[LOGO] Merrill Lynch
PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protected of Principal
PROSPECTUS
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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
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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.
The MITTS Securities: Payment at maturity:
o 100% principal protection at maturity. o On the maturity date, for each
o No payments before the maturity date. unit of the MITTS Securities
o Senior unsecured debt securities of you own, we will pay you an
Merrill Lynch & Co., Inc. amount equal to the sum of the
o Linked to the value of the Dow Jones principal amount of each unit
Industrial Average(SM). and an additional amount based
o The MITTS Securities are listed on the on the percentage increase, if
American Stock Exchange under the any, in the value of the Dow
trading symbol "MDJ". Jones Industrial Average(SM)
o Closing date: June 25, 1999. reduced by an annual adjustment
factor of 2.0%.
o At maturity, you will receive no
less than the principal amount
of your MITTS Securities.
Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page 6 of this prospectus.
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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.
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Merrill Lynch & Co.
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The date of this prospectus is February 23, 2000.
"MITTS" and "Market Index Target-Term Securities" are registered service marks
and "Protected Growth" is a service mark of Merrill Lynch & Co., Inc.
"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.
TABLE OF CONTENTS
Page
----
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
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 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>
<CAPTION>
<S> <C>
( 10,249.62 - 10,721.63 ) (Supplemental Redemption
Supplemental Redemption Amount (per unit) = $10 x ( --------------------- ) = $0.00 Amount cannot be less
( 10,721.63 ) than zero)
</TABLE>
TOTAL PAYMENT AT MATURITY (PER UNIT) = $10 + $0 = $10
EXAMPLE 2--The Index, as adjusted, is above 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>
<CAPTION>
<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
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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.
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 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 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.
MERRILL LYNCH & CO., INC.
We are a holding company that, through our U.S. and non-U.S. subsidiaries
and affiliates such as Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Merrill Lynch Government Securities Inc., Merrill Lynch Capital Services,
Inc., Merrill Lynch International, Merrill Lynch Capital Markets Bank Ltd.,
Merrill Lynch Asset Management L.P. and Merrill Lynch Mercury Asset
Management, provides investment, financing, advisory, insurance, and related
products on a global basis, including:
o securities brokerage, trading and underwriting;
o investment banking, strategic services, including mergers and
acquisitions and other corporate finance advisory activities;
o asset management and other investment advisory and recordkeeping
services;
o trading and brokerage of swaps, options, forwards, futures and other
derivatives;
o securities clearance services;
o equity, debt and economic research;
o banking, trust and lending services, including mortgage lending and
related services; and
o insurance sales and underwriting services.
We provide these products and services to a wide array of clients, including
individual investors, small businesses, corporations, governments,
governmental agencies and financial institutions.
Our principal executive office is located at World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281; our telephone number
is (212) 449-1000.
If you want to find more information about us, please see the sections
entitled "Where You Can Find More Information" and "Incorporation of
Information We File with the SEC" in this prospectus.
ML&Co. is the issuer of the MITTS Securities described in this
prospectus.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, we acquired the outstanding shares of Midland Walwyn Inc., in a
transaction accounted for as a pooling-of-interests. The following information
for the fiscal years 1994 through 1997 has been restated as if the two
entities had always been combined.
The following table sets forth our historical ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
For the Nine
Year Ended Last Friday in December Months Ended
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 September 24, 1999
---- ---- ---- ---- ---- ------------------
Ratio of earnings to fixed charges(a)............ 1.2 1.2 1.2 1.2 1.1 1.3
- ----------
(a) The effect of combining Midland Walwyn did not change the ratios reported for the fiscal years 1994
through 1997.
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges, excluding capitalized interest and preferred security
dividend requirements of subsidiaries. "Fixed charges" consist of interest
costs, the interest factor in rentals, amortization of debt issuance costs,
preferred security dividend requirements of subsidiaries, and capitalized
interest.
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>
<CAPTION>
<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 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:
o the percentage change from the Starting Value to the hypothetical
closing value,
o the Adjusted Ending Value used to calculate the Supplemental Redemption
Amount,
o the total amount payable at maturity for each unit of MITTS Securities,
o the total rate of return to beneficial owners of the MITTS Securities,
o the pretax annualized rate of return to beneficial owners of the MITTS
Securities, and
o 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Pretax
Percentage annualized
Hypothetical change from Total amount Pretax rate of return
closing value of the Starting payable at Total rate of annualized of stocks
the Index during Value to the maturity return on the rate of return included in
the Calculation hypothetical Adjusted per unit of MITTS on the MITTS the
Period closing value Ending Value(1) MITTS Securities Securities Securities(2) Index(2)(3)
- ----------------- ------------- --------------- ---------------- ------------- ------------- --------------
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 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:
o the calculation agent does not select a successor index, or
o the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the 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:
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 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 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.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the MITTS
Securities. Under its usual procedures, DTC mails an omnibus proxy to ML&Co.
as soon as possible after the applicable record date. The omnibus proxy
assigns Cede & Co.'s consenting or voting rights to those direct participants
identified in a listing attached to the omnibus proxy to whose accounts the
MITTS Securities are credited on the record date.
Principal, premium, if any, and/or interest, if any, payments made in
cash on the MITTS Securities will be made in immediately available funds to
DTC. DTC's practice is to credit direct participants' accounts on the
applicable payment date in accordance with their respective holdings shown on
the depositary's records unless DTC has reason to believe that it will not
receive payment on that date. Payments by participants to beneficial owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in "street name", and will be the responsibility of that
participant and not of DTC, the trustee or ML&Co., subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal, premium, if any, and/or interest, if any, to DTC is the
responsibility of ML&Co. or the trustee, disbursement of those payments to
direct participants will be the responsibility of DTC, and disbursement of
those payments to the beneficial owners will be the responsibility of direct
participants and indirect participants.
Exchange for Certificated Securities
If:
o the depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by ML&Co.
within 60 days,
o ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
o an Event of Default under the 1983 Indenture has occurred and is
continuing with respect to the MITTS Securities,
the global securities will be exchangeable for MITTS Securities in definitive
form of like tenor and of an equal aggregate principal amount, in
denominations of $10 and integral multiples of $10. The definitive MITTS
Securities will be registered in the name or names as the depositary shall
instruct the trustee. It is expected that instructions may be based upon
directions received by the depositary from participants with respect to
ownership of beneficial interests in the global securities.
DTC may discontinue providing its services as securities depositary with
respect to the MITTS Securities at any time by giving reasonable notice to
ML&Co. or the trustee. Under these circumstances, in the event that a
successor securities depositary is not obtained, MITTS Security certificates
are required to be printed and delivered.
ML&Co. may decide to discontinue use of the system of book-entry
transfers through DTC or a successor securities depositary. In that event,
MITTS Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that ML&Co. believes to be reliable, but ML&Co. takes no
responsibility for its accuracy.
Payment
ML&Co. will make all payments of principal and the Supplemental
Redemption Amount, if any, in immediately available funds so long as the MITTS
Securities are maintained in book-entry form.
THE 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.
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:
o Sponsor, endorse, sell or promote the MITTS Securities.
o Recommend that any person invest in the MITTS Securities or any other
securities.
o Have any responsibility or liability for or make any decisions about
the timing, amount or pricing of MITTS Securities.
o Have any responsibility or liability for the administration, management
or marketing of the MITTS Securities.
o 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,
o Dow Jones does not make any warranty, express or implied, and Dow Jones
disclaims any warranty about:
o 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);
o The accuracy or completeness of the Dow Jones Industrial Average(SM) and
its data;
o The merchantability and the fitness for a particular purpose or use of
the Dow Jones Industrial Average(SM) and its data;
o Dow Jones will have no liability for any errors, omissions or
interruptions in the Dow Jones Industrial Average(SM) or its data;
o 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.
OTHER TERMS
The MITTS Securities were issued as a series of senior debt securities
under the 1983 Indenture, dated as of April 1, 1983, as amended and restated,
between ML&Co. and The Chase Manhattan Bank, as trustee. A copy of the 1983
Indenture is filed as an exhibit to the registration statement relating to the
MITTS Securities of which this prospectus is a part. The following summaries
of the material provisions of the 1983 Indenture are not complete and are
subject to, and qualified in their entirety by reference to, all provisions of
the 1983 Indenture, including the definitions of terms in the 1983 Indenture.
Series of senior debt securities may from time to time be issued under
the 1983 Indenture, without limitation as to aggregate principal amount, in
one or more series and upon terms as ML&Co. may establish under the provisions
of the 1983 Indenture.
The 1983 Indenture and the MITTS Securities are governed by and construed
in accordance with the laws of the State of New York.
ML&Co. may issue senior debt securities with terms different from those
of senior debt securities previously issued, and issue additional senior debt
securities of a previously issued series of senior debt securities.
The senior debt securities are unsecured and rank equally with all other
unsecured and unsubordinated indebtedness of ML&Co. However, because ML&Co. is
a holding company, the rights of ML&Co. and its creditors, including the
holders of senior debt securities, to participate in any distribution of the
assets of any subsidiary upon its liquidation or reorganization or otherwise
are necessarily subject to the prior claims of creditors of the subsidiary,
except to the extent that claims of ML&Co. itself as a creditor of the
subsidiary may be recognized. In addition, dividends, loans and advances from
certain subsidiaries, including MLPF&S, to ML&Co. are restricted by net
capital requirements under the Exchange Act, and under rules of exchanges and
other regulatory bodies.
Limitations upon liens
ML&Co. may not, and may not permit any majority-owned subsidiary to,
create, assume, incur or permit to exist any indebtedness for borrowed money
secured by a pledge, lien or other encumbrance, other than those liens
specifically permitted by the 1983 Indenture, on the Voting Stock owned
directly or indirectly by ML&Co. of any majority-owned subsidiary, other than
a majority-owned subsidiary which, at the time of the incurrence of the
secured indebtedness, has a net worth of less than $3,000,000, unless the
outstanding senior debt securities are secured equally and ratably with the
secured indebtedness.
"Voting Stock" is defined in the 1983 Indenture as the stock of the class
or classes having general voting power under ordinary circumstances to elect
at least a majority of the board of directors, managers or trustees of a
corporation provided that, for the purposes of the 1983 Indenture, stock that
carries only the right to vote conditionally on the occurrence of an event is
not considered voting stock whether or not the event has happened.
Limitation on disposition of Voting Stock of, and merger and sale of
assets by, MLPF&S
ML&Co. may not sell, transfer or otherwise dispose of any Voting Stock of
MLPF&S or permit MLPF&S to issue, sell or otherwise dispose of any of its
Voting Stock, unless, after giving effect to any such transaction, MLPF&S
remains a Controlled Subsidiary.
"Controlled Subsidiary" is defined in the 1983 Indenture to mean a
corporation more than 80% of the outstanding shares of Voting Stock of which
are owned directly or indirectly by ML&Co.
In addition, ML&Co. may not permit MLPF&S to:
o merge or consolidate, unless the surviving company is a Controlled
Subsidiary, or
o convey or transfer its properties and assets substantially as an
entirety, except to one or more Controlled Subsidiaries.
Merger and consolidation
ML&Co. may consolidate or merge with or into any other corporation and
ML&Co. may sell, lease or convey all or substantially all of its assets to any
corporation, provided that:
o the resulting corporation, if other than ML&Co., is a corporation
organized and existing under the laws of the United States of America
or any U.S. state and assumes all of ML&Co.'s obligations to:
o pay any amounts due and payable or deliverable with respect to all
the Senior Debt Securities; and
o perform and observe all of ML&Co.'s obligations under the 1983
Indenture, and
o ML&Co. or the successor corporation, as the case may be, is not,
immediately after any consolidation or merger, in default under the
1983 Indenture.
Modification and waiver
ML&Co. and the trustee may modify and amend the 1983 Indenture with the
consent of holders of at least 66 2/3% in principal amount of each outstanding
series of debt securities affected. However, without the consent of each
holder of any outstanding debt security affected, no amendment or modification
to any Indenture may:
o change the stated maturity date of the principal of, or any installment
of interest or Additional Amounts payable on, any senior debt security
or any premium payable on redemption, or change the redemption price;
o reduce the principal amount of, or the interest or Additional Amounts
payable on, any senior debt security or reduce the amount of principal
which could be declared due and payable before the stated maturity date;
o change the place or currency of any payment of principal or any
premium, interest or Additional Amounts payable on any senior debt
security;
o impair the right to institute suit for the enforcement of any payment
on or with respect to any senior debt security;
o reduce the percentage in principal amount of the outstanding senior
debt securities of any series, the consent of whose holders is required
to modify or amend the 1983 Indenture; or
o modify the foregoing requirements or reduce the percentage of
outstanding senior debt securities necessary to waive any past default
to less than a majority.
No modification or amendment of ML&Co.'s Subordinated Indenture or any
Subsequent Indenture for subordinated debt securities may adversely affect the
rights of any holder of ML&Co.'s senior indebtedness without the consent of
each holder affected. The holders of at least a majority in principal amount
of outstanding senior debt securities of any series may, with respect to that
series, waive past defaults under the Indenture and waive compliance by ML&Co.
with provisions in the 1983 Indenture, except as described under "--Events of
Default" below.
Events of Default
Each of the following will be an Event of Default with respect to senior
debt securities of any series:
o default in the payment of any interest or Additional Amounts payable
when due and continuing for 30 days;
o default in the payment of any principal or premium when due;
o default in the deposit of any sinking fund payment, when due;
o default in the performance of any other obligation of ML&Co. contained
in the 1983 Indenture for the benefit of that series or in the senior
debt securities of that series, continuing for 60 days after written
notice as provided in the 1983 Indenture;
o specified events in bankruptcy, insolvency or reorganization of ML&Co.;
and
o any other Event of Default provided with respect to senior debt
securities of that series which are not inconsistent with the 1983
Indenture.
If an Event of Default occurs and is continuing for any series of senior
debt securities, other than as a result of the bankruptcy, insolvency or
reorganization of ML&Co., the trustee or the holders of at least 25% in
principal amount of the outstanding senior debt securities of that series may
declare all amounts, or any lesser amount provided for in the senior debt
securities, due and payable or deliverable immediately. At any time after a
declaration of acceleration has been made with respect to senior debt
securities of any series but before the trustee has obtained a judgment or
decree for payment of money, the holders of a majority in principal amount of
the outstanding senior debt securities of that series may rescind any
declaration of acceleration and its consequences, if all payments due, other
than those due as a result of acceleration, have been made and all Events of
Default have been remedied or waived.
The holders of a majority in principal amount or aggregate issue price of
the outstanding debt securities of any series of debt securities may waive any
Event of Default with respect to that series, except a default:
o in the payment of any amounts due and payable or deliverable under the
debt securities of that series; or
o in respect of an obligation or provision of any indenture which cannot
be modified under the terms of that indenture without the consent of
each holder of each series of debt securities affected.
The holders of a majority in principal amount of the outstanding senior
debt securities of a series may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or
exercising any trust or power conferred on the trustee with respect to those
senior debt securities, provided that any direction shall not be in conflict
with any rule of law or the 1983 Indenture. Before proceeding to exercise any
right or power under the 1983 Indenture at the direction of the holders, the
trustee shall be entitled to receive from the holders reasonable security or
indemnification against the costs, expenses and liabilities which might be
incurred by it in complying with any direction.
The MITTS Securities and other series of senior debt securities issued
under the 1983 Indenture do not have the benefit of any cross-default
provisions with other indebtedness of ML&Co.
ML&Co. is required to furnish to the trustee annually a statement as to
the fulfillment by ML&Co. of all of its obligations under the 1983 Indenture.
PROJECTED PAYMENT SCHEDULE
Solely for purposes of applying the regulations issued on June 11, 1996
by the Treasury Department (the "Final Regulations") concerning the 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:
Total interest
deemed to have
Interest deemed accrued on MITTS
to accrue Securities as of
during accrual end of accrual
period period
Accrual Period (per unit) (per unit)
-------------- --------------- ----------------
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
- ------------
Projected Supplemental Redemption Amount = $6.0823 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., Attn: Ann Marie Corsale, Corporate Secretary's Office, 222 Broadway,
17th Floor, New York, New York 10038.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Internal Revenue Code, as amended (the
"Code") prohibit various transactions between certain parties and the assets
of employee benefit plans, unless an exemption is available; governmental
plans may be subject to similar prohibitions. Because transactions between a
plan and ML&Co. may be prohibited absent an exemption, each fiduciary, by its
purchase of any MITTS Security on behalf of any plan, represents on behalf of
itself and the plan, that the acquisition, holding and any subsequent
disposition of the MITTS Security will not result in a violation of ERISA, the
Code or any other applicable law or regulation.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC. Our
SEC filings are also available over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more information
on the public reference rooms and their copy charges. You may also inspect our
SEC reports and other information at the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
We have filed a registration statement on Form S-3 with the SEC covering
the MITTS Securities and other securities. For further information on ML&Co.
and the MITTS Securities, you should refer to our registration statement and
its exhibits. This prospectus summarizes material provisions of contracts and
other documents that we refer you to. Because this prospectus may not contain
all the information that you may find important, you should review the full
text of these documents. We have included copies of these documents as
exhibits to our registration statement of which this prospectus is a part.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to incorporate by reference the information we file
with them, which means:
o incorporated documents are considered part of the prospectus;
o we can disclose important information to you by referring you to those
documents; and
o information that we file with the SEC will automatically update and
supersede this incorporated information.
We incorporate by reference the documents listed below which were filed
with the SEC under the Exchange Act:
o annual report on Form 10-K for the year ended December 25, 1998;
o quarterly reports on Form 10-Q for the periods ended March 26, 1999,
June 25, 1999 and September 24, 1999; and
o current reports on Form 8-K dated December 28, 1998, January 19, 1999,
February 17, 1999, February 18, 1999, February 22, 1999, February 23,
1999, March 26, 1999, April 13, 1999, April 19, 1999, May 26, 1999,
May 28, 1999, May 28, 1999, June 1, 1999, June 25, 1999, July 12, 1999,
July 13, 1999, July 21, 1999, August 4, 1999, August 4, 1999, September
20, 1999, October 12, 1999, October 27, 1999, December 22, 1999,
December 22, 1999 and January 25, 2000.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus until this offering
is completed:
o reports filed under Sections 13(a) and (c) of the Exchange Act;
o definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o any reports filed under Section 15(d) of the Exchange Act.
You should rely only on information contained or incorporated by
reference in this prospectus. We have not, and MLPF&S has not, authorized any
other person to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it. We are
not, and MLPF&S is not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date of this prospectus only. Our business, financial
condition and results of operations may have changed since that date.
You may request a copy of any filings referred to above, excluding
exhibits, at no cost, by contacting us at the following address: Mr. Lawrence
M. Egan, Jr., Corporate Secretary's Office, Merrill Lynch & Co., Inc., 222
Broadway, New York, New York 10038; telephone: (212) 670-0425.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of
the MITTS Securities and is to be used by MLPF&S when making offers and sales
related to market-making transactions in the MITTS Securities.
MLPF&S may act as principal or agent in these market-making transactions.
The MITTS Securities may be offered on the AMEX or off the exchange in
negotiated transactions or otherwise.
The distribution of the MITTS Securities will conform to the requirements
set forth in the applicable sections of Rule 2720 of the Conduct Rules of the
NASD.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from the annual report
on Form 10-K of Merrill Lynch & Co., Inc. and subsidiaries have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
(which express an unqualified opinion and which report on the consolidated
financial statements includes an explanatory paragraph for the change in
accounting method for certain internal-use software development costs), which
are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in the quarterly reports on Form 10-Q which are incorporated herein
by reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their reports included in such quarterly reports on Form
10-Q and incorporated by reference herein, they did not audit and they do not
express an opinion on such interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted
in light of the limited nature of the review procedures applied. Deloitte &
Touche LLP is not subject to the liability provisions of Section 11 of the
Securities Act of 1933, as amended, for any such report on unaudited interim
financial information because any such report is not a "report" or a "part" of
the registration statement prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Securities Act.
