RULE NO. 424(b)(5)
REGISTRATION NO. 333-68747
PROSPECTUS
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MERRILL LYNCH & CO., INC.
TELEBRAS INDEXED CALLABLE
PROTECTED GROWTH SM SECURITIES DUE MAY 19, 2005
"PROGROS SM SECURITIES"
$10 PRINCIPAL AMOUNT PER UNIT
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 ProGroS
Securities.
THE PROGROS SECURITIES: PAYMENT AT MATURITY:
o 100% principal protected if held to maturity o On the maturity date, for each unit of the ProGroS
Securities you own, we will pay you an amount equal to
o Callable prior to the stated maturity date by Merrill the sum of principal amount of each unit and an
Lynch & Co., Inc. additional amount based on the percentage increase, if
any, in the price of an American Depositary Receipt
o No payments before the stated maturity date unless which trades on the NYSE representing the common stock
called by Merrill Lynch & Co., Inc. of Telecommunicacoes Brasileiras S.A. - Telebras and
the value of securities, cash or property received by
o Senior unsecured debt securities of Merrill Lynch & Co., holders of ADR in corporate reorganizations of
Inc. Telebras over the term of the ProGroS Securities.
o The ProGroS Securities are listed on the American o You will receive no less than principal amount of
Stock Exchange under the symbol "PGT". your ProGroS Securities.
INVESTING IN THE PROGROS SECURITIES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 3
Neither the Securities and Exchange SEC 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.
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MERRILL LYNCH & CO.
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The date of this prospectus is June 24, 1999.
"Protected Growth" and "ProGroS" are registered service marks of Merrill Lynch &
Co., Inc.
TABLE OF CONTENTS
RISK FACTORS..............................................................3
MERRILL LYNCH & CO., INC..................................................8
RATIO OF EARNINGS TO FIXED CHARGES........................................9
DESCRIPTION OF THE PROGROS SECURITIES....................................10
THE TELEBRAS RECEIPT.....................................................22
OTHER TERMS..............................................................23
WHERE YOU CAN FIND MORE INFORMATION......................................26
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........................26
PLAN OF DISTRIBUTION.....................................................27
EXPERTS..................................................................27
RISK FACTORS
Your investment in the ProGroS Securities will involve risks. You should
carefully consider the following discussion of risks before investing in the
ProGroS Securities. In addition, you should reach an investment decision with
regard to the ProGroS Securities only after consulting with your legal and tax
advisers and considering the suitability of the ProGroS Securities in the light
of your particular circumstances.
WE MAY CALL THE PROGROS SECURITIES BEFORE THE STATED MATURITY DATE
We may elect to call all of the ProGroS Securities in the manner and times
described in this prospectus. We are likely to call the ProGroS Securities
during the month of June 2004 when the secondary market price of the ProGroS
Securities is approximately equal to the applicable call price during such
period. We can, however, call the ProGroS Securities during the specified
periods at our option regardless of the secondary market price of the ProGroS
Securities. In the event that we elect to call the ProGroS Securities, you will
receive only the relevant call price and no additional amount based on the price
of the American Depository Receipt representing Common Stock Telebras or
Telebras Receipt.
YOU MAY NOT EARN A RETURN ON YOUR INVESTMENT
You should be aware that if the ending value of Telebras Receipt determined
as described in this prospectus, does not exceed $115.4375 at the stated
maturity, you will only receive the principal of your ProGroS Securities. This
will be true even if the value of the Telebras Receipt, at some time during the
life of the ProGroS Securities was higher than the $115.4375.
You should compare the features of the ProGroS Securities to other
available investments before deciding to purchase the ProGroS Securities. Due to
the uncertainty as to whether the ProGroS Securities will earn a return or be
called before the stated maturity date, the returns which you may receive with
respect to the ProGroS Securities may be higher or lower than the returns
available on other investments. You should reach an investment decision only
after carefully considering the suitability of the ProGroS Securities in light
of your particular circumstances.
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 consider the effect of factors that affect the time value
of money.
YOUR RETURN WILL NOT REFLECT THE PAYMENT OF DIVIDENDS
The calculation of the starting and ending values of the Telebras Receipt
does not take into consideration the value of dividends paid on the Telebras
Receipt, if any. Therefore, the return you earn on the ProGroS Securities, if
any, will not be the same as the return that you would earn if you actually
owned the Telebras Receipt and received any dividends paid on the common stock
of Telebras.
THERE MAY BE AN UNCERTAIN TRADING MARKET FOR THE PROGROS SECURITIES IN THE
FUTURE
Although the ProGroS Securities are listed on the AMEX under the symbol
"PGT", you cannot assume that a trading market will continue to exist for the
ProGroS Securities. If a trading market in the ProGroS Securities continues to
exist, you cannot assume that there will be liquidity in the trading market. The
continued existence of a trading market for the ProGroS Securities will depend
on the financial performance and other factors such as the appreciation, if any,
of the price of Telebras Receipt.
If the trading market for the ProGroS Securities is limited, there may be a
limited number of buyers if you decide to sell your ProGroS Securities. This may
affect the price you receive. Furthermore, it is unlikely that the secondary
market price of the ProGroS Securities will correlate exactly with the market
price of the Telebras Receipt.
MANY FACTORS AFFECT THE TRADING VALUE OF THE PROGROS SECURITIES; THESE FACTORS
INTERRELATE IN COMPLEX WAYS AND THE EFFECT OF ANY ONE FACTOR MAY OFFSET OR
MAGNIFY THE EFFECT OF ANOTHER FACTOR
Our ability to call the ProGroS Securities before the stated maturity date
is likely to limit the secondary market price at which the ProGroS Securities
will trade. In particular, we expect that the secondary market price of the
ProGroS Securities will not exceed the applicable call price because of our
ability to call the ProGroS Securities and pay only the call price. We believe
that if we did not have the right to call the ProGroS Securities, the secondary
market price of the ProGroS Securities would likely be significantly different.
The trading value of the ProGroS 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 ProGroS
Securities caused by another factor and that the effect of one factor may
magnify the decrease in the trading value of the ProGroS Securities caused by
another factor. For example, an increase in U.S. interest rates may offset some
or all of any increase in the trading value of the ProGroS Securities
attributable to another factor, such as an increase in the value of Telebras
Receipt. The following paragraphs describe the expected impact on the market
value of the ProGroS Securities given a change in a specific factor, assuming
all other conditions remain constant.
VALUE OF THE TELEBRAS RECEIPT. We expect that the market value of the
ProGroS Securities will depend on the amount by which the price of Telebras
Receipt exceeds $115.4375, the value of Telebras Receipt on the date the ProGroS
Securities were initially priced for sale to the public. If you choose to sell
your ProGroS Securities when the price of Telebras Receipt exceeds $115.4375,
you may receive substantially less than the amount that would be payable at the
stated maturity date based on that price because of the expectation that the
price of Telebras Receipt will continue to fluctuate until its final value as
described in this prospectus is determined.
If you choose to sell your ProGroS Securities when the price of Telebras
Receipt is below $115.4375, you may receive less than the principal amount of
your ProGroS Securities. As a general matter, if dividends are ever paid on
Telebras Receipt, a rising dividend rate, i.e., dividends per share, may
increase the price of Telebras Receipt while a falling dividend rate may
decrease its price. Political, economic and other developments may also affect
the price of Telebras Receipt and the value of the ProGroS Securities.
CHANGES IN THE LEVELS OF U.S. INTEREST RATES AND BRAZILIAN INTEREST RATES
ARE EXPECTED TO AFFECT THE TRADING VALUE OF THE PROGROS SECURITIES. We expect
that the trading value of the ProGroS Securities will be affected by changes in
interest rates. As a general matter during the earlier years of the ProGroS
Securities, if U.S. interest rates increase, we expect that the trading value of
the ProGroS Securities will decrease and if U.S. interest rates decrease, we
expect the trading value of the ProGroS Securities will increase. However,
interest rates in Brazil and the U.S. may also affect the economies of Brazil
and the U.S. and, in turn, the prices of the reference securities. Rising
interest rates may lower the prices of the reference securities and the ProGroS
Securities. Falling interest rates may increase the prices of the reference
securities and the value of the ProGroS Securities.
CHANGES IN THE VOLATILITY OF THE REFERENCE SECURITIES ARE EXPECTED TO
AFFECT THE TRADING VALUE OF THE PROGROS SECURITIES. Volatility is the term used
to describe the size and frequency of market fluctuations. If the volatility of
the reference securities increases, we expect that the trading value of the
ProGroS Securities will increase. If the volatility of the reference securities
decreases, we expect that the trading value of the ProGroS Securities will
decrease.
AS THE TIME REMAINING TO MATURITY OF THE PROGROS SECURITIES DECREASES, THE
"TIME PREMIUM" ASSOCIATED WITH THE PROGROS SECURITIES WILL DECREASE. The ProGroS
Securities may trade at a value above that which would be expected based on the
level of interest rates and the price of the Telebras Receipt. This difference
will reflect a "time premium" due to expectations concerning the price of the
Telebras Receipt during the period prior to the stated maturity date of the
ProGroS Securities. However, as the time remaining to the stated maturity date
of the ProGroS Securities decreases, we expect that this time premium will
decrease, potentially lowering the trading value of the ProGroS Securities.
CHANGES IN DIVIDEND YIELDS OF A REFERENCE SECURITY ARE EXPECTED TO AFFECT
THE TRADING VALUE OF THE PROGROS SECURITIES. If dividends are ever paid on
reference security, the dividend yield that would result would likely to affect
the value of the ProGroS Securities. If the dividend yield on a reference
security were to increase, we expect that the value of the ProGroS Securities
would decrease. Conversely, if the dividend yield on a Telebras Receipt were to
decrease, we expect that the value of the ProGroS Securities would increase.
CHANGES IN OUR CREDIT RATINGS MAY AFFECT THE TRADING VALUE OF THE PROGROS
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 ProGroS Securities. However, because your return
on your ProGroS Securities is dependent upon factors in addition to our ability
to pay our obligations under the ProGroS Securities, such as the percentage
increase in the value of Telebras Receipt at maturity, an improvement in our
credit ratings will not reduce investment risks related to the ProGroS
Securities.
In general, assuming all relevant factors are held constant, we expect that
the effect on the trading value of the ProGroS Securities of a given change in
most of the factors listed above will be less if it occurs later in the term of
the ProGroS Securities than if it occurs earlier in the term of the ProGroS
Securities except that we expect that the effect on the trading value of the
ProGroS Securities of a given increase in the value of the Telebras Receipt will
be greater if it occurs later in the term of the ProGroS Securities than if it
occurs earlier in the term of the ProGroS Securities.
AMERICAN DEPOSITARY RECEIPTS
The Telebras Receipt is an ADR representing 1,000 shares of common stock of
Telebras. If Telebras is reorganized, the Telebras Receipt will be adjusted as
described below to reflect certain distributions of cash, securities and/or
other property. Some of the reference securities distributed in any such
reorganization may be ADRs. An ADR is a negotiable receipt which is issued by a
depositary, generally a bank, representing shares, such as the common stock of
Telebras, of a non-U.S. issuer that have been deposited and are held, on behalf
of the holders of the ADRs, at a custodian bank in the non-U.S. issuer's home
country. While the market for shares underlying an ADR generally will be in the
country in which the non-U.S. issuer is organized and trading in such market
generally will be based on that country's currency, ADRs will trade in U.S.
dollars.
Although ADRs are distinct securities from the shares of stock underlying
such ADRs, the trading characteristics and valuations of ADRs will usually, but
not necessarily, mirror the characteristics and valuations of such shares
represented by the ADRs. Inasmuch as holders of ADRs may surrender the ADR in
order to take delivery of and trade the shares underlying such ADR, a
characteristic that allows investors in ADRs to take advantage of price
differentials between different markets, a market for the shares of stock
underlying an ADR that is not liquid generally will result in an illiquid market
for the ADR representing such underlying shares.
The depositary bank that issues an ADR generally charges a fee, based on
the price of the ADR, upon issuance and cancellation of the ADR. This fee would
be in addition to the brokerage commissions paid upon the acquisition or
surrender of the security. In addition, the depositary bank incurs expenses in
connection with the conversion of dividends or other cash distributions paid in
local currency into U.S. dollars and such expenses are deducted from the amount
of the dividend or distribution paid to holders, resulting in a lower payout per
share of stock underlying an ADR represented by the ADR than would be the case
if such share were held directly. Certain tax considerations, including tax rate
differentials, arising from application of the tax laws of one nation to the
nationals of another and from certain practices in the ADR market may also exist
with respect to an ADR. In varying degrees, any or all of these factors may
affect the value of the ADR compared with the value of the shares of stock
underlying an ADR in the local market.
FOREIGN CURRENCY EXCHANGE RATE AND FOREIGN MARKET CONSIDERATIONS
The ProGroS Securities are U.S. dollar-denominated securities issued by
ML&Co., a United States corporation. Investments in the ProGroS Securities do
not give the beneficial owners any right to receive a reference security or any
Telebras Receipt or any other ownership right or interest in a reference
security or any Telebras Receipt or the shares of common stock represented by
the Telebras Receipt, although the return on the investment in the ProGroS
Securities is based on the ending value of the Telebras Receipt. The price of
the common stock of Telebras underlying the Telebras Receipt is quoted in
Brazilian currency. To the extent there are other reference securities, the
prices of such other reference securities may also be quoted in currency other
than U.S. dollars. The U.S. dollar price of a reference security that is an ADR
will depend on the price of the shares underlying such ADR and the exchange rate
between the non-U.S. dollar currency and the U.S. dollar. Even if the price of
the shares underlying an ADR is unchanged, changes in the rates of exchange
between the U.S. dollar and the non-U.S. dollar currency will affect the U.S.
dollar price of such ADR. Furthermore, even if the price in non-U.S. dollar
currency of the shares underlying an ADR increases, the U.S. dollar price of the
ADR may decrease as a result of changes in the rates of exchange between the
U.S. dollar and non-U.S. dollar currency.
Rates of exchange between the U.S. dollar and a non-U.S. dollar currency
are determined by forces of supply and demand in the foreign exchange markets.
These forces are, in turn, affected by international balance of payments and
other economic and financial conditions, government intervention, speculation
and other factors. Fluctuations in foreign exchange rates, future U.S. and
non-U.S. political and economic developments and the possible imposition of
exchange controls or other foreign governmental laws or restrictions applicable
to such investments may affect the U.S. dollar value of an ADR. Moreover,
individual foreign economies, such as Brazil's, may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resources, self-sufficiency
and balance of payments position. There is the possibility of expropriation of
assets, confiscatory taxation, political or social instability or diplomatic
developments which could affect the value of investments in countries, such as
Brazil. There may be less publicly available information about a non-U.S.
company, such as Telebras, than about a U.S. company, and non-U.S. companies are
not typically subject to accounting, auditing and financial reporting standards
and requirements comparable to those to which U.S. entities are subject.
Non-U.S. investments may be subject to foreign withholding taxes which could
affect the value of investment. In addition, investment laws in certain non-U.S.
countries such as Brazil may limit or restrict ownership of certain securities
by foreign nationals by restricting or eliminating voting or other rights or
limiting the amount of securities that may be so owned, and such limitations or
restrictions may affect the prices of such securities.
Brazil's financial markets, while growing in volume, have substantially
less volume than U.S. markets. The securities of many non-U.S. companies trading
in foreign markets are generally less liquid and their prices more volatile in
such markets than securities of comparable U.S. companies trading in the
domestic financial markets. Foreign markets have different trading practices
that may affect the prices of securities. Non-U.S. markets have different
clearance and settlement procedures than those in the U.S., and in certain
countries, such as Brazil, there have been instances when such procedures have
been insufficient to accommodate the volume of securities transactions, making
it difficult to conduct such transactions. There is generally less government
supervision and regulation of exchanges, brokers and issuers in Brazil than in
the U.S. In addition, the terms and conditions of depositary facilities may
result in less liquidity or lower market values for the ADRs than for the
securities underlying the ADRs.
The price of the common stock of Telebras and the price of the securities
of any spin-offs from Telebras, will depend on the financial condition and
results of operations of Telebras and such spin-offs. The financial condition
and results of operations of such entities will be affected by general economic,
political, financial and social conditions in Brazil, and in particular, by
prospects for future economic growth and its impact on demand for
telecommunications services in Brazil. Brazil has in the past experienced
economic and political instability and there can be no assurance that current
government programs to stabilize the economy will succeed.
YOU WILL NOT HAVE ANY STOCKHOLDER'S RIGHTS WITH RESPECT TO TELEBRAS RECEIPT
Beneficial owners of the ProGroS Securities are not entitled to any rights
with respect to any Telebras Receipt, including, voting rights and rights to
receive any dividends or other distributions in respect of the Telebras Receipt.
NO AFFILIATION BETWEEN ML&CO. AND TELEBRAS
ML&Co. has no affiliation with Telebras, and Telebras has no obligations
with respect to the ProGroS Securities or amounts to be paid to beneficial
owners thereof, including any obligation to take the needs of ML&Co. or of
beneficial owners of the ProGroS Securities into consideration for any reason.
Telebras did not receive any of the proceeds of the initial offering of the
ProGroS Securities made hereby and is not responsible for, and has not
participated in, the determination or calculation of the amount receivable by
beneficial owners of the ProGroS Securities on the stated maturity date or upon
an earlier call. In addition, Telebras is not involved with the administration
or trading of the ProGroS Securities.
THERE MAY BE STATE LAW LIMITS ON THE PAYMENT OF AMOUNTS PAYABLE ON THE PROGROS
SECURITIES
New York State law governs the 1983 indenture under which the ProGroS
Securities are issued . New York has certain usury laws that limit the amount of
interest that can be charged and paid on loans, which includes debt securities
like the ProGroS 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 ProGroS Securities holders, 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 reference
securities, including shares of Telebras stock, for their own accounts for
business reasons or in connection with hedging our obligations under the ProGroS
Securities. These transactions could affect the price of the reference
securities.
POTENTIAL CONFLICTS
The calculation agent is our subsidiary, the issuer of the ProGroS
Securities. Under certain circumstances, MLPF&S's role as our subsidiary and its
responsibilities as calculation agent for the ProGroS Securities could give rise
to conflicts of interests. You should be aware that because the calculation
agent is controlled by us, potential conflicts of interest could arise.
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, 250Vesey 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.
In this prospectus, "ML&Co.", "we", "us" and "our" refer specifically
to Merrill Lynch & Co., Inc., the holding company. ML&Co. is the issuer of the
ProGroS 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 THREE
YEAR ENDED LAST FRIDAY IN DECEMBER MONTHS ENDED
1994 1995 1996 1997 1998 MARCH 26, 1999
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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 PROGROS SECURITIES
The ProGroS Securities were issued as a series of senior debt
securities under the 1983 indenture which is more fully described in this
prospectus.
The ProGroS Securities will mature on May 19, 2005 unless called
earlier at the option of ML&Co.
Unless called, while at maturity a beneficial owner will receive the
principal amount of such ProGroS Security plus the supplemental redemption
amount described below, if any, there will be no other payment of interest,
periodic or otherwise. See "--Payment at Maturity" below.
The ProGroS Securities may be called by ML&Co. as described below, but
are not subject to redemption at the option of any beneficial owner prior to the
stated maturity date. Upon the occurrence of an Event of Default with respect to
the ProGroS Securities, beneficial owners of the ProGroS Securities may
accelerate the maturity of the ProGroS Securities, as described under "--Events
of Default and Acceleration" and "Other Terms--Events of Default" in this
prospectus.
The ProGroS Securities were issued in denominations of whole units.
PAYMENT AT MATURITY
At the stated maturity date, a beneficial owner of a ProGroS Security
will be entitled to receive the principal amount of each unit plus a
supplemental redemption amount, if any, as provided below. If the supplemental
redemption amount is not greater than zero, a beneficial owner of a ProGroS
Security will be entitled to receive only the principal amount of its ProGroS
Securities.
The "SUPPLEMENTAL REDEMPTION AMOUNT" for a ProGroS Security will be
determined by the calculation agent and will equal:
principal amount of such ProGroS Security ($10)x ending value - starting value
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starting value
provided, however, that in no event will the supplemental redemption amount be
less than zero.
The "STARTING VALUE" equals $115.4375.
The "ENDING VALUE" will be determined by the calculation agent and will
equal the Reorganization Event Value with respect to a reorganization event, if
any, plus the value of the Telebras Receipt determined as follows:
(a) for any portion of the Telebras Receipt consisting of cash,
the U.S. dollar equivalent of such cash plus interest on such
amount accruing from the date of the payment of such cash to
holders of the relevant Telebras Receipt for which such cash
was paid until the stated maturity date at a fixed interest
rate determined on the date of such payment equal to the
interest rate that would be paid on a fixed rate senior
non-callable debt security of ML&Co. with a term equal to the
remaining term for the ProGroS Securities as determined by the
calculation agent;
(b) for any portion of the Telebras Receipt consisting of property
other than cash or reference securities, the U.S. dollar
equivalent of the market value of such property on the date
that such property was delivered to holders of the relevant
Telebras Receipt for which such property was distributed plus
interest on the U.S. dollar amount accruing from the date of
the delivery until the stated maturity date at a fixed
interest rate determined as described in (a) above; and
(c) for any portion of the Telebras Receipt consisting of
reference securities, the average or arithmetic mean of the
closing prices of each such reference security determined on
each of the first five calculation days during the calculation
period. If there are fewer than five calculation days in the
calculation period with respect to any reference security,
then the ending value shall be calculated using the average or
arithmetic mean of the closing prices of such reference
security on such calculation days, and if there is only one
calculation day, then the ending value shall be calculated
using the closing price of such reference security on such
calculation day. If no calculation days occur during the
calculation period with respect to such reference security,
then the ending value shall be calculated using the closing
price of such reference security determined on the last
scheduled calculation day in the calculation period,
regardless of the occurrence of a market disruption event on
such day.
"U.S. DOLLAR EQUIVALENT" means, with respect to cash not denominated in
U.S. dollars, such cash amount multiplied by the spot rate, defined below, for
the currency in which such cash is denominated at approximately the date of
payment or date of valuation of such cash.
The "CALCULATION PERIOD" means the period from and including the
seventh scheduled calculation day prior to the stated maturity date to and
including the second scheduled calculation day prior to the stated maturity
date.
"CALCULATION DAY" means any trading day during the calculation period
on which a market disruption event has not occurred.
"TRADING DAY" means a day on which the AMEX, the New York Stock
Exchange or the "NYSE" and the NASDAQ National Market System or "NASDAQ NMS" are
open for trading.
"MARKET DISRUPTION EVENT" means, with respect to a reference security,
the occurrence or existence on any business day during the one-half hour period
that ends when the closing price is determined, of any suspension of, or
limitation imposed on, trading in such reference security on the NYSE (or other
market or exchange, if applicable).
"CLOSING PRICE" with respect to a reference security means, for a
calculation day the following:
(a) If the reference security is listed on a national securities
exchange in the United States, is a NASDAQ NMS security or is included in
the OTC Bulletin Board Service or OTC Bulletin Board operated by the
National Association of Securities Dealers, Inc., closing price means:
(1) the last reported sale price, regular way, on such day on the
principal United States securities exchange registered under
the Exchange Act, on which such reference security is listed
or admitted to trading, or
(2) if not listed or admitted to trading on any such securities
exchange or if such last reported sale price is not
obtainable, the last reported sale price on the
over-the-counter market as reported on the NASDAQ NMS or OTC
Bulletin Board on such day, or
(3) if the last reported sale price is not available in accordance
with (1) and (2) above, the mean of the last reported bid and
offer price on the over-the-counter market as reported on the
NASDAQ NMS or OTC Bulletin Board on such day as determined by
the calculation agent. The term "NASDAQ NMS security" includes
a security included in any successor to such system and the
term "OTC Bulletin Board" shall include any successor service
thereto.
(b) If such reference security is not listed on a national securities
exchange in the United States or is not a NASDAQ NMS security or included
in the OTC Bulletin Board operated by the NASD, closing price means the
last reported sale price on such day on the securities exchange on which
such reference security is listed or admitted to trading with the greatest
volume of trading for the calendar month preceding such day as determined
by the calculation agent, provided that if such last reported sale price is
for a transaction which occurred more than four hours prior to the close of
such exchange, then the closing price shall mean the average of the last
available bid and offer price on such exchange. If such reference security
is not listed or admitted to trading on any such securities exchange or if
such last reported sale price or bid and offer are not obtainable, the
closing price shall mean the last reported sale price for a transaction
which occurred more than four hours prior to when trading in such
over-the-counter market typically ends, then the closing price shall mean
the average of the last available bid and offer prices in such market of
the three dealers which have the highest volume of transactions in such
reference security in the immediately preceding calendar month as
determined by the calculation agent based on information that is reasonably
available to it. If such prices are quoted in a currency other than in U.S.
dollars, such prices will be translated into U.S. dollars for purposes of
calculating the average market price using the spot rate on the same
calendar day as the date of any such price.
The "SPOT RATE" on any date will be determined by the calculation agent
and will equal the spot rate of such currency per U.S. $1.00 on such date at
approximately 3:00 p.m., New York City time, as reported by a recognized
reporting service for such spot rate, provided that if the calculation agent
shall determine that such reported rate is not indicative of actual rates of
exchange that may be obtained in the currency exchange rate market, then the
spot rate shall equal the spot rate of such currency per U.S. $1.00 on such date
at approximately 3:00 p.m., New York City time at which the calculation agent is
able to convert such currency into U.S. dollars.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in The City of New York
are authorized or obligated by law to close and that is a trading day on the
NYSE and the AMEX.
All determinations made by the calculation agent are at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, are conclusive for all purposes and
binding on ML&Co. and beneficial owners of the ProGroS Securities.
EARLY CALL OF THE PROGROS SECURITIES AT THE OPTION OF ML&CO.
During the month of June 2004, the call period, ML&Co., in its sole
discretion, may elect to call the ProGroS Securities offered hereby, in whole
but not in part, before the stated maturity date by giving notice to the Trustee
of ML&Co.'s election on any business day within the month of June 2004, at the
call price or $20 per unit.
If we elect to call your ProGroS Securities before the stated maturity
date, you will receive only the call price and you will not receive a
supplemental redemption amount based on the value of the Telebras Receipt. If we
do not call the ProGroS Securities prior to the stated maturity date, the
principal amount plus the supplemental redemption amount, if any, that you
receive at the stated maturity may be greater than or less than the call price.
ML&Co. may elect to call the ProGroS Securities on any business day during the
call period by giving notice to the Trustee and specifying the date on which the
call price shall be paid. Such Payment Date shall be no later than the 20th
Business Day after such call election. The Trustee will provide notice of such
call election to the registered holders of the ProGroS Securities, specifying
the Payment Date, no less than 15, nor more than 30, calendar days prior to such
Payment Date. While the ProGroS Securities are held at the Depositary, the
registered holder will be the Depositary, and the Depositary will receive the
notice of the call. As more fully described below under "Description of the
ProGroS Securities--Depositary", the Depositary will forward such notice to its
participants which will pass such notice on to the beneficial owners.
HYPOTHETICAL RETURNS
The following table illustrates, for a range of hypothetical ending values,
o the percentage change over the starting value;
o the total amount payable at the stated maturity date for each $10
principal amount of ProGroS Securities;
o the total rate of return to beneficial owners of the ProGroS
Securities;
o the pretax annualized rate of return to beneficial owners of ProGroS
Securities and
o the pretax annualized rate of return of the Telebras Receipt.
THIS TABLE ASSUMES THAT THE PROGROS SECURITIES ARE NOT CALLED PRIOR TO THE
STATED MATURITY DATE.
TOTAL AMOUNT PRETAX PRETAX RATE
PERCENTAGE CHANGE PAYABLE AT THE ANNUALIZED OF RETURN OF
HYPOTHETICAL OVER THE STATED MATURITY TOTAL RATE RATE OF THE TELEBRAS
ENDING VALUE STARTING VALUE DATE PER UNIT OF RETURN RETURN(1) RECEIPT(1)(2)
------------ -------------- ------------- --------- --------- -------------
$46.18 -60.00% $10.00 0.00% 0.00% -10.94%
$57.72 -50.00% $10.00 0.00% 0.00% -7.96%
$69.26 -40.00% $10.00 0.00% 0.00% -5.48%
$80.81 -30.00% $10.00 0.00% 0.00% -3.35%
$92.35 -20.00% $10.00 0.00% 0.00% -1.48%
$103.89 -10.00% $10.00 0.00% 0.00% 0.18%
$115.44 0.00% $10.00 0.00% 0.00% 1.69%
$126.98 10.00% $11.00 10.00% 1.37% 3.06%
$138.53 20.00% $12.00 20.00% 2.62% 4.33%
$150.07 30.00% $13.00 30.00% 3.78% 5.50%
$161.61 40.00% $14.00 40.00% 4.86% 6.60%
$173.16 50.00% $15.00 50.00% 5.87% 7.62%
$184.70 60.00% $16.00 60.00% 6.82% 8.58%
$196.24 70.00% $17.00 70.00% 7.72% 9.50%
$207.79 80.00% $18.00 80.00% 8.57% 10.36%
$219.33 90.00% $19.00 90.00% 9.38% 11.18%
$230.88 100.00% $20.00 100.00% 10.14% 11.96%
(1) The annualized rates of return specified in the preceding table are
calculated on a semiannual bond equivalent basis.
(2) This rate of return assumes
(a) a constant dividend yield of 1.69% per annum, paid quarterly
from the date of initial delivery of ProGroS Securities,
applied to the value of the Telebras Receipt at the end of
each such quarter assuming such value increases or decreases
linearly from the starting value to the applicable
hypothetical ending value;
(b) no transaction fees or expenses;
(c) a term for the ProGroS Securities from May 19, 1998 to May 19,
2005; and
(d) a final Telebras Receipt value equal to the ending value.
The above figures are for purposes of illustration only. The actual
supplemental redemption amount received by investors and the total and pretax
annualized rate of return resulting therefrom will depend entirely on the actual
ending value determined by the calculation agent as provided herein.
DILUTION AND REORGANIZATION ADJUSTMENTS
The Telebras Receipt is subject to adjustment if an issuer of any
reference security or the custodian in the case of reference security that is an
ADR shall:
(a) pay a stock dividend or make a distribution with respect to
such reference security in reference securities;
(b) subdivide or split the outstanding units of such reference
security into a greater number of units;
(c) combine the outstanding units of such reference security
into a smaller number of units;
(d) issue by reclassification of units of such reference security
any units of another security of such issuer;
(e) issue rights or warrants to all holders of such reference
security entitling them to subscribe for or purchase shares,
in the aggregate, for more than 5% of the number of such
reference securities outstanding prior to the issuance of such
rights or warrants at a price per share less than the then
current market price of such reference security, other than
rights to purchase such reference security pursuant to a plan
for the reinvestment of dividends or interest; or
(f) pay a dividend or make a distribution to all holders of such
reference security of evidences of its indebtedness or other
assets excluding any stock dividends or distributions referred
to in clause (a) above or any cash dividends other than any
Extraordinary Cash Dividend or issue to all holders of such
reference security rights or warrants to subscribe for or
purchase any of its securities, other than those referred to
in clause (e) above. Any of the foregoing assets are referred
to as the "Distributed Assets" and any of the foregoing events
are referred to as the "dilution events".
Notwithstanding provision (f) in the foregoing sentence, if a reference
security is an ADR and the holder of such ADR would receive cash or other
property other than securities in the circumstances described in (f) above, but
the holder of the securities underlying such ADR could receive securities as a
result of a dilution event or the 'Distributed securities and the calculation
agent or its affiliates would be eligible to receive the Distributed securities,
then ML&Co. can elect for purposes of provision (f) to include the Distributed
securities in the Telebras Receipt instead of the cash or property distributed
to holders of the ADR in an amount equal to the amount of the Distributed
securities that would have been received had the Telebras Receipt consisted of
the securities underlying the ADRs instead of the ADRs. For purposes of
provision (f), if the holder of a reference security can elect to receive
securities in lieu of cash or property other than securities, then for purposes
of provision (f) the holders of the reference security shall be deemed to
receive only the securities.
In the case of the dilution events referred to in clauses (a), (b), (c)
and (d) above, the Telebras Receipt shall be adjusted to include the number of
units of such reference security and/or security of such issuer which a holder
of units of such reference security would have owned or been entitled to receive
immediately following any such event had such holder held, immediately prior to
such event, the number of units of such reference security constituting part of
the Telebras Receipt immediately prior to such event. Each such adjustment shall
become effective immediately after the effective date for such subdivision,
split, combination or reclassification, as the case may be. Each such adjustment
shall be made successively.
In the case of the dilution event referred to in clause (e) above where
the rights or warrants are for more than 5% of the number of shares outstanding
prior to the issuance of such rights or warrants, the Telebras Receipt shall be
adjusted by multiplying the number of reference securities constituting Telebras
Receipt immediately prior to the date of issuance of the rights or warrants
referred to in clause (e) above by a fraction,
o the numerator of which shall be the number of reference
securities outstanding on the date immediately prior to such
issuance, plus the number of additional reference securities
offered for subscription or purchase pursuant to such rights
or warrants, and
o the denominator of which shall be the number of reference
securities outstanding on the date immediately prior to such
issuance, plus the number of additional reference securities
which the aggregate offering price of the total number of
reference securities so offered for subscription or purchase
pursuant to such rights or warrants would purchase at the
current market price determined as the average Closing Price
per reference security for the 20 Trading Days immediately
prior to the date of such rights or warrants are issued,
subject to certain adjustments, which shall be determined by
multiplying such total number of reference securities
by the exercise price of such rights or warrants and dividing
the product so obtained by such current market price.
To the extent that reference securities are not delivered after the expiration
of such rights or warrants, or if such rights or warrants are not issued, the
Telebras Receipt shall be readjusted to the Telebras Receipt which would then be
in effect had such adjustments for the issuance of such rights or warrants been
made upon the basis of delivery of only the number of reference securities
actually delivered.
In the case of the dilution event referred to in clause (f) above, the
Telebras Receipt shall be adjusted to include, from and after such dividend,
distribution or issuance,
o in respect of that portion, if any, of the Distributed Assets
consisting of cash, the amount of such Distributed Assets
consisting of cash received for each unit of such reference
security multiplied by the number of units of such Reference
Security constituting part of the Telebras Receipt on the date
of such dividend, distribution or issuance, immediately prior
to such dividend, distribution or issuance, plus
o in respect of that portion, if any, of the Distributed Assets
which are other than cash, the number or amount of each type
of Distributed Assets other than cash received with respect to
each unit of such reference security multiplied by the number
of units of such reference security constituting part of the
Telebras Receipt on the date of such dividend, distribution or
issuance, immediately prior to such dividend, distribution or
issuance.
For example, where a reorganization of Telebras results in the
distribution to holders of the Telebras Receipt of ADRs representing shares of
common stock in various companies formed to operate various spin-off businesses
of Telebras, then the Telebras Receipt shall include such ADRs in amounts
specified pursuant to provision (f) above. If in any such reorganization of
Telebras, holders of Telebras Receipts receive cash or property while holders of
the shares of common stock underlying the Telebras Receipts receive distributed
securities and the calculation agent or an affiliate can receive and hold the
distributed securities, then the calculation agent can elect to have the
Telebras Receipt include the Distributed securities instead of such cash or
property.
An "EXTRAORDINARY CASH DIVIDEND" means, with respect to any consecutive
12-month period, all cash dividends or any other distribution made by the issuer
of a reference security or made pursuant to an arrangement effecting a
distribution of distributable profits or reserves, whether in cash or in specie,
on any reference security occurring in such 12-month period or, if such
reference security was not outstanding at the commencement of such 12-month
period or was not then a part of the Telebras Receipt, occurring in such shorter
period during which such reference security was outstanding and was part of the
Telebras Receipt, exceeds on a per share basis 10% of the average of the closing
prices per share of such reference security over such 12-month period or such
shorter period during which such reference security was outstanding and was part
of the Telebras Receipt; provided that, for purposes of the foregoing
definition, the amount of cash dividends paid on a per share basis will be
appropriately adjusted to reflect the occurrence during such period of any stock
dividend or distribution of shares of capital stock of the issuer of such
reference security or any subdivision, split, combination or reclassification of
shares of such reference security.
All adjustments will be calculated to the nearest 1/10,000th of a share
of the reference security or if there is not a nearest 1/10,000th of a share to
the next lower 1/10,000th of a share. No adjustment shall be required unless
such adjustment would require an increase or decrease of at least one percent in
the Closing Price; provided, however, that any adjustments which by reason of
the foregoing are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
If any of the Distributed Assets are cash, property or reference
securities that will be distributed only to holders of the relevant Telebras
Receipt who or which can certify as to a certain nationality or formation under
the laws of a certain jurisdiction, as the case may be, and a corporation formed
in the United States or an affiliate of such corporation formed elsewhere cannot
receive such distribution, the Telebras Receipt will reflect only those
distributed assets available for distribution to such United States corporation
or its affiliates.
In the event of
(a) any consolidation or merger of an issuer of a reference security, or
any surviving entity or subsequent surviving entity of such issuer , a
"Successor Company", with or into another entity, other than a merger
or consolidation in which the issuer is the continuing corporation and
in which the reference security outstanding immediately before the
merger or consolidation is not exchanged for cash, securities or other
property of the issuer or another corporation,
(b) any sale, transfer, lease or conveyance to another corporation of the
property of an issuer of a reference security or any Successor Company
as an entirety or substantially as an entirety,
(c) any statutory exchange of securities of an issuer of a reference
security or any Successor Company with another corporation, other than
in connection with a merger or acquisition or
(d) any liquidation, dissolution, winding up or bankruptcy of an issuer of
a reference security or any Successor Company, any such event
described in clause (a), (b), (c) or (d), a "reorganization event",
the ending value shall be calculated by including the reorganization
event value.
The "REORGANIZATION EVENT VALUE" shall be determined by the calculation
agent and shall equal
o the transaction value related to the relevant reorganization event,
plus
o interest on such transaction value accruing from the date of
the payment or delivery of the consideration, if any, received
in connection with such reorganization event until the stated
maturity date at a fixed interest rate determined on the date
of such payment or delivery equal to the interest rate that
would be paid on a fixed rate senior non-callable debt
security of ML&Co. with a term equal to the remaining term of
the ProGroS Securities.
The "transaction value" means
o for any cash received in any such reorganization event, the amount of
cash received per unit of reference security,
o for any property other than cash or securities received in any
such reorganization event, an amount equal to the market value
of such property per unit of reference security on the date
that such property is received by holders of such reference
security as determined by the calculation agent, and
o for any securities received in any reorganization event, an
amount equal to the closing price per unit of the securities
on the date the securities are received by holders of the
reference security multiplied by the number of such securities
received for each unit of the reference security subject to
adjustment on a basis consistent with the adjustment
provisions described above.
The foregoing adjustments are made by MLPF&S, as calculation agent, and
all such adjustments are final.
No adjustments will be made for other events, such as offerings of
Deposit Reference Shares by Telebras for cash or in connection with
acquisitions.
ML&Co. will, within ten business days following the occurrence of an
event that requires an adjustment or if ML&Co. is not aware of such occurrence,
as soon as practicable after becoming so aware, provide written notice to the
Trustee, which shall provide notice to the holders of the ProGroS Securities of
the occurrence of such event and, if applicable, a statement in reasonable
detail setting forth the adjusted closing price to be used in determining the
ending value.
EVENTS OF DEFAULT AND ACCELERATION
In case an event of default with respect to any ProGroS Securities has
occurred and is continuing, the amount payable to a beneficial owner of a
ProGroS Security upon any acceleration permitted by the ProGroS Securities, with
respect to each $10 principal amount thereof, will be equal to the principal
amount of the ProGroS Securities and the supplemental redemption amount, if any,
calculated as though the date of early repayment were the stated maturity date
of the ProGroS Securities. See "Description of the ProGroS Securities,Payment at
Maturity" herein. If a bankruptcy proceeding is commenced in respect of ML&Co.,
the claim of the beneficial owner of a ProGroS Security may be limited, under
Section 502(b)(2) of Title 11 of the United States Code, to the principal amount
of the ProGroS Security plus an additional amount of contingent interest
calculated as though the date of the commencement of the proceeding were the
stated maturity date of the ProGroS Securities.
In case of default in payment of the ProGroS Securities whether at the
call date, at the stated maturity date, or upon acceleration, from and after the
stated maturity date the ProGroS Securities shall bear interest, payable upon
demand of the beneficial owners thereof, at the rate of 6.25% per annum to the
extent that payment of such interest shall be legally enforceable on the unpaid
amount due and payable on such date in accordance with the terms of the ProGroS
Securities to the date payment of such amount has been made or duly provided
for.
GLOBAL SECURITIES
DESCRIPTION OF THE GLOBAL SECURITIES.
The ProGroS Securities are represented by one or more fully registered
global securities. Each global security has been deposited with, or on behalf
of, The Depository Trust Company or DTC, together with any successor thereto,
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
ProGroS 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 such 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 ProGroS Securities represented by a global security for
all purposes under the 1983 indenture. Except as provided below, the beneficial
owners of the ProGroS Securities represented by a global security are not
entitled to have the ProGroS Securities represented by the global security
registered in their names, will not receive or be entitled to receive physical
delivery of the ProGroS Securities in definitive form and are not considered the
owners or holders under the 1983 indenture, including for purposes of receiving
any reports delivered by ML&Co. or the trustee pursuant to the 1983 indenture.
Accordingly, each person owning a beneficial interest in a global security must
rely on the procedures of DTC and, if such person is not a participant of DTC on
the procedures of the participant through which such 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 such 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 such action, and such
participants would authorize beneficial owners owning through such participants
to give or take such 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 are 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 ProGroS Securities. The
ProGroS Securities have been issued as fully registered securities registered in
the name of Cede & Co., DTC's partnership nominee. One or more fully registered
global securities have been issued for the ProGroS Securities in the aggregate
principal amount of such issue, and has been 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 1934 Act. 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 NASD. Access to the 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 ProGroS Securities under DTC's system must be made by or
through direct participants, which will receive a credit for the ProGroS
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 participants or indirect participants through which
such beneficial owner entered into the transaction. Transfers of ownership
interests in the ProGroS Securities are to be accomplished by entries made on
the books of participants acting on behalf of beneficial owners.
To facilitate subsequent transfers, all ProGroS Securities deposited
with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of ProGroS 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 ProGroS Securities; DTC's records reflect only
the identity of the direct participants to whose accounts the ProGroS Securities
are credited, which may or may not be the beneficial owners. The participants
are 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 and
indirect participants to beneficial owners are 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
ProGroS 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 to
whose accounts the ProGroS Securities are credited on the record date,
identified in a listing attached to the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments on the
ProGroS 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
such 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 such 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 such payments to direct participants is the responsibility of
DTC, and disbursement of such payments to the beneficial owners is the
responsibility of direct and indirect participants.
EXCHANGE FOR CERTIFICATED SECURITIES
If the depositary is at any time unwilling or unable to continue as
depositary and
(a) a successor depositary is not appointed by ML&Co. within 60 days,
(b) ML&Co. executes and delivers to the trustee a company order
to the effect that the global securities shall be
exchangeable, and
(c) an Event of Default under the 1983 indenture has occurred and is
continuing with respect to the ProGroS Securities,
the global securities will be exchangeable for ProGroS Securities in definitive
form of like tenor and of an equal aggregate principal amount, in denominations
of $10 and integral multiples thereof. The definitive ProGroS Securities will be
registered in such name or names as the Depositary shall instruct the Trustee.
It is expected that such instructions may be based upon directions received by
the Depositary from participants with respect to ownership of beneficial
interests in the global securities.
In addition, ML&Co. may decide to discontinue use of the system of
book-entry transfers through the Depositary. In that event, ProGroS Security in
definitive form 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.
SAME-DAY PAYMENT
All payments of principal and the supplemental redemption amount, and call
price if any, and will be made by ML&Co. in immediately available funds so long
as the ProGroS Securities are maintained in book-entry form.
THE TELEBRAS RECEIPT
TELECOMUNICACOES BRASILEIRAS S.A.-TELEBRAS
Telecomunicacoes Brasileiras S.A.-Telebras was the primary supplier of
public telecommunications services in Brazil. Telebras owned and operated all of
the inter-state and international telephone transmission facilities in Brazil,
and was the primary provider of intra-state service and provides
telephone-related services such as data transmission, cellular mobile telephone
service, and sound, image, videotext and telex transmission.
In 1998, Telebras was privatized by the federal government of Brazil
and reorganized into 12 separate corporations. These spin-offs resulted in the
distribution to holders of a Telebras Receipt of cash, securities and other
property, including common stock and/or warrants to purchase common stock in the
new corporations. An investor in the ProGroS Securities should carefully review
the adjustments to be made in the case of these reorganization events contained
in "--Dilution and Reorganization Adjustments."
Before the reorganization, Telebras was subject to the informational
requirements of the Exchange Act. Accordingly, Telebras filed reports, proxy and
other information statements and other information with the SEC. There is no
assurance that the 12 separate corporations that previously made up Telebras
will be subject to the informational requirements of the Exchange Act or make
any information relating to their business widely or publicly available. In the
event that this information, if any, is not widely or publicly available during
the term of the ProGroS Securities, pricing information for the ProGroS
Securities may be more difficult to obtain and the value and liquidity of the
ProGroS Securities may be adversely affected.
ML&Co. is not affiliated with Telebras and Telebras has no obligations
with respect to the Progros securities. This prospectus relates only to the
Progros securities offered hereby and does not relate to the Telebras receipt or
other securities of Telebras. The information contained in this prospectus
regarding Telebras has been derived from the publicly available documents
described in the preceding paragraph. ML&Co. Has not participated in the
preparation of such documents or made any due diligence inquiries with respect
to Telebras in connection with the initial offering of the Progros securities.
ML&Co. Makes no representation that such publicly available documents or any
other publicly available information regarding Telebras are accurate or
complete. Furthermore, there can be no assurance that all events occurring prior
to the date hereof, including events that would affect the accuracy or
completeness of the publicly available documents described in the preceding
paragraph, that would affect the trading price of the Telebras receipt have been
publicly disclosed. Subsequent disclosure of any such events or the disclosure
of or failure to disclose material future events concerning Telebras could
affect the supplemental redemption amount to be received at the stated maturity
date and therefore the trading value of the ProGroS securities.
From time to time, in the ordinary course of business, affiliates of
ML&Co. engaged in certain investment banking activities on behalf of the
Telebras as well as served as counterparty in certain other transactions.
OTHER TERMS
ML&Co. issued the ProGroS Securities 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.
ML&Co. may issue series of senior debt securities from time to time
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 ProGroS 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 a bankruptcy court may recognize claims of ML&Co. itself as a
creditor of the subsidiary. 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 senior debt securities affected. However, without the consent of each
holder of any outstanding senior debt security affected, no amendment or
modification to the 1983 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 1983 Indenture and waive compliance by
ML&Co. with provisions in the 1983 Indenture, except as described under
"--Events of Default".
EVENTS OF DEFAULT
Each of the following will be Events 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 senior debt securities of that series 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 the 1983 Indenture
which cannot be modified under the terms of that Indenture without
the consent of each holder of each outstanding security of each
series of senior 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 ProGroS 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.
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 by visiting
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 further information
about the public reference rooms. 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 ProGroS Securities and other securities. For further information on
ML&Co. and the ProGroS 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 the 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 report on Form 10-Q for the period ended March 26,
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 and June 1,
1999.
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., 100
Church Street, New York, New York 10080-6512, Telephone: (212) 602-8435.
PLAN OF DISTRIBUTION
This prospectus has been prepared in connection with secondary sales of
the ProGroS Securities and is to be used by MLPF&S when making offers and sales
related to market-making transactions in the ProGroS Securities.
MLPF&S may act as principal or agent in these market-making
transactions.
The ProGroS Securities may be offered on the AMEX or off the exchange
in negotiated transactions or otherwise.
The distribution of the ProGroS 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 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.