supplemental Redemption Amount only if we do not call the
Callable MITTS Securities in September 2006 and 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 your Callable MITTS Securities regardless of whether any
Supplemental Redemption Amount is payable.
Examples
Here are two examples of Supplemental Redemption Amount calculations. If we
call the Callable MITTS Securities during the Call Period, you will receive only
the Call Price and you will not be entitled to receive any payment on the stated
maturity date.
Example 1--Ending Value is less than the Starting Value on the stated maturity
date:
Starting Value: $92.00
Hypothetical Ending Value at maturity: $82.80
<TABLE>
<S> <C>
(Supplemental
( 82.80 - 92.00 ) Redemption
Supplemental Redemption Amount (per unit) = (---------------) amount cannot
( 92.00 ) be less than zero)
Total payment on the stated maturity date (per unit) = $10.00 + $0.00
= $10.00
Example 2--Ending Value is greater than the Starting Value on the stated maturity date:
Starting Value: $92.00
Hypothetical Ending Value at maturity: $133.40
Supplemental Redemption Amount (per unit) = $10 x (133.40 - 92.00)
(--------------) = $4.50
( 92.00 )
Total payment on the stated maturity date (per unit) = $10.00 + $4.50 = $14.50
</TABLE>
4
<PAGE>
How does the call feature work?
We may elect to call the Callable MITTS Securities at $20.50 per unit
(the "Call Price"), on any Business Day during the month of September 2006 (the
"Call Period") by giving notice to the trustee of the Callable MITTS Securities
as described in this prospectus and specifying the date on which the Call Price
will be paid (the "Payment Date"). The Payment Date will be no later than the
twentieth Business Day after the call election. The Call Price represents an
annualized rate of return on your Callable MITTS Securities of 12.05%, as
calculated on a semi-annual bond equivalent basis, assuming you own the Callable
MITTS Securities from September 13, 2000 to the Payment Date.
If we elect to call your Callable MITTS Securities during the Call
Period, you will receive only the Call Price and you will not receive a
Supplemental Redemption Amount based on the price of Broadband HOLDRS. If we do
not call the Callable MITTS Securities during the Call Period, the principal
amount plus the Supplemental Redemption Amount, if any, that you receive at the
stated maturity date may be greater than or less than the Call Price.
Will I receive interest payments on the Callable MITTS Securities?
You will not receive any interest payments on the Callable MITTS
Securities, but will instead receive the principal amount plus the Supplemental
Redemption Amount, if any, at maturity, or the Call Price if the Callable MITTS
Securities are called during the Call Period. We have designed the Callable
MITTS Securities for investors who are willing to forego market interest
payments on the Callable MITTS Securities, such as floating interest rates paid
on standard senior non-callable debt securities, in exchange for the ability to
participate in possible increases in the price of Broadband HOLDRS.
What is the Broadband HOLDRS Trust?
The Broadband HOLDRS Trust was formed under a depositary trust
agreement, dated March 22, 2000, among The Bank of New York, as trustee, MLPF&S,
as the initial depositor, other depositors and the owners of Broadband HOLDRS.
The trust is not a registered investment company under the Investment Company
Act of 1940.
The trust holds shares of common stock issued by companies generally
considered to be involved in various segments of the broadband business. The
trust issues Broadband HOLDRS that represent an undivided beneficial ownership
interest in the shares of common stock held by the trust. Broadband HOLDRS are
separate from the underlying common stocks that are represented by Broadband
HOLDRS.
Broadband HOLDRS are listed on the AMEX under the trading symbol
"BDH".
You should carefully read the HOLDRS Prospectus accompanying this
prospectus to fully understand the operation and management of the Broadband
HOLDRS Trust. The risks described in the HOLDRS Prospectus under the section
entitled "Risk Factors" may affect the prices of Broadband HOLDRS and,
therefore, the value of the Callable MITTS Securities. The HOLDRS Prospectus is
not incorporated by reference into this prospectus, and we make no
representation or warranty as to the accuracy or completeness of the
information.
Please note that an investment in the Callable MITTS Securities does
not entitle you to an ownership interest in Broadband HOLDRS or in the stocks
held by the Broadband HOLDRS Trust.
Are the Callable MITTS Securities listed on a stock exchange?
The Callable MITTS Securities are listed on the AMEX under the trading
symbol "BDM". The listing of the Callable MITTS Securities on the AMEX does not
necessarily ensure that a liquid trading market is available for the Callable
MITTS Securities. You should review the section entitled "Risk Factors--There
may be an uncertain trading market for the Callable 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
5
<PAGE>
Callable MITTS Securities. MLPF&S intends to buy and sell Callable MITTS
Securities to create a secondary market for holders of the Callable MITTS
Securities. However, MLPF&S is not obligated to engage in any of these market
activities or to continue them once it has started.
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 a subsidiary of ML&Co. and its responsibilities as calculation
agent. In addition, MLPF&S acted as the initial depositor for the Broadband
HOLDRS Trust and regularly makes a market in Broadband HOLDRS.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various
subsidiaries and affiliated companies that provide investment, financing,
insurance and related services on a global basis. For information about ML&Co.,
see the section entitled "Merrill Lynch & Co., Inc." in this prospectus. You
should also read the other documents we have 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 Callable MITTS Securities is subject to
risk. Please refer to the section entitled "Risk Factors" in this prospectus.
6
<PAGE>
RISK FACTORS
Your investment in the Callable MITTS Securities will involve risks.
You should carefully consider the following discussion of risks before investing
in the Callable MITTS Securities. In addition, you should reach an investment
decision with regard to the Callable MITTS Securities only after consulting your
legal and tax advisers and considering the suitability of the Callable MITTS
Securities in 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, the Supplemental Redemption Amount will be zero. This will be
true even if the price of Broadband HOLDRS was higher than the Starting Value at
some time during the life of the Callable MITTS Securities but later falls to or
below the Starting Value. If the Supplemental Redemption Amount is zero and the
Callable MITTS Securities are not called by us prior to the stated maturity
date, we will pay you only the principal amount of your Callable MITTS
Securities.
The Callable MITTS Securities are subject to early call
We may elect to call all of the Callable MITTS Securities by giving
notice on any Business Day during the Call Period. We are likely to call the
Callable MITTS Securities during the Call Period if the secondary market price
of the Callable MITTS Securities is approximately equal to or above the Call
Price during that period. In the event that we elect to call the Callable MITTS
Securities, you will receive only the Call Price and no Supplemental Redemption
Amount based on the trading price of Broadband HOLDRS.
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 ML&Co. 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 Broadband HOLDRS or the
securities held by the Broadband HOLDRS Trust
The return on your Callable MITTS Securities will not reflect the
return you would realize if you actually owned Broadband HOLDRS and received
cash distributions, if any, paid on Broadband HOLDRS because the price of
Broadband HOLDRS is calculated without taking into consideration the value of
any normal cash distributions paid on Broadband HOLDRS. In addition, if Callable
MITTS Securities are called during the Call Period, you will receive only the
Call Price and you will not receive any additional amount based upon the
appreciation, if any, in the price of Broadband HOLDRS.
There may be an uncertain trading market for the Callable MITTS Securities
The Callable MITTS Securities are listed on the AMEX under the trading
symbol "BDM". You cannot assume that a trading market exists for the Callable
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 Callable MITTS Securities depends on our financial performance and other
factors such as the increase, if any, in the price of Broadband HOLDRS.
If the trading market for the Callable MITTS Securities is limited,
there may be a limited number of buyers for your Callable MITTS Securities if
you do not wish to hold your investment until maturity. This may affect the
price you receive.
7
<PAGE>
Many factors affect the trading value of the Callable 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 Callable 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 Callable MITTS Securities caused by another factor and that the effect of
one factor may exacerbate the decrease in the trading value of the Callable
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 Callable MITTS Securities attributable to another factor, such as an
increase in the price of Broadband HOLDRS. The following paragraphs describe the
expected impact on the market value of the Callable MITTS Securities given a
change in a specific factor, assuming all other conditions remain constant.
The price of Broadband HOLDRS is expected to affect the trading value
of the Callable MITTS Securities. We expect that the market value of the
Callable MITTS Securities will depend substantially on the amount, if any, by
which the price of Broadband HOLDRS, as adjusted for certain dilution and
reorganization events described in this prospectus, exceeds the Starting Value.
If you choose to sell your Callable MITTS Securities when the price of Broadband
HOLDRS exceeds the Starting Value, you may receive substantially less than the
amount that would be payable at maturity based on that price because of the
expectation that the price of Broadband HOLDRS will continue to fluctuate until
the Ending Value is determined. If you choose to sell your Callable MITTS
Securities when the price of Broadband HOLDRS is below, or not sufficiently
above, the Starting Value, you may receive less than the $10 principal amount
per unit of Callable MITTS Securities.
Changes in the levels of interest rates are expected to affect the
trading value of the Callable MITTS Securities. Because we will pay, at a
minimum, the principal amount per unit of Callable MITTS Securities at maturity,
we expect that changes in interest rates will affect the trading value of the
Callable MITTS Securities. In general, if U.S. interest rates increase, we
expect that the trading value of the Callable MITTS Securities will decrease
and, conversely, if U.S. interest rates decrease, we expect that the trading
value of the Callable MITTS Securities will increase. Rising interest rates may
lower the price of the Broadband HOLDRS and, thus, the Callable MITTS
Securities. Falling interest rates may increase the price of the Broadband
HOLDRS and, thus, may increase the value of the Callable MITTS Securities.
Changes in the volatility of Broadband HOLDRS are expected to affect
the trading value of the Callable MITTS Securities. Volatility is the term used
to describe the size and frequency of price and/or market fluctuations. If the
volatility of Broadband HOLDRS increases or decreases, the trading value of the
Callable MITTS Securities may be adversely affected.
As the time remaining to maturity of the Callable MITTS Securities
decreases, the "time premium" associated with the Callable MITTS Securities will
decrease. We anticipate that before their maturity, the Callable MITTS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the price of Broadband HOLDRS. This difference will
reflect a "time premium" due to expectations concerning the price of Broadband
HOLDRS during the period before the stated maturity of the Callable MITTS
Securities. However, as the time remaining to the stated maturity of the
Callable MITTS Securities decreases, we expect that this time premium will
decrease, lowering the trading value of the Callable MITTS Securities.
Changes in dividend yields of the stocks held by the Broadband HOLDRS
Trust are expected to affect the trading value of the Callable MITTS Securities.
If the dividend yields on the stocks held by the Broadband HOLDRS Trust
increase, we expect that the value of the Callable MITTS Securities will
decrease and, conversely, if the dividend yields on the stocks held by the
Broadband HOLDRS Trust decrease, we expect that the value of the Callable MITTS
Securities will increase.
8
<PAGE>
Changes in our credit ratings may affect the trading value of the
Callable 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 Callable MITTS Securities. However,
because your return on your Callable MITTS Securities is dependent upon factors
in addition to our ability to pay our obligations under the Callable MITTS
Securities, such as the percentage increase, if any, in the price of Broadband
HOLDRS at maturity, an improvement in our credit ratings will not reduce the
other investment risks related to the Callable MITTS Securities.
In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of the Callable 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 Callable MITTS Securities than if it occurs earlier in the term
of the Callable MITTS Securities. However, we expect that the effect on the
trading value of the Callable MITTS Securities of a given change in the price of
Broadband HOLDRS will be greater if it occurs later in the term of the Callable
MITTS Securities than if it occurs earlier in the term of the Callable MITTS
Securities.
Amounts payable on the Callable MITTS Securities may be limited by state law
New York State law governs the 1983 Indenture under which the Callable
MITTS Securities were 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 Callable 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 promise, for the benefit of the holders of the Callable MITTS Securities, to
the extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
No stockholder's rights
Beneficial owners of the Callable MITTS Securities are not entitled to
any rights in Broadband HOLDRS including, for example, voting rights and rights
to receive any cash or other distributions and rights to cancel Broadband HOLDRS
and receive the underlying securities.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell Broadband
HOLDRS or stocks of the companies held by the Broadband HOLDRS Trust for our own
accounts, for business reasons or in connection with hedging our obligations
under the Callable MITTS Securities. These transactions could affect the price
of Broadband HOLDRS in a manner that could be adverse to your investment in the
Callable MITTS Securities.
Potential conflicts
Our subsidiary MLPF&S is our agent for the purposes of calculating the
Ending Value and the Supplemental Redemption Amount. Under certain
circumstances, MLPF&S' role as our subsidiary and its responsibilities as
calculation agent for the Callable MITTS Securities could give rise to conflicts
of interests. 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 the amounts due at
maturity. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
9
<PAGE>
Risks related to Broadband HOLDRS
Broadband HOLDRS are subject to various risks which are described
under the section entitled "Risk Factors" in the HOLDRS Prospectus. Any loss of
value to Broadband HOLDRS attributable to such risks would adversely affect the
value of the Callable MITTS Securities. You should carefully consider those
risks before deciding whether an investment in the Callable MITTS Securities is
suitable for you.
10
<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 LP and Mercury Asset Management Ltd,
provides investment, financing, advisory, insurance, and related products on a
global basis, including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards,
futures and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending
and related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center,
New York, New York 10080; 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 Callable MITTS Securities described in
this prospectus.
11
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a
pooling-of-interests under generally accepted accounting principles in the
United States of America and is not expected to have a significant impact on the
results of operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
For the Nine
Year Ended Last Friday in December Months Ended
----------------------------------------
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges....... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
12
<PAGE>
DESCRIPTION OF THE CALLABLE MITTS SECURITIES
On September 13, 2000, ML&Co. issued an aggregate principal amount of
$35,000,000 or 3,500,000 units of Callable MITTS Securities. The Callable MITTS
Securities were issued as a series of senior debt securities under the 1983
Indenture, which is more fully described in this prospectus. Unless called by
ML&Co. during the Call Period, the Callable MITTS Securities will mature on
September 13, 2007.
Unless the Callable MITTS Securities are called during the Call Period, at
the stated maturity a beneficial owner of a Callable MITTS Security will receive
the sum of the principal amount of the Callable MITTS Security plus the
Supplemental Redemption Amount, if any. There will be no payment of interest,
periodic or otherwise. See the section entitled "--Payment at maturity".
The Callable MITTS Securities may be called by ML&Co. as described below,
but are not subject to redemption at the option of any beneficial owner before
maturity. If an Event of Default occurs with respect to the Callable MITTS
Securities, registered owners of the Callable MITTS Securities may accelerate
the maturity of the Callable MITTS Securities, as described under the sections
entitled "--Events of Default and Acceleration" and "Other Terms--Events of
Default" in this prospectus.
ML&Co. issued the Callable MITTS Securities in denominations of whole
units, each with a principal amount of $10.00.
The Callable MITTS Securities do not have the benefit of any sinking fund.
Payment at maturity
If we do not call the Callable MITTS Securities during the Call Period, a
beneficial owner of a Callable MITTS Security will be entitled to receive, at
the stated maturity, the principal amount of each Callable MITTS Security plus
the Supplemental Redemption Amount, if any, all as provided below. If the Ending
Value does not exceed the Starting Value, a beneficial owner of a Callable MITTS
Security will be entitled to receive only the principal amount of the Callable
MITTS Security.
Determination of the Supplemental Redemption Amount
The "Supplemental Redemption Amount" for a Callable MITTS Security will be
determined by the calculation agent and will equal:
Principal amount of each Callable MITTS Security
( Ending Value - Starting Value)
($10 per unit) x (------------------------------)
( Starting Value )
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" equals $92.00, the Closing Price of one Broadband
HOLDR on September 7, 2000, the date the Callable MITTS Securities were priced
for initial sale to the public.
The "Ending Value" will be determined by the calculation agent and will
equal the value of the Reference Property determined as follows:
(A) for any portion of the Reference Property consisting of cash:
. that cash, plus
. interest on the amount accruing from and including the date of the
payment of that cash to holders of the Reference Property for
which that cash was paid to but excluding the
13
<PAGE>
stated maturity date at a fixed interest rate determined on the
date of the payment equal to the interest rate that would be paid
on a fixed rate senior non- callable debt security of ML&Co. with
a term approximately equal to the remaining term for the Callable
MITTS Securities as determined by the calculation agent;
(B) for any portion of the Reference Property consisting of property other
than cash or Reference Securities:
. the market value of that property, as determined by the calculation
agent on the date that the property was delivered to holders of the
relevant Reference Property for which the property was distributed,
plus
. interest on the amount accruing from and including the date of
delivery to but excluding the stated maturity date at a fixed
interest rate determined as described in (A) above; and
(C) for any portion of the Reference Property consisting of Reference
Securities, the average or arithmetic mean, of the Closing Prices of
each such Reference Security determined on each of the first five
Calculation Days during the Calculation Period. If there are fewer
than five Calculation Days in the Calculation Period with respect to
any Reference Security, then the Ending Value shall be calculated
using the average, arithmetic mean, of the Closing Prices of that
Reference Security on those Calculation Days, and if there is only one
Calculation Day, then the Ending Value shall be calculated using the
Closing Price of that Reference Security on such Calculation Day. If
no Calculation Days occur during the Calculation Period with respect
to that Reference Security, then the Ending Value shall be calculated
using the Closing Price of that Reference Security determined on the
last scheduled Trading Day in the Calculation Period, regardless of
the occurrence of a Market Disruption Event on that day.
"Reference Property" initially shall mean one Broadband HOLDR, and shall be
subject to adjustment from time to time to reflect the distribution of cash,
securities and/or other property in accordance with the adjustment provisions
described below under "--Dilution and Reorganization Adjustments".
"Reference Securities" shall mean any securities included in the Reference
Property.
"Calculation Period" means the period from and including the seventh
scheduled Trading Day prior to the stated maturity date to and including the
second scheduled Trading Day prior to the stated maturity date.
"Calculation Day" means, with respect to any Reference Security, any
Trading Day during the Calculation Period on which a Market Disruption Event has
not occurred.
"Market Disruption Event" means, for any Reference Security, the occurrence
or existence on any Trading Day during the one-half hour period that ends when
the Closing Price is determined, of any suspension of, or limitation imposed on,
trading in that Reference Security on the New York Stock Exchange, or other
market or exchange, if applicable.
"Trading Day" means a day on which the AMEX, the NYSE and the NASDAQ
National Market System ("NASDAQ NMS") are open for trading.
"Closing Price" of a Reference Security means, for a Calculation Day, the
following:
(a) If the Reference Security is listed on a national securities exchange
in the United States, is a NASDAQ NMS security or is included in the
OTC Bulletin Board Service ("OTC Bulletin Board") operated by the
National Association of Securities Dealers, Inc. (the "NASD"),
Closing Price means:
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(i) the last reported sale price, regular way, on that day on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), on which that Reference Security is listed or admitted to
trading, or
(ii) if not listed or admitted to trading on any such securities
exchange or if the last reported sale price is not obtainable,
the last reported sale price on the over-the-counter market as
reported on the NASDAQ NMS or OTC Bulletin Board on that day, or
(iii) if the last reported sale price is not available pursuant to (i)
and (ii) above, the mean of the last reported bid and offer
price on the over-the-counter market as reported on the NASDAQ
NMS or OTC Bulletin Board on that day as determined by the
calculation agent.
The term "NASDAQ NMS security" shall include a security included in any
successor to that system, and the term "OTC Bulletin Board" shall include any
successor service to that service.
(b) If the Reference Security is not listed on a national securities
exchange in the United States or is not a NASDAQ NMS security or
included in the OTC Bulletin Board operated by the NASD, Closing Price
means the last reported sale price on that day on the securities
exchange on which the Reference Security is listed or admitted to
trading with the greatest volume of trading for the calendar month
preceding that day as determined by the calculation agent, provided
that if the last reported sale price is for a transaction which
occurred more than four hours prior to the close of that exchange,
then the Closing Price shall mean the average, mean, of the last
available bid and offer price on that exchange. If the Reference
Security is not listed or admitted to trading on any such securities
exchange or if the last reported sale price or bid and offer are not
obtainable, the Closing Price shall mean the last reported sale price
for a transaction which occurred more than four hours prior to when
trading in such over-the-counter market typically ends, then the
Closing Price shall mean the average, mean, of the last available bid
and offer prices in such market of the three dealers which have the
highest volume of transactions in the Reference Security in the
immediately preceding calendar month as determined by the calculation
agent based on information that is reasonably available to it.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law to close and that is a day on which the NYSE, the
NASDAQ NMS and the AMEX are open for trading.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a manifest error, shall be
conclusive for all purposes and binding on ML&Co. and the holders and beneficial
owners of the Callable MITTS Securities.
Early call of the Callable MITTS Securities at the option of ML&Co.
During the Call Period, the month of September 2006, ML&Co., in its sole
discretion, may elect to call the Callable MITTS Securities, in whole but not in
part, at $20.50 per unit (the "Call Price"), by giving notice to the trustee on
any Business Day. The Call Price represents an annualized rate of return on your
Callable MITTS Securities of 12.05%, as calculated on a semi-annual bond
equivalent basis, assuming you own the Callable MITTS Securities from September
13, 2000 to the Payment Date.
If we elect to call your Callable MITTS Securities during the Call Period,
you will receive only the Call Price and you will not receive a Supplemental
Redemption Amount based on the price of Broadband
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HOLDRS. If we do not call the Callable MITTS Securities, the principal amount
plus the Supplemental Redemption Amount, if any, that you receive at the stated
maturity may be greater than or less than the Call Price. ML&Co. may elect to
call the Callable MITTS Securities on any Business Day during the Call Period by
giving notice to the trustee and specifying the date on which the Call Price
shall be paid. The Payment Date shall be no later than the twentieth Business
Day after the call election. The trustee will provide notice of the call
election to the registered holders of the Callable MITTS Securities, specifying
the Payment Date, no less than 15 calendar days prior to the Payment Date. While
the Callable MITTS Securities are held at the depositary, the registered holder
will be the depositary, and the depositary will receive the notice of the call.
As more fully described below under "--Depositary", the depositary will forward
this notice to its participants which will pass it onto the beneficial owners.
You should compare the features of the Callable MITTS Securities to other
available investments before deciding to purchase the Callable MITTS Securities.
Due to the uncertainty as to whether the Callable MITTS Securities will earn a
Supplemental Redemption Amount or be called during the Call Period, the return
on investment with respect to the Callable MITTS Securities may be higher or
lower than the return available on other securities issued by ML&Co. or other
issuers. We suggest that you reach an investment decision only after carefully
considering the suitability of the Callable MITTS Securities in light of your
particular circumstances.
Hypothetical returns
The following table illustrates, for a range of hypothetical Ending Values
during the Calculation Period, assuming an initial investment of $10 per unit
and an investment term from September 13, 2000 to September 13, 2007:
. the percentage change from the Starting Value to the hypothetical Ending
Value,
. the total amount payable at maturity for each unit of Callable MITTS
Securities,
. the total rate of return to beneficial owners of the Callable MITTS
Securities,
. the pretax annualized rate of return to the beneficial owners of the
Callable MITTS Securities, and
. pretax annualized rate of return of an investment in Broadband HOLDRS.
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The table also assumes we do not call the Callable MITTS Securities
prior to the stated maturity date.
<TABLE>
<CAPTION>
Percentage Total amount Pretax Pretax
change from the payable at Total rate of annualized rate annualized rate
Starting Value to maturity per unit return on the of return on the of return on
Hypothetical the hypothetical of the Callable Callable MITTS Callable MITTS Broadband
Ending Value Ending Value MITTS Securities Securities Securities(1) HOLDRS (1)(2)
------------ ----------------- ----------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
18.40 -80% $10.00 0.00% 0.00% -21.70%
36.80 -60% $10.00 0.00% 0.00% -12.65%
55.20 -40% $10.00 0.00% 0.00% -7.15%
73.60 -20% $10.00 0.00% 0.00% -3.15%
92.00(3) 0% $10.00 0.00% 0.00% 0.02%
110.40 20% $12.00 20.00% 2.62% 2.64%
128.80 40% $14.00 40.00% 4.86% 4.88%
147.20 60% $16.00 60.00% 6.83% 6.85%
165.60 80% $18.00 80.00% 8.57% 8.59%
184.00 100% $20.00 100.00% 10.15% 10.17%
202.40 120% $22.00 120.00% 11.58% 11.61%
220.80 140% $24.00 140.00% 12.90% 12.93%
</TABLE>
_______________
(1) The annualized rates of return specified in this column are calculated on a
semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) a dividend yield of 0.02% per annum;
(b) no transaction fees or expenses;
(c) an investment term from September 13, 2000 to September 13, 2007; and
(d) a percentage change in the aggregate price of Broadband HOLDRS, as
adjusted for any dilution or reorganization events described below,
that equals the percentage change from the Starting Value to the
relevant hypothetical Ending Value.
(3) The Starting Value is 92.00.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rates of return will depend on the actual Ending Value
determined by the calculation agent as provided in this prospectus.
Events of Default and Acceleration
In case an Event of Default with respect to any Callable MITTS Securities
has occurred and is continuing, the amount payable to a beneficial owner of a
Callable MITTS Security upon any acceleration permitted by the Callable MITTS
Securities, with respect to each $10 principal amount of the Callable MITTS
Securities, will be equal to the principal amount and the Supplemental
Redemption Amount, if any, calculated as though the date of early repayment was
the stated maturity date of the Callable MITTS Securities, provided, however, if
the acceleration occurs before the end of the Call Period, the maximum amount
payable with respect to each Callable MITTS Security will be the Call Price. If
a bankruptcy proceeding is commenced in respect of ML&Co., the claim of the
beneficial owner of a Callable MITTS Security may be limited, under Section
502(b)(2) of Title 11 of the United States Code, to the principal amount of the
Callable 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 Callable MITTS Securities.
In case of default in payment of the Callable MITTS Securities, whether at
the stated maturity or upon acceleration, from and after the maturity date the
Callable MITTS Securities will bear interest, payable upon
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demand of their beneficial owners, at the rate of 7.21% 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 Callable MITTS
Securities to the date payment of that amount has been made or duly provided
for.
Dilution and Reorganization Adjustments
The Reference Property is subject to adjustment if an issuer of any
Reference Security shall:
(i) pay a stock dividend or make a distribution on that Reference
Security in Reference Securities;
(ii) subdivide or split the outstanding units of that Reference Security
into a greater number of units;
(iii) combine the outstanding units of that Reference Security into a
smaller number of units;
(iv) issue by reclassification of units of that Reference Security any
units of another security of that issuer;
(v) issue rights or warrants to all holders of that Reference Security
entitling them to subscribe for or purchase shares, in the aggregate,
for more than 5% of the number of those Reference Securities
outstanding prior to the issuance of the rights or warrants at a
price per share less than the then current market price of that
Reference Security (other than rights to purchase that Reference
Security pursuant to a plan for the reinvestment of dividends or
interest); or
(vi) pay a dividend or make a distribution to all holders of that
Reference Security of evidences of its indebtedness or other assets:
. including in the case where the Reference Security is Broadband
HOLDRS, any of the securities underlying Broadband HOLDRS that
may be distributed by the Broadband HOLDRS Trust, but,
. excluding any stock dividends or distributions referred to in
clause (i) above or any cash dividends other than any
Extraordinary Cash Dividend or issuance to all holders of that
Reference Security of rights or warrants to subscribe for or
purchase any of its securities (other than those referred to in
clause (v) above) (any of the foregoing assets are referred to as
the "Distributed Assets" and any of the foregoing events are
referred to as the "Dilution Events").
For purposes of provision (vi) above, if the holder of a Reference Security can
elect to receive securities in lieu of cash or property other than securities,
then for purposes of provision (vi) above, the holders of the Reference Security
shall be deemed to receive only the securities.
In the case of the Dilution Events referred to in clauses (i), (ii), (iii)
and (iv) above, the Reference Property shall be adjusted to include the number
of units of the Reference Security and/or security of that issuer which a holder
of Reference Property as constituted immediately prior to the Dilution Event
would have owned or been entitled to receive as a result of that Dilution Event.
Each adjustment shall become effective immediately after the effective date for
the dividend, distribution subdivision, split, combination or reclassification,
as the case may be. Each adjustment shall be made successively.
In the case of the Dilution Event referred to in clause (v) above, the
Reference Property shall be adjusted by multiplying the number of Reference
Securities constituting Reference Property immediately prior to the date of
issuance of the rights or warrants referred to in clause (v) above by a
fraction:
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. the numerator of which shall be the number of Reference Securities
outstanding on the date immediately prior to such issuance, plus the
number of additional Reference Securities offered for subscription or
purchase pursuant to the rights or warrants, and
. the denominator of which shall be the number of Reference Securities
outstanding on the date immediately prior to such issuance, plus the
number of additional Reference Securities which the aggregate offering
price of the total number of Reference Securities so offered for
subscription or purchase pursuant to the rights or warrants would
purchase at the current market price, determined as the average
Closing Price per Reference Security for the 20 Trading Days
immediately prior to the date of such rights or warrants are issued,
subject to certain adjustments, which shall be determined by
multiplying such total number of Reference Securities by the exercise
price of the rights or warrants and dividing the product so obtained
by the current mark et price.
To the extent that the rights or warrants are not exercised before they expire,
or if the rights or warrants are not issued, the Reference Property shall be
readjusted to the Reference Property which would then be in effect had such
adjustments for the issuance of the rights or warrants been made upon the basis
of delivery of only the number of Reference Securities actually delivered under
the rights or warrants.
In the case of the Dilution Event referred to in clause (vi) above, the
Reference Property shall be adjusted to include, from and after the dividend,
distribution or issuance,
. for the portion of the Distributed Assets consisting of cash, the
amount of such Distributed Assets consisting of cash received on
Reference Property as constituted on the date of the dividend,
distribution or issuance, plus
. for the portion of the Distributed Assets which are other than cash,
the number or amount of each type of Distributed Assets other than
cash received on Reference Property as constituted on the date of the
dividend, distribution or issuance.
An "Extraordinary Cash Dividend" means, with respect to any consecutive 12-
month period, the amount, if any, by which the aggregate amount of all cash
dividends or any other distribution made by the issuer of a Reference Security
or made pursuant to an arrangement effecting a distribution of distributable
profits or reserves, whether in cash or in specie, on any Reference Security
occurring in such 12-month period (or, if the Reference Security was not
outstanding at the commencement of such 12-month period or was not then a part
of the Reference Property, occurring in such shorter period during which such
Reference Security was outstanding and was part of the Reference Property)
exceeds on a per share basis 10% of the average of the Closing Prices per share
of such Reference Security over such 12-month period (or shorter period during
which such Reference Security was outstanding and was part of the Reference
Property); provided that, for purposes of the foregoing definition, the amount
of cash dividends paid on a per share basis will be appropriately adjusted to
reflect the occurrence during such period of any stock dividend or distribution
of shares of capital stock of the issuer of such Reference Security or any
subdivision, split, combination or reclassification of shares of such Reference
Security.
If the Reference Security is Broadband HOLDRS, the determination as to
whether any cash dividend on such Broadband HOLDRS is an Extraordinary Cash
Dividend shall be made:
. by examining which of the stocks underlying Broadband HOLDRS is
responsible for all or a portion of such cash dividend or distribution
on Broadband HOLDRS, and
. treating each such stock underlying Broadband HOLDRS as if it were a
Reference Security only for this purpose and then determining whether
such cash dividend would be an Extraordinary Cash Dividend as defined
above with respect to such deemed Reference Security.
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A "Reorganization Event" shall mean:
. any consolidation or merger of an issuer of a Reference Security, or
any surviving entity or subsequent surviving entity of that issuer (a
"Successor Company"), with or into another entity, other than a merger
or consolidation in which such issuer is the continuing corporation
and in which the Reference Security outstanding immediately prior to
the merger or consolidation is not exchanged for cash, securities or
other property of such issuer or another corporation;
. any sale, transfer, lease or conveyance to another corporation of the
property of an issuer of a Reference Security or any Successor Company
as an entirety or substantially as an entirety;
. any statutory exchange of securities of an issuer of a Reference
Security or any Successor Company with another corporation, other than
in connection with a merger or acquisition; or
. any liquidation, dissolution, winding up or bankruptcy of an issuer of
a Reference Security or any Successor Company.
If a Reorganization Event occurs, the Reference Property shall include:
. for any cash received in that Reorganization Event, the cash received
by a holder of the Reference Property as constituted on the date of
the Reorganization Event;
. for any property other than cash or securities received in that
Reorganization Event, the property received by a holder of the
Reference Property as constituted on the date of the Reorganization
Event as determined by the calculation agent; and
. for any securities received in that Reorganization Event, the
securities received by a holder of the Reference Property as
constituted on the date of the Reorganization Event (subject to
adjustment on a basis consistent with the adjustment provisions
described above).
All adjustments will be calculated to the nearest 1/10,000th of a share of
the Reference Security, or if there is not a nearest 1/10,000th of a share, to
the next lower 1/10,000th of a share. No adjustment shall be required unless
that adjustment would require an increase or decrease of at least one percent in
the Closing Price; provided, however, that any adjustments which by reason of
the foregoing are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
The foregoing adjustments shall be made by MLPF&S, as calculation agent,
and all adjustments, absent a manifest error, shall be final.
ML&Co. will, within ten Business Days following the occurrence of an event
that requires an adjustment, or if ML&Co. is not aware of such occurrence, as
soon as practicable after becoming so aware, provide written notice to the
trustee, which shall provide notice to the holders of the Callable MITTS
Securities of the occurrence of the event and, if applicable, a statement in
reasonable detail setting forth the adjusted Closing Price to be used in
determining the Ending Value.
Depositary
Description of the Global Securities
The Callable 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 Callable MITTS
Securities in definitive form, no global
20
<PAGE>
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 Callable MITTS Securities represented by the global
security for all purposes under the 1983 Indenture. Except as provided below,
the beneficial owners of the Callable MITTS Securities represented by a global
security will not be entitled to have the Callable MITTS Securities registered
in their names, will not receive or be entitled to receive physical delivery of
the Callable MITTS Securities in definitive form and will not be considered the
owners or holders of the Callable 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 Callable MITTS Securities. The
Callable 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 Callable 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 Callable MITTS Securities under DTC's system must be
made by or through direct participants, which will receive a credit for the
Callable 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
21
<PAGE>
transaction. Transfers of ownership interests in the Callable MITTS Securities
are to be made by entries on the books of participants acting on behalf of
beneficial owners.
To facilitate subsequent transfers, all Callable MITTS Securities
deposited with DTC are registered in the name of DTC's partnership nominee, Cede
& Co. The deposit of Callable 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 Callable MITTS Securities;
DTC's records reflect only the identity of the direct participants to whose
accounts the Callable 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
Callable 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 Callable MITTS Securities are credited on the record date.
Principal, premium, if any, and/or interest, if any, payments made in
cash on the Callable 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:
. 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 Callable MITTS Securities,
the global securities will be exchangeable for Callable 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 Callable
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.
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<PAGE>
DTC may discontinue providing its services as securities depositary
with respect to the Callable 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, Callable 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,
Callable 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
Callable MITTS Securities are maintained in book-entry form.
23
<PAGE>
THE BROADBAND HOLDRS TRUST
ML&Co. has attached the HOLDRS Prospectus describing the Broadband
HOLDRS Trust and is delivering it to purchasers of the Callable MITTS Securities
together with this for the convenience of reference only. The HOLDRS Prospectus
does not constitute a part of this, nor is it incorporated by reference into
this prospectus. The summary description below is qualified in its entirety by
the information describing the Broadband HOLDRS Trust and the securities held by
the Trust included in the attached HOLDRS Prospectus.
The Broadband HOLDRS Trust was formed under a depositary trust
agreement, dated as of March 22, 2000, among The Bank of New York, as trustee,
MLPF&S, as the initial depositor, other depositors and the owners of Broadband
HOLDRS. The trust is not a registered investment company under the Investment
Company Act of 1940.
The trust holds shares of common stock issued by 20 companies generally
considered to be involved in various segments of the broadband business. The
trust issues Broadband HOLDRS that represent an undivided beneficial ownership
interest in the shares of common stock held by the trust. Broadband HOLDRS are
separate from the underlying common stocks that are represented by Broadband
HOLDRS.
Broadband HOLDRS are quoted on the AMEX under the trading symbol "BDH".
You should carefully read the HOLDRS Prospectus accompanying this
prospectus to fully understand the operation and management of the Broadband
HOLDRS Trust. Neither the HOLDRS Prospectus nor these other documents are
incorporated by reference into this prospectus, and we make no representation or
warranty as to the accuracy or completeness of the information.
24
<PAGE>
OTHER TERMS
The Callable 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 Callable 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 Callable 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.
25
<PAGE>
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a
Controlled Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any
payment on or with respect to any senior debt security;
. 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
. 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
26
<PAGE>
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:
. default in the payment of any interest or Additional Amounts
payable when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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:
. in the payment of any amounts due and payable or deliverable under
the debt securities of that series; or
. 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.
27
<PAGE>
The Callable 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.
28
<PAGE>
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 Callable MITTS Securities, we have determined that the
projected payment schedule for the Callable MITTS Securities will consist of
payment on the maturity date of the principal amount thereof and a projected
Supplemental Redemption Amount equal to $6.4136 per unit This represents an
estimated yield on the Callable MITTS Securities equal to 7.21% per annum,
compounded semiannually.
The projected payment schedule, including both the projected
Supplemental Redemption Amount and the estimated yield on the Callable MITTS
Securities, has been determined solely for United States Federal income tax
purposes, i.e., for purposes of applying the Final Regulations to the Callable
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 Callable MITTS
Securities during each accrual period over the term of the Callable MITTS
Securities based upon the projected payment schedule for the Callable MITTS
Securities (including both the Projected Supplemental Redemption Amount and the
estimated yield equal to 7.21% per annum (compounded semiannually)) as
determined by ML&Co. for purposes of applying the Final Regulations to the
Callable MITTS Securities:
<TABLE>
<CAPTION>
Total interest
deemed to have
accrued on the
Callable MITTS
Interest deemed Securities
to accrue during as of the end of
accrual period accrual period
Accrual Period (per unit) (per unit)
-------------- ----------------- -----------------
<S> <C> <C>
September 13, 2000 through March 13, 2001...................... $0.3575 $0.3575
March 14, 2001 through September 13, 2001...................... $0.3734 $0.7309
September 14, 2001 through March 13, 2002...................... $0.3868 $1.1177
March 14, 2002 through September 13, 2002...................... $0.4008 $1.5185
September 14, 2002 through March 13, 2003...................... $0.4153 $1.9338
March 14, 2003 through September 13, 2003...................... $0.4302 $2.3640
September 14, 2003 through March 13, 2004...................... $0.4457 $2.8097
March 14, 2004 through September 13, 2004...................... $0.4618 $3.2715
September 14, 2004 through March 13, 2005...................... $0.4784 $3.7499
March 14, 2005 through September 13, 2005...................... $0.4957 $4.2456
September 14, 2005 through March 13, 2006...................... $0.5136 $4.7592
March 14, 2006 through September 13, 2006...................... $0.5320 $5.2912
September 14, 2006 through March 13, 2007...................... $0.5513 $5.8425
March 14, 2007 through September 13, 2007...................... $0.5711 $6.4136
</TABLE>
_______________
Projected Supplemental Redemption Amount = $6.4136 per unit.
All prospective investors in the Callable MITTS Securities should
consult their own tax advisors concerning the application of the Final
Regulations to their investment in the Callable MITTS Securities. Investors in
the Callable 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 Callable MITTS Securities, by submitting a written request for such
information to Merrill Lynch & Co., Inc., Corporate Secretary's Office, 222
Broadway, 17th Floor, New York, New York 10038, (212) 670-0432,
[email protected].
29
<PAGE>
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 Callable 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 Callable 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 available over the Internet at the SEC's web site at
http://www.sec.gov. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 Callable MITTS Securities and other securities. For further
information on ML&Co. and the Callable 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to
those documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31,
2000, June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3,
2000, March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000,
June 29, 2000, July 18, 2000, August 2, 2000, August 4, 2000,
September 13, 2000, October 6, 2000, October 17, 2000, November
1, 2000, November 20, 2000 and December 6, 2000.
30
<PAGE>
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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14
of the Exchange Act in connection with any subsequent
stockholders' meeting; and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales
of the Callable MITTS Securities and is to be used by MLPF&S when making offers
and sales related to market-making transactions in the Callable MITTS
Securities.
MLPF&S may act as principal or agent in these market-making
transactions.
The Callable MITTS Securities may be offered on the AMEX or off the
exchange in negotiated transactions or otherwise.
The distribution of the Callable 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 for the year
ended December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the Quarterly Reports on
Form 10-Q and incorporated by reference herein,
31
<PAGE>
they did not audit and they do not express an opinion on such interim financial
information. Accordingly, the degree of reliance on their report 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 their
reports on unaudited interim financial information because 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 of
1933, as amended.
32
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with the+
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
<TABLE>
<S> <C>
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
</TABLE>
Merrill Lynch & Co., Inc.
S&P 500(R) Market Index Target-Term Securities(R)
due June 29, 2007
"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>
The MITTS Securities: Payment at maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal
. Senior unsecured debt securities of Merrill Lynch to the sum of the principal amount of each unit and
& Co., Inc. an additional amount based on the percentage
. Linked to the value of the S&P 500 Index. increase if any, in the value of the S&P 500 Index
. The MITTS Securities are quoted on The Nasdaq reduced by an annual adjustment factor of 1.75%.
National Market under the symbol "MITT". . At maturity, you will receive no less than the
. Closing date: June 29, 2000. 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. A.G. Edwards & Sons, Inc.
_______________
The date of this prospectus is , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
and "Protected Growth" is a service mark of 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
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION-Q&A.................................................... 3
RISK FACTORS............................................................... 6
MERRILL LYNCH & CO., INC................................................... 9
RATIO OF EARNINGS TO FIXED CHARGES......................................... 10
DESCRIPTION OF THE MITTS SECURITIES........................................ 11
THE S&P 500 INDEX.......................................................... 19
OTHER TERMS................................................................ 22
PROJECTED PAYMENT SCHEDULE................................................. 26
ERISA CONSIDERATIONS....................................................... 27
WHERE YOU CAN FIND MORE INFORMATION........................................ 27
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.......................... 27
PLAN OF DISTRIBUTION....................................................... 28
EXPERTS.................................................................... 28
</TABLE>
2
<PAGE>
SUMMARY INFORMATION -- Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the S&P 500(R) Market
Index Target-Term Securities(R) due June 29, 2007. You should carefully read
this prospectus 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 to "ML&Co.", "we", "us" and "our" are to
Merrill Lynch & Co., Inc. and references 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 June 29, 2007. 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 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 value
of the S&P 500 Index as reduced by the Adjustment Factor. On the stated maturity
date, you will receive a cash payment on the MITTS Securities equal to the sum
of two amounts: the "principal amount" and the "Supplemental Redemption Amount",
if any.
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.
The "Starting Value" equals 1,455.31, the closing value of the S&P 500
Index on June 26, 2000, the date the MITTS Securities were priced for initial
sale to the public (the "Pricing Date").
The "Adjusted Ending Value" means the average or arithmetic mean of the
values of the S&P 500 Index at the close of the market on five business days
before the maturity of the MITTS Securities as reduced on each day by the
application of the Adjustment Factor. 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 a sufficient number of the stocks
included in the S&P 500 Index or certain futures or options contracts relating
to the S&P 500 Index.
3
<PAGE>
The "Adjustment Factor" equals 1.75% per year and will be pro-rated based
on a 365-day year and applied over the entire term of the MITTS Securities on
each calendar day to reduce the closing values of the S&P 500 Index used to
calculate the Supplemental Redemption Amount during the Calculation Period. As a
result of the cumulative effect of this reduction, the values of the S&P 500
Index used to calculate the Supplemental Redemption Amount during the
Calculation Period will be approximately 11.53% less than the actual closing
value of the S&P 500 Index on each 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 the Supplemental Redemption Amount, see
"Description of the MITTS Securities--Payment at Maturity" in this prospectus.
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 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 investment term equal to that of the MITTS Securities and an
Adjustment Factor of 1.75% per year:
Example 1--The S&P 500 Index, as adjusted, is below the Starting Value at
maturity:
Starting Value: 1,455.31
Hypothetical average closing value of the S&P 500 Index for the calculation
period: 1,528.08
Hypothetical Adjusted Ending Value: 1,351.82
<TABLE>
<S> <C>
(1,351.82-1,455.31) (Supplemental
Supplemental Redemption Amount (per unit) = $10 x = (-----------------) = $0.00 Redemption
( 1,455.31 ) Amount cannot
be less than zero)
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: 1,455.31
Hypothetical average closing value of the S&P 500 Index for the calculation
period: 2,619.56
Hypothetical Adjusted Ending Value: 2,317.42
(1,317.42-1,455.31)
Supplemental Redemption Amount (per unit) = $10 x = (-----------------) = $5.92
( 1,455.31 )
Total payment at maturity (per unit) = $10 + $5.92 = $15.92
</TABLE>
4
<PAGE>
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 in the United States. 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. 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.
Will I receive interest payments on the MITTS Securities?
You will not receive any interest payments on the MITTS Securities, but
will instead receive the principal amount plus the Supplemental Redemption
Amount, if any, at maturity. We have designed the MITTS Securities for investors
who are willing to forego market interest payments on the MITTS Securities, such
as floating interest rates paid on standard senior non-callable debt securities,
in exchange for the ability to participate in possible increases in the S&P 500
Index.
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are quoted on The Nasdaq National Market under the
symbol "MITT". You should be aware that the listing of the MITTS Securities on
The Nasdaq National Market does not necessarily ensure that a liquid trading
market will be 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 one of the underwriters for the initial
offering and sale of the MITTS Securities. MLPF&S intends to buy and sell the
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 or to continue them once it has started.
MLPF&S is also 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' 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 this 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.
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.
5
<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 Adjusted 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 S&P 500 Index,
as reduced by the Adjustment Factor over the term of the MITTS Securities, 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 debt security of ML&Co. 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 S&P
500 Index
The return on your MITTS Securities 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 cumulative effect of
the reduction caused by the Adjustment Factor and because the value of the S&P
500 Index is calculated by reference to the prices of the 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
Although the MITTS Securities are listed on The Nasdaq National Market
under the symbol "MITT", 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 S&P 500 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
6
<PAGE>
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 S&P 500 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 S&P 500 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 by which the S&P 500 Index, as reduced
by the Adjustment Factor over the term of the MITTS Securities, exceeds 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 over the term of the
MITTS Securities, 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 or 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.
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 U.S. 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. Rising U.S. interest rates may lower the value of the S&P 500
Index and, thus, the MITTS Securities. Falling U.S. interest rates may increase
the value of the S&P 500 Index and, thus, may increase the value of the MITTS
Securities.
Changes in the volatility of the S&P 500 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 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.
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 U.S. interest rates and
the S&P 500 Index. This difference will 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.
Changes in dividend yields of the stocks included in the S&P 500 Index
are expected to affect the trading value of the MITTS Securities. In general, 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 stocks included in the S&P 500 Index 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 S&P 500 Index at maturity, an improvement in our credit
ratings will not reduce the other investment risks related to the MITTS
Securities.
7
<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 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 1983 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 affiliates may from time to time buy or sell the stocks
included in the S&P 500 Index or futures or options contracts on 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, in turn, the value of the S&P 500 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 Adjusted 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 S&P 500 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 or
unavailability 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. 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 the 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.
8
<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 LP and Mercury Asset Management Ltd,
provides investment, financing, advisory, insurance, and related products on a
global basis, including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards,
futures and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending
and related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center,
New York, New York 10080; 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.
9
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a
pooling-of-interests under generally accepted accounting principles in the
United States of America and is not expected to have a significant impact on the
results of operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
For the Nine
Year Ended Last Friday in December Months Ended
----------------------------------------
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges....... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
10
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On June 29, 2000, ML&Co. issued an aggregate principle amount of
$42,000,000 or 4,200,000 units of 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 June 29, 2007.
While at maturity a beneficial owner of a MITTS Security will receive
the sum of 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".
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, holders of the MITTS Securities may
accelerate the maturity of the MITTS Securities, as described under the sections
entitled "--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 per unit.
The MITTS Securities do not have the benefit of any sinking fund.
Payment at maturity
At maturity a holder 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 described below. If the Adjusted 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>
<S> <C>
(Adjusted Ending Value - Starting Value)
principal amount of each 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 1,455.31, the closing value of the S&P 500
Index on June 26, 2000 the day the MITTS Securities were priced for initial sale
to the public.
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 during the
Calculation Period, 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 during the Calculation Period, 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
11
<PAGE>
Business Day in the Calculation Period, as reduced by the application of the
Adjustment Factor on that day, regardless of the occurrence of a Market
Disruption Event on that Index Business Day.
The "Adjustment Factor" equals 1.75% and will be applied over the
entire term of the MITTS Securities. On each calendar day during the term of the
MITTS Securities, we will apply this percentage on a pro-rated basis based on a
365-day year to reduce the values of the S&P 500 Index used to calculate the
Supplemental Redemption Amount during the Calculation Period. As a result of the
cumulative effect of this reduction, the values of the S&P 500 Index used to
calculate your Supplemental Redemption Amount during the Calculation Period will
be approximately 11.53% less than the actual value of the S&P 500 Index on each
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.
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" is any day on which the NYSE and the Nasdaq
Stock Market are open for trading and the S&P 500 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 average
closing values of the S&P 500 Index during the Calculation Period, assuming an
initial investment of $10 per unit and an investment term from June 26, 2000 to
June 29, 2007:
. the percentage change from the Starting Value to the hypothetical
average closing value,
. the Adjusted Ending Value used to calculate the Supplemental
Redemption Amount,
. the total amount payable at maturity for each unit of MITTS
Securities,
. the total rate of return to beneficial owners of the MITTS
Securities,
. the pretax annualized rate of return to beneficial owners of
MITTS Securities, and
. the pretax annualized rate of return of an investment in the
stocks included in the S&P 500 Index, which includes an assumed
aggregate dividend yield of 1.11% per annum, as more fully
described below.
12
<PAGE>
For the purposes of calculating this table, we have applied the Adjustment
Factor of 1.75% per annum.
<TABLE>
<CAPTION>
Total Pretax
Hypothetical Percentage change amount Pretax annualized
average closing from the payable annualized rate of return
value Starting Value at maturity Total rate of rate of stocks
during the to hypothetical Adjusted per unit of return on of return on included
calculation average closing Ending the MITTS the MITTS the MITTS in the S&P 500
period value Value(1) Securities Securities Securities(2) Index(2)(3)
----------------- ----------------- --------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
291.06 -80.00% 257.49 $10.00 0.00% 0.00% -20.50%
582.12 -60.00% 514.98 $10.00 0.00% 0.00% -11.55%
873.19 -40.00% 772.47 $10.00 0.00% 0.00% -6.07%
1,164.25 -20.00% 1,029.96 $10.00 0.00% 0.00% -2.06%
1,455.31(4) 0.00% 1,287.46 $10.00 0.00% 0.00% 1.11%
1,746.37 20.00% 1,544.95 $10.62 6.16% 0.86% 3.75%
2,037.43 40.00% 1,802.44 $12.39 23.85% 3.08% 6.01%
2,328.50 60.00% 2,059.93 $14.15 41.55% 5.02% 8.00%
2,619.56 80.00% 2,317.42 $15.92 59.24% 6.76% 9.77%
2,910.62 100.00% 2,574.91 $17.69 76.93% 8.32% 11.37%
3,201.68 120.00% 2,832.40 $19.46 94.63% 9.74% 12.83%
3,492.74 140.00% 3,089.89 $21.23 112.32% 11.05% 14.17%
3,783.81 160.00% 3,347.39 $23.00 130.01% 12.26% 15.41%
4,074.87 180.00% 3,604.88 $24.77 147.71% 13.38% 16.57%
4,365.93 200.00% 3,862.37 $26.54 165.40% 14.44% 17.66%
</TABLE>
--------
(1) The Adjusted Ending Values specified in this column are approximately 11.53%
less than the hypothetical average closing values of the S&P 500 Index as a
result of the application of the Adjustment Factor of 1.75% per annum 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 percentage change in the aggregate price of the stocks that
equals the percentage change in the S&P 500 Index from the
Starting Value to the relevant hypothetical average closing
value;
(b) a constant dividend yield of 1.11% per annum, paid quarterly from
the date of initial delivery of the 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
applicable hypothetical average closing value;
(c) no transaction fees or expenses; and
(d) an investment term from June 26, 2000 to June 29, 2000.
(4) This is 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 you and the resulting total and
pretax annualized rate of return will depend entirely on the actual Adjusted
Ending Value determined by the calculation agent as described in this
prospectus.
Adjustments to the S&P 500 Index; Market Disruption Events
If at any time Standard & Poor's changes its method of calculating the
S&P 500 Index, or the value of the S&P 500 Index changes, 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 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 S&P
500 Index is to be calculated, make those 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
13
<PAGE>
Index as if those changes or modifications had not been made, and calculate the
closing value with reference to the S&P 500 Index, as so 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, e.g., due to a split, 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, 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) 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, or during the one-half hour period preceding the
close of trading, on the applicable exchange, whether by reason of
movements in price otherwise exceeding levels permitted by the
relevant exchange or otherwise, in option contracts or futures
contracts related to the S&P 500 Index, or any successor index, which
are traded on any major U.S. exchange.
For the purpose of the above definition:
(1) 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 and
(2) 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
Standard & Poor's 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 its 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 and calculate the Adjusted Ending Value
as described above under "Payment at maturity". Upon any selection by the
calculation agent of a successor index, ML&Co. shall promptly give notice to the
beneficial owners of the MITTS Securities by publication in a United States
newspaper with a national circulation.
In the event that Standard & Poor's discontinues publication of the S&P 500
Index and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the S&P 500 Index in
accordance with the procedures last used to calculate the S&P 500 Index before
any 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, the
successor index or value will be used as a substitute for the S&P 500 Index for
all purposes, including for purposes of determining whether a Market Disruption
Event exists.
14
<PAGE>
If Standard & Poor's discontinues publication of the S&P 500 Index before
the Calculation Period 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 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 Nasdaq Stock Market
are open for trading.
Notwithstanding 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 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 of 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,
provided, however, the Adjustment Factor will be applied to the values used to
calculate the Supplemental Redemption Amount as if the MITTS Securities had not
been accelerated and had remained outstanding to the stated maturity date. 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 holder 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 date or upon acceleration, from and after the maturity date the
MITTS Securities will bear interest, payable upon demand of their holders, at
the rate of 7.77% 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.
15
<PAGE>
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 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 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.
16
<PAGE>
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 the 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:
. 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.
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.
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<PAGE>
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.
18
<PAGE>
THE S&P 500 INDEX
Standard & Poor's publishes the S&P 500 Index. The S&P 500 Index 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. 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. The
Index is comprised of the common stocks of companies in four main groups:
Industrials, Utilities, Transportation and Financial. 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 value of the S&P 500 Index is reported on the AMEX and on Bloomberg
under the symbol "SPX".
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
as the return 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.
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<PAGE>
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. These changes
may result from causes such as:
. 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,
. consolidations and acquisitions,
. the granting to shareholders of rights to purchase other securities of
the issuer,
. 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
of that stock or both, as the case may be, and then determines the new base
value in accordance with the following formula:
New Market Value
Old base Value X ---------------- = New Base 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.
License Agreement
Standard & Poor's does not guarantee the accuracy and/or the completeness
of the S&P 500 Index or any data included in that index. 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 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 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 some securities,
including the MITTS Securities, and ML&Co. is an authorized sublicensee under
that agreement.
The license agreement between Standard & Poor's and Merrill Lynch Capital
Services, Inc. provides that the following language must be stated in this
prospectus:
"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
20
<PAGE>
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 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.
21
<PAGE>
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.
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<PAGE>
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect
to all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the
1983 Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any past default
to less than a majority.
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<PAGE>
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:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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
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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 its obligations under the 1983 Indenture.
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<PAGE>
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
$7.0524 per unit. This represents an estimated yield on the MITTS Securities
equal to 7.77% 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 7.77% per annum,
compounded semiannually, as determined by ML&Co. for purposes of applying the
Final Regulations to the MITTS Securities:
<TABLE>
<CAPTION>
Total interest deemed
Interest deemed to have accrued on
to accrue during MITTS Securities as of
accrual period end of accrual period
Accrual Period (per unit) (per unit)
-------------- ---------------- ----------------------
<S> <C> <C>
June 29, 2000 through December 29, 2000..................................... $0.3896 $0.3896
December 30, 2000 through June 29, 2001..................................... $0.4036 $0.7932
June 30, 2001 through December 29, 2001..................................... $0.4193 $1.2125
December 30, 2001 through June 29, 2002..................................... $0.4356 $1.6481
June 30, 2002 through December 29, 2002..................................... $0.4526 $2.1007
December 30, 2002 through June 29, 2003..................................... $0.4701 $2.5708
June 30, 2003 through December 29, 2003..................................... $0.4884 $3.0592
December 30, 2003 through June 29, 2004..................................... $0.5073 $3.5665
June 30, 2004 through December 29, 2004..................................... $0.5271 $4.0936
December 30, 2004 through June 29, 2005..................................... $0.5475 $4.6411
June 30, 2005 through December 29, 2005..................................... $0.5688 $5.2099
December 30, 2005 through June 29, 2006..................................... $0.5909 $5.8008
June 30, 2006 through December 29, 2006..................................... $0.6139 $6.4147
December 30, 2006 through June 29, 2007..................................... $0.6377 $7.0524
</TABLE>
----------
Projected Supplemental Redemption Amount = $7.0524 per unit.
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 Merrill Lynch & Co., Inc., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
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<PAGE>
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000,
November 20, 2000 and December 6, 2000.
27
<PAGE>
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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 Nasdaq National Market 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the Quarterly Reports on Form 10-Q and
incorporated by reference herein,
28
<PAGE>
they did not audit and they do not express an opinion on such interim financial
information. Accordingly, the degree of reliance on their report 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 their
reports on unaudited interim financial information because 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 of
1933, as amended.
29
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. The prospectus is not an +
+offer sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
<TABLE>
<S> <C>
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
</TABLE>
Merrill Lynch & Co., Inc.
Callable Market Index Target-Term Securities(R)
due October 5, 2007
based upon Semiconductor HOLDRS(SM)
"Callable 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 Callable MITTS
Securities.
<TABLE>
<CAPTION>
The Callable MITTS Securities: Payment at the stated maturity or upon exercise of
the call option:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, if the Callable MITTS
. Callable prior to the stated maturity by Merrill Securities have not been called, for each unit of the
Lynch & Co., Inc. MITTS Securities you own we will pay you an
. No payments before the maturity date unless amount equal to the sum of the principal amount of
called. each unit and an additional amount based on the
. Senior unsecured debt securities of Merrill Lynch percentage increase, if any, in the price of
& Co., Inc. Semiconductor HOLDRS.
. Linked to the price of Semiconductor HOLDRS . At maturity, you will receive no less than the
(trading symbol "SMH") principal amount of your Callable MITTS
. The Callable MITTS Securities are listed on the Securities.
American Stock Exchange under the trading . If Merrill Lynch & Co., Inc. elects to call your
symbol "SME". Callable MITTS Securities prior to the stated
. Closing date: October 6, 2000. maturity, you will receive $21 per unit.
</TABLE>
Investing in the Callable MITTS Securities involves risk.
See "Risk Factors" beginning on page 7 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 Callable MITTS Securities will be the prevailing
market price at the time of sale.
_______________
Merrill Lynch & Co.
_______________
The date of this prospectus is , .
"Callable MITTS" and "Market Index Target-Term Securities" are registered
service marks and "Protected Growth", "HOLDRS" and "Holding Company Depositary
Receipts" are service marks of Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION--Q&A.................................................. 3
RISK FACTORS.............................................................. 7
MERRILL LYNCH & CO., INC.................................................. 11
RATIO OF EARNINGS TO FIXED CHARGES........................................ 12
DESCRIPTION OF THE CALLABLE MITTS SECURITIES.............................. 13
THE SEMICONDUCTOR HOLDRs TRUST............................................ 24
OTHER TERMS............................................................... 25
PROJECTED PAYMENT SCHEDULE................................................ 29
ERISA CONSIDERATIONS...................................................... 30
WHERE YOU CAN FIND MORE INFORMATION....................................... 30
INCORPORATION OF INFORMATION WE FILE WITH THE SEC......................... 30
PLAN OF DISTRIBUTION...................................................... 31
EXPERTS................................................................... 31
</TABLE>
2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Callable Market
Index Target-Term Securities(R) due October 5, 2007 based upon Semiconductor
HOLDRS(SM). You should carefully read this prospectus to fully understand the
terms of the Callable MITTS Securities and the tax and other considerations that
are important to you in making a decision about whether to invest in the
Callable MITTS Securities. You should carefully review the "Risk Factors"
section, which highlights certain risks associated with an investment in the
Callable MITTS Securities, to determine whether an investment in the Callable
MITTS Securities is appropriate for you.
References in this prospectus to "ML&Co.", "we", "us" and "our" are to
Merrill Lynch & Co., Inc. and references to "MLPF&S" are to Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
"Semiconductor HOLDRS" are depositary receipts issued by the
Semiconductor HOLDRS Trust. We have attached the prospectus dated and the
prospectus supplement dated for Semiconductor HOLDRS (together, the
"HOLDRS Prospectus"). From time to time the Semiconductor HOLDRS Trust updates
the prospectus supplement. You should carefully read the HOLDRS Prospectus and
any updated prospectus supplements including the section entitled "Risk Factors"
to fully understand the operation and management of the Semiconductor HOLDRS
Trust and risks that may affect the price of Semiconductor HOLDRS. The
Semiconductor HOLDRS Trust will not receive any of the proceeds from the sale of
the Callable MITTS Securities and will not have any obligations with respect to
the Callable MITTS Securities.
We have attached the HOLDRS Prospectus and are delivering it to you
together with this prospectus for the convenience of reference only. The HOLDRS
Prospectus does not constitute a part of this prospectus, nor is it incorporated
by reference into this prospectus.
What are the Callable MITTS Securities?
The Callable MITTS Securities are a series of senior debt securities
issued by ML&Co. and are not secured by collateral. The Callable MITTS
Securities rank equally with all of our other unsecured and unsubordinated debt.
The Callable MITTS Securities will mature on October 5, 2007 unless called by
ML&Co. in October 2006.
Each unit of Callable MITTS Securities represents $10 principal amount
of Callable MITTS Securities. You may transfer the Callable 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 issued the Callable 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 Callable MITTS Securities. You should refer to the section
entitled "Description of the Callable MITTS Securities--Depositary" in this
prospectus.
What will I receive on the stated maturity date of the Callable MITTS
Securities?
We have designed the Callable 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 price of Semiconductor HOLDRS. On the stated maturity date, if we have not
called the Callable MITTS Securities, you will receive a cash payment equal to
the sum of two amounts: the "principal amount" and the "Supplemental Redemption
Amount", if any.
Principal Amount
The "principal amount" per unit is $10.
Supplemental Redemption Amount
The "Supplemental Redemption Amount" per unit will equal:
3
<PAGE>
(Ending Value-Starting Value)
$10 X (---------------------------)
( Starting Value )
but will not be less than zero.
The "Starting Value" equals $68.45, the Closing Price of Semiconductor
HOLDRS on October 3, 2000, the date the Callable MITTS Securities were priced
for initial sale to the public.
The "Ending Value" will be the average of the Closing Prices of
Semiconductor HOLDRS, as adjusted for dilution and reorganization events
described in this prospectus, on five business days shortly before the maturity
of the Callable MITTS Securities. We may calculate the Ending Value by reference
to fewer than five or even a single day's Closing Price if, during the period
shortly before the stated maturity date of the Callable MITTS Securities, there
is a disruption in the trading of Semiconductor HOLDRS.
For more specific information about the Supplemental Redemption
Amount, please see the section entitled "Description of the Callable MITTS
Securities" in this prospectus.
We will pay you a Supplemental Redemption Amount only if we do not
call the Callable MITTS Securities during October 2006 and 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 your Callable MITTS Securities regardless of whether
any Supplemental Redemption Amount is payable.
Examples
Here are two examples of Supplemental Redemption Amount calculations. If we
call the Callable MITTS Securities during the Call Period, you will receive
only the Call Price and you will not be entitled to receive any payment on the
stated maturity date.
Example 1--Ending Value is less than the Starting Value on the stated maturity
date:
Starting Value: $68.45
Hypothetical Ending Value at maturity: $61.61
<TABLE>
<S> <C>
(Supplemental
(61.61-86.45) Redemption
Supplemental Redemption Amount (per unit) = $10 X (-----------) = $0.00 Amount may not
( 68.45 ) be less than zero.)
Total payment on the stated maturity date (per unit) = $10.00 + $0.00 = $10.00
Example 2--Ending Value is greater than the Starting Value on the stated maturity date:
Starting Value: $68.45
Hypothetical Ending Value at maturity: $99.25
(99.25-68.45)
Supplemental Redemption Amount (per unit) = $10 X (-----------) = $4.50
( 68.45 )
Total payment on the stated maturity date (per unit) = $10.00 + $4.50 = $14.50
</TABLE>
4
<PAGE>
How does the call feature work?
We may elect to call the Callable MITTS Securities at $21 per unit
(the "Call Price"), on any Business Day during the month of October 2006 (the
"Call Period") by giving notice to the trustee of the Callable MITTS Securities
as described in this prospectus and specifying the date on which the Call Price
will be paid (the "Payment Date"). The Payment Date will be no later than the
twentieth Business Day after the call election. The Call Price represents an
annualized rate of return on your Callable MITTS Securities of 12.43%, as
calculated on a semi-annual bond equivalent basis, assuming you own the Callable
MITTS Securities from October 6, 2000 to the Payment Date.
If we elect to call your Callable MITTS Securities during the Call
Period, you will receive only the Call Price and you will not receive a
Supplemental Redemption Amount based on the price of Semiconductor HOLDRS. If we
do not call the Callable MITTS Securities during the Call period, the principal
amount plus the Supplemental Redemption Amount, if any, that you receive at the
stated maturity date may be greater than or less than the Call Price.
Will I receive interest payments on the Callable MITTS Securities?
You will not receive any interest payments on the Callable MITTS
Securities, but will instead receive the principal amount plus the Supplemental
Redemption Amount, if any, at maturity, or the Call Price if the Callable MITTS
Securities are called during the Call Period. We have designed the Callable
MITTS Securities for investors who are willing to forego market interest
payments on the Callable MITTS Securities, such as floating interest rates paid
on standard senior non-callable debt securities, in exchange for the ability to
participate in possible increases in the price of Semiconductor HOLDRS.
What is the Semiconductor HOLDRS Trust?
The Semiconductor HOLDRS Trust was formed under a depositary trust
agreement, dated April 24, 2000, among The Bank of New York, as trustee, MLPF&S,
as the initial depositor, other depositors and the owners of Semiconductor
HOLDRS. The trust is not a registered investment company under the Investment
Company Act of 1940.
The trust holds shares of common stock issued by companies generally
considered to be involved in various segments of the semiconductor industry. The
trust issues Semiconductor HOLDRS that represent an undivided beneficial
ownership interest in the shares of common stock held by the trust.
Semiconductor HOLDRS are separate from the underlying common stocks that are
represented by Semiconductor HOLDRS.
Semiconductor HOLDRS are listed on the AMEX under the trading symbol
"SMH".
You should carefully read the HOLDRS Prospectus accompanying this
prospectus to fully understand the operation and management of the Semiconductor
HOLDRS Trust. The risks described in the HOLDRS Prospectus under the section
entitled "Risk Factors" may affect the prices of Semiconductor HOLDRS and,
therefore, the value of the Callable MITTS Securities. The HOLDRS Prospectus is
not incorporated by reference into this prospectus, and we make no
representation or warranty as to the accuracy or completeness of the
information.
Please note that an investment in the Callable MITTS Securities does
not entitle you to an ownership interest in Semiconductor HOLDRS or in the
stocks held by the Semiconductor HOLDRS Trust.
Are the Callable MITTS Securities listed on a stock exchange?
The Callable MITTS Securities are listed on the AMEX under the trading
symbol "SME". The listing of the Callable MITTS Securities on the AMEX will not
necessarily ensure that a liquid trading market will be available for the
Callable MITTS Securities. You should review the section entitled "Risk
Factors--There may be an uncertain trading market for the Callable 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
5
<PAGE>
Callable MITTS Securities. MLPF&S intends to buy and sell Callable MITTS
Securities to create a secondary market for holders of the Callable MITTS
Securities. However, MLPF&S is not obligated to engage in any of these market
activities or to continue them once it has started.
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 a subsidiary of ML&Co. and its responsibilities as calculation
agent. In addition, MLPF&S acted as the initial depositor for the Semiconductor
HOLDRS Trust and regularly makes a market in Semiconductor HOLDRS.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various
subsidiaries and affiliated companies that provide investment, financing,
insurance and related services on a global basis. For information about ML&Co.,
see the section entitled "Merrill Lynch & Co., Inc." in this prospectus. You
should also read the other documents of ML&Co. we have 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 Callable MITTS Securities is subject to
risk. Please refer to the section entitled "Risk Factors" in this prospectus.
6
<PAGE>
RISK FACTORS
Your investment in the Callable MITTS Securities will involve risks.
You should carefully consider the following discussion of risks before investing
in the Callable MITTS Securities. In addition, you should reach an investment
decision with regard to the Callable MITTS Securities only after consulting your
legal and tax advisers and considering the suitability of the Callable MITTS
Securities in 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, the Supplemental Redemption Amount will be zero. This will be
true even if the price of Semiconductor HOLDRS was higher than the Starting
Value at some time during the life of the Callable MITTS Securities but later
falls to or below the Starting Value. If the Supplemental Redemption Amount is
zero and the Callable MITTS Securities are not called by us prior to the stated
maturity date, we will pay you only the principal amount of your Callable MITTS
Securities.
The Callable MITTS Securities are subject to early call
We may elect to call all of the Callable MITTS Securities by giving
notice on any Business Day during the Call Period. We are likely to call the
Callable MITTS Securities during the Call Period if the secondary market price
of the Callable MITTS Securities is approximately equal to or above the Call
Price during that period. In the event that we elect to call the Callable MITTS
Securities, you will receive only the Call Price and no Supplemental Redemption
Amount based on the trading price of Semiconductor HOLDRS.
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 ML&Co. 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 Semiconductor HOLDRS or the
securities held by the Semiconductor HOLDRS Trust
The return on your Callable MITTS Securities will not reflect the
return you would realize if you actually owned Semiconductor HOLDRS and received
cash distributions, if any, paid on Semiconductor HOLDRS because the price of
Semiconductor HOLDRS is calculated without taking into consideration the value
of any normal cash distributions paid on Semiconductor HOLDRS. In addition, if
the Callable MITTS Securities are called during the Call Period, you will
receive only the Call Price and you will not receive any additional amount based
upon the appreciation, if any, in the price of Semiconductor HOLDRS.
There may be an uncertain trading market for the Callable MITTS Securities
The Callable MITTS Securities are listed on the AMEX under the trading
symbol "SME". You cannot assume that a trading market exists for the Callable
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 Callable MITTS Securities depends on our financial performance and other
factors such as the increase, if any, in the price of Semiconductor HOLDRS.
If the trading market for the Callable MITTS Securities is limited,
there may be a limited number of buyers for your Callable MITTS Securities if
you do not wish to hold your investment until maturity. This may affect the
price you receive.
7
<PAGE>
Many factors affect the trading value of the Callable 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 Callable 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 Callable MITTS Securities caused by another factor and that the effect of
one factor may exacerbate the decrease in the trading value of the Callable
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 Callable MITTS Securities attributable to another factor, such as an
increase in the price of Semiconductor HOLDRS. The following paragraphs describe
the expected impact on the market value of the Callable MITTS Securities given a
change in a specific factor, assuming all other conditions remain constant.
The price of Semiconductor HOLDRS is expected to affect the trading
value of the Callable MITTS Securities. We expect that the market value of the
Callable MITTS Securities will depend substantially on the amount, if any, by
which the price of Semiconductor HOLDRS, as adjusted for certain dilution and
reorganization events described in this prospectus, exceeds the Starting Value.
If you choose to sell your Callable MITTS Securities when the price of
Semiconductor HOLDRS exceeds the Starting Value, you may receive substantially
less than the amount that would be payable at maturity based on that price
because of the expectation that the price of Semiconductor HOLDRS will continue
to fluctuate until the Ending Value is determined. If you choose to sell your
Callable MITTS Securities when the price of Semiconductor HOLDRS is below, or
not sufficiently above, the Starting Value, you may receive less than the $10
principal amount per unit of Callable MITTS Securities.
Changes in the levels of interest rates are expected to affect the
trading value of the Callable MITTS Securities. Because we will pay, at a
minimum, the principal amount per unit of Callable MITTS Securities at maturity,
we expect that changes in interest rates will affect the trading value of the
Callable MITTS Securities. In general, if U.S. interest rates increase, we
expect that the trading value of the Callable MITTS Securities will decrease
and, conversely, if U.S. interest rates decrease, we expect that the trading
value of the Callable MITTS Securities will increase. Rising interest rates may
lower the price of the Semiconductor HOLDRS and, thus, the Callable MITTS
Securities. Falling interest rates may increase the price of the Semiconductor
HOLDRS and, thus, may increase the value of the Callable MITTS Securities.
Changes in the volatility of Semiconductor HOLDRS are expected to
affect the trading value of the Callable MITTS Securities. Volatility is the
term used to describe the size and frequency of price and/or market
fluctuations. If the volatility of Semiconductor HOLDRS increases or decreases,
the trading value of the Callable MITTS Securities may be adversely affected.
As the time remaining to maturity of the Callable MITTS Securities
decreases, the "time premium" associated with the Callable MITTS Securities will
decrease. We anticipate that before their maturity, the Callable MITTS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the price of Semiconductor HOLDRS. This difference
will reflect a "time premium" due to expectations concerning the price of
Semiconductor HOLDRS during the period before the stated maturity of the
Callable MITTS Securities. However, as the time remaining to the stated maturity
of the Callable MITTS Securities decreases, we expect that this time premium
will decrease, lowering the trading value of the Callable MITTS Securities.
Changes in dividend yields of the stocks held by the Semiconductor
HOLDRS Trust are expected to affect the trading value of the Callable MITTS
Securities. Semiconductor HOLDRS Trust has not made any cash distributions to
date. If the dividend yields on the stocks held by the Semiconductor HOLDRS
Trust increase, we expect that the value of the Callable MITTS Securities will
decrease and, conversely, if the dividend yields on the stocks held by the
Semiconductor HOLDRS Trust decrease, we expect that the value of the Callable
MITTS Securities will increase.
8
<PAGE>
Changes in our credit ratings may affect the trading value of the
Callable 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 Callable MITTS Securities. However,
because your return on your Callable MITTS Securities is dependent upon factors
in addition to our ability to pay our obligations under the Callable MITTS
Securities, such as the percentage increase, if any, in the price of
Semiconductor HOLDRS at maturity, an improvement in our credit ratings will not
reduce the other investment risks related to the Callable MITTS Securities.
In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of the Callable 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 Callable MITTS Securities than if it occurs earlier in the term
of the Callable MITTS Securities. However, we expect that the effect on the
trading value of the Callable MITTS Securities of a given change in the price of
Semiconductor HOLDRS will be greater if it occurs later in the term of the
Callable MITTS Securities than if it occurs earlier in the term of the Callable
MITTS Securities.
Amounts payable on the Callable MITTS Securities may be limited by state law
New York State law governs the 1983 Indenture under which the Callable
MITTS Securities were 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 Callable 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 promise, for the benefit of the holders of the Callable MITTS Securities, to
the extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
No stockholder's rights
Beneficial owners of the Callable MITTS Securities are not entitled to
any rights in Semiconductor HOLDRS including, for example, voting rights and
rights to receive any cash or other distributions on the underlying securities
and rights to cancel Semiconductor HOLDRS and receive the underlying securities.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell Semiconductor
HOLDRS or stocks of the companies held by the Semiconductor HOLDRS Trust for our
own accounts, for business reasons or in connection with hedging our obligations
under the Callable MITTS Securities. These transactions could affect the price
of Semiconductor HOLDRS in a manner that could be adverse to your investment in
the Callable MITTS Securities.
Potential conflicts
Our subsidiary MLPF&S is our agent for the purposes of calculating the
Ending Value and the Supplemental Redemption Amount. Under certain
circumstances, MLPF&S' role as our subsidiary and its responsibilities as
calculation agent for the Callable MITTS Securities could give rise to conflicts
of interests. 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.
9
<PAGE>
We have entered into an arrangement with one of our subsidiaries to
hedge the market risks associated with our obligation to pay the amounts due at
maturity. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
Risks related to Semiconductor HOLDRS
Semiconductor HOLDRS are subject to various risks which are described
under the section entitled "Risk Factors" in the HOLDRS Prospectus. Any loss of
value to Semiconductor HOLDRS attributable to such risks would adversely affect
the value of the Callable MITTS Securities. You should carefully consider those
risks before deciding whether an investment in the Callable MITTS Securities is
suitable for you.
10
<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 LP and Mercury Asset Management Ltd,
provides investment, financing, advisory, insurance, and related products on a
global basis, including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards,
futures and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending
and related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center,
New York, New York 10080; 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 Callable MITTS Securities described in
this prospectus.
11
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a
pooling-of-interests under generally accepted accounting principles in the
United States of America and is not expected to have a significant impact on the
results of operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges
for the periods indicated:
<TABLE>
<CAPTION>
For the Nine
Year Ended Last Friday in December Months Ended
----------------------------------------
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges....... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
12
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DESCRIPTION OF THE CALLABLE MITTS SECURITIES
On October 6, 2000, ML&Co. issued an aggregate principal amount of
$28,000,000 or 2,800,000 units of Callable MITTS Securities. The Callable MITTS
Securitieswere issued as a series of senior debt securities under the 1983
Indenture, which is more fully described in this prospectus. Unless called by
ML&Co. during the Call Period, the Callable MITTS Securities will mature on
October 5, 2007.
Unless the Callable MITTS Securities are called during the Call
Period, at the stated maturity a beneficial owner of a Callable MITTS Security
will receive the sum of the principal amount of the Callable MITTS Security plus
the Supplemental Redemption Amount, if any. There will be no payment of
interest, periodic or otherwise. See the section entitled "--Payment at
maturity".
The Callable MITTS Securities may be called by ML&Co. as described
below, but are not subject to redemption at the option of any beneficial owner
before maturity. If an Event of Default occurs with respect to the Callable
MITTS Securities, registered holders of the Callable MITTS Securities may
accelerate the maturity of the Callable MITTS Securities, as described under the
sections entitled "--Events of Default and Acceleration" and "Other Terms--
Events of Default" in this prospectus.
ML&Co. will issue the Callable MITTS Securities in denominations of
whole units, each with a principal amount of $10.00.
The Callable MITTS Securities will not have the benefit of any sinking
fund.
Payment at maturity
If we do not call the Callable MITTS Securities during the Call
Period, a beneficial owner of a Callable MITTS Security will be entitled to
receive, at the stated maturity, the principal amount of each Callable MITTS
Security plus the Supplemental Redemption Amount, if any, all as provided below.
If the Ending Value does not exceed the Starting Value, a beneficial owner of a
Callable MITTS Security will be entitled to receive only the principal amount of
the Callable MITTS Security.
Determination of the Supplemental Redemption Amount
The "Supplemental Redemption Amount" for a Callable MITTS Security
will be determined by the calculation agent and will equal:
<TABLE>
<S> <C>
(Ending Value - Starting Value)
Principal amount of each Callable 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 $68.45, the Closing Price of one
Semiconductor HOLDR on October 3, 2000, the date the Callable MITTS Securities
were priced for initial sale to the public.
The "Ending Value" will be determined by the calculation agent and
will equal the value of the Reference Property determined as follows:
(A) for any portion of the Reference Property consisting of cash:
. that cash, plus
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<PAGE>
. interest on the amount accruing from and including the date
of the payment of that cash to holders of the Reference
Property for which that cash was paid to but excluding the
stated maturity date at a fixed interest rate determined on
the date of the payment equal to the interest rate that
would be paid on a fixed rate senior non- callable debt
security of ML&Co. with a term approximately equal to the
remaining term for the Callable MITTS Securities as
determined by the calculation agent;
(B) for any portion of the Reference Property consisting of property
other than cash or Reference Securities:
. the market value of that property, as determined by the
calculation agent on the date that the property was
delivered to holders of the relevant Reference Property for
which the property was distributed, plus
. interest on the amount accruing from and including the date
of delivery to but excluding the stated maturity date at a
fixed interest rate determined as described in (A) above;
and
(C) for any portion of the Reference Property consisting of Reference
Securities, the average or arithmetic mean, of the Closing Prices
of each such Reference Security determined on each of the first
five Calculation Days during the Calculation Period. If there are
fewer than five Calculation Days in the Calculation Period with
respect to any Reference Security, then the Ending Value shall be
calculated using the average, arithmetic mean, of the Closing
Prices of that Reference Security on those Calculation Days, and
if there is only one Calculation Day, then the Ending Value shall
be calculated using the Closing Price of that Reference Security
on such Calculation Day. If no Calculation Days occur during the
Calculation Period with respect to that Reference Security, then
the Ending Value shall be calculated using the Closing Price of
that Reference Security determined on the last scheduled Trading
Day in the Calculation Period, regardless of the occurrence of a
Market Disruption Event on that day.
"Reference Property" initially shall mean one Semiconductor HOLDR, and
shall be subject to adjustment from time to time to reflect the distribution of
cash, securities and/or other property in accordance with the adjustment
provisions described below under "--Dilution and Reorganization Adjustments".
"Reference Securities" shall mean any securities included in the
Reference Property.
"Calculation Period" means the period from and including the seventh
scheduled Trading Day prior to the stated maturity date to and including the
second scheduled Trading Day prior to the stated maturity date.
"Calculation Day" means, with respect to any Reference Security, any
Trading Day during the Calculation Period on which a Market Disruption Event has
not occurred.
"Market Disruption Event" means, for any Reference Security, the
occurrence or existence on any Trading Day during the one-half hour period that
ends when the Closing Price is determined, of any suspension of, or limitation
imposed on, trading in that Reference Security on the New York Stock Exchange,
or other market or exchange, if applicable.
"Trading Day" means a day on which the AMEX, the NYSE and the NASDAQ
National Market System ("NASDAQ NMS") are open for trading.
"Closing Price" of a Reference Security means, for a Calculation Day,
the following:
(a) If the Reference Security is listed on a national securities
exchange in the United States, is a NASDAQ NMS security or is
included in the OTC Bulletin Board Service ("OTC Bulletin
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<PAGE>
Board") operated by the National Association of Securities
Dealers, Inc. (the "NASD"), Closing Price means:
(i) the last reported sale price, regular way, on that day on
the principal United States securities exchange registered
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), on which that Reference Security is listed
or admitted to trading, or
(ii) if not listed or admitted to trading on any such securities
exchange or if the last reported sale price is not
obtainable, the last reported sale price on the
over-the-counter market as reported on the NASDAQ NMS or
OTC Bulletin Board on that day, or
(iii) if the last reported sale price is not available pursuant
to (i) and (ii) above, the mean of the last reported bid
and offer price on the over-the-counter market as reported
on the NASDAQ NMS or OTC Bulletin Board on that day as
determined by the calculation agent.
The term "NASDAQ NMS security" shall include a security included in
any successor to that system, and the term "OTC Bulletin Board" shall include
any successor service to that service.
(b) If the Reference Security is not listed on a national securities
exchange in the United States or is not a NASDAQ NMS security or
included in the OTC Bulletin Board operated by the NASD, Closing
Price means the last reported sale price on that day on the
securities exchange on which the Reference Security is listed or
admitted to trading with the greatest volume of trading for the
calendar month preceding that day as determined by the
calculation agent, provided that if the last reported sale price
is for a transaction which occurred more than four hours prior to
the close of that exchange, then the Closing Price shall mean the
average, mean, of the last available bid and offer price on that
exchange. If the Reference Security is not listed or admitted to
trading on any such securities exchange or if the last reported
sale price or bid and offer are not obtainable, the Closing Price
shall mean the last reported sale price for a transaction which
occurred more than four hours prior to when trading in such over-
the-counter market typically ends, then the Closing Price shall
mean the average, mean, of the last available bid and offer
prices in such market of the three dealers which have the highest
volume of transactions in the Reference Security in the
immediately preceding calendar month as determined by the
calculation agent based on information that is reasonably
available to it.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in The City of New York
are authorized or obligated by law to close and that is a day on which the NYSE,
the NASDAQ NMS and the AMEX are open for trading.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a manifest error, shall be
conclusive for all purposes and binding on ML&Co. and the Holders and beneficial
owners of the Callable MITTS Securities.
Early call of the Callable MITTS Securities at the option of ML&Co.
During the Call Period, the month of October 2006, ML&Co., in its sole
discretion, may elect to call the Callable MITTS Securities, in whole but not in
part, at $21 per unit, by giving notice to the trustee on any Business Day. The
Call Price represents an annualized rate of return on your Callable MITTS
Securities of 12.43%, as calculated on a semi-annual bond equivalent basis,
assuming you own the Callable MITTS Securities from October 6, 2000 to the
Payment Date.
If we elect to call your Callable MITTS Securities during the Call
Period, you will receive only the Call Price and you will not receive a
Supplemental Redemption Amount based on the price of Semiconductor
15
<PAGE>
HOLDRS. If we do not call the Callable MITTS Securities, the principal amount
plus the Supplemental Redemption Amount, if any, that you receive at the stated
maturity may be greater than or less than the Call Price. ML&Co. may elect to
call the Callable MITTS Securities on any Business Day during the Call Period by
giving notice to the trustee and specifying the date on which the Call Price
shall be paid. The Payment Date shall be no later than the twentieth Business
Day after the call election. The trustee will provide notice of the call
election to the registered holders of the Callable MITTS Securities, specifying
the Payment Date, no less than 15 calendar days prior to the Payment Date. While
the Callable MITTS Securities are held at the depositary, the registered holder
will be the depositary, and the depositary will receive the notice of the call.
As more fully described below under "--Depositary", the depositary will forward
this notice to its participants which will pass it onto the beneficial owners.
You should compare the features of the Callable MITTS Securities to
other available investments before deciding to purchase the Callable MITTS
Securities. Due to the uncertainty as to whether the Callable MITTS Securities
will earn a Supplemental Redemption Amount or be called during the Call Period,
the return on investment with respect to the Callable MITTS Securities may be
higher or lower than the return available on other securities issued by ML&Co.
or issued by others. We suggest that you reach an investment decision only after
carefully considering the suitability of the Callable MITTS Securities in light
of your particular circumstances.
Hypothetical returns
The following table illustrates, for a range of hypothetical Ending
Values during the Calculation Period, assuming an initial investment of $10 per
unit and an investment term from October 6, 2000 to October 5, 2007:
. the percentage change from the Starting Value to the hypothetical
Ending Value,
. the total amount payable at maturity for each unit of Callable
MITTS Securities,
. the total rate of return to beneficial owners of the Callable
MITTS Securities,
. the pretax annualized rate of return to the beneficial owners of
the Callable MITTS Securities, and
. pretax annualized rate of return of an investment in
Semiconductor HOLDRS.
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<PAGE>
The table also assumes we do not call the Callable MITTS Securities
prior to the stated maturity date.
<TABLE>
<CAPTION>
Percentage Total amount Pretax Pretax
change from the payable at Total rate of annualized rate Annualized rate
Starting Value to maturity per unit return on the of return on the of return on
Hypothetical the hypothetical of the Callable Callable MITTS Callable MITTS Semiconductor
Ending Value Ending Value MITTS Securities Securities Securities(1) HOLDRS(1)(2)
----------------- ------------------ ----------------- ---------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
13.69 -80% $10.00 0.00% 0.00% -21.72%
27.38 -60% $10.00 0.00% 0.00% -12.67%
41.07 -40% $10.00 0.00% 0.00% -7.17%
54.76 -20% $10.00 0.00% 0.00% -3.16%
68.45(3) 0% $10.00 0.00% 0.00% 0.00%
82.14 20% $12.00 20.00% 2.62% 2.62%
95.83 40% $14.00 40.00% 4.86% 4.86%
109.52 60% $16.00 60.00% 6.83% 6.83%
123.21 80% $18.00 80.00% 8.58% 8.58%
136.90 100% $20.00 100.00% 10.15% 10.15%
150.59 120% $22.00 120.00% 11.59% 11.59%
164.28 140% $24.00 140.00% 12.91% 12.91%
</TABLE>
____________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) a dividend yield of 0% per annum;
(b) no transaction fees or expenses;
(c) an investment term from October 6, 2000 to October 5, 2007; and
(d) a percentage change in the aggregate price of Semiconductor HOLDRS, as
adjusted for any dilution or reorganization events described below,
that equals the percentage change from the Starting Value to the
relevant hypothetical Ending Value.
(3) The Starting Value is 68.45.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rates of return will depend on the actual Ending Value
determined by the calculation agent as provided in this prospectus.
Events of Default and Acceleration
In case an Event of Default with respect to any Callable MITTS
Securities has occurred and is continuing, the amount payable to a beneficial
owner of a Callable MITTS Security upon any acceleration permitted by the
Callable MITTS Securities, with respect to each $10 principal amount of the
Callable MITTS Securities, will be equal to the principal amount and the
Supplemental Redemption Amount, if any, calculated as though the date of early
repayment was the stated maturity date of the Callable MITTS Securities,
provided, however, if the acceleration occurs before the end of the Call Period,
the maximum amount payable with respect to each Callable MITTS Security will be
the Call Price. If a bankruptcy proceeding is commenced in respect of ML&Co.,
the claim of the beneficial owner of a Callable MITTS Security may be limited,
under Section 502(b)(2) of Title 11 of the United States Code, to the principal
amount of the Callable 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 Callable MITTS Securities.
In case of default in payment of the Callable MITTS Securities, whether
at the stated maturity or upon acceleration, from and after the maturity date
the Callable MITTS Securities will bear interest, payable upon
17
<PAGE>
demand of their beneficial owners, at the rate of 7.11% 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 Callable MITTS
Securities to the date payment of that amount has been made or duly provided
for.
Dilution and Reorganization Adjustments
The Reference Property is subject to adjustment if an issuer of any
Reference Security shall:
(i) pay a stock dividend or make a distribution on that Reference
Security in Reference Securities;
(ii) subdivide or split the outstanding units of that Reference
Security into a greater number of units;
(iii) combine the outstanding units of that Reference Security into a
smaller number of units;
(iv) issue by reclassification of units of that Reference Security
any units of another security of that issuer;
(v) issue rights or warrants to all holders of that Reference
Security entitling them to subscribe for or purchase shares, in
the aggregate, for more than 5% of the number of those Reference
Securities outstanding prior to the issuance of the rights or
warrants at a price per share less than the then current market
price of that Reference Security (other than rights to purchase
that Reference Security pursuant to a plan for the reinvestment
of dividends or interest); or
(vi) pay a dividend or make a distribution to all holders of that
Reference Security of evidences of its indebtedness or other
assets:
. including in the case where the Reference Security is
Semiconductor HOLDRS, any of the securities underlying
Semiconductor HOLDRS that may be distributed by the
Semiconductor HOLDRS Trust, but,
. excluding any stock dividends or distributions referred to
in clause (i) above or any cash dividends other than any
Extraordinary Cash Dividend or issuance to all holders of
that Reference Security of rights or warrants to subscribe
for or purchase any of its securities (other than those
referred to in clause (v) above) (any of the foregoing
assets are referred to as the "Distributed Assets" and any
of the foregoing events are referred to as the "Dilution
Events").
For purposes of provision (vi) above, if the holder of a Reference Security can
elect to receive securities in lieu of cash or property other than securities,
then for purposes of provision (vi) above, the holders of the Reference Security
shall be deemed to receive only the securities.
In the case of the Dilution Events referred to in clauses (i), (ii),
(iii) and (iv) above, the Reference Property shall be adjusted to include the
number of units of the Reference Security and/or security of that issuer which a
holder of Reference Property as constituted immediately prior to the Dilution
Event would have owned or been entitled to receive as a result of that Dilution
Event. Each adjustment shall become effective immediately after the effective
date for the dividend, distribution subdivision, split, combination or
reclassification, as the case may be. Each adjustment shall be made
successively.
In the case of the Dilution Event referred to in clause (v) above, the
Reference Property shall be adjusted by multiplying the number of Reference
Securities constituting Reference Property immediately prior to the date of
issuance of the rights or warrants referred to in clause (v) above by a
fraction:
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<PAGE>
. the numerator of which shall be the number of Reference
Securities outstanding on the date immediately prior to such
issuance, plus the number of additional Reference Securities
offered for subscription or purchase pursuant to the rights or
warrants, and
. the denominator of which shall be the number of Reference
Securities outstanding on the date immediately prior to such
issuance, plus the number of additional Reference Securities
which the aggregate offering price of the total number of
Reference Securities so offered for subscription or purchase
pursuant to the rights or warrants would purchase at the current
market price, determined as the average Closing Price per
Reference Security for the 20 Trading Days immediately prior to
the date of such rights or warrants are issued, subject to
certain adjustments, which shall be determined by multiplying
such total number of Reference Securities by the exercise price
of the rights or warrants and dividing the product so obtained by
the current market price.
To the extent that the rights or warrants are not exercised before they expire,
or if the rights or warrants are not issued, the Reference Property shall be
readjusted to the Reference Property which would then be in effect had such
adjustments for the issuance of the rights or warrants been made upon the basis
of delivery of only the number of Reference Securities actually delivered under
the rights or warrants.
In the case of the Dilution Event referred to in clause (vi) above,
the Reference Property shall be adjusted to include, from and after the
dividend, distribution or issuance,
. for the portion of the Distributed Assets consisting of cash, the
amount of such Distributed Assets consisting of cash received on
Reference Property as constituted on the date of the dividend,
distribution or issuance, plus
. for the portion of the Distributed Assets which are other than
cash, the number or amount of each type of Distributed Assets
other than cash received on Reference Property as constituted on
the date of the dividend, distribution or issuance.
An "Extraordinary Cash Dividend" means, with respect to any
consecutive 12-month period, the amount, if any, by which the aggregate amount
of all cash dividends or any other distribution made by the issuer of a
Reference Security or made pursuant to an arrangement effecting a distribution
of distributable profits or reserves, whether in cash or in specie, on any
Reference Security occurring in such 12-month period (or, if the Reference
Security was not outstanding at the commencement of such 12-month period or was
not then a part of the Reference Property, occurring in such shorter period
during which such Reference Security was outstanding and was part of the
Reference Property) exceeds on a per share basis 10% of the average of the
Closing Prices per share of such Reference Security over such 12-month period
(or shorter period during which such Reference Security was outstanding and was
part of the Reference Property); provided that, for purposes of the foregoing
definition, the amount of cash dividends paid on a per share basis will be
appropriately adjusted to reflect the occurrence during such period of any stock
dividend or distribution of shares of capital stock of the issuer of such
Reference Security or any subdivision, split, combination or reclassification of
shares of such Reference Security.
If the Reference Security is Semiconductor HOLDRS, the determination
as to whether any cash dividend on such Semiconductor HOLDRS is an Extraordinary
Cash Dividend shall be made,
. by examining which of the stocks underlying Semiconductor HOLDRS
is responsible for all or a portion of such cash dividend or
distribution on Semiconductor HOLDRS, and
. treating each such stock underlying Semiconductor HOLDRS as if it
were a Reference Security only for this purpose and then
determining whether such cash dividend would be an Extraordinary
Cash Dividend as defined above with respect to such deemed
Reference Security.
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<PAGE>
A "Reorganization Event" shall mean:
. any consolidation or merger of an issuer of a Reference Security,
or any surviving entity or subsequent surviving entity of that
issuer (a "Successor Company"), with or into another entity,
other than a merger or consolidation in which such issuer is the
continuing corporation and in which the Reference Security
outstanding immediately prior to the merger or consolidation is
not exchanged for cash, securities or other property of such
issuer or another corporation;
. any sale, transfer, lease or conveyance to another corporation of
the property of an issuer of a Reference Security or any
Successor Company as an entirety or substantially as an entirety;
. any statutory exchange of securities of an issuer of a Reference
Security or any Successor Company with another corporation, other
than in connection with a merger or acquisition; or
. any liquidation, dissolution, winding up or bankruptcy of an
issuer of a Reference Security or any Successor Company.
If a Reorganization Event occurs, the Reference Property shall
include:
. for any cash received in that Reorganization Event, the cash
received by a holder of the Reference Property as constituted on
the date of the Reorganization Event;
. for any property other than cash or securities received in that
Reorganization Event, the property received by a holder of the
Reference Property as constituted on the date of the
Reorganization Event as determined by the calculation agent; and
. for any securities received in that Reorganization Event, the
securities received by a holder of the Reference Property as
constituted on the date of the Reorganization Event (subject to
adjustment on a basis consistent with the adjustment provisions
described above).
All adjustments will be calculated to the nearest 1/10,000th of a
share of the Reference Security, or if there is not a nearest 1/10,000th of a
share, to the next lower 1/10,000th of a share. No adjustment shall be required
unless that adjustment would require an increase or decrease of at least one
percent in the Closing Price; provided, however, that any adjustments which by
reason of the foregoing are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
The foregoing adjustments shall be made by MLPF&S, as calculation
agent, and all adjustments, absent a manifest error, shall be final.
ML&Co. will, within ten Business Days following the occurrence of an
event that requires an adjustment, or if ML&Co. is not aware of such occurrence,
as soon as practicable after becoming so aware, provide written notice to the
trustee, which shall provide notice to the holders of the Callable MITTS
Securities of the occurrence of the event and, if applicable, a statement in
reasonable detail setting forth the adjusted Closing Price to be used in
determining the Ending Value.
Depositary
Description of the Global Securities
The Callable 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 Callable MITTS
Securities in definitive form, no global
20
<PAGE>
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 Callable MITTS Securities represented by the global
security for all purposes under the 1983 Indenture. Except as provided below,
the beneficial owners of the Callable MITTS Securities represented by a global
security will not be entitled to have the Callable MITTS Securities registered
in their names, will not receive or be entitled to receive physical delivery of
the Callable MITTS Securities in definitive form and will not be considered the
owners or holders of the Callable 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 Callable MITTS Securities.
The Callable 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 Callable 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 Callable MITTS Securities under DTC's system must be
made by or through direct participants, which will receive a credit for the
Callable 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
21
<PAGE>
transaction. Transfers of ownership interests in the Callable MITTS Securities
are to be made by entries on the books of participants acting on behalf of
beneficial owners.
To facilitate subsequent transfers, all Callable MITTS Securities
deposited with DTC are registered in the name of DTC's partnership nominee, Cede
& Co. The deposit of Callable 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 Callable MITTS Securities;
DTC's records reflect only the identity of the direct participants to whose
accounts the Callable 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
Callable 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 Callable MITTS Securities are credited on the record date.
Principal, premium, if any, and/or interest, if any, payments made in
cash on the Callable 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:
. 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 Callable MITTS Securities,
the global securities will be exchangeable for Callable 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 Callable
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.
22
<PAGE>
DTC may discontinue providing its services as securities depositary
with respect to the Callable 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, Callable 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,
Callable 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
Callable MITTS Securities are maintained in book-entry form.
23
<PAGE>
THE SEMICONDUCTOR HOLDRS TRUST
ML&Co. has attached the HOLDRS Prospectus describing the Semiconductor
HOLDRS Trust and is delivering it to purchasers of the Callable MITTS Securities
together with this prospectus for the convenience of reference only. The HOLDRS
Prospectus does not constitute a part of this prospectus, nor is it incorporated
by reference into this prospectus. The summary description below is qualified in
its entirety by the information describing the Semiconductor HOLDRS Trust and
the securities held by the Trust included in the attached HOLDRS Prospectus.
The Semiconductor HOLDRS Trust was formed under a depositary trust
agreement, dated as of April 24, 2000, among The Bank of New York, as trustee,
MLPF&S, as the initial depositor, other depositors and the owners of
Semiconductor HOLDRS. The trust is not a registered investment company under the
Investment Company Act of 1940.
The trust holds shares of common stock issued by companies
generally considered to be involved in various segments of the Semiconductor
industry. The trust issues Semiconductor HOLDRS that represent an undivided
beneficial ownership interest in the shares of common stock held by the trust.
Semiconductor HOLDRS are separate from the underlying common stocks that are
represented by Semiconductor HOLDRS.
Semiconductor HOLDRS are quoted on the AMEX under the trading symbol
"SMH".
You should carefully read the HOLDRS Prospectus accompanying this
prospectus to fully understand the operation and management of the Semiconductor
HOLDRS Trust. Neither the HOLDRS Prospectus nor these other documents are
incorporated by reference into this prospectus, and we make no representation or
warranty as to the accuracy or completeness of the information.
24
<PAGE>
OTHER TERMS
The Callable 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 Callable 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 Callable 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.
25
<PAGE>
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a
Controlled Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect
to all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the
1983 Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior
debt security;
. impair the right to institute suit for the enforcement of any
payment on or with respect to any senior debt security;
. 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
. 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
26
<PAGE>
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:
. default in the payment of any interest or Additional Amounts
payable when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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:
. in the payment of any amounts due and payable or deliverable
under the debt securities of that series; or
. 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.
27
<PAGE>
The Callable 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.
28
<PAGE>
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 Callable MITTS Securities, we have determined that the
projected payment schedule for the Callable MITTS Securities will consist of
payment on the maturity date of the principal amount thereof and a projected
Supplemental Redemption Amount equal to $6.3031 per unit This represents an
estimated yield on the Callable MITTS Securities equal to 7.11% per annum,
compounded semiannually.
The projected payment schedule (including both the projected
Supplemental Redemption Amount and the estimated yield on the Callable MITTS
Securities) has been determined solely for United States Federal income tax
purposes, i.e., for purposes of applying the Final Regulations to the Callable
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 Callable MITTS
Securities during each accrual period over the term of the Callable MITTS
Securities based upon the projected payment schedule for the Callable MITTS
Securities (including both the Projected Supplemental Redemption Amount and the
estimated yield equal to 7.11% per annum (compounded semiannually)) as
determined by ML&Co. for purposes of applying the Final Regulations to the
Callable MITTS Securities:
<TABLE>
<CAPTION>
Total interest
deemed to have
accrued on the
Callable MITTS
Interest deemed to Securities as
accrue during of the end of accrual
accrual period period
Accrual Period (per unit) (per unit)
------------------ -------------------- -----------------------
<S> <C> <C>
October 6, 2000 through April 5, 2001............................ $0.3525 $0.3525
April 6, 2001 through October 5, 2001............................ $0.3681 $0.7206
October 6, 2001 through April 5, 2002............................ $0.3811 $1.1017
April 6, 2002 through October 5, 2002............................ $0.3946 $1.4963
October 6, 2002 through April 5, 2003............................ $0.4087 $1.9050
April 6, 2003 through October 5, 2003............................ $0.4233 $2.3283
October 6, 2003 through April 5, 2004............................ $0.4382 $2.7665
April 6, 2004 through October 5, 2004............................ $0.4539 $3.2204
October 6, 2004 through April 5, 2005............................ $0.4700 $3.6904
April 6, 2005 through October 5, 2005............................ $0.4867 $4.1771
October 6, 2005 through April 5, 2006............................ $0.5039 $4.6810
April 6, 2006 through October 5, 2006............................ $0.5220 $5.2030
October 6, 2006 through April 5, 2007............................ $0.5404 $5.7434
April 6, 2007 through October 5, 2007............................ $0.5597 $6.3031
</TABLE>
________
Projected Supplemental Redemption Amount = $6.3031 per unit.
All prospective investors in the Callable MITTS Securities should
consult their own tax advisors concerning the application of the Final
Regulations to their investment in the Callable MITTS Securities. Investors in
the Callable 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 Callable MITTS Securities, by
29
<PAGE>
submitting a written request for such information Merrill Lynch & Co., Inc.,
Corporate Secretary's Office, 222 Broadway, 17th Floor, New York, New York
10038, (212) 670-0432, [email protected].
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 Callable 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 Callable 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 available over the Internet at the SEC's web site at
http://www.sec.gov. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 with the SEC covering
the Callable MITTS Securities and other securities. For further information on
ML&Co. and the Callable 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to
those documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31,
2000, June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3,
2000, March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000,
June 29, 2000, July 18, 2000, August 2, 2000, August 4, 2000,
30
<PAGE>
September 13, 2000, October 6, 2000, October 17, 2000, November
1, 2000, November 20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14
of the Exchange Act in connection with any subsequent
stockholders' meeting; and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales
of the Callable MITTS Securities and is to be used by MLPF&S when making offers
and sales related to market-making transactions in the Callable MITTS
Securities.
MLPF&S may act as principal or agent in these market-making
transactions.
The Callable MITTS Securities may be offered on the AMEX or off the
exchange in negotiated transactions or otherwise.
The distribution of the Callable 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 for the year
ended December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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.
31
<PAGE>
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 report included in each of the 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 report 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 their reports on unaudited interim financial
information because 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 of 1933, as amended.
32
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We +
+may not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
<TABLE>
<S> <C>
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
</TABLE>
Merrill Lynch & Co., Inc.
Callable Market Index Target-Term Securities(R)
due August 3, 2007
based upon Biotech HOLDRs(SM)
"Callable 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 Callable MITTS
Securities.
<TABLE>
<CAPTION>
The Callable MITTS Securities: Payment at the stated maturity or upon exercise of the
call option:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, if the Callable MITTS
. Callable prior to the stated maturity by Merrill Securities have not been called, for each unit of
Lynch & Co., Inc. the MITTS Securities you own we will pay you an
. No payments before the maturity date unless called. amount equal to the sum of the principal amount
. Senior unsecured debt securities of Merrill Lynch of each unit and an additional amount based on
& Co., Inc. the percentage increase, if any, in the price of
. Linked to the price of Biotech HOLDRs (trading Biotech HOLDRs.
symbol "BBH") . At maturity, you will receive no less than the
. The Callable MITTS Securities are listed on the principal amount of your Callable MITTS Securities.
American Stock Exchange under the trading symbol "BHM". . If Merrill Lynch & Co., Inc. elects to call your
. Closing date: August 4, 2000. Callable MITTS Securities prior to the stated
maturity, you will receive $22 per unit.
</TABLE>
Investing in the Callable MITTS Securities involves risk.
See "Risk Factors" beginning on page 7 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 Callable MITTS Securities will be the prevailing
market price at the time of sale.
_____________
Merrill Lynch & Co. A.G. Edwards & Sons, Inc.
_____________
The date of this prospectus is , .
"Callable MITTS" and "Market Index Target-Term Securities" are registered
service marks and "Protected Growth", "HOLDRs" and "Holding Company Depositary
Receipts" are service marks of Merrill Lynch & Co., Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION-Q&A................................................... 3
RISK FACTORS.............................................................. 7
MERRILL LYNCH & CO., INC.................................................. 11
RATIO OF EARNINGS TO FIXED CHARGES........................................ 12
DESCRIPTION OF THE CALLABLE MITTS SECURITIES.............................. 13
THE BIOTECH HOLDRS TRUST.................................................. 25
OTHER TERMS............................................................... 26
PROJECTED PAYMENT SCHEDULE................................................ 29
ERISA CONSIDERATIONS...................................................... 30
WHERE YOU CAN FIND MORE INFORMATION....................................... 30
INCORPORATION OF INFORMATION WE FILE WITH THE SEC......................... 30
PLAN OF DISTRIBUTION...................................................... 31
EXPERTS................................................................... 31
</TABLE>
2
<PAGE>
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Callable Market
Index Target-Term Securities(R) due August 3, 2007 based upon Biotech
HOLDRS(SM). You should carefully read this prospectus to fully understand
the terms of the Callable MITTS Securities and the tax and other considerations
that are important to you in making a decision about whether to invest in the
Callable MITTS Securities. You should carefully review the "Risk Factors"
section, which highlights certain risks associated with an investment in the
Callable MITTS Securities, to determine whether an investment in the Callable
MITTS Securities is appropriate for you.
References in this prospectus to "ML&Co.", "we", "us" and "our" are to
Merrill Lynch & Co., Inc. and references to "MLPF&S" are to Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
"Biotech HOLDRS" are depositary receipts issued by the Biotech HOLDRS
Trust. We have attached the prospectus dated and the prospectus supplement
dated for Biotech HOLDRS (together, the "HOLDRS Prospectus"). From time to
time the Biotech HOLDRS Trust updates the prospectus supplement. You should
carefully read the HOLDRS Prospectus and any updated prospectus supplements
including the section entitled "Risk Factors" to fully understand the operation
and management of the Biotech HOLDRS Trust and risks that may affect the price
of Biotech HOLDRS. The Biotech HOLDRS Trust will not receive any of the proceeds
from the sale of the Callable MITTS Securities and will not have any obligations
with respect to the Callable MITTS Securities.
We have attached the HOLDRS Prospectus and are delivering it to you
together with this prospectus for the convenience of reference only. The HOLDRS
Prospectus does not constitute a part of this prospectus nor is it incorporated
by reference into this prospectus.
What are the Callable MITTS Securities?
The Callable MITTS Securities are a series of senior debt securities
issued by ML&Co. and are not secured by collateral. The Callable MITTS
Securities rank equally with all of our other unsecured and unsubordinated debt.
The Callable MITTS Securities will mature on August 3, 2007 unless called by
ML&Co. in August 2006.
Each unit of Callable MITTS Securities represents $10 principal amount
of Callable MITTS Securities. You may transfer the Callable 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 issued the Callable 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 Callable MITTS Securities. You should refer to the section
entitled "Description of the Callable MITTS Securities--Depositary" in this
prospectus.
What will I receive on the stated maturity date of the Callable MITTS
Securities?
We have designed the Callable 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 price of Biotech HOLDRS. On the stated maturity date, if we have not called
the Callable MITTS Securities, you will receive a cash payment equal to the sum
of two amounts: the "principal amount" and the "Supplemental Redemption Amount",
if any.
Principal amount
The "principal amount" per unit is $10.
Supplemental Redemption Amount
The "Supplemental Redemption Amount" per unit will equal:
3
<PAGE>
(Ending Value - Starting Value)
$10 x (-----------------------------)
( Starting Value )
but will not be less than zero.
The "Starting Value" equals $176.875, the Closing Price of Biotech
HOLDRS on August 1, 2000, the date the Callable MITTS Securities were priced for
initial sale to the public.
The "Ending Value" will be the average of the closing prices of
Biotech HOLDRS, as adjusted for dilution and reorganization events described in
this prospectus, on five business days shortly before the maturity of the
Callable MITTS Securities. We may calculate the Ending Value by reference to
fewer than five or even a single day's Closing Price if, during the period
shortly before the stated maturity date of the Callable MITTS Securities, there
is a disruption in the trading of Biotech HOLDRS.
For more specific information about the Supplemental Redemption
Amount, please see the section entitled "Description of the Callable MITTS
Securities" in this prospectus.
We will pay you a Supplemental Redemption Amount only if we do not
call the Callable MITTS Securities during August 2006 and 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 your Callable MITTS Securities regardless of whether
any Supplemental Redemption Amount is payable.
Examples
Here are two examples of Supplemental Redemption Amount calculations. If
we call the Callable MITTS Securities during the Call Period, you will receive
only the Call Price and you will not be entitled to receive any payment on the
stated maturity date.
Example 1--Ending Value is less than the Starting Value on the stated maturity
date:
Starting Value: $176.88
Hypothetical Ending Value at maturity: $159.19
<TABLE>
<S> <C>
(159.19 - 176.88) (Supplemental
Supplemental Redemption Amount (per unit) = $10 x (---------------) = $0.00 Redemption
( 176.88 ) amount cannot
be less than zero)
Total payment on the stated maturity date (per unit) = $10.00 + $0.00 = $10.00
Example 2--Ending Value is greater than the Starting Value on the stated
maturity date:
Starting Value: $176.88
Hypothetical Ending Value at maturity: $256.48
(256.48 - 176.88)
Supplemental Redemption Amount (per unit) = $10 x (---------------) = $4.00
( 176.88 )
Total payment on the stated maturity date (per unit) = $10.00 + $4.50 = $14.50
</TABLE>
4
<PAGE>
How does the call feature work?
We may elect to call the Callable MITTS Securities at $22 per unit (the
"Call Price") on any Business Day during the month of August 2006 (the "Call
Period") by giving notice to the trustee of the Callable MITTS Securities as
described in this prospectus and specifying the date on which the Call Price
will be paid (the "Payment Date"). The Payment Date will be no later than the
twentieth Business Day after the call election.
If we elect to call your Callable MITTS Securities during the Call Period,
you will receive only the Call Price and you will not receive a Supplemental
Redemption Amount based on the price of Biotech HOLDRS. If we do not call the
Callable MITTS Securities during the Call period, the principal amount plus the
Supplemental Redemption Amount, if any, that you receive at the stated maturity
date may be greater than or less than the Call Price.
Will I receive interest payments on the Callable MITTS Securities?
You will not receive any interest payments on the Callable MITTS
Securities, but will instead receive the principal amount plus the Supplemental
Redemption Amount, if any, at maturity, or the Call Price if the Callable MITTS
Securities are called during the Call Period. We have designed the Callable
MITTS Securities for investors who are willing to forego market interest
payments on the Callable MITTS Securities, such as floating interest rates paid
on standard senior non-callable debt securities, in exchange for the ability to
participate in possible increases in the price of Broadband HOLDRS.
What is the Biotech HOLDRS Trust?
The Biotech HOLDRS Trust was formed under a depositary trust agreement,
dated November 18, 1999, among The Bank of New York, as trustee, MLPF&S, as the
initial depositor, other depositors and the owners of Biotech HOLDRS. The trust
is not a registered investment company under the Investment Company Act of 1940.
The trust holds shares of common stock issued by companies generally
considered to be involved in various segments of the biotechnology industry. The
trust issues Biotech HOLDRS that represent an undivided beneficial ownership
interest in the shares of common stock held by the trust. Biotech HOLDRS are
separate from the underlying common stocks that are represented by Biotech
HOLDRS.
Biotech HOLDRS are listed on the AMEX under the trading symbol "BBH".
You should carefully read the HOLDRS Prospectus accompanying this
prospectus to fully understand the operation and management of the Biotech
HOLDRS Trust. The risks described in the HOLDRS Prospectus under the section
entitled "Risk Factors" may affect the prices of Biotech HOLDRS and, therefore,
the value of the Callable MITTS Securities. The HOLDRS Prospectus is not
incorporated by reference into this prospectus, and we make no representation or
warranty as to the accuracy or completeness of the information.
Please note that an investment in the Callable MITTS Securities does not
entitle you to an ownership interest in Biotech HOLDRS or in the stocks held by
the Biotech HOLDRS Trust.
Are the Callable MITTS Securities listed on a stock exchange?
The Callable MITTS Securities are listed on the AMEX under the trading
symbol "BHM". The listing of the Callable MITTS Securities on the AMEX does not
necessarily ensure that a liquid trading market is available for the Callable
MITTS Securities. You should review the section entitled "Risk Factors--There
may be an uncertain trading market for the Callable MITTS Securities" in this
prospectus.
What is the role of MLPF&S?
Our subsidiary MLPF&S was one of the underwriters for the offering and sale
of the Callable MITTS Securities. MLPF&S intends to buy and sell Callable MITTS
Securities to create a secondary market for holders of the Callable MITTS
Securities. However, MLPF&S is not obligated to engage in any of these market
activities or to continue them once it has started.
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 a subsidiary of ML&Co. and its responsibilities as calculation
agent. In addition, MLPF&S also acted
5
<PAGE>
as the initial depositor for the Biotech HOLDRS Trust and regularly makes a
market in Biotech HOLDRS.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various subsidiaries
and affiliated companies that provide investment, financing, insurance and
related services on a global basis. For information about ML&Co., see the
section entitled "Merrill Lynch & Co., Inc." in this prospectus. You should also
read the other documents we have 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 Callable MITTS Securities is subject to risk.
Please refer to the section entitled "Risk Factors" in this prospectus.
6
<PAGE>
RISK FACTORS
Your investment in the Callable MITTS Securities will involve risks. You
should carefully consider the following discussion of risks before investing in
the Callable MITTS Securities. In addition, you should reach an investment
decision with regard to the Callable MITTS Securities only after consulting with
your legal and tax advisers and considering the suitability of the Callable
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, the Supplemental Redemption Amount will be zero. This will be true even
if the price of Biotech HOLDRS was higher than the Starting Value at some time
during the life of the Callable MITTS Securities but later falls to or below the
Starting Value. If the Supplemental Redemption Amount is zero and the Callable
MITTS Securities are not called by us prior to the stated maturity date, we will
pay you only the principal amount of your Callable MITTS Securities.
The Callable MITTS Securities are subject to early call
We may elect to call all of the Callable MITTS Securities by giving notice
on any Business Day during the Call Period. We are likely to call the Callable
MITTS Securities during the Call Period if the secondary market price of the
Callable MITTS Securities is approximately equal to or above the Call Price
during that period. In the event that we elect to call the Callable MITTS
Securities, you will receive only the Call Price and no Supplemental Redemption
Amount based on the trading price of Biotech HOLDRS.
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 ML&Co. 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 Biotech HOLDRS or the
securities held by the Biotech HOLDRS Trust
The return on your Callable MITTS Securities will not reflect the return
you would realize if you actually owned Biotech HOLDRS and received cash
distributions, if any, paid on Biotech HOLDRS because the price of Biotech
HOLDRS is calculated without taking into consideration the value of any normal
cash distributions paid on Biotech HOLDRS. In addition, if Callable MITTS
Securities are called during the Call Period, you will receive only the Call
Price and you will not receive any additional amount based upon the
appreciation, if any, in the price of Biotech HOLDRS.
There may be an uncertain trading market for the Callable MITTS Securities
The Callable MITTS Securities are listed on the AMEX under the trading
symbol "BHM" You cannot assume that a trading market exists for the Callable
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 Callable MITTS Securities will depend on our financial performance and
other factors such as the increase, if any, in the price of Biotech HOLDRS.
If the trading market for the Callable MITTS Securities is limited, there
may be a limited number of buyers for your Callable MITTS Securities if you do
not wish to hold your investment until maturity. This may affect the price you
receive.
7
<PAGE>
Many factors affect the trading value of the Callable 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 Callable 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 Callable MITTS Securities caused by another factor and that the effect of
one factor may exacerbate the decrease in the trading value of the Callable
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 Callable MITTS Securities attributable to another factor, such as an
increase in the price of Biotech HOLDRS. The following paragraphs describe the
expected impact on the market value of the Callable MITTS Securities given a
change in a specific factor, assuming all other conditions remain constant.
The price of Biotech HOLDRS is expected to affect the trading value of the
Callable MITTS Securities. We expect that the market value of the Callable MITTS
Securities will depend substantially on the amount, if any, by which the price
of Biotech HOLDRS, as adjusted for certain dilution and reorganization events
described in this prospectus, exceeds the Starting Value. If you choose to sell
your Callable MITTS Securities when the price of Biotech HOLDRS exceeds the
Starting Value, you may receive substantially less than the amount that would be
payable at maturity based on that price because of the expectation that the
price of Biotech HOLDRS will continue to fluctuate until the Ending Value is
determined. If you choose to sell your Callable MITTS Securities when the price
of Biotech HOLDRS is below, or not sufficiently above, the Starting Value, you
may receive less than the $10 principal amount per unit of Callable MITTS
Securities.
Changes in the levels of interest rates are expected to affect the trading
value of the Callable MITTS Securities. Because we will pay, at a minimum, the
principal amount per unit of Callable MITTS Securities at maturity, we expect
that changes in interest rates will affect the trading value of the Callable
MITTS Securities. In general, if U.S. interest rates increase, we expect that
the trading value of the Callable MITTS Securities will decrease and,
conversely, if U.S. interest rates decrease, we expect that the trading value of
the Callable MITTS Securities will increase. Rising interest rates may lower the
price of the Biotech HOLDRS and, thus, the Callable MITTS Securities. Falling
interest rates may increase the price of the Biotech HOLDRS and, thus, may
increase the value of the Callable MITTS Securities.
Changes in the volatility of Biotech HOLDRS are expected to affect the
trading value of the Callable MITTS Securities. Volatility is the term used to
describe the size and frequency of price and/or market fluctuations. If the
volatility of Biotech HOLDRS increases or decreases, the trading value of the
Callable MITTS Securities may be adversely affected.
As the time remaining to maturity of the Callable MITTS Securities
decreases, the "time premium" associated with the Callable MITTS Securities will
decrease. We anticipate that before their maturity, the Callable MITTS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the price of Biotech HOLDRS. This difference will
reflect a "time premium" due to expectations concerning the price of Biotech
HOLDRS during the period before the stated maturity of the Callable MITTS
Securities. However, as the time remaining to the stated maturity of the
Callable MITTS Securities decreases, we expect that this time premium will
decrease, lowering the trading value of the Callable MITTS Securities.
Changes in dividend yields of the stocks held by the Biotech HOLDRS Trust
are expected to affect the trading value of the Callable MITTS Securities. If
the dividend yields on the stocks held by the Biotech HOLDRS Trust increase, we
expect that the value of the Callable MITTS Securities will decrease and,
conversely, if the dividend yields on the stocks held by the Biotech HOLDRS
Trust decrease, we expect that the value of the Callable MITTS Securities will
increase.
8
<PAGE>
Changes in our credit ratings may affect the trading value of the Callable
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 Callable MITTS Securities. However, because your
return on your Callable MITTS Securities is dependent upon factors in addition
to our ability to pay our obligations under the Callable MITTS Securities, such
as the percentage increase, if any, in the price of Biotech HOLDRS at maturity,
an improvement in our credit ratings will not reduce the other investment risks
related to the Callable MITTS Securities.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the Callable 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 Callable MITTS Securities than if it occurs earlier in the term
of the Callable MITTS Securities. However, we expect that the effect on the
trading value of the Callable MITTS Securities of a given change in the price of
Biotech HOLDRS will be greater if it occurs later in the term of the Callable
MITTS Securities than if it occurs earlier in the term of the Callable MITTS
Securities.
Amounts payable on the Callable MITTS Securities may be limited by state law
New York State law governs the 1983 Indenture under which the Callable
MITTS Securities were 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 Callable 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 promise, for the benefit of the holders of the Callable MITTS Securities, to
the extent permitted by law, not to voluntarily claim the benefits of any laws
concerning usurious rates of interest.
No stockholder's rights
Beneficial owners of the Callable MITTS Securities are not entitled to any
rights in Biotech HOLDRS including, for example, voting rights and rights to
receive any cash or other distributions and rights to cancel Biotech HOLDRS and
receive the underlying securities.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell Biotech HOLDRS or
stocks of the companies held by the Biotech HOLDRS Trust for our own accounts,
for business reasons or in connection with hedging our obligations under the
Callable MITTS Securities. These transactions could affect the price of Biotech
HOLDRS in a manner that could be adverse to your investment in the Callable
MITTS Securities.
Potential conflicts
Our subsidiary MLPF&S is our agent for the purposes of calculating the
Ending Value and the Supplemental Redemption Amount. Under certain
circumstances, MLPF&S' role as our subsidiary and its responsibilities as
calculation agent for the Callable MITTS Securities could give rise to conflicts
of interests. 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 the amounts due at
maturity. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
9
<PAGE>
Risks related to Biotech HOLDRS
Biotech HOLDRS are subject to various risks which are described under the
section entitled "Risk Factors" in the HOLDRS Prospectus. Any loss of value to
Biotech HOLDRS attributable to such risks would adversely affect the value of
the Callable MITTS Securities. You should carefully consider those risks before
deciding whether an investment in the Callable MITTS Securities is suitable for
you.
10
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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 Callable MITTS Securities described in this
prospectus.
11
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges for
the periods indicated:
<TABLE>
<CAPTION>
For the Nine
Year Ended Last Friday in December Months Ended
-----------------------------------------
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges....... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
12
<PAGE>
DESCRIPTION OF THE CALLABLE MITTS SECURITIES
On August 3, 2000, ML&Co. issued an aggregate principle amount of
$34,000,000 or 3,400,000 units of Callable MITTS Securities. The Callable MITTS
Securities were issued as a series of senior debt securities under the 1983
Indenture, which is more fully described in this prospectus. Unless called by
ML&Co. during the Call Period, the Callable MITTS Securities will mature on
August 3, 2007.
Unless the Callable MITTS Securities are called during the Call Period, at
the stated maturity a beneficial owner of a Callable MITTS Security will receive
the sum of the principal amount of the Callable MITTS Security plus the
Supplemental Redemption Amount, if any. There will be no payment of interest,
periodic or otherwise. See the section entitled "--Payment at maturity".
The Callable MITTS Securities may be called by ML&Co. as described below,
but are not subject to redemption at the option of any beneficial owner before
maturity. If an Event of Default occurs with respect to the Callable MITTS
Securities, registered holders of the Callable MITTS Securities may accelerate
the maturity of the Callable MITTS Securities, as described under the sections
entitled "--Events of Default and Acceleration" and "Other Terms--Events of
Default" in this prospectus.
ML&Co. issued the Callable MITTS Securities in denominations of whole units
of $10 per unit.
The Callable MITTS Securities do not have the benefit of any sinking fund.
Payment at maturity
If we do not call the Callable MITTS Securities during the Call Period, a
beneficial owner of a Callable MITTS Security will be entitled to receive, at
the stated maturity, the principal amount of each Callable MITTS Security plus
the Supplemental Redemption Amount, if any, all as provided below. If the Ending
Value does not exceed the Starting Value, a beneficial owner of a Callable MITTS
Security will be entitled to receive only the principal amount of the Callable
MITTS Security.
Determination of the Supplemental Redemption Amount
The "Supplemental Redemption Amount" for a Callable MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<S> <C>
(Ending Value - Starting Value)
Principal amount of each Callable 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 $176.875, the Closing Price of one Biotech
HOLDR on August 1, 2000, the date the Callable MITTS Securities were priced for
initial sale to the public.
The "Ending Value" will be determined by the calculation agent and will
equal the value of the Reference Property determined as follows:
(A) for any portion of the Reference Property consisting of cash:
. that cash, plus
13
<PAGE>
. interest on the amount accruing from and including the date of
the payment of that cash to holders of the Reference Property for
which that cash was paid to but excluding the stated maturity
date at a fixed interest rate determined on the date of the
payment equal to the interest rate that would be paid on a fixed
rate senior non- callable debt security of ML&Co. with a term
approximately equal to the remaining term for the Callable MITTS
Securities as determined by the calculation agent;
(B) for any portion of the Reference Property consisting of property other
than cash or Reference Securities:
. the market value of that property, as determined by the
calculation agent on the date that the property was delivered to
holders of the relevant Reference Property for which the property
was distributed, plus
. interest on the amount accruing from and including the date of
delivery to but excluding the stated maturity date at a fixed
interest rate determined as described in (A) above; and
(C) for any portion of the Reference Property consisting of Reference
Securities, the average or arithmetic mean, of the Closing Prices of
each such Reference Security determined on each of the first five
Calculation Days during the Calculation Period. If there are fewer
than five Calculation Days in the Calculation Period with respect to
any Reference Security, then the Ending Value shall be calculated
using the average, arithmetic mean, of the Closing Prices of that
Reference Security on those Calculation Days, and if there is only one
Calculation Day, then the Ending Value shall be calculated using the
Closing Price of that Reference Security on such Calculation Day. If
no Calculation Days occur during the Calculation Period with respect
to that Reference Security, then the Ending Value shall be calculated
using the Closing Price of that Reference Security determined on the
last scheduled Trading Day in the Calculation Period, regardless of
the occurrence of a Market Disruption Event on that day.
"Reference Property" initially shall mean one Biotech HOLDR, and shall be
subject to adjustment from time to time to reflect the distribution of cash,
securities and/or other property in accordance with the adjustment provisions
described below under "--Dilution and Reorganization Adjustments".
"Reference Securities" shall mean any securities included in the Reference
Property.
The "Calculation Period" means the period from and including the seventh
scheduled Trading Day prior to the stated maturity date to and including the
second scheduled Trading Day prior to the stated maturity date.
"Calculation Day" means, with respect to any Reference Security, any
Trading Day during the Calculation Period on which a Market Disruption Event has
not occurred.
"Market Disruption Event" means, for any Reference Security, the occurrence
or existence on any Trading Day during the one-half hour period that ends when
the Closing Price is determined, of any suspension of, or limitation imposed on,
trading in that Reference Security on the New York Stock Exchange, or other
market or exchange, if applicable.
"Trading Day" means a day on which the AMEX, the NYSE and the NASDAQ
National Market System ("NASDAQ NMS") are open for trading.
"Closing Price" of a Reference Security means, for a Calculation Day, the
following:
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<PAGE>
(a) If the Reference Security is listed on a national securities exchange
in the United States, is a NASDAQ NMS security or is included in the
OTC Bulletin Board Service ("OTC Bulletin Board") operated by the
National Association of Securities Dealers, Inc. (the "NASD"), Closing
Price means:
(i) the last reported sale price, regular way, on that day on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), on which that Reference Security is listed or admitted to
trading, or
(ii) if not listed or admitted to trading on any such securities
exchange or if the last reported sale price is not obtainable,
the last reported sale price on the over-the-counter market as
reported on the NASDAQ NMS or OTC Bulletin Board on that day, or
(iii) if the last reported sale price is not available pursuant to (i)
and (ii) above, the mean of the last reported bid and offer
price on the over-the-counter market as reported on the NASDAQ
NMS or OTC Bulletin Board on that day as determined by the
calculation agent.
The term "NASDAQ NMS security" shall include a security included in any
successor to that system, and the term "OTC Bulletin Board" shall include any
successor service to that service.
(b) If the Reference Security is not listed on a national securities
exchange in the United States or is not a NASDAQ NMS security or
included in the OTC Bulletin Board operated by the NASD, Closing Price
means the last reported sale price on that day on the securities
exchange on which the Reference Security is listed or admitted to
trading with the greatest volume of trading for the calendar month
preceding that day as determined by the calculation agent, provided
that if the last reported sale price is for a transaction which
occurred more than four hours prior to the close of that exchange,
then the Closing Price shall mean the average, mean, of the last
available bid and offer price on that exchange. If the Reference
Security is not listed or admitted to trading on any such securities
exchange or if the last reported sale price or bid and offer are not
obtainable, the Closing Price shall mean the last reported sale price
for a transaction which occurred more than four hours prior to when
trading in such over-the-counter market typically ends, then the
Closing Price shall mean the average, mean, of the last available bid
and offer prices in such market of the three dealers which have the
highest volume of transactions in the Reference Security in the
immediately preceding calendar month as determined by the calculation
agent based on information that is reasonably available to it.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law to close and that is a day on which the NYSE, the
NASDAQ NMS and the AMEX are open for trading.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a manifest error, shall be
conclusive for all purposes and binding on ML&Co. and the Holders and beneficial
owners of the Callable MITTS Securities.
Early call of the Callable MITTS Securities at the option of ML&Co.
During the Call Period, the month of August 2006, ML&Co., in its sole
discretion, may elect to call the Callable MITTS Securities, in whole but not in
part, at $22 per unit (the "Call Price"), by giving notice to the trustee on any
Business Day.
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<PAGE>
If we elect to call your Callable MITTS Securities during the Call Period,
you will receive only the Call Price and you will not receive a Supplemental
Redemption Amount based on the price of Biotech HOLDRS. If we do not call the
Callable MITTS Securities, the principal amount plus the Supplemental Redemption
Amount, if any, that you receive at the stated maturity may be greater than or
less than the Call Price. ML&Co. may elect to call the Callable MITTS Securities
on any Business Day during the Call Period by giving notice to the trustee and
specifying the date on which the Call Price shall be paid. The Payment Date
shall be no later than the twentieth Business Day after the call election. The
trustee will provide notice of the call election to the registered holders of
the Callable MITTS Securities, specifying the Payment Date, no less than 15
calendar days prior to the Payment Date. While the Callable MITTS Securities are
held at the depositary, the registered holder will be the depositary, and the
depositary will receive the notice of the call. As more fully described below
under "--Depositary", the depositary will forward this notice to its
participants which will pass it onto the beneficial owners.
You should compare the features of the Callable MITTS Securities to other
available investments before deciding to purchase the Callable MITTS Securities.
Due to the uncertainty as to whether the Callable MITTS Securities will earn a
Supplemental Redemption Amount or be called during the Call Period, the return
on investment with respect to the Callable MITTS Securities may be higher or
lower than the return available on other securities issued by ML&Co. or issued
by others. We suggest that you reach an investment decision only after carefully
considering the suitability of the Callable MITTS Securities in light of your
particular circumstances. See the section entitled "United States Federal Income
Taxation".
Hypothetical returns
The following table illustrates, for a range of hypothetical Ending Values
during the Calculation Period, assuming an initial investment of $10 per unit
and an investment term from August 4, 2000 to August 3, 2007:
. the percentage change from the Starting Value to the hypothetical
Ending Value,
. the total amount payable at maturity for each unit of Callable MITTS
Securities,
. the total rate of return to beneficial owners of the Callable MITTS
Securities,
. the pretax annualized rate of return to the beneficial owners of the
Callable MITTS Securities, and
. pretax annualized rate of return of an investment in Biotech HOLDRS.
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The table also assumes we do not call the Callable MITTS Securities prior
to the stated maturity date.
<TABLE>
<CAPTION>
Percentage Total amount Pretax Pretax
change from the payable at Total rate of annualized rate Annualized rate
Starting Value to maturity per unit return on the of return on of return on
Hypothetical the hypothetical of the Callable Callable MITTS Callable MITTS Biotech
Ending Value Ending Value MITTS Securities Securities Securities (1) HOLDRS(1)(2)
------------ ----------------- ----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
35.38 -80% 10.00 0.00% 0.00% -21.72%
70.75 -60% 10.00 0.00% 0.00% -12.67%
106.13 -40% 10.00 0.00% 0.00% -7.17%
141.50 -20% 10.00 0.00% 0.00% -3.16%
176.88(3) 0% 10.00 0.00% 0.00% 0.00%
212.25 20% 12.00 20.00% 2.62% 2.62%
247.63 40% 14.00 40.00% 4.86% 4.86%
283.00 60% 16.00 60.00% 6.83% 6.83%
318.38 80% 18.00 80.00% 8.58% 8.57%
353.75 100% 20.00 100.00% 10.15% 10.15%
389.13 120% 22.00 120.00% 11.59% 11.58%
424.50 140% 24.00 140.00% 12.91% 12.90%
459.88 160% 26.00 160.00% 14.13% 14.12%
</TABLE>
---------------------
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) a dividend yield of 0% per annum;
(b) no transaction fees or expenses;
(c) an investment term from August 4, 2000 to August 3, 2007; and
(d) a percentage change in the aggregate price of Biotech HOLDRS, as
adjusted for any dilution or reorganization events described below,
that equals the percentage change from the Starting Value to the
relevant hypothetical Ending Value.
(3) The actual Starting Value is 176.875.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rates of return will depend entirely on the actual Ending
Value determined by the calculation agent as provided in this prospectus.
Events of Default and Acceleration
In case an Event of Default with respect to any Callable MITTS Securities
has occurred and is continuing, the amount payable to a beneficial owner of a
Callable MITTS Security upon any acceleration permitted by the Callable MITTS
Securities, with respect to each $10 principal amount of the Callable MITTS
Securities, will be equal to the principal amount and the Supplemental
Redemption Amount, if any, calculated as though the date of early repayment was
the stated maturity date of the Callable MITTS Securities, provided, however, if
the acceleration occurs before the end of the Call Period, the maximum amount
payable with respect to each Callable MITTS Security will be the Call Price. If
a bankruptcy proceeding is commenced in respect of ML&Co., the claim of the
beneficial owner of a Callable MITTS Security may be limited, under Section
502(b)(2) of Title 11 of the United States Code, to the principal amount of the
Callable 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 Callable MITTS Securities.
In case of default in payment of the Callable MITTS Securities, whether
at the stated maturity or upon acceleration, from and after the maturity date
the Callable MITTS Securities will bear interest, payable upon
17
<PAGE>
demand of their beneficial owners, at the rate of 7.54% 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 Callable MITTS
Securities to the date payment of that amount has been made or duly provided
for.
Dilution and Reorganization Adjustments
The Reference Property is subject to adjustment if an issuer of any
Reference Security shall:
(i) pay a stock dividend or make a distribution on that Reference
Security in Reference Securities;
(ii) subdivide or split the outstanding units of that Reference Security
into a greater number of units;
(iii) combine the outstanding units of that Reference Security into a
smaller number of units;
(iv) issue by reclassification of units of that Reference Security any
units of another security of that issuer;
(v) issue rights or warrants to all holders of that Reference Security
entitling them to subscribe for or purchase shares, in the
aggregate, for more than 5% of the number of those Reference
Securities outstanding prior to the issuance of the rights or
warrants at a price per share less than the then current market
price of that Reference Security (other than rights to purchase that
Reference Security pursuant to a plan for the reinvestment of
dividends or interest); or
(vi) pay a dividend or make a distribution to all holders of that
Reference Security of evidences of its indebtedness or other assets:
. including in the case where the Reference Security is Biotech
HOLDRS, any of the securities underlying Biotech HOLDRS that may
be distributed by the Biotech HOLDRS Trust, but,
. excluding any stock dividends or distributions referred to in
clause (i) above or any cash dividends other than any
Extraordinary Cash Dividend or issuance to all holders of that
Reference Security of rights or warrants to subscribe for or
purchase any of its securities (other than those referred to in
clause (v) above) (any of the foregoing assets are referred to
as the "Distributed Assets" and any of the foregoing events are
referred to as the "Dilution Events").
For purposes of provision (vi) above, if the holder of a Reference Security can
elect to receive securities in lieu of cash or property other than securities,
then for purposes of provision (vi) above, the holders of the Reference Security
shall be deemed to receive only the securities.
In the case of the Dilution Events referred to in clauses (i), (ii), (iii)
and (iv) above, the Reference Property shall be adjusted to include the number
of units of the Reference Security and/or security of that issuer which a holder
of Reference Property as constituted immediately prior to the Dilution Event
would have owned or been entitled to receive as a result of that Dilution Event.
Each adjustment shall become effective immediately after the effective date for
the dividend, distribution subdivision, split, combination or reclassification,
as the case may be. Each adjustment shall be made successively.
In the case of the Dilution Event referred to in clause (v) above, the
Reference Property shall be adjusted by multiplying the number of Reference
Securities constituting Reference Property immediately prior to the date of
issuance of the rights or warrants referred to in clause (v) above by a
fraction:
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<PAGE>
. the numerator of which shall be the number of Reference Securities
outstanding on the date immediately prior to such issuance, plus the
number of additional Reference Securities offered for subscription or
purchase pursuant to the rights or warrants, and
. the denominator of which shall be the number of Reference Securities
outstanding on the date immediately prior to such issuance, plus the
number of additional Reference Securities which the aggregate offering
price of the total number of Reference Securities so offered for
subscription or purchase pursuant to the rights or warrants would
purchase at the current market price, determined as the average
Closing Price per Reference Security for the 20 Trading Days
immediately prior to the date of such rights or warrants are issued,
subject to certain adjustments, which shall be determined by
multiplying such total number of Reference Securities by the exercise
price of the rights or warrants and dividing the product so obtained
by the current market price.
To the extent that the rights or warrants are not exercised before they expire,
or if the rights or warrants are not issued, the Reference Property shall be
readjusted to the Reference Property which would then be in effect had such
adjustments for the issuance of the rights or warrants been made upon the basis
of delivery of only the number of Reference Securities actually delivered under
the rights or warrants.
In the case of the Dilution Event referred to in clause (vi) above, the
Reference Property shall be adjusted to include, from and after the dividend,
distribution or issuance,
. for the portion of the Distributed Assets consisting of cash, the
amount of such Distributed Assets consisting of cash received on
Reference Property as constituted on the date of the dividend,
distribution or issuance, plus
. for the portion of the Distributed Assets which are other than cash,
the number or amount of each type of Distributed Assets other than
cash received on Reference Property as constituted on the date of the
dividend, distribution or issuance.
An "Extraordinary Cash Dividend" means, with respect to any consecutive
12-month period, the amount, if any, by which the aggregate amount of all cash
dividends or any other distribution made by the issuer of a Reference Security
or made pursuant to an arrangement effecting a distribution of distributable
profits or reserves, whether in cash or in specie, on any Reference Security
occurring in such 12-month period (or, if the Reference Security was not
outstanding at the commencement of such 12-month period or was not then a part
of the Reference Property, occurring in such shorter period during which such
Reference Security was outstanding and was part of the Reference Property)
exceeds on a per share basis 10% of the average of the Closing Prices per share
of such Reference Security over such 12-month period (or shorter period during
which such Reference Security was outstanding and was part of the Reference
Property); provided that, for purposes of the foregoing definition, the amount
of cash dividends paid on a per share basis will be appropriately adjusted to
reflect the occurrence during such period of any stock dividend or distribution
of shares of capital stock of the issuer of such Reference Security or any
subdivision, split, combination or reclassification of shares of such Reference
Security.
If the Reference Security is Biotech HOLDRS, the determination as to
whether any cash dividend on such Biotech HOLDRS is an Extraordinary Cash
Dividend shall be made,
. by examining which of the stocks underlying Biotech HOLDRS is
responsible for all or a portion of such cash dividend or distribution
on Biotech HOLDRS, and
. treating each such stock underlying Biotech HOLDRS as if it were a
Reference Security only for this purpose and then determining whether
such cash dividend would be an Extraordinary Cash Dividend as defined
above with respect to such deemed Reference Security.
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A "Reorganization Event" shall mean:
. any consolidation or merger of an issuer of a Reference Security, or
any surviving entity or subsequent surviving entity of that issuer (a
"Successor Company"), with or into another entity, other than a merger
or consolidation in which such issuer is the continuing corporation
and in which the Reference Security outstanding immediately prior to
the merger or consolidation is not exchanged for cash, securities or
other property of such issuer or another corporation;
. any sale, transfer, lease or conveyance to another corporation of the
property of an issuer of a Reference Security or any Successor Company
as an entirety or substantially as an entirety;
. any statutory exchange of securities of an issuer of a Reference
Security or any Successor Company with another corporation, other than
in connection with a merger or acquisition; or
. any liquidation, dissolution, winding up or bankruptcy of an issuer of
a Reference Security or any Successor Company.
If a Reorganization Event occurs, the Reference Property shall include:
. for any cash received in that Reorganization Event, the cash received
by a holder of the Reference Property as constituted on the date of
the Reorganization Event;
. for any property other than cash or securities received in that
Reorganization Event, the property received by a holder of the
Reference Property as constituted on the date of the Reorganization
Event as determined by the calculation agent; and
. for any securities received in that Reorganization Event, the
securities received by a holder of the Reference Property as
constituted on the date of the Reorganization Event (subject to
adjustment on a basis consistent with the adjustment provisions
described above).
All adjustments will be calculated to the nearest 1/10,000th of a share
of the Reference Security, or if there is not a nearest 1/10,000th of a share,
to the next lower 1/10,000th of a share. No adjustment shall be required unless
that adjustment would require an increase or decrease of at least one percent in
the Closing Price; provided, however, that any adjustments which by reason of
the foregoing are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
The foregoing adjustments shall be made by MLPF&S, as calculation agent,
and all adjustments, absent a manifest error, shall be final.
ML&Co. will, within ten Business Days following the occurrence of an event
that requires an adjustment, or if ML&Co. is not aware of such occurrence, as
soon as practicable after becoming so aware, provide written notice to the
trustee, which shall provide notice to the holders of the Callable MITTS
Securities of the occurrence of the event and, if applicable, a statement in
reasonable detail setting forth the adjusted Closing Price to be used in
determining the Ending Value.
Depositary
Description of the Global Securities
The Callable 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 Callable MITTS
Securities in definitive form, no global
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<PAGE>
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 Callable MITTS Securities represented by the global security for
all purposes under the 1983 Indenture. Except as provided below, the beneficial
owners of the Callable MITTS Securities represented by a global security will
not be entitled to have the Callable MITTS Securities registered in their names,
will not receive or be entitled to receive physical delivery of the Callable
MITTS Securities in definitive form and will not be considered the owners or
holders of the Callable 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 Callable MITTS Securities. The
Callable 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 Callable 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 Callable MITTS Securities under DTC's system must be
made by or through direct participants, which will receive a credit for the
Callable 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
21
<PAGE>
transaction. Transfers of ownership interests in the Callable MITTS Securities
are to be made by entries on the books of participants acting on behalf of
beneficial owners.
To facilitate subsequent transfers, all Callable MITTS Securities deposited
with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of Callable 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 Callable MITTS Securities; DTC's records
reflect only the identity of the direct participants to whose accounts the
Callable 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
Callable 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 Callable MITTS Securities are credited on the record date.
Principal, premium, if any, and/or interest, if any, payments made in cash
on the Callable 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:
. 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 Callable MITTS Securities,
the global securities will be exchangeable for Callable 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 Callable
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.
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<PAGE>
DTC may discontinue providing its services as securities depositary with
respect to the Callable 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, Callable 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, Callable 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 Callable MITTS
Securities are maintained in book-entry form.
23
<PAGE>
THE BIOTECH HOLDRS TRUST
ML&Co. has attached the HOLDRS Prospectus describing the Biotech HOLDRS
Trust and is delivering it to purchasers of the Callable MITTS Securities
together with this prospectus for the convenience of reference only. The HOLDRS
Prospectus does not constitute a part of this prospectus, nor is it incorporated
by reference into this prospectus. The summary description below is qualified in
its entirety by the information describing the Biotech HOLDRS Trust and the
securities held by the Trust included in the attached HOLDRS Prospectus.
The Biotech HOLDRS Trust was formed under a depositary trust agreement,
dated as of November 18, 1999, among The Bank of New York, as trustee, MLPF&S,
as the initial depositor, other depositors and the owners of Biotech HOLDRS. The
trust is not a registered investment company under the Investment Company Act of
1940.
The trust holds shares of common stock issued by companies generally
considered to be involved in various segments of the biotechnology industry. The
trust issues Biotech HOLDRS that represent an undivided beneficial ownership
interest in the shares of common stock held by the trust. Biotech HOLDRS are
separate from the underlying common stocks that are represented by Biotech
HOLDRS.
Biotech HOLDRS are listed on the AMEX under the trading symbol "BBH".
You should carefully read the HOLDRS Prospectus accompanying this
prospectus to fully understand the operation and management of the Biotech
HOLDRS Trust. Neither the HOLDRS Prospectus nor these other documents are
incorporated by reference into this prospectus, and we make no representation or
warranty as to the accuracy or completeness of the information.
24
<PAGE>
OTHER TERMS
The Callable 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 Callable 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 Callable 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.
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In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to all
the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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
26
<PAGE>
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:
. default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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:
. in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
. 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.
27
<PAGE>
The Callable 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.
28
<PAGE>
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 Callable MITTS Securities, we have determined that the
projected payment schedule for the Callable MITTS Securities will consist of
payment on the maturity date of the principal amount thereof and a projected
Supplemental Redemption Amount equal to $6.7934 per unit. This represents an
estimated yield on the Callable MITTS Securities equal to 7.54% per annum,
compounded semiannually.
The projected payment schedule, including both the projected
Supplemental Redemption Amount and the estimated yield on the Callable MITTS
Securities, has been determined solely for United States Federal income tax
purposes, i.e., for purposes of applying the Final Regulations to the Callable
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 Callable MITTS
Securities during each accrual period over the term of the Callable MITTS
Securities based upon a projected payment schedule for the Callable MITTS
Securities, including both the projected Supplemental Redemption Amount and the
estimated yield equal to 7.54% per annum compounded semiannually, as determined
by ML&Co. for purposes of applying the Final Regulations to the Callable MITTS
Securities:
<TABLE>
<CAPTION>
Total interest deemed
to have accrued on
the Callable MITTS
Interest deemed to Securities as of the
accrue during accrual end of accrual period
Accrual Period period (per unit) (per unit)
-------------- --------------------- --------------------
<S> <C> <C>
August 4, 2000 through February 4, 2001.............................. $0.3802 $0.3802
February 5, 2001 through August 4, 2001.............................. $0.3913 $0.7715
August 5, 2001 through February 4, 2002.............................. $0.4061 $1.1776
February 5, 2002 through August 4, 2002.............................. $0.4214 $1.5990
August 5, 2002 through February 4, 2003.............................. $0.4372 $2.0362
February 5, 2003 through August 4, 2003.............................. $0.4538 $2.4900
August 5, 2003 through February 4, 2004.............................. $0.4709 $2.9609
February 5, 2004 through August 4, 2004.............................. $0.4886 $3.4495
August 5, 2004 through February 4, 2005.............................. $0.5071 $3.9566
February 5, 2005 through August 4, 2005.............................. $0.5261 $4.4827
August 5, 2005 through February 4, 2006.............................. $0.5460 $5.0287
February 5, 2006 through August 4, 2006.............................. $0.5666 $5.5953
August 5, 2006 through February 4, 2007.............................. $0.5879 $6.1832
February 5, 2007 through August 3, 2007.............................. $0.6102 $6.7934
</TABLE>
____________________
Projected Supplemental Redemption Amount = $6.7934 per unit.
All prospective investors in the Callable MITTS Securities should
consult their own tax advisors concerning the application of the Final
Regulations to their investment in the Callable MITTS Securities. Investors in
the Callable 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 Callable MITTS Securities, by submitting a written request for such
information Merrill Lynch & Co., Inc., Corporate Secretary's Office, 222
Broadway, 17th Floor, New York, New York 10038, (212) 670-0432,
[email protected].
29
<PAGE>
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 Callable 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 Callable 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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 Callable MITTS Securities and other securities. For further
information on ML&Co. and the Callable 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
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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to
those documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31,
2000, June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000,
30
<PAGE>
September 13, 2000, October 6, 2000, October 17, 2000, November 1,
2000, November 20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14
of the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17th Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of
the Callable MITTS Securities and is to be used by MLPF&S when making offers and
sales related to market-making transactions in the Callable MITTS Securities.
MLPF&S may act as principal or agent in these market-making
transactions.
The Callable MITTS Securities may be offered on the AMEX or off the
exchange in negotiated transactions or otherwise.
The distribution of the Callable 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 for the year
ended December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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.
31
<PAGE>
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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
32
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. +
+ We may not sell these securities until the registration statement filed +
+ with the Securities and Exchange Commission is effective. This +
+ prospectus is not an offer to sell these securities and it is not +
+ soliciting an offer to buy these securities in any state where the offer +
+ and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
<TABLE>
<S> <C>
PROSPECTUS [LOGO] Merrill Lynch
---------- PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
</TABLE>
Merrill Lynch & Co., Inc.
Callable Nasdaq-100(R) Market Index Target-Term Securities(R)
due August 3, 2007
"Callable 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 Callable MITTS
Securities.
<TABLE>
<CAPTION>
The Callable MITTS Securities: Payment at the stated maturity or upon exercise of the
call option:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, if the Callable MITTS
. Callable prior to the stated maturity by Merrill Securities have not been called, for each unit of the
Lynch & Co., Inc. Callable MITTS Securities you own we will pay you an
. No payments before the maturity date unless called. amount equal to the sum of the principal amount of
. Senior unsecured debt securities of Merrill Lynch each unit and an additional amount based on the
& Co., Inc. percentage increase, if any, in the value of the
. Linked to the value of the Nasdaq-100 Index. Nasdaq-100 Index.
. The Callable MITTS Securities are listed on the . At maturity, you will receive no less than the
American Stock Exchange under the trading symbol principal amount of your Callable MITTS Securities.
"MNM". . If Merrill Lynch & Co., Inc. elects to call your
. Closing date: August 4, 2000. Callable MITTS Securities prior to the stated
maturity, you will receive $21.50 per unit.
</TABLE>
Investing in the Callable 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 Callable MITTS Securities will be the prevailing
market price at the time of sale.
_______________
Merrill Lynch & Co. A.G. Edwards & Sons, Inc.
_______________
The date of this prospectus is , .
"Callable MITTS" and "Market Index Target-Term Securities" are registered
service marks and "Protected Growth", is a service mark of Merrill Lynch & Co.,
Inc.
"Nasdaq", "Nasdaq-100" and "Nasdaq-100 Index are trademarks, trade names or
service marks owned by the Nasdaq Stock Market, Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION-Q&A........................................ 3
RISK FACTORS................................................... 6
MERRILL LYNCH & CO., INC....................................... 9
RATIO OF EARNINGS TO FIXED CHARGES............................. 10
DESCRIPTION OF THE CALLABLE MITTS SECURITIES................... 11
THE NASDAQ-100 INDEX........................................... 19
OTHER TERMS.................................................... 23
PROJECTED PAYMENT SCHEDULE..................................... 27
ERISA CONSIDERATIONS........................................... 28
WHERE YOU CAN FIND MORE INFORMATION............................ 28
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.............. 28
PLAN OF DISTRIBUTION........................................... 29
EXPERTS........................................................ 29
</TABLE>
2
<PAGE>
SUMMARY INFORMATION -- Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Callable Nasdaq-100
Market Index Target-Term Securities(R) due August 3, 2007. You should carefully
read this prospectus to fully understand the terms of the Callable MITTS
Securities, the Nasdaq-100 Index and the tax and other considerations that are
important to you in making a decision about whether to invest in the Callable
MITTS Securities. You should carefully review the "Risk Factors" section, which
highlights certain risks associated with an investment in the Callable MITTS
Securities, to determine whether an investment in the Callable MITTS Securities
is appropriate for you.
References in this prospectus to "ML&Co.", "we", "us" and "our" are to
Merrill Lynch & Co., Inc. and references to "MLPF&S" are to Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
What are the Callable MITTS Securities?
The Callable MITTS Securities are a series of senior debt securities issued
by ML&Co. and are not secured by collateral. The Callable MITTS Securities rank
equally with all of our other unsecured and unsubordinated debt. The Callable
MITTS Securities will mature on August 3, 2007 unless called by ML&Co. in August
2006.
Each unit of Callable MITTS Securities represents $10 principal amount of
Callable MITTS Securities. You may transfer the Callable 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 issued
the Callable 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 Callable MITTS
Securities. You should refer to the section entitled "Description of the
Callable MITTS Securities--Depositary" in this prospectus.
What will I receive on the stated maturity date of the Callable MITTS
Securities?
We have designed the Callable 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 value of the Nasdaq-100 Index. On the stated maturity date, if we have not
called the Callable MITTS Securities, you will receive a payment on the Callable
MITTS Securities equal to the sum of two amounts: the "principal amount" and the
"Supplemental Redemption Amount", if any.
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 (-----------------------------)
( Starting Value )
but will not be less than zero.
The "Starting Value" equals 3,521.15, the closing value of the Nasdaq-100
Index on August 1, 2000, the date the Callable MITTS Securities were priced for
initial sale to the public.
The "Ending Value" means the average of the values of the Nasdaq-100 Index
at the close of the market on five business days shortly before the maturity of
the Callable 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 Callable MITTS Securities,
there is a disruption in the trading of the component stocks comprising the
Nasdaq-100 Index or certain futures or options contracts relating to the Nasdaq-
100 Index.
For more specific information about the Supplemental Redemption Amount,
please see the section entitled "Description of the Callable MITTS Securities"
in this prospectus.
3
<PAGE>
We will pay you a Supplemental Redemption Amount only if we do not call the
Callable MITTS Securities in August 2006 and 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 Callable MITTS Securities regardless of whether any
Supplemental Redemption Amount is payable.
Examples
Here are two examples of Supplemental Redemption Amount calculations. If we
call the Callable MITTS Securities during the Call Period, you will receive only
the Call Price and you will not be entitled to receive any payment on the stated
maturity date.
Example 1--The Nasdaq-100 Index is below the Starting Value at maturity.
Starting Value: 3,521.15
Hypothetical Ending Value: 3,169.04
<TABLE>
<S> <C>
(3,169.04 - 3,521.15) (Supplemental
Supplemental Redemption Amount (per unit) = $10 x (-------------------) = $0.00 Redemption Amount
( 3,521.15 ) cannot be less
than zero)
Total payment at maturity (per unit) = $10 + $0.00 = $10
Example 2--The Nasdaq-100 Index is above the Starting Value at Maturity
Starting Value: 3,521.15
Hypothetical Ending Value: 5,105.67
(5,105.67 - 3,521.15)
Supplemental Redemption Amount (per unit) = $10 x (-------------------) = $4.50
( 3,521.15 )
Total payment at maturity (per unit) = $10 + $4.50 = $14.50
</TABLE>
How does the call feature work?
We may elect to call the Callable MITTS Securities at $21.50 per unit (the
"Call Price") on any Business Day during the month of August 2006 (the "Call
Period") by giving notice to the trustee of the Callable MITTS Securities as
described in this prospectus and specifying the date on which the Call Price
will be paid (the "Payment Date"). The Payment Date will be no later than the
twentieth Business Day after the call election.
If we elect to call your Callable MITTS Securities during the Call Period,
you will receive only the Call Price and you will not receive a Supplemental
Redemption Amount. If we do not call the Callable MITTS Securities during the
Call Period, the principal amount plus the Supplemental Redemption Amount, if
any, that you receive at the stated maturity date may be greater than or less
than the Call Price.
Will I receive interest payments on the Callable MITTS Securities?
You will not receive any interest payments on the Callable MITTS
Securities, but will instead receive the principal amount plus the Supplemental
Redemption Amount, if any, at maturity, or the Call Price if the Callable MITTS
Securities are called during the Call Period. We
4
<PAGE>
have designed the Callable MITTS Securities for investors who are willing to
forego market interest payments on the Callable MITTS Securities, such as
floating interest rates paid on standard senior non-callable debt securities, in
exchange for the ability to participate in possible increases in the Nasdaq-100
Index.
Who publishes the Nasdaq-100 Index and what does the Nasdaq-100 Index measure?
The Nasdaq-100 Index is a modified capitalization-weighted index of 100 of
the largest and most actively traded stocks of non-financial companies listed on
the Nasdaq National Market tier of The Nasdaq Stock Market. The Nasdaq-100 Index
is currently calculated and published by The Nasdaq Stock Market, Inc. (the
"Nasdaq").
Are the Callable MITTS Securities listed on a stock exchange?
The Callable MITTS Securities are listed on the AMEX under the symbol
"MNM". The listing of the Callable MITTS Securities on the AMEX does not
necessarily ensure that a liquid trading market is available for the Callable
MITTS Securities. You should review the section entitled "Risk Factors--There
may be an uncertain trading market for the Callable MITTS Securities" in this
prospectus.
What is the role of MLPF&S?
Our subsidiary MLPF&S was one of the underwriters for the initial offering
and sale of the Callable MITTS Securities. MLPF&S intends to buy and sell
Callable MITTS Securities to create a secondary market for holders of the
Callable MITTS Securities. However, MLPF&S is not obligated to engage in any of
these market activities.
MLPF&S is also be 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 entitled "Merrill Lynch & Co., Inc." in this prospectus. You should also
read 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 Callable MITTS Securities is subject to risk.
Please refer to the section entitled "Risk Factors" in this prospectus.
5
<PAGE>
RISK FACTORS
Your investment in the Callable MITTS Securities will involve risks. You
should carefully consider the following discussion of risks before investing in
the Callable MITTS Securities. In addition, you should reach an investment
decision with regard to the Callable MITTS Securities only after consulting with
your legal and tax advisers and considering the suitability of the Callable
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, the Supplemental Redemption Amount will be zero. This will be true even
if the value of the Nasdaq-100 Index was higher than the Starting Value at some
time during the life of the Callable MITTS Securities but later falls to or
below the Starting Value. If the Supplemental Redemption Amount is zero and the
Callable MITTS Securities have not been called prior to the stated maturity
date, we will pay you only the principal amount of your Callable MITTS
Securities.
The Callable MITTS Securities are subject to early call
We may elect to call all of the Callable MITTS Securities by giving notice
on any Business Day during the Call Period. We are likely to call the Callable
MITTS Securities during the Call Period if the secondary market price of the
Callable MITTS Securities is approximately equal to or above the Call Price
during that period. In the event that we elect to call the Callable MITTS
Securities, you will receive only the Call Price and no Supplemental Redemption
Amount.
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 ML&Co. 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
Nasdaq-100 Index
Your return will not reflect the return you would realize if you actually
owned the stocks underlying the Nasdaq-100 Index and received the dividends paid
on those stocks because Nasdaq calculates the Nasdaq-100 Index by reference to
the prices of the common stocks comprising the Nasdaq-100 Index without taking
into consideration the value of dividends paid on those stocks. In addition, if
the Callable MITTS Securities are called during the Call Period, you will
receive only the Call Price and you will not receive any additional amount based
upon the appreciation, if any, in the level of the Nasdaq-100 Index.
There may be an uncertain trading market for the Callable MITTS Securities
Although the Callable MITTS Securities are listed on the AMEX under the
trading symbol "MNM", you cannot assume that a trading market exists for the
Callable 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 Callable MITTS Securities will depend on our financial
performance and other factors such as the increase, if any, in the value of the
Nasdaq-100 Index.
If the trading market for the Callable MITTS Securities is limited, there
may be a limited number of buyers for your Callable MITTS Securities if you do
not wish to hold your investment until maturity. This may affect the price you
receive.
6
<PAGE>
Many factors affect the trading value of the Callable 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 Callable 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 Callable MITTS Securities caused by another factor and that the effect of
one factor may exacerbate the decrease in the trading value of the Callable
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 Callable MITTS Securities attributable to another factor, such as an
increase in the value of the Nasdaq-100 Index. The following paragraphs describe
the expected impact on the market value of the Callable MITTS Securities given a
change in a specific factor, assuming all other conditions remain constant.
The value of the Nasdaq-100 Index is expected to affect the trading value
of the Callable MITTS Securities. We expect that the market value of the
Callable MITTS Securities will depend substantially on the amount, if any, by
which the Nasdaq-100 Index exceeds the Starting Value. If you choose to sell
your Callable MITTS Securities when the value of the Nasdaq-100 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 Nasdaq-100 Index will continue to fluctuate until the Ending Value is
determined. If you choose to sell your Callable MITTS Securities when the value
of the Nasdaq-100 Index is below, or not sufficiently above, the Starting Value,
you may receive less than the $10 principal amount per unit of your Callable
MITTS Securities. In general, rising U.S. dividend rates, or dividends per
share, may increase the value of the Nasdaq-100 Index while falling U.S.
dividend rates may decrease the value of the Nasdaq-100 Index.
Changes in the levels of interest rates are expected to affect the trading
value of the Callable MITTS Securities. Because we will pay, at a minimum, the
principal amount per unit of Callable MITTS Securities at maturity, we expect
that changes in interest rates will affect the trading value of the Callable
MITTS Securities. In general, if U.S. interest rates increase, we expect that
the trading value of the Callable MITTS Securities will decrease and,
conversely, if U.S. interest rates decrease, we expect that the trading value of
the Callable MITTS Securities will increase. Rising interest rates may lower the
value of the Nasdaq-100 Index and, thus, the Callable MITTS Securities. Falling
interest rates may increase the value of the Nasdaq-100 Index and, thus, may
increase the value of the Callable MITTS Securities.
Changes in the volatility of the Nasdaq-100 Index are expected to affect
the trading value of the Callable MITTS Securities. Volatility is the term used
to describe the size and frequency of price and/or market fluctuations. If the
volatility of the Nasdaq-100 Index increases or decreases the trading value of
the Callable MITTS Securities may be adversely affected.
As the time remaining to maturity of the Callable MITTS Securities
decreases, the "time premium" associated with the Callable MITTS Securities will
decrease. We anticipate that before their maturity, the Callable 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 Nasdaq-100 Index. This difference
will reflect a "time premium" due to expectations concerning the value of the
Nasdaq-100 Index during the period before the stated maturity of the Callable
MITTS Securities. However, as the time remaining to the stated maturity of the
Callable MITTS Securities decreases, we expect that this time premium will
decrease, lowering the trading value of the Callable MITTS Securities.
Changes in dividend yields of the stocks included in the Nasdaq-100 Index
are expected to affect the trading value of the Callable MITTS Securities. In
general, if dividend yields on the stocks included in the Nasdaq-100 Index
increase, we expect that the value of the Callable MITTS Securities will
decrease and, conversely, if dividend yields on these stocks decrease, we expect
that the value of the Callable MITTS Securities will increase.
7
<PAGE>
Changes in our credit ratings may affect the trading value of the Callable
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 Callable MITTS Securities. However, because
your return on your Callable MITTS Securities is dependent upon factors in
addition to our ability to pay our obligations under the Callable MITTS
Securities, such as the percentage increase, if any, in the value of the Nasdaq-
100 Index at maturity, an improvement in our credit ratings will not reduce the
other investment risks related to the Callable MITTS Securities.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the Callable 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 Callable MITTS Securities than if it occurs earlier in the term
of the Callable MITTS Securities. However, we expect that the effect on the
trading value of the Callable MITTS Securities of a given increase in the value
of the Nasdaq-100 Index will be greater if it occurs later in the term of the
Callable MITTS Securities than if it occurs earlier in the term of the Callable
MITTS Securities.
Amounts payable on the Callable MITTS Securities may be limited by state law
New York State law governs the 1983 Indenture under which the Callable
MITTS Securities were 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 Callable 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 promise, for the benefit of the Callable MITTS Securities holders, 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 affiliates may from time to time buy or sell the stocks
underlying the Nasdaq-100 Index or futures or options contracts in the Nasdaq-
100 Index for our own accounts for business reasons or in connection with
hedging our obligations under the Callable MITTS Securities. These transactions
could affect the price of these stocks and, in turn, the value of the Nasdaq-100
Index in a manner that could be adverse to your investment in the Callable MITTS
Securities.
Potential conflicts
Our subsidiary MLPF&S is our agent for the purposes of calculating the
Ending Value and the Supplemental Redemption Amount. Under certain
circumstances, MLPF&S' role as our subsidiary and its responsibilities as
calculation agent for the Callable MITTS Securities could give rise to conflicts
of interest. These conflicts could occur, for instance, in connection with its
determination as to whether the value of the Nasdaq-100 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 Nasdaq-100 Index. See
the sections entitled "Description of the Callable MITTS Securities--Adjustments
to the Nasdaq-100 Index; Market Disruption Events" and "--Discontinuance of the
Nasdaq-100 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 Callable 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.
8
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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 Callable MITTS Securities described in this
prospectus.
9
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges for
the periods indicated:
<TABLE>
<CAPTION>
For the Nine
Year Ended Last Friday in December Months Ended
--------------------------------------------------
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges....... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
10
<PAGE>
DESCRIPTION OF THE CALLABLE MITTS SECURITIES
On August 4, 2000, ML&Co. issued an aggregate principle amount of
$36,000,000 or 3,600,000 of Callable MITTS Securities. The Callable MITTS
Securities were issued as a series of senior debt securities under the 1983
Indenture, which is more fully described in this prospectus. Unless called by
ML&Co. during the Call Period, the Callable MITTS Securities will mature on
August 3, 2007.
Unless the Callable MITTS Securities are called during the Call Period, at
the stated maturity a beneficial owner of a Callable MITTS Security will receive
the sum of the principal amount of each Callable 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".
The Callable MITTS Securities may be called by ML&Co. as described below,
but the Callable MITTS Securities are not subject to redemption at the option of
any beneficial owner before maturity. If an Event of Default occurs with respect
to the Callable MITTS Securities, registered holders of the Callable MITTS
Securities may accelerate the maturity of the Callable MITTS Securities, as
described under "--Events of Default and Acceleration" in this prospectus and
"Other Terms--Events of Default" in this prospectus.
ML&Co. issued the Callable MITTS Securities in denominations of whole units
of $10 per unit.
The Callable MITTS Securities do not have the benefit of any sinking fund.
Payment at maturity
If we do not call the Callable MITTS Securities during the Call Period, a
beneficial owner of a Callable MITTS Security will be entitled to receive at the
stated maturity, the principal amount of that Callable 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 Callable MITTS Securities.
Determination of the Supplemental Redemption Amount
The "Supplemental Redemption Amount" for a Callable MITTS Security will be
determined by the calculation agent and will equal:
<TABLE>
<S> <C>
(Ending Value - Starting Value)
principal amount of each Callable 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 3,521.15, the closing value of the Nasdaq-100
Index on August 1, 2000, the date the Callable 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 Nasdaq-100
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 Nasdaq-100 Index on those Calculation Days, and if there is only one
Calculation Day, then the Ending Value will equal the closing value of the
Nasdaq-100 Index on that Calculation Day. If no Calculation Days occur during
the Calculation Period, then the Ending
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<PAGE>
Value will equal the closing value of the Nasdaq-100 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 "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 Nasdaq-100 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 Callable MITTS
Securities.
Early call of the Callable MITTS Securities at the option of ML&Co.
During the Call Period, the month of August 2006, ML&Co., in its sole
discretion, may elect to call the Callable MITTS Securities, in whole but not in
part, at $21.50 per unit (the "Call Price") by giving notice to the trustee on
any Business Day.
If we elect to call your Callable MITTS Securities during the Call Period,
you will receive only the Call Price and you will not receive a Supplemental
Redemption Amount based on the Nasdaq-100 Index. If we do not call the Callable
MITTS Securities, the principal amount plus the Supplemental Redemption Amount,
if any, that you receive at the stated maturity may be greater than or less than
the Call Price. ML&Co. may elect to call the Callable MITTS Securities on any
Business Day during the Call Period by giving notice to the trustee and
specifying the date on which the Call Price shall be paid. The Payment Date
shall be no later than the twentieth Business Day after the call election. The
trustee will provide notice of the call election to the registered holders of
the Callable MITTS Securities, specifying the Payment Date, no less than 15
calendar days prior to the Payment Date. While the Callable MITTS Securities are
held at the depositary, the registered holder will be the depositary, and the
depositary will receive the notice of the call. As more fully described below
under "--Depositary", the depositary will forward this notice to its
participants which will pass it onto the beneficial owners.
You should compare the features of the Callable MITTS Securities to other
available investments before deciding to purchase the Callable MITTS Securities.
Due to the uncertainty as to whether the Callable MITTS Securities will earn a
Supplemental Redemption Amount or be called during the Call Period, the return
on investment with respect to the Callable MITTS Securities may be higher or
lower than the return available on other securities issued by ML&Co. or issued
by others. We suggest that you reach an investment decision only after carefully
considering the suitability of the Callable MITTS Securities in light of your
particular circumstances.
Hypothetical returns
The following table illustrates, for a range of hypothetical Ending Values
of the Nasdaq-100 Index during the Calculation Period, assuming an initial
investment of $10 per unit and an investment term from August 4, 2000 to August
3, 2007:
. the percentage change from the Starting Value to the hypothetical
Ending Value,
. the total amount payable at maturity for each unit of Callable MITTS
Securities,
12
<PAGE>
. the total rate of return to beneficial owners of the Callable MITTS
Securities,
. the pretax annualized rate of return to beneficial owners of Callable
MITTS Securities, and
. the pretax annualized rate of return of an investment in the stocks
included in the Nasdaq-100 Index, which includes an assumed aggregate
dividend yield of 0.03% per annum, as more fully described below.
The table also assumes we do not call the Callable MITTS Securities prior
to the stated maturity date.
<TABLE>
<CAPTION>
Pretax
Percentage Total amount annualized rate
change from the payable at Pretax annualized of return of
Starting Value maturity per unit Total rate of rate of return on stocks
Hypothetical Ending to the of the Callable return on the the Callable underlying the
Value during the hypothetical MITTS Callable MITTS MITTS Nasdaq-100
Calculation Period Ending Value Securities(1) Securities(1) Securities(1)(2) Index(2)
------------------- --------------- ----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
704.23 -80% 10.00 0.00% 0.00% -21.69%
1,408.46 -60% 10.00 0.00% 0.00% -12.64%
2,112.69 -40% 10.00 0.00% 0.00% -7.14%
2,816.92 -20% 10.00 0.00% 0.00% -3.13%
3,521.15(3) 0% 10.00 0.00% 0.00% 0.03%
4,225.38 20% 12.00 20.00% 2.62% 2.65%
4,929.61 40% 14.00 40.00% 4.86% 4.90%
5,633.84 60% 16.00 60.00% 6.83% 6.86%
6,338.07 80% 18.00 80.00% 8.58% 8.61%
7,042.30 100% 20.00 100.00% 10.15% 10.18%
7,746.53 120% 22.00 120.00% 11.59% 11.62%
8,450.76 140% 24.00 140.00% 12.91% 12.94%
9,154.99 160% 26.00 160.00% 14.13% 14.16%
</TABLE>
______________________
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes:
(a) a percentage change in the aggregate price of the underlying stocks
that equals the percentage change in the Nasdaq-100 Index from the
Starting Value to the relevant hypothetical Ending Value;
(b) a constant dividend yield of 0.03% per annum, paid quarterly from
the date of initial delivery of the Callable MITTS Securities,
applied to the value of the Nasdaq-100 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; and
(d) an investment term from August 4, 2000 to August 3, 2007.
(3) 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 rates of return will depend on the actual Ending Value
determined by the calculation agent as described in this prospectus.
Adjustments to the Nasdaq-100 Index; Market Disruption Events
If at any time Nasdaq changes its method of calculating the Nasdaq-100
Index, or the value of the Nasdaq-100 Index changes, in any material respect, or
if the Nasdaq-100 Index is in any other way modified so
13
<PAGE>
that the Nasdaq-100 Index does not, in the opinion of the calculation agent,
fairly represent the value of the Nasdaq-100 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 Nasdaq-100 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 Nasdaq-100 Index as if those changes or modifications had not
been made, and calculate the closing value with reference to the Nasdaq-100
Index, as so adjusted. Accordingly, if the method of calculating the Nasdaq-100
Index is modified so that the value of the Nasdaq-100 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 Nasdaq-100 Index in order to
arrive at a value of the Nasdaq-100 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 The
Nasdaq Stock Market of 20% or more of the underlying stocks which then
comprise the Nasdaq-100 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 The Nasdaq Stock Market
or any other major futures or securities market from trading in
futures or options contracts related to the Nasdaq-100 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 futures
or options contract will not constitute a Market Disruption Event;
3. a suspension in trading in a futures or options contract on the
Nasdaq-100 Index by a major securities market for more than two hours
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 Nasdaq-100
Index; and
4. an absence of trading on The Nasdaq Stock Market will not include any
time when The Nasdaq Stock Market is closed for trading under ordinary
circumstances.
Discontinuance of the Nasdaq-100 Index
If Nasdaq discontinues publication of the Nasdaq-100 Index and Nasdaq or
another entity publishes a successor or substitute index that the calculation
agent determines, in its sole discretion, to be comparable to the Nasdaq-100
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 Nasdaq or any other entity for
the Nasdaq-100 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
Callable MITTS Securities.
14
<PAGE>
In the event that Nasdaq discontinues publication of the Nasdaq-100 Index
and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the Nasdaq-100 Index
in accordance with the procedures last used to calculate the Nasdaq-100 Index
before any discontinuance. If a successor index is selected or the calculation
agent calculates a value as a substitute for the Nasdaq-100 Index as described
below, the successor index or value will be used as a substitute for the Nasdaq-
100 Index for all purposes, including for purposes of determining whether a
Market Disruption Event exists.
If the Nasdaq discontinues publication of the Nasdaq-100 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 Ending Value, or
. 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" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law to close and that is a day on which the NYSE, the
Nasdaq National Market System and the AMEX are open for trading.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Nasdaq-100 Index may adversely affect trading in the Callable
MITTS Securities.
Events of Default and Acceleration
In case an Event of Default with respect to any Callable MITTS Securities
has occurred and is continuing, the amount payable to a beneficial owner of a
Callable MITTS Security upon any acceleration permitted by the Callable 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 Callable
MITTS Securities, provided however, if the acceleration occurs before the end of
the Call Period, the maximum amount payable with respect to each Callable MITTS
security will be the Call Price. If a bankruptcy proceeding is commenced in
respect of ML&Co., the claim of the beneficial owner of a Callable MITTS
Security may be limited, under Section 502(b)(2) of Title 11 of the United
States Code, to the principal amount of the Callable 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 Callable MITTS
Securities.
In case of default in payment of the Callable MITTS Securities, whether at
their stated maturity or upon acceleration, from and after the maturity date the
Callable MITTS Securities will bear interest, payable upon demand of their
beneficial owners, at the rate of 7.54% 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 Callable MITTS Securities to the date
payment of that amount has been made or duly provided for.
15
<PAGE>
Depositary
Description of the Global Securities
The Callable 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., DTCs partnership nominee.
Unless and until it is exchanged in whole or in part for Callable 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 Callable MITTS Securities represented by the global security for
all purposes under the 1983 Indenture. Except as provided below, the beneficial
owners of the Callable MITTS Securities will not be entitled to have the
Callable MITTS Securities represented by a global security registered in their
names, will not receive or be entitled to receive physical delivery of the
Callable MITTS Securities in definitive form and will not be considered the
owners or holders of the Callable 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 Callable MITTS Securities. The
Callable MITTS Securities were issued as fully registered securities registered
in the name of Cede & Co. (DTCs partnership nominee). One or more fully
registered global securities were issued for the Callable 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 DTCs system is also
available to others such as securities brokers and dealers, banks and trust
companies that
16
<PAGE>
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 Callable MITTS Securities under DTCs system must be made by or
through direct participants, which will receive a credit for the Callable MITTS
Securities on DTCs 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
Callable MITTS Securities are to be made by entries on the books of participants
acting on behalf of beneficial owners.
To facilitate subsequent transfers, all Callable MITTS Securities deposited
with DTC are registered in the name of DTCs partnership nominee, Cede & Co. The
deposit of Callable 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 Callable MITTS Securities; DTCs records
reflect only the identity of the direct participants to whose accounts such
Callable 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
Callable 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 Callable MITTS Securities are credited on the record date.
Principal, premium, if any, and/or interest, if any, payments made in cash
on the Callable MITTS Securities will be made in immediately available funds to
DTC. DTCs practice is to credit direct participants' accounts on the applicable
payment date in accordance with their respective holdings shown on the
depositarys 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 shall be the
responsibility of DTC, and disbursement of any payments to the beneficial owners
will be the responsibility of direct participants and indirect participants.
Exchange for Certificated Securities
If:
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
17
<PAGE>
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the Callable MITTS Securities,
the global securities will be exchangeable for Callable 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 Callable
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 Callable 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, Callable 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, Callable MITTS
Security certificates will be printed and delivered.
The information in this section concerning DTC and DTCs 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 Callable MITTS
Securities are maintained in book-entry form.
18
<PAGE>
THE NASDAQ-100 INDEX
The Nasdaq-100 Index is a modified capitalization-weighted index of 100 of
the largest and most actively traded stocks of non-financial companies listed on
The Nasdaq National Market tier of The Nasdaq Stock Market. The Nasdaq-100 Index
was first published in January 1985 and includes companies across a variety of
major industry groups. Current information regarding the market value of the
Nasdaq-100 Index is available from the Nasdaq as well as numerous market
information services. The Nasdaq-100 Index is determined, comprised and
calculated by the Nasdaq without regard to the Callable MITTS Securities.
The Nasdaq-100 Index share weights of the component securities of the
Nasdaq-100 Index at any time are based upon the total shares outstanding in each
of the 100 Nasdaq-100 Index securities and are additionally subject, in certain
cases, to rebalancing. Accordingly, each underlying stock's influence on the
value of the Nasdaq-100 Index is directly proportional to the value of its
Nasdaq-100 Index share weight.
Computation of the Nasdaq-100 Index
Underlying Stock Eligibility Criteria and Annual Ranking Review
To be eligible for inclusion in the Nasdaq-100 Index, a security must be
traded on the Nasdaq National Market tier of The Nasdaq Stock Market and meet
the following criteria:
. the security must be of a non-financial company;
. only one class of security per issuer is allowed;
. the security may not be issued by an issuer currently in bankruptcy
proceedings;
. the security must have an average daily trading volume of at least
100,000 shares per day;
. the security must have "seasoned" on The Nasdaq Stock Market or
another recognized market (generally, a company is considered to be
seasoned by Nasdaq if it has been listed on a market for at least two
years; in the case of spin-offs, the operating history of the spin-off
will be considered);
. if a security would otherwise qualify to be in the top 25% of the
issuers included in the Index by market capitalization, then a one
year "seasoning" criteria would apply;
. if the security is of a foreign issuer, the company must have a
worldwide market value of at least $10 billion, a U.S. market value of
at least $4 billion, and average trading volume on The Nasdaq Stock
Market of at least 200,000 shares per day; in addition, foreign
securities must be eligible for listed options trading; and
. the issuer of the security may not have entered into a definitive
agreement or other arrangement which would result in the security no
longer being listed on The Nasdaq Stock Market within the next six
months.
These Nasdaq-100 Index eligibility criteria may be revised from time to
time by the National Association of Securities Dealers, Inc. without regard to
the Callable MITTS Securities.
The Nasdaq-100 Index securities are evaluated on an annual basis, except
under extraordinary circumstances which may result in an interim evaluation, as
follows (such evaluation is referred to herein as the "Ranking Review").
Securities listed on The Nasdaq Stock Market which meet the above eligibility
criteria are ranked by market value. Index-eligible securities which are already
in the Nasdaq-100 Index and which are
19
<PAGE>
in the top 150 eligible securities (based on market value) are retained in the
Nasdaq-100 Index provided that such security was ranked in the top 100 eligible
securities as of the previous ranking review. Securities not meeting such
criteria are replaced. The replacement securities chosen are those Index-
eligible securities not currently in the Nasdaq-100 Index which have the largest
market capitalization. Generally, the list of annual additions and deletions is
publicly announced via a press release in the early part of December and
replacements are made effective after the close of trading on the third Friday
in December. Moreover, if at any time during the year, a Nasdaq-100 Index
security is no longer traded on The Nasdaq Stock Market, or is otherwise
determined by the Nasdaq to become ineligible for continued inclusion in the
Nasdaq-100 Index, the security will be replaced with the largest market
capitalization security not currently in the Nasdaq-100 Index and meeting the
Nasdaq-100 Index eligibility criteria listed above.
In addition to the Ranking Review, the securities in the Nasdaq-100 Index
are monitored every day by the Nasdaq with respect to changes in total shares
outstanding arising from secondary offerings, stock repurchases, conversions, or
other corporate actions. The Nasdaq has adopted the following quarterly
scheduled weight adjustment procedures with respect to such changes. If the
change in total shares outstanding arising from such corporate action is greater
than or equal to 5.0%, such change is made to the Nasdaq-100 Index on the
evening prior to the effective date of such corporate action or as soon as
practical thereafter. Otherwise, if the change in total shares outstanding is
less than 5%, then all such changes are accumulated and made effective at one
time on a quarterly basis after the close of trading on the third Friday in each
of March, June, September, and December. In either case, the Nasdaq-100 Index
share weights for such underlying stocks are adjusted by the same percentage
amount by which the total shares outstanding have changed in such Nasdaq-100
Index securities. Ordinarily, whenever there is a change in the Nasdaq-100 Index
share weights or a change in a component security included in the Nasdaq-100
Index, Nasdaq adjusts the divisor to assure that there is no discontinuity in
the value of the Nasdaq-100 Index which might otherwise be caused by any such
change.
Rebalancing of the Nasdaq-100 Index
The Nasdaq-100 Index is calculated under a "modified capitalization-
weighted" methodology, which is a hybrid between equal weighting and
conventional capitalization weighting. This methodology is expected to: (1)
retain in general the economic attributes of capitalization weighting; (2)
promote portfolio weight diversification (thereby limiting domination of the
Nasdaq-100 Index by a few large stocks); (3) reduce Index performance distortion
by preserving the capitalization ranking of companies; and (4) reduce market
impact on the smallest Nasdaq-100 Index securities from necessary weight
rebalancings.
Under the methodology employed, on a quarterly basis coinciding with the
Nasdaq's quarterly scheduled weight adjustment procedures, the Nasdaq-100 Index
securities are categorized as either "Large Stocks" or "Small Stocks" depending
on whether their current percentage weights (after taking into account such
scheduled weight adjustments due to stock repurchases, secondary offerings, or
other corporate actions) are greater than, or less than or equal to, the average
percentage weight in the Nasdaq-100 Index (i.e., as a 100-stock index, the
average percentage weight in the Nasdaq-100 Index is 1.0%).
Such quarterly examination will result in a Nasdaq-100 Index rebalancing if
either one or both of the following two weight distribution requirements are not
met: (1) the current weight of the single largest market capitalization Nasdaq-
100 Index security must be less than or equal to 24.0% and (2) the "collective
weight" of those Nasdaq-100 Index securities whose individual current weights
are in excess of 4.5%, when added together, must be less than or equal to 48.0%.
In addition, Nasdaq may conduct a special rebalancing if it is determined
necessary to maintain the integrity of the Nasdaq-100 Index.
If either one or both of these weight distribution requirements are not met
upon quarterly review, or Nasdaq determines that a special rebalancing is
required, a weight rebalancing will be performed. First, relating to weight
distribution requirement (1) above, if the current weight of the single largest
Nasdaq-100 Index security exceeds 24.0%, then the weights of all Large Stocks
will be scaled down proportionately
20
<PAGE>
towards 1.0% by enough for the adjusted weight of the single largest Nasdaq-100
Index security to be set to 20.0%. Second, relating to weight distribution
requirement (2) above, for those Nasdaq-100 Index securities whose individual
current weights or adjusted weights in accordance with the preceding step are in
excess of 4.5%, if their "collective weight" exceeds 48.0%, then the weights of
all Large Stocks will be scaled down proportionately towards 1.0% by just enough
for the "collective weight," so adjusted, to be set to 40.0%.
The aggregate weight reduction among the Large Stocks resulting from either
or both of the above rescalings will then be redistributed to the Small Stocks
in the following iterative manner. In the first iteration, the weight of the
largest Small Stock will be scaled upwards by a factor which sets it equal to
the average Nasdaq-100 Index weight of 1.0%. The weights of each of the smaller
remaining Small Stocks will be scaled up by the same factor reduced in relation
to each stock's relative ranking among the Small Stocks such that the smaller
the Nasdaq-100 Index security in the ranking, the less the scale-up of its
weight. This is intended to reduce the market impact of the weight rebalancing
on the smallest component securities in the Nasdaq-100 Index.
In the second iteration, the weight of the second largest Small Stock,
already adjusted in the first iteration, will be scaled upwards by a factor
which sets it equal to the average index weight of 1.0%. The weights of each of
the smaller remaining Small Stocks will be scaled up by this same factor reduced
in relation to each stock's relative ranking among the Small Stocks such that,
once again, the smaller the stock in the ranking, the less the scale-up of its
weight.
Additional iterations will be performed until the accumulated increase in
weight among the Small Stocks exactly equals the aggregate weight reduction
among the Large Stocks from rebalancing in accordance with weight distribution
requirement (1) and/or weight distribution requirement (2).
Then, to complete the rebalancing procedure, once the final percent weights
of each of the Nasdaq-100 Index securities are set, the Nasdaq-100 Index share
weights will be determined anew based upon the last sale prices and aggregate
capitalization of the Nasdaq-100 Index at the close of trading on the Thursday
in the week immediately preceding the week of the third Friday in March, June,
September, and December. Changes to the Nasdaq-100 Index share weights will be
made effective after the close of trading on the third Friday in March, June,
September, and December and an adjustment to the Index divisor will be made to
ensure continuity of the Nasdaq-100 Index.
Ordinarily, new rebalanced weights will be determined by applying the above
procedures to the current Nasdaq-100 Index share weights. However, Nasdaq may
from time to time determine rebalanced weights, if necessary, by instead
applying the above procedure to the actual current market capitalization of the
Nasdaq-100 Index components. In such instances, Nasdaq would announce the
different basis for rebalancing prior to its implementation.
License Agreement
The Nasdaq Stock Market, Inc. and Merrill Lynch & Co., Inc. have entered
into a non-exclusive license agreement providing for the license to ML&Co., in
exchange for a fee, of the right to use the Nasdaq-100 Index in connection with
certain securities, including the Callable MITTS Securities.
The license agreement between the Nasdaq and ML&Co. provides that the
following language must be stated in this prospectus:
"The Callable MITTS Securities are not sponsored, endorsed, sold or
promoted by, The Nasdaq Stock Market, Inc. (including its affiliates)
(Nasdaq, with its affiliates, are referred to as the "Corporations"). The
Corporations have not passed on the legality or suitability of, or the
accuracy or adequacy of descriptions and disclosures relating to, the
Callable MITTS Securities. The Corporations make no representation or
warranty, express or implied to the owners of the Callable MITTS Securities
or any
21
<PAGE>
member of the public regarding the advisability of investing in
securities generally or in the Callable MITTS Securities particularly,
or the ability of the Nasdaq-100 Index(R) to track general stock market
performance. The Corporation's only relationship to ML&Co. is in the
licensing of the Nasdaq-100(R), Nasdaq-100 Index(R), and Nasdaq
trademarks or service marks, and certain trade names of the
Corporations and the use of the Nasdaq-100 Index(R) which is
determined, composed and calculated by Nasdaq without regard to ML&Co.
or the Callable MITTS Securities. Nasdaq has no obligation to take the
needs of ML&Co. or the owners of the Callable MITTS Securities into
consideration in determining, composing or calculating the Nasdaq-100
Index(R). The Corporations are not responsible for and have not
participated in the determination of the timing of, prices at, or
quantities of the Callable MITTS Securities to be issued or in the
determination or calculation of the equation by which the Callable
MITTS Securities are to be converted into cash. The Corporations have
no liability in connection with the administration, marketing or
trading of the Callable MITTS Securities.
The Corporations do not guarantee the accuracy and/or uninterrupted
calculation of the Nasdaq-100 Index(R) or any data included therein.
The Corporations make no warranty, express or implied, as to results to
be obtained by ML&Co., owners of the Callable MITTS Securities, or any
other person or entity from the use of the Nasdaq-100 Index(R) or any
data included therein. The Corporations make no express or implied
warranties, and expressly disclaim all warranties of merchantability or
fitness for a particular purpose or use with respect to the Nasdaq-100
Index(R) or any data included therein. Without limiting any of the
foregoing, in no event shall the Corporations have any liability for
any lost profits or special, incidental, punitive, indirect, or
consequential damages, even if notified of the possibility of such
damages."
All disclosures contained in this prospectus regarding the Nasdaq-100
Index, including its make-up, method of calculation and changes in its
components, are derived from publicly available information prepared by Nasdaq.
ML&Co. and MLPF&S do not assume any responsibility for the accuracy or
completeness of such information.
22
<PAGE>
OTHER TERMS
The Callable 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 Callable 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 Callable 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.
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<PAGE>
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
. 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
. 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
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<PAGE>
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:
. default in the payment of any interest or Additional Amounts
payable when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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:
. in the payment of any amounts due and payable or deliverable
under the debt securities of that series; or
. 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.
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<PAGE>
The Callable 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.
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<PAGE>
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 Callable MITTS Securities, we have determined that the projected payment
schedule for the Callable MITTS Securities will consist of payment on the
maturity date of the principal amount thereof and a projected Supplemental
Redemption Amount equal to $6.7934 per unit. This represents an estimated yield
on the Callable MITTS Securities equal to 7.54% per annum, compounded
semiannually.
The projected payment schedule (including both the projected Supplemental
Redemption Amount and the estimated yield on the Callable MITTS Securities) has
been determined solely for United States Federal income tax purposes (i.e., for
purposes of applying the Final Regulations to the Callable 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 Callable MITTS Securities
during each accrual period over the term of the Callable MITTS Securities based
upon a projected payment schedule for the Callable MITTS Securities, including
both the projected Supplemental Redemption Amount and the estimated yield equal
to 7.54% per annum, compounded semiannually, as determined by ML&Co. for
purposes of applying the Final Regulations to the Callable MITTS Securities:
<TABLE>
<CAPTION>
Total interest
deemed to have
accrued on the
Interest deemed Callable MITTS
to accrue during Securities as of
accrual period the end of accrual
Accrual Period (per unit) period (per unit)
--------------------- ------------------ ----------------------
<S> <C> <C>
August 4, 2000 through February 4, 2001.............................. $0.3802 $0.3802
February 5, 2001 through August 4, 2001.............................. $0.3913 $0.7715
August 5, 2001 through February 4, 2002.............................. $0.4061 $1.1776
February 5, 2002 through August 4, 2002.............................. $0.4214 $1.5990
August 5, 2002 through February 4, 2003.............................. $0.4372 $2.0362
February 5, 2003 through August 4, 2003.............................. $0.4538 $2.4900
August 5, 2003 through February 4, 2004.............................. $0.4709 $2.9609
February 5, 2004 through August 4, 2004.............................. $0.4886 $3.4495
August 5, 2004 through February 4, 2005.............................. $0.5071 $3.9566
February 5, 2005 through August 4, 2005.............................. $0.5261 $4.4827
August 5, 2005 through February 4, 2006.............................. $0.5460 $5.0287
February 5, 2006 through August 4, 2006.............................. $0.5666 $5.5953
August 5, 2006 through February 4, 2007.............................. $0.5879 $6.1832
February 5, 2007 through August 3, 2007.............................. $0.6102 $6.7934
</TABLE>
-----------------
Projected Supplemental Redemption Amount = $6.7934 per unit.
All prospective investors in the Callable MITTS Securities should consult
their own tax advisors concerning the application of the Final Regulations to
their investment in the Callable MITTS Securities. Investors in the Callable
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
Callable MITTS Securities, by submitting a written request for such information
Merrill Lynch & Co., Inc., Corporate Secretary's Office, 222 Broadway, 17th
Floor, New York, New York 10038, (212) 670-0432,
[email protected].
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Internal Revenue Code (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 Callable 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 Callable
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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 Callable MITTS Securities and other securities. For further information on
ML&Co. and the Callable 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 registration statement is
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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to those
documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31, 2000,
June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3, 2000,
March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000, June 29,
2000, July 18, 2000, August 2, 2000, August 4, 2000, September 13,
2000, October 6, 2000, October 17, 2000, November 1, 2000, November
20, 2000 and December 6, 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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
28
<PAGE>
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of the
Callable MITTS Securities and is to be used by MLPF&S when making offers and
sales related to market-making transactions in the Callable MITTS Securities.
MLPF&S may act as principal or agent in these market-making transactions.
The Callable MITTS Securities may be offered on the AMEX or off the
exchange in negotiated transactions or otherwise.
The distribution of the Callable 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 for the year ended
December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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 report included in each of the 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 report 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 their reports on unaudited interim financial information
because
29
<PAGE>
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 of 1933, as amended.
30
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We +
+ may not sell these securities until the registration statement filed with +
+ the Securities and Exchange Commission is effective. This prospectus is not +
+ an offer to sell these securities and it is not soliciting an offer to buy +
+ these securities in any state where the offer and sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated December 27, 2000
<TABLE>
<S> <C>
PROSPECTUS
----------
[LOGO] Merrill Lynch
PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
</TABLE>
Merrill Lynch & Co., Inc.
S&P 500(R) Market Index Target-Term Securities(R)
due November 20, 2007
"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>
The MITTS Securities: Payment at maturity:
<S> <C>
. 100% principal protection at maturity. . On the maturity date, for each unit of the MITTS
. No payments before the maturity date. Securities you own, we will pay you an amount equal
. Senior unsecured debt securities of Merrill Lynch to the sum of the principal amount of each unit and
& Co., Inc. an additional amount based on the percentage
. Linked to the value of the S&P 500 Index. increase, if any, in the value of the S&P 500 Index
. The MITTS Securities are quoted on The Nasdaq reduced by an annual adjustment factor of 1.9%.
National Market under the symbol "MLMT". . At maturity, you will receive no less than the
. Closing date: November 20, 2000. 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 , .
"MITTS" and "Market Index Target-Term Securities" are registered service marks
and "Protected Growth" is a service mark of 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
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY INFORMATION-Q&A................................................ 3
RISK FACTORS........................................................... 6
MERRILL LYNCH & CO., INC............................................... 9
RATIO OF EARNINGS TO FIXED CHARGES..................................... 10
DESCRIPTION OF THE MITTS SECURITIES.................................... 11
THE S&P 500 INDEX...................................................... 19
OTHER TERMS............................................................ 22
PROJECTED PAYMENT SCHEDULE............................................. 26
ERISA CONSIDERATIONS................................................... 27
WHERE YOU CAN FIND MORE INFORMATION.................................... 27
INCORPORATION OF INFORMATION WE FILE WITH THE SEC...................... 27
PLAN OF DISTRIBUTION................................................... 28
EXPERTS................................................................ 28
</TABLE>
2
<PAGE>
SUMMARY INFORMATION-- Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the S&P 500(R) Market
Index Target-Term Securities(R) due November 20, 2007. You should carefully read
this prospectus 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 to "ML&Co.", "we", "us" and "our" are to
Merrill Lynch & Co., Inc. and references 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 November 20, 2007. We cannot redeem the MITTS Securities at an 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 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 value
of the S&P 500 Index as reduced by the Adjustment Factor. On the stated maturity
date, you will receive a cash payment on the MITTS Securities equal to the sum
of two amounts: the "principal amount" and the "Supplemental Redemption Amount",
if any.
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.
The "Starting Value" equals 1,382.95, the closing value of the S&P 500
Index on November 14, 2000, the date the MITTS Securities were priced for
initial sale to the public.
The "Adjusting Ending Value" means the average of arithmetic mean of
the values of the S&P 500 Index at the close of the market on five business days
before the maturity of the MITTS Securities as reduced on each day by the
application of the Adjustment Factor. 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 a sufficient number of stocks included
in the S&P 500 Index or certain futures or options contracts relating to the S&P
500 Index.
3
<PAGE>
The "Adjustment Factor" equals 1.9% per year and will be pro-rated
based on a 365-day year and applied over the entire term of the MITTS Securities
on each calendar day to reduce the closing values of the S&P 500 Index used to
calculate the Supplemental Redemption Amount during the Calculation Period. As a
result of the cumulative effect of this reduction, the values of the S&P 500
Index used to calculate the Supplemental Redemption Amount during the
Calculation Period will be approximately 12.46% less than the actual closing
value of the S&P 500 Index on each 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 the Supplemental Redemption Amount, see
"Description of the MITTS Securities-Payment at Maturity" in this prospectus.
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 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 investment term equal to that of the MITTS Securities and an
Adjustment Factor of 1.9% per year:
Example 1--a S&P 500 Index, as adjusted, is below the Starting Value at
maturity:
Starting Value: 1,382.95
Hypothetical average closing value of the S&P 500 Index for the
calculation period: 1,452.10
Hypothetical Adjusted Ending Value: 1,271.191
<TABLE>
<S> <C>
( 1,271.19 - 1,382.95) (Supplemental Redemption
Supplemental Redemption Amount (per unit) = $10 x ( -------------------) = $0 Amount cannot be less
( 1,382.95 ) than zero)
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: 1,382.95
Hypothetical average closing value of the S&P 500 Index for the
calculation period: 2,489.31
Hypothetical Adjusted Ending Value: 2,179.18
( 2,179.18 - 1,382.95)
Supplemental Redemption Amount (per unit) = $10 x ( -------------------) = $5.76
( 1,382.95 )
Total payment at maturity (per unit) = $10 + $5.76 = $15.76
</TABLE>
4
<PAGE>
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 in the United States. 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. 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.
Will I receive interest payments on the MITTS Securities?
You will not receive any interest payments on the MITTS Securities, but
will instead receive the principal amount plus the Supplemental Redemption
Amount, if any, at maturity. We have designed the MITTS Securities for investors
who are willing to forego market interest payments on the MITTS Securities, such
as floating interest rates paid on standard senior non-callable debt securities,
in exchange for the ability to participate in possible increases in the S&P 500
Index.
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are quoted on The Nasdaq National Market under the
symbol "MLMT". You should be aware that the listing of the MITTS Securities on
The Nasdaq National Market 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 the 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 or continue them once it has started.
MLPF&S is also 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 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
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 we have 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.
5
<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 of earn a return on your investment
You should be aware that if the Adjusted 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 S&P 500 Index, as
reduced by the Adjustment Factor over the term of the MITTS Securities, was
higher than the Starting Value at some time during the life of the MITTS
Securities but later falls below the Starting Value. If a 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 debt security of ML&Co. 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 S&P
500 Index
The return on your MITTS Securities 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 cumulative effect of
the reduction caused by the Adjustment Factor and because the value of the S&P
500 Index is calculated by reference to the prices of the 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
Although the MITTS Securities are quoted on The Nasdaq National Market
under the symbol "MLMT", 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 S&P 500 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 S&P 500 Index. The
following paragraphs describe the expected
6
<PAGE>
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 S&P 500 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 by which the S&P 500 Index, a reduced by
the Adjustment Factor over the term of the MITTS Securities, exceeds 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 over the term of the
MITTS Securities, 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 or 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.
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 U.S.
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.
Rising U.S. interest rates may lower the value of the S&P 500 Index and, thus,
the MITTS Securities. Falling U.S. interest rates may increase the value of the
S&P 500 Index and, thus, may increase the value of the MITTS Securities.
Changes in the volatility of the S&P 500 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 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.
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 U.S. interest rates and the S&P
500 Index. This difference will 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.
Changes in dividend yields of the stocks included in the S&P 500 Index are
expected to affect the trading value of the MITTS Securities. In general, 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 stocks included in the S&P 500 Index 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 S&P 500 Index at maturity, an improvement in our credit
ratings will not reduce the other investment risks related to the MITTS
Securities.
7
<PAGE>
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of he 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 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 1983 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 affiliates may from time to time buy or sell the stocks included
in the S&P 500 Index or futures or options contracts on 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, in turn, the value of the S&P 500 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
Adjusted 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 a value of the S&P 500 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 or unavailability
of the S&P 500 Index. See the sections entitled "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. 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 the 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.
8
<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 LP and Mercury Asset Management Ltd, provides investment,
financing, advisory, insurance, and related products on a global basis,
including:
. securities brokerage, trading and underwriting;
. investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
. asset management;
. brokerage and related activities in swaps, options, forwards, futures
and other derivatives;
. securities clearance services;
. equity, debt and economic research;
. banking, trust and lending services, including mortgage lending and
related services;
. insurance sales and underwriting services; and
. investment advisory and related recordkeeping 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 4 World Financial Center, New
York, New York 10080; 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 Callable MITTS Securities described in this
prospectus.
9
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In July 2000, ML&Co. acquired Herzog, Heine, Geduld, Inc. ("Herzog")
through an exchange offer followed by a merger of a wholly-owned subsidiary of
ML&Co. with and into Herzog. The merger was accounted for as a pooling-of-
interests under generally accepted accounting principles in the United States of
America and is not expected to have a significant impact on the results of
operations, financial position and cash flows of ML&Co. The following
information for the fiscal years 1996 through 1999 has been restated by the
management of ML&Co. to give effect to the merger.
The following table sets forth our ratios of earnings to fixed charges for
the periods indicated:
<TABLE>
<CAPTION>
Year Ended Last Friday in December For the Nine
---------------------------------------- Months Ended
1995 1996 1997 1998 1999 September 29, 2000
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges....... 1.2 1.2 1.2 1.1 1.3 1.3
</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 amortization of 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 amortization of capitalized
interest.
10
<PAGE>
DESCRIPTION OF THE MITTS SECURITIES
On November 20, 2000, ML&Co. issued an aggregate principal amount of
$25,000,000 or 2,500,000 units of 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
November 20, 2007.
While at maturity a beneficial owner of a MITTS Security will receive the
sum of 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".
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, holders 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 each
with a principal amount of $10.0 per unit.
The MITTS Securities do not have the benefit of any sinking fund.
Payment at maturity
At maturity a holder 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 described below. If the Adjusted Ending Value does not exceed the
Starting Value, you will be entitled to receive only the principal amount of
your MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent d will equal:
<TABLE>
<S> <C>
principal amount of each MITTS Security ($10 per unit) x (Adjusted Ending Value - Starting Value)
(--------------------------------------)
( Starting Value )
</TABLE>
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" equals 1,382.95, the closing value of the S&P 500
Index on November 14, 2000, the date the MITTS Securities were priced for
initial sale to the public.
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 during the
Calculation Period, 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 during the Calculation Period, then
the Adjusted Ending Value will equal the closing value of a 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 day,
regardless of the occurrence of a Market Disruption Event on that Index Business
Day.
11
<PAGE>
The "Adjustment Factor" equals 1.9% and will be applied over the entire
term of the MITTS Securities. For each calendar day during the term of the MITTS
Securities, we will apply this percentage on a pro-rated basis based on a 365-
day year to reduce the values of the S&P 500 Index used to calculate the
Supplemental Redemption Amount during the Calculation Period. As a result of the
cumulative effect of this reduction, the values of the S&P 500 Index used to
calculate your Supplemental Redemption Amount during the Calculation Period will
be approximately 12.46% less than the actual value of the S&P 500 Index on each
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.
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" is any day on which the NYSE and the Nasdaq Stock
Market are open for trading arid the S&P 500 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 average
closing values of the S&P 500 Index during the Calculation Period, assuming an
initial investment of $10 per unit and an investment term from November 20, 2000
to November 20, 2007:
. percentage change from the Starting Value to the hypothetical average
closing value,
. the Adjusted Ending Value used to calculate the Supplemental Redemption
Amount,
. the total amount payable at maturity for each unit of MITTS Securities,
. the total rate of return to beneficial owners of the MITTS Securities,
. the pretax annualized rate of return to beneficial owners of MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
included in the S&P 500 Index, which includes an assumed aggregate
dividend yield of 1.15% per annum, as more fully described below.
12
<PAGE>
For the purposes of calculating this table, we have applied the Adjustment
Factor of 1.9% per annum.
<TABLE>
<CAPTION>
Pretax
Pretax annualized
Hypothetical Percentage Total amount annualized rate of
average change from the payable Total rate rate of return of
closing value Starting Value at maturity of return return on stocks
during the to hypothetical Adjusted per unit of on the the MITTS included in
calculation average closing Ending the MITTS MITTS Securities the S&P 500
period value Value (1) Securities Securities (2) Index (2)(3)
-------------- --------------- ----------- ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
276.59 -80.00% 242.13 $10.00 0.00% 0.00% -20.45%
553.18 -60.00% 484.26 $10.00 0.00% 0.00% -11.51%
829.77 -40.00% 726.39 $10.00 0.00% 0.00% -6.03%
1,106.36 -20.00% 968.53 $10.00 0.00% 0.00% -2.02%
1,382.95(4) 0.00% 1,210.66 $10.00 0.00% 0.00% 1.15%
1,659.54 20.00% 1,452.79 $10.50 5.05% 0.70% 3.79%
1,936.13 40.00% 1,694.92 $12.26 22.56% 2.93% 6.06%
2,212.72 60.00% 1,937.05 $14.01 40.07% 4.87% 8.04%
2,489.31 80.00% 2,179.18 $15.76 57.57% 6.60% 9.81%
2,765.90 100.00% 2,421.31 $17.51 75.08% 8.16% 11.41%
3,042.49 120.00% 2,663.45 $19.26 92.59% 9.58% 12.87%
3,319.08 140.00% 2,905.58 $21.01 110.10% 10.89% 14.21%
3,595.67 160.00% 3,147.71 $22.76 127.61% 12.10% 15.46%
3,872.26 180.00% 3,389.64 $24.51 145.12% 13.22% 16.62%
4,148.85 200.00% 3,631.97 $26.26 162.62% 14.27% 17.70%
</TABLE>
____________
(1) The Adjusted Ending Values specified in this column are approximately
12.46% less than the hypothetical average closing values of the S&P 500
Index as a result of the application of the Adjustment Factor of 1.9% per
annum 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 percentage change in the aggregate price of the stocks that
equals the percentage change in the S&P 500 Index from the
Starting Value to the relevant hypothetical average closing value;
(b) a constant dividend yield of 1.15% per annum, paid quarterly from
the date of initial delivery of the 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 applicable hypothetical average closing value;
(c) no transaction fees or expenses; and
(d) an investment term equal to the term of the MITTS Securities.
(4) This is 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 you and the resulting total and
pretax annualized rates of return will depend on the actual Adjusted Ending
Value determined by the calculation agent as described in this prospectus.
Adjustments to the S&P 500 Index; Market Disruption Events
If at any time Standard & Poor's changes its method of calculating the S&P
500 Index, or the value of the S&P 500 Index changes, 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 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 S&P 500 Index is
to be calculated, make those 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
13
<PAGE>
Index as if those changes or modifications had not been made, and calculate the
closing value with reference to the S&P 500 Index, as so 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, e.g., due to a split, 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, 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) 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, or during the one-half hour period preceding the
close of trading, on the applicable exchange, whether by reason of
movements in price otherwise exceeding levels permitted by the
relevant exchange or otherwise, in option contracts or futures
contracts related to the S&P 500 Index, or any successor index, which
are traded on any major U.S. exchange.
For the purpose of the above definition:
(1) 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 and
(2) 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
Standard & Poor's 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 its 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 and calculate the Adjusted Ending Value
as described above under "Payment at maturity". Upon any selection by the
calculation agent of a successor index, ML&Co. shall promptly give notice to the
beneficial owners of the MITTS Securities by publication in a United States
newspaper with a national circulation.
In the event that Standard & Poor's discontinues publication of the S&P 500
Index and:
. the calculation agent does not select a successor index, or
. the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the S&P 500 Index in
accordance with the procedures last used to calculate the S&P 500 Index before
any 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, the
successor index or value will be used as a substitute for the S&P 500 Index for
all purposes, including for purposes of determining whether a Market Disruption
Event exists.
14
<PAGE>
If Standard & Poor's discontinues publication of the S&P 500 Index before
the Calculation Period 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 Ending Value, and
. 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 Nasdaq Stock Market
are open for trading.
Notwithstanding 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 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 of 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,
provided, however, the Adjustment Factor will be applied to the values used to
calculate the Supplemental Redemption Amount as if the MITTS Securities had not
been accelerated and had remained outstanding to the stated maturity date. 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 holder 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 date or upon acceleration, from and after the maturity date the
MITTS Securities will bear interest, payable upon demand of their holders, at
the rate of 7.16% 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.
15
<PAGE>
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.
16
<PAGE>
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 the 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 payment will be the responsibility of direct
participants and indirect participants.
Exchange for Certificated Securities
If
. the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to 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
17
<PAGE>
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.
18
<PAGE>
THE S&P 500 INDEX
Standard & Poor's publishes the S&P 500 Index. The S&P 500 Index 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. 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. The
Index is comprised of four main groups of companies: Industrials, Utilities,
Transportation and Financial. 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 value of the S&P 500 Index is reported on the AMEX and on Bloomberg
under the symbol "SPX".
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 as the return 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.
19
<PAGE>
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. These
changes may result from causes such as:
. 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,
. consolidations and acquisitions,
. the granting to shareholders of rights to purchase other securities
of the issuer,
. 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 of that stock or both, as the case may be, and then
determines the new base value in accordance with the following formula:
New Market Value
Old Base Value x ---------------- = New Base 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.
License Agreement
Standard &. Poor's ("S&P") does, not guarantee the accuracy and/or the
completeness of the S&P 500 Index or any data included in the-S&P 500 Index. S&P
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 of the S&P 500 Index or any data included in the S&P 500 Index in connection
with the rights licensed under the license agreement described in this
prospectus or for any other use. S&P 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 in the
S&P 500 Index. Without limiting any of the above information, in no event shall
S&P have any liability for any special, punitive, indirect or consequential
damage; including lost profits, even if notified of the possibility of these
damages.
S&P 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 S&P in connection with some securities, including the MITTS
Securities, and ML&Co. is an authorized sublicensee of Merrill Lynch Capital
Services, Inc.
The license agreement between S&P and Merrill Lynch Capital Services,
Inc. provides that the following language must be stated in this prospectus:
"The MITTS Securities are not sponsored, endorsed, sold or promoted by
S&P. S&P makes no representation or warranty, express or implied, to the holders
of the MITTS Securities or any member of the
20
<PAGE>
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. S&P'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 S&P and of the S&P 500 Index which is determined, composed and
calculated by S&P without regard to ML&Co. or the MITTS Securities. S&P 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.
S&P 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. S&P has no obligation or liability in
connection with the administration, marketing or trading of the MITTS
Securities."
All disclosures contained in this prospectus 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.
21
<PAGE>
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.
22
<PAGE>
In addition, ML&Co. may not permit MLPF&S to:
. merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
. 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:
. 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:
. pay any amounts due and payable or deliverable with respect to
all the Senior Debt Securities; and
. perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
. 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:
. 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;
. 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;
. change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
. impair the right to institute suit for the enforcement of any
payment on or with respect to any senior debt security;
. 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
. modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any past
default to less than a majority.
23
<PAGE>
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:
. default in the payment of any interest or Additional Amounts
payable when due and continuing for 30 days;
. default in the payment of any principal or premium, when due;
. default in the deposit of any sinking fund payment, when due;
. 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;
. specified events in bankruptcy, insolvency or reorganization of
ML&Co.; and
. 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:
. in the payment of any amounts due and payable or deliverable under
the debt securities of that series; or
. 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
24
<PAGE>
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.
25
<PAGE>
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 $6.3583 per unit This represents an estimated yield
on the MITTS Securities equal to 7.16% 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 7.16% per annum,
compounded semiannually, as determined by ML&Co. for purposes of applying the
Final Regulations to the MITTS Securities:
<TABLE>
<CAPTION>
Total interest
deemedto have
accrued on
Interest deemed MITTS Securities
to accrue during as of the end of
Accrual accrual period the accrual period
Period (per unit) (per unit)
----------- ---------------- ------------------
<S> <C> <C>
November 20, 2000 through May 20, 2001................................... $0.3550 $0.3550
May 21, 2001 through November 20, 2001................................... $0.3707 $0.7257
November 21, 2001 through May 20, 2002................................... $0.3840 $1.1097
May 21, 2002 through November 20, 2002................................... $0.3977 $1.5074
November 21, 2002 through May 20, 2003................................... $0.4120 $1.9194
May 21, 2003 through November 20, 2003................................... $0.4267 $2.3461
November 21, 2003 through May 20, 2004................................... $0.4420 $2.7881
May 21, 2004 through November 20, 2004................................... $0.4578 $3.2459
November 21, 2004 through May 20, 2005................................... $0.4742 $3.7201
May 21, 2005 through November 20, 2005................................... $0.4912 $4.2113
November 21, 2005 through May 20, 2006................................... $0.5088 $4.7201
May 21, 2006 through November 20, 2006................................... $0.5269 $5.2470
November 21, 2006 through May 20, 2007................................... $0.5459 $5.7929
May 21, 2007 through November 20, 2007................................... $0.5654 $6.3583
</TABLE>
____________
Projected Supplemental Redemption Amount = $6.3583 per unit.
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 Merrill Lynch & Co., Inc., Corporate
Secretary's Office, 222 Broadway, 17th Floor, New York, New York 10038, (212)
670-0432, [email protected].
26
<PAGE>
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. The address of the SEC's Internet site is provided solely
for the information of prospective investors and is not intended to be an active
link. 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:
. incorporated documents are considered part of the prospectus;
. we can disclose important information to you by referring you to
those documents; and
. 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:
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the periods ended March 31,
2000, June 30, 2000 and September 29, 2000; and
. current reports on Form 8-K dated January 25, 2000, March 3,
2000, March 31, 2000, April 17, 2000, May 3, 2000, May 24, 2000,
June 29, 2000, July 18, 2000, August 2, 2000, August 4, 2000,
September 13, 2000, October 6, 2000, October 17, 2000, November
1, 2000, November 20, 2000 and December 6, 2000.
27
<PAGE>
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 or after the date of this initial registration statement and before
the effectiveness of the registration statement:
. reports filed under Sections 13(a) and (c) of the Exchange Act;
. definitive proxy or information statements filed under Section 14
of the Exchange Act in connection with any subsequent
stockholders' meeting; and
. 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, 17/th/ Floor, New York, New York 10038, Telephone: (212) 670-0432.
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 Nasdaq National Market 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 for the year
ended December 31, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports (each of which expressed an unqualified
opinion and which report on the consolidated financial statements included an
explanatory paragraph for the change in accounting method in 1998 for certain
internal-use software development costs to conform with Statement of Position
98-1), 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
28
<PAGE>
stated in their report included in each of the 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 report 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 their reports on unaudited interim financial information
because 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 of 1933, as amended.
29
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses in connection with the issuance
and distribution of the securities being registered. All the amounts shown are
estimates, except the registration fee and the NASD fee.
<TABLE>
<S> <C>
Registration fee................................................. $5,000,000
Fees and expenses of accountants................................. 400,000
Fees and expenses of counsel..................................... 1,500,000
NASD fee......................................................... 30,500
Fees and expenses of Trustees and Warrant Agents................. 800,000
Printing expenses................................................ 800,000
Printing and engraving of securities............................. 100,000
Rating agency fees............................................... 500,000
Stock exchange listing fees...................................... 300,000
Miscellaneous.................................................... 4,500
----------
Total.......................................................... $9,435,000
==========
</TABLE>
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware, as
amended, provides that under certain circumstances a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation or
is or was serving at its request in such capacity in another corporation or
business association, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, has no reasonable cause to believe such
person's conduct was unlawful.
Article XIII, Section 2 of the Restated Certificate of Incorporation of the
Company provides in effect that, subject to certain limited exceptions, the
Company shall indemnify its directors and officers to the extent authorized or
permitted by the General Corporation Law of the State of Delaware.
Each of the underwriting and distribution agreements and forms thereof filed
as Exhibit 1 provides for the indemnification of the Company, its controlling
persons, its directors and certain of its officers by the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Act").
The directors and officers of the Company are insured under policies of
insurance maintained by the Company, subject to the limits of the policies,
against certain losses arising from any claim made against them by reason of
being or having been such directors or officers. In addition, the Company has
entered into contracts with all of its directors providing for indemnification
of such persons by the Company to the full extent authorized or permitted by
law, subject to certain limited exceptions.
The Declaration of Trust of the Trust provides, to the fullest extent
permitted by applicable law, for indemnification of the Regular Trustees, any
Affiliate of any Regular Trustee, any officer, director, shareholder, member,
partner, employees, representative or agent of any Regular Trustee, or any
officer, director, shareholder member, partner, employee representative or
agent of the Trust or its Affiliates (each a "Company Indemnified
II-1
<PAGE>
Person"), from and against losses and expenses incurred by such Company
Indemnified Person in connection with any action, suit or proceeding, except
that if such action, suit or proceedings is by or in the right of the Trust,
the indemnity shall be limited to expenses of such Company Indemnified Person.
The Limited Partnership Agreement of the Partnership provides that to the
fullest extent permitted by applicable law, the Partnership shall indemnify
and hold harmless each of the General Partner, and any Special Representative,
any Affiliate of the General Partner or any Special Representative, any
officer, director, shareholder, member, partner, employee representative or
agent of the General Partner or any Special Representative, or any of their
respective Affiliates, or any employee of agent of the Partnership or its
Affiliates (each, a "Partnership Indemnified Person"), from and against any
loss, damage or claim incurred by such Partnership Indemnified Person by
reason of any act or omission performed or omitted by such Partnership
Indemnified Person in good faith on behalf of the Partnership and in a manner
such Partnership Indemnified Person reasonably believed to be within the scope
of authority conferred on such Partnership Indemnified Person by the Limited
Partnership Agreement, except that no Partnership Indemnified Person shall be
entitled to be indemnified in respect of any loss, damage or claim incurred by
such Partnership Indemnified Person by reason of gross negligence or willful
misconduct with respect to such acts or omissions. The Limited Partnership
Agreement also provides that, to the fullest extent permitted by applicable
law, expenses (including legal fees) incurred by a Partnership Indemnified
Person in defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by the Partnership prior to the final disposition of
such claim, demand, action, suit or proceeding upon receipt by the Partnership
of any undertaking by or on behalf of the Partnership Indemnified Person to
repay such amount if it shall be determined that the Partnership Indemnified
Person is not entitled to be indemnified as authorized in the Limited
Partnership Agreement.
The Regular Trustees of the Trust are covered by insurance policies
indemnifying them against certain liabilities, including certain liabilities
arising under the Act, which might be incurred by them in such capacity and
against which they cannot be indemnified by the Company or the Trust. Any
agents, dealers or underwriters who execute the agreements filed as Exhibit 1
of this Registration Statement with respect to Trust Originated Preferred
Securities SM will agree to indemnify the Company's directors and their
officers and the Trustees who signed the Registration Statement with respect
to such securities against certain liabilities that may arise under the Act
with respect to information furnished to the Company or the Trust by or on
behalf of any such indemnifying party.
II-2
<PAGE>
Item 16. List of Exhibits.
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
1(a) --Form of Underwriting Exhibit 1(a) to Company's Registration
Agreement for Debt Statement on Form S-3 (No. 333-59997).
Securities and Debt,
Currency and Index
Warrants, including forms
of Terms Agreement.
1(b) --Form of Distribution Exhibit 1(b) to Company's Registration
Agreement, including form Statement on Form S-3 (No. 33-51489).
of Terms Agreement,
relating to Medium-Term
Notes, Series B (a series
of Senior Debt
Securities).
1(c) --Form of Underwriting Exhibit 1(c) to Company's Registration
Agreement for Preferred Statement on Form S-3 (No. 333-59997).
Stock and Common Stock
Warrants, Preferred Stock,
Depositary Shares and
Common Stock.
1(d) --Form of Purchase Exhibit 1(d) to Company's Registration
Agreement relating to the Statement on Form S-3 (No. 333-38792)
Trust Preferred
Securities.
4(a)(i) --Senior Indenture, dated Exhibit 99(c) to Company's
as of April 1, 1983, as Registration Statement on Form 8-A
amended and restated (the dated July 20, 1992.
"1983 Senior Indenture"),
between the Company and
The Chase Manhattan Bank,
formerly known as Chemical
Bank (successor by merger
to Manufacturers Hanover
Trust Company).
4(a)(ii) --Senior Indenture, dated Exhibit 4(iv) to Company's Annual
as of October 1, 1993 (the Report on Form 10-K for the year ended
"1993 Senior Indenture"), December 25, 1998.
between the Company and
The Chase Manhattan Bank
(successor by merger to
The Chase Manhattan Bank,
N.A.).
4(a)(iii) --Form of initial Exhibit 4(a)(iii) to Company's
Subsequent Indenture with Registration Statement on Form S-3
respect to Senior Debt (No. 333-38792)
Securities.
4(a)(iv) --Form of Subsequent Exhibit 4(a)(iv) to Company's
Indenture with respect to Registration Statement on Form S-3
Senior Debt Securities. (No. 333-38792)
4(b)(i) --Supplemental Indenture to Exhibit 99(c) to Company's
the 1983 Senior Indenture, Registration Statement on Form 8-A
dated March 15, 1990, dated July 20, 1992.
between the Company and
The Chase Manhattan Bank,
formerly known as Chemical
Bank (successor by merger
to Manufacturers Hanover
Trust Company).
4(b)(ii) --Eighth Supplemental Exhibit 4(b) to Post-Effective
Indenture to the 1983 Amendment No. 1 to Company's
Senior Indenture, dated Registration Statement on Form S-3
March 1, 1996, between the (No. 33-65135).
Company and The Chase
Manhattan Bank, formerly
known as Chemical Bank
(successor by merger to
Manufacturers Hanover
Trust Company).
</TABLE>
--------
* Filed herewith
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(b)(iii) --Ninth Supplemental Exhibit 4(b) to Post-Effective
Indenture to the 1983 Amendment No. 4 to Company's
Senior Indenture, dated Registration Statement on Form S-3
June 1, 1996, between the (No. 33-65135).
Company and The Chase
Manhattan Bank, formerly
known as Chemical Bank
(successor by merger to
Manufacturers Hanover
Trust Company).
4(b)(iv) --Tenth Supplemental Exhibit 4(b) to Post-Effective
Indenture to the 1983 Amendment No. 5 to Company's
Senior Indenture, dated Registration Statement on Form S-3
July 1, 1996, between the (No. 33-65135).
Company and The Chase
Manhattan Bank, formerly
known as Chemical Bank
(successor by merger to
Manufacturers Hanover
Trust Company).
4(b)(v) --Supplemental Indenture Exhibit 4(b)(ii) to Company's
to the 1983 Senior Registration Statement on Form S-3
Indenture, dated October (No. 33-61559).
25, 1993, between the
Company and The Chase
Manhattan Bank (successor
by merger to The Chase
Manhattan Bank, N.A.).
4(b)(vi) --Twelfth Supplemental Exhibit 4(a) to Company's Current
Indenture to the 1983 report on Form 8-K dated October 21,
Senior Indenture dated as 1998.
of September 1, 1998
between the Company and
The Chase Manhattan Bank,
formerly known as
Chemical Bank (successor
by merger to
Manufacturers Hanover
Trust Company).
4(b)(vii) --First Supplemental Exhibit 4(a) to Company's Current
Indenture to the 1993 Report on Form 8-K dated July 2, 1998.
Senior Indenture, dated
as of June 1, 1998,
between the Company and
The Chase Manhattan Bank
(successor by merger to
The Chase Manhattan Bank,
N.A.).
4(c)(i) --Form of Subordinated Exhibit 4.7 to Company's Registration
Indenture between the Statement on Form S-3 (No. 333-16603).
Company and The Chase
Manhattan Bank.
4(c)(ii) --Form of Subsequent Exhibit 4(c)(ii) to Company's
Indentures with respect Registration Statement on Form S-3
to Subordinated Debt (No. 333-38792)
Securities.
4(d) --Form of 6% Note due Exhibit 4 to Company's Current Report
February 17, 2009. on Form 8-K dated February 17, 1999.
4(e) --Form of AMEX Oil Index Exhibit 4(f) to Company's Registration
Stock Market Annual Reset Statement on Form S-3 (No. 333-38792)
Term Note due December
29, 2000.
4(f) --Form of 8% Note due Exhibit 4(g) to Company's Registration
February 1, 2002. Statement on Form S-3 (No. 333-38792)
4(g) --Form of Step-Up Note due Exhibit 4(h) to Company's Registration
April 30, 2002. Statement on Form S-3 (No. 333-38792)
4(h) --Form of Step-Up Note due Exhibit 4(i) to Company's Registration
May 6, 2002. Statement on Form S-3 (No. 333-38792)
4(i) --Form of 7 3/8% Note due Exhibit 4(j) to Company's Registration
August 17, 2002. Statement on Form S-3 (No. 333-38792)
</TABLE>
--------
* Filed herewith
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(j) --Form of Major 8 European Exhibit 4 to Company's Current Report
Index Market Index Target- on Form 8-K dated August 1, 1997.
Term Security due August
30, 2002.
4(k) --Form of 6.64% Note due
September 19, 2002.*
4(l) --Form of Major 11 European Exhibit 4 to Company's Current Report
Market Index Target-Term on Form 8-K dated November 26, 1997.
Security due December 6,
2002.
4(m) --Form of 6 7/8% Note due Exhibit 4(o) to Company's Registration
March 1, 2003. Statement on Form S-3 (No. 333-38792)
4(n) --Form of 7.05% Note due Exhibit 4(p) to Company's Registration
April 15, 2003. Statement on Form S-3 (No. 333-38792)
4(o) --Form of 6.55% Note due Exhibit 4 to Company's Current Report
August 1, 2004. on Form 8-K dated August 1, 1997.
4(p) --Form of Russell 2000 Index Exhibit 4 to Company's Current Report
Market Index Target-Term on Form 8-K dated September 29, 1997.
Security due September 30,
2004.
4(q) --Form of 6 1/4% Note due Exhibit 4(s) to Company's Registration
January 15, 2006. Statement on Form S-3 (No. 333-38792)
4(r) --Form of 6 3/8% Note due Exhibit 4(t) to Company's Registration
September 8, 2006. Statement on Form S-3 (No. 333-38792)
4(s) --Form of 8% Note due June Exhibit 4(u) to Company's Registration
1, 2007. Statement on Form S-3 (No. 333-38792)
4(t) --Form of S&P 500 Inflation Exhibit 4 to Company's Current Report
Adjusted Market Index on Form 8-K dated September 24, 1997.
Target-Term Security due
September 24, 2007.
4(u) --Form of 7% Note due April Exhibit 4(w) to Company's Registration
27, 2008. Statement on Form S-3 (No. 333-38792)
4(v) --Form of 6 1/4% Note due Exhibit 4(x) to Company's Registration
October 15, 2008. Statement on Form S-3 (No. 333-38792)
4(w) --Form of 8.40% Note due Exhibit 4(z) to Company's Registration
November 1, 2019. Statement on Form S-3 (No. 33-35456).
4(x) --Form of Medium-Term Note, Exhibit 99(B) to the Company's
Series B, Stock-Linked Note Registration Statement on Form 8-A
due November 28, 2003 dated May 28, 1998.
(Linked to the performance
of the Telebras Receipt).
4(y) --Form of Medium-Term Note, Exhibit 99(B) to the Company's
Series B, 3.125% Callable Registration Statement on Form 8-A
Stock-Linked Note due dated September 28, 1998.
January 22, 2005 (Linked to
the performance of the
Common Stock of Chubb
Inc.).
4(z) --Form of Medium-Term Note, Exhibit 99(C) to the company's
Series B, 1% Callable and Registration Statement on Form 8-A
Exchangeable Stock-Linked dated February 5, 1999.
Note due February 8, 2006
(Linked to the performance
of the Common Stock of The
Kroger Co.).
</TABLE>
--------
* Filed herewith
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(aa) --Form of Medium-Term Note, Exhibit 99(B) to the company's
Series B, 0.25% Callable Registration Statement on Form 8-A
Exchangeable Stock dated April 29, 1999.
Portfolio-Linked Note due
April 27, 2006 (Linked to
the Common Stock of Pfizer,
Inc., Sepracor Inc. and
Warner-Lambert Co.).
4(bb) --Form of Fixed Rate Medium- Exhibit 4(dd) to Company's
Term Note, Series B. Registration Statement on Form S-3
(No. 333-38792)
4(cc) --Form of Federal Funds Rate Exhibit 4(oo) to Company's
Medium-Term Note. Registration Statement on Form S-3
(No. 33-54218).
4(dd) --Form of Floating Rate Exhibit 4(ff) to Company's
Medium-Term Note, Series B. Registration Statement on Form S-3
(No. 333-38792)
4(ee) --Form of Commercial Paper Exhibit 4(qq) to Company's
Rate Medium-Term Note. Registration Statement on Form S-3
(No. 33-54218).
4(ff) --Form of Commercial Paper Exhibit 4(i) to Company's Registration
Index Rate Medium-Term Statement on Form S-3 (File No. 33-
Note. 38879).
4(gg) --Form of Constant Maturity Exhibit 4(ccc) to Company's
Treasury Rate Indexed Registration Statement on Form S-3
Medium-Term Note, Series B. (No. 33-52647).
4(hh) --Form of Constant Maturity Exhibit 4(jj) to Company's
Treasury Rate Indexed Registration Statement on Form S-3
Medium-Term Note II, Series (No. 333-38792)
B.
4(ii) --Form of JPY Yield Curve Exhibit 4(ddd) to Company's
Flattening Medium-Term Registration Statement on Form S-3
Note, Series B. (No. 33-52647).
4(jj) --Form of LIBOR Medium-Term Exhibit 4(pp) to Company's
Note. Registration Statement on Form S-3
(No. 33-54218).
4(kk) --Form of Multi-Currency Exhibit 4(fff) to Company's
Medium-Term Note, Series B. Registration Statement on Form S-3
(No. 33-52647).
4(ll) --Form of Nine Month Exhibit 4(nn) to Company's
Renewable Floating Rate Registration Statement on Form S-3
Medium-Term Note, Series B. (No. 333-38792)
4(mm) --Form of Treasury Rate Exhibit 4(aaa) to Company's
Medium-Term Note. Registration Statement on Form S-3
(No. 33-54218).
4(nn) --Form of Japanese Yen Swap Exhibit 4(mmm) to Company's
Rate Linked Medium-Term Registration Statement on Form S-3
Note, Series B. (No. 33-52647).
4(oo) --Form of Step-Up Medium- Exhibit 4(ggg) to Amendment No. 1 to
Term Note due May 20, 2008. Company's Registration Statement on
Form S-3 (No. 33-54218).
4(pp) --Form of Warrant Agreement, Exhibit 4(aa) to Company's
including form of Warrant Registration Statement on Form S-3
Certificate. (No. 33-35456).
4(qq) --Form of Currency Exhibit 4 to Company's Registration
[Put/Call] Warrant Statement on Form S-3 (No. 33-17965).
Agreement, including form
of Global Currency Warrant
Certificate.
4(rr) --Form of Index Warrant Exhibit 4(kkk) to Amendment No. 1 to
Agreement, including form Company's Registration Statement on
of Global Index Warrant Form S-3 (No. 33-54218).
Certificate.
</TABLE>
--------
* Filed herewith
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(ss) --Form of Index Warrant Exhibit 4(lll) to Amendment No. 1 to
Trust Indenture, including Company's Registration Statement on
form of Global Index Form S-3 (No. 33-54218).
Warrant Certificate.
4(tt) --Form of 6 1/2% Note due Exhibit 4 to Company's Current Report
April 1, 2001. on Form 8-K dated April 1, 1996.
4(uu) --Form of 6% Note due Exhibit 4 to Company's Current Report
January 15, 2001. on Form 8-K dated January 17, 1996.
4(vv) --Form of 6% Note due March Exhibit 4 to Company's Current Report
1, 2001. on Form 8-K dated February 29, 1996.
4(ww) --Form of 7% Note due March Exhibit 4 to Company's Current Report
15, 2006. on Form 8-K dated March 18, 1996.
4(xx) --Form of 7 3/8% Note due Exhibit 4 to the Company's Current
May 15, 2006. Report on Form 8-K dated May 15, 1996.
4(yy) --Form of 6 1/4% STRYPES due Exhibit 4(c) to Company's Current
July 1, 2001. Report on Form 8-K dated July 9, 1996.
4(zz) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated May 13, 1996.
due May 10, 2001.
4(aaa) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated March 26, 1999.
due March 27, 2006.
4(bbb) --Form of Technology Market Exhibit 4(a) to Company's Current
Index Target-Term Security Report on Form 8-K dated August 12,
due August 15, 2001. 1996.
4(ccc) --Form of Top Ten Yield Exhibit 4(b) to Company's Current
Market Index Target-Term Report on Form 8-K dated August 12,
Security due August 15, 1996.
2006.
4(ddd) --Form of Exhibit 4 to Company's Current Report
Healthcare/Biotechnology on Form 8-K dated October 30, 1996.
Portfolio Market Index
Target-Term Security due
October 31, 2001.
4(eee) --Form of 7% Note due Exhibit 4 to Company's Current Report
January 15, 2007. on Form 8-K dated January 13, 1997.
4(fff) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated March 14, 1997.
due September 16, 2002.
4(ggg) --Form of Nikkei 225 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated June 3, 1997.
due June 14, 2002.
4(hhh) --Form of 6.56% Note due Exhibit 4 to Company's Current Report
December 16, 2007. on Form 8-K dated December 16, 1997.
4(iii) --Form of 7 7/8% STRYPES due Exhibit 4(c) to Company's Current
February 1, 2001 (Payable Report on Form 8-K dated January 30,
with Shares of Common Stock 1998.
of CIBER, Inc.)
4(jjj) --Form of Floating Rate Note Exhibit 4 to Company's Current Report
due February 4, 2003. on Form 8-K dated February 4, 1998.
4(kkk) --Form of 6% Note due Exhibit 4 to Company's Current Report
February 12, 2003. on Form 8-K dated February 12, 1998.
</TABLE>
--------
* Filed herewith
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(lll) --Form of Oracle Corporation Exhibit 4 to Company's Current Report
Indexed Callable Protected on Form 8-K dated March 19, 1998.
Growth Security due March
31, 2003.
4(mmm) --Form of Telebras Indexed Exhibit 4 to Company's Current Report
Callable Protected Growth on Form 8-K dated May 19, 1998.
Security due May 19, 2005.
4(nnn) --Form of 6 3/4% Note due Exhibit 4 to Company's Current Report
June 1, 2028. on Form 8-K dated June 3, 1998.
4(ooo) --Form of Floating Rate Note Exhibit 4 to Company's Current Report
due June 24, 2003. on Form 8-K dated June 24, 1998.
4(ppp) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated June 26, 1998.
due July 1, 2005.
4(qqq) --Form of 6% Note due July Exhibit (4)(a) to Company's Current
15, 2003. Report on Form 8-K dated July 15,
1998.
4(rrr) --Form of 6 1/2% Note due Exhibit (4)(b) to Company's Current
July 15, 2018. Report on Form 8-K dated July 15,
1998.
4(sss) --Form of EuroFund Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated September 3, 1998.
due February 28, 2006.
4(ttt) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated September 29, 1998.
due September 28, 2005.
4(uuu) --Form of 6 3/8% Note due Exhibit 4 to Company's Current Report
October 15, 2008. on Form 8-K dated October 28, 1998.
4(vvv) --Form of 6% Note due Exhibit (4)(b) to Company's Current
November 15, 2004. Report on Form 8-K dated November 24,
1998.
4(www) --Form of 6 7/8% Note due Exhibit (4)(c) to Company's Current
November 15, 2018. Report on Form 8-K dated November 24,
1998.
4(xxx) --Form of Medium-Term Notes, Exhibit 99(b) to Company's
Series B, 1.5% Principal Registration Statement on Form 8-A
Protected Note due December dated December 3, 1998.
15, 2005 (Linked to the
performance of the Dow Jones
Euro STOXX 50 Index).
4(yyy) --Form of Nikkei 225 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated December 28, 1998.
due September 21, 2005.
4(zzz) --Form of Energy Select Exhibit 4 to Company's Current Report
Sector SPDR(R) Fund Market on Form 8-K dated February 18, 1999.
Index Target-Term Security
due February 21, 2006.
4(aaaa) --Form of Medium-Term Note, Exhibit 99(b) to Company's
Series B, 0.25% Callable and Registration Statement on Form 8-A
Exchangeable Stock-Linked dated May 6, 1999.
Note due May 10, 2006
(Linked to the performance
of the Common Stock of Time
Warner Inc.).
4(bbbb) --Form of Major 11 Exhibit 4 to Company's Current Report
International Market Index on Form 8-K dated May 26, 1999.
Target-Term Security due May
26, 2006.
</TABLE>
--------
* Filed herewith
II-8
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(cccc) --Form of Warrant Agreement Exhibit 4 to Company's Current Report
relating to the Russell on Form 8-K dated May 28, 1999.
2000 Index Call Warrants,
Expiring May 25, 2001
(including form of the
Warrant).
4(dddd) --Form of Select Sector Exhibit 4 to Company's Current Report
SPDR(R) Fund Growth on Form 8-K dated May 28, 1999.
Portfolio Market Index
Target-Term Security due
May 25, 2006.
4(eeee) --Form of Market Index Exhibit 4 to Company's Current Report
Target-Term Security based on Form 8-K dated June 25, 1999.
upon the Dow Jones
Industrial Average due June
26, 2006.
4(ffff) --Form of Medium-Term Note, Exhibit 99(b) to Company's
Series B, 1.0% Callable and Registration Statement on Form 8-A
Exchangeable Stock-Linked dated April 16, 1999.
Note due April 19, 2004
(Linked to the performance
of the Common Stock of GTE
Corp.).
4(gggg) --Form of Consumer Staples Exhibit 4 to the Company's Current
Select Sector SPDR(R) Fund Report on Form 8-K dated April 19,
Market Index Target-Term 1999.
Security due April 19,
2006.
4(hhhh) --Form of Medium-Term Note, Exhibit 99(b) to Company's
Series B, 1.0% Callable and Registration Statement on Form 8-A
Exchangeable Stock-Linked dated July 14, 1999.
Note due July 20, 2006
(Linked to the performance
of the Common Stock of AT&T
Corp.).
4(iiii) --Form of Russell 2000 Exhibit 4 to Company's Current Report
Market Index Target-Term on Form 8-K dated July 21, 1999.
Security due July 21, 2006.
4(jjjj) --Form of Nikkei 225 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated August 4, 1999.
due August 4, 2006.
4(kkkk) --Form of Standard & Poor's Exhibit 4 to Company's Current Report
500 Market Index Target- on Form 8-K dated August 4, 1999.
Term Security due August 4,
2006.
4(llll) --Form of Nikkei 225 Market Exhibit 4(a)
Index Target-Term Security to Company's Current Report on Form 8-
due September 20, 2002. K dated September 20, 1999.
4(mmmm) --Form of Energy Select Exhibit 4(b) to Company's Current
Sector SPDR(R) Fund Market Report on Form 8-K dated September 20,
Index Target-Term Security 1999.
due September 20, 2006.
4(nnnn) --Form of Global Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated December 22, 1999.
due December 22, 2004.
4(oooo) --Form of Bond Index Note, Exhibit 4 to Company's Current Report
Domestic Master Series on Form 8-K dated December 22, 1999.
1999A due December 23,
2002.
4(pppp) --Form of Medium-Term Notes, Exhibit 99(b) to Company's
Series B, 0.50% Callable Registration Statement on Form 8-A/A
and Exchangeable Stock- dated February 4, 2000.
Linked Note due February 3,
2005 (Linked to the
performance of a specified
portfolio of common
stocks).
</TABLE>
--------
* Filed herewith
II-9
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(qqqq) --Form of Callable Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated March 3, 2000.
due March 5, 2007 based
upon Internet HOLDRs.
4(rrrr) --Form of Nikkei 225 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated March 31, 2000.
due March 30, 2007.
4(ssss) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated June 29, 2000.
due June 27, 2007.
4(tttt) --Form of Medium Term Note, Exhibit 99(b) to Company's
Series B 7% Stock-Linked Registration Statement on Form 8-A
Note due July 8, 2002 dated June 30, 2000.
(Linked to the performance
of the Common Stock of The
Gap, Inc.).
4(uuuu) --Form of Medium Term Note, Exhibit 99(b) to Company's
Series B 2% Callable and Registration Statement on Form 8-A
Exchangeable Stock-Linked dated July 21, 2000.
Note due July 26, 2002
(Linked to the performance
of the Common Stock of
Johnson & Johnson).
4(vvvv) --Form of Callable Market Exhibit 4(b) to Company's Current
Index Target-Term Security Report on Form 8-K dated August 4,
due August 3, 2007 based 2000.
upon Biotech HOLDRS.
4(wwww) --Form of Callable Nasdaq- Exhibit 4(a) to Company's Current
100 Market Index Target- Report on Form 8-K dated August 4,
Term Security due August 3, 2000.
2007.
4(xxxx) --Form of Callable Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated September 13, 2000.
due September 13, 2007
based upon Broadband
HOLDRS.
4(yyyy) --Form of Callable Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated October 6, 2000.
due October 5, 2007 based
upon Semiconductor HOLDRS.
4(zzzz) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated November 20, 2000.
due November 20, 2007.
4(aaaaa) --Form of Warrant Agreement Exhibit 4 to Company's Current Report
relating to the Euro on Form 8-K dated December 6, 2000.
Currency Warrants, Expiring
February 28, 2002
(including the form of the
Warrant)
4(bbbbb) --Form of Preferred Stock Exhibit 4(eeee) to Company's
and Common Stock Warrant Registration Statement on Form S-3
Agreement, including forms (File No. 333-44173).
of Preferred Stock and
Common Stock Warrant
Certificates.
4(ccccc) --Form of Deposit Agreement, Exhibit 4(ffff) to Company's
including form of Registration Statement on Form S-3
Depositary Receipt (File No. 333-44173).
Certificate representing
the Depositary Shares.
</TABLE>
--------
* Filed herewith
II-10
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(ddddd) --Form of Certificate of Exhibit 4(oooo) to Company's
Trust of Merrill Lynch Registration Statement on Form S-3
Preferred Capital Trust (File No. 333-68747).
VI.
4(eeeee) --Form of Amended and Exhibit 4(pppp) to Company's
Restated Declaration of Registration Statement on Form S-3
Trust of Merrill Lynch (File No. 333-68747).
Preferred Capital Trust
VI, including form of
Trust Preferred Security.
4(fffff) --Form of Certificate of Exhibit 4(qqqq) to Company's
Limited Partnership of Registration Statement on Form S-3
Merrill Lynch Preferred (File No. 333-68747).
Funding VI, L.P.
4(ggggg) --Form of Amended and Exhibit 4(rrrr) to Company's
Restated Limited Registration Statement on Form S-3
Partnership Agreement of (File No. 333-68747).
Merrill Lynch Preferred
Funding VI, L.P.
4(hhhhh) --Form of Trust Preferred Exhibit 4(ssss) to Company's
Securities Guarantee Registration Statement on Form S-3
Agreement, between the (File No. 333-68747).
Company and The Chase
Manhattan Bank, as
guarantee trustee,
including form of
Partnership Preferred
Security.
4(iiiii) --Form of Partnership Exhibit 4(tttt) to Company's
Preferred Securities Registration Statement on Form S-3
Guarantee Agreement (File No. 333-68747).
between the Company and
The Chase Manhattan Bank,
as guarantee trustee.
4(jjjjj) --Form of Affiliate Exhibit 4(vvvv) to Company's
Debenture Guarantee Registration Statement on Form S-3
Agreement between the (File No. 333-68747).
Company and The Chase
Manhattan Bank, as
guarantee trustee.
4(kkkkk) --Form of Subordinated Exhibit 4(wwww) to Company's
Debenture. Registration Statement on Form S-3
(File No. 333-68747).
4(lllll) --Restated Certificate of Exhibit 3(i) to Company's Quarterly
Incorporation of the Report on Form 10-Q for the quarter
Company, dated April 28, ended March 27, 1998.
1998.
4(mmmmm) --Amended and Restated By- Exhibit 3 to Company's Quarterly
Laws of the Company, Report on Form 10-Q for the quarter
effective as of July 26, ended September 24, 1999.
1999.
4(nnnnn) --Certificate of Exhibit 3 to Company's Quarterly
Designation dated August Report on Form 10-Q for the quarter
20, 1998 for Special ended September 25, 1998.
Voting Stock, relating to
the Company's Restated
Certificate of
Incorporation effective as
of April 28, 1998.
4(ooooo) --Certificate of Exhibit 3(f) to Company's Registration
Designation dated December Statement on Form S-3 (File No. 33-
17, 1987 relating to the 19975).
Company's Series A Junior
Preferred Stock.
4(ppppp) --Certificate of Exhibit 3(i) to Company's Quarterly
Designation of the Company Report on Form 10-Q for the quarter
establishing the rights, ended March 27, 1998.
preferences, privileges,
qualifications,
restrictions, and
limitations relating to
the Company's 9% Preferred
Stock.
</TABLE>
--------
* Filed herewith
II-11
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(qqqqq) --Form of Certificate of Exhibit 4(ssss) to Company's
Designation of the Registration Statement on Form S-3
Company establishing the (File No. 333-44173).
rights, preferences,
privileges,
qualifications,
restrictions, and
limitations relating to a
series of the Preferred
Stock.
4(rrrrr) --Form of certificate Exhibit 4(d) to Company's Registration
representing Preferred Statement on Form S-3 (File No. 33-
Stock. 55363).
4(sssss) --Form of certificate Exhibit 4(uuuu) to Company's
representing Common Registration Statement on Form S-3
Stock. (File No. 333-44173).
4(ttttt) --Form of Liquid Yield Exhibit 4(vvvv) to Company's
Option Note Indenture. Registration Statement on Form S-3
(File No. 333-44173).
4(uuuuu) --Form of Subsequent Exhibit 4(wwww) to Company's
Liquid Yield Option Note Registration Statement on Form S-3
Indenture. (File No. 333-44173).
4(vvvvv) --Form of Liquid Yield
Option Note (Zero
Coupon--Senior)
Indenture*
4(wwwww) --Form of Subsequent
Liquid Yield Option Note
(Zero Coupon--Senior)
Indenture*
4(xxxxx) --Form of Market Index Exhibit 4 to Company's Current Report
Target-Term Security on Form 8-K dated December 23, 1997.
based upon the Dow Jones
Industrial Average due
January 14, 2003.
4(yyyyy) --Form of Eleventh Exhibit 4(yyyy) to Company's
Supplemental Indenture to Registration Statement on Form S-3
the Senior Indenture (File No. 333-44173).
between the Company and
The Chase Manhattan Bank
(successor by merger to
the Chase Manhattan Bank,
N.A.).
4(zzzzz) --Form of Amended and Exhibit 4 to Company's Current Report
Restated Rights on Form 8-K dated December 2, 1997.
Agreement, dated as of
December 2, 1997 between
the Company and
ChaseMellon Shareholder
Services, L.L.C., as
Rights Agent.
4(aaaaaa) --Certificate of Exhibit 3(f) to Company's Registration
Designation of the Statement on Form S-3 (File No. 33-
Company establishing the 19975).
rights, preferences,
privileges,
qualifications,
restrictions and
limitations relating to
the Company's Series A
Junior Preferred Stock.
4(bbbbbb) --Form of Amendment No. 1 Exhibit 4(bbbbb) to Company's
to the Form of Registration Statement on Form S-3
Distribution Agreement. (File No. 333-19975).
5(a) --Opinion of Brown & Wood
LLP.*
5(b) --Opinion of Brown & Wood
LLP.*
5(c) --Opinion of Skadden,
Arps, Slate, Meagher &
Flom LLP.*
5(d) --Opinion of Brown & Wood
LLP.*
12(a) --Computation of Ratio of For the years 1996 through 1999, filed
Earnings to Fixed Charges herewith. For the year 1995, Exhibit
of the Company. 12 to Company's Current Report on Form
8-K dated August 2, 2000.
12(b) --Computation of Ratio of For the years 1996 through 1999, filed
Earnings to Combined herewith. For the year 1995, Exhibit
Fixed Charges and 12 to Company's Current Report on Form
Preferred Stock Dividends 8-K dated August 2, 2000.
of the Company.
</TABLE>
--------
* Filed herewith
II-12
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
15 --Letter re Unaudited
Interim Financial
Information.*
23(a) --Consents of Brown & Wood
LLP. (included as part of
Exhibit 5).*
23(b) --Consents of Deloitte &
Touche LLP.*
24 --Power of Attorney of the
Company (included on page
II-15).*
25(a) --Form T-1 Statement of
Eligibility under the Trust
Indenture Act of 1939 of
The Chase Manhattan Bank.*
25(b) --Form T-1 Statement of
Eligibility under the Trust
Indenture Act of 1939 of
The Chase Manhattan Bank
under the Amended and
Restated Declaration of
Trust (contained in Exhibit
4(eeeee)); Trust Preferred
Securities Guarantee
Agreement (contained in
Exhibit 4(hhhhh));
Subordinated Indenture
(contained in Exhibit
4(c)(i)); and Affiliate
Debenture Guarantee
Agreement (contained in
Exhibit 4(jjjjj)).*
99(a) --Opinion of Deloitte & Exhibit 99(i) to Company's Annual
Touche LLP with respect to Report on Form 10-K for the year ended
certain financial data December 31, 1999.
appearing in the
Registration Statement.
99(b) --Opinion of Deloitte & Exhibit 99(ii) to Company's Annual
Touche LLP with respect to Report on Form 10-K for the year ended
certain summary financial December 31, 1999.
information and selected
financial data incorporated
by reference in the
Registration Statement.
</TABLE>
--------
* Filed herewith
II-13
<PAGE>
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the Securities being registered which remain unsold at the
termination of the offering.
(b) That, for purpose of determining any liability under the Securities
Act of 1933, each filing of such registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered therein
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of such registrant pursuant to the provisions referred
to in Item 15 of this registration statement, or otherwise, such registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
such Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by such
registrant of expenses incurred or paid by a director, officer or
controlling person of such registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, such
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) To file an application for the purpose of determining the eligibility
of the trustee to act under subsection (a) of Section 310 of the Trust
Indenture Act (the "Act") in accordance with the rules and regulations
prescribed by the Commission under Section 305(b)(2) of the Act.
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in The City of New York and State of New York on the 27th day of
December, 2000.
Merrill Lynch & Co., Inc.
/s/ David H. Komansky
By: _________________________________
David H. Komansky
(Chairman of the Board, Chief
Executive Officer and Director)
Know All Men by These Presents, that each person whose signature appears
below constitutes and appoints David H. Komansky, Thomas H. Patrick and
Stephen L. Hammerman, and each of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him or her
and in his name or her name, place and stead, in any and all capacities, to
sign any and all amendments (including post-effective amendments) to this
registration statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated on the 27th day of December, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ David H. Komansky Chairman of the Board, Chief Executive
___________________________________________ Officer and Director (Principal Executive
(David H. Komansky) Officer)
/s/ Thomas H. Patrick Executive Vice President and Chief
___________________________________________ Financial Officer (Principal Financial
(Thomas H. Patrick) Officer)
/s/ Ahmass L. Fakahany Senior Vice President and Controller
___________________________________________ (Principal Accounting Officer)
(Ahmass L. Fakahany)
/s/ W. H. Clark Director
___________________________________________
(W. H. Clark)
/s/ Jill K. Conway Director
___________________________________________
(Jill K. Conway)
/s/ Stephen L. Hammerman Director
___________________________________________
(Stephen L. Hammerman)
</TABLE>
II-15
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ George B. Harvey Director
___________________________________________
(George B. Harvey)
/s/ William R. Hoover Director
___________________________________________
(William R. Hoover)
/s/ Robert P. Luciano Director
___________________________________________
(Robert P. Luciano)
/s/ David K. Newbigging Director
___________________________________________
(David K. Newbigging)
/s/ Aulana L. Peters Director
___________________________________________
(Aulana L. Peters)
/s/ John J. Phelan, Jr. Director
___________________________________________
(John J. Phelan, Jr.)
/s/ John L. Steffens Director
___________________________________________
</TABLE> (John L. Steffens)
2000/2001 Registration
Statement on Form S-3
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 27th day of December, 2000.
Merrill Lynch Preferred Funding VI,
L.P.
By: Merrill Lynch & Co., Inc.,
as General Partner
/s/ John C. Stomber
By: _________________________________
Name: John C. Stomber
Title: Senior Vice President and
Treasurer
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 27th day of December, 2000.
Merrill Lynch Preferred Capital
Trust VI
/s/ John C. Stomber
By: _________________________________
Name: John C. Stomber
Title: Regular Trustee
/s/ Stanley Schaefer
By: _________________________________
Name: Stanley Schaefer
Title: Regular Trustee
II-18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
1(a) --Form of Underwriting Exhibit 1(a) to Company's Registration
Agreement for Debt Statement on Form S-3 (No. 333-59997).
Securities and Debt,
Currency and Index
Warrants, including forms
of Terms Agreement.
1(b) --Form of Distribution Exhibit 1(b) to Company's Registration
Agreement, including form Statement on Form S-3 (No. 33-51489).
of Terms Agreement,
relating to Medium-Term
Notes, Series B (a series
of Senior Debt
Securities).
1(c) --Form of Underwriting Exhibit 1(c) to Company's Registration
Agreement for Preferred Statement on Form S-3 (No. 333-59997).
Stock and Common Stock
Warrants, Preferred Stock,
Depositary Shares and
Common Stock.
1(d) --Form of Purchase Exhibit 1(d) to Company's Registration
Agreement relating to the Statement on Form S-3 (No. 333-38792)
Trust Preferred
Securities.
4(a)(i) --Senior Indenture, dated Exhibit 99(c) to Company's
as of April 1, 1983, as Registration Statement on Form 8-A
amended and restated (the dated July 20, 1992.
"1983 Senior Indenture"),
between the Company and
The Chase Manhattan Bank,
formerly known as Chemical
Bank (successor by merger
to Manufacturers Hanover
Trust Company).
4(a)(ii) --Senior Indenture, dated Exhibit 4(iv) to Company's Annual
as of October 1, 1993 (the Report on Form 10-K for the year ended
"1993 Senior Indenture"), December 25, 1998.
between the Company and
The Chase Manhattan Bank
(successor by merger to
The Chase Manhattan Bank,
N.A.).
4(a)(iii) --Form of initial Exhibit 4(a)(iii) to Company's
Subsequent Indenture with Registration Statement on Form S-3
respect to Senior Debt (No. 333-38792)
Securities.
4(a)(iv) --Form of Subsequent Exhibit 4(a)(iv) to Company's
Indenture with respect to Registration Statement on Form S-3
Senior Debt Securities. (No. 333-38792)
4(b)(i) --Supplemental Indenture to Exhibit 99(c) to Company's
the 1983 Senior Indenture, Registration Statement on Form 8-A
dated March 15, 1990, dated July 20, 1992.
between the Company and
The Chase Manhattan Bank,
formerly known as Chemical
Bank (successor by merger
to Manufacturers Hanover
Trust Company).
4(b)(ii) --Eighth Supplemental Exhibit 4(b) to Post-Effective
Indenture to the 1983 Amendment No. 1 to Company's
Senior Indenture, dated Registration Statement on Form S-3
March 1, 1996, between the (No. 33-65135).
Company and The Chase
Manhattan Bank, formerly
known as Chemical Bank
(successor by merger to
Manufacturers Hanover
Trust Company).
</TABLE>
--------
* Filed herewith
II-19
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(b)(iii) --Ninth Supplemental Exhibit 4(b) to Post-Effective
Indenture to the 1983 Amendment No. 4 to Company's
Senior Indenture, dated Registration Statement on Form S-3
June 1, 1996, between the (No. 33-65135).
Company and The Chase
Manhattan Bank, formerly
known as Chemical Bank
(successor by merger to
Manufacturers Hanover
Trust Company).
4(b)(iv) --Tenth Supplemental Exhibit 4(b) to Post-Effective
Indenture to the 1983 Amendment No. 5 to Company's
Senior Indenture, dated Registration Statement on Form S-3
July 1, 1996, between the (No. 33-65135).
Company and The Chase
Manhattan Bank, formerly
known as Chemical Bank
(successor by merger to
Manufacturers Hanover
Trust Company).
4(b)(v) --Supplemental Indenture Exhibit 4(b)(ii) to Company's
to the 1983 Senior Registration Statement on Form S-3
Indenture, dated October (No. 33-61559).
25, 1993, between the
Company and The Chase
Manhattan Bank (successor
by merger to The Chase
Manhattan Bank, N.A.).
4(b)(vi) --Twelfth Supplemental Exhibit 4(a) to Company's Current
Indenture to the 1983 report on Form 8-K dated October 21,
Senior Indenture dated as 1998.
of September 1, 1998
between the Company and
The Chase Manhattan Bank,
formerly known as
Chemical Bank (successor
by merger to
Manufacturers Hanover
Trust Company).
4(b)(vii) --First Supplemental Exhibit 4(a) to Company's Current
Indenture to the 1993 Report on Form 8-K dated July 2, 1998.
Senior Indenture, dated
as of June 1, 1998,
between the Company and
The Chase Manhattan Bank
(successor by merger to
The Chase Manhattan Bank,
N.A.).
4(c)(i) --Form of Subordinated Exhibit 4.7 to Company's Registration
Indenture between the Statement on Form S-3 (No. 333-16603).
Company and The Chase
Manhattan Bank.
4(c)(ii) --Form of Subsequent Exhibit 4(c)(ii) to Company's
Indentures with respect Registration Statement on Form S-3
to Subordinated Debt (No. 333-38792)
Securities.
4(d) --Form of 6% Note due Exhibit 4 to Company's Current Report
February 17, 2009. on Form 8-K dated February 17, 1999.
4(e) --Form of AMEX Oil Index Exhibit 4(f) to Company's Registration
Stock Market Annual Reset Statement on Form S-3 (No. 333-38792)
Term Note due December
29, 2000.
4(f) --Form of 8% Note due Exhibit 4(g) to Company's Registration
February 1, 2002. Statement on Form S-3 (No. 333-38792)
4(g) --Form of Step-Up Note due Exhibit 4(h) to Company's Registration
April 30, 2002. Statement on Form S-3 (No. 333-38792)
4(h) --Form of Step-Up Note due Exhibit 4(i) to Company's Registration
May 6, 2002. Statement on Form S-3 (No. 333-38792)
4(i) --Form of 7 3/8% Note due Exhibit 4(j) to Company's Registration
August 17, 2002. Statement on Form S-3 (No. 333-38792)
</TABLE>
--------
* Filed herewith
II-20
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(j) --Form of Major 8 European Exhibit 4 to Company's Current Report
Index Market Index Target- on Form 8-K dated August 1, 1997.
Term Security due August
30, 2002.
4(k) --Form of 6.64% Note due
September 19, 2002.*
4(l) --Form of Major 11 European Exhibit 4 to Company's Current Report
Market Index Target-Term on Form 8-K dated November 26, 1997.
Security due December 6,
2002.
4(m) --Form of 6 7/8% Note due Exhibit 4(o) to Company's Registration
March 1, 2003. Statement on Form S-3 (No. 333-38792)
4(n) --Form of 7.05% Note due Exhibit 4(p) to Company's Registration
April 15, 2003. Statement on Form S-3 (No. 333-38792)
4(o) --Form of 6.55% Note due Exhibit 4 to Company's Current Report
August 1, 2004. on Form 8-K dated August 1, 1997.
4(p) --Form of Russell 2000 Index Exhibit 4 to Company's Current Report
Market Index Target-Term on Form 8-K dated September 29, 1997.
Security due September 30,
2004.
4(q) --Form of 6 1/4% Note due Exhibit 4(s) to Company's Registration
January 15, 2006. Statement on Form S-3 (No. 333-38792)
4(r) --Form of 6 3/8% Note due Exhibit 4(t) to Company's Registration
September 8, 2006. Statement on Form S-3 (No. 333-38792)
4(s) --Form of 8% Note due June Exhibit 4(u) to Company's Registration
1, 2007. Statement on Form S-3 (No. 333-38792)
4(t) --Form of S&P 500 Inflation Exhibit 4 to Company's Current Report
Adjusted Market Index on Form 8-K dated September 24, 1997.
Target-Term Security due
September 24, 2007.
4(u) --Form of 7% Note due April Exhibit 4(w) to Company's Registration
27, 2008. Statement on Form S-3 (No. 333-38792)
4(v) --Form of 6 1/4% Note due Exhibit 4(x) to Company's Registration
October 15, 2008. Statement on Form S-3 (No. 333-38792)
4(w) --Form of 8.40% Note due Exhibit 4(z) to Company's Registration
November 1, 2019. Statement on Form S-3 (No. 33-35456).
4(x) --Form of Medium-Term Note, Exhibit 99(B) to the Company's
Series B, Stock-Linked Note Registration Statement on Form 8-A
due November 28, 2003 dated May 28, 1998.
(Linked to the performance
of the Telebras Receipt).
4(y) --Form of Medium-Term Note, Exhibit 99(B) to the Company's
Series B, 3.125% Callable Registration Statement on Form 8-A
Stock-Linked Note due dated September 28, 1998.
January 22, 2005 (Linked to
the performance of the
Common Stock of Chubb
Inc.).
4(z) --Form of Medium-Term Note, Exhibit 99(C) to the company's
Series B, 1% Callable and Registration Statement on Form 8-A
Exchangeable Stock-Linked dated February 5, 1999.
Note due February 8, 2006
(Linked to the performance
of the Common Stock of The
Kroger Co.).
</TABLE>
--------
* Filed herewith
II-21
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(aa) --Form of Medium-Term Note, Exhibit 99(B) to the company's
Series B, 0.25% Callable Registration Statement on Form 8-A
Exchangeable Stock dated April 29, 1999.
Portfolio-Linked Note due
April 27, 2006 (Linked to
the Common Stock of Pfizer,
Inc., Sepracor Inc. and
Warner-Lambert Co.).
4(bb) --Form of Fixed Rate Medium- Exhibit 4(dd) to Company's
Term Note, Series B. Registration Statement on Form S-3
(No. 333-38792)
4(cc) --Form of Federal Funds Rate Exhibit 4(oo) to Company's
Medium-Term Note. Registration Statement on Form S-3
(No. 33-54218).
4(dd) --Form of Floating Rate Exhibit 4(ff) to Company's
Medium-Term Note, Series B. Registration Statement on Form S-3
(No. 333-38792)
4(ee) --Form of Commercial Paper Exhibit 4(qq) to Company's
Rate Medium-Term Note. Registration Statement on Form S-3
(No. 33-54218).
4(ff) --Form of Commercial Paper Exhibit 4(i) to Company's Registration
Index Rate Medium-Term Statement on Form S-3 (File No. 33-
Note. 38879).
4(gg) --Form of Constant Maturity Exhibit 4(ccc) to Company's
Treasury Rate Indexed Registration Statement on Form S-3
Medium-Term Note, Series B. (No. 33-52647).
4(hh) --Form of Constant Maturity Exhibit 4(jj) to Company's
Treasury Rate Indexed Registration Statement on Form S-3
Medium-Term Note II, Series (No. 333-38792)
B.
4(ii) --Form of JPY Yield Curve Exhibit 4(ddd) to Company's
Flattening Medium-Term Registration Statement on Form S-3
Note, Series B. (No. 33-52647).
4(jj) --Form of LIBOR Medium-Term Exhibit 4(pp) to Company's
Note. Registration Statement on Form S-3
(No. 33-54218).
4(kk) --Form of Multi-Currency Exhibit 4(fff) to Company's
Medium-Term Note, Series B. Registration Statement on Form S-3
(No. 33-52647).
4(ll) --Form of Nine Month Exhibit 4(nn) to Company's
Renewable Floating Rate Registration Statement on Form S-3
Medium-Term Note, Series B. (No. 333-38792)
4(mm) --Form of Treasury Rate Exhibit 4(aaa) to Company's
Medium-Term Note. Registration Statement on Form S-3
(No. 33-54218).
4(nn) --Form of Japanese Yen Swap Exhibit 4(mmm) to Company's
Rate Linked Medium-Term Registration Statement on Form S-3
Note, Series B. (No. 33-52647).
4(oo) --Form of Step-Up Medium- Exhibit 4(ggg) to Amendment No. 1 to
Term Note due May 20, 2008. Company's Registration Statement on
Form S-3 (No. 33-54218).
4(pp) --Form of Warrant Agreement, Exhibit 4(aa) to Company's
including form of Warrant Registration Statement on Form S-3
Certificate. (No. 33-35456).
4(qq) --Form of Currency Exhibit 4 to Company's Registration
[Put/Call] Warrant Statement on Form S-3 (No. 33-17965).
Agreement, including form
of Global Currency Warrant
Certificate.
4(rr) --Form of Index Warrant Exhibit 4(kkk) to Amendment No. 1 to
Agreement, including form Company's Registration Statement on
of Global Index Warrant Form S-3 (No. 33-54218).
Certificate.
</TABLE>
--------
* Filed herewith
II-22
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(ss) --Form of Index Warrant Exhibit 4(lll) to Amendment No. 1 to
Trust Indenture, including Company's Registration Statement on
form of Global Index Form S-3 (No. 33-54218).
Warrant Certificate.
4(tt) --Form of 6 1/2% Note due Exhibit 4 to Company's Current Report
April 1, 2001. on Form 8-K dated April 1, 1996.
4(uu) --Form of 6% Note due Exhibit 4 to Company's Current Report
January 15, 2001. on Form 8-K dated January 17, 1996.
4(vv) --Form of 6% Note due March Exhibit 4 to Company's Current Report
1, 2001. on Form 8-K dated February 29, 1996.
4(ww) --Form of 7% Note due March Exhibit 4 to Company's Current Report
15, 2006. on Form 8-K dated March 18, 1996.
4(xx) --Form of 7 3/8% Note due Exhibit 4 to the Company's Current
May 15, 2006. Report on Form 8-K dated May 15, 1996.
4(yy) --Form of 6 1/4% STRYPES due Exhibit 4(c) to Company's Current
July 1, 2001. Report on Form 8-K dated July 9, 1996.
4(zz) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated May 13, 1996.
due May 10, 2001.
4(aaa) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated March 26, 1999.
due March 27, 2006.
4(bbb) --Form of Technology Market Exhibit 4(a) to Company's Current
Index Target-Term Security Report on Form 8-K dated August 12,
due August 15, 2001. 1996.
4(ccc) --Form of Top Ten Yield Exhibit 4(b) to Company's Current
Market Index Target-Term Report on Form 8-K dated August 12,
Security due August 15, 1996.
2006.
4(ddd) --Form of Exhibit 4 to Company's Current Report
Healthcare/Biotechnology on Form 8-K dated October 30, 1996.
Portfolio Market Index
Target-Term Security due
October 31, 2001.
4(eee) --Form of 7% Note due Exhibit 4 to Company's Current Report
January 15, 2007. on Form 8-K dated January 13, 1997.
4(fff) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated March 14, 1997.
due September 16, 2002.
4(ggg) --Form of Nikkei 225 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated June 3, 1997.
due June 14, 2002.
4(hhh) --Form of 6.56% Note due Exhibit 4 to Company's Current Report
December 16, 2007. on Form 8-K dated December 16, 1997.
4(iii) --Form of 7 7/8% STRYPES due Exhibit 4(c) to Company's Current
February 1, 2001 (Payable Report on Form 8-K dated January 30,
with Shares of Common Stock 1998.
of CIBER, Inc.)
4(jjj) --Form of Floating Rate Note Exhibit 4 to Company's Current Report
due February 4, 2003. on Form 8-K dated February 4, 1998.
4(kkk) --Form of 6% Note due Exhibit 4 to Company's Current Report
February 12, 2003. on Form 8-K dated February 12, 1998.
</TABLE>
--------
* Filed herewith
II-23
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(lll) --Form of Oracle Corporation Exhibit 4 to Company's Current Report
Indexed Callable Protected on Form 8-K dated March 19, 1998.
Growth Security due March
31, 2003.
4(mmm) --Form of Telebras Indexed Exhibit 4 to Company's Current Report
Callable Protected Growth on Form 8-K dated May 19, 1998.
Security due May 19, 2005.
4(nnn) --Form of 6 3/4% Note due Exhibit 4 to Company's Current Report
June 1, 2028. on Form 8-K dated June 3, 1998.
4(ooo) --Form of Floating Rate Note Exhibit 4 to Company's Current Report
due June 24, 2003. on Form 8-K dated June 24, 1998.
4(ppp) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated June 26, 1998.
due July 1, 2005.
4(qqq) --Form of 6% Note due July Exhibit (4)(a) to Company's Current
15, 2003. Report on Form 8-K dated July 15,
1998.
4(rrr) --Form of 6 1/2% Note due Exhibit (4)(b) to Company's Current
July 15, 2018. Report on Form 8-K dated July 15,
1998.
4(sss) --Form of EuroFund Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated September 3, 1998.
due February 28, 2006.
4(ttt) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated September 29, 1998.
due September 28, 2005.
4(uuu) --Form of 6 3/8% Note due Exhibit 4 to Company's Current Report
October 15, 2008. on Form 8-K dated October 28, 1998.
4(vvv) --Form of 6% Note due Exhibit (4)(b) to Company's Current
November 15, 2004. Report on Form 8-K dated November 24,
1998.
4(www) --Form of 6 7/8% Note due Exhibit (4)(c) to Company's Current
November 15, 2018. Report on Form 8-K dated November 24,
1998.
4(xxx) --Form of Medium-Term Notes, Exhibit 99(b) to Company's
Series B, 1.5% Principal Registration Statement on Form 8-A
Protected Note due December dated December 3, 1998.
15, 2005 (Linked to the
performance of the Dow Jones
Euro STOXX 50 Index).
4(yyy) --Form of Nikkei 225 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated December 28, 1998.
due September 21, 2005.
4(zzz) --Form of Energy Select Exhibit 4 to Company's Current Report
Sector SPDR(R) Fund Market on Form 8-K dated February 18, 1999.
Index Target-Term Security
due February 21, 2006.
4(aaaa) --Form of Medium-Term Note, Exhibit 99(b) to Company's
Series B, 0.25% Callable and Registration Statement on Form 8-A
Exchangeable Stock-Linked dated May 6, 1999.
Note due May 10, 2006
(Linked to the performance
of the Common Stock of Time
Warner Inc.).
4(bbbb) --Form of Major 11 Exhibit 4 to Company's Current Report
International Market Index on Form 8-K dated May 26, 1999.
Target-Term Security due May
26, 2006.
</TABLE>
--------
* Filed herewith
II-24
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(cccc) --Form of Warrant Agreement Exhibit 4 to Company's Current Report
relating to the Russell on Form 8-K dated May 28, 1999.
2000 Index Call Warrants,
Expiring May 25, 2001
(including form of the
Warrant).
4(dddd) --Form of Select Sector Exhibit 4 to Company's Current Report
SPDR(R) Fund Growth on Form 8-K dated May 28, 1999.
Portfolio Market Index
Target-Term Security due
May 25, 2006.
4(eeee) --Form of Market Index Exhibit 4 to Company's Current Report
Target-Term Security based on Form 8-K dated June 25, 1999.
upon the Dow Jones
Industrial Average due June
26, 2006.
4(ffff) --Form of Medium-Term Note, Exhibit 99(b) to Company's
Series B, 1.0% Callable and Registration Statement on Form 8-A
Exchangeable Stock-Linked dated April 16, 1999.
Note due April 19, 2004
(Linked to the performance
of the Common Stock of GTE
Corp.).
4(gggg) --Form of Consumer Staples Exhibit 4 to the Company's Current
Select Sector SPDR(R) Fund Report on Form 8-K dated April 19,
Market Index Target-Term 1999.
Security due April 19,
2006.
4(hhhh) --Form of Medium-Term Note, Exhibit 99(b) to Company's
Series B, 1.0% Callable and Registration Statement on Form 8-A
Exchangeable Stock-Linked dated July 14, 1999.
Note due July 20, 2006
(Linked to the performance
of the Common Stock of AT&T
Corp.).
4(iiii) --Form of Russell 2000 Exhibit 4 to Company's Current Report
Market Index Target-Term on Form 8-K dated July 21, 1999.
Security due July 21, 2006.
4(jjjj) --Form of Nikkei 225 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated August 4, 1999.
due August 4, 2006.
4(kkkk) --Form of Standard & Poor's Exhibit 4 to Company's Current Report
500 Market Index Target- on Form 8-K dated August 4, 1999.
Term Security due August 4,
2006.
4(llll) --Form of Nikkei 225 Market Exhibit 4(a)
Index Target-Term Security to Company's Current Report on Form 8-
due September 20, 2002. K dated September 20, 1999.
4(mmmm) --Form of Energy Select Exhibit 4(b) to Company's Current
Sector SPDR(R) Fund Market Report on Form 8-K dated September 20,
Index Target-Term Security 1999.
due September 20, 2006.
4(nnnn) --Form of Global Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated December 22, 1999.
due December 22, 2004.
4(oooo) --Form of Bond Index Note, Exhibit 4 to Company's Current Report
Domestic Master Series on Form 8-K dated December 22, 1999.
1999A due December 23,
2002.
4(pppp) --Form of Medium-Term Notes, Exhibit 99(b) to Company's
Series B, 0.50% Callable Registration Statement on Form 8-A/A
and Exchangeable Stock- dated February 4, 2000.
Linked Note due February 3,
2005 (Linked to the
performance of a specified
portfolio of common
stocks).
</TABLE>
--------
* Filed herewith
II-25
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(qqqq) --Form of Callable Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated March 3, 2000.
due March 5, 2007 based
upon Internet HOLDRs.
4(rrrr) --Form of Nikkei 225 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated March 31, 2000.
due March 30, 2007.
4(ssss) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated June 29, 2000.
due June 27, 2007.
4(tttt) --Form of Medium Term Note, Exhibit 99(b) to Company's
Series B 7% Stock-Linked Registration Statement on Form 8-A
Note due July 8, 2002 dated June 30, 2000.
(Linked to the performance
of the Common Stock of The
Gap, Inc.).
4(uuuu) --Form of Medium Term Note, Exhibit 99(b) to Company's
Series B 2% Callable and Registration Statement on Form 8-A
Exchangeable Stock-Linked dated July 21, 2000.
Note due July 26, 2002
(Linked to the performance
of the Common Stock of
Johnson & Johnson).
4(vvvv) --Form of Callable Market Exhibit 4(b) to Company's Current
Index Target-Term Security Report on Form 8-K dated August 4,
due August 3, 2007 based 2000.
upon Biotech HOLDRS.
4(wwww) --Form of Callable Nasdaq- Exhibit 4(a) to Company's Current
100 Market Index Target- Report on Form 8-K dated August 4,
Term Security due August 3, 2000.
2007.
4(xxxx) --Form of Callable Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated September 13, 2000.
due September 13, 2007
based upon Broadband
HOLDRS.
4(yyyy) --Form of Callable Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated October 6, 2000.
due October 5, 2007 based
upon Semiconductor HOLDRS.
4(zzzz) --Form of S&P 500 Market Exhibit 4 to Company's Current Report
Index Target-Term Security on Form 8-K dated November 20, 2000.
due November 20, 2007.
4(aaaaa) --Form of Warrant Agreement Exhibit 4 to Company's Current Report
relating to the Euro on Form 8-K dated December 6, 2000.
Currency Warrants, Expiring
February 28, 2002
(including the form of the
Warrant)
4(bbbbb) --Form of Preferred Stock Exhibit 4(eeee) to Company's
and Common Stock Warrant Registration Statement on Form S-3
Agreement, including forms (File No. 333-44173).
of Preferred Stock and
Common Stock Warrant
Certificates.
4(ccccc) --Form of Deposit Agreement, Exhibit 4(ffff) to Company's
including form of Registration Statement on Form S-3
Depositary Receipt (File No. 333-44173).
Certificate representing
the Depositary Shares.
</TABLE>
--------
* Filed herewith
II-26
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(ddddd) --Form of Certificate of Exhibit 4(oooo) to Company's
Trust of Merrill Lynch Registration Statement on Form S-3
Preferred Capital Trust (File No. 333-68747).
VI.
4(eeeee) --Form of Amended and Exhibit 4(pppp) to Company's
Restated Declaration of Registration Statement on Form S-3
Trust of Merrill Lynch (File No. 333-68747).
Preferred Capital Trust
VI, including form of
Trust Preferred Security.
4(fffff) --Form of Certificate of Exhibit 4(qqqq) to Company's
Limited Partnership of Registration Statement on Form S-3
Merrill Lynch Preferred (File No. 333-68747).
Funding VI, L.P.
4(ggggg) --Form of Amended and Exhibit 4(rrrr) to Company's
Restated Limited Registration Statement on Form S-3
Partnership Agreement of (File No. 333-68747).
Merrill Lynch Preferred
Funding VI, L.P.
4(hhhhh) --Form of Trust Preferred Exhibit 4(ssss) to Company's
Securities Guarantee Registration Statement on Form S-3
Agreement, between the (File No. 333-68747).
Company and The Chase
Manhattan Bank, as
guarantee trustee,
including form of
Partnership Preferred
Security.
4(iiiii) --Form of Partnership Exhibit 4(tttt) to Company's
Preferred Securities Registration Statement on Form S-3
Guarantee Agreement (File No. 333-68747).
between the Company and
The Chase Manhattan Bank,
as guarantee trustee.
4(jjjjj) --Form of Affiliate Exhibit 4(vvvv) to Company's
Debenture Guarantee Registration Statement on Form S-3
Agreement between the (File No. 333-68747).
Company and The Chase
Manhattan Bank, as
guarantee trustee.
4(kkkkk) --Form of Subordinated Exhibit 4(wwww) to Company's
Debenture. Registration Statement on Form S-3
(File No. 333-68747).
4(lllll) --Restated Certificate of Exhibit 3(i) to Company's Quarterly
Incorporation of the Report on Form 10-Q for the quarter
Company, dated April 28, ended March 27, 1998.
1998.
4(mmmmm) --Amended and Restated By- Exhibit 3 to Company's Quarterly
Laws of the Company, Report on Form 10-Q for the quarter
effective as of July 26, ended September 24, 1999.
1999.
4(nnnnn) --Certificate of Exhibit 3 to Company's Quarterly
Designation dated August Report on Form 10-Q for the quarter
20, 1998 for Special ended September 25, 1998.
Voting Stock, relating to
the Company's Restated
Certificate of
Incorporation effective as
of April 28, 1998.
4(ooooo) --Certificate of Exhibit 3(f) to Company's Registration
Designation dated December Statement on Form S-3 (File No. 33-
17, 1987 relating to the 19975).
Company's Series A Junior
Preferred Stock.
4(ppppp) --Certificate of Exhibit 3(i) to Company's Quarterly
Designation of the Company Report on Form 10-Q for the quarter
establishing the rights, ended March 27, 1998.
preferences, privileges,
qualifications,
restrictions, and
limitations relating to
the Company's 9% Preferred
Stock.
</TABLE>
--------
* Filed herewith
II-27
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
4(qqqqq) --Form of Certificate of Exhibit 4(ssss) to Company's
Designation of the Registration Statement on Form S-3
Company establishing the (File No. 333-44173).
rights, preferences,
privileges,
qualifications,
restrictions, and
limitations relating to a
series of the Preferred
Stock.
4(rrrrr) --Form of certificate Exhibit 4(d) to Company's Registration
representing Preferred Statement on Form S-3 (File No. 33-
Stock. 55363).
4(sssss) --Form of certificate Exhibit 4(uuuu) to Company's
representing Common Registration Statement on Form S-3
Stock. (File No. 333-44173).
4(ttttt) --Form of Liquid Yield Exhibit 4(vvvv) to Company's
Option Note Indenture. Registration Statement on Form S-3
(File No. 333-44173).
4(uuuuu) --Form of Subsequent Exhibit 4(wwww) to Company's
Liquid Yield Option Note Registration Statement on Form S-3
Indenture. (File No. 333-44173).
4(vvvvv) --Form of Liquid Yield
Option Note (Zero
Coupon--Senior)
Indenture*
4(wwwww) --Form of Subsequent
Liquid Yield Option Note
(Zero Coupon--Senior)
Indenture*
4(xxxxx) --Form of Market Index Exhibit 4 to Company's Current Report
Target-Term Security on Form 8-K dated December 23, 1997.
based upon the Dow Jones
Industrial Average due
January 14, 2003.
4(yyyyy) --Form of Eleventh Exhibit 4(yyyy) to Company's
Supplemental Indenture to Registration Statement on Form S-3
the Senior Indenture (File No. 333-44173).
between the Company and
The Chase Manhattan Bank
(successor by merger to
the Chase Manhattan Bank,
N.A.).
4(zzzzz) --Form of Amended and Exhibit 4 to Company's Current Report
Restated Rights on Form 8-K dated December 2, 1997.
Agreement, dated as of
December 2, 1997 between
the Company and
ChaseMellon Shareholder
Services, L.L.C., as
Rights Agent.
4(aaaaaa) --Certificate of Exhibit 3(f) to Company's Registration
Designation of the Statement on Form S-3 (File No. 33-
Company establishing the 19975).
rights, preferences,
privileges,
qualifications,
restrictions and
limitations relating to
the Company's Series A
Junior Preferred Stock.
4(bbbbbb) --Form of Amendment No. 1 Exhibit 4(bbbbb) to Company's
to the Form of Registration Statement on Form S-3
Distribution Agreement. (File No. 333-19975).
5(a) --Opinion of Brown & Wood
LLP.*
5(b) --Opinion of Brown & Wood
LLP.*
5(c) --Opinion of Skadden,
Arps, Slate, Meagher &
Flom LLP.*
5(d) --Opinion of Brown & Wood
LLP.*
12(a) --Computation of Ratio of For the years 1996 through 1999, filed
Earnings to Fixed Charges herewith. For the year 1995, Exhibit
of the Company. 12 to Company's Current Report on Form
8-K dated August 2, 2000.
12(b) --Computation of Ratio of For the years 1996 through 1999, filed
Earnings to Combined herewith. For the year 1995, Exhibit
Fixed Charges and 12 to Company's Current Report on Form
Preferred Stock Dividends 8-K dated August 2, 2000.
of the Company.
</TABLE>
--------
* Filed herewith
II-28
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference
Number Description to Filings Indicated
------- ----------- --------------------------
<C> <S> <C>
15 --Letter re Unaudited
Interim Financial
Information.*
23(a) --Consents of Brown & Wood
LLP. (included as part of
Exhibit 5).*
23(b) --Consents of Deloitte &
Touche LLP.*
24 --Power of Attorney of the
Company (included on page
II-15).*
25(a) --Form T-1 Statement of
Eligibility under the Trust
Indenture Act of 1939 of
The Chase Manhattan Bank.*
25(b) --Form T-1 Statement of
Eligibility under the Trust
Indenture Act of 1939 of
The Chase Manhattan Bank
under the Amended and
Restated Declaration of
Trust (contained in Exhibit
4(eeeee)); Trust Preferred
Securities Guarantee
Agreement (contained in
Exhibit 4(hhhhh));
Subordinated Indenture
(contained in Exhibit
4(c)(i)); and Affiliate
Debenture Guarantee
Agreement (contained in
Exhibit 4(jjjjj)).*
99(a) --Opinion of Deloitte & Exhibit 99(i) to Company's Annual
Touche LLP with respect to Report on Form 10-K for the year ended
certain financial data December 31, 1999.
appearing in the
Registration Statement.
99(b) --Opinion of Deloitte & Exhibit 99(ii) to Company's Annual
Touche LLP with respect to Report on Form 10-K for the year ended
certain summary financial December 31, 1999.
information and selected
financial data incorporated
by reference in the
Registration Statement.
</TABLE>
--------
* Filed herewith
II-29
