<PAGE>
RULE NO. 424(b)(3)
REGISTRATION NO. 333-68747
PRICING SUPPLEMENT
- ------------------
(To prospectus supplement and prospectus dated May 6, 1999)
$75,400,000
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series B
0.50% Callable and Exchangeable Stock-Linked Notes due February 3, 2005
(Linked to the performance of a specified portfolio of common stocks)
----------------------
<TABLE>
<CAPTION>
<S> <C>
The notes:
. The issue price for each note . The notes have been approved for listing
equals its principal amount, plus on the American Stock Exchange under
accrued interest, if any, from the trading symbol "TIL.A".
February 3, 2000.
Payment formula:
. We will pay you interest on the
notes semi-annually at a rate per . For each $1,000 principal amount of the
year equal to 0.50%. notes you own, the amount you will
receive at maturity or upon our redemption
. At maturity, for each $1,000 will equal the greater of:
principal amount of the notes you
own, we will deliver to you either . the portfolio value determined as described
cash or a number of shares of in this pricing supplement; provided, however,
portfolio stock and in certain that if the amount you receive at maturity is
circumstances, other securities, based on this formula, you will not receive
cash or property, based on the accrued interest from and including the
formula described in this pricing immediately preceding interest payment date
supplement. through the maturity date or date of early
redemption, as the case may be, or
. We may redeem all of the notes, at
our option, before their maturity for . $1,000 in cash plus accrued and unpaid
either cash or a number of shares of interest through but excluding the maturity
portfolio stock and in certain date or date of early redemption, as the case
circumstances, other securities, cash may be.
or property, based on the formula
described in this pricing supplement. . The share multipliers of the portfolio
securities may be subject to adjustment from
. You may exchange any number of notes time to time as described in this pricing
you own, at your option, before maturity supplement.
for a number of shares of portfolio
stock, and in certain circumstances
other securities, cash or property, equal
to the applicable share multiplier.
</TABLE>
Investing in the notes involves risks.
See "Risk Factors" beginning on page PS-7 of this pricing supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved these securities or passed upon the adequacy
or accuracy of this pricing supplement or the accompanying prospectus supplement
and prospectus. Any representation to the contrary is a criminal offense.
----------------------
Merrill Lynch & Co.
----------------------
The date of this pricing supplement is January 27, 2000.
<PAGE>
<TABLE>
<CAPTION>
Terms of the notes:
<S> <C>
Notes................................................ 0.50% Callable and Exchangeable Stock-Linked Notes due February 3,
2005 (Linked to the performance of a specified portfolio of common
stocks).
Aggregate principal amount........................... $75,400,000.
Issuer............................................... Merrill Lynch & Co., Inc.
References to "ML&Co.", "we", "us" and "our" are to Merrill Lynch &
Co., Inc.
Maturity date........................................ February 3, 2005.
Interest rate........................................ 0.50% per year. Interest on the note will be computed on the basis
of a 360-day year of twelve 30-day months.
Interest payment dates............................... February 3 and August 3, commencing August 3, 2000.
Issue price.......................................... $1,000 per note.
Original issue date.................................. February 3, 2000.
CUSIP number......................................... 590188 A24.
Form of notes........................................ Book-entry only.
Denominations........................................ We will issue and sell the notes in denominations of $1,000 and
integral multiples of $1,000 in excess thereof.
Trustee.............................................. The Chase Manhattan Bank.
Portfolio and share multipliers...................... The portfolio shall initially consist of the common stock of the
following companies and next to each company is the share
multiplier applicable to such portfolio security which represents
the number of shares of each common stock initially contained in
the portfolio for each $1,000 principal amount of notes:
. Lucent Technologies Inc. common stock - 4.5695
. Nortel Networks Corporation common stock - 2.6493
. Texas Instruments Incorporated common stock - 2.3037.
The portfolio shall be subject to adjustment from time to time to
reflect the addition and/or substitution of any cash, securities
and/or other property as provided in the section entitled "Dilution
and Reorganization Adjustments."
The initial share multiplier relating to each portfolio security is
equal to the quotient of $333.33, the proportionate representation
of each portfolio security in the portfolio, and the initial share
price of such portfolio security multiplied by 0.7843, the exchange
ratio, so that each portfolio security represents an approximately
equal percentage of the portfolio as described in the section
entitled "The Portfolio". The initial price of each portfolio
security used to calculate the initial share multiplier relating to
each such portfolio security was determined by the calculation
agent. The respective share multipliers of portfolio securities
will remain constant for the term of the notes unless adjusted for
certain corporate events described in the section entitled
"Dilution
</TABLE>
PS-2
<PAGE>
<TABLE>
<S> <C>
and Reorganization Adjustments".
Amount payable at maturity........................... At maturity, whether as a result of acceleration or otherwise, you
will receive for each $1,000 principal amount of the notes you own,
an amount equal to the greater of:
(i) the portfolio value on the third scheduled Trading Day
immediately prior to maturity; provided, however:
. that if a Market Disruption Event occurs on the third scheduled Trading
Day immediately prior to maturity, the portfolio value shall be determined
on the second scheduled Trading Day immediately prior to maturity unless a
Market Disruption Event occurs on such second Trading Day, in which case
the portfolio value shall be determined on the first scheduled Trading Day
immediately prior to maturity regardless of whether a Market Disruption
Event occurs on such date; and
. that if the delivery at maturity is based on this formula, you
will not receive accrued interest from and including August 3, 2004
through the maturity date; or
(ii) $1,000 in cash plus accrued and unpaid interest through but
excluding the maturity date.
If the value of (i) above is greater than (ii) above, we will
deliver to you at maturity the contents of the portfolio which will
equal the number of shares of portfolio common stock, other
securities, cash and/or other property, as applicable, equal to
the respective share multiplier for each of the portfolio
securities or each such unit; provided, however, that we will pay
you cash in lieu of delivering fractional shares, in an amount as
determined by the calculation agent. However, if in the opinion of
the calculation agent there occurs a Market Disruption Event on
either the third or the second scheduled Trading Day prior to
maturity, then at maturity we will have the option, but not the
obligation, to pay you the U.S. dollar equivalent of the portfolio
value as determined by the calculation agent according to the
formula set forth above; provided, further, that if in the opinion
of the calculation agent there occurs a Market Disruption Event
occurred on the first scheduled Trading Day prior to maturity, then
at maturity we will deliver the U.S. dollar equivalent of the
portfolio value as determined by the calculation agent according to
the formula set forth above.
Alternatively, if the value of (ii) above is greater than (i)
above, we will pay you the value of (ii) in U.S. dollars. In the
event of certain reorganization events, the portfolio may be
adjusted to include certain cash, property and/or securities in
addition to, or in lieu of, the shares of portfolio common stock.
Portfolio value...................................... Portfolio value means the sum of the following:
. the products, for each of the portfolio securities, of the
market price of the common stock for each of the portfolio
securities multiplied by the applicable share multiplier for each
of the portfolio securities,
</TABLE>
PS-3
<PAGE>
<TABLE>
<S> <C>
. for any cash received in a Reorganization Event (as defined in
the section entitled "Dilution and Reorganization
Adjustments-Reorganization Events"), an amount equal to the amount
of cash received per share of the common stock of the applicable
portfolio security multiplied by the share multiplier in effect on
the date all of the holders of shares of such portfolio security
irrevocably receive such cash, plus accrued interest from the date
of the payment or delivery of the consideration, if any, received
in connection with the Reorganization Event until the stated
maturity date, date of early redemption or date of exchange, as the
case may be, at a fixed interest rate determined on the date of the
payment or delivery equal to the interest rate that would be paid
on a standard senior non-callable debt security of ML&Co. with a
term equal to the remaining term of the notes,
. for any property other than cash or securities received in a
Reorganization Event, the market value, as determined by the
calculation agent, of the property received for each share of the
applicable portfolio security at the date of the receipt of the
property multiplied by the then current share multiplier.
ML&Co. redemption.................................... We may redeem all of the notes, at any time, on any Business Day
after February 3, 2002, upon not more than 30 nor fewer than 15
calendar days notice to you. Any date on which we give you notice
that we are redeeming the notes is referred to as a redemption
notice date. Unless you have exchanged your notes prior to
February 3, 2002, you will receive interest through and including
February 3, 2002 regardless of whether we redeem all of the notes
after February 3, 2002.
If we redeem the notes, for each $1,000 principal amount of the
notes you own, we will deliver or pay to you an amount equal to the
greater of:
(i) the portfolio value on the first Trading Day following the
applicable redemption notice date; provided, however:
. that if a Market Disruption Event occurs on the first Trading
Day following the applicable redemption notice date, the portfolio
value shall be determined on the second Trading Day following the
applicable redemption notice date unless a Market Disruption Event
occurs on such second Trading Day, in which case the portfolio
value shall be determined on the third Trading Day following the
applicable redemption notice date regardless of whether a Market
Disruption Event occurs on such date; and
. that if the amount you receive is based on this formula, you
will not receive accrued interest from and including the
immediately preceding interest payment date through the date of
early redemption; or
(ii) $1,000 in cash plus accrued and unpaid interest on your notes
through but excluding the date of early redemption.
If the value of (i) above is greater than (ii) above, we will
deliver to you on the applicable settlement date the contents of
the portfolio which will equal the number of shares of portfolio
</TABLE>
PS-4
<PAGE>
<TABLE>
<S> <C>
common stock, other securities, cash and/or property, as
applicable, equal to the respective share multiplier for each of
the portfolio securities or for each such unit; provided, however,
that we will pay you cash in lieu of delivering fractional shares,
in an amount as determined by the calculation agent. However, if
in the opinion of the calculation agent there occurs a Market
Disruption Event on the third Trading Day following the applicable
redemption notice date, then upon early redemption, we will have
the option, but not the obligation, to pay you the U.S. dollar
equivalent of the portfolio value as determined by the calculation
agent according to the formula set forth above.
Alternatively, if the value of (ii) above is greater than (i)
above, we will pay you the value of (ii) in U.S. dollars. In the
event of certain reorganization events, the portfolio may be
adjusted to include certain cash, property and/or securities in
addition to, or in lieu of, the shares of portfolio common stock.
Once we have given notice that we are going to redeem the notes,
you are precluded from exercising the holder exchange right.
Holder exchange right................................ On any Trading Day after February 3, 2000 and ending the earlier of
(i) 15 scheduled Trading Days before the maturity date or (ii) the
redemption notice date, upon written notice to the calculation
agent and the trustee, you may exchange your notes for a number of
shares of the portfolio common stock, other securities, cash or
property, as applicable, equal to the respective share multiplier
for each of the portfolio securities or for each such unit, subject
to certain adjustments as described below in "Exchange Amount".
Any date on which you give us notice to cause us to exchange your
notes is referred to as the exchange notice date. If the
calculation agent receives your notice after 3:00 p.m. on any
Trading Day, the calculation agent will consider your notice as
received on the following Trading Day. The date the calculation
agent is deemed to have received your notice is referred to as the
exchange receipt date.
If you choose to exercise your holder exchange right, ML&Co. may no
longer redeem your notes as of the applicable exchange notice date.
Exchange Amount...................................... For each $1,000 principal amount of the notes you exchange, the
Exchange Amount will be the contents of the portfolio which will be
a number of shares of portfolio common stock, other securities,
cash and/or property equal to the respective share multiplier for
each of the portfolio securities or for each such unit on the first
Trading Day following the exchange receipt date; provided, however,
that you will not receive accrued interest from and including the
immediately preceding interest payment date through the date of
exchange. We will deliver these shares, other securities, cash
and/or property to you no more than 15 calendar days after the
exchange receipt date; provided, however, that we will pay you cash
in lieu of delivering fractional shares, in an amount as determined
by the calculation agent. However, if a Market Disruption Event
occurs on the first Trading Day following the applicable exchange
receipt date, the date of determination for the Exchange Amount
will be the second Trading Day following the applicable exchange
receipt date unless a Market Disruption Event occurs on such second
Trading Day, in which case the date of determination for the
Exchange Amount shall be the third Trading Day following the
applicable exchange receipt date regardless of whether a Market
Disruption Event occurs on such date; provided,
</TABLE>
PS-5
<PAGE>
<TABLE>
<S> <C>
further, that if in the opinion of the calculation agent there occurs a
Market Disruption Event on the third Trading Day following the applicable
exchange receipt date, then upon exchange, we will have the option, but not
the obligation, to pay you the U.S. dollar equivalent of the Exchange Amount
as determined by the calculation agent. In the event of certain
reorganization events, the portfolio may be adjusted to include certain cash,
property and/or securities in addition to, or in lieu of, the shares of
portfolio common stock.
Market price......................................... The market price for any date of determination on any Trading Day
means the official closing price, in the afternoon session, as
applicable, of one share of any portfolio security as reported by
the principal exchange on which each of the portfolio securities is
traded on that date.
If the official closing price is not available for any reason,
including, without limitation, the occurrence of a Market
Disruption Event, the market price for any portfolio security for
any date will be the arithmetic mean, as determined by the
calculation agent, of the bid prices for the security obtained from
as many dealers in the security, but not exceeding three, as have
made the bid prices available to the calculation agent after 3:00
p.m., local time in the principal market, on that date.
Trading Day.......................................... A day on which the NYSE, the AMEX and the Nasdaq Stock Market are
open for trading as determined by the calculation agent.
Business Day......................................... Any day other than a Saturday or Sunday that is neither a legal
holiday nor a day on which banking institutions are authorized or
required by law or regulation to close in The City of New York.
Calculation agent.................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated.
References to "MLPF&S" are to Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
All determinations made by the calculation agent shall be at the
sole discretion of the calculation agent and, absent manifest
error, shall be conclusive for all purposes and binding on ML&Co.
and beneficial owners of the notes.
All percentages resulting from any calculation on the notes will be
rounded to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded
upwards, e.g., 9.876545% (or .09876545) would be rounded to
9.87655% (or .0987655), and all dollar amounts used in or resulting
from this calculation will be rounded to the nearest cent with
one-half cent being rounded upwards.
</TABLE>
PS-6
<PAGE>
RISK FACTORS
Your investment in the notes will involve certain risks, including risks
not associated with similar investments in a conventional debt security. You
should consider carefully the following discussion of risks before you decide
that an investment in the notes is suitable for you.
The notes are subject to redemption before their maturity
We may elect to redeem all of the notes on any Business Day beginning after
February 3, 2002, upon not more than 30 nor fewer than 15 calendar days notice
to you. In the event that we elect to redeem the notes, you may receive an
amount that is less than the amount to which you would otherwise have been
entitled had you held the notes until maturity.
Your yield may be lower than the yield on a standard debt security of comparable
maturity
The amount we deliver or pay to you at maturity may be less than the return
you could earn on other investments. The terms of the notes differ from the
terms of ordinary debt securities because the amount deliverable at maturity in
excess of the principal amount is based substantially on the appreciation in
price, if any, of the portfolio securities on the third Trading Day before the
stated maturity date. Your yield may be less than the yield you would earn if
you bought a standard senior non-callable debt security of ML&Co. with the same
stated maturity date. Your investment may not reflect the full opportunity cost
to you when you consider the effect of factors that affect the time value of
money.
Your return on the notes will not reflect the payment of dividends
The calculation of the market price of the portfolio securities, and in
certain circumstances, other securities, cash and/or property, and any amounts
deliverable or payable to you at maturity or upon any redemption or exchange, as
the case may be, does not take into consideration the value of cash dividends,
if any, paid on the portfolio securities, other than as described in the section
entitled "Dilution and Reorganization Adjustments". Your return will not be the
same as the return you could earn by owning the portfolio securities directly
and receiving the dividends, if any, paid on those securities.
There may be an uncertain trading market for the notes
The notes have been approved for listing on the AMEX under the symbol
"TIL.A", subject to official notice of issuance. There is no historical
information to indicate how the notes will trade in the secondary market.
Listing the notes on the AMEX does not necessarily ensure that a liquid trading
market will develop for the notes. The development of a liquid trading market
for the notes will depend on our financial performance and other factors such as
the appreciation, if any, in the price of the portfolio securities. In
addition, it is unlikely that the secondary market price of the notes will
correlate exactly with the value of the portfolio securities.
If the trading market for the notes is limited, there may be a limited
number of buyers when you decide to sell your notes if you do not wish to hold
your investment until the maturity date. This may affect the price you receive.
Many factors affect the trading value of the 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 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 notes caused by
another factor and that the effect of one factor may exacerbate the decrease in
the trading value of the notes 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 notes attributable to another factor, such as an increase in the
value of the portfolio securities. The following paragraphs describe the
expected impact on the market value of the notes given a change in a specific
factor, assuming all other conditions remain constant.
The portfolio value is expected to affect the trading value of the notes.
The market value of the notes will depend substantially on the value of the
portfolio. In general, the value of the notes will decrease as the value of the
portfolio decreases and the value of the notes will increase as the value of the
portfolio securities increases. However, as the value of the portfolio
increases or decreases, the value of the notes is not expected to increase or
decrease at the same rate as the change in value of the portfolio. You should
understand that for each $1,000 principal amount of the notes that you own, you
will not receive more than $1,000 on the maturity date unless the market price
of the portfolio has
PS-7
<PAGE>
appreciated by more than approximately 27.50% from the original pricing date to
the period in which the calculation agent calculates the amount payable at
maturity on the notes. Additionally, political, economic and other developments
that can affect the capital markets generally and the market segment of which
the portfolio securities are a part, and over which we have no control, may
affect the value of the portfolio and, consequently, may also affect the value
of the notes.
Changes in the levels of interest rates are expected to affect the trading
value of the notes. In general, we anticipate that if U.S. interest rates
increase, the trading value of the notes will decrease, and conversely, if U.S.
interest rates decrease, the trading value of the notes will increase. In
general, fluctuations in interest rates will affect the U.S. economy and, in
turn, the value of the portfolio securities. Rising interest rates may lower
the value of the portfolio and, as a result, the value of the notes. Falling
interest rates may increase the value of the portfolio and, as a result, may
increase the value of the notes.
Changes in the volatility of the portfolio are expected to affect the
trading value of the notes. Volatility is the term used to describe the size
and frequency of market price fluctuations. In general, if the volatility of
the portfolio increases, we expect that the trading value of the notes will
increase and if the volatility of the portfolio decreases, we expect that the
trading value of the notes will decrease.
As the time remaining to maturity of the notes decreases, the "time
premium" associated with the notes will decrease. We believe that before the
maturity date the notes will trade at a value above that which would be expected
based on the value of the portfolio. In general, as the time remaining to
maturity decreases, including because of early redemption at our option, the
value of the notes will approach the amount that would be payable at maturity or
early redemption, as the case may be, based on the then-current value of the
portfolio. As a result, as the time remaining to maturity, or early redemption,
decreases, any premium attributed to the trading value of the notes will
diminish, decreasing the trading value of the notes, as applicable.
Changes in dividend yield on the portfolio securities are expected to
affect the trading value of the notes. In general, if the dividend yield, if
any, on the portfolio securities increases, we expect that the value of the
notes will decrease, and conversely, if the dividend yield, if any, on the
portfolio securities decreases, we expect that the value of the notes will
increase.
Changes in our credit ratings may affect the trading value of the 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 notes. However, because your return on your notes is
dependent upon factors in addition to our ability to pay our obligations under
the notes, such as the percentage increase in the value of the portfolio
securities, an improvement in our credit ratings will not reduce the investment
risks related to the notes.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the notes of a given change in most of the
factors listed above will be less if it occurs later in the term of the notes
than if it occurs earlier in the term of the notes.
The amount payable at maturity is not subject to adjustment for all corporate
events
The amount that you are entitled to receive on the maturity date or upon
early redemption or exchange of the notes is subject to adjustment for the
specified corporate events affecting the portfolio securities described in the
section entitled "Dilution and Reorganization Adjustments". However, these
adjustments do not cover all corporate events that could affect the market price
of the portfolio securities. The occurrence of any other event not described
under "Dilution and Reorganization Adjustments" may adversely affect the
determination of the market price and the trading value of the notes.
No affiliation between ML&Co. and the issuers of the portfolio securities
We are not affiliated with the issuers of the portfolio securities, and
they have no obligations with respect to the notes or amounts to be paid to you,
including any obligation to take the needs of ML&Co. or of beneficial owners of
the notes into consideration for any reason. The issuers of the portfolio
securities will not receive any of the proceeds of the offering of the notes
made hereby and are not responsible for, and have not participated in, the
determination or calculation of the amount receivable by beneficial owners of
the notes on the maturity date. In addition, the issuers of the portfolio
securities are not involved with the administration or trading of the notes and
have no obligations with respect to the amount receivable by beneficial owners
of the notes.
PS-8
<PAGE>
As a holder of the notes, you have no stockholder rights with respect to the
portfolio securities
You will not be entitled to any rights with respect to the portfolio
securities including, without limitation, the right to receive dividends or
other distributions, if any, on, to vote or to tender or exchange the portfolio
securities in any tender or exchange offer by the issuers of the portfolio
securities or any third party.
Amounts payable on the notes may be limited by state law
New York State law governs the 1993 Indenture under which ML&Co. will issue
the notes. New York has certain usury laws that limit the amount of interest
that can be charged and paid on loans, which includes Notes like the notes.
Under present New York law, the maximum rate of interest is 25% per annum on a
simple interest basis. This limit may not apply to Notes in which $2,500,000 or
more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws that
regulate the amount of interest that may be charged to and paid by a borrower.
We will promise, for your benefit, to the extent permitted by law, not to
voluntarily claim the benefits of any laws concerning usurious rates of
interest.
Potential conflicts
The calculation agent for the notes is one of our subsidiaries. Under
certain circumstances, MLPF&S' role as our subsidiary and its responsibilities
as calculation agent for the notes could give rise to conflicts of interests
between the calculation agent and the holders of the notes. These conflicts
could occur, for instance, in connection with the calculation agent's
determination as to whether a Market Disruption Event (as defined herein) has
occurred or in connection with judgments that the calculation agent would be
required to make with respect to certain anti-dilution and reorganization
adjustments to the market price of any of the portfolio securities or other
securities, cash or property included in the portfolio. 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 under the
notes. Our subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
Uncertain tax consequences
You should also consider the tax consequences of investing in the notes,
certain aspects of which are uncertain. See "United States Federal Income
Taxation" below.
WHERE YOU CAN FIND MORE INFORMATION
ML&Co.
We file reports, proxy statements and other information with the SEC. Our
SEC filings are also available over the Internet at the SEC's website at
http://www.sec.gov. You may also read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more information
on the public reference rooms and their copying charges. You may also inspect
our SEC reports and other information at the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
We will send you copies of our SEC filings, excluding exhibits, at no cost
upon request. Please address your request to Lawrence M. Egan, Jr., Corporate
Secretary's Office, Merrill Lynch & Co., Inc., 222 Broadway, 17th Floor, New
York, New York 10038; telephone number (212) 670-0425.
The issuers of the portfolio securities
The issuers of the portfolio securities file reports, proxy statements and
other information with the SEC. Information provided to or filed with the SEC
by the issuers pursuant to the Exchange Act can be located at the SEC's
facilities or accessed through the SEC's website by reference to SEC file number
1-11639 for Lucent Technologies Inc., 1-07260 for Nortel Networks Corporation
and 1-3761 for Texas Instruments Incorporated. You may also inspect the
issuers'
PS-9
<PAGE>
SEC reports and other information at the NYSE. In addition, information
regarding the issuers may be obtained from other sources including, but not
limited to, press releases, newspaper articles and other publicly disseminated
documents. We make no representation or warranty as to the accuracy or
completeness of the information or reports.
DILUTION AND REORGANIZATION ADJUSTMENTS
The share multiplier with respect to any component of the portfolio used to
calculate the amount deliverable or payable to you on any date of determination
is subject to adjustment by the calculation agent as a result of the dilution
and reorganization adjustments described in this section.
Stock splits and reverse stock splits
If a portfolio security is subject to a stock split or reverse stock split,
then once any split has become effective, the share multiplier relating to such
portfolio security will be adjusted to equal the product of the prior share
multiplier and the number of shares which a holder of one share of common stock
of the issuer of such portfolio security before the effective date of that stock
split or reverse stock split would have owned or been entitled to receive
immediately following the applicable effective date.
Stock dividends
If a portfolio security is subject to a stock dividend, i.e., issuance of
additional shares of the portfolio security, that is given ratably to all
holders of shares of common stock of the issuer of such portfolio security, then
once the shares are trading ex-dividend, the share multiplier will be adjusted
so that the new share multiplier shall equal the prior share multiplier plus the
product of:
. the number of shares of such portfolio security issued with respect to
one share of such portfolio security, multiplied by
. the prior share multiplier.
Extraordinary Dividends
There will be no adjustments to the share multiplier to reflect cash
dividends or distributions paid, if any, with respect to a portfolio security
other than distributions described under clause (e) of the section entitled "--
Reorganization Events" below and Extraordinary Dividends as described below.
An "Extraordinary Dividend" means, with respect to a cash dividend or other
distribution with respect to a portfolio security, the extent to which a
dividend or other distribution exceeds the immediately preceding non-
Extraordinary Dividend for such portfolio security by an amount equal to at
least 10% of the market price of such portfolio security on the Trading Day
preceding the ex-dividend date with respect to the Extraordinary Dividend (the
"ex-dividend date"). If an Extraordinary Dividend occurs with respect to a
portfolio security, the share multiplier will be adjusted on the ex-dividend
date with respect to the Extraordinary Dividend so that the new share multiplier
will equal the product of:
. the then-current share multiplier, multiplied by
. a fraction, the numerator of which is the closing price per share of the
issuer of such portfolio security on the Trading Day preceding the ex-
dividend date, and the denominator of which is the amount by which the
closing price on the Trading Day preceding the ex-dividend date exceeds
the Extraordinary Dividend Amount.
The "Extraordinary Dividend Amount" with respect to an Extraordinary
Dividend for a portfolio security will equal:
. in the case of cash dividends or other distributions that constitute
quarterly dividends, the amount per share of that Extraordinary Dividend
minus the amount per share of the immediately preceding non-Extraordinary
Dividend, or
PS-10
<PAGE>
. in the case of cash dividends or other distributions that do not
constitute quarterly dividends, the amount per share of that
Extraordinary Dividend.
To the extent an Extraordinary Dividend is not paid in cash, the value of
the non-cash component will be determined by the calculation agent, whose
determination shall be conclusive. A distribution on a portfolio security
described in clause (e) of the section entitled "--Reorganization Events" below
that also constitutes an Extraordinary Dividend shall cause an adjustment to the
share multiplier pursuant only to clause (e) under the section entitled "--
Reorganization Events".
Issuance of transferable rights or warrants
If the issuer of one of the portfolio securities issues transferable rights
or warrants to all holders of such portfolio security to subscribe for or
purchase such portfolio security, including new or existing rights to purchase
such portfolio security pursuant to a shareholder's rights plan or arrangement,
once a triggering event shall have occurred thereunder, at an exercise price per
share less than the closing price of one share of such portfolio security on:
. the date the exercise price of those rights or warrants is determined and
. the expiration date of those rights or warrants,
then, in each case, if the expiration date of those rights or warrants precedes
the maturity date, then the share multiplier will be adjusted to equal the
product of the prior share multiplier and a fraction, the numerator of which
shall be the number of shares of such portfolio security outstanding immediately
prior to the issuance plus the number of additional shares of such portfolio
security offered for subscription or purchase pursuant to those rights or
warrants and the denominator of which shall be the number of shares of such
portfolio security outstanding immediately prior to the issuance plus the number
of additional shares of such portfolio security which the aggregate offering
price of the total number of shares of such portfolio security so offered for
subscription or purchase pursuant to those rights or warrants would purchase at
the closing price of one share of such portfolio security on the expiration date
of those rights or warrants, which shall be determined by multiplying the total
number of shares offered by the exercise price of those rights or warrants and
dividing the product so obtained by the closing price.
Reorganization Events
If before the maturity date of the notes,
(a) there occurs any reclassification or change of any portfolio security,
(b) the issuer of such portfolio security, or any surviving entity or
subsequent surviving entity of the issuer of such portfolio security
(a "Successor Entity"), has been subject to a merger, combination or
consolidation and is not the surviving entity,
(c) any statutory exchange of securities of any issuer of the portfolio
securities or any Successor Entity with another corporation occurs,
other than pursuant to clause (b) above,
(d) any issuer of the portfolio securities is liquidated,
(e) any issuer of the portfolio securities issues to all of its
shareholders equity securities of an issuer other than such issuer of
the portfolio securities, other than in a transaction described in
clauses (b), (c) or (d) above (a "Spin-off Event"), or
(f) a tender or exchange offer is consummated for all the outstanding
shares of any issuer of the portfolio securities (an event in clauses
(a) through (f) a "Reorganization Event"),
then the portfolio shall be adjusted to include the Reorganization Event Amount.
The "Reorganization Event Amount" shall be determined by the calculation
agent and shall equal:
PS-11
<PAGE>
(1) for any cash received in a Reorganization Event, an amount equal to the
amount of cash received per share of the common stock of such portfolio
security multiplied by the share multiplier in effect on the date all
of the holders of shares of such portfolio security irrevocably receive
such cash, plus accrued interest on the Reorganization Event Amount
accruing from the date of the payment or delivery of the consideration,
if any, received in connection with the Reorganization Event until the
stated maturity date, date of early redemption or upon exchange, as the
case may be, at a fixed interest rate determined on the date of the
payment or delivery equal to the interest rate that would be paid on a
standard senior non-callable debt security of ML&Co. with a term equal
to the remaining term of the notes,
(2) for any property other than cash or securities received in a
Reorganization Event, the market value, as determined by the
calculation agent, of the property received for each share of such
portfolio security at the date of the receipt of the property
multiplied by the then current share multiplier and payable in cash,
(3) for any security received in a Reorganization Event, the number of
shares of such security on the applicable date of determination for
maturity, the date of early redemption, or the exchange date, as the
case may be, equal to the then current share multiplier, and
(4) for any security received in the case of a Spin-off Event, in addition
to the shares of such portfolio security, the number of shares of such
security on the applicable date of determination for maturity, the date
of early redemption, or the exchange date as the case may be,
multiplied by the then current share multiplier.
The share multiplier with respect to these securities shall equal the
product of the share multiplier in effect for the portfolio security
at the time of the issuance of these securities multiplied by the
number of shares of these securities issued with respect to one share
of such portfolio security. The share multiplier of these securities
will be subject to the same adjustments as that of the share
multiplier of the portfolio security. The amount to be delivered
shall be calculated so as to include any securities received in the
Spin-off Event in addition to the shares of the portfolio common stock
already included in the amount due at maturity or upon redemption or
exchange.
"Exchange Property" means the securities, cash or any other assets
distributed in a Reorganization Event, including, in the case of a Spin-off
Event, the share of the portfolio security with respect to which the spun-off
security was issued.
For purposes of this section, in the case of a consummated tender or
exchange offer for all Exchange Property of a particular type, Exchange Property
shall be deemed to include the amount of cash or other property paid by the
offeror in the tender or exchange offer for the Exchange Property, in an amount
determined on the basis of the rate of exchange in that tender or exchange
offer. In the event of a tender or exchange offer with respect to Exchange
Property in which an offeree may elect to receive cash or other property,
Exchange Property shall be deemed to include the kind and amount of cash and
other property received by offerees who elect to receive cash.
If the issuer of such portfolio security, or any Successor Entity, has been
subject to a merger, combination or consolidation and is not the surviving
entity, or a tender or exchange offer is consummated for all the outstanding
shares of such issuer, then the amount to be delivered shall be calculated to
include securities, if any, received in that event instead of such portfolio
common stock. The share multiplier for these securities shall equal the product
of the share multiplier in effect for such portfolio common stock at the time of
the issuance of the securities multiplied by the number of shares of the
securities issued with respect to one share of the portfolio common stock. The
share multiplier of these securities will be subject to the same adjustments as
that of the share multiplier of the portfolio common stock.
Adjustments to the share multiplier
No adjustments to the share multiplier will be required unless the share
multiplier adjustment would require a change of at least 0.1% in the share
multiplier then in effect. The share multiplier resulting from any of the
adjustments specified above will be rounded to the nearest one thousandth with
five ten-thousandths being rounded upward.
No adjustments to the share multiplier will be required other than those
specified above. However, ML&Co. may, at its sole discretion, cause the
calculation agent to make additional adjustments to the share multiplier to
reflect changes occurring in relation to any portfolio security or any other
Exchange Property in other circumstances where
PS-12
<PAGE>
ML&Co. determines that it is appropriate to reflect those changes. The required
adjustments specified above do not cover all events that could affect the
closing price, as applicable, of such portfolio security, including, without
limitation, a partial tender or exchange offer for such portfolio security.
MLPF&S, as calculation agent, shall be solely responsible for the
determination and calculation of any adjustments to the share multiplier and of
any related determinations and calculations with respect to any distributions of
stock, other securities or other property or assets, including cash, in
connection with any corporate event described above, and its determinations and
calculations shall be conclusive absent manifest error.
No adjustments will be made for certain other events, such as offerings of
the common stock by the issuer of such portfolio security for cash or in
connection with acquisitions or the occurrence of a partial tender or exchange
offer for the common stock of the issuer of such portfolio security by such
issuer or any third party.
ML&Co. will, within ten Business Days following the occurrence of an event
that requires an adjustment to the share multiplier, or if ML&Co. is not aware
of this occurrence, as soon as practicable after becoming so aware, provide
written notice to the trustee, which shall provide notice to the holders of the
notes of the occurrence of this event and, if applicable, a statement in
reasonable detail setting forth the adjusted share multiplier.
MARKET DISRUPTION EVENT
"Market Disruption Event" means:
(1) a suspension, absence, including the absence of an official closing
price, or material limitation of trading of any portfolio security
on the NYSE or the Nasdaq Stock Market for more than two hours of
trading or during the one-half hour period preceding or at the close
of trading, as determined by the calculation agent in its sole
discretion; or the suspension or material limitation on the primary
market for trading in options contracts related to any portfolio
security, if available, during the one-half hour period preceding or
at the close of trading in the applicable market, in each case as
determined by the calculation agent in its sole discretion; and
(2) a determination by the calculation agent in its sole discretion that
the event described in clause (1) above materially interfered with
the ability of ML&Co. or any of its affiliates or MLPF&S to unwind
all or a material portion of the hedge with respect to the notes or
to purchase shares of any of the portfolio common stock for the
purpose of delivering either the Exchange Amount, an amount due upon
early redemption or an amount at maturity.
For purposes of determining whether a Market Disruption Event has occurred:
(1) a limitation on the hours or number of days of trading will not
constitute a Market Disruption Event if it results from an announced
change in the regular business hours of the relevant exchange,
(2) a decision to permanently discontinue trading in the relevant
options contract will not constitute a Market Disruption Event,
(3) limitations pursuant to any rule or regulation enacted or
promulgated by the NYSE or the Nasdaq Stock Market or other
regulatory organization with jurisdiction over the NYSE or the
Nasdaq Stock Market on trading during significant market
fluctuations will constitute a suspension or material limitation of
trading in any portfolio security,
(4) a suspension of trading in an options contract on any portfolio
security by the primary securities market trading in the options, if
available, by reason of:
. a price change exceeding limits set by the securities exchange or
market
. an imbalance of orders relating to the contracts or
. a disparity in bid and ask quotes relating to the contracts will
constitute a suspension or material limitation of trading in
options contracts related to such portfolio security, and
PS-13
<PAGE>
(5) a suspension, absence or material limitation of trading on the
primary securities market on which options contracts related to any
portfolio security are traded will not include any time when that
securities market is itself closed for trading under ordinary
circumstances.
If the Reorganization Event Amount includes securities other than the
portfolio security, then the above definition shall be revised to include each
such security in the same manner as the portfolio security is considered in
determining whether a Market Disruption Event exists. The definition of Market
Disruption Event shall only consider those securities included in determining
the Reorganization Event Amount, and thus if such portfolio security is not
included in the determination of the Reorganization Event Amount, then the
portfolio security shall not be considered in determining whether a Market
Disruption Event exists.
EVENTS OF DEFAULT AND ACCELERATION
In case an Event of Default with respect to any notes has occurred and
is continuing, the amount payable or deliverable to a beneficial owner of a note
upon any acceleration permitted by the notes will be determined by the
calculation agent as if the date of early repayment were the maturity date. If
a bankruptcy proceeding is commenced in respect of ML&Co., the claim of the
beneficial owner of a note may be limited, under Section 502(b)(2) of Title 11
of the United States Code, to the principal amount of the note plus an
additional amount of contingent interest calculated as though the date of the
commencement of the proceeding were the maturity date of the notes.
THE PORTFOLIO
The following information has been derived from publicly available
documents published by Lucent Technologies Inc., Nortel Networks Corporation and
Texas Instruments Incorporated. We make no representation or warranty as to the
accuracy or completeness of the following information:
Lucent Technologies Inc. ("Lucent") is a Delaware corporation and has its
principal executive offices in Murray Hill, New Jersey. Lucent is one of the
world's leading designers, developers and manufacturers of communication
systems, software and products. Lucent is a global leader in the sale of public
and private communications systems, supplying systems and software to most of
the world's largest communications network operators and service providers.
Lucent is also a global leader in the sale of business communications systems
and in the sale of microelectronic components for communications applications to
manufacturers of communications systems and computers. Lucent's research and
development activities are conducted through Bell Laboratories, one of the
world's foremost industrial research and development organizations.
Nortel Networks Corporation ("Nortel") is a Canadian corporation with its
principal office in Brampton, Ontario, Canada. Nortel is a leading global
supplier of data and telephony network solutions and services. Its business
consists of the design, development, manufacture, marketing, sale, financing,
installation, servicing and support of data and telephony networks for public
and private institutions; local, long-distance, personal communications services
and cellular mobile communications companies; cable television companies;
Internet service providers; and utilities.
Texas Instruments Incorporated ("Texas Instruments") is a Delaware
corporation and is headquartered in Dallas, Texas. Texas Instruments is a
global semiconducter company and the world's leading designer and supplier of
digital signal processors and analog integrated circuits. The semiconducter
industry is intensely competitive, subject to rapid technological change and
pricing pressures, and requires high rates of investment. Texas Instruments
faces strong competition in all of its semiconducter product lines. Texas
Instruments has undertaken a business strategy that focuses on developing and
marketing digital signal processors and analog integrated circuits, while the
company has divested certain of its businesses and acquired others and invested
its resources with the view of furthering its focus on these products.
In general, while the portfolio consists of the common stock issued by
three companies involved in the technology industry, the portfolio is not
intended to provide an indication of the pattern of price movements of common
stocks of technology corporations. See the section entitled "Risk Factors -
General" in this pricing supplement. Each of the portfolio securities is
presently registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Companies with securities registered under the Exchange Act
are required to file periodically certain financial and other information
specified by the SEC. Information provided to or filed with the SEC by Lucent,
Nortel and Texas Instruments can be located at the SEC's facilities or through
the SEC's website by reference to SEC file number 1-11639 for Lucent
Technologies Inc., 1-07260 for Nortel Networks Corporation and 1-3761 for Texas
Instruments Incorporated.
PS-14
<PAGE>
See "Where You Can Find More Information". ML&Co. makes no representation or
warranty as to the accuracy or completeness of the information or reports.
The inclusion of a portfolio security in the portfolio is not a
recommendation to buy or sell such portfolio security and neither ML&Co. nor any
of its affiliates nor MLPF&S makes any representation to any purchaser of notes
as to the performance of the portfolio.
ML&Co. is not affiliated with any of the issuers of the portfolio
securities and the issuers of the portfolio securities does not have any
obligations with respect to the notes. This pricing supplement relates only to
the notes and does not relate to the portfolio securities or other securities of
the issuers of the portfolio securities. All disclosures contained in this
pricing supplement regarding the issuer of the portfolio securities are derived
from the publicly available documents described in the preceding paragraph.
Neither ML&Co. nor MLPF&S has participated in the preparation of these documents
or made any due diligence inquiry with respect to the issuer of the portfolio
securities in connection with the offering of the notes. Neither ML&Co. nor
MLPF&S makes any representation that the publicly available documents or any
other publicly available information regarding the issuers of the portfolio
securities are accurate or complete. Furthermore, there can be no assurance
that all events occurring prior to the date hereof, including events that would
affect the accuracy or completeness of the publicly available documents
described in the preceding paragraph, that would affect the trading price of the
portfolio securities have been publicly disclosed. Subsequent disclosure of any
events or the disclosure of or failure to disclose material future events
concerning the issuers of the portfolio securities could affect the amount
received at maturity with respect to the notes and therefore the trading prices
of the notes. Neither ML&Co. nor MLPF&S makes any representation to any
purchaser of the notes as to the performance of the portfolio securities.
ML&Co. or its affiliates may presently or from time to time engage in
business, directly or indirectly, with the issuers of the portfolio securities
including extending loans to, or making equity investments in, such issuers or
providing investment banking or advisory services to such issuers, including
merger and acquisition advisory services. In the course of such business,
ML&Co. or its affiliates may acquire non-public information with respect to such
issuers and, in addition, one or more affiliates of ML&Co. may publish research
reports with respect to such issuers.
Any prospective purchaser of a note should undertake an independent
investigation of the issuers of the portfolio securities as in its judgment is
appropriate to make an informed decision with respect to an investment in the
notes.
Computation of the amount payable or deliverable at maturity or upon early
redemption or exchange
The amount payable or deliverable at maturity or upon earlier redemption or
exchange, as the case may be, will be the portfolio value as determined by the
calculation agent. The securities listed in the following table are the
portfolio securities and will be used to calculate the amount payable to you.
The following table sets forth for each portfolio security: the issuer, the
primary market or securities exchange on which the portfolio security is traded,
the approximate market capitalization, the percentage of each portfolio security
in the portfolio, the initial price and the initial share multipliers:
<TABLE>
<CAPTION>
Approximate
market capitalization
Issuer of the as of Initial
Portfolio security Primary market January 27, 2000 % of portfolio Initial price share multiplier
- --------------------------------- -------------- --------------------- -------------- ------------- ----------------
(in millions)
<S> <C> <C> <C> <C> <C>
Lucent Technologies Inc.......... NYSE $173,590 33.3% $ 57.2122 (4.5695 x 0.7843)
Nortel Networks Corporation...... NYSE $125,099 33.3% $ 98.6801 (2.6493 x 0.7843)
Texas Instruments
Incorporated.................... NYSE $ 84,887 33.3% $113.4821 (2.3037 x 0.7843)
</TABLE>
The initial share multiplier relating to each portfolio security is equal
to the quotient $333.33, the proportionate representation of each portfolio
security in the portfolio, and the initial share price of such portfolio
security multiplied by 0.7843, the exchange ratio, so that each portfolio
security initially represents an approximately equal percentage of the portfolio
as described in the section entitled "The Portfolio". The price of each
portfolio security used to calculate the initial share multiplier relating to
each such portfolio security was determined by the calculation agent. The
respective share multipliers will remain constant for the term of the notes
unless adjusted for certain corporate events as described in "Dilution and
Reorganization Adjustments".
PS-15
<PAGE>
Data on the portfolio securities
Lucent Technologies Inc., Nortel Networks Corporation and Texas Instruments
Incorporated common stock is principally traded on the NYSE. The following
table sets forth the high and low closing prices during 1996, 1997, 1998, 1999
and during 2000 through January 27, 2000. On January 27, 2000, the last
recorded transaction price on the Lucent Technologies Inc. common stock was $57
7/16 per share, Nortel Networks Corporation common stock was $97 11/16 per share
and Texas Instruments Incorporated common stock was $113 3/16 per share. The
closing prices and dividends per share listed below were obtained from Bloomberg
Financial Markets. The historical closing prices of the portfolio securities
should not be taken as an indication of future performance, and no assurance can
be given that the price of the portfolio securities will not decrease. In
addition, no assurance can be given that the price of the portfolio securities
will increase above the issue price so that at maturity the beneficial owners of
the notes will receive cash in an amount in excess of the principal amount of
the notes.
Portfolio securities
- --------------------
<TABLE>
<CAPTION>
Dividends per
High Low Share.
----------------- ---------------- ----------------
<S> <C> <C> <C>
Lucent Technologies Inc.
1996
First Quarter...................................... N/A N/A N/A
Second Quarter..................................... $ 9 25/32 $ 7 21/32 $0.01875
Third Quarter...................................... $ 11 15/32 $ 8 15/32 $0.01875
Fourth Quarter..................................... $ 13 1/8 $ 10 3/4 $0.01875
1997
First Quarter...................................... $ 14 29/32 $ 11 5/16 $0.01875
Second Quarter..................................... $ 18 9/32 $ 12 9/16 $0.01875
Third Quarter...................................... $ 22 11/64 $18 23/64 $0.01875
Fourth Quarter..................................... $ 22 1/4 $18 15/64 $0.01875
1998
First Quarter...................................... $ 31 31/32 $18 11/16 $0.01875
Second Quarter..................................... $ 41 19/32 $ 33 1/32 $ 0.02
Third Quarter...................................... $ 51 1/8 $ 34 5/8 $ 0.02
Fourth Quarter..................................... $ 56 1/32 $ 28 1/2 $ 0.02
1999
First Quarter...................................... $ 58 19/32 $ 48 $ 0.02
Second Quarter..................................... $ 67 7/16 $ 52 3/8 $ 0.02
Third Quarter...................................... $ 78 7/16 $ 61 5/8 $ 0.02
Fourth Quarter..................................... $ 82 9/32 $ 56 3/8 $ 0.02
</TABLE>
________________________
1 ML&Co. makes no representation as to the amount of dividends, if any,
that issuers of the portfolio securities will pay in the future. Holders of
the notes will not be entitled to receive dividends, if any, that may be
payable on the portfolio securities.
PS-16
<PAGE>
<TABLE>
<CAPTION>
Dividends per
High Low Share.
----------------- ---------------- ----------------
<S> <C> <C> <C>
2000
First Quarter (through January 27, 2000)........... $ 77 1/8 $ 50 1/2 $ 0.02
Nortel Networks Corporation
1996
First Quarter...................................... $ 12 21/32 $ 10 5/16 $ 0.0275
Second Quarter..................................... $ 13 25/32 $11 27/32 $ 0.0325
Third Quarter...................................... $ 14 11/16 $ 11 3/4 $ 0.0325
Fourth Quarter..................................... $ 16 13/16 $ 14 9/32 $ 0.0325
1997
First Quarter...................................... $ 19 1/4 $ 15 7/16 $ 0.0325
Second Quarter..................................... $ 22 3/4 $15 13/16 $ 0.0375
Third Quarter...................................... $ 26 45/64 $23 17/64 $ 0.0375
Fourth Quarter..................................... $ 28 5/64 $20 13/16 $ 0.0375
1998
First Quarter...................................... $ 32 5/16 $ 20 $ 0.0375
Second Quarter..................................... $ 34 7/32 $ 26 1/4 $ 0.0375
Third Quarter...................................... $ 30 21/32 $ 16 1/32 $ 0.0375
Fourth Quarter..................................... $ 25 25/32 $ 14 1/32 $ 0.0375
1999
First Quarter...................................... $ 31 9/16 $ 25 1/2 $ 0.0375
Second Quarter..................................... $ 43 15/16 $31 25/32 $ 0.0375
Third Quarter...................................... $ 51 $ 40 1/2 $ 0.0375
Fourth Quarter..................................... $ 108 5/8 $ 50 1/16 $ 0.0375
2000
First Quarter (through January 27, 2000)........... $ 108 7/8 $ 77 N/A
Texas Instruments Incorporated
1996
First Quarter...................................... $ 13 21/32 $10 11/16 $ 0.0425
Second Quarter..................................... $ 14 25/32 $ 12 9/32 $ 0.0425
</TABLE>
________________________
1 ML&Co. makes no representation as to the amount of dividends, if any,
that issuers of the portfolio securities will pay in the future. Holders of
the notes will not be entitled to receive dividends, if any, that may be
payable on the portfolio securities.
PS-17
<PAGE>
<TABLE>
<CAPTION>
Dividends per
High Low Share.
----------------- ---------------- ----------------
<S> <C> <C> <C>
Third Quarter...................................... $ 14 15/32 $ 10 7/16 $ 0.0425
Fourth Quarter..................................... $ 16 3/4 $ 12 $ 0.0425
1997
First Quarter...................................... $ 21 15/32 $ 15 5/8 $ 0.0425
Second Quarter..................................... $ 23 7/8 $18 11/16 $ 0.0425
Third Quarter...................................... $ 34 29/32 $21 19/32 $ 0.0425
Fourth Quarter..................................... $ 35 1/4 $ 20 7/16 $ 0.0425
1998
First Quarter...................................... $ 30 3/4 $20 13/16 $ 0.0425
Second Quarter..................................... $ 33 1/8 $ 24 $ 0.0425
Third Quarter...................................... $ 31 19/32 $23 11/16 $ 0.0425
Fourth Quarter..................................... $ 44 17/32 $23 19/32 $ 0.0425
1999
First Quarter...................................... $ 52 1/2 $ 43 1/4 $ 0.0425
Second Quarter..................................... $ 72 $ 50 $ 0.0425
Third Quarter...................................... $ 91 5/8 $ 67 5/8 $ 0.0425
Fourth Quarter..................................... $108 31/64 $ 77 3/4 $ 0.0425
2000
First Quarter (through January 27, 2000)........... $ 113 7/8 $ 93 1/2 $ 0.0425
</TABLE>
________________________
1 ML&Co. makes no representation as to the amount of dividends, if any,
that issuers of the portfolio securities will pay in the future. Holders of
the notes will not be entitled to receive dividends, if any, that may be
payable on the portfolio securities.
USE OF PROCEEDS AND HEDGING
The net proceeds to be received by ML&Co. from the sale of the notes will
be used for general corporate purposes and, in part, by ML&Co. or one or more of
its affiliates in connection with hedging ML&Co.'s obligations under the notes.
See also "Use of Proceeds" in the accompanying prospectus.
In connection with ML&Co.'s obligations under the notes, ML&Co. has entered
into hedging arrangements related to the portfolio securities with MLPF&S.
MLPF&S has purchased shares of the portfolio securities in secondary market
transactions at or before the time of the pricing of the notes. MLPF&S and
other affiliates of ML&Co. may from time to time buy or sell the portfolio
securities for their own accounts, for business reasons or in connection with
hedging ML&Co.'s obligations under the notes. These transactions could affect
the price of the portfolio securities.
PS-18
<PAGE>
UNITED STATES FEDERAL INCOME TAXATION
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization, for United
States federal income tax purposes, of the notes or securities with terms
substantially the same as the notes. However, although the matter is not free
from doubt, under current law, each note should be treated as a debt instrument
of ML&Co. for United States federal income tax purposes. ML&Co. currently
intends to treat each note as a debt instrument of ML&Co. for United States
federal income tax purposes and, where required, intends to file information
returns with the Internal Revenue Service ("IRS") in accordance with such
treatment, in the absence of any change or clarification in the law, by
regulation or otherwise, requiring a different characterization of the notes.
Prospective investors in the notes should be aware, however, that the IRS is not
bound by ML&Co.'s characterization of the notes as indebtedness, and the IRS
could possibly take a different position as to the proper characterization of
the notes for United States federal income tax purposes. The following
discussion of the principal United States federal income tax consequences of the
purchase, ownership and disposition of the notes is based upon the assumption
that each note will be treated as a debt instrument of ML&Co. for United States
federal income tax purposes. If the notes are not in fact treated as debt
instruments of ML&Co. for United States federal income tax purposes, then the
United States federal income tax treatment of the purchase, ownership and
disposition of the notes could differ from the treatment discussed below with
the result that the timing and character of income, gain or loss recognized in
respect of a note could differ from the timing and character of income, gain or
loss recognized in respect of a note had the notes in fact been treated as debt
instruments of ML&Co. for United States federal income tax purposes.
As used in this prospectus supplement, the term "U.S. Holder" means a
beneficial owner of a note that is for United States Federal income tax purposes
(a) a citizen or resident of the United States, (b) a corporation, partnership
or other entity treated as a corporation or a partnership 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 (other than a
partnership that is not treated as a United States person under any applicable
Treasury regulations), (c) an estate the income of which is subject to United
States federal income taxation regardless of its source, (d) a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust, or (e) any other
person whose income or gain in respect of a note is effectively connected with
the conduct of a United States trade or business. Notwithstanding clause (d) of
the preceding sentence, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, and treated as United States persons
prior to that date that elect to continue to be treated as United States persons
also will be a U.S. Holder. 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
On June 11, 1996, the Treasury Department issued final regulations (the
"Final Regulations") concerning the proper United States federal income tax
treatment of contingent payment debt instruments such as the notes, which apply
to debt instruments issued on or after August 13, 1996 and, accordingly, will
apply to the notes. In general, the Final Regulations cause the timing and
character of income, gain or loss reported on a contingent payment debt
instrument to substantially differ from the timing and character of income, gain
or loss reported on a contingent payment debt instrument under general
principles of prior United States federal income tax law. Specifically, the
Final Regulations generally require a U.S. Holder of such an instrument to
include future contingent and noncontingent interest payments in income as such
interest accrues based upon a projected payment schedule. Moreover, in general,
under the Final Regulations, any gain recognized by a U.S. Holder on the sale,
exchange, or retirement of a contingent payment debt instrument is treated as
ordinary income, and all or a portion of any loss realized could be treated as
ordinary loss as opposed to capital loss, depending upon the circumstances. The
Final Regulations provide no definitive guidance as to whether or not an
instrument is properly characterized as a debt instrument for United States
federal income tax purposes.
In particular, solely for purposes of applying the Final Regulations to the
notes, ML&Co. has determined that the projected payment schedule for the notes
will consist of the stated interest payments on the notes (other than the final
stated interest payment) and a payment at maturity equal to $1,413.05 per $1,000
of principal amount of the notes ("Projected Redemption Amount"). This
represents an estimated yield on the notes equal to 7.43% per annum, compounded
semiannually. Accordingly, during the term of the notes, a U.S. Holder of a
note will be required to include in income the sum of the daily portions of
interest on the note that are deemed to accrue at this estimated yield for each
day during the taxable year, or portion of the taxable year, on which the U.S.
Holder holds such note. The amount of interest that will be deemed to accrue in
any accrual period, i.e., generally each six-month period during which the notes
are outstanding, will equal the product of this estimated yield, properly
adjusted for the length of the accrual period, and the note's adjusted issue
price at the beginning of the accrual period. The daily portions of interest
will be determined by
PS-19
<PAGE>
allocating to each day in the accrual period the ratable portion of the interest
that is deemed to accrue during the accrual period. In general, for these
purposes a note's adjusted issue price will equal the note's issue price,
increased by the interest previously accrued on the note and reduced by interest
payments received on the notes. As a result of the foregoing rules, a U.S.
Holder will not be required to include in income the stated interest payments
received on its notes. Upon maturity of a note on February 3, 2005, in the event
that the amount payable upon maturity (the "Actual Redemption Amount") exceeds
$1,413.05 on every $1,000 note, a U.S. Holder will be required to include the
excess of the Actual Redemption Amount over $1,413.05 per $1,000 (i.e., the
Projected Redemption Amount) in income as ordinary interest on the maturity
date. Alternatively, in the event that the Actual Redemption Amount is less than
$1,413.05 per $1,000 of principal amount of notes (i.e., the Projected
Redemption Amount), the excess of the Projected Redemption Amount over the
Actual Redemption Amount will be treated first as an offset to any interest
otherwise includible in income by the U.S. Holder with respect to the note for
the taxable year in which the maturity date occurs to the extent of the amount
of such includible interest. A U.S. Holder will be permitted to recognize and
deduct, as an ordinary loss that is not subject to the limitations applicable to
miscellaneous itemized deductions, any remaining portion of the excess of the
Projected Redemption Amount over the Actual Redemption Amount that is not
treated as an interest offset pursuant to the foregoing rules. In general, if a
U.S. Holder receives shares of portfolio common stock on the maturity date, such
U.S. Holder's initial aggregate tax basis in the shares of the portfolio common
stock received by the U.S. Holder should equal the Actual Redemption Amount
(less any cash received in lieu of fractional shares of the portfolio common
stock). This aggregate tax basis should be allocated among the shares of the
portfolio common stock received by the U.S. Holder in accordance with the
relative fair market value of the shares of the portfolio common stock.
Moreover, such U.S. Holder's holding period for any shares of the portfolio
common stock received by the U.S. Holder should begin on the day immediately
following the maturity date. U.S. Holders purchasing a note at a price that
differs from the adjusted issue price of the note as of the purchase date (e.g.,
subsequent purchasers) will be subject to special rules providing for certain
adjustments to the foregoing rules, and such U.S. Holders should consult their
own tax advisors concerning these rules.
Upon the sale, redemption or exchange of a note prior to the maturity of
the note, a U.S. Holder will be required to recognize taxable gain or loss in an
amount equal to the difference, if any, between the amount realized by the U.S.
Holder upon such sale, redemption or exchange and the U.S. Holder's adjusted tax
basis in the note. A U.S. Holder's adjusted tax basis in a note generally will
equal such U.S. Holder's initial investment in the note increased by any
interest previously included in income with respect to the note by the U.S.
Holder and reduced by interest payments received on the note. Any such taxable
gain will be treated as ordinary income. Any such taxable loss will be treated
as ordinary loss to the extent of the U.S. Holder's total interest inclusions on
the note. Any remaining loss generally will be treated as long-term or short-
term capital loss, depending upon the U.S. Holder's holding period for the note.
All amounts includible in income by a U.S. Holder as ordinary interest pursuant
to the Final Regulations will be treated as original issue discount.
Prospective investors in the notes should consult their own tax advisors
concerning the application of the Final Regulations to their investment in the
notes. Investors in the notes may also obtain the projected payment schedule, as
determined by ML&Co. for purposes of the application of the Final Regulations to
the notes, by submitting a written request for such information to Merrill Lynch
& Co., Inc., Attn: Mona Soliman, Corporate Secretary's Office, 222 Broadway,
17th Floor, New York, New York, 10038.
The projected payment schedule, including both the Projected Redemption
Amount and the estimated yield on the notes, has been determined solely for
United States federal income tax purposes, i.e., for purposes of applying the
Final Regulations to the notes, and is neither a prediction nor a guarantee of
what the Actual Redemption Amount will be.
The following table sets forth the amount of interest that will be deemed
to have accrued with respect to each $1,000 principal amount of the notes during
each accrual period over the term of the notes based upon the projected payment
schedule for the notes, including both the Projected Redemption Amount and the
estimated yield equal to 7.43% per annum (compounded semiannually), as
determined by ML&Co. for purposes of applying the Final Regulations to the
notes:
PS-20
<PAGE>
<TABLE>
<CAPTION>
Total interest
deemed to
have accrued
Interest deemed to on the notes
accrue during as of the end of
accrual period accrual period
Accrual Period (per $1,000) (per $1,000)
- ------------------------------------------------------------- ----------------------- --------------------
<S> <C> <C>
February 3, 2000 through August 3, 2000...................... $37.15 $ 37.15
August 4, 2000 through February 3, 2001...................... $38.44 $ 75.59
February 4, 2001 through August 3, 2001...................... $39.77 $115.36
August 4, 2001 through February 3, 2002...................... $41.16 $156.52
February 4, 2002 through August 3, 2002...................... $42.59 $199.11
August 4, 2002 through February 3, 2003...................... $44.08 $243.19
February 4, 2003 through August 3, 2003...................... $45.63 $288.82
August 4, 2003 through February 3, 2004...................... $47.23 $336.05
February 4, 2004 through August 3, 2004...................... $48.89 $384.94
August 4, 2004 through February 3, 2005...................... $50.61 $435.55
</TABLE>
________________
Projected Redemption Amount = $1,413.05 per $1,000 principal amount of notes.
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
Internal Revenue Code of 1986, as amended. However, income allocable to non-U.S.
Holders will generally be subject to annual tax reporting on IRS Form 1042S. For
a non-U.S. Holder to qualify for the exemption from taxation, the last United
States payor in the chain of payment prior to payment to a non-U.S. Holder (the
"Withholding Agent") must have received in the year in which a payment of
interest or principal occurs, or in either of the two preceding calendar years,
a statement that (a) is signed by the beneficial owner of the note under
penalties of perjury, (b) certifies that such owner is not a U.S. Holder and (c)
provides the name and address of the beneficial owner. The statement may be made
on the applicable IRS Form W-8, Form W-8BEN 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 applicable IRS Form W-8, form W-8BEN or the
substitute form provided by the beneficial owner to the organization or
institution.
Under current law, a note 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 such note 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 note 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 note 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 (a) the broker
determines that the seller is a corporation or other exempt recipient or (b) the
seller provides, in the required manner, certain identifying information and, in
the case of a non-U.S. Holder, certifies that such seller is a non-U.S. Holder
(and certain other conditions are met). Such a sale must also be reported by the
broker to the IRS, unless either (a) the broker determines that the seller is an
exempt recipient or (b) the seller certifies its non-U.S. status (and certain
other conditions are met). Certification of the registered owner's non-U.S.
status would be made
PS-21
<PAGE>
normally on an IRS Form W-8 or W-8BEN under penalties of perjury, although in
certain cases it may be possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
New withholding regulations
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the backup withholding
and information reporting rules described above. The New Regulations will
generally be effective for payments made after December 31, 2000, subject to
certain transition rules. Prospective investors are urged to consult their own
tax advisors regarding the New Regulations.
PS-22
