PROSPECTUS
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[Logo] Merrill Lynch
Protected Growth (SM) Investing
Pursuit of Growth, Protection of Principal
Merrill Lynch & Co., Inc.
Russell 2000(R) Market Index Target-Term Securities(R)
due July 21, 2006
"MITTS(R) Securities"
$10 principal amount per unit
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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 the MITTS
o No payments before the maturity date. Securities you own, we will pay you an amount equal
o Senior unsecured debt securities of Merrill Lynch & to the sum of the principal amount of each unit and
Co., Inc. an additional amount based on the percentage
o Linked to the value of the Russell 2000 Index*, an increase, if any, in the value of the Russell 2000
index designed to track the price performance of the Index reduced by an annual adjustment factor of
common stock of 2,000 corporations with small 2.35%.
capitalizations relative to other stocks in the U.S. o At maturity, you will receive no less than the
equity market. principal amount of your MITTS Securities.
o The MITTS Securities are listed on the American Stock
Exchange under the trading symbol "RSM".
o Closing date: July 21, 1999.
Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page 6 of this prospectus.
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
The sale price of the MITTS Securities will be the prevailing market
price at the time of sale.
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Merrill Lynch & Co.
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The date of this prospectus 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.
* The use of, and reference to, the terms "Russell 2000" and "Russell 2000
Index" in this prospectus has been consented to by Frank Russell Company.
TABLE OF CONTENTS
PAGE
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SUMMARY INFORMATION-Q&A................................................... 3
RISK FACTORS.............................................................. 6
MERRILL LYNCH & CO., INC.................................................. 9
RATIO OF EARNINGS TO FIXED CHARGES......................................... 10
DESCRIPTION OF THE MITTS SECURITIES........................................ 11
THE RUSSELL 2000 INDEX..................................................... 18
OTHER TERMS................................................................ 20
PROJECTED PAYMENT SCHEDULE................................................. 23
ERISA CONSIDERATIONS....................................................... 24
WHERE YOU CAN FIND MORE INFORMATION........................................ 24
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.......................... 24
PLAN OF DISTRIBUTION....................................................... 25
EXPERTS.................................................................... 25
SUMMARY INFORMATION--Q&A
This summary includes questions and answers that highlight selected
information from this prospectus to help you understand the Russell 2000
Market Index Target-Term Securities due July 21, 2006. You should carefully
read this prospectus to fully understand the terms of the MITTS Securities,
the Russell 2000 Index, and the tax and other considerations that are
important to you in making a decision about whether to invest in the MITTS
Securities. You should carefully review the "Risk Factors" section, which
highlights certain risks associated with an investment in the MITTS
Securities, to determine whether an investment in the MITTS Securities is
appropriate for you.
References in this prospectus to "ML&Co.", "we", "us" and "our" are to
Merrill Lynch & Co., Inc.
References in this prospectus to "MLPF&S" are to Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
What are the MITTS Securities?
The MITTS Securities are a series of senior debt securities issued by
ML&Co. and are not secured by collateral. The MITTS Securities rank equally
with all of our other unsecured and unsubordinated debt. The MITTS Securities
will mature on July 21, 2006. We cannot redeem the MITTS Securities at any
earlier date. We will not make any payments on the MITTS Securities until
maturity.
Each unit of MITTS Securities represents $10 principal amount of
MITTS Securities. You may transfer the MITTS Securities only in whole units.
You will not have the right to receive physical certificates evidencing your
ownership except under limited circumstances. Instead, we have issued the
MITTS Securities in the form of a global certificate, which is held by The
Depository Trust Company, also known as DTC, or its nominee. Direct and
indirect participants in DTC will record your ownership of the MITTS
Securities. You should refer to the section "Description of the MITTS
Securities--Depositary" in this prospectus.
What will I receive on the stated maturity date of the MITTS Securities?
We have designed the MITTS Securities for investors who want to
protect their investment by receiving at least the principal amount of their
investment at maturity and who also want to participate in possible increases
in the Russell 2000 Index as reduced by the Adjustment Factor. On the stated
maturity date, you will receive a payment on the MITTS Securities equal to the
sum of two amounts: the "principal amount" and the "Supplemental Redemption
Amount".
Principal amount
The principal amount per unit is $10.
Supplemental Redemption Amount
The Supplemental Redemption Amount per unit will equal:
(Adjusted Ending Value - Starting Value)
$10x(--------------------------------------)
( Starting Value )
but will not be less than zero.
"Starting Value" equals 465.80, which was the closing value of the
Russell 2000 Index on July 15, 1999, the date the MITTS Securities were priced
for initial sale to the public.
"Adjusted Ending Value" means the average of the values of the
Russell 2000 Index at the close of the market on five business days before the
maturity of the MITTS Securities as reduced on each day by the application of
the Adjustment Factor. We may calculate the Adjusted Ending Value by reference
to fewer than five or even a single day's closing value if, during the period
shortly before the stated maturity date of the MITTS Securities, there is a
disruption in the trading of a sufficient number of the component stocks
included in the Russell 2000 Index or certain futures or options contracts
relating to the Russell 2000 Index.
The "Adjustment Factor" equals 2.35% per year and will be prorated
based on a 365-day year and applied over the entire term of the MITTS
Securities on each calendar day to reduce the closing values of the Russell
2000 Index used to calculate the Supplemental Redemption Amount during the
Calculation Period. As a result of the cumulative effect of this reduction,
the values used to calculate the Supplemental Redemption Amount during the
Calculation Period will be approximately 15.18% less than the actual closing
value of the Russell 2000 Index on each day during the Calculation Period. For
a detailed discussion of how the Adjustment Factor will affect the value of
the Russell 2000 Index used to calculate the Supplemental Redemption Amount,
see "Description of the MITTS Securities--Payment at maturity" in this
prospectus.
For more specific information about the Supplemental Redemption
Amount, please see the section "Description of the MITTS Securities" in this
prospectus.
We will pay you a Supplemental Redemption Amount only if the Adjusted
Ending Value is greater than the Starting Value. If the Adjusted Ending Value
is less than, or equal to, the Starting Value, the Supplemental Redemption
Amount will be zero. We will pay you the principal amount of your MITTS
Securities regardless of whether any Supplemental Redemption Amount is
payable.
Examples
Here are two examples of Supplemental Redemption Amount calculations
assuming an investment term equal to that of the MITTS Securities and an
Adjustment Factor of 2.35% per year:
Example 1--The Russell 2000 Index, as adjusted, is below the Starting Value
at maturity:
Starting Value: 465.80
Hypothetical closing value of the Russell 2000 Index at maturity: 512.38
Hypothetical Adjusted Ending Value: 434.60
(Supplemental
(434.60-465.80) Redemption
Supplemental Redemption Amount (per unit) = $10.00 x (-------------)=$0.00 Amount cannot
( 465.80 ) be less than
zero)
Total payment at maturity (per unit) = $10 + $0 = $10
Example 2--The Russell 2000 Index, as adjusted, is above the Starting Value
at maturity:
Starting Value: 465.80
Hypothetical closing value of the Russell 2000 Index at maturity: 838.44
Hypothetical Adjusted Ending Value: 711.17
(711.17-465.80)
Supplemental Redemption Amount (per unit)=$10x(-------------)=$5.27
( 465.80 )
Total payment at maturity (per unit) = $10 + $5.27 = $15.27
Who publishes the Russell 2000 Index and what does the Russell 2000 Index
measure?
The Russell 2000 Index is published by Frank Russell Company ("FRC")
and is designed to track the performance of 2,000 common stocks of
corporations with small capitalizations relative to other stocks in the U.S.
equity market. Market capitalization is the value of a corporation's stock in
the public market determined by multiplying the number of outstanding shares
by the current price of a share. The corporations in the Russell 2000 Index
are domiciled in the U.S. and its territories and their stocks are traded on
the New York Stock Exchange, on the AMEX, or in the over-the-counter market.
Please note that an investment in the MITTS Securities does not
entitle you to any ownership interest in the stocks of the companies included
in the Russell 2000 Index.
Are the MITTS Securities listed on a stock exchange?
The MITTS Securities are listed on the AMEX under the trading symbol
"RSM". You should be aware that the listing of the MITTS Securities on the
AMEX does not necessarily ensure that a liquid trading market will be
available for the MITTS Securities. You should review the section entitled
"Risk Factors--There may be an uncertain trading market for the MITTS
Securities" in this prospectus.
What is the role of MLPF&S?
Our subsidiary, MLPF&S, was the underwriter for the initial offering
and sale of the MITTS Securities. MLPF&S intends to buy and sell MITTS
Securities to create a secondary market for holders of the MITTS Securities.
However, MLPF&S will not be obligated to engage in any of these market
activities.
MLPF&S will also be our agent for purposes of calculating, among
other things, the Adjusted Ending Value and the Supplemental Redemption
Amount. Under certain circumstances, these duties could result in a conflict
of interest between MLPF&S' status as a subsidiary of ML&Co. and its
responsibilities as calculation agent.
Who is ML&Co.?
Merrill Lynch & Co., Inc. is a holding company with various
subsidiaries and affiliated companies that provide investment, financing,
insurance and related services on a global basis. For information about ML&Co.
see the section "Merrill Lynch & Co., Inc." in this prospectus. You should
also read the other documents we have filed with the SEC, which you can find
by referring to the section entitled "Where You Can Find More Information" in
this prospectus.
Are there any risks associated with my investment?
Yes, an investment in the MITTS Securities is subject to risk. Please
refer to the section "Risk Factors" in this prospectus.
RISK FACTORS
Your investment in the MITTS Securities will involve risks. You
should carefully consider the following discussion of risks before investing
in the MITTS Securities. In addition, you should reach an investment decision
with regard to the MITTS Securities only after consulting with your legal and
tax advisers and considering the suitability of the MITTS Securities in light
of your particular circumstances.
You may not earn a return on your investment
You should be aware that if the Adjusted Ending Value does not exceed
the Starting Value on the stated maturity date, the Supplemental Redemption
Amount will be zero. This will be true even if the value of the Russell 2000
Index, as reduced by the Adjustment Factor over the term of the MITTS
Securities, was higher than the Starting Value at some time during the life of
the MITTS Securities but later falls below the Starting Value. If the
Supplemental Redemption Amount is zero, we will pay you only the principal
amount of your MITTS Securities.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The amount we pay you at maturity may be less than the return you
could earn on other investments. Your yield may be less than the yield you
would earn if you bought a standard senior non-callable debt security of
ML&Co. with the same maturity date. Your investment may not reflect the full
opportunity cost to you when you take into account factors that affect the
time value of money.
Your return will not reflect the return of owning the stocks included in the
Russell 2000 Index
FRC calculates the value of the Russell 2000 Index by reference to
the prices of the common stocks included in the Russell 2000 Index without
taking into consideration the value of the dividends paid on those stocks. The
return on your MITTS Securities will not reflect the return you would realize
if you actually owned the stocks included in the Russell 2000 Index and
received the dividends paid on those stocks because of the cumulative effect
of the reduction caused by the Adjustment Factor and because the value of the
Russell 2000 Index is calculated by reference to the prices of the stocks
included in the Russell 2000 Index without taking into consideration the value
of dividends paid on those stocks.
There may be an uncertain trading market for the MITTS Securities
Although the MITTS Securities are listed on the AMEX, you cannot
assume that a trading market exists for the MITTS Securities. If a trading
market does exist, there can be no assurance that there will be liquidity in
the trading market. The existence of a trading market for the MITTS Securities
will depend on our financial performance, and other factors such as the
increase, if any, of the value of the Russell 2000 Index.
If the trading market for the MITTS Securities is limited, there may
be a limited number of buyers for your MITTS Securities if you do not wish to
hold your investment until maturity. This may affect the price you receive.
Many factors affect the trading value of the MITTS Securities; these factors
interrelate in complex ways and the effect of any one factor may offset or
magnify the effect of another factor
The trading value of the MITTS Securities will be affected by factors
that interrelate in complex ways. It is important for you to understand that
the effect of one factor may offset the increase in the trading value of the
MITTS Securities caused by another factor and that the effect of one factor
may exacerbate the decrease in the trading value of the MITTS Securities
caused by another factor. For example, an increase in interest rates may
offset some or all of any increase in the trading value of the MITTS
Securities attributable to another factor, such as an increase in the value of
the Russell 2000 Index. The following paragraphs describe the expected impact
on the market value of the MITTS Securities given a change in a specific
factor, assuming all other conditions remain constant.
The value of the Russell 2000 Index is expected to affect the trading
value of the MITTS Securities. We expect that the market value of the MITTS
Securities will depend substantially on the amount by which the Russell 2000
Index, as reduced by the Adjustment Factor over the term of the MITTS
Securities, exceeds the Starting Value. If you choose to sell your MITTS
Securities when the value of the Russell 2000 Index, as reduced by the
Adjustment Factor over the term of the MITTS Securities, exceeds the Starting
Value, you may receive substantially less than the amount that would be
payable at maturity based on that value because of the expectation that the
Russell 2000 Index will continue to fluctuate until the Adjusted Ending Value
is determined. If you choose to sell your MITTS Securities when the value of
the Russell 2000 Index is below, or not sufficiently above, the Starting
Value, you may receive less than the $10 principal amount per unit of MITTS
Securities. In general, rising U.S. dividend rates or dividends per share may
increase the value of the Russell 2000 Index while falling U.S. dividend rates
may decrease the value of the Russell 2000 Index.
Changes in the levels of interest rates are expected to affect the
trading value of the MITTS Securities. Because we will pay, at a minimum, the
principal amount per unit of MITTS Securities at maturity, we expect that
changes in U.S. interest rates will affect the trading value of the MITTS
Securities. In general, if U.S. interest rates increase, we expect that the
trading value of the MITTS Securities will decrease and, conversely, if U.S.
interest rates decrease, we expect that the trading value of the MITTS
Securities will increase. Rising U.S. interest rates may lower the value of
the Russell 2000 Index and, thus, the MITTS Securities. Falling U.S. interest
rates may increase the value of the Russell 2000 Index and, thus, may increase
the value of the MITTS Securities.
Changes in the volatility of the Russell 2000 Index are expected to
affect the trading value of the MITTS Securities. Volatility is the term used
to describe the size and frequency of price and/or market fluctuations. In
general, if the volatility of the Russell 2000 Index increases, we expect that
the trading value of the MITTS Securities will increase and, conversely, if
the volatility of the Russell 2000 Index decreases, we expect that the trading
value of the MITTS Securities will decrease.
As the time remaining to maturity of the MITTS Securities decreases,
the "time premium" associated with the MITTS Securities will decrease. We
anticipate that before their maturity, the MITTS Securities may trade at a
value above that which would be expected based on the level of interest rates
and the Russell 2000 Index. This difference would reflect a "time premium" due
to expectations concerning the value of the Russell 2000 Index during the
period before the stated maturity of the MITTS Securities. However, as the
time remaining to the stated maturity of the MITTS Securities decreases, we
expect that this time premium will decrease, lowering the trading value of the
MITTS Securities.
Changes in dividend yields of the stocks included in the Russell 2000
Index are expected to affect the trading value of the MITTS Securities. In
general, if dividend yields on the stocks included in the Russell 2000 Index
increase, we expect that the value of the MITTS Securities will decrease and,
conversely, if dividend yields on the stocks included in the Russell 2000
Index decrease, we expect that the value of the MITTS Securities will
increase.
Changes in our credit ratings may affect the trading value of the
MITTS Securities. Our credit ratings are an assessment of our ability to pay
our obligations. Consequently, real or anticipated changes in our credit
ratings may affect the trading value of the MITTS Securities. However, because
your return on your MITTS Securities is dependent upon factors in addition to
our ability to pay our obligations under the MITTS Securities, such as the
percentage increase in the value of the Russell 2000 Index at maturity, an
improvement in our credit ratings will not reduce the investment risks related
to the MITTS Securities.
In general, assuming all relevant factors are held constant, we
expect that the effect on the trading value of the MITTS Securities of a given
change in most of the factors listed above will be less if it occurs later in
the term of the MITTS Securities than if it occurs earlier in the term of the
MITTS Securities. However, we expect that the effect on the trading value of
the MITTS Securities of a given increase in the value of the Russell 2000
Index will be greater if it occurs later in the term of the MITTS Securities
than if it occurs earlier in the term of the MITTS Securities.
Amounts payable on the MITTS Securities may be limited by state law
New York State law governs the 1983 Indenture under which the MITTS
Securities were issued. New York has usury laws that limit the amount of
interest that can be charged and paid on loans, which include debt securities
like the MITTS Securities. Under present New York law, the maximum rate of
interest is 25% per annum on a simple interest basis. This limit may not apply
to debt securities in which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state
or Federal court sitting outside of New York, many other states also have laws
that regulate the amount of interest that may be charged to and paid by a
borrower. We will promise, for the benefit of the holders of the MITTS
Securities, to the extent permitted by law, not to voluntarily claim the
benefits of any laws concerning usurious rates of interest.
Purchases and sales by us and our affiliates may affect your return
We and our other affiliates may from time to time buy or sell the
stocks included in the Russell 2000 Index or futures or options in the Russell
2000 Index for our own accounts, for business reasons or in connection with
hedging our obligations under the MITTS Securities. These transactions could
affect the price of these stocks and, in turn, the value of the Russell 2000
Index in a manner that would be adverse to your investment in the MITTS
Securities.
Potential conflicts
Our subsidiary, MLPF&S, is our agent for the purposes of calculating
the Adjusted Ending Value and the Supplemental Redemption Amount payable to
you at maturity. Under certain circumstances, MLPF&S' role as our subsidiary
and its responsibilities as calculation agent for the MITTS Securities could
give rise to conflicts of interests. These conflicts could occur, for
instance, in connection with the calculation agent's determination as to
whether the value of the Russell 2000 Index can be calculated on a particular
trading day, or in connection with judgments that it would be required to make
in the event of a discontinuance of the Russell 2000 Index. See the sections
entitled "Description of the MITTS Securities--Adjustments to the Russell 2000
Index; Market Disruption Events" and "--Discontinuance of the Russell 2000
Index" in this prospectus. MLPF&S is required to carry out its duties as
calculation agent in good faith and using its reasonable judgment. However,
you should be aware that because we control MLPF&S, potential conflicts of
interest could arise.
We have entered into an arrangement with our subsidiary to hedge the
market risks associated with our obligation to pay the Supplemental Redemption
Amount. Our subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for such an arrangement from
unaffiliated parties.
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
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(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 July 21, 1999, ML&Co. issued an aggregate principal amount of
$35,000,000 or 3,500,000 units of the MITTS Securities. The MITTS Securities
were issued as a series of senior debt securities under the 1983 Indenture
which is more fully described in this prospectus.
The MITTS Securities will mature on July 21, 2006.
While at maturity a beneficial owner of a MITTS Security will receive
the principal amount of the MITTS Security plus the Supplemental Redemption
Amount, if any, there will be no other payment of interest, periodic or
otherwise. See the section entitled "--Payment at maturity" below.
The MITTS Securities are not subject to redemption by ML&Co. or at
the option of any beneficial owner before maturity. If an Event of Default
occurs with respect to the MITTS Securities, beneficial owners of the MITTS
Securities may accelerate the maturity of the MITTS Securities, as described
under "--Events of Default and Acceleration" and "Other Terms--Events of
Default" in this prospectus.
ML&Co. issued the MITTS Securities in denominations of whole units of
$10.00 per unit.
The MITTS Securities do not have the benefit of any sinking fund.
Payment at maturity
At maturity, a beneficial owner of a MITTS Security will be entitled
to receive the principal amount of that MITTS Security plus a Supplemental
Redemption Amount, if any, all as provided below. If the Supplemental
Redemption Amount is not greater than zero, you will be entitled to receive
only the principal amount of your MITTS Securities.
The "Supplemental Redemption Amount" for a MITTS Security will be
determined by the calculation agent and will equal:
principal amount of each MITTS Security ($10 per unit) x (Adjusted Ending Value-Starting Value)
(------------------------------------)
( Starting Value )
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" equals 465.80, which was the closing value of
the Russell 2000 Index on July 15, 1999, the date the MITTS Securities were
priced for initial sale to the public.
The "Adjusted Ending Value" will be determined by the calculation
agent and will equal the average or arithmetic mean of the closing values of
the Russell 2000 Index, as reduced by the application of the Adjustment Factor
on each Calculation Day, determined on each of the first five Calculation Days
during the Calculation Period. If there are fewer than five Calculation Days
during the Calculation Period, then the Adjusted Ending Value will equal the
average or arithmetic mean of the closing values of the Russell 2000 Index on
those Calculation Days as reduced by the application of the Adjustment Factor
on each Calculation Day. If there is only one Calculation Day, then the
Adjusted Ending Value will equal the closing value of the Russell 2000 Index
on that Calculation Day as reduced by the application of the Adjustment Factor
on that Calculation Day. If no Calculation Days occur during the Calculation
Period, then the Adjusted Ending Value will equal the closing value of the
Russell 2000 Index determined on the last scheduled Index Business Day in the
Calculation Period as reduced by the application of the Adjustment Factor on
that Calculation Day, regardless of the occurrence of a Market Disruption
Event on that day.
The "Adjustment Factor" equals 2.35% per year and will be applied
over the entire term of the MITTS Securities. On each calendar day during the
term of the MITTS Securities, we will apply this percentage on a prorated
basis based on a 365-day year to reduce the value used to calculate the
Supplemental Redemption Amount on each Calculation Day during the Calculation
Period. As a result of the cumulative effect of this reduction, the values
used to calculate the Supplemental Redemption Amount during the Calculation
Period will be approximately 15.18% less than the actual closing value of the
Russell 2000 Index on each Calculation Day during the Calculation Period.
The "Calculation Period" means the period from and including the
seventh scheduled Index Business Day before the maturity date to and including
the second scheduled Index Business Day before the maturity date.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
An "Index Business Day" is a day on which the New York Stock Exchange
and the AMEX are open for trading and the Russell 2000 Index or any successor
index is calculated and published.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes
and binding on ML&Co. and beneficial owners of the MITTS Securities.
Hypothetical returns
The following table illustrates, for a range of hypothetical closing
values of the Russell 2000 Index during the Calculation Period, assuming an
initial investment of $10 per unit and an investment term from July 21, 1999
to July 21, 2006:
o the percentage change from the Starting Value to the hypothetical
closing value,
o the Adjusted Ending Value used to calculate the Supplemental
Redemption Amount,
o the total amount payable at maturity for each unit of MITTS
Securities,
o the total rate of return to beneficial owners of the MITTS Securities,
o the pretax annualized rate of return to beneficial owners of the MITTS
Securities, and
o the pretax annualized rate of return of an investment in the stocks
included in the Russell 2000 Index, which includes an assumed
aggregate dividend yield of 1.27% per annum, as more fully described
below.
For the purposes of calculating this table, we have applied an Adjustment
Factor of 2.35% per annum.
Pretax
annualized
Percentage rate of
change Total amount Pretax return of
Hypothetical from the payable at annualized stocks
closing value of Starting Value maturity per Total rate of rate of return included in
the Russell 2000 to the Adjusted unit of return on the on the the Russell
Index during the hypothetical Ending MITTS MITTS MITTS 2000
Calculation Period closing value Value(1) Securities Securities Securities(2) Index(2)(3)
------------------ ------------- -------- ------------ ------------- -------------- -------------
93.16 -80% 79.02 $10.00 0.00% 0.00% -20.32%
186.32 -60% 158.04 $10.00 0.00% 0.00% -11.39%
279.48 -40% 237.06 $10.00 0.00% 0.00% -5.91%
372.64 -20% 316.07 $10.00 0.00% 0.00% -1.91%
465.80(4) 0% 395.09 $10.00 0.00% 0.00% 1.27%
558.96 20% 474.11 $10.18 1.78% 0.25% 3.91%
652.12 40% 553.13 $11.87 18.75% 2.47% 6.18%
745.28 60% 632.15 $13.57 35.71% 4.41% 8.17%
838.44 80% 711.17 $15.27 52.68% 6.13% 9.94%
931.60 100% 790.19 $16.96 69.64% 7.69% 11.54%
1,024.76 120% 869.21 $18.66 86.60% 9.11% 13.00%
1,117.92 140% 948.22 $20.36 103.57% 10.41% 14.35%
1,211.08 160% 1,027.24 $22.05 120.53% 11.61% 15.60%
1,304.24 180% 1,106.26 $23.75 137.50% 12.74% 16.76%
1,397.40 200% 1,185.28 $25.45 154.46% 13.79% 17.85%
- ---------
(1) The Adjusted Ending Values specified in this column are approximately
15.18% less than the hypothetical closing values of the Russell 2000
Index as a result of the cumulative effect of the application of an
Adjustment Factor of 2.35% per annum over the term of the MITTS
Securities
(2) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(3) This rate of return assumes:
(a) a constant dividend yield of 1.27% per annum, paid quarterly from
the date of initial delivery of MITTS Securities, applied to the
value of the Russell 2000 Index at the end of each quarter assuming
this value increases or decreases linearly from the Starting Value
to the applicable hypothetical closing value;
(b) no transaction fees or expenses in connection with purchasing and
holding stocks included in the index;
(c) an investment term from July 21, 1999 to July 21, 2006; and
(d) a final closing value of the Russell 2000 Index equal to the
hypothetical closing value.
(4) This is the Starting Value of the Russell 2000 Index.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rates of return will depend entirely on the actual Adjusted
Ending Value determined by the calculation agent as provided in this
prospectus.
Adjustments to the Russell 2000 Index; Market Disruption Events
If at any time FRC changes its method of calculating the Russell 2000
Index, or the value of the Russell 2000 Index changes, in any material
respect, or if the Russell 2000 Index is in any other way modified so that the
Russell 2000 Index does not, in the opinion of the calculation agent, fairly
represent the value of the Russell 2000 Index if no changes or modifications
had been made, then, from and after that time, the calculation agent shall, at
the close of business in New York, New York, on each date that the closing
value with respect to the Russell 2000 Index is to be calculated, make any
adjustments as, in the good faith judgment of the calculation agent, may be
necessary in order to arrive at a calculation of a value of a stock index
comparable to the Russell 2000 Index as if no changes or modifications had
been made, and calculate the closing value with reference to the Russell 2000
Index, as adjusted. Accordingly, if the method of calculating the Russell 2000
Index is modified so that the value of the Russell 2000 Index is a fraction or
a multiple of what it would have been if it had not been modified, e.g., due
to a split, then the calculation agent shall adjust the Russell 2000 Index in
order to arrive at a value of the Russell 2000 Index as if it had not been
modified, e.g., as if the split had not occurred.
"Market Disruption Event" means either of the following events as
determined by the calculation agent:
(a) the suspension or material limitation on trading for more than
two hours of trading, or during the one-half hour period
preceding the close of trading on the applicable exchange, in
20% or more of the stocks which then comprise the Russell 2000
Index; or
(b) the suspension or material limitation, in each case, for more
than two hours of trading, or during the one-half hour period
preceding the close of trading on the applicable exchange,
whether by reason of movements in price otherwise exceeding
levels permitted by the relevant exchange or otherwise, in
option contracts or futures contracts related to the Russell
2000 Index, or any successor index, traded on any major U.S.
exchange.
For the purpose of the above definition:
(1) a limitation on the hours in a trading day and/or number of
days of trading will not constitute a Market Disruption Event
if it results from an announced change in the regular business
hours of the relevant exchange and
(2) for the purpose of clause (a) above, any limitations on
trading during significant market fluctuations under NYSE Rule
80A, or any applicable rule or regulation enacted or
promulgated by the NYSE or any other self regulatory
organization or the SEC of similar scope as determined by the
calculation agent, will be considered "material".
Discontinuance of the Russell 2000 Index
If FRC discontinues publication of the Russell 2000 Index and FRC or
another entity publishes a successor or substitute index that the calculation
agent determines, in its sole discretion, to be comparable to the Russell 2000
Index (a "successor index"), then, upon the calculation agent's notification
of its determination to the trustee and ML&Co., the calculation agent will
substitute the successor index as calculated by FRC or another entity for the
Russell 2000 Index and calculate the closing value as described above under
"--Payment at maturity". Upon any selection by the calculation agent of a
successor index, ML&Co. shall promptly give notice to the beneficial owners of
the MITTS Securities by publication in a United States newspaper with a
national circulation.
In the event that the FRC discontinues publication of the Russell
2000 Index and:
o the calculation agent does not select a successor index, or
o the successor index is no longer published on any of the
Calculation Days,
the calculation agent will compute a substitute value for the Russell 2000
Index in accordance with the procedures last used to calculate the Russell
2000 Index before any discontinuance. If a successor index is selected or the
calculation agent calculates a value as a substitute for the Russell 2000
Index as described below, the successor index or value shall be substituted
for the Russell 2000 Index for all purposes, including for purposes of
determining whether a Market Disruption Event exists.
If FRC discontinues publication of the Russell 2000 Index before the
period during which the Supplemental Redemption Amount is to be determined and
the calculation agent determines that no successor index is available at that
time, then on each Business Day until the earlier to occur of:
o the determination of the Adjusted Ending Value and
o a determination by the calculation agent that a successor index
is available,
the calculation agent will determine the value that would be used in computing
the Supplemental Redemption Amount as described in the preceding paragraph as
if that day were a Calculation Day. The calculation agent will cause notice of
each value to be published not less often than once each month in The Wall
Street Journal or another newspaper of general circulation, and arrange for
information with respect to these value to be made available by telephone.
A "Business Day" is any day on which the NYSE and the AMEX are open
for trading.
Notwithstanding these alternative arrangements, discontinuance of the
publication of the Russell 2000 Index may adversely affect trading in the
MITTS Securities.
Events of Default and Acceleration
In case an Event of Default with respect to any MITTS Securities
occurs and is continuing, the amount payable to a beneficial owner of a MITTS
Security upon any acceleration permitted by the MITTS Securities, with respect
to each $10 principal amount of the MITTS Securities, will be equal to the
principal amount and the Supplemental Redemption Amount, if any, calculated as
though the date of early repayment were the stated maturity date of the MITTS
Securities, provided, however, that the Adjustment Factor will be applied to
the values used to calculate the Supplemental Redemption Amount as if the
MITTS Securities had not been accelerated and had remained outstanding to the
stated maturity date. See the section entitled "--Payment at maturity" in this
prospectus. If a bankruptcy proceeding is commenced in respect of ML&Co., the
claim of the beneficial owner of a MITTS Security may be limited, under
Section 502(b)(2) of Title 11 of the United States Code, to the principal
amount of the MITTS Security plus an additional amount of contingent interest
calculated as though the date of the commencement of the proceeding were the
maturity date of the MITTS Securities.
In case of default in payment of the MITTS Securities, whether at the
stated maturity or upon acceleration, from and after the maturity date the
MITTS Securities shall bear interest, payable upon demand of the beneficial
owners, at the rate of 6.70% per annum, to the extent that payment of such
interest shall be legally enforceable, on the unpaid amount due and payable on
that date in accordance with the terms of the MITTS Securities to the date
payment of the amount has been made or duly provided for.
Depositary
Description of the Global Securities
The MITTS Securities currently are represented by one or more fully
registered global securities. Each global security was deposited with, or on
behalf of, DTC (DTC, together with any successor, being a "depositary"), as
depositary, registered in the name of Cede & Co., DTC's partnership nominee.
Unless and until it is exchanged in whole or in part for MITTS Securities in
definitive form, no global security may be transferred except as a whole by
the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or by the
depositary or any nominee to a successor of the depositary or a nominee of
that successor.
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 RUSSELL 2000 INDEX
Unless otherwise stated, all information in this prospectus on the
index is derived from FRC or other publicly available sources. This
information reflects the policies of FRC as stated in these sources and these
policies are subject to change by FRC. FRC is under no obligation to continue
to publish the Russell 2000 Index and may discontinue publication of the
Russell 2000 Index at any time.
The Russell 2000 Index is an index calculated, published and
disseminated by FRC, and measures the composite price performance of stocks of
2,000 companies domiciled in the U.S. and its territories. All 2,000 stocks
are traded on either the NYSE or the AMEX or in the over-the-counter market
and form a part of the Russell 3000(R) Index. The Russell 3000(R) Index is
composed of the 3,000 largest U.S. companies as determined by market
capitalization.
The Russell 2000 Index consists of the smallest 2,000 companies
included in the Russell 3000(R) Index. The Russell 2000 Index is designed to
track the performance of the small capitalization segment of the U.S. equity
market.
Only common stocks belonging to corporations domiciled in the U.S.
and its territories are eligible for inclusion in the Russell 3000 Index and
the Russell 2000 Index. Stocks traded on U.S. exchanges but domiciled in other
countries are excluded. Preferred stock, convertible preferred stock,
participating preferred stock, paired shares, warrants and rights are also
excluded. Trust receipts, Royalty Trusts, limited liability companies, OTC
Bulletin Board companies, pink sheets, closed-end mutual funds, and limited
partnerships that are traded on U.S. exchanges, are also ineligible for
inclusion. Real Estate Investment Trusts and Beneficial Trusts are eligible
for inclusion, however. In general, only one class of securities of a company
is allowed in the Russell 3000 Index, although exceptions to this general rule
have been made where FRC has determined that each class of securities acts
independent of the other.
The primary criteria used to determine the initial list of securities
eligible for the Russell 3000 Index is total market capitalization, which is
defined as the price of the shares times the total number of shares
outstanding. Based on closing values on May 31 of each year, FRC reconstitutes
the composition of the Russell 3000 Index using the then existing market
capitalizations of eligible companies. As of June 30 of each year, the Russell
2000 Index is adjusted to reflect the reconstitution of the Russell 3000 Index
for that year. Real-time dissemination of the Russell 2000 Index began on
January 1, 1987.
As a capitalization-weighted index, the Russell 2000 Index reflects
changes in the capitalization, or market value, of the component stocks
relative to the capitalization on a base date. The current Russell 2000 Index
value is calculated by adding the market values of the Russell 2000 Index's
component stocks, which are derived by multiplying the price of each stock by
the number of shares outstanding, to arrive at the total market capitalization
of the 2,000 stocks. The total market capitalization is then divided by a
divisor, which represents the "adjusted" capitalization of the Russell 2000
Index on the base date of December 31, 1986. To calculate the Russell 2000
Index, last sale prices will be used for exchange-traded and NASDAQ stocks. If
a component stock is not open for trading, the most recently traded price for
that security will be used in calculating the Russell 2000 Index. In order to
provide continuity for the Russell 2000 Index's value, the divisor is adjusted
periodically to reflect events including changes in the number of common
shares outstanding for component stocks, company additions or deletions,
corporate restructurings and other capitalization changes.
The value of the Russell 2000 Index is reported on the AMEX under the
symbol "RTY", on Bloomberg under the symbol "RTY" and on Reuters under the
symbol ".RUT".
All disclosure contained in this prospectus regarding the Russell
2000 Index, or its publisher, is derived from publicly available information.
All copyrights and other intellectual property rights relating to the Russell
2000 Index are owned by FRC. FRC has no relationship with ML&Co. or the MITTS
Securities; it does not sponsor, endorse, authorize, sell or promote the MITTS
Securities, and has no obligation or liability in connection with the
administration, marketing or trading of the MITTS Securities.
The Russell 2000 Index is a trademark of FRC and has been licensed
for use by ML&Co. The MITTS Securities are not sponsored, endorsed, sold or
promoted by FRC and FRC makes no representation regarding the advisability of
investing in the MITTS Securities.
The MITTS Securities are not sponsored, endorsed, sold or promoted by
FRC. FRC makes no representation or warranty, express or implied, to the
owners of the MITTS Securities or any member of the public regarding the
advisability of investing in securities generally or in the MITTS Securities
particularly or the ability of the Russell 2000 Index to track general stock
market performance or a segment of the same. FRC's publication of the Russell
2000 Index in no way suggests or implies an opinion by FRC as to the
advisability of investment in any or all of the securities upon which the
Russell 2000 Index is based. FRC's only relationship to ML&Co. is the
licensing of certain trademarks, and trade names of FRC and of the Russell
2000 Index which is determined, composed and calculated by FRC without regard
to ML&Co. or the MITTS Securities. FRC is not responsible for and has not
reviewed the MITTS Securities or any associated literature or publications and
FRC makes no representation or warranty express or implied as to their
accuracy or completeness, or otherwise. FRC reserves the right, at any time
and without notice, to alter, amend, terminate or in any way change the
Russell 2000 Index. FRC has no obligation or liability in connection with the
administration, marketing or trading of the MITTS Securities.
FRC DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
RUSSELL 2000 INDEX OR ANY DATA INCLUDED THEREIN AND FRC SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. FRC MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY ML&CO.,
INVESTORS, OWNERS OF THE MITTS SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE RUSSELL 2000 INDEX OR ANY DATA INCLUDED THEREIN. FRC MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
RUSSELL 2000 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL FRC HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED
OF THE POSSIBILITY OF SUCH DAMAGES.
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$5.8659 per unit. This represents an estimated yield
on the MITTS Securities equal to 6.70% per annum, compounded semiannually.
The projected payment schedule, including both projected Supplemental
Redemption Amount and the estimated yield on the MITTS Securities, has been
determined solely for United States Federal income tax purposes i.e., for
purposes of applying the Final Regulations to the MITTS Securities, and is
neither a prediction nor a guarantee of what the actual Supplemental
Redemption Amount will be, or that the actual Supplemental Redemption Amount
will even exceed zero.
The following table sets forth the amount of interest that will be
deemed to have accrued with respect to each unit of the MITTS Securities
during each accrual period over the term of the MITTS Securities based upon
the projected payment schedule for the MITTS Securities, including both the
projected Supplemental Redemption Amount and the estimated yield equal to
6.70% per annum, compounded semiannually, as determined by ML&Co. for purposes
of illustrating the application of the Final Regulations to the MITTS
Securities:
Total interest
deemed to have
Interest deemed to accrued on the MITTS
accrue during Securities as of end
accrual period of accrual period
Accrual Period (per unit) (per unit)
------------------ --------------------
July 21, 1999 through January 21, 2000.................................. $0.3378 $0.3378
January 22, 2000 through July 21, 2000.................................. $0.3463 $0.6841
July 22, 2000 through January 21, 2001.................................. $0.3579 $1.0420
January 22, 2001 through July 21, 2001.................................. $0.3699 $1.4119
July 22, 2001 through January 21, 2002.................................. $0.3823 $1.7942
January 22, 2002 through July 21, 2002.................................. $0.3951 $2.1893
July 22, 2002 through January 21, 2003.................................. $0.4084 $2.5977
January 22, 2003 through July 21, 2003.................................. $0.4220 $3.0197
July 22, 2003 through January 21, 2004.................................. $0.4362 $3.4559
January 22, 2004 through July 21, 2004.................................. $0.4507 $3.9066
July 22, 2004 through January 21, 2005.................................. $0.4659 $4.3725
January 22, 2005 through July 21, 2005.................................. $0.4815 $4.8540
July 22, 2005 through January 21, 2006.................................. $0.4976 $5.3516
January 22, 2006 through July 21, 2006.................................. $0.5143 $5.8659
- -------------
Projected Supplemental Redemption Amount = $5.8659 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.