FILED PURSUANT TO RULE NO. 424(b)(5)
REGISTRATION NO. 333-68747
Subject to Completion
Preliminary Prospectus Supplement dated June 4, 1999
[LOGO] MERRILL LYNCH
PROTECTED GROWTH(SM) INVESTING
Pursuit of Growth, Protection of Principal
PROSPECTUS SUPPLEMENT
(To prospectus dated May 6, 1999)
2,500,000 Units
Merrill Lynch & Co., Inc.
Market Index Target-Term Securities(R)
based upon the Dow Jones Industrial Average SM
due June , 2006
"MITTS(R) Securities"
$10 principal amount per unit
--------------
The MITTS Securities: Payment at maturity:
. 100% principal protection at . On the maturity date, for each unit
maturity. of the MITTS Securities you own, we
. No payments before the maturity date. will pay you an amount equal to the
. Senior unsecured debt securities of sum of the principal amount of each
Merrill Lynch & Co., Inc. unit and an additional amount based
. Linked to the value of the Dow Jones on the percentage increase, if any,
Industrial Average SM. in the value of the Dow Jones
. The MITTS Securities have been Industrial Average SM reduced by an
approved for listing on the American annual adjustment factor expected to
Stock Exchange under the trading be between 1.9% and 2.4%.
symbol "MDJ". . At maturity, you will receive no
. Closing date: June , 1999. less than the principal amount of
your MITTS Securities.
Investing in the MITTS Securities involves risk.
See "Risk Factors" beginning on page S-8 of this prospectus supplement.
--------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or passed upon the adequacy of this
prospectus supplement or the attached prospectus. Any representation to the
contrary is a criminal offense.
Per unit Total
-------- -----
Public offering price............................... $10.00 $25,000,000
Underwriting discount............................... $ $
Proceeds, before expenses, to Merrill Lynch & Co.,
Inc. .............................................. $ $
The public offering price and the underwriting discount for any single
transaction to purchase:
(a) between 100,000 units and 499,999 units will be $ per unit and
$ per unit, respectively;
and
(b) 500,000 units or more will be $ per unit and $ per unit,
respectively.
--------------
Merrill Lynch & Co.
--------------
The date of this prospectus supplement is June , 1999.
"MITTS" and "Market Index Target-Term Securities" are registered service marks
of Merrill Lynch & Co., Inc.
"Dow Jones", "Dow Jones Industrial Average SM", and "DJIA SM" are service marks
of Dow Jones & Company, Inc. and have been licensed for use for certain
purposes by MLPF&S.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
SUMMARY INFORMATION--Q&A.................................................. S-4
What are the MITTS Securities?.......................................... S-4
What will I receive at the stated maturity date of the MITTS
Securities?............................................................ S-4
Who publishes the Index and what does the Index measure?................ S-6
How has the Index performed historically?............................... S-6
What about taxes?....................................................... S-6
Will the MITTS Securities be listed on a stock exchange?................ S-7
What is the role of MLPF&S?............................................. S-7
Who is ML&Co.?.......................................................... S-7
Are there any risks associated with my investment?...................... S-7
RISK FACTORS.............................................................. S-8
You may not earn a return on your investment............................ S-8
Your yield may be lower than the yield on a standard debt security of
comparable maturity.................................................... S-8
Your return will not reflect the return of owning the stocks included in
the Index.............................................................. S-8
There may be an uncertain trading market for the MITTS Securities....... S-8
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..................... S-8
Amounts payable on the MITTS Securities may be limited by state law..... S-10
Purchases and sales by us and our affiliates may affect your return..... S-10
Potential conflicts of interests........................................ S-10
DESCRIPTION OF THE MITTS SECURITIES....................................... S-11
Payment at maturity..................................................... S-11
Hypothetical returns.................................................... S-12
Adjustments to the Index; Market Disruption Events...................... S-13
Discontinuance of the Index............................................. S-14
Events of Default and Acceleration...................................... S-15
Depositary.............................................................. S-15
Same-Day Settlement and Payment......................................... S-18
THE INDEX................................................................. S-18
License Agreement....................................................... S-19
Historical Data on the Index............................................ S-20
UNITED STATES FEDERAL INCOME TAXATION..................................... S-22
General................................................................. S-22
U.S. Holders............................................................ S-23
Hypothetical table...................................................... S-24
Non-U.S. Holders........................................................ S-25
Backup withholding...................................................... S-26
New withholding regulations............................................. S-26
USE OF PROCEEDS AND HEDGING............................................... S-26
WHERE YOU CAN FIND MORE INFORMATION....................................... S-26
UNDERWRITING.............................................................. S-27
VALIDITY OF THE MITTS SECURITIES.......................................... S-28
INDEX OF DEFINED TERMS.................................................... S-29
S-2
Prospectus
Page
----
MERRILL LYNCH & CO., INC................................................. 2
USE OF PROCEEDS.......................................................... 2
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS............................. 3
THE SECURITIES........................................................... 3
DESCRIPTION OF DEBT SECURITIES........................................... 4
DESCRIPTION OF DEBT WARRANTS............................................. 10
DESCRIPTION OF CURRENCY WARRANTS......................................... 12
DESCRIPTION OF INDEX WARRANTS............................................ 14
DESCRIPTION OF PREFERRED STOCK........................................... 19
DESCRIPTION OF DEPOSITARY SHARES......................................... 24
DESCRIPTION OF PREFERRED STOCK WARRANTS.................................. 28
DESCRIPTION OF COMMON STOCK.............................................. 30
DESCRIPTION OF COMMON STOCK WARRANTS..................................... 33
PLAN OF DISTRIBUTION..................................................... 35
WHERE YOU CAN FIND MORE INFORMATION...................................... 36
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........................ 36
EXPERTS.................................................................. 37
S-3
SUMMARY INFORMATION -- Q&A
This summary includes questions and answers that highlight selected
information from the prospectus and prospectus supplement to help you
understand the Market Index Target-Term Securities based upon the Dow Jones
Industrial Average SM due June , 2006. You should carefully read the
accompanying prospectus and this prospectus supplement to fully understand the
terms of the MITTS Securities, the Dow Jones Industrial Average SM (the
"Index"), and the tax and other considerations that are important to you in
making a decision about whether to invest in the MITTS Securities. You should
carefully review the "Risk Factors" section, which highlights certain risks
associated with an investment in the MITTS Securities, to determine whether an
investment in the MITTS Securities is appropriate for you.
References in this prospectus supplement to "ML&Co.", "we", "us" and
"our" are to Merrill Lynch & Co., Inc.
References in this prospectus supplement 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 will rank
equally with all of our other unsecured and unsubordinated debt. The MITTS
Securities will mature on June , 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 will issue the MITTS Securities
in the form of a global certificate, which will be 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
supplement.
What will I receive at the stated maturity date of the MITTS Securities?
We have designed the MITTS Securities for investors who want to protect
their investment by receiving at least the principal amount of their investment
at maturity and who also want to participate in possible increases in the Index
as reduced by the Adjustment Factor. At the stated maturity date, you will
receive a payment on the MITTS Securities equal to the sum of two amounts: the
"principal amount" and the "Supplemental Redemption Amount".
Principal amount
The principal amount per unit is $10.
Supplemental Redemption Amount
The Supplemental Redemption Amount per unit will equal:
( Adjusted Ending Value - Starting Value )
$10 X ( -------------------------------------- )
( Starting Value )
but will not be less than zero.
"Starting Value" will equal the closing value of the Index on the date
the MITTS Securities are priced for initial sale to the public (the "Pricing
Date"). We will disclose the Starting Value in the final prospectus supplement
delivered to you in connection with sales of the MITTS Securities.
"Adjusted Ending Value" means the average of the values of the Index at
the close of the market on five business days before the maturity of the MITTS
Securities as reduced on each day by the application of the Adjustment Factor.
We may calculate the Adjusted Ending Value by reference to fewer than five or
even a single day's closing value
S-4
if, during the period shortly before the stated maturity date of the MITTS
Securities, there is a disruption in the trading of a sufficient number of the
component stocks included in the Index or certain futures or options relating
to the Index.
The "Adjustment Factor" will be a fixed percentage which is expected to
be between 1.9% and 2.4% per year and will be prorated based on a 365-day year
and applied over the entire term of the MITTS Securities on each calendar day
to reduce the closing values of the Index used to calculate the Supplemental
Redemption Amount during the Calculation Period. As a result of the cumulative
effect of this reduction, the values used to calculate your Supplemental
Redemption Amount during the Calculation Period at the stated maturity of the
MITTS Securities will be approximately 12.46% to 15.48% less than the actual
closing value of the Index on each day during the Calculation Period. We will
determine the Adjustment Factor on the Pricing Date, and it will appear in the
final prospectus supplement delivered to you in connection with sales of the
MITTS Securities. For a detailed discussion of how the Adjustment Factor will
affect the value of the Index used to calculate your Supplemental Redemption
Amount, see "Description of the MITTS Securities--Payment at maturity" in this
prospectus supplement.
For more specific information about the Supplemental Redemption Amount,
please see the section "Description of the MITTS Securities" in this prospectus
supplement.
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 of seven years and an Adjustment Factor of
2.15% per year, the midpoint of the expected range of 1.9% and 2.4%:
Example 1--The Index, as adjusted, is below the Starting Value at maturity:
Hypothetical Starting Value: 10,577.89
Hypothetical closing value of the Index at maturity: 11,635.68
Hypothetical Adjusted Ending Value: 10,008.69
( 10,008.69 - 10,577.89 ) (Supplemental
Supplemental Redemption Amount (per unit) = $10 X ( --------------------- ) = $0.00 Redemption
( 10,577.89 ) Amount cannot
be less than zero)
Total payment at maturity (per unit) = $10 + $0 = $10
Example 2--The Index, as adjusted, is above the Starting Value at maturity:
Hypothetical Starting Value: 10,577.89
Hypothetical closing value of the Index at maturity: 19,040.20
Hypothetical Adjusted Ending Value: 16,377.85
( 16,377.85 - 10,577.89 )
Supplemental Redemption Amount (per unit) = $10 X ( --------------------- ) = $5.48
( 10,577.89 )
Total payment at maturity (per unit) = $10 + $5.48 = $15.48
S-5
Who publishes the Index and what does the Index measure?
The Dow Jones Industrial AverageSM is a price-weighted index published by
Dow Jones & Company, Inc. ("Dow Jones") which means a component stock's weight
in the Index is based on its price per share rather than the total market
capitalization of the issuer of that component stock. The Index is designed to
provide an indication of the composite price performance of 30 common stocks of
corporations representing a broad cross-section of U.S. industry. The component
stocks of the Index are selected by the editors of The Wall Street Journal
("WSJ"). The corporations represented in the Index tend to be market leaders in
their respective industries and their stocks are typically widely held by
individuals and institutional investors. The corporations currently represented
in the Index are incorporated in the U.S. and its territories and their stocks
are traded on the New York Stock Exchange. As of June 2, 1999, the market
capitalization of the stocks in the Index ranged from approximately $6.7
billion to $334.4 billion, with the average market capitalization being $88.4
billion.
The value of the Index is the sum of the primary exchange prices of each
of the 30 common stocks included in the Index, divided by a divisor that is
designed to provide a meaningful continuity in the value of the Index. Because
the Index is price-weighted, stock splits or changes in the component stocks
could result in distortions in the Index value. In order to prevent these
distortions related to extrinsic factors, the divisor may be changed in
accordance with a mathematical formula that reflects adjusted proportions
within the Index. The current divisor of the Index is published daily in the
WSJ and other publications. In addition, other statistics based on the Index
may be found in a variety of publicly available sources.
Please note that an investment in the MITTS Securities does not entitle
you to any ownership interest in the stocks of the companies included in the
Index.
How has the Index performed historically?
We have provided tables showing the closing values of the Index on the
last business day of each month from January 1994 to May 1999 and each year
from 1946 to 1998, as published by Dow Jones.
You can find this table in the section "The Index--Historical data on the
Index" in this prospectus supplement. We have provided this historical
information to help you evaluate the behavior of the Index in various economic
environments; however, past performance of the Index is not necessarily
indicative of how the Index will perform in the future.
What about taxes?
Each year, you will be required to pay taxes on ordinary income from the
MITTS Securities over their term based upon an estimated yield for the MITTS
Securities, even though you will not receive any payments from us until
maturity. We have determined this estimated yield, in accordance with
regulations issued by the U.S. Treasury Department, solely in order for you to
figure the amount of taxes that you will owe each year as a result of owning a
MITTS Security. This estimated yield 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. We have determined that
this estimated yield will equal % per annum, compounded semiannually.
Based upon this estimated yield, if you pay your taxes on a calendar year
basis and if you buy a MITTS Security for $10 and hold the MITTS Security until
maturity, you will be required to pay taxes on the following amounts of
ordinary income from the MITTS Securities each year: $ in 1999, $ in 2000,
$ in 2001, $ in 2002, $ in 2003, $ in 2004, $ in 2005 and $ in
2006. However, in 2006, the amount of ordinary income that you will be required
to pay taxes on from owning each MITTS Security may be greater or less than $
, depending upon the Supplemental Redemption Amount, if any, you receive. Also,
if the Supplemental Redemption Amount is less than $ , you may have a loss
which you could deduct against other income you may have in 2006, but under
current tax regulations, you would neither be required nor allowed to amend
your tax returns for
S-6
prior years. For further information, see "United States Federal Income
Taxation" in this prospectus supplement.
Will the MITTS Securities be listed on a stock exchange?
The MITTS Securities have been approved for listing on the AMEX under the
trading symbol "MDJ", subject to official notice of issuance. You should be
aware that the listing of the MITTS Securities on the AMEX will not necessarily
ensure that a liquid trading market will be available for the MITTS Securities.
You should review "Risk Factors--There may be an uncertain trading market for
the MITTS Securities".
What is the role of MLPF&S?
Our subsidiary, MLPF&S, is the underwriter for the offering and sale of
the MITTS Securities. After the initial offering, MLPF&S intends to buy and
sell MITTS Securities to create a secondary market for holders of the MITTS
Securities, and may stabilize or maintain the market price of the MITTS
Securities during the initial distribution of the MITTS Securities. However,
MLPF&S will not be obligated to engage in any of these market activities or
continue them once it has started.
MLPF&S 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 subsidiary
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 the accompanying prospectus. You should
also read the other documents we have filed with the SEC, which you can find by
referring to the section "Where You Can Find More Information" in this
prospectus supplement.
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 supplement.
S-7
RISK FACTORS
Your investment in the MITTS Securities will involve risks. You should
carefully consider the following discussion of risks before investing in the
MITTS Securities. In addition, you should reach an investment decision with
regard to the MITTS Securities only after consulting with your legal and tax
advisers and considering the suitability of the MITTS Securities in the light
of your particular circumstances.
You may not earn a return on your investment
You should be aware that if the Adjusted Ending Value does not exceed the
Starting Value at the stated maturity date, the Supplemental Redemption Amount
will be zero. This will be true even if the value of the Index, as reduced by
the Adjustment Factor over the term of the MITTS Securities, was higher than
the Starting Value at some time during the life of the MITTS Securities but
later falls below the Starting Value. If the Supplemental Redemption Amount is
zero, we will pay you only the principal amount of your MITTS Securities.
Your yield may be lower than the yield on a standard debt security of
comparable maturity
The amount we pay you at maturity may be less than the return you could
earn on other investments. Your yield may be less than the yield you would earn
if you bought a standard senior non-callable debt security of ML&Co. with the
same maturity date. Your investment may not reflect the full opportunity cost
to you when you take into account factors that affect the time value of money.
Your return will not reflect the return of owning the stocks included in the
Index
Dow Jones calculates the value of the Index by reference to the prices of
the common stocks included in the Index without taking into consideration the
value of dividends paid on those stocks. The return on your MITTS Securities
will not reflect the return you would realize if you actually owned the stocks
included in the Index and received the dividends paid on those stocks because
of the cumulative effect of the reduction caused by the Adjustment Factor and
because the value of the Index is calculated by reference to the prices of the
stocks included in the Index without taking into consideration the value of
dividends paid on those stocks.
There may be an uncertain trading market for the MITTS Securities
The MITTS Securities have been approved for listing on the AMEX under the
trading symbol "MDJ", subject to official notice of issuance. While there have
been a number of issuances of series of Market Index Target-Term Securities,
trading volumes have varied historically from one series to another and it is
therefore impossible to predict how the MITTS Securities will trade. You cannot
assume that a trading market will develop for the MITTS Securities. If a
trading market does develop, there can be no assurance that there will be
liquidity in the trading market. The development of a trading market for the
MITTS Securities will depend on our financial performance, and other factors
such as the increase, if any, in the value of the Index.
If the trading market for the MITTS Securities is limited, there may be a
limited number of buyers for your MITTS Securities if you do not wish to hold
your investment until maturity. This may affect the price you receive.
Many factors affect the trading value of the MITTS Securities; these factors
interrelate in complex ways and the effect of any one factor may offset or
magnify the effect of another factor
The trading value of the MITTS Securities will be affected by factors
that interrelate in complex ways. It is important for you to understand that
the effect of one factor may offset the increase in the trading value of the
MITTS Securities caused by another factor and that the effect of one factor may
exacerbate the decrease in the trading value of the MITTS Securities caused by
another factor. For example, an increase in interest rates may offset some or
all of any increase in the trading value of the MITTS Securities attributable
to another
S-8
factor, such as an increase in the value of the Index. The following paragraphs
describe the expected impact on the market value of the MITTS Securities given
a change in a specific factor, assuming all other conditions remain constant.
The value of the Index is expected to affect the trading value of the
MITTS Securities. We expect that the market value of the MITTS Securities will
depend substantially on the amount by which the Index, as reduced by the
Adjustment Factor over the term of the MITTS Securities, exceeds the Starting
Value. If you choose to sell your MITTS Securities when the value of the Index,
as reduced by the Adjustment Factor over the term of the MITTS Securities,
exceeds the Starting Value, you may receive substantially less than the amount
that would be payable at maturity based on that value because of the
expectation that the Index will continue to fluctuate until the Adjusted Ending
Value is determined. If you choose to sell your MITTS Securities when the value
of the Index is below, or not sufficiently above, the Starting Value, you may
receive less than the $10 principal amount per unit of MITTS Securities. In
general, rising U.S. dividend rates or dividends per share may increase the
value of the Index while falling U.S. dividend rates may decrease the value of
the Index.
Changes in the levels of interest rates are expected to affect the
trading value of the MITTS Securities. Because we will pay, at a minimum, the
principal amount per unit of MITTS Securities at maturity, we expect that
changes in U.S. interest rates will affect the trading value of the MITTS
Securities. In general, if U.S. interest rates increase, we expect that the
trading value of the MITTS Securities will decrease and, conversely, if U.S.
interest rates decrease, we expect the trading value of the MITTS Securities
will increase. Rising U.S. interest rates may lower the value of the Index and,
thus, the MITTS Securities. Falling U.S. interest rates may increase the value
of the Index and, thus, may increase the value of the MITTS Securities.
Changes in the volatility of the Index are expected to affect the trading
value of the MITTS Securities. Volatility is the term used to describe the size
and frequency of price and/or market fluctuations. Generally, if the volatility
of the Index increases, we expect that the trading value of the MITTS
Securities will increase and, conversely, if the volatility of the Index
decreases, we expect that the trading value of the MITTS Securities will
decrease.
As the time remaining to maturity of the MITTS Securities decreases, the
"time premium" associated with the MITTS Securities will decrease. We
anticipate that before their maturity, the MITTS Securities may trade at a
value above that which would be expected based on the level of interest rates
and the Index. This difference will reflect a "time premium" due to
expectations concerning the value of the Index during the period before the
stated maturity of the MITTS Securities. However, as the time remaining to the
stated maturity of the MITTS Securities decreases, we expect that this time
premium will decrease, lowering the trading value of the MITTS Securities.
Changes in dividend yields of the stocks included in the Index are
expected to affect the trading value of the MITTS Securities. Generally, if
dividend yields on the stocks included in the Index increase, we expect that
the value of the MITTS Securities will decrease and, conversely, if dividend
yields on the stocks included in the Index decrease, we expect that the value
of the MITTS Securities will increase.
Changes in our credit ratings may affect the trading value of the MITTS
Securities. Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
may affect the trading value of the MITTS Securities. However, because your
return on your MITTS Securities is dependent upon factors in addition to our
ability to pay our obligations under the MITTS Securities, such as the
percentage increase in the value of the Index at maturity, an improvement in
our credit ratings will not reduce the investment risks related to the MITTS
Securities.
S-9
In general, assuming all relevant factors are held constant, we expect
that the effect on the trading value of the MITTS Securities of a given change
in most of the factors listed above will be less if it occurs later in the term
of the MITTS Securities than if it occurs earlier in the term of the MITTS
Securities. However, we expect that the effect on the trading value of the
MITTS Securities of a given increase in the value of the Index will be greater
if it occurs later in the term of the MITTS Securities than if it occurs
earlier in the term of the MITTS Securities.
Amounts payable on the MITTS Securities may be limited by state law
New York State law governs the 1983 Indenture under which the MITTS
Securities will be issued. New York has usury laws that limit the amount of
interest that can be charged and paid on loans, which includes debt securities
like the MITTS Securities. Under present New York law, the maximum rate of
interest is 25% per annum on a simple interest basis. This limit may not apply
to debt securities in which $2,500,000 or more has been invested.
While we believe that New York law would be given effect by a state or
Federal court sitting outside of New York, many other states also have laws
that regulate the amount of interest that may be charged to and paid by a
borrower. We 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 affiliates may from time to time buy or sell the stocks
included in the Index or futures or options in the Index for our own accounts,
for business reasons or in connection with hedging our obligations under the
MITTS Securities. These transactions could affect the price of these stocks
and, in turn, the value of the Index in a manner that would be adverse to your
investment in the MITTS Securities.
Potential conflicts of interests
Our subsidiary, MLPF&S, is our agent for the purposes of calculating the
Adjusted Ending Value and the Supplemental Redemption Amount payable to you at
maturity. Under certain circumstances, MLPF&S' role as our subsidiary and its
responsibilities as calculation agent for the MITTS Securities could give rise
to conflicts of interests. These conflicts could occur, for instance, in
connection with its determination as to whether the value of the Index can be
calculated on a particular trading day, or in connection with judgments that it
would be required to make in the event of a discontinuance of the Index. See
"Description of the MITTS Securities--Adjustments to the Index; Market
Disruption Events" and "--Discontinuance of the Index" in this prospectus
supplement. MLPF&S is required to carry out its duties as calculation agent in
good faith and using its reasonable judgment. However, you should be aware that
because we control MLPF&S, potential conflicts of interest could arise.
We have entered into an arrangement with one of our subsidiaries to hedge
the market risks associated with our obligation to pay the amounts due at
maturity. This subsidiary expects to make a profit in connection with this
arrangement. We did not seek competitive bids for this arrangement from
unaffiliated parties.
S-10
DESCRIPTION OF THE MITTS SECURITIES
ML&Co. will issue the MITTS Securities as a series of senior debt
securities under the 1983 Indenture, which is more fully described in the
accompanying prospectus. The MITTS Securities will mature on June , 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
"--Payment at maturity".
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" in this prospectus supplement and
"Description of Debt Securities--Events of Default" in the accompanying
prospectus.
ML&Co. will issue 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:
( Adjusted Ending Value - Starting Value )
principal amount of each MITTS Security ($10 per unit) X ( -------------------------------------- )
( Starting Value )
provided, however, that in no event will the Supplemental Redemption Amount be
less than zero.
The "Starting Value" will equal the closing value of the Index on the
Pricing Date. We will disclose the Starting Value in the final prospectus
supplement delivered to you in connection with sales of the MITTS Securities.
The "Adjusted Ending Value" will be determined by the calculation agent
and will equal the average or arithmetic mean of the closing values of the
Index, as reduced by the application of the Adjustment Factor on each
Calculation Day, determined on each of the first five Calculation Days during
the Calculation Period. If there are fewer than five Calculation Days, then the
Adjusted Ending Value will equal the average or arithmetic mean of the closing
values of the Index on those Calculation Days as reduced by the application of
the Adjustment Factor on each Calculation Day. If there is only one Calculation
Day, then the Adjusted Ending Value will equal the closing value of the Index
on that Calculation Day as reduced by the application of the Adjustment Factor
on that Calculation Day. If no Calculation Days occur during the Calculation
Period, then the Adjusted Ending Value will equal the closing value of the
Index determined on the last scheduled Index Business Day in the Calculation
Period as reduced by the application of the Adjustment Factor on that day,
regardless of the occurrence of a Market Disruption Event on that day.
S-11
The "Adjustment Factor" will be a fixed percentage which is expected to
be between 1.9% and 2.4% 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 pro-rated 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 12.46%
to 15.48% less than the actual closing value of the Index on each Calculation
Day during the Calculation Period.
The "Calculation Period" means the period from and including the seventh
scheduled Index Business Day before the maturity date to and including the
second scheduled Index Business Day before the maturity date.
"Calculation Day" means any Index Business Day during the Calculation
Period on which a Market Disruption Event has not occurred.
An "Index Business Day" is a day on which the NYSE and the AMEX are open
for trading and the Index or any successor index is calculated and published.
All determinations made by the calculation agent shall be at the sole
discretion of the calculation agent and, absent a determination by the
calculation agent of a manifest error, shall be conclusive for all purposes
and binding on ML&Co. and beneficial owners of the MITTS Securities.
Hypothetical returns
The following table illustrates, for a range of hypothetical closing
values of the Index during the Calculation Period:
.the percentage change from the Starting Value to the hypothetical
closing value,
.the Adjusted Ending Value used to calculate the Supplemental Redemption
Amount,
.the total amount payable at maturity for each unit of MITTS Securities,
.the total rate of return to beneficial owners of the MITTS Securities,
.the pretax annualized rate of return to beneficial owners of the MITTS
Securities, and
. the pretax annualized rate of return of an investment in the stocks
underlying the Index, which includes an assumed aggregate dividend
yield of 1.62% per annum, as more fully described below.
For the purposes of calculating this table, we have assumed a
hypothetical Adjustment Factor of 2.15% per annum, the midpoint of the
expected range of 1.9% to 2.4%.
S-12
Percentage
change from Pretax Pretax annualized
Hypothetical the Starting Total amount Total rate of annualized rate of return
closing value of Value to the payable at maturity return on the rate of return of stocks
the Index during the hypothetical Adjusted per unit of MITTS on the MITTS included in the
Calculation Period closing value Ending Value(1) MITTS Securities Securities Securities(2) Index(2)(3)
- -------------------- ------------- --------------- ------------------- ------------- -------------- -----------------
2,115.58 -80% 1,819.76 $10.00 0.00% 0.00% -19.93%
4,231.16 -60% 3,639.52 $10.00 0.00% 0.00% -11.04%
6,346.73 -40% 5,459.29 $10.00 0.00% 0.00% -5.57%
8,462.31 -20% 7,279.05 $10.00 0.00% 0.00% -1.56%
10,577.89(4) 0% 9,098.81 $10.00 0.00% 0.00% 1.62%
12,693.47 20% 10,918.57 $10.32 3.22% 0.45% 4.27%
14,809.05 40% 12,738.34 $12.04 20.42% 2.67% 6.54%
16,924.62 60% 14,558.10 $13.76 37.63% 4.61% 8.54%
19,040.20 80% 16,377.86 $15.48 54.83% 6.34% 10.32%
21,155.78 100% 18,197.62 $17.20 72.03% 7.90% 11.93%
23,271.36 120% 20,017.38 $18.92 89.24% 9.32% 13.40%
25,386.94 140% 21,837.15 $20.64 106.44% 10.62% 14.75%
27,502.51 160% 23,656.91 $22.36 123.64% 11.83% 16.00%
29,618.09 180% 25,476.67 $24.08 140.85% 12.95% 17.17%
31,733.67 200% 27,296.43 $25.81 158.05% 14.00% 18.27%
- --------
(1) The Adjusted Ending Values specified in this column are approximately
13.98% less than the hypothetical closing values of the Index as a result
of the cumulative effect of the application of a hypothetical Adjustment
Factor of 2.15% per annum, the midpoint of an expected range between 1.9%
and 2.4%, 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 1.62% per annum, paid quarterly from the
date of initial delivery of MITTS Securities, applied to the value of
the Index at the end of each quarter assuming this value increases or
decreases linearly from the Starting Value to the applicable
hypothetical closing value;
(b) no transaction fees or expenses in connection with purchasing and
holding stocks included in the Index;
(c) a seven-year investment term; and
(d) a final closing value of the Index equal to the hypothetical closing
value.
(4) This is the hypothetical Starting Value of the Index for purposes of this
table. The actual Starting Value will equal the closing value of the Index
on the Pricing Date.
The above figures are for purposes of illustration only. The actual
Supplemental Redemption Amount received by you and the resulting total and
pretax annualized rate of return will depend entirely on the Starting Value,
Adjustment Factor and the actual Adjusted Ending Value determined by the
calculation agent as provided in this prospectus supplement.
Adjustments to the Index; Market Disruption Events
If at any time Dow Jones changes its method of calculating the Index, or
the value of the Index changes, in any material respect, or if the Index is in
any other way modified so that the Index does not, in the opinion of the
calculation agent, fairly represent the value of the Index had any changes or
modifications not been made, then, from and after that time, the calculation
agent shall, at the close of business in New York, New York, on each date that
the closing value of the Index is to be calculated, make any adjustments as, in
the good faith judgment of the calculation agent, may be necessary in order to
arrive at a calculation of a value of a stock index comparable to the Index as
if no changes or modifications had been made, and calculate the closing
S-13
value with reference to the Index, as adjusted. Accordingly, if the method of
calculating the Index is modified so that the value of the Index is a fraction
or a multiple of what it would have been if it had not been modified, e.g., due
to a split, then the calculation agent shall adjust the Index in order to
arrive at a value of the Index as if it had not been modified, e.g., as if the
split had not occurred.
"Market Disruption Event" means either of the following events as
determined by the calculation agent:
(A) the suspension or material limitation on trading for more than two
hours of trading, or during the one-half hour period preceding the
close of trading on the applicable exchange, in 20% or more of the
stocks which then comprise the Index; or
(B) the suspension or material limitation, in each case, for more than
two hours of trading, or during the one-half hour period preceding
the close of trading on the applicable exchange, whether by reason
of movements in price otherwise exceeding levels permitted by the
relevant exchange or otherwise, in option contracts or futures
contracts related to the Index, or any successor index, which are
traded on any major U.S. exchange.
For the purpose of the above definition:
(1) a limitation on the hours in a trading day and/or number of days of
trading will not constitute a Market Disruption Event if it results
from an announced change in the regular business hours of the
relevant exchange and
(2) for the purpose of clause (A) above, any limitations on trading
during significant market fluctuations under NYSE Rule 80A, or any
applicable rule or regulation enacted or promulgated by the NYSE or
any other self regulatory organization or the SEC of similar scope
as determined by the calculation agent, will be considered
"material".
Discontinuance of the Index
If Dow Jones discontinues publication of the Index and Dow Jones or
another entity publishes a successor or substitute index that the calculation
agent determines, in its sole discretion, to be comparable to the Index (a
"successor index"), then, upon the calculation agent's notification of its
determination to the trustee and ML&Co., the calculation agent will substitute
the successor index as calculated by Dow Jones or another entity for the Index
and calculate the closing value as described above under "--Payment at
maturity". Upon any selection by the calculation agent of a successor index,
ML&Co. shall promptly give notice to the beneficial owners of the MITTS
Securities by publication in a United States newspaper with a national
circulation.
In the event that Dow Jones discontinues publication of the Index and:
.the calculation agent does not select a successor index, or
.the successor index is no longer published on any of the Calculation
Days,
the calculation agent will compute a substitute value for the Index in
accordance with the procedures last used to calculate the Index before any
discontinuance. If a successor index is selected or the calculation agent
calculates a value as a substitute for the Index as described below, the
successor index or value shall be substituted for the Index for all purposes,
including for purposes of determining whether a Market Disruption Event exists.
S-14
If Dow Jones discontinues publication of the 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:
.the determination of the Adjusted Ending Value and
.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 Index may adversely affect trading in the MITTS Securities.
Events of Default and Acceleration
In case an Event of Default with respect to any MITTS Securities has
occurred and is continuing, the amount payable to a beneficial owner of a MITTS
Security upon any acceleration permitted by the MITTS Securities, with respect
to each $10 principal amount of the MITTS Securities, will be equal to the
principal amount and the Supplemental Redemption Amount, if any, calculated as
though the date of early repayment was the stated maturity date of the MITTS
Securities, provided however, the Adjustment Factor will be applied to the
values used to calculate the Supplemental Redemption Amount as if the MITTS
Securities had not been accelerated and had remained outstanding to the stated
maturity date. See "--Payment at maturity" in this prospectus supplement. If a
bankruptcy proceeding is commenced in respect of ML&Co., the claim of the
beneficial owner of a MITTS Security may be limited, under Section 502(b)(2) of
Title 11 of the United States Code, to the principal amount of the MITTS
Security plus an additional amount of contingent interest calculated as though
the date of the commencement of the proceeding were the maturity date of the
MITTS Securities.
In case of default in payment of the MITTS Securities, whether at the
stated maturity or upon acceleration, from and after the maturity date the
MITTS Securities will bear interest, payable upon demand of their beneficial
owners, at the rate of % per annum, to the extent that payment of any interest
is legally enforceable, on the unpaid amount due and payable on that date in
accordance with the terms of the MITTS Securities to the date payment of that
amount has been made or duly provided for.
Depositary
Description of the Global Securities
Upon issuance, all MITTS Securities will be represented by one or more
fully registered global securities. Each global security will be 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
S-15
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 will act as securities depositary for the MITTS Securities. The MITTS
Securities will be issued as fully registered securities registered in the name
of Cede & Co., DTC's partnership nominee. One or more fully registered global
securities will be issued for the MITTS Securities in the aggregate principal
amount of such issue, and will be 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
S-16
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:
. 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,
. ML&Co. executes and delivers to the trustee a company order to the
effect that the global securities shall be exchangeable, or
. 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.
S-17
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 Settlement and Payment
Settlement for the MITTS Securities will be made by the underwriter in
immediately available funds. ML&Co. will make all payments of principal and the
Supplemental Redemption Amount, if any, in immediately available funds so long
as the MITTS Securities are maintained in book-entry form.
THE INDEX
Unless otherwise stated, all information herein on the Index is derived
from Dow Jones or other publicly available sources. This information reflects
the policies of Dow Jones as stated in the publicly available sources and the
policies are subject to change by Dow Jones. Dow Jones is under no obligation
to continue to publish the Index and may discontinue publication of the Index
at any time.
The Index is a price-weighted index, i.e., the weight of a component
stock in the Index is based on its price per share rather than the total market
capitalization of the issuer of the component stock, comprised of 30 common
stocks chosen by the editors of the WSJ as representative of the broad market
of U.S. industry. The corporations represented in the Index tend to be leaders
within their respective industries and their stocks are typically widely held
by individuals and institutional investors. Changes in the composition of the
Index are made entirely by the editors of the WSJ without consultation with the
corporations represented in the Index, any stock exchange, any official agency
or ML&Co. Changes to the common stocks included in the Index tend to be made
infrequently. Historically, most substitutions have been the result of mergers,
but from time to time, changes may be made to achieve what the editors of the
WSJ deem to be a more accurate representation of the broad market of U.S.
industry. In choosing a new corporation for the Index, the editors of the WSJ
look for leading industrial companies with a successful history of growth and
wide interest among investors. The component stocks of the Index may be changed
at any time for any reason. Dow Jones, publisher of the WSJ, is not affiliated
with ML&Co. and has not participated in any way in the creation of the
Securities.
The Index initially consisted of 12 common stocks and was first published
in the WSJ in 1896. The Index was increased to include 20 common stocks in 1916
and to 30 common stocks in 1928. The number of common stocks in the Index has
remained at 30 since 1928, and, in an effort to maintain continuity, the
constituent corporations represented in the Index have been changed on a
relatively infrequent basis.
The value of the Index is the sum of the primary exchange prices of each
of the 30 common stocks included in the Index, divided by a divisor that is
designed to provide a meaningful continuity in the value of the Index. Because
the Index is price-weighted, stock splits or changes in the component stocks
could result in distortions in the Index value. In order to prevent these
distortions related to extrinsic factors, the divisor is changed in accordance
with a mathematical formula that reflects adjusted proportions within the
Index. The current divisor of the Index is published daily in the WSJ and other
publications. In addition, other statistics based on the Index may be found in
a variety of publicly available sources.
ML&Co. or its affiliates may presently or from time to time engage in
business with one or more of the issuers of the component stocks of the Index,
including extending loans to, or making equity investments in, the issuers or
providing advisory services to the issuers, including merger and acquisition
advisory services. In the course of its business, ML&Co. or its affiliates may
acquire non-public information with respect to the issuers. ML&Co. does not
make any representation to any purchaser of the MITTS Securities with respect
to any matters whatsoever relating to the issuers. Any prospective purchaser of
the MITTS Securities should undertake an independent investigation of the
issuers of the component stocks of the Index as in its judgment is appropriate
to make an informed decision about an investment in the MITTS Securities. The
composition of the Index does not reflect any investment or sell
recommendations of ML&Co. or its affiliates.
S-18
The following table presents the listing symbol, industry group, price
per share, total number of shares outstanding and market capitalization for
each of the component stocks in the Index based on publicly available
information as of June 2, 1999.
Issuer of Component Total Shares Market
Stock(1) Symbol Industry Price Per Share Outstanding(2) Capitalization(2)
------------------- ------ -------- --------------- -------------- -----------------
ALCOA INC. ............. AA Metals 59.2500 557,130 33,009,953
Allied-Signal Inc....... ALD Aerospace/Defense 60.1250 367,144 22,074,533
American Express Co. ... AXP Financial Services 118.4375 452,580 53,602,444
AT&T Corp. ............. T Util-Telecom 55.0000 3,342,950 183,862,250
Boeing Co., The......... BA Aerospace/Defense 42.1875 937,960 39,570,188
Caterpillar Inc. ....... CAT Machine Construction 58.3750 358,688 20,938,412
Chevron Corp. .......... CHV Oil/Gas 92.0000 653,586 60,129,912
Citigroup Inc. ......... C Financial/Banking 41.6250 3,386,955 140,982,002
Coca-Cola Co., The...... KO Beverages 68.6250 2,465,104 169,167,762
Disney (Walt) Co. ...... DIS Entertainment 29.1250 2,055,792 59,874,942
Du Pont (E.I.) De
Nemours & Co. ......... DD Chemicals 66.8125 1,125,860 75,221,521
Eastman Kodak Co. ...... EK Manufacturing 66.0000 323,950 21,380,700
Exxon Corp. ............ XON Oil/Gas 80.2500 2,431,230 195,106,208
General Electric Co. ... GE Electronics 102.0625 3,276,830 334,441,462
General Motors Corp. ... GM Auto & Truck 70.0625 654,470 45,853,804
Goodyear Tire & Rubber
Co. ................... GT Tire & Rubber 61.1250 155,890 9,528,776
Hewlett-Packard Co. .... HWP Computers 89.7500 1,015,098 91,105,046
International Business
Machines Corp. ........ IBM Computers 113.7500 1,845,704 209,948,830
International Paper
Co. ................... IP Forest Products 53.8125 410,058 22,066,246
Johnson & Johnson....... JNJ Pharmaceutics 91.6875 1,344,669 123,289,339
McDonald's Corp. ....... MCD Restaurant/Food Service 38.2500 1,353,118 51,756,764
Merck & Co. ............ MRK Pharmaceutics 66.7500 2,382,126 159,006,911
Minnesota Mining &
Manufacturing Co. ..... MMM Manufacturing 89.3125 402,000 35,903,625
Morgan (J.P.) & Co. .... JPM Financial/Banking 130.8750 174,817 22,879,175
Morris (Philip) Cos. ... MO Tobacco 39.0000 2,434,669 94,952,091
Procter & Gamble Co. ... PG Household Products 94.2500 1,327,740 125,139,495
Sears, Roebuck & Co. ... S Retail-Dept 50.8750 383,099 19,490,162
Union Carbide Corp. .... UK Chemicals 50.1250 132,886 6,660,911
United Technologies
Corp. ................. UTX Aerospace/Defense 64.3750 451,654 29,075,226
Wal-Mart Stores Inc. ... WMT Retail-Dept 44.3750 4,446,908 197,331,543
-----------
Total Market Capitalization 2,653,350,229
Average Market Capitalization 88,445,008
- --------
(1) The inclusion of a component stock in the portfolio should not be
considered a recommendation to buy or sell that stock, and neither ML&Co.
nor any of its affiliates make any representation to any purchaser of the
MITTS Securities as to the performance of the portfolio or any component
stock. Beneficial owners of the MITTS Securities will not have any right to
the component stocks or any dividends paid on the component stocks.
(2) Shares and Market Capitalization in thousands.
License Agreement
"Dow Jones", "Dow Jones Industrial Average SM", and "DJIA SM" are service
marks of Dow Jones & Company, Inc. Dow Jones has no relationship to MLPF&S or
ML&Co., other than the licensing of the Dow Jones Industrial Average SM and its
service marks for use in connection with the MITTS Securities.
Dow Jones does not:
.Sponsor, endorse, sell or promote the MITTS Securities.
.Recommend that any person invest in the MITTS Securities or any
other securities.
S-19
. Have any responsibility or liability for or make any decisions
about the timing, amount or pricing of MITTS Securities.
. Have any responsibility or liability for the administration,
management or marketing of the MITTS Securities.
. Consider the needs of the MITTS Securities or the owners of the
MITTS Securities in determining, composing or calculating the Dow
Jones Industrial Average SM or have any obligation to do so.
Dow Jones will not have any liability in connection with the MITTS
Securities. Specifically,
. Dow Jones does not make any warranty, express or implied, and Dow
Jones disclaims any warranty about:
. The results to be obtained by the MITTS Securities, the owner of
the MITTS Securities or any other person in connection with the
use of the Dow Jones Industrial Average SM and the data included
in the Dow Jones Industrial Average SM;
. The accuracy or completeness of the Dow Jones Industrial
Average SM and its data;
. The merchantability and the fitness for a particular purpose or
use of the Dow Jones Industrial Average SM and its data;
. Dow Jones will have no liability for any errors, omissions or
interruptions in the Dow Jones Industrial Average SM or its data;
. Under no circumstances will Dow Jones be liable for any lost profits
or indirect, punitive, special or consequential damages or losses,
even if Dow Jones knows that they might occur.
The licensing agreement between MLPF&S and Dow Jones is solely for their
benefit and not for the benefit of the owners of the MITTS Securities or any
other third parties.
Historical Data on the Index
The following table sets forth the closing level of the Index at the end
of each month, in the period from January 1994 through May 1999. This
historical data on the Index is not necessarily indicative of the future
performance of the Index or what the value of the MITTS Securities may be. Any
historical upward or downward trend in the closing level of the Index during
any period set forth below is not any indication that the Index is more or less
likely to decline at any time during the term of the MITTS Securities.
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- ---------
January.................. 3,978.36 3,843.86 5,395.30 6,813.09 7,906.50 9,358.83
February................. 3,832.02 4,011.05 5,485.62 6,877.74 8,545.72 9,306.58
March.................... 3,635.96 4,157.69 5,587.14 6,583.48 8,799.81 9,786.16
April.................... 3,681.69 4,321.27 5,569.08 7,008.99 9,063.37 10,789.00
May...................... 3,758.37 4,465.14 5,643.18 7,331.04 8,899.95 10,559.70
June..................... 3,624.96 4,556.10 5,654.63 7,672.79 8,952.02
July..................... 3,764.50 4,708.47 5,528.91 8,222.61 8,883.29
August................... 3,913.42 4,610.56 5,616.21 7,622.42 7,539.07
September................ 3,843.19 4,789.08 5,882.17 7,945.26 7,842.62
October.................. 3,908.12 4,755.48 6,029.38 7,442.08 8,592.10
November................. 3,739.23 5,074.49 6,521.70 7,823.13 9,116.55
December................. 3,834.44 5,117.12 6,448.27 7,908.25 9,181.43
The closing value of the Index on June 2, 1999 was 10,577.89.
S-20
The following table sets forth the closing values of the Index on the
last business day of each year from 1946 through 1998, as published by the WSJ.
The historical experience of the Index should not be taken as an indication of
future performance and no assurance can be given that the value of the Index
will not decline and thereby reduce the Supplemental Redemption Amount, if any,
which may be payable to beneficial owners of MITTS Securities at maturity or
otherwise.
Year End Value of the Index
Closing Closing Closing Closing
Year Value Year Value Year Value Year Value
- ---- ------- ---- ------- ---- -------- ---- --------
1946 177.20 1959 679.36 1972 1,020.02 1985 1,546.67
1947 181.16 1960 615.89 1973 850.86 1986 1,895.95
1948 177.30 1961 731.14 1974 616.24 1987 1,938.83
1949 200.13 1962 652.10 1975 852.41 1988 2,168.57
1950 235.41 1963 762.95 1976 1,004.65 1989 2,753.20
1951 269.23 1964 874.13 1977 831.17 1990 2,633.66
1952 291.90 1965 969.26 1978 805.01 1991 3,168.83
1953 280.90 1966 785.69 1979 838.74 1992 3,301.11
1954 404.39 1967 905.11 1980 963.99 1993 3,754.09
1955 488.40 1968 943.75 1981 875.00 1994 3,834.44
1956 499.47 1969 800.36 1982 1,046.54 1995 5,117.12
1957 435.69 1970 838.92 1983 1,258.64 1996 6,448.27
1958 583.65 1971 890.20 1984 1,211.57 1997 7,908.25
1998 9,181.43
The following graph plots the historical performance of the Index based
on the closing value thereof at the end of each year from 1946 through 1998.
Past movements of the Index are not necessarily indicative of future Index
values.
Historical Year-End Closing Values
[THE GRAPH APPEARING HERE SETS FORTH THE HISTORICAL YEAR-END CLOSING VALUES OF
THE INDEX FROM 1946 TO 1998. THE VERTICAL AXIS HAS A RANGE OF NUMBERS FROM 0 TO
10,000 IN INCREMENTS OF 1,000. THE HORIZONTAL AXIS HAS A RANGE OF YEARS FROM
1946 TO 1998 IN INCREMENTS OF 1 YEAR.]
S-21
UNITED STATES FEDERAL INCOME TAXATION
Set forth in full below is the opinion of Brown & Wood LLP, counsel to
ML&Co., as to certain United States Federal income tax consequences of the
purchase, ownership and disposition of the MITTS Securities. This opinion is
based upon laws, regulations, rulings and decisions now in effect, all of which
are subject to change (including retroactive changes in effective dates) or
possible differing interpretations. The discussion below deals only with MITTS
Securities held as capital assets and does not purport to deal with persons in
special tax situations, such as financial institutions, insurance companies,
regulated investment companies, dealers in securities or currencies, tax-exempt
entities, persons holding MITTS Securities in a tax-deferred or tax-advantaged
account, or persons holding MITTS Securities as a hedge against currency risks,
as a position in a "straddle" or as part of a "hedging" or "conversion"
transaction for tax purposes. It also does not deal with holders other than
original purchasers (except where otherwise specifically noted in this
prospectus supplement). The following discussion also assumes that the issue
price of the MITTS Securities, as determined for United States Federal income
tax purposes, equals the principal amount thereof. Persons considering the
purchase of the MITTS Securities should consult their own tax advisors
concerning the application of the United States Federal income tax laws to
their particular situations as well as any consequences of the purchase,
ownership and disposition of the MITTS Securities arising under the laws of any
other taxing jurisdiction.
As used in this prospectus supplement, the term "U.S. Holder" means a
beneficial owner of a MITTS Security that is for United States Federal income
tax purposes (a) a citizen or resident of the United States, (b) a corporation,
partnership or other entity treated as a corporation or a partnership created
or organized in or under the laws of the United States, any state thereof or
the District of Columbia (other than a partnership that is not treated as a
United States person under any applicable Treasury regulations), (c) an estate
the income of which is subject to United States Federal income taxation
regardless of its source, (d) a trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust, or (e) any other person whose income or gain in respect
of a MITTS Security is effectively connected with the conduct of a United
States trade or business. Notwithstanding clause (d) of the preceding sentence,
to the extent provided in Treasury regulations, certain trusts in existence on
August 20, 1996, and treated as United States persons prior to that date that
elect to continue to be treated as United States persons also will be a U.S.
Holder. As used herein, the term "non-U.S. Holder" means a beneficial owner of
a MITTS Security that is not a U.S. Holder.
General
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the characterization, for United
States Federal income tax purposes, of the MITTS Securities or securities with
terms substantially the same as the MITTS Securities. However, although the
matter is not free from doubt, under current law, each MITTS Security should be
treated as a debt instrument of ML&Co. for United States Federal income tax
purposes. ML&Co. currently intends to treat each MITTS Security as a debt
instrument of ML&Co. for United States Federal income tax purposes and, where
required, intends to file information returns with the Internal Revenue Service
in accordance with this treatment, in the absence of any change or
clarification in the law, by regulation or otherwise, requiring a different
characterization of the MITTS Securities. Prospective investors in the MITTS
Securities should be aware, however, that the IRS is not bound by ML&Co.'s
characterization of the MITTS Securities as indebtedness, and the IRS could
possibly take a different position as to the proper characterization of the
MITTS Securities for United States Federal income tax purposes. The following
discussion of the principal United States Federal income tax consequences of
the purchase, ownership and disposition of the MITTS Securities is based upon
the assumption that each MITTS Security will be treated as a debt instrument of
ML&Co. for United States Federal income tax purposes. If the MITTS Securities
are not in fact treated as debt instruments of ML&Co. for United States Federal
income tax purposes, then the United States Federal income tax treatment of the
purchase, ownership and disposition of the MITTS Securities could differ from
the treatment discussed below with the result that the timing and character
S-22
of income, gain or loss recognized in respect of a MITTS Security could differ
from the timing and character of income, gain or loss recognized in respect of
a MITTS Security had the MITTS Securities in fact been treated as debt
instruments of ML&Co. for United States Federal income tax purposes.
U.S. Holders
On June 11, 1996, the Treasury Department issued final regulations (the
"Final Regulations") concerning the proper United States Federal income tax
treatment of contingent payment debt instruments such as the MITTS Securities,
which apply to debt instruments issued on or after August 13, 1996 and,
accordingly, will apply to the MITTS Securities. In general, the Final
Regulations cause the timing and character of income, gain or loss reported on
a contingent payment debt instrument to substantially differ from the timing
and character of income, gain or loss reported on a contingent payment debt
instrument under general principles of prior United States Federal income tax
law. Specifically, the Final Regulations generally require a U.S. Holder of
such an instrument to include future contingent and noncontingent interest
payments in income as that interest accrues based upon a projected payment
schedule. Moreover, in general, under the Final Regulations, any gain
recognized by a U.S. Holder on the sale, exchange, or retirement of a
contingent payment debt instrument is treated as ordinary income, and all or a
portion of any loss realized could be treated as ordinary loss as opposed to
capital loss (depending upon the circumstances). The Final Regulations provide
no definitive guidance as to whether or not an instrument is properly
characterized as a debt instrument for United States Federal income tax
purposes.
In particular, solely for purposes of applying the Final Regulations to
the MITTS Securities, ML&Co. has 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 $ per unit (the "Projected Supplemental Redemption Amount"). This
represents an estimated yield on the MITTS Securities equal to % per annum,
compounded semiannually. Accordingly, during the term of the MITTS Securities,
a U.S. Holder of a MITTS Security will be required to include in income the sum
of the daily portions of interest on the MITTS Security that are deemed to
accrue at this estimated yield for each day during the taxable year (or portion
of the taxable year) on which the U.S. Holder holds the MITTS Security. The
amount of interest that will be deemed to accrue in any accrual period (i.e.,
generally each six-month period during which the MITTS Securities are
outstanding) will equal the product of this estimated yield (properly adjusted
for the length of the accrual period) and the MITTS Security's adjusted issue
price (as defined below) at the beginning of the accrual period. The daily
portions of interest will be determined by allocating to each day in the
accrual period the ratable portion of the interest that is deemed to accrue
during the accrual period. In general, for these purposes a MITTS Security's
adjusted issue price will equal the MITTS Security's issue price (i.e., $10),
increased by the interest previously accrued on the MITTS Security. At maturity
of a MITTS Security, in the event that the actual Supplemental Redemption
Amount, if any, exceeds $ per unit (i.e., the Projected Supplemental
Redemption Amount), a U.S. Holder will be required to include the excess of the
actual Supplemental Redemption Amount over $ per unit (i.e., the Projected
Supplemental Redemption Amount) in income as ordinary interest on the maturity
date. Alternatively, in the event that the actual Supplemental Redemption
Amount, if any, is less than $ per unit (i.e., the Projected Supplemental
Redemption Amount), the excess of $ per unit (i.e., the Projected
Supplemental Redemption Amount) over the actual Supplemental Redemption Amount
will be treated first as an offset to any interest otherwise includible in
income by the U.S. Holder with respect to the MITTS Security for the taxable
year in which the maturity date occurs to the extent of the amount of such
includible interest. Further, a U.S. Holder will be permitted to recognize and
deduct, as an ordinary loss that is not subject to the limitations applicable
to miscellaneous itemized deductions, any remaining portion of the Projected
Supplemental Redemption Amount (i.e. $ per unit) in excess of the actual
Supplemental Redemption Amount that is not treated as an interest offset
pursuant to the foregoing rules.
Upon the sale or exchange of a MITTS Security prior to the maturity date,
a U.S. Holder will be required to recognize taxable gain or loss in an amount
equal to the difference, if any, between the amount
S-23
realized by the U.S. Holder upon such sale or exchange and the U.S. Holder's
adjusted tax basis in the MITTS Security as of the date of disposition. A U.S.
Holder's adjusted tax basis in a MITTS Security generally will equal such U.S.
Holder's initial investment in the MITTS Security increased by any interest
previously included in income with respect to the MITTS Security by the U.S.
Holder. Any such taxable gain will be treated as ordinary income. Any such
taxable loss will be treated as ordinary loss to the extent of the U.S.
Holder's total interest inclusions on the MITTS Security. Any remaining loss
generally will be treated as long-term or short-term capital loss (depending
upon the U.S. Holder's holding period for the MITTS Security). All amounts
includible in income by a U.S. Holder as ordinary interest pursuant to the
Final Regulations will be treated as original issue discount.
Prospective investors in the MITTS Securities should be aware that if a
significant percentage of the total aggregate amount of the MITTS Securities
originally issued are sold at a discount from the principal amount thereof,
which is not expected to be the case, then the issue price of the MITTS
Securities, as determined for United States Federal income tax purposes, may be
less than the principal amount of the MITTS Securities. In that event, if a
U.S. Holder purchases a MITTS Security in connection with the original issuance
thereof for an amount equal to the principal amount thereof, the amount of the
difference between the principal amount of the MITTS Securities and the issue
price thereof generally should be allocated by the U.S. Holder to daily
portions of interest that are deemed to accrue on each relevant date as an
offset to that interest on each relevant date. In addition, on each relevant
date, the U.S. Holder's adjusted tax basis in the MITTS Security will be
reduced by the amount treated as an interest offset pursuant to the foregoing
rule. Alternatively, in the event that the issue price of the MITTS Securities,
as determined for United States Federal income tax purposes, equals the
principal amount thereof and a U.S. Holder purchases a MITTS Security in
connection with the original issuance thereof for an amount that is less than
the principal amount thereof, the amount of the difference between the
principal amount of the MITTS Security and the amount paid by the U.S. Holder
to purchase the MITTS Security generally would be allocated by the U.S. Holder
to daily portions of interest that are deemed to accrue on each relevant date
as additional ordinary interest includible in income by the U.S. Holder on each
relevant date. In that event, on each relevant date, the U.S. Holder's adjusted
tax basis in the MITTS Securities will be increased by the amount treated as
additional ordinary interest income. In addition, U.S. Holders purchasing a
MITTS Security at a price that differs from the adjusted issue price of the
MITTS Security as of the purchase date (e.g., subsequent purchasers) will be
subject to rules providing for certain adjustments to the foregoing rules and
these U.S. Holders should consult their own tax advisors concerning these
rules.
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:
Darryl W. Colletti, Corporate Secretary's Office, 100 Church Street, 12th
Floor, New York, New York 10080-6512.
The projected payment schedule (including both the 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.
Hypothetical table
The following table sets forth the amount of interest that would be
deemed to have accrued with respect to each unit of the MITTS Securities during
each accrual period over an assumed term of approximately seven years for the
MITTS Securities based upon a hypothetical projected payment schedule for the
MITTS Securities (including both a hypothetical Projected Supplemental
Redemption Amount and a hypothetical
S-24
estimated yield equal to 6.64% per annum (compounded semiannually)) as
determined by ML&Co. for purposes of illustrating the application of the Final
Regulations to the MITTS Securities as if the MITTS Securities had been issued
on June 4, 1999. The following table is for illustrative purposes only. The
actual projected payment schedule for the MITTS Securities (including both the
actual Projected Supplemental Redemption Amount and the actual estimated yield)
will be determined by ML&Co. on the date the MITTS Securities are priced for
initial sale to the public and will depend upon actual market interest rates
(and thus ML&Co.'s borrowing costs for debt instruments with comparable
maturities) as of that date. The actual projected payment schedule for the
MITTS Securities (including both the actual Projected Supplemental Redemption
Amount and the actual estimated yield) and the actual tax accrual table will be
set forth in the final prospectus supplement delivered to investors in
connection with the sale of the MITTS Securities:
Total interest
deemed to have
accrued on the
Interest deemed MITTS Securities
to accrue during as of end of
accrual period accrual period
Accrual Period (per unit) (per unit)
-------------- ---------------- ----------------
June 4, 1999 through December 4, 1999......... $0.3329 $0.3329
December 5, 1999 through June 4, 2000......... $0.3431 $0.6760
June 5, 2000 through December 4, 2000......... $0.3544 $1.0304
December 5, 2000 through June 4, 2001......... $0.3662 $1.3966
June 5, 2001 through December 4, 2001......... $0.3784 $1.7750
December 5, 2001 through June 4, 2002......... $0.3909 $2.1659
June 5, 2002 through December 4, 2002......... $0.4039 $2.5698
December 5, 2002 through June 4, 2003......... $0.4174 $2.9872
June 5, 2003 through December 4, 2003......... $0.4311 $3.4183
December 5, 2003 through June 4, 2004......... $0.4455 $3.8638
June 5, 2004 through December 4, 2004......... $0.4603 $4.3241
December 5, 2004 through June 4, 2005......... $0.4756 $4.7997
June 5, 2005 through December 4, 2005......... $0.4913 $5.2910
December 5, 2005 through June 4, 2006......... $0.5077 $5.7987
- --------
Hypothetical Projected Supplemental Redemption Amount = $5.7987 per unit.
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States Federal income
taxes on payments of principal, premium (if any) or interest (including
original issue discount, if any) on a MITTS Security, unless such non-U.S.
Holder is a direct or indirect 10% or greater shareholder of ML&Co., a
controlled foreign corporation related to ML&Co. or a bank receiving interest
described in section 881(c)(3)(A) of the Internal Revenue Code of 1986, as
amended. However, income allocable to non-U.S. Holders will generally be
subject to annual tax reporting on IRS Form 1042S. For a non-U.S. Holder to
qualify for the exemption from taxation, the last United States payor in the
chain of payment prior to payment to a non-U.S. Holder (the "Withholding
Agent") must have received in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a statement
that (a) is signed by the beneficial owner of the MITTS Security under
penalties of perjury, (b) certifies that such owner is not a U.S. Holder and
(c) provides the name and address of the beneficial owner. The statement may be
made on an IRS Form W-8 or a substantially similar form, and the beneficial
owner must inform the Withholding Agent of any change in the information on the
statement within 30 days of such change. If a MITTS Security is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide a signed statement to the Withholding
Agent. However, in such case, the signed statement must be accompanied by a
copy of the IRS Form W-8 or the substitute form provided by the beneficial
owner to the organization or institution.
S-25
Under current law, a MITTS Security will not be includible in the estate
of a non-U.S. Holder unless the individual is a direct or indirect 10% or
greater shareholder of ML&Co. or, at the time of such individual's death,
payments in respect of such MITTS Security would have been effectively
connected with the conduct by such individual of a trade or business in the
United States.
Backup withholding
Backup withholding of United States Federal income tax at a rate of 31%
may apply to payments made in respect of the MITTS Securities to registered
owners who are not "exempt recipients" and who fail to provide certain
identifying information (such as the registered owner's taxpayer identification
number) in the required manner. Generally, individuals are not exempt
recipients, whereas corporations and certain other entities generally are
exempt recipients. Payments made in respect of the MITTS Securities to a U.S.
Holder must be reported to the IRS, unless the U.S. Holder is an exempt
recipient or establishes an exemption. Compliance with the identification
procedures described in the preceding section would establish an exemption from
backup withholding for those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a MITTS Security to (or through) a broker,
the broker must withhold 31% of the entire purchase price, unless either (a)
the broker determines that the seller is a corporation or other exempt
recipient or (b) the seller provides, in the required manner, certain
identifying information and, in the case of a non-U.S. Holder, certifies that
such seller is a non-U.S. Holder (and certain other conditions are met). Such a
sale must also be reported by the broker to the IRS, unless either (a) the
broker determines that the seller is an exempt recipient or (b) the seller
certifies its non-U.S. status (and certain other conditions are met).
Certification of the registered owner's non-U.S. status would be made normally
on an IRS Form W-8 under penalties of perjury, although in certain cases it may
be possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to
a beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
New withholding regulations
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the backup withholding
and information reporting rules described above. The New Regulations will
generally be effective for payments made after December 31, 2000, subject to
certain transition rules. Prospective investors are urged to consult their own
tax advisors regarding the New Regulations.
USE OF PROCEEDS AND HEDGING
The net proceeds from the sale of the MITTS Securities will be used as
described under "Use of Proceeds" in the accompanying prospectus and to hedge
market risks of ML&Co. associated with its obligation to pay the principal
amount and the Supplemental Redemption Amount.
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. 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.
S-26
We will send you copies of our SEC filings, excluding exhibits, at no
cost upon request. Please address your request to Lawrence M. Egan, Jr.,
Corporate Secretary's Office, Merrill Lynch & Co., Inc., 100 Church Street,
12th Floor, New York, New York 10080-6512; telephone number (212) 602-8439.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not, and the underwriter 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 the
underwriter 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
supplement and the accompanying prospectus is accurate as of the date on the
front cover of this prospectus supplement only. Our business, financial
condition and results of operations may have changed since that date.
UNDERWRITING
MLPF&S, the underwriter of the offering, has agreed, subject to the terms
and conditions of the underwriting agreement and a terms agreement, to purchase
from ML&Co. $ aggregate principal amount of MITTS Securities. The
underwriting agreement provides that the obligations of the underwriter are
subject to certain conditions and that the underwriter will be obligated to
purchase all of the MITTS Securities if any are purchased.
The underwriter has advised ML&Co. that it proposes initially to offer
all or part of the MITTS Securities directly to the public at the offering
prices set forth on the cover page of this prospectus supplement. After the
initial public offering, the public offering price may be changed. The
underwriter is offering the MITTS Securities subject to receipt and acceptance
and subject to the underwriter's right to reject any order in whole or in part.
In addition to the commissions payable at the time of the original sale
of the MITTS Securities, the underwriter will pay a commission on each of up to
six anniversary dates of the issuance of the MITTS Securities to brokers whose
clients purchased the units in the initial distribution and who continue to
hold their MITTS Securities.
The underwriting 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.
The underwriter is permitted to engage in certain transactions that
stabilize the price of the MITTS Securities. These transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
MITTS Securities.
If the underwriter creates a short position in the MITTS Securities in
connection with the offering, i.e., if it sells more units of the MITTS
Securities than are set forth on the cover page of this prospectus supplement,
the underwriter may reduce that short position by purchasing units of the MITTS
Securities in the open market. In general, purchases of a security for the
purpose of stabilization or to reduce a short position could cause the price of
the security to be higher than it might be in the absence of these purchases.
Neither ML&Co. nor the underwriter makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the MITTS Securities. In addition, neither ML&Co. nor
the underwriter makes any representation that the underwriter will engage in
these transactions or that these transactions, once commenced, will not be
discontinued without notice.
S-27
The underwriter may use this prospectus supplement and the accompanying
prospectus for offers and sales related to market-making transactions in the
MITTS Securities. The underwriter may act as principal or agent in these
transactions, and the sales will be made at prices related to prevailing market
prices at the time of sale.
VALIDITY OF THE MITTS SECURITIES
The validity of the MITTS Securities will be passed upon for ML&Co. and
for the underwriter by Brown & Wood LLP, New York, New York.
S-28
INDEX OF DEFINED TERMS
Page
----
Adjusted Ending Value...................................................... S-4
Adjustment Factor.......................................................... S-5
Business Day............................................................... S-15
Calculation Day............................................................ S-12
Calculation Period......................................................... S-12
Depositary................................................................. S-15
Dow Jones.................................................................. S-6
Final Regulations.......................................................... S-23
Index...................................................................... S-4
Index Business Day......................................................... S-12
Market Disruption Event.................................................... S-14
ML&Co. .................................................................... S-4
MLPF&S..................................................................... S-4
New Regulations............................................................ S-26
Non-U.S. Holder............................................................ S-22
Pricing Date............................................................... S-4
Principal Amount........................................................... S-4
Projected Supplemental Redemption Amount................................... S-23
Starting Value............................................................. S-4
Successor Index............................................................ S-14
Supplemental Redemption Amount............................................. S-4
U.S. Holder................................................................ S-22
Withholding Agent.......................................................... S-25
WSJ........................................................................ S-6
S-29
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[LOGO]
2,500,000 Units
Merrill Lynch & Co., Inc.
Market Index Target-Term Securities(R)
based upon the Dow Jones Industrial AverageSM
due June , 2006
"MITTS(R) Securities"
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
Merrill Lynch & Co.
June , 1999
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