[LOGO] Merrill Lynch
PROTECTED GROWTH (SM) INVESTING
Pursuit of Growth, Protection of Principal
PROSPECTUS
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Merrill Lynch & Co., Inc.
Global Market Index Target-Term Securities(R)
due December 22, 2004
"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.
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The MITTS Securities: Payment at maturity:
o 100% principal protection at maturity. o On the maturity date, for each unit of the MITTS
o No payments before the maturity date. Securities you own, we will pay you an amount equal
o Senior unsecured debt securities of Merrill Lynch to the sum of the principal amount of each unit and
& Co., Inc. an additional amount based on changes in the values
o Linked to the values of the S&P 500(R)Index, the of the S&P500 Index, the Nikkei 225 Index and the
Nikkei 225 Index and the Dow Jones Euro STOXX 50(SM) Dow Jones Euro STOXX 50 Index, reduced by an annual
Index. adjustment factor of 1.75%.
o The MITTS Securities are listed on the American o At maturity, you will receive no less than the
Stock Exchange under the trading symbol "GMM". principal amount of your MITTS Securities.
o Closing date: December 22, 1999.
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Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page 7 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.
"Standard & Poor's(R)", "Standard & Poor's 500", "S&P 500(R)", "S&P(R)" and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by Merrill Lynch Capital Services, Inc., and Merrill Lynch & Co., Inc.
is an authorized sublicensee.
The Dow Jones Euro STOXX 50 is owned by STOXX LIMITED. The Dow Jones Euro
STOXX 50 is a service mark of DOW JONES & COMPANY, INC. and has been licensed
for certain purposes by Merrill Lynch & Co., Inc.
(C)1998 by STOXX LIMITED. All rights reserved.
Euro STOXX 50 is a mark of STOXX LIMITED and has been licensed for certain
purposes by Merrill Lynch & Co., Inc.
TABLE OF CONTENTS
Page
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SUMMARY INFORMATION-Q&A.............................................. 3
RISK FACTORS......................................................... 7
MERRILL LYNCH & CO., INC............................................. 11
RATIO OF EARNINGS TO FIXED .......................................... 12
DESCRIPTION OF THE MITTS SECURITIES.................................. 13
THE UNDERLYING INDICES............................................... 20
OTHER TERMS.......................................................... 26
PROJECTED PAYMENT SCHEDULE........................................... 29
ERISA CONSIDERATIONS................................................. 30
WHERE YOU CAN FIND MORE INFORMATION.................................. 30
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.................... 30
PLAN OF DISTRIBUTION................................................. 31
EXPERTS.............................................................. 31
SUMMARY INFORMATION-Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Global Market
Index Target-Term Securities due December 22, 2004. You should carefully read
this prospectus to fully understand the terms of the MITTS Securities, the S&P
500 Index (the "S&P 500"), the Nikkei Stock Average (the "Nikkei 225 Index"),
the Dow Jones Euro STOXX 50 Index (the "Euro STOXX 50") and the tax and other
considerations that are important to you in making a decision about whether to
invest in the MITTS Securities. You should carefully review the "Risk Factors"
section, which highlights certain risks associated with an investment in the
MITTS Securities, to determine whether an investment in the MITTS Securities
is appropriate for you.
References in this prospectus to "ML&Co.", "we", "us" and "our" are
to Merrill Lynch & Co., Inc.
References in this prospectus to "MLPF&S" are to Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
The S&P 500, the Nikkei 225 Index and the Euro STOXX 50 are referred
to collectively as the "Underlying Indices" in this prospectus.
What are the MITTS Securities?
The MITTS Securities are a series of senior debt securities issued by
ML&Co. and are not secured by collateral. The MITTS Securities rank equally
with all of our other unsecured and unsubordinated debt. The MITTS Securities
will mature on December 22, 2004. We cannot redeem the MITTS Securities at any
earlier date. We will not make any payments on the MITTS Securities until
maturity.
Each unit of MITTS Securities represents $10 principal amount of
MITTS Securities. You may transfer the MITTS Securities only in whole units.
You will not have the right to receive physical certificates evidencing your
ownership except under limited circumstances. Instead, we issued the MITTS
Securities in the form of a global certificate, which is held by The
Depository Trust Company, also known as DTC, or its nominee. Direct and
indirect participants in DTC will record your ownership of the MITTS
Securities. You should refer to the section "Description of the MITTS
Securities--Depositary" in this prospectus.
What will I receive on the stated maturity date of the MITTS Securities?
We have designed the MITTS Securities for investors who want to
protect their investment by receiving at least the principal amount of their
investment at maturity and who also want to participate in possible increases
in the Underlying Indices as reduced by the Adjustment Factor. On the stated
maturity date, you will receive a payment on the MITTS Securities equal to the
sum of two amounts: the "principal amount" and the "Supplemental Redemption
Amount".
Principal amount
The "principal amount" per unit is $10.
Supplemental Redemption Amount
The "Supplemental Redemption Amount" per unit will equal the sum of
the "Index Redemption Amounts" for each of the Underlying Indices but will not
be less than zero.
The "Index Redemption Amount" means, for each of the Underlying
Indices:
( Adjusted Ending Value - Starting Value) 1
$10x(---------------------------------------) x -
( Starting Value ) 3
The "Starting Value" equals 1,418.78 for the S&P 500, 18,111.31 for
the Nikkei 225 Index and 4,517.68 for the Euro STOXX 50, each the closing
value of that Underlying Index on December 16, 1999, the date the MITTS
Securities were priced for initial sale to the public.
The "Adjusted Ending Value", for each Underlying Index, will be the
average of the values of that Underlying Index at the close of the market on
five business days shortly before the maturity of the MITTS Securities as
reduced on each day by the application of the Adjustment Factor. We may
calculate the Adjusted Ending Values by reference to fewer than five or even a
single day's closing value if, during the period shortly before the stated
maturity date of the MITTS Securities, there is a disruption in the trading of
a sufficient number of the component stocks included in any of the Underlying
Indices or certain futures or options contracts relating to any of the
Underlying Indices.
The "Adjustment Factor" equals 1.75% per year and will be prorated
based on a 365-day year and applied over the entire term of the MITTS
Securities on each calendar day to reduce the closing values of the Underlying
Indices used to calculate the Index Redemption Amounts during the Calculation
Period. As a result of the cumulative effect of this reduction, the values
used to calculate the Index Redemption Amounts during the Calculation Period
at the stated maturity of the MITTS Securities will be approximately 8.39%
less than the actual closing values of the Underlying Indices on each day
during the Calculation Period. For a detailed discussion of how the Adjustment
Factor will affect the value of the Underlying Indices used to calculate the
Index Redemption Amounts and the Supplemental Redemption Amount, see
"Description of the MITTS Securities--Payment at maturity" in this prospectus.
For more specific information about the Index Redemption Amounts and
the Supplemental Redemption Amount, please see the section entitled
"Description of the MITTS Securities" in this prospectus.
We will pay you a Supplemental Redemption Amount only if the sum of
the Index Redemption Amounts is greater than zero. If the sum of the Index
Redemption Amounts is less than, or equal to, zero, the Supplemental
Redemption Amount will be zero. We will pay you the principal amount of your
MITTS Securities regardless of whether any Supplemental Redemption Amount is
payable.
Examples
Here are two examples of Supplemental Redemption Amount
calculations assuming an investment term equal to that of the MITTS
Securities and an Adjustment Factor of 1.75% per year:
Example 1--The sum of the hypothetical Index Redemption Amounts is less than
zero at maturity:
S&P 500 Starting Value: 1,418.78
Hypothetical closing value of the S&P 500 at maturity: 1,702.54
Hypothetical Adjusted Ending Value of the S&P 500: 1,559.74
(1,559.74-1,418.78) 1
S&P 500 Index Redemption Amount (per unit) = $10x(-----------------)x - = $0.33
( 1,418.78 ) 3
Nikkei 225 Index Starting Value: 18,111.31
Hypothetical closing value of the Nikkei 225 Index at maturity: 21,733.57
Hypothetical Adjusted Ending Value of the Nikkei 225 Index: 19,910.76
(19,910.76-18,111.31) 1
Nikkei 225 Index Redemption Amount (per unit)=$10x--------------------)x -=$0.33
( 18,111.31 ) 3
Euro STOXX 50 Starting Value: 4,517.68
Hypothetical closing value of the Euro STOXX 50 at maturity: 3,840.03
Hypothetical Adjusted Ending Value of the Euro STOXX 50: 3,517.96
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(3,517.96-4,517.68) 1
Euro STOXX 50 Index Redemption Amount (per unit) = $10 x ------------------) x - = -$0.74
( 4,517.68 ) 3
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Supplemental Redemption Amount = $0.33 + $0.33 - $0.74 = $0.00
(Supplemental Redemption Amount cannot be less than zero)
Total payment at maturity (per unit) = $10 + $0 = $10
Example 2-- The sum of the hypothetical Index Redemption Amounts is greater
than zero at maturity:
S&P 500 Starting Value: 1,418.78
Hypothetical closing value of the S&P 500 at maturity: 2,270.05
Hypothetical Adjusted Ending Value of the S&P 500: 2,079.66
(2,079.66-1,418.78) 1
S&P 500 Index Redemption Amount (per unit) = $10x(-----------------) x - = $1.55
( 1,418.78 ) 3
Nikkei 225 Index Starting Value: 18,111.31
Hypothetical closing value of the Nikkei 225 Index at maturity: 28,978.10
Hypothetical Adjusted Ending Value of the Nikkei 225 Index: 26,547.68
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(26,547.68-18,111.31) 1
Nikkei 225 Index Redemption Amount (per unit) = $10 x (-------------------) x - = $1.55
( 18,111.31 ) 3
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Euro STOXX 50 Starting Value: 4,517.68
Hypothetical closing value of the Euro STOXX 50 at maturity: 6,776.52
Hypothetical Adjusted Ending Value of the Euro STOXX 50: 6,208.17
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(6,208.17-4,517.68) 1
Euro STOXX 50 Index Redemption Amount (per unit) = $10 x (-----------------) x - = $1.25
( 4,517.68 ) 3
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Supplemental Redemption Amount = $1.55 + $1.55+ $1.25 = $4.35
Total payment at maturity (per unit) = $10 + $4.35 = $14.35
Will I receive interest payments on the MITTS Securities?
You will not receive any interest payments on the MITTS Securities,
but will instead receive the principal amount plus the Supplemental Redemption
Amount, if any, at maturity. We have designed the MITTS Securities for
investors who are willing to forego market interest payments on the MITTS
Securities, such as floating interest rates paid on standard senior
non-callable debt securities, in exchange for the ability to participate in
possible increases in the Underlying Indices.
Who publishes the Underlying Indices and what do they measure?
The S&P 500 is published by Standard & Poor's, a division of The
McGraw-Hill Companies, Inc., and is intended to provide an indication of the
pattern of common stock price movement in the United States. The value of the
S&P 500 is based on the relative value of the aggregate market value of the
common stocks of 500 companies as of a particular time compared to the
aggregate average market value of the common stocks of 500 similar companies
during the base period of the years 1941 through 1943. The market value for
the common stock of a company is the product of the market price per share of
the common stock and the number of outstanding shares of common stock.
Standard & Poor's chooses companies for inclusion in the S&P 500 with the aim
of achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of the NYSE,
which Standard & Poor's uses as an assumed model for the composition of the
total market.
The Nikkei 225 Index is a stock index published by Nihon Keizai
Shimbun, Inc. ("NKS") that measures the composite price performance of
selected Japanese stocks. The Nikkei 225 Index is currently based on 225
common stocks traded on the Tokyo Stock Exchange (the "TSE") and represents a
broad cross section of Japanese industry. All 225 underlying stocks (the
"Underlying Stocks") are stocks listed in the First Section of the TSE and
are, therefore, among the most actively traded stocks on the TSE. The Nikkei
225 Index is a modified, price-weighted index, which means an Underlying
Stock's weight in the Nikkei 225 Index is based on its price per share rather
than the total market capitalization of the issuer.
The Euro STOXX 50 was created by STOXX, a joint venture founded by
SWX- Swiss Exchange, SBF-Bourse de Paris, Deutsche Borse AG and Dow Jones.
Publication of the Euro STOXX 50 began on February 26, 1998. The Euro STOXX 50
consists of the stocks of 50 European companies that are among the largest in
market capitalization, highest in liquidity and are the leaders of their
industrial sectors.
Please note that an investment in the MITTS Securities does not
entitle you to any ownership interest in the stocks of the companies included
in the Underlying Indices.
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are listed on the AMEX under the trading symbol
"GMM". You should be aware that the listing of the MITTS Securities on the
AMEX does not necessarily ensure that a liquid trading market will be
available for the MITTS Securities. You should review the section entitled
"Risk Factors--There may be an uncertain trading market for the MITTS
Securities" in this prospectus.
What is the role of MLPF&S?
Our subsidiary, MLPF&S, was the underwriter for the initial offering
and sale of the MITTS Securities. MLPF&S intends to buy and sell MITTS
Securities to create a secondary market for holders of the MITTS Securities.
However, MLPF&S will not be obligated to engage in any of these market
activities or continue them once it has started.
MLPF&S is also our agent for purposes of calculating, among other
things, the Adjusted Ending Values, the Index Redemption Amounts and the
Supplemental Redemption Amount. Under certain circumstances, these duties
could result in a conflict of interest between MLPF&S' status as a subsidiary
of ML&Co. and its responsibilities as calculation agent.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various
subsidiaries and affiliated companies that provide investment, financing,
insurance and related services on a global basis. For information about
ML&Co., see the section entitled "Merrill Lynch & Co., Inc." in this
prospectus. You should also read the other documents we have filed with the
SEC which you can find by referring to the section entitled "Where You Can
Find More Information" in this prospectus.
Are there any risks associated with my investment?
Yes, an investment in the MITTS Securities is subject to risk. Please
refer to the section entitled "Risk Factors" in this prospectus.
RISK FACTORS
Your investment in the MITTS Securities will involve risks. You
should carefully consider the following discussion of risks before investing
in the MITTS Securities. In addition, you should reach an investment decision
with regard to the MITTS Securities only after consulting with your legal and
tax advisers and considering the suitability of the MITTS Securities in the
light of your particular circumstances.
You may not earn a return on your investment
You should be aware that if the sum of the Index Redemption Amounts
does not exceed zero on the stated maturity date, the Supplemental Redemption
Amount will be zero. This will be true even if the value of one or more of the
Index Redemption Amounts is greater than zero but the sum of the Index
Redemption Amounts is less than zero at maturity. If the Supplemental
Redemption Amount is zero, we will pay you only the principal amount of your
MITTS Securities.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The amount we pay you at maturity may be less than the return you
could earn on other investments. Your yield may be less than the yield you
would earn if you bought a standard senior non-callable debt security of
ML&Co. with the same stated maturity date. Your investment may not reflect the
full opportunity cost to you when you take into account factors that affect
the time value of money.
Your return will not reflect the return of owning the stocks included in the
Underlying Indices
The value of each Underlying Index is calculated by reference to the
prices of the common stocks included in that Underlying Index without taking
into consideration the value of dividends paid on those stocks. The return on
your MITTS Securities will not reflect the return you would realize if you
actually owned the stocks included in each Underlying Index and received the
dividends paid on those stocks because of the cumulative effect of the
reduction caused by the Adjustment Factor applied to the closing values of
each Underlying Index used to calculate that Underlying Index's Index
Redemption Amount and because the value of each Underlying Index is calculated
by reference to the prices of the stocks included in that Underlying Index
without taking into consideration the value of dividends paid on those stocks.
Your return will not be adjusted for changes in currency exchange rates
Although the stocks included in the Nikkei 225 Index and the Euro
STOXX 50 are traded in various currencies and the MITTS Securities are
denominated in U.S. dollars, we will not adjust the amount payable at maturity
for the currency exchange rate in effect at the maturity of the MITTS
Securities. Any amount in addition to the principal amount of each unit
payable to you at maturity is based solely upon changes in the value of the
Underlying Indices. Changes in exchange rates, however, may reflect changes in
a country's economy which in turn may affect the value of an Underlying Index
and the MITTS Securities.
There may be an uncertain trading market for the MITTS Securities
Although the MITTS Securities are listed on the AMEX under the
trading symbol "GMM", you cannot assume that a trading market exists for the
MITTS Securities. If a trading market does exist, there can be no assurance
that there will be liquidity in the trading market. The existence of a trading
market for the MITTS Securities will depend on our financial performance, and
other factors such as the increase, if any, in the value of the Underlying
Indices.
If the trading market for the MITTS Securities is limited, there may
be a limited number of buyers for your MITTS Securities if you do not wish to
hold your investment until maturity. This may affect the price you receive.
Many factors affect the trading value of the MITTS Securities; these factors
interrelate in complex ways and the effect of any one factor may offset or
magnify the effect of another factor
The trading value of the MITTS Securities will be affected by factors
that interrelate in complex ways. It is important for you to understand that
the effect of one factor may offset the increase in the trading value of the
MITTS Securities caused by another factor and that the effect of one factor
may exacerbate the decrease in the trading value of the MITTS Securities
caused by another factor. For example, an increase in U.S. interest rates may
offset some or all of any increase in the trading value of the MITTS
Securities attributable to another factor, such as an increase in the value of
an Underlying Index. The following paragraphs describe the expected impact on
the market value of the MITTS Securities given a change in a specific factor,
assuming all other conditions remain constant.
The values of the Underlying Indices are expected to affect the
trading value of the MITTS Securities. We expect that the market value of the
MITTS Securities will depend substantially on the amount, if any, by which
each Underlying Index, as reduced by the Adjustment Factor over the term of
the MITTS Securities, exceeds the Starting Value for that Underlying Index. If
you choose to sell your MITTS Securities when the value of each Underlying
Index, as reduced by the Adjustment Factor over the term of the MITTS
Securities, exceeds the corresponding Starting Value of each Underlying Index,
you may receive substantially less than the amount that would be payable at
maturity based on that value because of the expectation that the Underlying
Indices will continue to fluctuate until the Adjusted Ending Value is
determined. If you choose to sell your MITTS Securities when the value of each
Underlying Index is below, or not sufficiently above, the corresponding
Starting Value of each Underlying Index, you may receive less than the $10
principal amount per unit of MITTS Securities. Because the Supplemental
Redemption Amount equals the sum of the Index Redemption Amounts, an increase
in the value of an Underlying Index may be offset by a decrease in the value
of another Underlying Index. In general, rising dividend rates or dividends
per share may increase the value of the Underlying Indices, while falling
dividend rates may decrease the value of the Underlying Indices. Political,
economic and other developments that affect the stocks underlying the
Underlying Indices may also affect the value of the Underlying Indices and,
indirectly, the value of the MITTS Securities.
Changes in the levels of interest rates are expected to affect the
trading value of the MITTS Securities. Because we will pay, at a minimum, the
principal amount per unit of MITTS Securities at maturity, we expect that
changes in interest rates will affect the trading value of the MITTS
Securities. In general, if U.S. interest rates increase, we expect that the
trading value of the MITTS Securities will decrease and, conversely, if U.S.
interest rates decrease, we expect that the trading value of the MITTS
Securities will increase. In general, if interest rates in Japan or Europe
increase, we expect that the trading value of the MITTS Securities will
increase. If interest rates in Japan or Europe decrease, we expect that the
trading value of the MITTS Securities will decrease. The level of interest
rates in the U.S., Japan or Europe may also affect the applicable economies
and, in turn, the value of the relevant Underlying Index. Rising interest
rates may lower the value of an Underlying Index and, thus, may decrease the
value of the MITTS Securities. Falling interest rates may increase the value
of an Underlying Index and, thus, may increase the value of the MITTS
Securities.
Changes in the volatility of the Underlying Indices are expected to
affect the trading value of the MITTS Securities. Volatility is the term used
to describe the size and frequency of price and/or market fluctuations. In
general, if the volatility of the Underlying Indices increases, we expect that
the trading value of the MITTS Securities will increase and, conversely, if
the volatility of the Underlying Indices decreases, we expect that the trading
value of the MITTS Securities will decrease.
As the time remaining to maturity of the MITTS Securities decreases,
the "time premium" associated with the MITTS Securities will decrease. We
anticipate that before their maturity, the MITTS Securities may trade at a
value above that which would be expected based on the level of interest rates
and the Underlying Indices. This difference will reflect a "time premium" due
to expectations concerning the value of the Underlying Indices during the
period before the stated maturity of the MITTS Securities. However, as the
time remaining to the stated maturity of the MITTS Securities decreases, we
expect that this time premium will decrease, lowering the trading value of the
MITTS Securities.
Changes in dividend yields of the stocks included in the Underlying
Indices are expected to affect the trading value of the MITTS Securities. In
general, if dividend yields on the stocks included in the Underlying Indices
increase, we expect that the value of the MITTS Securities will decrease and,
conversely, if dividend yields on the stocks included in the Underlying
Indices decrease, we expect that the value of the MITTS Securities will
increase.
Changes in our credit ratings may affect the trading value of the
MITTS Securities. Our credit ratings are an assessment of our ability to pay
our obligations. Consequently, real or anticipated changes in our credit
ratings may affect the trading value of the MITTS Securities. However, because
your return on your MITTS Securities is dependent upon factors in addition to
our ability to pay our obligations under the MITTS Securities, such as the
percentage increase in the value of the Underlying Indices at maturity, an
improvement in our credit ratings will not reduce the other investment risks
related to the MITTS Securities.
In general, assuming all relevant factors are held constant, we
expect that the effect on the trading value of the MITTS Securities of a given
change in most of the factors listed above will be less if it occurs later in
the term of the MITTS Securities than if it occurs earlier in the term of the
MITTS Securities. However, we expect that the effect on the trading value of
the MITTS Securities of a given change in the value of each Underlying Index
will be greater if it occurs later in the term of the MITTS Securities than if
it occurs earlier in the term of the MITTS Securities.
Amounts payable on the MITTS Securities may be limited by state law
New York State law governs the 1983 Indenture under which the MITTS
Securities were issued. New York has usury laws that limit the amount of
interest that can be charged and paid on loans, which includes debt securities
like the MITTS Securities. Under present New York law, the maximum rate of
interest is 25% per annum on a simple interest basis. This limit may not apply
to debt securities in which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state
or Federal court sitting outside of New York, many other states also have laws
that regulate the amount of interest that may be charged to and paid by a
borrower. We promise, for the benefit of the holders of the MITTS Securities,
to the extent permitted by law, not to voluntarily claim the benefits of any
laws concerning usurious rates of interest.
Risks associated with the Japanese and European securities markets
The stocks that constitute the Nikkei 225 Index and the Euro STOXX 50
have been issued by companies in Japan and various European countries. You
should be aware that investments in securities indexed to the value of these
equity securities involve certain risks. The Japanese and European securities
markets may be more volatile than U.S. or other securities markets and may be
affected by market developments in different ways than U.S. or other
securities markets. Direct or indirect government intervention to stabilize
the Japanese and European securities markets and cross-shareholdings in
companies on those markets may affect prices and volume of trading on those
markets. Also, there is generally less publicly available information about
Japanese and European companies than about those U.S. companies that are
subject to the reporting requirements of the SEC, and Japanese and European
companies are subject to accounting, auditing and financial reporting
standards and requirements that differ from those applicable to U.S. reporting
companies.
Securities prices in each country are subject to political, economic,
financial and social factors that apply in that country. These factors, which
could negatively affect that country's securities markets, include the
possibility of recent or future changes in the government's economic and
fiscal policies, the possible imposition of, or changes in, currency exchange
laws or other laws or restrictions applicable to companies or investments in a
country's equity securities and the possibility of fluctuations in the rate of
exchange between currencies. Moreover, the economy of each country may differ
favorably or unfavorably from the U.S. economy with regard to growth of gross
national product, rate of inflation, capital reinvestment, resources and
self-sufficiency.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell the stocks
included in the Underlying Indices or futures or options contracts on the
Underlying Indices for our own accounts, for business reasons or in connection
with hedging our obligations under the MITTS Securities. These transactions
could affect the price of these stocks and, in turn, the value of the
Underlying Indices in a manner that could be adverse to your investment in the
MITTS Securities.
Potential conflicts
Our subsidiary, MLPF&S, is our agent for the purposes of calculating
the Adjusted Ending Values, Index Redemption Amounts and the Supplemental
Redemption Amount payable to you at maturity. Under certain circumstances,
MLPF&S' role as our subsidiary and its responsibilities as calculation agent
for the MITTS Securities could give rise to conflicts of interests. These
conflicts could occur, for instance, in connection with its determination as
to whether the values of the Underlying Indices can be calculated on a
particular trading day, or in connection with judgments that it would be
required to make in the event of a discontinuance of an Underlying Index. See
the sections entitled "Description of the MITTS Securities--Adjustments to the
Underlying Indices; Market Disruption Events" and "--Discontinuance of the
Underlying Indices" in this prospectus. MLPF&S is required to carry out its
duties as calculation agent in good faith and using its reasonable judgment.
However, you should be aware that because we control MLPF&S, potential
conflicts of interest could arise.
We have entered into an arrangement with one of our subsidiaries to
hedge the market risks associated with our obligation to pay the amounts due
at maturity. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
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
1994 1995 1996 1997 1998 September 24, 1999
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(a)............ 1.2 1.2 1.2 1.2 1.1 1.3
- ----------
</TABLE>
(a) The effect of combining Midland Walwyn did not change the ratios reported
for the fiscal years 1994 through 1997.
For the purpose of calculating the ratio of earnings to fixed
charges, "earnings" consist of earnings from continuing operations before
income taxes and fixed charges, excluding capitalized interest and preferred
security dividend requirements 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 December 22, 1999, ML&Co. issued an aggregate principal amount of
$47,000,000 or 4,700,000 units of the MITTS Securities. The MITTS Securities
were issued as a series of senior debt securities under the 1983 Indenture
which is more fully described in this prospectus.
The MITTS Securities will mature on December 22, 2004.
While at maturity a beneficial owner of a MITTS Security will receive
the principal amount of the MITTS Security plus the Supplemental Redemption
Amount, if any, there will be no other payment of interest, periodic or
otherwise. See the section entitled "--Payment at maturity" below.
The MITTS Securities are not subject to redemption by ML&Co. or at
the option of any beneficial owner before maturity. If an Event of Default
occurs with respect to the MITTS Securities, beneficial owners of the MITTS
Securities may accelerate the maturity of the MITTS Securities, as described
under the sections entitled "--Events of Default and Acceleration" and "Other
Terms--Events of Default" in this prospectus.
ML&Co. issued the MITTS Securities in denominations of whole units of
$10.00 per unit.
The MITTS Securities do not have the benefit of any sinking fund.
Payment at maturity
At maturity, a beneficial owner of a MITTS Security will be entitled
to receive the principal amount of that MITTS Security plus a Supplemental
Redemption Amount, if any, all as provided below. If the Supplemental
Redemption Amount does not exceed zero, you will be entitled to receive only
the principal amount of your MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal the sum of the Index
Redemption Amounts, provided, however, that in no event will the Supplemental
Redemption Amount be less than zero.
The "Index Redemption Amount" means, for each of the Underlying
Indices:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(Adjusted Ending Value - Starting Value) 1
principal amount of each MITTS Security ($10 per unit) x (--------------------------------------) x -
( Starting Value ) 3
</TABLE>
The "Starting Value" equals 1,418.78 for the S&P 500, 18,111.31 for
the Nikkei 225 Index and 4,517.68 for the Euro STOXX 50, each the closing
value of that Underlying Index on December 16, 1999, the day the MITTS
Securities were priced for initial sale to the public.
The "Adjusted Ending Value" for each Underlying Index will be
determined by the calculation agent and will equal the average or arithmetic
mean of the closing values of that Underlying Index, as reduced by the
application of the Adjustment Factor on each Calculation Day, determined on
each of the first five Calculation Days during the Calculation Period. If
there are fewer than five Calculation Days during the Calculation Period, then
the Adjusted Ending Values will equal the average or arithmetic mean of the
closing values of the applicable Underlying Index on those Calculation Days,
as reduced by the application of the Adjustment Factor on each Calculation
Day. If there is only one Calculation Day, then the Adjusted Ending Values
will equal the closing value of the applicable Underlying Index on that
Calculation Day, as reduced by the application of the Adjustment Factor on
that Calculation Day. If no Calculation Days occur during the Calculation
Period, then the Adjusted Ending Values will equal the closing value of the
applicable Underlying Index determined on the last scheduled Index Business
Day in the Calculation Period, as reduced by the application of the Adjustment
Factor on that Index Business Day, regardless of the occurrence of a Market
Disruption Event on that Index Business Day.
The "Adjustment Factor" equals 1.75% per year and will be applied
over the entire term of the MITTS Securities. On each calendar day during the
term of the MITTS Securities, we will apply this percentage on a prorated
basis based on a 365-day year to reduce the values used to calculate the Index
Redemption Amounts on each Calculation Day during the Calculation Period. As a
result of the cumulative effect of this reduction, the values used to
calculate the Index Redemption Amounts during the Calculation Period will be
approximately 8.39% less than the actual closing values of the Underlying
Indices on each Calculation Day during the Calculation Period.
The "Calculation Period" means the period from and including the
seventh scheduled Index Business Day before the maturity date to and including
the second scheduled Index Business Day before the maturity date.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
An "Index Business Day" is a day on which the NYSE and the AMEX are
open for trading and the Underlying Indices or any successor indices are
calculated and published.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes
and binding on ML&Co. and the holders and beneficial owners of the MITTS
Securities.
Hypothetical returns
The following table illustrates, for a range of average percentage
changes from the Starting Value to the hypothetical closing value for the
Underlying Indices, assuming an initial investment of $10 per unit and an
investment term from December 22, 1999 to December 22, 2004:
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 included in the Underlying Indices, which includes an
assumed aggregate dividend yield of 1.22% per annum, as more
fully described below.
<TABLE>
<CAPTION>
Pretax
Percentage change from Pretax annualized rate
the Total amount annualized of return
Starting Value to payable at Total rate rate of of stocks
the hypothetical maturity per of return return on the included in the
closing value of the unit of the MITTS on the MITTS MITTS Underlying
Underlying Indices(1) Securities(2) Securities(2) Securities(2)(3) Indices(3)(4)
<S> <C> <C> <C> <C>
--- --- --- --- ---
-80% 10.00 0.00% 0.00% -28.45%
-60% 10.00 0.00% 0.00% -16.32%
-40% 10.00 0.00% 0.00% -8.77%
-20% 10.00 0.00% 0.00% -3.21%
0% 10.00 0.00% 0.00% 1.22%
20% 10.99 9.94% 1.90% 4.93%
40% 12.83 28.26% 5.03% 8.12%
60% 14.66 46.58% 7.79% 10.93%
80% 16.49 64.90% 10.25% 13.44%
100% 18.32 83.23% 12.47% 15.72%
120% 20.15 101.55% 14.50% 17.80%
140% 21.99 119.87% 16.38% 19.72%
160% 23.82 138.19% 18.11% 21.50%
180% 25.65 156.52% 19.73% 23.17%
200% 27.48 174.84% 21.25% 24.73%
</TABLE>
- ---------
(1) The percentage change in the Starting Value and the hypothetical
closing value of each of the Underlying Indices does not reflect the
application of the Adjustment Factor.
(2) The total amount payable at maturity per unit of MITTS Securities and
the total and pretax annualized rates of return on the MITTS
Securities assume the application of an Adjustment Factor of 1.75%.
(3) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(4) This rate of return assumes:
(a) a percentage change in the aggregate price of the stocks that equals
the percentage change in the Underlying Indices from the aggregate
Starting Value to the relevant hypothetical aggregate closing value;
(b) a constant dividend yield of 1.22% per annum, paid quarterly from the
date of initial delivery of the MITTS Securities, applied to the
value of the Underlying Indices at the end of each quarter assuming
this value increases or decreases linearly from the hypothetical
aggregate Starting Value to the applicable hypothetical aggregate
closing value;
(c) no transaction fees or expenses in connection with purchasing and
holding stocks included in the Underlying Indices; and
(d) an initial investment of $10 per unit and an investment term for the
MITTS Securities from December 22, 1999 to December 22, 2004.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rates of return will depend entirely on the actual Adjusted
Ending Value determined by the calculation agent as provided in this
prospectus.
Adjustments to the Underlying Indices; Market Disruption Events
If at any time the publisher of an Underlying Index changes its
method of calculating that Underlying Index, or the value of an Underlying
Index changes, in any material respect, or if an Underlying Index is in any
other way modified so that the Underlying Index does not, in the opinion of
the calculation agent, fairly represent the value of that Underlying Index had
those changes or modifications not been made, then, from and after that time,
the calculation agent shall, at the close of business in New York, New York,
on each date that the closing value of that Underlying Index is to be
calculated, make any adjustments as, in the good faith judgment of the
calculation agent, may be necessary in order to arrive at a calculation of a
value of a stock index comparable to that Underlying Index as if those changes
or modifications had not been made, and calculate the closing value with
reference to the Underlying Index, as adjusted. Accordingly, if the method of
calculating an Underlying Index is modified so that the value of that
Underlying Index is a fraction or a multiple of what it would have been if it
had not been modified, e.g., due to a split, then the calculation agent shall
adjust that Underlying Index in order to arrive at a value of that Underlying
Index as if it had not been modified, e.g., as if the split had not occurred.
"Market Disruption Event" means, with respect to any Underlying
Index, the occurrence or existence of any suspension of, or limitation imposed
on, trading, by reason of movements in price exceeding limits permitted by the
relevant exchange or otherwise, during the one-half hour period that ends at
the regular official weekday time at which trading on the Index Exchange
related to that Underlying Index occurs, on:
(A) the Index Exchange in securities that comprise 20% or more of
the value of that Underlying Index or
(B) any exchanges on which futures or options on that Underlying
Index are traded in those options or futures if, in the
determination of the calculation agent, that suspension or
limitation is material.
For the purpose of the above definition:
(1) a limitation on the hours and number of days of trading will
not constitute a Market Disruption Event if it results from an
announced change in the regular hours of the relevant exchange,
and
(2) a limitation on trading imposed during the course of a day by
reason of movements in price otherwise exceeding levels
permitted by the relevant exchange will constitute a Market
Disruption Event.
"Index Exchange" means, with respect to any Underlying Index, the
principal exchange on which the shares comprising that Underlying Index are
traded.
Discontinuance of an Underlying Index
If publication of any Underlying Index is discontinued and the
calculation agent determines, in its sole discretion, that a published
successor or substitute is comparable to that Underlying Index (a "successor
index"), then, upon the calculation agent's notification of any determination
to the trustee and ML&Co., the calculation agent will substitute the successor
index for that Underlying Index and calculate the closing value as described
above under "--Payment at maturity". Upon any selection by the calculation
agent of a successor index, ML&Co. shall cause notice to be given to holders
of the MITTS Securities.
In the event that the publication of any Underlying Index is
discontinued and:
o the calculation agent does not select a successor index, or
o the successor index is no longer published on any of the Index Business
Days during the Calculation Period,
the calculation agent will compute a substitute value for that Underlying
Index in accordance with the procedures last used to calculate that Underlying
Index before any discontinuance. If a successor index is selected or the
calculation agent calculates a value as a substitute for any Underlying Index
as described below, the successor index or value shall be substituted for that
Underlying Index for all purposes, including for purposes of determining
whether a Market Disruption Event exists.
If the publication of any Underlying Index is discontinued before the
period during which the Index Redemption Amounts are to be determined and the
calculation agent determines that no successor index is available at that
time, then on each Business Day until the earlier to occur of:
o the determination of the Adjusted Ending Value for that Underlying
Index 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 Index Redemption Amount as described in the preceding paragraph as if that
day were a Calculation Day. The calculation agent will cause notice of each
value to be published not less often than once each month in The Wall Street
Journal or another newspaper of general circulation, and arrange for
information with respect to these values to be made available by telephone.
A "Business Day" is any day on which the NYSE and the AMEX are open
for trading.
Notwithstanding these alternative arrangements, discontinuance of the
publication of any Underlying Index may adversely affect trading in the MITTS
Securities.
Events of Default and Acceleration
In case an Event of Default with respect to any MITTS Securities has
occurred and is continuing, the amount payable to a beneficial owner of a
MITTS Security upon any acceleration permitted by the MITTS Securities, with
respect to each $10 principal amount of the MITTS Securities, will be equal to
the principal amount and the Supplemental Redemption Amount, if any,
calculated as though the date of early repayment was the stated maturity date
of the MITTS Securities, provided, however, the Adjustment Factor will be
applied to the values used to calculate the Supplemental Redemption Amount as
if the MITTS Securities had not been accelerated and had remained outstanding
to the stated maturity date. See the section entitled "--Payment at maturity"
in this prospectus. If a bankruptcy proceeding is commenced in respect of
ML&Co., the claim of the beneficial owner of a MITTS Security may be limited,
under Section 502(b)(2) of Title 11 of the United States Code, to the
principal amount of the MITTS Security plus an additional amount of contingent
interest calculated as though the date of the commencement of the proceeding
were the maturity date of the MITTS Securities.
In case of default in payment of the MITTS Securities, whether at the
stated maturity or upon acceleration, from and after the maturity date the
MITTS Securities will bear interest, payable upon demand of their beneficial
owners, at the rate of 6.87% per annum, to the extent that payment of any
interest is legally enforceable, on the unpaid amount due and payable on that
date in accordance with the terms of the MITTS Securities to the date payment
of that amount has been made or duly provided for.
Depositary
Description of the Global Securities
The MITTS Securities currently are represented by one or more fully
registered global securities. Each global security was deposited with, or on
behalf of, DTC (DTC, together with any successor, being a "depositary"), as
depositary, registered in the name of Cede & Co., DTC's partnership nominee.
Unless and until it is exchanged in whole or in part for MITTS Securities in
definitive form, no global security may be transferred except as a whole by
the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or by the
depositary or any nominee to a successor of the depositary or a nominee of
that successor.
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 UNDERLYING INDICES
The S&P 500 Index
Standard & Poor's publishes the S&P 500 Index. The S&P 500 Index is
intended to provide an indication of the pattern of common stock price
movement. The calculation of the value of the S&P 500 Index, discussed below
in further detail, is based on the relative value of the aggregate market
value of the common stocks of 500 companies as of a particular time compared
to the aggregate average market value of the common stocks of 500 similar
companies during the base period of the years 1941 through 1943. Standard &
Poor's chooses companies for inclusion in the S&P 500 Index with the aim of
achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of the NYSE,
which Standard & Poor's uses as an assumed model for the composition of the
total market. Relevant criteria employed by Standard & Poor's include the
viability of the particular company, the extent to which that company
represents the industry group to which it is assigned, the extent to which the
market price of that company's common stock is generally responsive to changes
in the affairs of the respective industry and the market value and trading
activity of the common stock of that company. The Index is comprised of the
common stocks of companies in four main groups: Industrials, Utilities,
Transportation and Financial. Standard & Poor's may from time to time, in its
sole discretion, add companies to, or delete companies from, the S&P 500 Index
to achieve the objectives stated above.
The value of the S&P 500 Index is reported on the AMEX and on
Bloomberg under the symbol "SPX".
The S&P 500 Index does not reflect the payment of dividends on the
stocks included in the S&P 500 Index. Because of this, and due to the
application of the Adjustment Factor, the return on the MITTS Securities will
not be the same return that you would receive if you were to purchase these
stocks and hold them for a period equal to the term of the MITTS Securities.
Computation of the S&P 500 Index
Standard & Poor's currently computes the S&P 500 Index as of a
particular time as follows:
(a) the product of the market price per share and the number of
then outstanding shares of each component stock is determined
as of that time (referred to as the "market value" of that
stock);
(b) the market values of all component stocks as of that time are
aggregated;
(c) the mean average of the market values as of each week in the
base period of the years 1941 through 1943 of the common stock
of each company in a group of 500 substantially similar
companies is determined;
(d) the mean average market values of all these common stocks over
the base period are aggregated (the aggregate amount being
referred to as the "base value");
(e) the current aggregate market value of all component stocks is
divided by the Base Value; and
(f) the resulting quotient, expressed in decimals, is multiplied by
ten.
While Standard & Poor's currently employs the above methodology to
calculate the S&P 500 Index, no assurance can be given that Standard & Poor's
will not modify or change this methodology in a manner that may affect the
Supplemental Redemption Amount, if any, payable to beneficial owners of MITTS
Securities upon maturity or otherwise.
Standard & Poor's adjusts the foregoing formula to offset the effects
of changes in the market value of a component stock that are determined by
Standard & Poor's to be arbitrary or not due to true market fluctuations.
These changes may result from causes such as:
o the issuance of stock dividends,
o the granting to shareholders of rights to purchase additional
shares of stock,
o the purchase of shares by employees pursuant to employee benefit
plans,
o consolidations and acquisitions,
o the granting to shareholders of rights to purchase other
securities of ML&Co.,
o the substitution by Standard & Poor's of particular component
stocks in the S&P 500 Index, and
o other reasons.
In these cases, Standard & Poor's first recalculates the aggregate
market value of all component stocks, after taking account of the new market
price per share of the particular component stock or the new number of
outstanding shares of that stock or both, as the case may be, and then
determines the new base value in accordance with the following formula:
old base value x new base value = new market value
----------------
old market value
The result is that the base value is adjusted in proportion to any
change in the aggregate market value of all component stocks resulting from
the causes referred to above to the extent necessary to negate the effects of
these causes upon the S&P 500 Index.
License Agreement
Standard & Poor's does not guarantee the accuracy and/or the
completeness of the S&P 500 Index or any data included in that index. Standard
& Poor's makes no warranty, express or implied, as to results to be obtained
by ML&Co., MLPF&S, holders of the MITTS Securities, or any other person or
entity from the use of the S&P 500 Index or any data included therein in
connection with the rights licensed under the license agreement described in
this prospectus or for any other use. Standard & Poor's makes no express or
implied warranties, and hereby expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to the S&P
500 Index or any data included therein. Without limiting any of the above, in
no event shall Standard & Poor's have any liability for any special, punitive,
indirect or consequential damage, including lost profits, even if notified of
the possibility of these damages.
Standard & Poor's and Merrill Lynch Capital Services, Inc. have
entered into a non-exclusive license agreement providing for the license to
Merrill Lynch Capital Services, Inc., in exchange for a fee, of the right to
use indices owned and published by Standard & Poor's in connection with
certain securities, including the MITTS Securities, and ML&Co. is an
authorized sublicensee under that agreement.
The license agreement between Standard & Poor's and Merrill Lynch
Capital Services, Inc. provides that the following language must be stated in
this prospectus:
"The MITTS Securities are not sponsored, endorsed, sold or promoted
by Standard & Poor's. Standard & Poor's makes no representation or warranty,
express or implied, to the holders of the MITTS Securities or any member of
the public regarding the advisability of investing in securities generally or
in the MITTS Securities particularly or the ability of the S&P 500 Index to
track general stock market performance. Standard & Poor's only relationship to
Merrill Lynch Capital Services, Inc. and ML&Co. (other than transactions
entered into in the ordinary course of business) is the licensing of certain
servicemarks and trade names of Standard & Poor's and of the S&P 500 Index
which is determined, composed and calculated by Standard & Poor's without
regard to ML&Co. or the MITTS Securities. Standard & Poor's has no obligation
to take the needs of ML&Co. or the holders of the MITTS Securities into
consideration in determining, composing or calculating the S&P 500 Index.
Standard & Poor's is not responsible for and did not participate in the
determination of the timing of the sale of the MITTS Securities, prices at
which the MITTS Securities were initially sold, or quantities of the
MITTS Securities issued or in the determination or calculation of the
equation by which the MITTS Securities are to be converted into cash. Standard
& Poor's has no obligation or liability in connection with the administration,
marketing or trading of the MITTS Securities."
All disclosures contained in this prospectus regarding the above S&P
500 Index, including its make-up, method of calculation and changes in its
components, are derived from publicly available information prepared by
Standard & Poor's. ML&Co. and MLPF&S do not assume any responsibility for the
accuracy or completeness of this information.
The Nikkei 225 Index
All disclosure contained in this prospectus regarding the Nikkei 225
Index, including, without limitation, its make-up, method of calculation and
changes in its components, unless otherwise stated, has been derived from the
Stock Market Indices Data Book published by NKS and other publicly available
sources. The information reflects the policies of NKS as stated in these
sources; and the policies are subject to change at the discretion of NKS.
The Nikkei 225 Index is a stock index calculated, published and
disseminated by NKS that measures the composite price performance of selected
Japanese stocks. The Nikkei 225 Index is currently based on 225 Underlying
Stocks trading on the TSE and represents a broad cross-section of Japanese
industry. All 225 Underlying Stocks are stocks listed in the First Section of
the TSE. Stocks listed in the First Section are among the most actively traded
stocks on the TSE. Futures and options contracts on the Nikkei 225 Index are
traded on the Singapore International Monetary Exchange, the Osaka Securities
Exchange and the Chicago Mercantile Exchange.
The value of the Nikkei 225 Index is reported on the AMEX under the
symbol "N225", on Bloomberg under the symbol "NKY" and on Reuters under the
symbol ".N225".
The Nikkei 225 Index is a modified, price-weighted index. Each
stock's weight in the Nikkei 225 Index is based on its price per share rather
than the total market capitalization of the issuer. NKS calculates the Nikkei
225 Index by: multiplying the per share price of each Underlying Stock by the
corresponding weighting factor for that Underlying Stock (a "Weight Factor"),
calculating the sum of all these products and dividing that sum by a divisor.
The divisor, initially set in 1949 at 225, was 10.74327 as of December 16,
1999, and is subject to periodic adjustments as set forth below. Each Weight
Factor is computed by dividing (Yen)50 by the par value of the relevant
Underlying Stock, so that the share price of each Underlying Stock when
multiplied by its Weight Factor corresponds to a share price based on a
uniform par value of (Yen)50. Each Weight Factor represents the number of
shares of the related Underlying Stock which are included in one trading unit
of the Nikkei 225 Index. The stock prices used in the calculation of the
Nikkei 225 Index are those reported by a primary market for the Underlying
Stocks, which is currently the TSE. The level of the Nikkei 225 Index is
calculated once per minute during TSE trading hours.
In order to maintain continuity in the level of the Nikkei 225 Index
in the event of certain changes due to non-market factors affecting the
Underlying Stocks, such as the addition or deletion of stocks, substitution of
stocks, stock dividends, stock splits or distributions of assets to
stockholders, the divisor used in calculating the Nikkei 225 Index is adjusted
in a manner designed to prevent any instantaneous change or discontinuity in
the level of the Nikkei 225 Index. The divisor remains at the new value until
a further adjustment is necessary as the result of another change. As a result
of each change affecting any Underlying Stock, the divisor is adjusted in such
a way that the sum of all share prices immediately after the change multiplied
by the applicable Weight Factor and divided by the new divisor, the level of
the Nikkei 225 Index immediately after the change, will equal the level of the
Nikkei 225 Index immediately prior to the change.
Underlying Stocks may be deleted or added by NKS. However, to
maintain continuity in the Nikkei 225 Index, the policy of NKS is generally
not to alter the composition of the Underlying Stocks except when an
Underlying Stock is deleted in accordance with the following criteria. Any
stock becoming ineligible for listing in the First Section of the TSE due to
any of the following reasons will be deleted from the Underlying Stocks:
bankruptcy of the issuer; merger of the issuer into, or acquisition of the
issuer by, another company; delisting of the stock or transfer of the stock to
the "Seiri-Post" because of excess debt of the issuer or because of any other
reason; or transfer of the stock to the Second Section of the TSE. Upon
deletion of a stock from the Underlying Stocks, NKS will select, in accordance
with certain criteria established by it, a replacement for the deleted
Underlying Stock. In an exceptional case, a newly listed stock in the First
Section of the TSE that is recognized by NKS to be representative of a market
may be added to the Underlying Stocks. As a result, an existing Underlying
Stock with low trading volume and not representative of a market will be
deleted.
NKS is under no obligation to continue the calculation and
dissemination of the Nikkei 225 Index. The MITTS Securities are not sponsored,
endorsed, sold or promoted by NKS. No inference should be drawn from the
information contained in this prospectus that NKS makes any representation or
warranty, implied or express, to ML&Co., the holder of the MITTS Securities or
any member of the public regarding the advisability of investing in securities
generally or in the MITTS Securities in particular or the ability of the
Nikkei 225 Index to track general stock market performance. NKS has no
obligation to take the needs of ML&Co. or the holder of the MITTS Securities
into consideration in determining, composing or calculating the Nikkei 225
Index. NKS is not responsible for, and has not participated in the
determination of the timing of, prices for, or quantities of, the MITTS
Securities to be issued or in the determination or calculation of the equation
by which the MITTS Securities are to be settled in cash. NKS has no obligation
or liability in connection with the administration or marketing of the MITTS
Securities.
The use of and reference to the Nikkei 225 Index in connection with
the MITTS Securities have been consented to by NKS, the publisher of the
Nikkei 225 Index.
None of ML&Co., the calculation agent and MLPF&S accepts any
responsibility for the calculation, maintenance or publication of the Nikkei
225 Index or any successor index. NKS disclaims all responsibility for any
errors or omissions in the calculation and dissemination of the Nikkei 225
Index or the manner in which the Nikkei 225 Index is applied in determining
any Starting Values or Adjusted Ending Values or any Supplemental Redemption
Amount upon maturity of the MITTS Securities.
The Tokyo Stock Exchange
The TSE is one of the world's largest securities exchanges in terms
of market capitalization. Trading hours are currently from 9:00 A.M. to 11:00
A.M. and from 12:30 P.M. to 3:00 P.M., Tokyo time, Monday through Friday.
Due to the time zone difference, on any normal trading day, the TSE
will close prior to the opening of business in The City of New York on the
same calendar day. Therefore, the closing level of the Nikkei 225 Index on a
trading day will generally be available in the United States by the opening of
business on the same calendar day.
The TSE has adopted certain measures, including daily price floors
and ceilings on individual stocks, intended to prevent any extreme short-term
price fluctuations resulting from order imbalances. In general, any stock
listed on the TSE cannot be traded at a price lower than the applicable price
floor or higher than the applicable price ceiling. These price floors and
ceilings are expressed in absolute Japanese yen, rather than percentage limits
based on the closing price of the stock on the previous trading day. In
addition, when there is a major order imbalance in a listed stock, the TSE
posts a "special bid quote" or a "special asked quote" for that stock at a
specified higher or lower price level than the stock's last sale price in
order to solicit counter-orders and balance supply and demand for the stock.
Prospective investors should also be aware that the TSE may suspend the
trading of individual stocks in certain limited and extraordinary
circumstances, including, for example, unusual trading activity in that stock.
As a result, changes in the Nikkei 225 Index may be limited by price
limitations or special quotes, or by suspension of trading, on individual
stocks which comprise the Nikkei 225 Index, and these limitations may, in
turn, adversely affect the value of the MITTS Securities.
The Euro STOXX 50
The Euro STOXX 50 was created by STOXX, a joint venture founded by
SWX- Swiss Exchange, SBF-Bourse de Paris, Deutsche Borse AG and Dow Jones.
Publication of the Euro STOXX 50 began on February 26, 1998, based on an
initial value of the Euro STOXX 50 of 1,000 at December 31, 1991.
The value of the Euro STOXX is reported on Bloomberg under the symbol
"SX5E".
The Euro STOXX 50 is currently calculated by (i) multiplying the per
share price of each underlying security by the number of outstanding shares
(and, if the stock is not quoted in euro, then multiplied by the country
currency and an exchange factor which reflects the exchange rate between the
country currency and the euro); (ii) calculating the sum of all these products
(the "Index Aggregate Market Capitalization"); and (iii) dividing the Index
Aggregate Market Capitalization by a divisor which represents the Index
Aggregate Market Capitalization on the base date of the Euro STOXX 50 and
which can be adjusted to allow changes in the issued share capital of
individual underlying securities, including the deletion and addition of
stocks, the substitution of stocks, stock dividends and stock splits, to be
made without distorting the Euro STOXX 50. Because of this capitalization
weighting, movements in share prices of the underlying securities of companies
with relatively greater market capitalization will have a greater effect on
the value of the entire Euro STOXX 50 than will movements in share prices of
the underlying securities of companies with relatively smaller market
capitalization.
The composition of the Euro STOXX 50 is reviewed annually, and
changes are implemented on the third Friday in September, using market data
from the end of July as the basis for the review process. Changes in the
composition of the Euro STOXX 50 are made to ensure that the Euro STOXX 50
includes those companies which, within the eligible countries and within each
industry sector, have the greatest market capitalization. Changes in the
composition of the Euro STOXX 50 are made entirely by STOXX without
consultation with the corporations represented in the Euro STOXX 50 or ML&Co.
The Euro STOXX 50 is also reviewed on an ongoing basis, and change in the
composition of the Euro STOXX 50 may be necessary if there have been
extraordinary events for one of the issuers of the underlying securities,
e.g., delisting, bankruptcy, merger or takeover. In these cases, the event is
taken into account as soon as it is effective. The underlying securities may
be changed at any time for any reason. Neither STOXX nor any of its founders
is affiliated with ML&Co. and has participated in any way in the creation of
the MITTS Securities.
ML&Co. or its affiliates may presently or from time to time engage in
business with the publishers, owners, founders or creators of the Euro STOXX
50 or any of its successors or one or more of the issuers of the underlying
securities, including extending loans to, making equity investments in or
providing advisory services, including merger and acquisition advisory
services, to the publishers, their successors, founders or creators or to any
of the issuers. In the course of business with issuers, ML&Co. or its
affiliates may acquire non-public information with respect to the issuers.
ML&Co. may also act as market maker for the common stocks of the issuers.
ML&Co. does not make any representation to any purchaser of MITTS Securities
with respect to any matters whatsoever relating to any of the publishers,
their successors, founders or creators or to any of the issuers. Any
prospective purchaser of MITTS Securities should undertake an independent
investigation of the issuers of the underlying securities and with respect to
the competency of its publisher to formulate and calculate the Euro STOXX 50
as in its judgment is appropriate to make an informed decision with respect to
an investment in the MITTS Securities. The composition of the Euro STOXX 50
does not reflect any investment or sell recommendations of ML&Co. or its
affiliates.
A representative of an affiliate of ML&Co. may from time to time be a
member of the STOXX Limited Advisory Committee. STOXX states in its Guide to
the Dow Jones STOXX Indexes that STOXX's Advisory Committee advises the
Supervisory Board on matters relating to the Euro STOXX 50. This advisory
committee proposes changes in the composition of the Euro STOXX 50 to the
Supervisory Board and makes recommendations with respect to the accuracy and
transparency of the index computation. Decisions on the composition and
changes in the Euro STOXX 50 are reserved to the Supervisory Board.
STOXX Ltd. and ML&Co. have entered into a non-exclusive license
agreement providing for the license to ML&Co., in exchange for a fee, of the
right to use the Euro STOXX 50, which is owned and published by STOXX, in
connection with certain securities, including the MITTS Securities.
The license agreement between STOXX and ML&Co. provides that the
following language must be set forth in this prospectus:
"The MITTS Securities are not sponsored, endorsed, sold or promoted
by STOXX LIMITED or Dow Jones & Company, Inc. Neither STOXX nor Dow Jones
makes any representation or warranty, express or implied, to the owners of the
MITTS Securities or any member of the public regarding the advisability of
investing in securities generally or in the MITTS Securities particularly. The
only relationship of STOXX to ML&Co. is as the licensor of the Dow Jones
STOXX, the Dow Jones Euro STOXX 50 and of certain trademarks, trade names and
service marks of STOXX, and as the sublicensor of the Dow Jones STOXX, the Dow
Jones Euro STOXX and of certain trademarks, trade names and service marks of
Dow Jones. The aforementioned indices are determined, composed and calculated
by STOXX or Dow Jones, as the case may be, without regard to ML&Co. or the
MITTS Securities. Neither STOXX nor Dow Jones is responsible for or has
participated in the determination of the timing of, prices at, or quantities
of the MITTS Securities issued or in the determination or calculation of
the equation by which the MITTS Securities are to be converted into cash.
Neither STOXX nor Dow Jones has any obligation or liability in connection with
the administration, marketing or trading of the MITTS Securities.
NEITHER STOXX NOR DOW JONES GUARANTEES THE ACCURACY AND/OR THE
COMPLETENESS OF THE INDICES OR ANY DATA INCLUDED THEREIN AND NEITHER SHALL
HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. NEITHER
STOXX NOR DOW JONES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO
BE OBTAINED BY ML&CO., OWNERS OF THE MITTS SECURITIES, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE INDICES OR ANY DATA INCLUDED THEREIN. NEITHER STOXX
NOR DOW JONES MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS
ALL WARRANTIES, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE
WITH RESPECT TO THE INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL EITHER STOXX OR DOW JONES HAVE ANY
LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL
DAMAGES OR LOSSES, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO
THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN STOXX AND
ML&CO."
The Dow Jones Euro STOXX 50 is owned by STOXX Ltd. and is a service
mark of Dow Jones & Company, Inc., and has been licensed for certain purposes
by ML&Co.(C)1998 by STOXX Ltd. All rights reserved.
OTHER TERMS
The MITTS Securities were issued as a series of senior debt
securities under the 1983 Indenture, dated as of April 1, 1983, as amended and
restated, between ML&Co. and The Chase Manhattan Bank, as trustee. A copy of
the 1983 Indenture is filed as an exhibit to the registration statement
relating to the MITTS Securities of which this prospectus is a part. The
following summaries of the material provisions of the 1983 Indenture are not
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the 1983 Indenture, including the definitions of terms in
the 1983 Indenture.
Series of senior debt securities may from time to time be issued
under the 1983 Indenture, without limitation as to aggregate principal amount,
in one or more series and upon terms as ML&Co. may establish under the
provisions of the 1983 Indenture.
The 1983 Indenture and the MITTS Securities are governed by and
construed in accordance with the laws of the State of New York.
ML&Co. may issue senior debt securities with terms different from
those of senior debt securities previously issued, and issue additional senior
debt securities of a previously issued series of senior debt securities.
The senior debt securities are unsecured and rank equally with all
other unsecured and unsubordinated indebtedness of ML&Co. However, because
ML&Co. is a holding company, the rights of ML&Co. and its creditors, including
the holders of senior debt securities, to participate in any distribution of
the assets of any subsidiary upon its liquidation or reorganization or
otherwise are necessarily subject to the prior claims of creditors of the
subsidiary, except to the extent that claims of ML&Co. itself as a creditor of
the subsidiary may be recognized. In addition, dividends, loans and advances
from certain subsidiaries, including MLPF&S, to ML&Co. are restricted by net
capital requirements under the Exchange Act, and under rules of exchanges and
other regulatory bodies.
Limitations upon liens
ML&Co. may not, and may not permit any majority-owned subsidiary to,
create, assume, incur or permit to exist any indebtedness for borrowed money
secured by a pledge, lien or other encumbrance, other than those liens
specifically permitted by the 1983 Indenture, on the Voting Stock owned
directly or indirectly by ML&Co. of any majority-owned subsidiary, other than
a majority-owned subsidiary which, at the time of the incurrence of the
secured indebtedness, has a net worth of less than $3,000,000, unless the
outstanding senior debt securities are secured equally and ratably with the
secured indebtedness.
"Voting Stock" is defined in the 1983 Indenture as the stock of the
class or classes having general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation provided that, for the purposes of the 1983 Indenture, stock that
carries only the right to vote conditionally on the occurrence of an event is
not considered voting stock whether or not the event has happened.
Limitation on disposition of Voting Stock of, and merger and sale of assets
by, MLPF&S
ML&Co. may not sell, transfer or otherwise dispose of any Voting
Stock of MLPF&S or permit MLPF&S to issue, sell or otherwise dispose of any of
its Voting Stock, unless, after giving effect to any such transaction, MLPF&S
remains a Controlled Subsidiary.
"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 to the MITTS Securities, we have determined that the projected
payment schedule for the MITTS Securities will consist of payment on the
maturity date of the principal amount thereof and a projected Supplemental
Redemption Amount equal to $4.0189 per unit. This represents an estimated
yield on the MITTS Securities equal to 6.87% per annum (compounded
semiannually).
The projected payment schedule, including both projected Supplemental
Redemption Amount and the estimated yield on the MITTS Securities, has been
determined solely for United States Federal income tax purposes i.e., for
purposes of applying the Final Regulations to the MITTS Securities, and is
neither a prediction nor a guarantee of what the actual Supplemental
Redemption Amount will be, or that the actual Supplemental Redemption Amount
will even exceed zero.
The following table sets forth the amount of interest that will be
deemed to have accrued with respect to each unit of the MITTS Securities
during each accrual period over the term of the MITTS Securities based upon
the projected payment schedule for the MITTS Securities, including both the
projected Supplemental Redemption Amount and the estimated yield equal to
6.87% per annum, compounded semiannually, as determined by ML&Co. for purposes
of illustrating the application of the Final Regulations to the MITTS
Securities:
<TABLE>
<CAPTION>
Total interest
deemed to have
accrued on the
Interest deemed MITTS Securities
to accrue during as of the end of
accrual period accrual period
Accrual Period (per unit) (per unit)
<S> <C> <C>
----- --- ---
December 23, 1999 through June 22, 2000.................................... $0.3445 $0.3445
June 23, 2000 through December 22, 2000.................................... $0.3553 $0.6998
December 23, 2000 through June 22, 2001.................................... $0.3675 $1.0673
June 23, 2001 through December 22, 2001.................................... $0.3802 $1.4475
December 23, 2001 through June 22, 2002.................................... $0.3932 $1.8407
June 23, 2002 through December 22, 2002.................................... $0.4067 $2.2474
December 23, 2002 through June 22, 2003.................................... $0.4207 $2.6681
June 23, 2003 through December 22, 2003.................................... $0.4352 $3.1033
December 23, 2003 through June 22, 2004.................................... $0.4501 $3.5534
June 23, 2004 through December 22, 2004.................................... $0.4655 $4.0189
</TABLE>
- ---------
Projected Supplemental Redemption Amount = $4.0189 per unit.
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.
