[LOGO] MERRILL LYNCH
PROTECTED GROWTH(SM) INVESTING
PROSPECTUS Pursuit of Growth, Protection of Principal
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Merrill Lynch & Co., Inc.
Energy Select Sector SPDR(R) Fund
Market Index Target-Term Securities(R)
due September 20, 2006
"MITTS(R) Securities"
$10 principal amount per unit
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This prospectus is to be used by Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, our wholly-owned subsidiary, when making
offers and sales related to market-making transactions in the MITTS
Securities.
THE MITTS SECURITIES: PAYMENT AT MATURITY:
o 100% principal protection at maturity. o On the maturity date, for each unit of
o No payments before the maturity date. the MITTS Securities you own, we will pay you
o Senior unsecured debt securities of an amount equal to the sum of the
Merrill Lynch & Co., Inc. principal amount of each unit and an
o Linked to the net asset value per share additional amount based on the percentage
of the Energy Select Sector SPDR Fund, a increase, if any, in the net asset value
registered index fund. per share of the Energy Select Sector SPDR
o The MITTS Securities are listed on the Fund, reduced by an annual adjustment
American Stock Exchange under the trading factor of 1.25%.
symbol "ESY". o At maturity, you will receive no less
o Closing date: September 20, 1999. than the principal amount of your MITTS
Securities.
o At maturity, we will pay you all amounts due
under the MITTS Securities by delivering to you
shares of the Energy Select Sector SPDR Fund
or paying you cash with an equal value.
Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page 8 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.
"SPDRs", "Select Sector SPDR", "Select Sector SPDRs" and "Select Sector
Standard & Poor's Depositary Receipts" are trademarks of The McGraw-Hill
Companies, Inc.
TABLE OF CONTENTS
Page
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SUMMARY INFORMATION-Q&A............................................. 3
RISK FACTORS........................................................ 8
MERRILL LYNCH & CO., INC............................................ 13
RATIO OF EARNINGS TO FIXED CHARGES.................................. 14
DESCRIPTION OF THE MITTS SECURITIES................................. 15
THE ENERGY SPDR FUND................................................ 23
OTHER TERMS......................................................... 25
PROJECTED PAYMENT SCHEDULE.......................................... 28
ERISA CONSIDERATIONS................................................ 29
WHERE YOU CAN FIND MORE INFORMATION................................. 29
INCORPORATION OF INFORMATION WE FILE WITH THE SEC................... 30
PLAN OF DISTRIBUTION................................................ 31
EXPERTS............................................................. 31
SUMMARY INFORMATION -- Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Energy SPDR(R)
Fund Market Index Target-Term Securities(R) due September 20, 2006. You should
carefully read this prospectus to fully understand the terms of the MITTS
Securities and the tax and other considerations that are important to you in
making a decision about whether to invest in the MITTS Securities. You should
carefully review the "Risk Factors" section, which highlights certain risks
associated with an investment in the MITTS Securities, to determine whether an
investment in the MITTS Securities is appropriate for you.
References in this prospectus to "ML&Co.", "we", "us" and "our" are
to Merrill Lynch & Co., Inc.
References in this prospectus to "MLPF&S" are to Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
References in this prospectus to the "Energy SPDR Fund" are to the
Energy Select Sector SPDR Fund.
We have attached the prospectus for the Energy SPDR Fund (the "Fund
Prospectus"). You should carefully read the Fund Prospectus to fully
understand the operation and management of the Energy SPDR Fund, particularly
the fees and expenses associated with shares of the Energy SPDR Fund which
affect the net asset value per share of the Energy SPDR Fund and which will
directly apply to you if we choose to deliver these shares of the Energy SPDR
Fund to you at maturity of the MITTS Securities. Our affiliate, MLPF&S, is
both a soliciting dealer in the shares of the Energy SPDR Fund and the index
compilation agent for the Energy Select Sector Index. However, we are not
affiliated with the Energy SPDR Fund or the Energy Select Sector Index. The
Energy SPDR Fund will not receive any of the proceeds from the sale of the
MITTS Securities and will not have any obligations with respect to the MITTS
Securities.
We have attached the Fund Prospectus and are delivering it to you
together with this prospectus for the convenience of reference only. The Fund
Prospectus does not constitute a part of this prospectus, nor is it
incorporated by reference into this prospectus.
What are the MITTS Securities?
The MITTS Securities are a series of senior debt securities issued by
ML&Co. and are not secured by collateral. The MITTS Securities rank equally
with all of our other unsecured and unsubordinated debt. The MITTS Securities
will mature on September 20, 2006. We cannot redeem the MITTS Securities at
any earlier date. We will not deliver to you any shares of the Energy SPDR
Fund or make any other payments on the MITTS Securities until maturity.
Each unit of MITTS Securities represents $10 principal amount of
MITTS Securities. You may transfer the MITTS Securities only in whole units.
You will not have the right to receive physical certificates evidencing your
ownership except under limited circumstances. Instead, we have issued the
MITTS Securities in the form of a global certificate, which is held by The
Depository Trust Company, also known as DTC, or its nominee. Direct and
indirect participants in DTC will record your ownership of the MITTS
Securities. You should refer to the section "Description of the MITTS
Securities--Depositary" in this prospectus.
What will I receive on the stated maturity date of the MITTS Securities?
We have designed the MITTS Securities for investors who want to
protect their investment by receiving at least the principal amount of their
investment at maturity and who also want to participate in the appreciation,
if any, in the Net Asset Value per share of the Energy SPDR Fund as reduced by
the Adjustment Factor. On the stated maturity date, you will receive a number
of shares of the Energy SPDR Fund equal in value to the sum of the principal
amount and the Supplemental Redemption Amount, if any, and an amount of cash
equal to the value of any fractional shares. We will determine the number of
shares to be delivered to you based on the Ending Value. At our option,
instead of delivering to you the shares of the Energy SPDR Fund to which you
would otherwise be entitled, we may pay you cash.
Principal amount
The "principal amount" per unit is $10.
Supplemental Redemption Amount
The "Supplemental Redemption Amount" per unit will equal:
(Adjusted Ending Velue-Starting Value)
$10 x (____________________________________)
( Starting Value )
but will not be less than zero.
The "Starting Value" equals 29.27, the Net Asset Value of one share
of the Energy SPDR Fund on September 14, 1999, the date the MITTS Securities
were priced for initial sale to the public.
The "Adjusted Ending Value" means the Ending Value as reduced by the
application of the Adjustment Factor to the Net Asset Value used to calculate
the Ending Value on each calculation day during the calculation period.
"Ending Value" means the average of the Net Asset Values of one share
of the Energy SPDR Fund as determined by the Energy SPDR Fund at the close of
the market on five calculation days shortly before the maturity of the MITTS
Securities. We may calculate the Ending Value by reference to fewer than five
or even a single day's Net Asset Value if, during the calculation period,
there is a disruption in the trading of a number of the component stocks of
the Energy Select Sector Index or options relating to the shares of the Energy
SPDR Fund, the Energy SPDR Fund is unable or otherwise fails to issue a Net
Asset Value for the shares of the Energy SPDR Fund or the Energy SPDR Fund
suspends the creation or redemption of its shares. Please see the section
entitled "Description of the MITTS Securities--Adjustments to the Energy SPDR
Fund; Market Disruption Events" in this prospectus.
The "Adjustment Factor" equals 1.25% per year and will be prorated
based on a 365-day year and applied over the entire term of the MITTS
Securities on each calendar day to reduce the Net Asset Value per share of the
Energy SPDR Fund used to calculate the Supplemental Redemption Amount on each
Calculation Day during the Calculation Period. As a result of the cumulative
effect of this reduction, the values used to calculate your Supplemental
Redemption Amount at the maturity of the MITTS Securities will be
approximately 8.38% less than the actual Net Asset Values per share of the
Energy SPDR Fund on each day during the Calculation Period. For a detailed
discussion of how the Adjustment Factor will affect the Net Asset Value per
share of the Energy SPDR Fund used to calculate your Supplemental Redemption
Amount, see "Description of the MITTS Securities--Delivery at maturity" and
"--Hypothetical Returns" in this prospectus. For more specific information
about the Supplemental Redemption Amount, please see the section entitled
"Description of the MITTS Securities" in this prospectus.
We will pay you a Supplemental Redemption Amount only if the Adjusted
Ending Value is greater than the Starting Value. If the Adjusted Ending Value
is less than, or equal to, the Starting Value, the Supplemental Redemption
Amount will be zero. We will pay you the principal amount of your MITTS
Securities regardless of whether any Supplemental Redemption Amount is
payable.
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Examples
Here are two examples of Supplemental Redemption Amount calculations
assuming an investment term equal to that of the MITTS Securities and an
Adjustment Factor of 1.25% per year:
Example 1 -- The hypothetical Adjusted Ending Value is below the Starting
Value at maturity:
Starting Value: 29.27
Hypothetical Ending Value at maturity: 30.73
Hypothetical Adjusted Ending Value: 28.15
(Supplemental
(28.15-29.27) Redemption
Supplemental Redemption Amount (per unit)=$10 x (___________)= $0.00 Amount
( 29.27 ) cannot be
less than
zero)
Total payment at maturity (per unit) = $10+$0 = $10
Example 2 --The hypothetical Adjusted Ending Value is above the Starting Value
at maturity:
Starting Value: 29.27
Hypothetical Ending Value at maturity: 52.68
Hypothetical Adjusted Ending Value: 48.26
(48.26-29.27)
Supplemental Redemption Amount (per unit)=$10 x (___________)= $6.49
( 29.27 )
Total payment at maturity (per unit) = $10+$6.49 = $16.49
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How is the Net Asset Value determined?
The "Net Asset Value" means the net asset value per share of the
Energy SPDR Fund as determined by the Energy SPDR Fund. The Energy SPDR Fund
calculates its Net Asset Value per share by dividing the value of its net
assets, i.e., the value of its total assets less total liabilities, by its
total number of shares outstanding. Expenses and fees, including the
management, administration and distribution fees, of the Energy SPDR Fund are
accrued daily and taken into account for purposes of determining Net Asset
Value. The Net Asset Value per share of the Energy SPDR Fund is determined by
the Energy SPDR Fund on each Business Day after the close of trading on the
New York Stock Exchange, ordinarily 4:00 p.m., New York City time. Shares of
the Energy SPDR Fund are listed on the AMEX under the trading symbol "XLE".
When will I receive cash instead of shares of the Energy SPDR Fund?
If we choose to pay you the amount due to you at maturity in cash
instead of in shares of the Energy SPDR Fund which you would otherwise be
entitled to receive, we will pay you an amount of cash equal to the sum of the
principal amount and the Supplemental Redemption Amount, if any. In addition,
if at any time MLPF&S ceases to be a soliciting dealer in the shares of the
Energy SPDR Fund, we will pay the amount due to you in cash instead of shares.
Please see the section entitled "Description of the MITTS Securities--Delivery
at maturity" in this prospectus.
In addition, in the event that we choose to deliver shares of the
Energy SPDR Fund at maturity, we will not distribute any fractional shares to
you.
We will aggregate all amounts due to you in respect of the total
number of units you hold on the stated maturity date, and, in lieu of
delivering to you any fractional shares of the Energy SPDR Fund to which you
would otherwise be entitled, we will pay you the cash value of these
fractional shares based on the Ending Value.
Will I be charged any transaction fees or expenses with respect to the shares
of the Energy SPDR Fund?
Unless and until we deliver shares of the Energy SPDR Fund to you in
satisfaction of our obligations under the MITTS Securities at maturity, you
will not be directly charged any management, administration, distribution or
other transaction fees or other expenses with respect to the shares of the
Energy SPDR Fund. However, because the Energy SPDR Fund accrues these fees and
expenses daily for purposes of determining the Net Asset Value of its shares,
the Net Asset Values used to calculate your Supplemental Redemption Amount
will reflect the deduction of these fees and expenses as well as the reduction
resulting from the application of the Adjustment Factor.
If at maturity we deliver to you shares of the Energy SPDR Fund, you
will then become directly subject to ongoing account maintenance fees and
certain other transaction expenses with respect to your shares so long as you
hold those shares.
The accompanying Fund Prospectus describes the fees and expenses
charged by the Energy SPDR Fund in greater detail.
What is the Energy SPDR Fund?
The Energy SPDR Fund is an index fund whose stated investment
objective is to provide investment results that, before expenses, correspond
generally to the price and yield performance of the publicly traded equity
securities comprising the Energy Select Sector Index. The Energy Select Sector
Index consists of the equity securities of publicly traded companies that are
components of the S&P 500 Index and are involved in the development and
production of energy products. Companies in the Energy Select Sector Index
develop and produce crude oil and natural gas, and provide drilling and other
energy related services. Our affiliate, MLPF&S, is both a soliciting dealer in
the shares of the Energy SPDR Fund and the index compilation agent for the
Energy Select Sector Index. We are not affiliated with the Energy SPDR Fund or
the Energy Select Sector Index. The Energy SPDR Fund did not receive any of
the proceeds from the sale of the MITTS Securities and does not have any
obligations with respect to the MITTS Securities. You should independently
decide whether an investment in the MITTS Securities and the Energy SPDR Fund
is appropriate for you.
The Energy SPDR Fund is one of nine investment funds comprising the
Select Sector SPDR Trust, a management investment company registered under the
Investment Company Act of 1940, as amended. Each fund's investment portfolio
is comprised principally of constituent companies whose equity securities are
components of the S&P 500 Index, each representing one of nine specified
market sector indices. Each stock in the S&P 500 Index is allocated to only
one Select Sector Index. The combined companies of the nine Select Sector
Indices represent all of the companies whose stocks are components of the S&P
500 Index.
You should carefully read the Fund Prospectus accompanying this
prospectus to fully understand the operation and management of the Energy SPDR
Fund. In addition, because the Select Sector SPDR Trust is subject to the
registration requirements of the Securities Act of 1933, as amended, and the
Investment Company Act, the Select Sector SPDR Trust is required to file
periodically certain information specified by the SEC. For more information
about the Energy SPDR Fund and the shares that you may receive at maturity,
information provided to or filed with the SEC by the Select Sector SPDR Trust
can be inspected at the SEC's public reference facilities or accessed over the
Internet through a web site maintained by the SEC at http://www.sec.gov. You
may also obtain copies of these documents at no cost by calling the Select
Sector SPDR Trust at (800) 843-2639 or by writing the Select Sector SPDR Trust
c/o ALPS Mutual Funds Services, Inc., at 370 17th Street, Suite 3100, Denver,
CO 80202. Neither the Fund Prospectus nor these other documents are
incorporated by reference into this prospectus, and we make no representation
or warranty as to the accuracy or completeness of the information.
Are the MITTS Securities be listed on a stock exchange?
The MITTS Securities have been approved for listing on the AMEX under
the trading symbol "ESY". You should be aware that the listing of the MITTS
Securities on the AMEX does not necessarily ensure that a liquid trading
market will be available for the MITTS Securities. You should review "Risk
Factors--There may be an uncertain trading market for the MITTS Securities" in
this prospectus.
What is the role of MLPF&S?
Our subsidiary, MLPF&S, was the underwriter for the initial offering
and sale of the MITTS Securities. MLPF&S intends to buy and sell MITTS
Securities to create a secondary market for holders of the MITTS Securities.
However, MLPF&S will not be obligated to engage in any of these market
activities or continue them once it has started.
MLPF&S is also our agent for purposes of calculating, among other
things, the Adjusted Ending Value and the Supplemental Redemption Amount.
Under certain circumstances, these duties could result in a conflict of
interest between MLPF&S' status as a subsidiary of ML&Co. and its
responsibilities as calculation agent.
MLPF&S also is a soliciting dealer in the shares of the Energy SPDR
Fund and is the index compilation agent for the Energy Select Sector Index.
Under certain circumstances, these duties could result in a conflict of
interest between MLPF&S' status as our subsidiary and its responsibilities to
the Energy SPDR Fund and the Energy Select Sector Index. Please see the
section entitled "Risk Factors--Potential conflicts" in this prospectus.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various
subsidiaries and affiliated companies that provide investment, financing,
insurance and related services on a global basis. For information about
ML&Co., see the section entitled "Merrill Lynch & Co., Inc." in this
prospectus. You should also read the other documents we have filed with the
SEC, which you can find by referring to the section entitled "Where You Can
Find More Information" in this prospectus.
Are there any risks associated with my investment?
Yes, an investment in the MITTS Securities is subject to risk. Please
refer to the section entitled "Risk Factors" in this prospectus.
RISK FACTORS
Your investment in the MITTS Securities will involve risks. You
should carefully consider the following discussion of risks before investing
in the MITTS Securities. In addition, you should reach an investment decision
with regard to the MITTS Securities only after consulting with your legal and
tax advisers and considering the suitability of the MITTS Securities in the
light of your particular circumstances.
You may not earn a return on your investment
You should be aware that if the Adjusted Ending Value does not exceed
the Starting Value at the stated maturity date, the Supplemental Redemption
Amount will be zero. This will be true even if the Net Asset Value per share
of the Energy SPDR Fund, as reduced by the Adjustment Factor over the term of
the MITTS Securities, was higher than the Starting Value at some time during
the life of the MITTS Securities but later falls below the Starting Value. If
the Supplemental Redemption Amount is zero, we will pay you only the principal
amount of your MITTS Securities.
Your return will not reflect the return of owning shares of the Energy SPDR
Fund or the securities and other assets comprising the Energy SPDR Fund's
investment portfolio
When determining the Supplemental Redemption Amount, if any, paid to
you at maturity, the Energy SPDR Fund's Net Asset Value per share, which
reflects the reduction of fund assets resulting from the accrual of the Energy
SPDR Fund's fees and expenses and any distributions made by the Energy SPDR
Fund, will also be reduced by the application of the Adjustment Factor over
the term of the MITTS Securities. Consequently, your return on the MITTS
Securities will not reflect the return of owning the shares of the Energy SPDR
Fund or the securities and other assets included in the Energy SPDR Fund's
investment portfolio.
Changes in the Net Asset Value per share of the Energy SPDR Fund will not
exactly mirror changes in the Energy Select Sector Index
As indicated in the Fund Prospectus, the Energy SPDR Fund's
investment objective is to provide investment results that, before expenses,
correspond generally to the price and yield performance of the publicly traded
equity securities included in the Energy Select Sector Index. However, changes
in the value of the Energy Select Sector Index and in the Net Asset Value per
share of the Energy SPDR Fund are not expected to be identical because:
o the Energy SPDR Fund's investment portfolio may not hold all of
the stocks in the Energy Select Sector Index or may not hold
each stock in the same weighting as the Energy Select Sector
Index,
o the Energy SPDR Fund may hold assets other than equity
securities, and
o the Net Asset Value per share of the Energy SPDR Fund reflects
the reduction of fund assets resulting from the accrual of fees
and expenses and the payment of distributions, if any.
As stated in the Fund Prospectus, the investment adviser to the
Energy SPDR Fund believes that "over time, 'the tracking error' of the Energy
SPDR Fund relative to the performance of the Energy Select Sector Index,
adjusted for the effect of the Energy SPDR Fund's expenses, will be less than
5%". There is no assurance that the tracking error will not be greater than 5%
at any time, including the time that you may wish to sell your MITTS
Securities before the maturity date or at the time the calculation agent
determines the Supplemental Redemption Amount, if any.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The amount we pay you at maturity may be less than the return you
could earn on other investments. Your yield may be less than the yield you
would earn if you bought a standard senior non-callable debt security of
ML&Co. with the same stated maturity date. Your investment may not reflect the
full opportunity cost to you when you take into account factors that affect
the time value of money.
There may be an uncertain trading market for the MITTS Securities
Although the MITTS Securities are listed on the AMEX under the
trading symbol "ESY", you cannot assume that a trading market exists for the
MITTS Securities. If a trading market does exist, there can be no assurance
that there will be liquidity in the trading market. The existence of a trading
market for the MITTS Securities will depend on our financial performance, and
other factors such as the increase, if any, in the Net Asset Value per share
of the Energy SPDR Fund.
If the trading market for the MITTS Securities is limited, there may
be a limited number of buyers for your MITTS Securities if you do not wish to
hold your investment until maturity. This may affect the price you receive.
Many factors affect the trading value of the MITTS Securities; these factors
interrelate in complex ways and the effect of any one factor may offset or
magnify the effect of another factor
The trading value of the MITTS Securities will be affected by factors
that interrelate in complex ways. It is important for you to understand that
the effect of one factor may offset the increase in the trading value of the
MITTS Securities caused by another factor and that the effect of one factor
may exacerbate the decrease in the trading value of the MITTS Securities
caused by another factor. For example, an increase in interest rates may
offset some or all of any increase in the trading value of the MITTS
Securities attributable to another factor, such as an increase in the Net
Asset Value per share of the Energy SPDR Fund. The following paragraphs
describe the expected impact on the market value of the MITTS Securities given
a change in a specific factor, assuming all other conditions remain constant.
The Net Asset Value per share of the Energy SPDR Fund is expected to
affect the trading value of the MITTS Securities. We expect that the market
value of the MITTS Securities will depend substantially on the amount, if any,
by which the Net Asset Value per share of the Energy SPDR Fund, as reduced by
the Adjustment Factor over the term of the MITTS Securities, exceeds the
Starting Value. If you choose to sell your MITTS Securities when the Net Asset
Value per share of the Energy SPDR Fund, as reduced by the Adjustment Factor
over the term of the MITTS Securities, exceeds the Starting Value, you may
receive substantially less than the amount that would be payable at maturity
based on that value because of the expectation that the Net Asset Value per
share of the Energy SPDR Fund will continue to fluctuate until the Adjusted
Ending Value is determined. If you choose to sell your MITTS Securities when
the Net Asset Value per share of the Energy SPDR Fund is below, or not
sufficiently above, the Starting Value, you may receive less than the $10
principal amount per unit of MITTS Securities. In general, rising U.S.
dividend rates or dividends per share may increase the Net Asset Value per
share of the Energy SPDR Fund while falling U.S. dividend rates may decrease
the Net Asset Value per share of the Energy SPDR Fund.
Changes in the levels of interest rates are expected to affect the
trading value of the MITTS Securities. Because we will pay, at a minimum, the
principal amount per unit of MITTS Securities at maturity, we expect that
changes in U.S. interest rates will affect the trading value of the MITTS
Securities. In general, if U.S. interest rates increase, we expect that the
trading value of the MITTS Securities will decrease and, conversely, if U.S.
interest rates decrease, we expect the trading value of the MITTS Securities
will increase. Rising U.S. interest rates may lower the Net Asset Value per
share of the Energy SPDR Fund and, as a result, may lower the trading value of
the MITTS Securities. Falling U.S. interest rates may increase the Net Asset
Value per share of the Energy SPDR Fund and, as a result, may increase the
value of the MITTS Securities.
Changes in the volatility of the Net Asset Value per share of the
Energy SPDR Fund are expected to affect the trading value of the MITTS
Securities. Volatility is the term used to describe the size and frequency of
price and/or market fluctuations. In general, if the volatility of the Net
Asset Value per share of Energy SPDR Fund increases, we expect that the
trading value of the MITTS Securities will increase and, conversely, if the
volatility of the Net Asset Value per share of the Energy SPDR Fund decreases,
we expect that the trading value of the MITTS Securities will decrease.
As the time remaining to maturity of the MITTS Securities decreases,
the "time premium" associated with the MITTS Securities will decrease. We
anticipate that before their maturity, the MITTS Securities may trade at a
value above that which would be expected based on the level of interest rates
and the Net Asset Value per share of the Energy SPDR Fund. This difference
will reflect a "time premium" due to expectations concerning the Net Asset
Value per share of the Energy SPDR Fund during the period before the stated
maturity date of the MITTS Securities. However, as the time remaining to the
stated maturity date of the MITTS Securities decreases, we expect that this
time premium will decrease, lowering the trading value of the MITTS
Securities.
Changes in dividend yields of the stocks included in the Energy SPDR
Fund are expected to affect the trading value of the MITTS Securities. In
general, if dividend yields on the stocks included in the Energy SPDR Fund
increase, we expect that the value of the MITTS Securities will decrease and,
conversely, if dividend yields on the stocks included in the Energy SPDR Fund
decrease, we expect that the value of the MITTS Securities will increase.
Changes in our credit ratings may affect the trading value of the
MITTS Securities. Our credit ratings are an assessment of our ability to pay
our obligations. Consequently, real or anticipated changes in our credit
ratings may affect the trading value of the MITTS Securities. However, because
your return on your MITTS Securities is dependent upon factors in addition to
our ability to pay our obligations under the MITTS Securities, such as the
percentage increase in the Net Asset Value per share of the Energy SPDR Fund
at maturity, an improvement in our credit ratings will not reduce the other
investment risks related to the MITTS Securities.
In general, assuming all relevant factors are held constant, we
expect that the effect on the trading value of the MITTS Securities of a given
change in most of the factors listed above will be less if it occurs later in
the term of the MITTS Securities than if it occurs earlier in the term of the
MITTS Securities. However, we expect that the effect on the trading value of
the MITTS Securities of a given increase in the Net Asset Value per share of
the Energy SPDR Fund will be greater if it occurs later in the term of the
MITTS Securities than if it occurs earlier in the term of the MITTS
Securities.
Absence of prior active market for shares of the Energy SPDR Fund
The Energy SPDR Fund is a recently organized investment company and
has a limited operating history. Although its shares are listed for trading on
the AMEX and a number of similar products have been traded on the AMEX for
varying periods of time, there is no assurance that an active trading market
will continue to exist for the shares of the Energy SPDR Fund. If a trading
market does continue to exist, there is no assurance that there will be
liquidity in the trading market.
Concentration in energy-related securities
Because the Energy SPDR Fund's investment portfolio is predominantly
comprised of securities of companies in the energy-producing field, the value
of the MITTS Securities may be adversely affected by an economic downturn in
the energy industry. The companies whose securities comprise the Energy SPDR
Fund's investment portfolio produce crude oil and natural gas and provide
drilling and other energy production and distribution related services. Stock
prices for these types of companies are affected by supply and demand both for
their specific product or service and for energy products in general. The
price of oil and gas, exploration and production spending, government
regulation, political events and economic conditions will likewise affect the
performance of these companies. Correspondingly, companies in the energy field
are subject to swift energy price and supply fluctuations caused by events
relating to international politics, energy conservation, the results of
exploration projects, and tax and other governmental policies. Weak demand for
these companies' products or services or for energy products and services in
general, as well as negative developments in these other areas, would
adversely affect the performance of the Energy SPDR Fund and in turn, the
trading value of the MITTS Securities.
No affiliation between ML&Co. and the Energy SPDR Fund
Our affiliate MLPF&S is both a soliciting dealer in the shares of the
Energy SPDR Fund and the index compilation agent for the Energy Select Sector
Index. However, we are not affiliated with the Energy SPDR Fund or the Energy
Select Sector Index. The Energy SPDR Fund has no obligations with respect to
the MITTS Securities or amounts to be paid to you, including any obligation to
take the needs of ML&Co. or of beneficial owners of the MITTS Securities into
consideration for any reason. The Energy SPDR Fund did not receive any of the
proceeds from the initial offering of the MITTS Securities and is not
responsible for, and has not participated in, the determination or calculation
of the amount you will receive on your MITTS Securities at maturity. In
addition, the Energy SPDR Fund is not involved with the administration or
trading of the MITTS Securities and has no obligations with respect to any
amounts due under the MITTS Securities.
No shareholder's rights
Unless and until we deliver shares of the Energy SPDR Fund to you at
the maturity of the MITTS Securities, you will not be entitled to any rights
with respect to these shares, including, without limitation, the right to
receive distributions on, to vote or to redeem these shares. For example, if
the Energy SPDR Fund sets a record date for a matter to be voted on by
shareholders before our delivery of the shares of the Energy SPDR Fund to you,
you will not be entitled to vote on that matter.
Amounts payable on the MITTS Securities may be limited by state law
New York State law governs the 1983 Indenture under which the MITTS
Securities were issued. New York has usury laws that limit the amount of
interest that can be charged and paid on loans, which includes debt securities
like the MITTS Securities. Under present New York law, the maximum rate of
interest is 25% per annum on a simple interest basis. This limit may not apply
to debt securities in which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state
or Federal court sitting outside of New York, many other states also have laws
that regulate the amount of interest that may be charged to and paid by a
borrower. We promise, for the benefit of the holders of the MITTS Securities,
to the extent permitted by law, not to voluntarily claim the benefits of any
laws concerning usurious rates of interest.
Purchases and sales by us and our affiliates may affect your return
We and our affiliates may from time to time buy or sell the stocks
included in the Energy SPDR Fund or futures or options in the Energy SPDR Fund
for our own accounts, for business reasons or in connection with hedging our
obligations under the MITTS Securities. These transactions could affect the
price of these stocks and, in turn, the value of the Energy SPDR Fund in a
manner that could be adverse to your investment in the MITTS Securities.
Potential conflicts
Our subsidiary, MLPF&S, is our agent for the purposes of calculating
the Adjusted Ending Value and the Supplemental Redemption Amount payable to
you at maturity. Under certain circumstances, MLPF&S' role as our subsidiary
and its responsibilities as calculation agent for the MITTS Securities could
give rise to conflicts of interests. These conflicts could occur, for
instance, in connection with its determination as to whether the value of the
Energy SPDR Fund can be calculated on a particular trading day, or in
connection with judgments that it would be required to make in the event of a
discontinuance of the Energy SPDR Fund. See "Description of the MITTS
Securities--Adjustments to the Energy SPDR Fund; Market Disruption Events" and
"--Termination of the Energy SPDR Fund" in this prospectus. MLPF&S is required
to carry out its duties as calculation agent in good faith and using its
reasonable judgment. However, you should be aware that because we control
MLPF&S, potential conflicts of interest could arise.
MLPF&S is also a soliciting dealer in the shares of the Energy SPDR
Fund. Under certain circumstances, MLPF&S' role as calculation agent for the
MITTS Securities and its role as a soliciting dealer in these shares could
give rise to conflicts of interests between the calculation agent and holders
of the MITTS Securities. These conflicts could occur in connection with its
determination as to the Adjusted Ending Value and the number of shares to be
delivered at maturity.
Additionally, MLPF&S serves as index compilation agent for the Energy
Select Sector Index. In its capacity as index compilation agent, MLPF&S
determines, in consultation with S&P, which securities of the S&P 500 are to
be included in the Energy Select Sector Index. Under certain circumstances,
MLPF&S' role as calculation agent for the MITTS Securities and its role as
index compilation agent could give rise to conflicts of interests between the
calculation agent and holders of the MITTS Securities.
We have entered into an arrangement with one of our subsidiaries to
hedge the market risks associated with our obligation to pay the amounts due
at maturity. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
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:
For the Nine
Year Ended Last Friday in December Months Ended
1994 1995 1996 1997 1998 September 24, 1999
---- ---- ---- ---- ---- ------------------
Ratio of earnings to fixed charges(a)............ 1.2 1.2 1.2 1.2 1.1 1.3
- ----------
(a) The effect of combining Midland Walwyn did not change the ratios reported
for the fiscal years 1994 through 1997.
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 September 20, 1999, ML&Co. issued an aggregate principal amount of
$44,000,000 or 4,400,000 units of the MITTS Securities. The MITTS Securities
were issued as a series of senior debt securities under the 1983 Indenture
which is more fully described in this prospectus.
The MITTS Securities will mature on September 20, 2006.
While at maturity a beneficial owner of a MITTS Security will receive
the number of shares of the Energy SPDR Funds equal in value to the sum of the
principal amount of the MITTS Security plus the Supplemental Redemption
Amount, if any, there will be no other payment of interest, periodic or
otherwise. At our option, instead of delivering to you the shares of the
Energy SPDR Fund to which you would otherwise be entitled, we may pay you cash
with an equal value. See the section entitled "--Delivery at maturity" below.
The number of shares to be delivered at maturity will be determined based on
the Ending Value.
The MITTS Securities are not subject to redemption by ML&Co. or at
the option of any beneficial owner before maturity. If an Event of Default
occurs with respect to the MITTS Securities, beneficial owners of the MITTS
Securities may accelerate the maturity of the MITTS Securities, as described
under "-- Events of Default and Acceleration" and "Other Terms--Events of
Default" in this prospectus.
ML&Co. issued the MITTS Securities in denominations of whole units of
$10.00 per unit.
The MITTS Securities do not have the benefit of any sinking fund.
Delivery at maturity
At maturity, a beneficial owner of a MITTS Security will be entitled
to receive the number of shares of the Energy SPDR Fund equal in value to the
principal amount of each MITTS Security plus the Supplemental Redemption
Amount, if any, all as provided below. The amount to be paid by ML&Co. to any
holder of the MITTS Securities on the maturity date will be aggregated based
on the total number of units then held by that holder and rounded to the
nearest cent. If the Adjusted Ending Value does not exceed the Starting Value,
a beneficial owner of a MITTS Security will be entitled to receive only the
number of shares of the Energy SPDR Fund or cash with value equal to the
principal amount of the MITTS Security. The number of shares to be delivered
at maturity will be determined based on the Ending Value.
If ML&Co. delivers shares of the Energy SPDR Fund to holders of the
MITTS Securities at the maturity date, ML&Co. or one of its affiliates will
deliver shares of the Energy SPDR Fund that are then newly issued by the
Energy SPDR Fund.
ML&Co. may, at its option, in lieu of delivering shares of the Energy
SPDR Fund, pay cash in an amount equal to the sum of the principal amount of
the MITTS Securities and the Supplemental Redemption Amount, if any. In
addition, if at any time MLPF&S ceases to be a soliciting dealer in the shares
of the Energy SPDR Fund, ML&Co. will pay the amount due to holders of the
MITTS Securities in cash instead of shares.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
(Adjusted Ending Value - Starting Value)
Principal amount of the MITTS Security ($10 per unit) x (--------------------------------------)
( Starting Value )
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" equals 29.27, the Net Asset Value of one share
of the Energy SPDR Fund on February 14, 1999, the date the MITTS Securities
were priced for initial sale to the public.
"Net Asset Value" means the net asset value per share of the Energy
SPDR Fund as determined by the Energy SPDR Fund. The Energy SPDR Fund
calculates its Net Asset Value per share by dividing the value of its net
assets, i.e., the value of its total assets less total liabilities, by its
total number of shares outstanding. Expenses and fees, including the
management, administration and distribution fees, of the Energy SPDR Fund are
accrued daily and taken into account for purposes of determining Net Asset
Value. The Net Asset Value per share of the Energy SPDR Fund is determined by
the Energy SPDR Fund on each Business Day after the close of trading on the
New York Stock Exchange, ordinarily 4:00 p.m., New York City time. Shares of
the Energy SPDR Fund are listed on the AMEX under the trading symbol "XLE".
The "Adjusted Ending Value" will be determined by the calculation
agent and will equal the Ending Value as reduced by the application of the
Adjustment Factor to the Net Asset Value used to calculate the Ending Value on
each Calculation Day during the Calculation Period.
The "Ending Value" will equal the average, or arithmetic mean, of the
Net Asset Values per share of the Energy SPDR Fund as determined by the Energy
SPDR Fund on each of the first five Calculation Days during the Calculation
Period. If there are fewer than five Calculation Days in the Calculation
Period, the Ending Value will equal the average, or arithmetic mean, of the
Net Asset Values of the Energy SPDR Fund on each of these Calculation Days,
and if there is only one Calculation Day, then the Ending Value will be equal
to the Net Asset Value per share of the Energy SPDR Fund on that Calculation
Day. If no Calculation Days occur during the Calculation Period because of
Market Disruption Events, then the Ending Value shall mean the Net Asset Value
per share of the Energy SPDR Fund on the last Trading Day before the
Calculation Period for which the Net Asset value per share of the Energy SPDR
Fund was determined.
The "Adjustment Factor" equals 1.25% per year and will be applied
over the entire term of the MITTS Securities. On each calendar day during the
term of the MITTS Securities, we will apply this percentage on a prorated
basis based on a 365-day year to reduce the value used to calculate the
Supplemental Redemption Amount on each Calculation Day during the Calculation
Period. As a result of the cumulative effect of this reduction, the values
used to calculate the Supplemental Redemption Amount during the Calculation
Period will be approximately 8.38% less than the actual Net Asset Value per
share of the Energy SPDR Fund on each Calculation Day during the Calculation
Period.
The "Calculation Period" means the period from and including the
seventh scheduled Trading Day before the maturity date to and including the
second scheduled Trading Day before the maturity date.
A "Calculation Day" means any Trading Day during the Calculation
Period on which a Market Disruption Event has not occurred.
A "Trading Day" is a day on which the shares of the Energy SPDR Fund:
o are not suspended from trading on any national or regional
securities exchange or association or over-the-counter market
at the close of business; and
o have traded at least once on a national or regional securities
exchange or association or over-the-counter market that is the
primary market for the trading of the shares of the Energy SPDR
Fund.
Fractional Shares
ML&Co. will not distribute fractional shares of the Energy SPDR Fund
at maturity. In the event ML&Co. pays holders of the MITTS Securities in
shares of the Energy SPDR Fund, all amounts due to any holder of the MITTS
Securities in respect of the total number of units held by that holder will be
aggregated, and in lieu of delivering any fractional share to that holder,
that holder will receive the cash value of that fractional share based on the
Ending Value.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes
and binding on ML&Co. and the holders and beneficial owners of the MITTS
Securities.
Hypothetical returns
The following table illustrates, for a range of hypothetical Ending
Values, assuming an initial investment of $10 per unit and an investment term
from September 20, 1999 to September 20, 2006:
o the percentage change from the Starting Value to the
hypothetical Ending Value,
o the Adjusted Ending Value used to calculate the Supplemental
Redemption Amount,
o the total amount payable at maturity for each unit of MITTS
Securities,
o the total rate of return to beneficial owners of the MITTS
Securities,
o the pretax annualized rate of return to beneficial owners of
the MITTS Securities, and
o the pretax annualized rate of return of an investment in shares
of the Energy SPDR Fund which includes an assumed aggregate
dividend yield of 2.04% per annum, as more fully described
below.
Pretax
annualized
Percentage Total amount Pretax rate of return
change from payable at Total rate annualized of stocks
the Starting maturity of return rate of included in
Hypothetical Value to the Adjusted per unit of the on the return on the Energy
Ending hypothetical Ending MITTS MITTS the MITTS SPDR Fund
Value Ending Value Value(1) Securities Securities Securities(2) Index(2)(3)
----------- ------------ -------- --------------- ---------- ------------- --------------
5.85 -80% 5.36 10.00 0.00% 0.00% -19.47%
11.71 -60% 10.73 10.00 0.00% 0.00% -10.62%
17.56 -40% 16.09 10.00 0.00% 0.00% -5.15%
23.41 -20% 21.45 10.00 0.00% 0.00% -1.14%
29.27(4) 0% 26.81 10.00 0.00% 0.00% 2.04%
35.12 20% 32.18 10.99 9.94% 1.36% 4.70%
40.97 40% 37.54 12.83 28.26% 3.58% 6.98%
46.83 60% 42.90 14.66 46.58% 5.53% 8.98%
52.68 80% 48.26 16.49 64.91% 7.27% 10.77%
58.54 100% 53.63 18.32 83.23% 8.83% 12.39%
64.39 120% 58.99 20.16 101.55% 10.26% 13.87%
70.24 140% 64.35 21.99 119.88% 11.57% 15.23%
76.10 160% 69.72 23.82 138.20% 12.78% 16.49%
81.95 180% 75.08 25.65 156.52% 13.91% 17.67%
87.80 200% 80.44 27.48 174.85% 14.97% 18.77%
- ------------
(1) The Adjusted Ending Values specified in this column are approximately
8.38% less than the hypothetical Ending Values as a result of the
cumulative effect of the application of the Adjustment Factor of 1.25%
per annum over the term of the MITTS Securities.
(2) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(3) This rate of return assumes:
(a) a constant dividend yield of 2.04% per annum, paid quarterly from
the date of initial delivery of the MITTS Securities, applied to the
Net Asset Value per share of the Energy SPDR Fund at the end of each
quarter assuming this Net Asset Value per share increases or
decreases linearly from the Starting Value to the applicable
hypothetical Ending Values;
(b) no transaction fees or expenses in connection with purchasing and
holding shares of the Energy SPDR Fund;
(c) an initial investment of $10 and an investment term from September
20, 1999 to September 20, 2006; and
(d) a final Net Asset Value per share of the Energy SPDR Fund equal to
the hypothetical Ending Value. (4) This is the Starting Value.
(4) This is the Starting Value.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rates of return will depend entirely on the actual Adjusted
Ending Value determined by the calculation agent as provided in this
prospectus.
Adjustments to the Energy SPDR Fund; Market Disruption Events
If at any time the shares of the Energy SPDR Fund are subject to a
split or reverse split, the calculation agent shall adjust the Net Asset Value
per share of the Energy SPDR Fund used to calculate the Ending Value in order
to arrive at a Net Asset Value per share of the Energy SPDR Fund as if a split
or reverse split, as the case may be, had not occurred.
"Market Disruption Event" means any of the following events as
determined by the calculation agent:
(A) the suspension or material limitation on trading for more
than two hours of trading, or during the one-half hour
period preceding the close of trading on the applicable
exchange, in 20% or more of the stocks which then comprise
the Energy Select Sector Index;
(B) the suspension or material limitation, in each case, for
more than two hours of trading, or during the one-half hour
period preceding the close of trading on the applicable
exchange, whether by reason of movements in price otherwise
exceeding levels permitted by the relevant exchange or
otherwise, in option contracts related to the Energy SPDR
Fund which are traded on any major U.S. exchange; or
(C) the Energy SPDR Fund (1) is unable or otherwise fails to
issue a Net Asset Value for any shares of the Energy SPDR
Fund after the close of business on the NYSE, or (2)suspends
the creation or redemption of shares of the Energy SPDR
Fund.
For the purposes of clauses (A) and (B) of this definition, a
limitation on the hours in a trading day and/or number of days of trading will
not constitute a Market Disruption Event if it results from an announced
change in the regular business hours of the relevant exchange and for the
purpose of clause (A) above, any limitations on trading during significant
market fluctuations under NYSE Rule 80A, or any applicable rule or regulation
enacted or promulgated by the NYSE or any other self regulatory organization
or the SEC of similar scope as determined by the calculation agent, will be
considered "material".
Termination of the Energy SPDR Fund
If the Energy SPDR Fund is liquidated or otherwise terminated, for
purposes of calculating the Supplemental Redemption Amount payable at the
maturity of the MITTS Securities, the calculation agent will calculate the Net
Asset Value per share of the Energy SPDR Fund as follows: the Net Asset Value
per share of the Energy SPDR Fund on the Trading Day occurring immediately
before any liquidating distribution will equal the Net Asset Value for that
day (the "Pre-liquidation Date"). The calculation agent will then calculate
the Net Asset Value after the close of trading on each Trading Day following
the Pre-liquidation Date (each date, a "Determination Date") by increasing or
decreasing, as the case may be, the Net Asset Value as of the immediately
preceding Trading Day by the percentage by which the closing value of the
Energy Select Sector Index increases or decreases from the immediately
preceding Trading Day to that Determination Date and further decreasing the
Net Asset Value by fees, expenses and non-liquidating distributions (together,
"Fund Expenses") that the calculation agent, in its sole judgment but with
reference to the Fund Expenses actually incurred by the Energy SPDR Fund
before its liquidation or termination, deems would reasonably have been
accrued and included in the calculation of the Net Asset Value per share of
the Energy SPDR Fund had it not been liquidated or terminated, from the
immediately preceding Trading Day to that Determination Date. The calculation
agent will cause notice of each value to be published not less often than once
each month in The Wall Street Journal, or another newspaper of general
circulation, and arrange for information with respect to such values to be
made available by telephone.
If the Energy SPDR Fund is liquidated or otherwise terminated and the
Energy Select Sector Index is no longer calculated or published (an "Index
Termination Event"), the calculation agent will select a successor index that
it determines, in its sole discretion, to be comparable to the Energy Select
Sector Index (a "successor index"), then, upon the calculation agent's
notification of its determination to the trustee and ML&Co., the calculation
agent will substitute the successor index for the Energy Select Sector Index
and calculate the closing value as described above under "--Delivery at
maturity". Upon any selection by the calculation agent of a successor index,
ML&Co. shall promptly give notice to the beneficial owners of the MITTS
Securities by publication in a United States newspaper with a general
circulation.
In the event that an Index Termination Event occurs and:
o the calculation agent does not select a successor index, or
o the successor index is no longer published on any of the
Calculation Days,
the calculation agent will compute a substitute index for the Energy Select
Sector Index for that Calculation Day in accordance with the procedures last
used to calculate the Energy Select Sector Index before any discontinuance.
The calculation agent will calculate the Net Asset Value in accordance with
the procedures referred to in the first paragraph of this section with
reference to a substitute index. Upon any calculation of a substitute index in
accordance with this paragraph, ML&Co. shall promptly give notice to the
beneficial owners of the MITTS Securities by publication in a United States
newspaper with a general circulation.
If Standard & Poor's ("S&P") discontinues publication of the S&P 500
Index subsequent to an Index Termination Event and
o the calculation agent does not select a successor index or the
successor index is no longer published on any of the
Calculation Days and
o the calculation agent is unable to calculate a substitute index
for the Energy Select Sector Index,
the calculation agent will compute a substitute index for the S&P 500 Index
for that Calculation Day in accordance with the procedures last used to
calculate the S&P 500 Index prior to any discontinuance. If the calculation
agent calculates a substitute index for the S&P 500 Index, the calculation
agent will use that substitute index to calculate the substitute index for the
Energy Select Sector Index.
Notwithstanding these alternative arrangements, liquidation or
termination of the Energy SPDR Fund or the discontinuance of the publication
of the Energy Select Sector Index or the S&P 500 Index may adversely affect
trading in the MITTS Securities.
A "Business Day" is any day on which the NYSE and the AMEX are open
for trading.
Events of Default and Acceleration
In case an Event of Default with respect to any MITTS Securities has
occurred and is continuing, the amount payable to a beneficial owner of a
MITTS Security upon any acceleration permitted by the MITTS Securities, with
respect to each $10 principal amount of the MITTS Securities, will be equal to
the principal amount and the Supplemental Redemption Amount, if any,
calculated as though the date of early repayment was the stated maturity date
of the MITTS Securities, provided, however, the Adjustment Factor will be
applied to the values used to calculate the Supplemental Redemption Amount as
if the MITTS Securities had not been accelerated and had remained outstanding
to the stated maturity date. See the section entitled "--Delivery at maturity"
in this prospectus. If a bankruptcy proceeding is commenced in respect of
ML&Co., the claim of the beneficial owner of a MITTS Security may be limited,
under Section 502(b)(2) of Title 11 of the United States Code, to the
principal amount of the MITTS Security plus an additional amount of contingent
interest calculated as though the date of the commencement of the proceeding
were the maturity date of the MITTS Securities.
In case of default in payment of the MITTS Securities, whether at the
stated maturity or upon acceleration, from and after the maturity date the
MITTS Securities will bear interest, payable upon demand of their beneficial
owners, at the rate of 7.08% per annum, to the extent that payment of any
interest is legally enforceable, on the unpaid amount due and payable on that
date in accordance with the terms of the MITTS Securities to the date payment
of that amount has been made or duly provided for.
Depositary
Description of the Global Securities
The MITTS Securities currently are represented by one or more fully
registered global securities. Each global security was deposited with, or on
behalf of, DTC (DTC, together with any successor, being a "depositary"), as
depositary, registered in the name of Cede & Co., DTC's partnership nominee.
Unless and until it is exchanged in whole or in part for MITTS Securities in
definitive form, no global security may be transferred except as a whole by
the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or by the
depositary or any nominee to a successor of the depositary or a nominee of
that successor.
So long as DTC, or its nominee, is a registered owner of a global
security, DTC or its nominee, as the case may be, will be considered the sole
owner or holder of the MITTS Securities represented by the global security for
all purposes under the 1983 Indenture. Except as provided below, the
beneficial owners of the MITTS Securities represented by a global security
will not be entitled to have the MITTS Securities represented by a global
security registered in their names, will not receive or be entitled to receive
physical delivery of the MITTS Securities in definitive form and will not be
considered the owners or holders of the MITTS Securities including for
purposes of receiving any reports delivered by ML&Co. or the trustee under the
1983 Indenture. Accordingly, each person owning a beneficial interest in a
global security must rely on the procedures of DTC and, if that person is not
a participant of DTC, on the procedures of the participant through which that
person owns its interest, to exercise any rights of a holder under the 1983
Indenture. ML&Co. understands that under existing industry practices, in the
event that ML&Co. requests any action of holders or that an owner of a
beneficial interest in a global security desires to give or take any action
which a holder is entitled to give or take under the 1983 Indenture, DTC would
authorize the participants holding the relevant beneficial interests to give
or take that action, and those participants would authorize beneficial owners
owning 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 ENERGY SPDR FUND
ML&Co. has attached the Fund Prospectus describing the Energy SPDR
Fund and is delivering it to purchasers of the MITTS Securities together with
this prospectus for the convenience of reference only. The Fund Prospectus
does not constitute a part of this prospectus, nor is it incorporated by
reference into this prospectus. The summary description below is qualified in
its entirety by the information describing the Energy SPDR Fund and the Energy
Select Sector Index included in the attached Fund Prospectus.
As stated in the Fund Prospectus, the Energy SPDR Fund is an index
fund whose investment objective is to provide investment results that, before
expenses, correspond generally to the price and yield performance of the
publicly traded equity securities included in the Energy Select Sector Index.
The Energy Select Sector Index consists of the equity securities of publicly
traded companies that are components of the S&P 500 Index and are involved in
the development and production of energy products. Companies in the Energy
Select Sector Index develop and produce crude oil and natural gas, and provide
drilling and other energy related services.
Although ML&Co.'s subsidiary, MLPF&S, provides certain services to
the Energy SPDR Fund and the Energy Select Sector Index, ML&Co. is not
affiliated with the Energy SPDR Fund or the Energy Select Sector Index, and
the Energy SPDR Fund did not receive any of the proceeds from the sale of
the MITTS Securities. A prospective purchaser of the MITTS Securities should
independently decide whether an investment in the MITTS Securities and the
Energy SPDR Fund is appropriate.
The Energy SPDR Fund is one of nine investment funds comprising the
Select Sector SPDR Trust. Each fund's investment portfolio is comprised
principally of constituent companies whose equity securities are components of
the S&P 500 Index, each representing one of nine specified market sector
indices. Each stock in the S&P 500 Index is allocated to only one Select
Sector Index. The combined companies of the nine indices represent all of the
companies whose stocks are components of the S&P 500 Index. The Energy SPDR
Fund's initial public offering occurred on December 16, 1998 and therefore it
has limited operating history.
Because the Select Sector SPDR Trust is subject to the registration
requirements of the Securities Act and the Investment Company Act, the Trust
is required to file periodically certain information specified by the SEC. For
more information about the Energy SPDR Fund and the shares that a holder of
the MITTS Securities may receive at maturity, information provided to or filed
with the SEC by the Select Sector SPDR Trust can be inspected at the SEC's
public reference facilities or accessed over the Internet through a web site
maintained by the SEC at http://www.sec.gov. Copies of these documents may
also be obtained at no cost by calling the Select Sector SPDR Trust at (800)
843- 2639 or by writing the Select Sector SPDR Trust c/o ALPS Mutual Funds
Services, Inc., at 370 17th Street, Suite 3100, Denver, CO 80202. Neither the
Fund Prospectus nor such other documents are incorporated by reference into
this prospectus, and ML&Co. makes no representation or warranty as to the
accuracy or completeness of any such documents.
ML&Co. is not affiliated with the Energy SPDR Fund, and the Energy
SPDR Fund has no obligations with respect to the MITTS Securities. This
prospectus relates only to the MITTS Securities offered hereby and does not
relate to the shares of the Energy SPDR Fund or any other securities relating
to the Energy SPDR Fund. The information contained in this prospectus
regarding the Energy SPDR Fund has been derived from the publicly available
documents described in the preceding paragraph. ML&Co. makes no representation
that these publicly available documents or any other publicly available
information regarding the Energy SPDR Fund are accurate or complete.
Furthermore, there can be no assurance that all events occurring prior to the
date of this prospectus (including events that would affect the accuracy or
completeness of the publicly available documents described in the preceding
paragraph) that would affect the trading price of the shares of the Energy
SPDR Fund, and therefore the trading price of the MITTS Securities, have been
publicly disclosed. Subsequent disclosure of any such events or the disclosure
of or failure to disclose material future events concerning the Energy SPDR
Fund could affect the Supplemental Redemption Amount, if any, to be received
at maturity and therefore the trading value of the MITTS Securities.
MLPF&S, a subsidiary of ML&Co., is a soliciting dealer in the shares
of the Energy SPDR Fund. Additionally, MLPF&S serves as index compilation
agent for the Energy Select Sector Index. In its capacity as index compilation
agent, MLPF&S determines, in consultation with S&P, the composition of the
securities measured by the Energy Select Sector Index.
License Agreement
S&P, the AMEX and MLPF&S have entered into a non-exclusive license
agreement providing for the license to MLPF&S, in exchange for a fee, of the
right to use indices owned and published by S&P in connection with certain
securities, including the MITTS Securities, and ML&Co. is an authorized
sublicensee of MLPF&S.
The license agreement among S&P, the AMEX and MLPF&S provides that
the following language must be stated in this prospectus:
"Standard & Poor's(R)", "Standard & Poor's 500", "S&P 500(R)",
"S&P(R)", "500", "Standard & Poor's Depositary Receipts", "SPDRs", "Select
Sector SPDR" and "Select Sector Standard & Poor's Depositary Receipts" are
trademarks of Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., and have been licensed for use by MLPF&S. ML&Co., is an authorized
sublicensee of MLPF&S. The stocks comprising the Energy Select Sector Index
were selected by MLPF&S, as index compilation agent, in consultation with S&P
from the universe of companies represented by the S&P 500 Index. The
composition and weightings of the stocks included in the Energy Select Sector
Index can be expected to differ from the composition and weighting of stocks
included in any similar S&P 500 sector index published and disseminated by
S&P.
The MITTS Securities, the Energy SPDR Fund and the Energy Select
Sector Index are not sponsored, endorsed, sold or promoted by S&P. S&P makes
no representation or warranty, express or implied, to the holders of the MITTS
Securities or any member of the public regarding the advisability of investing
in securities generally or in the MITTS Securities particularly or in the
ability of the Energy SPDR Fund to track the performance and yield of the
Energy Select Sector Index or in the ability of the Energy Select Sector Index
to track the performance of the energy sector represented in the stock market.
The stocks included in the Energy Select Sector Index were selected by MLPF&S
as the index compilation agent in consultation with S&P from a universe of
companies involved in the development and production of energy products and
represented by the S&P 500 Index. S&P's only relationship to the index
compilation agent is the licensing of certain trademarks and trade names of
S&P and of the S&P 500 Index which is determined, composed and calculated by
S&P without regard to the index compilation agent or the MITTS Securities. S&P
has no obligation to take the needs of the index compilation agent, ML&Co. or
the holders of the MITTS Securities into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in any determination of the timing of the sale of the MITTS
Securities, prices at which the MITTS Securities were initially sold, or
quantities of the MITTS Securities issued or in the determination or
calculation of the equation by which the MITTS Securities are to be converted
into shares of the Energy SPDR Fund or cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of the
MITTS Securities.
S&P does not guarantee the accuracy and/or the completeness of the
S&P 500 Index, the Energy Select Sector Index or any data included therein.
S&P makes no warranty, express or implied, as to results to be obtained by
ML&Co., MLPF&S, the holders of the MITTS Securities, or any other person or
entity from the use of the S&P 500 Index, the Energy Select Sector Index or
any data included therein in connection with the rights licensed under the
license agreement described herein or for any other use. S&P makes no express
or implied warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to the S&P
500 Index, the Energy Select Sector Index or any data included therein.
Without limiting the generality of the foregoing, in no event shall S&P have
any liability for any special, punitive, indirect or consequential damages
(including lost profits), even if notified of the possibility of such
damages."
All disclosures contained in this prospectus regarding the S&P 500
Index or the Energy Select Sector Index, including its respective make-up,
method of calculation and changes in its components, are derived from publicly
available information prepared by S&P and the Trust, respectively. ML&Co. and
MLPF&S do not assume any responsibility for the accuracy or completeness of
such information.
OTHER TERMS
The MITTS Securities were issued as a series of senior debt
securities under the 1983 Indenture, dated as of April 1, 1983, as amended and
restated, between ML&Co. and The Chase Manhattan Bank, as trustee. A copy of
the 1983 Indenture is filed as an exhibit to the registration statement
relating to the MITTS Securities of which this prospectus is a part. The
following summaries of the material provisions of the 1983 Indenture are not
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the 1983 Indenture, including the definitions of terms in
the 1983 Indenture.
Series of senior debt securities may from time to time be issued
under the 1983 Indenture, without limitation as to aggregate principal amount,
in one or more series and upon terms as ML&Co. may establish under the
provisions of the 1983 Indenture.
The 1983 Indenture and the MITTS Securities are governed by and
construed in accordance with the laws of the State of New York.
ML&Co. may issue senior debt securities with terms different from
those of senior debt securities previously issued, and issue additional senior
debt securities of a previously issued series of senior debt securities.
The senior debt securities are unsecured and rank equally with all
other unsecured and unsubordinated indebtedness of ML&Co. However, because
ML&Co. is a holding company, the rights of ML&Co. and its creditors, including
the holders of senior debt securities, to participate in any distribution of
the assets of any subsidiary upon its liquidation or reorganization or
otherwise are necessarily subject to the prior claims of creditors of the
subsidiary, except to the extent that claims of ML&Co. itself as a creditor of
the subsidiary may be recognized. In addition, dividends, loans and advances
from certain subsidiaries, including MLPF&S, to ML&Co. are restricted by net
capital requirements under the Exchange Act, and under rules of exchanges and
other regulatory bodies.
Limitations upon liens
ML&Co. may not, and may not permit any majority-owned subsidiary to,
create, assume, incur or permit to exist any indebtedness for borrowed money
secured by a pledge, lien or other encumbrance, other than those liens
specifically permitted by the 1983 Indenture, on the Voting Stock owned
directly or indirectly by ML&Co. of any majority-owned subsidiary, other than
a majority-owned subsidiary which, at the time of the incurrence of the
secured indebtedness, has a net worth of less than $3,000,000, unless the
outstanding senior debt securities are secured equally and ratably with the
secured indebtedness.
"Voting Stock" is defined in the 1983 Indenture as the stock of the
class or classes having general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation provided that, for the purposes of the 1983 Indenture, stock that
carries only the right to vote conditionally on the occurrence of an event is
not considered voting stock whether or not the event has happened.
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 $6.2732 per unit. This represents an estimated
yield on the MITTS Securities equal to 7.08% per annum, compounded
semiannually.
The projected payment schedule, including both projected Supplemental
Redemption Amount and the estimated yield on the MITTS Securities, has been
determined solely for United States Federal income tax purposes i.e., for
purposes of applying the Final Regulations to the MITTS Securities, and is
neither a prediction nor a guarantee of what the actual Supplemental
Redemption Amount will be, or that the actual Supplemental Redemption Amount
will even exceed zero.
The following table sets forth the amount of interest that will be
deemed to have accrued with respect to each unit of the MITTS Securities
during each accrual period over the term of the MITTS Securities based upon
the projected payment schedule for the MITTS Securities, including both the
projected Supplemental Redemption Amount and the estimated yield equal to
7.08% per annum, compounded semiannually, as determined by ML&Co. for purposes
of illustrating the application of the Final Regulations to the MITTS
Securities:
Total interest
deemed to have
accrued on the
Interest deemed MITTS
to accrue Securities
during as of the end of
accrual period accrual period
Accrual Period (per unit) (per unit)
-------------- -------------- ----------------
September 20, 1999 through March 20, 2000............................... $0.3530 $0.3530
March 21, 2000 through September 20, 2000............................... $0.3665 $0.7195
September 21, 2000 through March 20, 2001............................... $0.3795 $1.0990
March 21, 2001 through September 20, 2001............................... $0.3929 $1.4919
September 21, 2001 through March 20, 2002............................... $0.4068 $1.8987
March 21, 2002 through September 20, 2002............................... $0.4212 $2.3199
September 21, 2002 through March 20, 2003............................... $0.4361 $2.7560
March 21, 2003 through September 20, 2003............................... $0.4516 $3.2076
September 21, 2003 through March 20, 2004............................... $0.4675 $3.6751
March 21, 2004 through September 20, 2004............................... $0.4841 $4.1592
September 21, 2004 through March 20, 2005............................... $0.5013 $4.6605
March 21, 2005 through September 20, 2005............................... $0.5190 $5.1795
September 21, 2005 through March 20, 2006............................... $0.5373 $5.7168
March 21, 2006 through September 20, 2006............................... $0.5564 $6.2732
- -----------
Projected Supplemental Redemption Amount = $6.2732 per unit.
All prospective investors in the MITTS Securities should consult
their own tax advisors concerning the application of the Final Regulations to
their investment in the MITTS Securities. Investors in the MITTS Securities
may also obtain the projected payment schedule, as determined by ML&Co. for
purposes of the application of the Final Regulations to the MITTS Securities,
by submitting a written request for such information to Merrill Lynch & Co.,
Inc., 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.