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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------------------------------
For the fiscal year ended December 29, 1995 Commission file number 1-7182
MERRILL LYNCH & CO., INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-2740599
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 449-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, par value $1.33 1/3 New York Stock Exchange;
Chicago Stock Exchange; The
Pacific Stock Exchange; The
Paris Stock Exchange; London
Stock Exchange; and The Tokyo
Stock Exchange
Depositary Shares representing 1/400th share New York Stock Exchange
of 9% Cumulative Preferred Stock, Series A
Rights to Purchase Series A Junior Preferred New York Stock Exchange; Chicago
Stock Stock Exchange; The Pacific
Stock Exchange; The Paris Stock
Exchange; London Stock Exchange;
and The Tokyo Stock Exchange
S&P 500 Market Index Target-Term Securities New York Stock Exchange
("MITTS") due August 29, 1997; S&P 500 MITTS
due July 31, 1998; European Portfolio MITTS
due June 30, 1999; Global Telecommunications
Portfolio MITTS due October 15, 1998; Stock
Market Annual Reset Term Notes ("SMART Notes")
due December 31, 1997; SMART Notes due
December 31, 1999 (Series A); Global Bond
Linked Securities ("GloBLS") due December 31,
1998; Equity Participation Securities with
Minimum Return Protection due June 30, 1999;
Currency Protected Notes ("CPNs") due
December 31, 1998; 6 1/2% Structured Yield
Product Exchangeable for Stock ("STRYPES") due
August 15, 1998
Japan Index Equity Participation Securities American Stock Exchange
with Minimum Return Protection due January 31,
2000; AMEX Oil Index SMART Notes due
December 29, 2000; Nikkei Stock Index 300
Call Warrants, expiring February 3, 1997;
Greater of U.S. Dollar/Japanese Yen Put
Currency Warrants, expiring May 15, 1997;
Russell 2000 Index Call Warrants expiring
November 17, 1998; AMEX Hong Kong 30 Index
Equity Participation Notes due February 16,
1999
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 15, 1996, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was approximately $9.95 billion.
As of March 15, 1996, there were 177,013,550 shares of Common Stock
outstanding (this amount includes 4,012,519 shares held by Merrill Lynch & Co.,
Inc. Employee Stock Ownership Plan that are not considered outstanding for
accounting purposes). All amounts of shares of Common Stock presented herein
reflect the two-for-one Common Stock split, effected in the form of a 100% stock
dividend, paid on November 24, 1993.
Documents Incorporated By Reference:
1. Merrill Lynch & Co., Inc. 1995 Annual Report to Stockholders --
Incorporated by reference in part in Form 10-K, Parts I, II and IV.
2. Merrill Lynch & Co., Inc. Proxy Statement for its 1996 Annual Meeting of
Stockholders dated March 11, 1996 -- Incorporated by reference in part in
this Form 10-K in Parts III and IV.
PART I
ITEM 1. BUSINESS
OVERVIEW
Merrill Lynch & Co., Inc.,* a Delaware corporation, is a holding company formed
in 1973 that, through its subsidiaries and affiliates, provides investment,
financing, insurance, and related services on a global basis. Such services
include securities brokering, trading, and underwriting; investment banking and
other corporate finance advisory activities, including loan syndication; asset
management and other investment advisory services; trading of foreign exchange
instruments, futures, commodities, and derivatives; securities clearance
services; banking, trust, and lending services; and insurance sales and
underwriting services. These services are provided to a large group of clients
and customers, including individual investors, corporations, governments and
governmental agencies, and financial institutions.
In the third quarter of 1995, ML & Co., through a wholly-owned subsidiary,
acquired Smith New Court PLC, a global securities firm based in the United
Kingdom ("Smith New Court"). This acquisition has made ML & Co. the largest
equities organization in the world in terms of research, trading and sales
capabilities and has strengthened its presence in nearly every major global
financial market. Additional information respecting the Smith New Court
acquisition is set forth in the Corporation's 1995 Annual Report to Stockholders
under the caption "Management's Discussion and Analysis -- Results of
Operations" and is incorporated herein by reference.
The Corporation conducts its business from its World Headquarters facility in
New York City, New York, additional principal locations in New Jersey, London,
Tokyo, Hong Kong, various regional facilities located in the United States and
in other countries, and numerous retail sales and other offices throughout the
world.
At December 29, 1995, ML & Co. employed approximately 46,000 people,
approximately 1,200 of which joined ML & Co. as a result of the Smith New
Court acquisition.
The financial services industry in which ML & Co. is a leading participant is
highly competitive and highly regulated. It is directly affected by general
economic conditions, trends in business and finance, government regulation, and
investor sentiment, as well as by interest rate changes, currency volatility,
and fluctuations in equity and commodity prices, both in the U.S. and throughout
the world. The Corporation's revenues are particularly sensitive to industry and
general economic conditions, the volume of securities transactions, and
securities price levels. In addition, its business is subject to foreign
exchange rate fluctuations, regulation by non-U.S. governments, and other
factors inherent in international operations. Furthermore, its business
activities are subject to varying degrees of risk and profitability depending
upon the nature of the activity and the extent to which it has placed its
capital at risk in the conduct of a variety of transactions, including dealer
transactions, investment banking, derivative transactions, syndicated and bridge
loan financing, and other related transactions.
The Corporation conducts its worldwide business through a number of highly
integrated subsidiaries and affiliates which frequently participate in the
facilitation and consummation of a single transaction. Financial information
concerning the Corporation for each of the three
- ----------
* Unless the context otherwise requires, Merrill Lynch & Co., Inc. and its
consolidated subsidiaries are referred to herein as "ML & Co." or the
"Corporation."
fiscal years ended on the last Friday in December of 1995, 1994 and 1993,
including the amount of total revenue contributed by classes of similar products
or services that accounted for 10% or more of its consolidated revenues in any
one of these fiscal periods and information with respect to the Corporation's
operations by geographic area, is set forth in the Corporation's Consolidated
Financial Statements and the Notes thereto in the 1995 Annual Report to
Stockholders, which is incorporated herein by reference.
The business activities of certain significant domestic and international ML &
Co. subsidiaries are described below.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), which traces its
origin to a brokerage business founded in 1820, is one of the largest securities
firms in the world. It is a leading broker in securities, options contracts, and
commodity and financial futures contracts; a leading dealer in options and in
corporate and municipal securities; a leading investment banking firm that
provides advice to, and raises capital for, corporations and other institutional
clients, sovereigns, and municipalities; and an underwriter of selected
insurance products. Merrill Lynch Canada Inc. ("Merrill Lynch Canada"), a
subsidiary of MLPF&S, provides certain of these financial services in Canada.
BROKERAGE TRANSACTIONS. A significant portion of MLPF&S's revenues are generated
by the commissions that it earns as a broker (i.e., agent) for investors in the
purchase and sale of corporate securities, primarily common and preferred stocks
and bonds traded on securities exchanges or in the over-the-counter markets.
MLPF&S also acts as a broker for investors in the purchase and sale of mutual
funds, money market instruments, government securities, corporate and high-yield
bonds, municipal securities, futures, and options, including option contracts
for the purchase and sale of various types of securities. MLPF&S provides such
services to individual and institutional investors.
MLPF&S has established commission rates for all brokerage services that it
performs. For accounts that are actively traded, however, MLPF&S's policy is to
negotiate commissions based on economies of size and the complexity of the
particular trading transaction and, additionally, for its institutional
customers, based on the competitive environment and trading opportunities.
MLPF&S customers participating in the Blueprint (service mark) program can
purchase certain equity securities, mutual funds, and precious metals at a
lower cost due to order processing efficiencies.
At December 29, 1995, there were approximately 7.6 million retail and
institutional customer accounts worldwide at MLPF&S, compared to 7.1 million
accounts at year-end 1994. In the United States and Canada, these accounts were
served by approximately 12,600 retail financial consultants and institutional
account executives, including trainees (as compared with approximately 12,300 at
year-end 1994), in approximately 500 branch offices and 130 special market
offices ("SMOs"). In the rest of the world, these accounts were served through
Merrill Lynch International Incorporated and its subsidiaries and affiliates by
approximately 1,150 retail financial consultants and institutional account
executives at various international locations which are linked with the
communications and trading network of MLPF&S.
MLPF&S, as a futures commission merchant, introduces customers to its affiliate
Merrill Lynch Futures Inc. ("MLF") for the purchase and sale of futures
contracts and options on such futures contracts in substantially all
exchange-traded commodity and financial futures products. MLPF&S and certain of
its affiliates may also take proprietary market positions in futures and
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futures options in certain instances. MLF holds memberships on all major
commodity and financial futures exchanges and clearing associations in the
United States and it also carries positions reflecting trades executed on
exchanges outside of the United States.
All futures and futures options transactions are cleared through and carried by
MLF and other ML & Co. subsidiaries engaged in futures clearing activities. As a
result of their membership in the clearing associations of various futures
exchanges, these ML & Co. entities have potentially significant financial
exposure in the event that other members of futures clearing houses default
materially in their obligations to such clearing houses. In addition, as with
any margin transaction, the risk of loss to MLF and its customers from the
trading of futures contracts is greater than the risk in cash securities
transactions, primarily as a result of the low initial margin requirements (good
faith deposits) relative to the value of the actual futures contracts. MLF may
have financial exposure if a customer fails to meet a margin call. Net worth
requirements, financial reviews, margin procedures, and other credit standards
established for MLF customer futures accounts are intended to limit any exposure
to MLF resulting from its trading in futures accounts. For information
respecting ML & Co.'s credit management policies, see the information set forth
in "Management's Discussion and Analysis -- Risk Management -- Credit Risk" in
the 1995 Annual Report to Stockholders, which discussion is incorporated herein
by reference.
DEALER TRANSACTIONS. MLPF&S regularly makes a market in the equity securities of
approximately 900 U.S. corporations. In addition, it engages in
market-making for approximately 2,000 non-U.S. securities traded in the
over-the-counter markets. Its market-making activities are conducted with
customers and other dealers. In addition, as a block positioner, MLPF&S
regularly acts as a market-maker in certain listed securities. MLPF&S is also a
dealer in municipal, mortgage-backed, asset-backed, and corporate fixed-income
securities. MLPF&S engages in certain commodity-related transactions, such as
purchase and repurchase transactions and precious metals consignments as a
principal.
As an adjunct to its trading activities, MLPF&S places its capital at risk by
engaging in block positioning to facilitate transactions in large blocks of
listed and over-the-counter securities and by engaging, from time to time, in
arbitrage transactions for its own account. In its block positioning activities,
MLPF&S purchases securities, or sells securities short for its own account,
without having full commitments for their resale or covering purchase, thereby
employing its capital to effect large transactions. Such positioning activities
are undertaken after analyzing a given security's marketability and any position
taken typically is liquidated as soon as practicable. In addition, MLPF&S
facilitates various trading strategies involving the purchase and sale of
financial futures contracts and options and, in connection with this activity,
it may establish positions for its own account and risk.
Other ML & Co. subsidiaries act as dealers in certain specified securities,
including governmental obligations, engage in interest rate and foreign currency
swaps and other derivative product transactions with third parties on a
principal or an intermediary basis, and act as foreign exchange dealers. For
further information on ML & Co.'s dealer activities, see below "Merrill Lynch
Government Securities Inc.", "Merrill Lynch Capital Services, Inc., Merrill
Lynch Derivative Products, Inc., and Merrill Lynch Capital Markets PLC", and
"Merrill Lynch's Banking, Trust, and Mortgage Lending Activities".
INVESTMENT BANKING. MLPF&S is a major investment banking firm that participates
in every aspect of investment banking for corporate, institutional and
governmental clients and acts in principal, agency, and advisory capacities. In
addition to underwriting the sale of securities to
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the public, it arranges for the private placement of securities with investors.
MLPF&S also provides a broad range of financial and corporate advisory services
for its clients on strategic matters, including mergers and acquisitions,
divestitures, restructurings, spin-offs, leveraged buyouts, defensive projects,
project financing, mortgage and lease financing, capital structure, and specific
financing opportunities.
MLPF&S, either directly or through affiliates, provides advice, valuation
services, and financing assistance and engages in the underwriting and private
placement of high-yield securities in connection with leveraged buyouts and
other acquisition-related transactions. MLPF&S and its affiliates have, from
time to time, taken principal positions in such transactions. It may extend
credit to clients in the form of senior and subordinated debt, as well as
bridge financing on a select and limited basis. In addition, it may syndicate
loans in connection with corporate transactions, including leveraged
transactions. Substantial funds may be provided to clients on a temporary basis
until permanent financing is obtained. Additionally, MLPF&S and its affiliates
occasionally retain equity interests in the subject companies in connection
with their non-investment grade underwriting and merchant banking activities.
Before MLPF&S and its affiliates engage in any of these financing activities,
an analysis is performed to ascertain the underlying creditworthiness of the
particular client and the liquidity of the market for securities that may be
issued in connection with any such financings and to determine the likelihood
of refinancing the transaction within a reasonable period.
The Corporation, through various subsidiaries and affiliates, including Merrill
Lynch Capital Partners, Inc. ("MLCP") and Merrill Lynch Capital Corporation ("ML
Capital Corp."), has made investments in equity and debt securities in
acquisition transactions, including leveraged buyouts, for which MLPF&S has
acted as financial advisor or underwriter. MLCP manages two leveraged buyout
funds, Merrill Lynch Capital Appreciation Fund I, L.P. and Merrill Lynch Capital
Appreciation Fund II, L.P. (the "Funds") which have been funded primarily by
private investors. ML & Co., through MLPF&S and its other subsidiaries, may
underwrite, trade, invest, and make markets in certain securities of issuers in
which the Funds have invested. In addition, it may provide financial advisory
services to these issuers. ML Capital Corp. has been a participant in
middle-market leveraged acquisitions. Utilizing ML & Co.'s capital, ML Capital
Corp., as principal, has provided senior and subordinated financing to, and
acquired equity interests in, certain companies.
For additional information respecting these investment banking activities, see
"Management's Discussion and Analysis -- Non-Investment Grade Holdings and
Highly Leveraged Transactions" and Note 5 to the Consolidated Financial
Statements in the 1995 Annual Report to Stockholders, which information is
incorporated herein by reference.
MARGIN LENDING. MLPF&S also provides financing to clients, including margin
lending and other extensions of credit. In a margin-based transaction, MLPF&S
extends credit for a portion of the market value of the securities in the
customer's account up to the limit imposed by internal MLPF&S policies and
applicable margin regulations. Since MLPF&S may have financial exposure if a
customer fails to meet a margin call, any margin loan made by MLPF&S is
collateralized by securities in the customer's margin account. Financial
reviews, margin procedures, and other credit standards have been implemented in
an effort to limit any exposures resulting from this margin lending activity.
Interest on margin loans is an important source of revenue for MLPF&S. To
finance margin loans, MLPF&S uses funds on which it pays interest (including
borrowings from ML & Co.), funds on which it does not pay interest, including
its own capital, funds derived from customers' free credit balances to the
extent permitted by regulations, and funds derived from securities loaned. For
additional information respecting ML & Co.'s risk management policies in this
area, see "Management's Discussion
4
and Analysis -- Risk Management -- Credit Risk" in the 1995 Annual Report to
Stockholders, which information is incorporated herein by reference.
SECURITIES AND ECONOMIC RESEARCH. MLPF&S's Global Securities Research and
Economics Group provides the Corporation's institutional and retail sales forces
and customers with investment and related information on global securities
markets and economic conditions. MLPF&S provides fundamental equity, fixed-
income, technical market, and quantitative analyses; convertible securities
analyses; investment and fixed-income strategy; high-yield debt securities
research; credit research on municipal securities; and futures research
information. MLPF&S provides research on more than 3,000 companies located in
50 countries. By means of a computer-based retrieval system available in each
MLPF&S branch or affiliate office, current information and investment opinions
on the common equity securities of approximately 1,900 corporations worldwide
are readily available to all of the Corporation's retail and institutional
customers through their financial consultants and account executives.
SECURITIES CLEARING SERVICES. MLPF&S provides securities clearing services
through its subsidiaries Broadcort Capital Corp. ("BCC") and Wagner Stott
Clearing Corp. ("WSCC"). BCC provides these services to approximately 89
unaffiliated broker-dealers. Those utilizing BCC's clearing services may also
execute transactions through BCC's fixed-income desk and participate in
underwritings of Defined Asset FundsSM sponsored by MLPF&S. While the
broker-dealer firm retains all sales functions with their customers, BCC
services the customers' accounts and handles all settlement and credit aspects
of transactions. WSCC clears transactions for specialists and market-makers on
various national and regional stock exchanges; clears commodities futures
transactions for clients through a divisional clearing arrangement with MLF and
other futures commissions merchants; and clears transactions of arbitrageurs,
customers, and other professional trading entities.
SALES OF INVESTMENT ADVISORY PRODUCTS AND SERVICES AND OTHER ACTIVITIES. In
1995, MLPF&S sold more than $24.5 billion of mutual funds, including income,
balanced, and growth funds, of which approximately $13.4 billion represented
sales of mutual funds advised by its affiliate MLAM (as defined below).
MLPF&S also sponsors Defined Asset Funds (service mark), a series of funds that
are unit investment trusts registered under the Investment Company Act of 1940.
These funds have invested in municipal obligations, corporate fixed-income
securities, U.S. Government obligations, U.S. equity securities, and non-U.S.
equity and debt securities. At the end of 1995, approximately $13 billion of
client funds were invested in Defined Asset Funds.
In addition, MLPF&S offers the Merrill Lynch Consults (registered trademark)
service for an annual fee to individual and institutional clients with at
least $100,000 to invest. Through the Merrill Lynch Consults service, MLPF&S
assists these clients in identifying their investment objectives so that
appropriate third party investment managers can be selected based on those
stated objectives. In addition, periodic performance reports are provided on
the managed account. More than 25 of the investment managers participating in
the Merrill Lynch Consults service manage portfolios in seven risk categories
using varying proportions of equity and fixed-income instruments. At the end of
1995, approximately $17 billion was held in approximately 77,000 client accounts
subscribing to the Merrill Lynch Consults service.
MLPF&S also provides Cash Management Account (registered trademark) financial
services (the "CMA (registered trademark) account service") in all MLPF&S retail
offices. Participating customers may access their assets through VISA
(registered trademark) cards issued by Merrill Lynch National Financial and
Merrill Lynch Bank & Trust Co. and through checking services provided by Bank
One, Columbus, N.A. Customers may also obtain
5
through a toll free information service and monthly account statements
information concerning the securities and balances in their CMA accounts and, if
a margin account, the loan value of margin securities in such account. The CMA
account service money market funds are managed by MLAM (as defined below). At
the end of 1995, MLPF&S had more than 1.4 million CMA accounts for its United
States customers, with aggregate assets of approximately $325 billion (as
compared with approximately $265 billion at year-end 1994). In addition, there
are approximately 40,500 CMA accounts held by the Corporation's clients outside
the United States with aggregate assets of more than $16 billion.
MLPF&S also offers the Capital Builder (service mark) Account service ("CBA
(registered trademark) account"), which was developed to meet the needs of the
new investor through all MLPF&S retail offices. At the end of 1995, MLPF&S
had more than 330,000 CBA accounts with assets of approximately $15 billion.
MLPF&S also provides a wide variety of retirement plan products, particularly
investment, employee education, and recordkeeping services to 401(k) and other
benefit plans. At December 29, 1995, it provided these services to approximately
7,000 plans, representing $35.5 billion in plan assets.
MERRILL LYNCH INTERNATIONAL INCORPORATED
Merrill Lynch International Incorporated ("MLI"), through its subsidiaries and
affiliates, provides comprehensive investment, financing, and related services
on a global basis outside the United States and Canada to sovereign governments,
corporations, and other institutional clients and individual investors. The
Corporation's acquisition of Smith New Court and its subsidiaries has
strengthened its presence in the global community.
MLI's worldwide trading operations, particularly in London and Tokyo, make it
one of the largest dealers and secondary market-makers in Eurobonds and other
internationally traded securities and futures and a significant participant in
the over-the-counter equity derivatives business. MLI, through its subsidiary
MLIB Limited (as defined below), also engages in foreign exchange transactions
(including options on non-U.S. currencies) as a dealer and consequently assumes
principal positions in numerous currencies and related options. MLI and its
subsidiaries and affiliated companies are members of various non-U.S. stock and
futures exchanges and engage in over-the-counter and exchange-listed trading of
commodities, including precious metals and base metals. The investment,
financing, and market-making operations of MLI and its affiliates are conducted
through a network of offices, including representative and liaison offices,
located in more than 40 countries outside the United States and Canada. This
office network services major "money center" institutions as well as thousands
of smaller regional institutions and individual investors.
Information on international banking and foreign exchange activities of MLI and
certain of its subsidiaries is set forth below under the caption "Merrill
Lynch's Banking, Trust, and Mortgage Lending Activities."
MERRILL LYNCH ASSET MANAGEMENT
The Corporation's asset management activities are conducted through, or managed
by, Merrill Lynch Asset Management, LP, Fund Asset Management, LP, and their
affiliates (together, "MLAM"). MLAM constitutes the investment management arm of
ML & Co., and is one of the largest mutual fund managers in the world. In 1995,
sales of equity and bond funds managed by MLAM approximated $13.4 billion.
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MLAM's other major business activity is separate account management. Assets
under management were $26.2 billion at the end of 1995 (which amount includes
approximately $3.9 billion of general account assets managed on behalf of
insurance companies that are affiliates of MLAM) as compared with approximately
$24.3 billion in 1994 (which amount includes approximately $4.4 billion of
general account assets managed on behalf of insurance companies that are
affiliates of MLAM).
By the end of 1995, total assets under management approximated $196 billion, as
compared with $164 billion at year-end 1994.
At the end of 1995, MLAM managed 217 portfolios representing a wide variety of
investment objectives ranging from money market funds to long-term taxable and
tax-exempt fixed income funds, along a broad spectrum of quality ratings and
maturities. In addition, MLAM offers a wide variety of equity funds which in the
aggregate invest in more than 48 markets globally. MLAM open-end funds, other
than money-market funds, are generally offered pursuant to the Merrill Lynch
Select Pricing (service mark) System which allows investors four purchase
alternatives.
MERRILL LYNCH GOVERNMENT SECURITIES INC.
Merrill Lynch Government Securities Inc. ("MLGSI") is a primary dealer in
obligations issued or guaranteed by the United States Government and by Federal
agencies or other government-sponsored entities, including Government National
Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"),
and Federal Home Loan Mortgage Corporation ("FHLMC"). It is one of 37 primary
government securities dealers that daily report positions and activities to the
Federal Reserve Bank of New York. It is a dealer in GNMA, FNMA and FHLMC
mortgage-backed-pass-through certificates and deals in related futures, options,
and forward contracts for its own account, to hedge its own risk, and to
facilitate customers' transactions.
MLGSI's transactions in obligations of the United States Government, Federal
agencies and government-sponsored entities involve large dollar amounts and
small dealer spreads. As an integral part of its business, MLGSI enters into
repurchase agreements whereby it obtains funds by pledging its own securities as
collateral. The repurchase agreements provide financing for MLGSI's dealer
inventory and serve as short-term investments for MLGSI's customers. MLGSI also
enters into reverse repurchase agreements whereby it lends funds against the
pledge of collateral by customers. Such agreements provide MLGSI with needed
collateral and provide MLGSI's customers with temporary liquidity for their
investments in United States Government and agency securities.
MERRILL LYNCH CAPITAL SERVICES, INC., MERRILL LYNCH DERIVATIVE PRODUCTS,
INC., AND MERRILL LYNCH CAPITAL MARKETS PLC
Merrill Lynch Capital Services, Inc. ("MLCS") and Merrill Lynch Derivative
Products, Inc. ("MLDP") are ML & Co.'s primary derivative product dealers and
act as intermediaries and principals in a variety of interest-rate, currency,
and other over-the-counter derivative transactions. In addition, Merrill Lynch
Capital Markets PLC engages in the equity derivatives business in the
over-the-counter markets. In 1995, Merrill Lynch Capital Markets Bank Limited
was established in Dublin, Ireland to handle part of the Corporation's
non-dollar swap activities.
MLCS primarily acts as a counterparty for certain derivative financial products,
including interest rate, currency and commodity swaps, caps and floors, currency
options, and credit derivatives. MLCS maintains positions in interest-bearing
securities, financial futures, and
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forward contracts primarily to hedge assets and liabilities. In the normal
course of its business, MLCS enters into repurchase and resale agreements with
certain affiliated companies.
MLDP acts as an intermediary for certain derivative products, including interest
rate and currency swaps between MLCS and highly-rated counterparties. Its
activities address the continuing desire of swap customers to limit their
trading to dealers with the highest credit quality. MLDP has been assigned an
Aaa, AAA, and AAA counterparty rating by the rating agencies Moody's Investors
Service, Inc., Standard & Poor's Ratings Group, and Fitch Investors Service,
Inc., respectively. Customers meeting certain credit criteria enter into swaps
with MLDP and, in turn, MLDP enters into offsetting mirror swaps with MLCS.
However, MLCS is required to provide MLDP with collateral to meet certain
exposures MLDP may have to MLCS.
For additional information regarding the Corporation's derivatives business,
including its accounting, risk, and credit policies, see "Management's
Discussion and Analysis -- Derivative Financial Instruments" in the 1995 Annual
Report to Stockholders and Notes 4, 5, and 6 to the Consolidated Financial
Statements in the 1995 Annual Report to Stockholders, which information is
hereby incorporated herein by reference.
MERRILL LYNCH MONEY MARKETS INC.
ML & Co., through Merrill Lynch Money Markets Inc. ("MLMMI"), provides a full
range of origination, trading, and marketing services with respect to money
market instruments such as commercial paper, bankers' acceptances, and
institutional certificates of deposit. MLMMI also originates medium-term notes
issued by U.S. and non-U.S. corporations and short- and medium-term
notes issued by financial institutions, and through MLPF&S, it trades and
markets such notes. MLMMI is also a commercial paper dealer for U.S. and
non-U.S. corporations and financial institutions. MLMMI also acts as a dealer
for U.S. and non-U.S. financial institutions in the certificate of deposit and
bankers' acceptance markets and in connection with the purchase of certificates
of deposit from federally-insured depository institutions. Such instruments are
resold to certain institutional customers such as thrift institutions, banks,
insurance companies, pension plans, and state and local governments. MLMMI, in
cooperation with MLPF&S, originates the placement of certificates of deposit
issued by such depository institutions that are sold to a broad range of retail
customers of MLPF&S.
MERRILL LYNCH MORTGAGE CAPITAL INC.
Merrill Lynch Mortgage Capital Inc. ("MLMCI") is a dealer in whole loan
mortgages and mortgage servicing. MLMCI, through its CMO Passport (service mark)
service, provides dealers and investors with general indicative information and
analytic capability with respect to collateralized mortgage obligations ("CMOs")
and asset-backed securities. As an integral part of its business, MLMCI enters
into repurchase agreements whereby it obtains funds by pledging its own whole
loans as collateral. The repurchase agreements provide financing for MLMCI's
inventory and serve as short-term investments for MLMCI's customers. MLMCI also
enters into reverse repurchase agreements through which it makes loans to
customers collateralized by loan mortgages providing customers with temporary
liquidity for their investments in secured whole loans. MLMCI also has a
mortgage conduit which purchases commercial and multi-family mortgage loans
from lenders and securitizes these loans for sale to investors.
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MERRILL LYNCH INVESTMENT PARTNERS INC.
Merrill Lynch Investment Partners Inc. ("MLIP"), serves principally as the
general partner and commodity pool operator of public and privately offered
commodity pools for which MLF acts as commodity broker and MLPF&S acts as
selling agent. MLIP also structures and sponsors managed futures investments to
meet a variety of client objectives. MLIP is one of the largest managed futures
sponsors in the world as measured by assets under its management and by its
financial resources. MLIP is an integrated business, whose capabilities include
research, trading, finance, systems, operations, sales, and marketing. MLIP's
responsibilities include selecting and monitoring trading advisors, as well as
allocating and reallocating capital among them. At December 29, 1995,
approximately $1.3 billion in equity was invested or was to be invested in 41
U.S. and non-U.S. commodity futures funds which MLIP has sponsored or been
selected to manage (as compared with approximately $1.2 billion in equity
invested or to be invested in 48 commodity futures funds worldwide at the end
of 1994).
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
Merrill Lynch Business Financial Services Inc. ("MLBFS") provides financing
services to small- and medium-sized businesses in conjunction with the Working
Capital Management (service mark) account ("WCMA (registered trademark)
Account"), which MLPF&S markets to business customers. The WCMA Account combines
business checking, borrowing, investment, and electronic funds transfer services
into one account for participating business customers. As of December 29, 1995,
there were more than 120,000 WCMA Accounts which, in the aggregate, had
investment assets of more than $50 billion. In addition to providing qualifying
customers with short-term working capital financing through the WCMA Commercial
Line of Credit, MLBFS offers assistance to business customers with their term
lending, equipment, and other asset-based financing needs. In 1995, MLBFS
originated more than $575 million in new commercial loans for business customers
and, at December 29, 1995, total outstanding loans were $760 million, of which
approximately 97% were secured by tangible assets pledged by customers.
MERRILL LYNCH'S INSURANCE ACTIVITIES
ML & Co.'s operations in insurance services consist of the underwriting of life
insurance and annuity products by Merrill Lynch Life Insurance Company ("MLLIC")
and ML Life Insurance Company of New York ("ML Life") and the sale of life
proprietary and non-proprietary insurance and annuity products through Merrill
Lynch Life Agency Inc. and other insurance agencies affiliated or associated
with MLPF&S.
MLLIC, an Arkansas stock life insurance company, is authorized to underwrite
insurance and annuities products in 49 states, the District of Columbia, Guam,
and the U.S. Virgin Islands which are then marketed to MLPF&S customers.
Although authorized to do so, it does not presently underwrite accident
and health insurance. At year-end 1995, MLLIC had approximately $11.2 billion
of life insurance in force as compared with $10.8 billion at year-end 1994. At
year-end 1995, MLLIC had annuity contracts in force of approximately $6.4
billion in value as compared with $6 billion at year-end 1994.
ML Life, a New York stock life insurance company, is authorized to underwrite
life insurance, annuities, and accident and health insurance in nine states;
however, it does not presently underwrite accident and health insurance. At
year-end 1995, ML Life had approximately $2.2 billion of life insurance in
force, as compared with $2.1 billion of life insurance in force at year-end
1994. Life insurance in force includes $1.3 billion reinsured from yearly
renewable term
9
insurance of an unaffiliated insurer. At year-end 1995, ML Life had annuity
contracts in force of approximately $485 million in value, as compared with $457
million at year-end 1994.
Through agency agreements, licensed affiliate insurance agencies and other
insurance agencies associated with MLPF&S sell life and health insurance and
annuities products. A significant portion of these sales consists of products
underwritten by MLLIC and ML Life.
For additional information respecting the Corporation's insurance activities
through its subsidiaries, see the 1995 Annual Report to Stockholders at Note 1
to the Consolidated Financial Statements under the caption "Insurance".
MERRILL LYNCH'S BANKING, TRUST, AND MORTGAGE LENDING ACTIVITIES
Merrill Lynch Bank & Trust Co. and Merrill Lynch National Financial, both
Federal Deposit Insurance Corporation-insured institutions, issue certificates
of deposit and money market deposit accounts (including the Insured Savings
(service mark) Account for the CMA account service), make and purchase secured
loans, and issue VISA (registered trademark) cards.
Merrill Lynch International Bank Limited ("MLIB Limited"), a United Kingdom bank
with branch offices in Germany, Singapore, Bahrain, Luxembourg, and Italy
provides foreign exchange trading and collateralized lending services and
accepts deposits. Merrill Lynch International Bank, an Edge Act corporation
("MLIB"), provides foreign exchange trading services to corporations and
institutions. Merrill Lynch Bank (Suisse) S.A., a Swiss bank, provides loans,
deposits, portfolio management, and individual client services to international
private banking clients. Merrill Lynch Bank A.G., a German bank with a branch
office in Japan, engages in capital markets activities such as underwriting,
foreign exchange, and swap and other derivative transactions.
The Corporation provides personal trust, employee benefit trust, and custodial
services in certain states through six state-chartered trust institutions. Trust
services outside of the United States are provided by Merrill Lynch Bank and
Trust Company (Cayman) Limited.
Merrill Lynch Credit Corporation ("MLCC") provides real estate-based lending
products enabling clients to purchase and refinance their homes as well as to
manage their other personal credit needs. MLCC offers a variety of
adjustable-rate and fixed-rate first mortgage loans throughout the United
States, including the PrimeFirst (registered trademark) mortgage program.
In addition, MLCC originates and services home equity credit lines and other
mortgage loans as well as services mortgage loans for affiliated and
unaffiliated financial institutions. MLCC uses a variety of financing
techniques to fund its loan portfolio, including securitizing its mortgages
for sale into the secondary marketplace. MLCC also provides securities-based
lending through its Omega(service mark) account, a personal line of credit using
eligible securities as collateral that is accessible by VISA (registered
trademark) card and by check.
COMPETITION
All aspects of ML & Co.'s business are intensely competitive, particularly in
the current securities industry environment of global overcapacity in
underwriting, trading, and operations. Through its subsidiaries, it competes
directly on a worldwide basis with other U.S. and non-U.S. trading, investment
banking, and financial services firms, brokers and dealers in securities and
commodities, and with commercial banks, particularly in its derivative and
wholesale
10
capital markets businesses. Many of the Corporation's international competitors
may have competitive advantages in their home markets. Through its subsidiaries,
the Corporation also competes indirectly for investment funds with mutual fund
management companies, insurance companies, finance and investment advisory
companies, and banks. Its competitive position depends to an extent on
prevailing worldwide economic conditions and U.S. and non-U.S. governmental
policies.
ML & Co. competes for customers on the basis of price, the range of products
that it offers, the quality of its services, its financial resources, and
product innovation. Financial services companies also compete to attract and
retain successful financial consultants and other revenue-producing personnel.
There is increased competition from sources other than those traditionally
engaged in the securities business, such as commercial banks and insurance
companies. Certain U.S. judicial and regulatory actions in recent years
concerning, among other things, the authority of bank affiliates to engage in
securities underwriting and brokerage activities have resulted in increased
competition in those aspects of the Corporation's business. In addition,
domestic legislative proposals are made from time to time which, if enacted,
would relieve certain restrictions on commercial banks and would result in
increased competition from commercial banks and their affiliates.
The Corporation's insurance businesses operate in highly competitive
environments. Many companies, both stock and mutual, are older and larger and
have more substantial financial resources and larger agency relationships than
do the Corporation's insurance subsidiaries.
REGULATION
Certain aspects of the Corporation's business, as that of its competitors and
with the securities, commodities, and financial services industry in general,
are subject to stringent regulation by U.S. federal and state regulatory
agencies and non-U.S. governmental agencies or regulatory bodies which have been
charged with the protection of the financial markets and the interests of those
participating in those markets. These regulatory agencies include, among others,
the Securities and Exchange Commission (the "SEC" or the "Commission"), the
Commodity Futures Trading Commission ("CFTC"), and the Federal Deposit Insurance
Corporation (the "FDIC").
MLPF&S and certain other subsidiaries of ML & Co. are registered as
broker-dealers with the SEC and as such are subject to regulation by the SEC and
by self-regulatory organizations, such as the National Association of Securities
Dealers, Inc. (the "NASD"). MLPF&S, those ML & Co. subsidiaries engaged in
securities clearing services, and Merrill Lynch Specialists Inc., a ML & Co.
subsidiary acting as a specialist on certain securities exchanges, are also
subject to regulation by the NASD and by the securities exchanges of which each
is a member. Certain ML & Co. subsidiaries, including MLPF&S, MLAM, and
MLIP, are registered as investment advisers with the SEC. MLPF&S and MLAM are
registered as investment advisers with certain states requiring such
registration.
Certain ML & Co. subsidiaries, including MLPF&S, are regulated as
broker-dealers under the laws of the jurisdictions in which they operate. Those
ML & Co. entities that are broker-dealers registered with the SEC and members of
the United States national securities exchanges are subject to Net Capital Rule
15c3-1 under the Securities Exchange Act of 1934 (the "Exchange Act") which is
designed to measure the general financial condition and liquidity of a
broker-dealer. Under this rule, they are required to maintain the minimum net
capital
11
deemed necessary to meet broker-dealers' continuing commitments to customers and
others. Under certain circumstances, this rule limits the ability of ML & Co. to
make withdrawals of capital from such broker-dealers. Additional information
regarding net capital requirements, set forth in Note 14 to the Consolidated
Financial Statements under the caption "Regulatory Requirements and Dividend
Restrictions" in the 1995 Annual Report to Stockholders, is incorporated herein
by reference.
The Corporation is also subject to the temporary risk assessment rules adopted
by the SEC under the Market Reform Act of 1990, which require, among other
things, that certain broker-dealers maintain and preserve records and other
information, describe risk management policies and procedures, and report on the
financial condition of certain affiliates whose financial and securities
activities are reasonably likely to have a material impact on the financial and
operating condition of the broker-dealer.
Broker-dealers are also subject to other regulations covering the operations of
their business, including sales and trading practices, use of client funds and
securities, and conduct of directors, officers, and employees. Broker-dealers
are also subject to regulation by state securities administrators in those
states where they do business. Violations of the stringent regulations governing
the actions of a broker-dealer can result in the revocation of broker-dealer
licenses, the imposition of censures or fines, the issuance of cease and desist
orders, and the suspension or expulsion from the securities business of a firm,
its officers or employees. With the enactment of the Insider Trading and
Securities Fraud Enforcement Act of 1988, the SEC and the securities exchanges
have intensified their regulation of broker-dealers, emphasizing in particular
the need for supervision and control by broker-dealers of their employees.
Furthermore, the SEC, various banking regulators, the Financial Accounting
Standards Board and Congressional committees, among others, have launched a
number of initiatives which may have the effect of increasing regulation of, and
requiring greater disclosure on, derivatives positions and activities. In March
1995, a committee known as the Derivatives Policy Group (the "DPG"), consisting
of representatives of ML & Co. and five other major U.S. securities firms,
agreed to implement a voluntary oversight framework to address issues related to
capital, management controls, and counterparty relationships arising out of the
OTC derivatives activities of unregulated affiliates of SEC-registered
broker-dealers and CFTC-registered futures commission merchants. In connection
with this initiative, the Corporation formed the Risk Control Committee to
provide general oversight of risk management for all institutional trading
activities and to monitor compliance with the Corporation's commitment under the
DPG's Framework for Voluntary Oversight.
Additional legislation and regulations, changes in rules promulgated by the SEC
or other U.S. federal and state governmental regulatory authorities and
self-regulatory organizations, as well as non-U.S. governments and governmental
regulatory agencies, or changes in the interpretation or enforcement of laws and
rules, may directly affect the manner of operation and profitability of the
Corporation.
The Corporation's registered government securities dealer is also subject to
regulation by the NASD and the Chicago Board of Trade and is required to
maintain minimum net capital pursuant to rules of the U.S. Department of the
Treasury. The Corporation's futures commission merchants are regulated by the
CFTC, the National Futures Association ("NFA") and the commodity exchanges of
which each is a member. The CFTC and the NFA impose net capital requirements on
these companies. MLIP is registered with the CFTC as a
12
commodity pool operator and commodity trading advisor and is a member of the NFA
in such capacities.
Merrill Lynch Canada is an investment dealer in Canada and is regulated under
the laws of the Canadian provinces by securities authorities and by the
Investment Dealers Association of Canada. It is also a member of all major
Canadian exchanges and is subject to their rules and regulations.
ML Life is subject to extensive regulation and supervision by the New York State
Insurance Department. MLLIC is subject to extensive regulation and supervision
by the Insurance Department of the State of Arkansas. Both MLLIC and ML Life are
subject to similar regulation in the other states in which they are licensed.
Merrill Lynch Bank & Trust Co. is regulated primarily by the State of New Jersey
and by the FDIC. Merrill Lynch Trust Company (New Jersey), MLBFS, and MLCC are
regulated by the New Jersey Department of Banking. MLCC is also licensed to
conduct its lending activities in over 35 other states and as such is subject
to regulation and examination by the appropriate authorities in these states.
Merrill Lynch National Financial is regulated primarily by the State of Utah
and by the FDIC. MLIB is regulated by the Federal Reserve Bank of New York.
MLIB Limited is regulated by the New York State Banking Department.
The Corporation's trust institutions are subject to regulation by the
governmental agencies in the states in which they are incorporated.
The Corporation's business is also subject to extensive regulation by various
non-U.S. governments, securities exchanges, central banks, and regulatory
bodies, particularly in those countries where it has established an office. The
Corporation's subsidiaries engaged in banking activities outside the United
States are regulated by various governmental entities in the particular
jurisdiction where they are chartered, incorporated and/or conduct their
business activities.
ITEM 2. PROPERTIES
The executive offices and a significant portion of ML & Co.'s business
activities are located in a building on 250 Vesey Street (the "North Tower") in
the World Financial Center ("WFC") in New York City. Additional offices,
operations, and functions are located at 225 Liberty Street (the "South Tower")
in the WFC. An ML & Co. affiliate is a partner in the partnership that holds the
ground lessee's interest (including the right to grant occupancy and possession
to tenants) in the North Tower. The North Tower and the South Tower are each
occupied under separate leases held by an ML & Co. affiliate. Both the North and
South Tower leases commenced in 1988. The information regarding lease
commitments of ML & Co. (including commitments for leases of premises) is set
forth in Note 17 to the Consolidated Financial Statements under the caption
"Leases" of the 1995 Annual Report to Stockholders and is hereby incorporated
by reference.
ML & Co. affiliates also occupy additional principal locations in New Jersey at
which certain of the Corporation's business activities are conducted. These
include owned facilities in Plainsboro on 240 acres and on 35 acres (which is
the replacement facility for leased locations in Somerset where two leases
expired in 1994 and one expired in 1995); a leased facility in Piscataway (lease
expiring in 2005); and a leased facility in Jersey City (lease expiring in 2007,
exclusive of renewals) in which an ML & Co. affiliate holds an interest in
partnerships that own the land and the building and in which another ML & Co.
affiliate holds the lease for office space housing support functions. Other
significant facilities are at three New York City locations held by
13
MLPF&S under leases expiring in 2000, 2007, and 2024, exclusive of extensions.
Affiliates of ML & Co. also own significant facilities in Lakewood and
Englewood, Colorado and Jacksonville, Florida.
Insurance activities are conducted by insurance subsidiaries of ML & Co. at
locations in Plainsboro, New Jersey (fee-owned facility), Jacksonville, Florida
(fee-owned facility), New York City (lease expiring in 2000), Springfield,
Massachusetts (sublease expiring in 1997), and at additional locations at MLPF&S
branch offices throughout the United States which service MLPF&S branch offices.
An ML & Co. affiliate leases a building with approximately 250,000 square feet
at Ropemaker Place, London. The lease commenced in 1987 and continues for 25
years with a right to cancel in the year 2002. As a result of the Smith New
Court acquisition, another ML affiliate leases a building with approximately
170,000 square feet at Farringdon Road in London. This lease commenced in 1990
and continues for 25 years. Another ML & Co. affiliate leases 97,000 square feet
of office space in Tokyo. The lease, which expires in the year 2003, can be
canceled at any time on six-months notice.
Substantially all other offices, including approximately 500 branch offices and
more than 130 SMOs, of ML & Co.'s subsidiaries throughout the world, are located
in leased premises. Facilities owned or occupied by the Corporation are believed
to be adequate for the purposes for which they are currently used and are well
maintained.
ITEM 3. LEGAL PROCEEDINGS
ML & Co., certain of its subsidiaries, including MLPF&S, and other persons have
been named as parties in numerous civil actions and arbitration proceedings,
including the following. Each of the following actions is reported as of March
22, 1996.
Orange County Litigation. The following actions have been filed against or on
behalf of the Corporation in connection with the Corporation's business
activities with the Treasurer-Tax Collector of Orange County, California
("Orange County") or from the purchase of debt instruments issued by Orange
County that were underwritten by MLPF&S. On December 6, 1994, bankruptcy
petitions were filed on behalf of Orange County and the Orange County Investment
Pools (the "Pools") in the United States Bankruptcy Court for the Central
District of California (the "Bankruptcy Court"). The Pools' bankruptcy petition
subsequently was dismissed. The currently pending actions involving the
Corporation and Orange County include, in the order summarized below, an action
in the names of Orange County and the current Orange County Treasurer-Tax
Collector; actions by investors and participants in the Pools; actions by
investors in the Corporation or affiliated entities; and actions by holders of
bonds or other debt instruments issued by or on behalf of Orange County and
other public entities with funds controlled by the Orange County Treasurer-Tax
Collector.
On January 12, 1995, an action was commenced in the Bankruptcy Court by Orange
County and the Pools against the Corporation and certain of its subsidiaries
(the "Orange County Action"). Orange County filed a first amended complaint on
June 6, 1995, which was dismissed on October 17, 1995. Orange County filed a
second amended complaint on October 25, 1995 adding John M.W. Moorlach, the
current Orange County Treasurer-Tax Collector, as a plaintiff, and alleging,
among other things, that the Corporation's liquidation of certain securities
entitles the plaintiffs to relief under Sections 362, 502, 510, 549 and 922 of
the Bankruptcy Code, that various securities transactions between Orange County
and/or the Pools and the Corporation and its subsidiaries violated California
law and are null and void,
14
that the Corporation and its subsidiaries violated Section 10(b) of the Exchange
Act and Rule 10b-5 promulgated thereunder, Section 25401 of the California
Corporations Code (the "California Code"), Section 17200 of the California
Business and Professions Code, Sections 1709-10 of the California Civil Code,
breached fiduciary duties, aided and abetted breaches of fiduciary duty and
conspired to make unauthorized use of public funds. Damages in excess of $2
billion, injunctive and declaratory relief are sought.
On March 1, 1995, the parties entered into an agreement pursuant to which the
proceeds from the sale of securities purchased by the Corporation from Orange
County pursuant to certain master repurchase agreements are to be used to
purchase short-term United States Treasury Bills or United States Treasury Notes
that will be identifiable and held separate and subject to any rights that the
Corporation may have in the master repurchase agreements. This agreement may be
terminated by the Corporation upon 30 days' written notice.
On December 13, 1994, a purported class action was commenced in the Superior
Court of the State of California, Orange County, on behalf of individuals whose
funds were deposited with the Orange County Treasurer-Tax Collector pursuant to
proceedings in California Superior Court (the "DeLeon Action"). On December 27,
1994, plaintiffs filed a first amended class action complaint; on April 19,
1995, plaintiffs filed a second amended complaint which was dismissed on
November 13, 1995 and on December 18, 1995 plaintiffs filed a third amended
complaint. As amended, the DeLeon Action is brought on behalf of the same
individuals on whose behalf the action was originally brought and on behalf of
individuals who invested funds in the Pools representing deferred compensation
and/or retirement funds. The defendants include the Corporation, a subsidiary of
the Corporation, and an employee of the Corporation. Plaintiffs allege, among
other things, that the defendants breached fiduciary duties, aided and abetted
breaches of fiduciary duties, conspired to breach a fiduciary duty and committed
professional negligence in connection with the Corporation's business activities
with the Orange County Treasurer-Tax Collector. Damages in an unspecified amount
are sought. The parties have agreed to stay this action pending developments in
the Orange County Action described above.
On January 10, 1995, a purported class action was commenced in the Superior
Court of the State of California, Orange County, on behalf of persons whose
funds were deposited in the Pools pursuant to proceedings in California Superior
Court (the "Small Action"). The Corporation, a subsidiary of the Corporation, an
employee of the Corporation, and Robert L. Citron, formerly the Treasurer-Tax
Collector of Orange County, are named as defendants. Plaintiffs allege claims
for breach of fiduciary duty and fraud in connection with the Corporation's
business activities with the Orange County Treasurer-Tax Collector. Injunctive
relief and damages in an unspecified amount are sought. The complaint was never
served.
On September 15, 1995, an action was commenced in the Superior Court for the
State of California, San Francisco County, by twelve California public entities
(the "Atascadero State Court Action"). Named as defendants are the Corporation,
certain subsidiaries of the Corporation, and an employee of the Corporation. The
complaint alleges, among other things, that the defendants committed fraud and
deceit, negligence and negligent misrepresentation, breached fiduciary duties,
aided and abetted breaches of fiduciary duty, and violated California Penal Code
Section 496 and the California Unfair Business Practices Act, in connection with
the Corporation's business activities with the Orange County Treasurer-Tax
Collector. Injunctive relief, rescission, restitution, and damages in excess of
$50 million are sought. The case has been transferred to Contra Costa County,
California.
15
On November 27, 1995, an action was commenced in the United States District
Court for the Central District of California by fourteen California public
entities (the "Atascadero Federal Court Action"). Named as defendants are the
Corporation, certain subsidiaries of the Corporation, and an employee of the
Corporation. John Moorlach is named as a nominal defendant. The complaint
alleges, among other things, that defendants violated Sections 10(b) and 20(a)
of the Exchange Act and Rule 10b-5 promulgated thereunder, Sections 25400,
25401, 25500 and 25501 of the California Code, Section 496 of the California
Penal Code, the California Unfair Business Practices Act, and the Racketeer
Influenced and Corrupt Organizations Act ("RICO"), committed fraud and deceit,
negligence and negligent misrepresentation, breached fiduciary duties, and aided
and abetted breaches of fiduciary duty, in connection with the Corporation's
business activities with the Orange County Treasurer-Tax Collector. Rescission,
restitution, and damages in excess of $50 million are sought. The complaint in
this action has not been served.
Beginning on December 5, 1994, five derivative actions purportedly brought
on behalf of the Corporation were filed in the Supreme Court of the State of
New York, New York County (the "Wilson Actions"). On February 21, 1995, the
court consolidated the actions and an amended consolidated complaint was filed
on June 5, 1995 naming as defendants 22 present or past directors, officers or
employees of the Corporation and/or certain of its subsidiaries. The complaint
alleges, among other things, breach of fiduciary duty and oversight failures,
waste of corporate assets and claims for indemnification in connection with the
Corporation's business activities with the Orange County Treasurer-Tax
Collector. The Corporation is named as a nominal defendant in these actions.
Damages in an unspecified amount are sought on behalf of the Corporation against
the individuals named as defendants.
On December 16, 1994, a purported class action was commenced in the United
States District Court for the Southern District of New York (the "Balan
Action"). An amended complaint was filed on May 15, 1995. As amended, the Balan
Action is brought on behalf of purchasers of the Corporation's common stock
between March 31, 1994 and December 6, 1994, and names as defendants the
Corporation and two of its directors and officers. The plaintiff alleges, among
other things, violations of Sections 10(b) and 20(a) of the Exchange Act and
Rule 10b-5 promulgated thereunder in connection with the Corporation's
disclosure with respect to its business activities with the Orange County
Treasurer-Tax Collector. Damages in an unspecified amount are sought.
Beginning on December 8, 1994, ten purported class actions were commenced in the
United States District Court for the Central District of California on behalf of
individuals who purchased bonds or other debt instruments issued by or on behalf
of Orange County during various periods of time (the "Smith Federal Court
Action"). Plaintiffs filed an amended consolidated complaint on January 27,
1995, and a first amended consolidated complaint on February 27, 1995. As
amended, the Smith Federal Court Action purports to be brought on behalf of all
persons who purchased bonds or other debt instruments between July 1, 1992 and
December 6, 1994 that were issued by Orange County or other public entities with
funds controlled by the Orange County Treasurer-Tax Collector. The defendants in
the first amended consolidated complaint are the Corporation, an employee of the
Corporation, Paine Webber, Inc., CS First Boston Corp., Smith Barney, Inc.,
Lehman Brothers, Inc., Donaldson, Lufkin & Jenrette, Inc., Kidder Peabody & Co.,
Inc., Stone & Youngberg, Rauscher Pierce Refsnes, Inc., Leifer Capital, Inc.,
Fieldman Rolapp & Associates, Inc., CGMS, Inc., and O'Brien Partners, Inc.
Following a stipulation and order filed on July 17, 1995 dismissing certain
state law claims without prejudice, the plaintiffs allege, among other things,
that the defendants affiliated with the Corporation violated Section 10(b) of
the Exchange Act and Rule 10b-5 promulgated
16
thereunder with respect to the sale of bonds and other debt instruments issued
by Orange County and other public entities. Damages in an unspecified amount are
sought.
On September 28, 1995, a purported class action was commenced in the Superior
Court for the State of California, Orange County, asserting the state law claims
previously dismissed in the Smith Federal Court Action (the "Smith State Court
Action"). The Smith State Court Action is brought on behalf of the same
purported class as the Smith Federal Court Action. Named as defendants are the
Corporation, an employee of the Corporation, and the same defendants not
affiliated with the Corporation as in the Smith Federal Court Action and, in
addition, KPMG Peat Marwick. Violations of Sections 25400, 25401, 25500, 25501
and 25504.1 of the California Code and fraud and deceit are alleged in
connection with disclosure made with respect to the sale of bonds and other debt
instruments issued by Orange County or other public entities with funds
controlled by the Orange County Treasurer-Tax Collector. Damages in an
unspecified amount are sought. Certain of the defendants in the Smith Federal
Court Action and the Smith State Court Action other than the Corporation and the
employee of the Corporation named as a defendant have entered into settlement
agreements with the plaintiffs in these cases.
On March 9, 1995, an action (the "Kemper Action") was commenced in the Circuit
Court of Cook County, Illinois, Chancery Division, by five money market mutual
funds managed by Kemper Financial Services, Inc. (namely, the Cash Account
Trust, Cash Equivalent Fund, Kemper Investors Fund, Kemper Money Market Fund,
and Kemper Portfolios). Named as defendants are a subsidiary of the Corporation
and an employee of the Corporation. The complaint alleges, among other things,
that the defendants violated Sections 12A, 12F, 12G and 12I of the Illinois
Securities Act and committed common law fraud with respect to disclosure made in
connection with the issuance and sale of 1994-95 Taxable Notes that were issued
by Orange County on July 8, 1994. Rescission and damages in an unspecified
amount are sought. This action has been stayed until June 30, 1996.
The Corporation has also received formal and informal inquiries from various
governmental entities and agencies examining the events underlying the above
described litigation and is cooperating with these inquiries.
Pittleman Action. On November 3, 1995, a purported derivative action on behalf
of the Corporation was filed in the Supreme Court of the State of New York, New
York County, naming 12 present or past directors of the Corporation as
defendants. Damages in an unspecified amount are sought on behalf of the
Corporation. The complaint alleges, among other things, claims for breach of
fiduciary duty, indemnification and corporate waste in connection with (i)
certain of the Corporation's municipal finance activities, including certain
contractual arrangements that led to a civil settlement of approximately $12
million with the United States Attorney for the District of Massachusetts, the
Massachusetts Attorney General and the SEC and to the issuance by the SEC of an
order censuring MLPF&S and an order directing MLPF&S to cease and desist from
committing or causing any violation or future violation of Rule G-17 of the
Municipal Securities Rulemaking Board (as to which MLPF&S consented without
admitting or denying any of the findings or allegations contained in the orders)
and (ii) certain basket trading activities in Japan that led to administrative
sanctions by Japanese securities regulators consisting of a 48-hour suspension
of arbitrage trading by the Corporation for its own account in Japan.
NASDAQ Antitrust Litigation. On December 16, 1994, a consolidated amended
complaint was filed in In Re NASDAQ Market-Makers Antitrust Litigation, MDL
No. 1023, in the United States District Court for the Southern District of
New York. As subsequently amended, the complaint alleges that 33 market-makers,
including MLPF&S, engaged in a conspiracy with respect to the "spread" between
bid and ask prices for certain securities traded on NASDAQ by refusing to
quote bid and ask prices in so-called "odd-eighths". The complaint purports to
be brought on behalf of all persons who purchased or sold these securities
between May 1, 1989 and May 27, 1994. The complaint alleges violations of
antitrust laws and seeks compensatory damages in an unspecified amount, treble
damages, declaratory and injunctive relief, and attorney's fees and costs.
Judgment against each of the defendants is sought on a joint and several basis.
MLPF&S has filed an answer denying the allegations in the complaint. Discovery
is proceeding.
In connection with their industry-wide investigations into the NASDAQ market,
the Corporation, along with other named defendants, has received inquiries from
the Antitrust Division of the Department of Justice and the SEC and is
cooperating with these inquiries.
GSLIC Litigation. In each of the legal proceedings described below except for
the stockholder derivative actions, the claims against the Merrill Lynch
defendants (as defined below) have
17
now either been dismissed pursuant to settlements or under the terms of a
settlement for which court approval is now being sought will be dismissed.
All the actions arise from certain securities trading transactions that occurred
at year-end 1984, 1985, 1986, and 1988 between MLPF&S and MLGSI and a Florida
insurance company, Guarantee Security Life Insurance Company ("GSLIC"), which
was taken into liquidation. A principal focus of the allegations in the
following civil proceedings is an assertion that GSLIC's purpose in engaging in
the year-end transactions was to distort its apparent financial condition. It is
claimed that GSLIC's former officers and employees improperly took assets from
the company and its investment portfolio declined substantially in value before
its true financial condition became known to insurance regulators, GSLIC's
policyholders, and the creditors of GSLIC and its parent company, Transmark USA,
Inc. ("Transmark").
On December 20, 1991, an action (the "Receiver Action") was commenced by the
Florida Department of Insurance as Receiver of GSLIC (the "Receiver") in the
Fourth Judicial Circuit Court in Duval County, Florida naming as defendants
former officers, directors, and shareholders of GSLIC and Transmark, GSLIC's
former outside attorneys and accountants, MLPF&S, MLGSI, and a former managing
director of MLPF&S (the Merrill Lynch parties in the Receiver Action being
referred to collectively as the "Merrill Lynch defendants"). The complaint
alleges state law claims against the above-mentioned Merrill Lynch defendants
for fraud, breach of fiduciary duty, conspiracy, and aiding and abetting a
breach of duty arising from their involvement in the year-end trades with GSLIC,
alleges that GSLIC was damaged in excess of $300 million, and seeks relief in an
unspecified amount from the Merrill Lynch defendants. On July 14, 1995, an
agreement was signed among the Receiver of GSLIC, the Merrill Lynch defendants,
along with certain other named defendants, to settle this action. The court has
entered an order severing for purposes of trial the claims against the settling
defendants and otherwise staying all further proceedings in respect of such
defendants. Pursuant to the terms of the final settlement agreement (executed on
October 19, 1995) and subject to the finality of the court's Order of Final
Approval of Settlement dated March 8, 1996, the Merrill Lynch defendants will
pay $45 million to the Receiver, and the Receiver's claims against them will be
dismissed in their entirety.
Substantially the same defendants are named in two consolidated lawsuits brought
in federal court in Jacksonville, Florida on October 15, 1991 and on February
28, 1992 on behalf of an uncertified alleged class of purchasers of GSLIC
insurance policies and annuities between 1984 and 1991 (the "Haag/Levine
Action"). The complaint alleges substantially the same claims as the Receiver
Action as well as RICO claims and Section 10(b) of the Exchange Act and seeks
unspecified money damages. The court has stayed the Haag/Levine Action pending
the resolution of the Receiver Action. A condition of the settlement in the
Receiver Action is dismissal of the claims in the Haag/Levine Action against the
Merrill Lynch defendants, at no further cost to the Merrill Lynch defendants.
The Resolution Trust Corporation ("RTC"), as receiver for four failed savings
institutions (CenTrust Association Savings Bank, Imperial Savings Association,
FarWest Savings and Loan Association, and Columbia Savings and Loan Association)
in January and April, 1993 filed civil actions in federal court in Jacksonville,
Florida against ML & Co., MLPF&S, MLGSI, a former MLPF&S managing director,
and former officers, directors, and employees of Transmark and GSLIC (the "RTC
Action"). The action seeks to recover damages as a result of purchases by the
four above-named institutions of securities issued by Transmark, GSLIC's
parent corporation. The claims alleged are substantially similar to those in
the Haag/Levine action mentioned above. In April, 1993, Trans-Resources Inc.,
a company that alleges it also purchased Transmark securities, filed a
complaint in the federal
18
court in Jacksonville, Florida substantially following the allegations of the
RTC Action and names substantially the same defendants (the "Trans-Resources
Action"). The RTC Action and Trans-Resources Action each seek compensatory and
punitive damages in unspecified amounts, trebling of damages under the RICO
claim, rescissory relief, and reimbursement of costs of suit. On August 10,
1995, an agreement was signed among the RTC and these Merrill Lynch defendants
to settle the RTC Action, as well as all other pending litigation brought by the
RTC against the Corporation or its affiliates. Pursuant to the agreement, $4.5
million has been paid to the RTC in respect of the RTC Action, and the RTC's
claims against these Merrill Lynch defendants have been dismissed in their
entirety. On December 22, 1995, an agreement was signed among Trans-Resources
and these Merrill Lynch defendants to settle the Trans-Resources Action.
Pursuant to the Agreement, $150,000 has been paid to Trans-Resources, and claims
against the Merrill Lynch defendants in this action have been dismissed in
their entirety.
In October 1991, Messrs. Miller and Steiner commenced derivative actions, now
consolidated, purportedly brought on behalf of the Corporation in New York State
Supreme Court, New York County, naming as defendants directors of ML & Co. who
were directors at the time of the year-end securities transactions in question,
among others. The plaintiffs assert claims of breach of fiduciary duties in
connection with the year-end securities transactions with GSLIC and other claims
against Transmark and one of Transmark's principals. The damages sought in this
action are unspecified. The court has stayed the action for all purposes pending
a resolution of the above-mentioned related litigation in Florida.
* * * *
The Corporation believes it has strong defenses to, and will vigorously contest,
the actions described above. Although the ultimate outcome of the actions
described above and other civil actions, arbitration proceedings and claims
pending against the Corporation or its subsidiaries as of March 22, 1996 cannot
be ascertained at this time and the results of legal proceedings cannot be
predicted with certainty, it is the opinion of the management of the Corporation
that the resolution of these actions will not have a material adverse effect on
the financial condition or the results of operations of the Corporation as set
forth in the Consolidated Financial Statements contained in the 1995 Annual
Report to Stockholders.
ITEM 4. Submission Of Matters To A Vote Of Security Holders None.
19
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning executive officers
of ML & Co. as of March 22, 1996.
NAME AND AGE PRESENT TITLE AND PRINCIPAL OCCUPATION SINCE
MARCH 1991*
Herbert M. Allison, Jr., 52 Executive Vice President, Corporate and
Institutional Client Group since January 1995;
Executive Vice President, Investment Banking
Group from May 1993 to January 1995; Executive
Vice President, Finance and Administration from
October, 1990 to April 1993; Executive Vice
President, Administration from July 1989 to
October 1990.
Edward L. Goldberg, 55 Executive Vice President, Operations, Systems
and Telecommunications since April 1991 (and
responsible for Corporate Real Estate and
Purchasing since March, 1993); Director and
Executive Vice President of MLPF&S since May
1991; from January 1991 to April 1991,
performed senior management responsibilities
in the Operations, Systems and
Telecommunications Division; Senior Vice
President of Equity Markets, Professional
Securities Services Group of MLPF&S,
September, 1988 to December, 1990.
Stephen L. Hammerman, 57 Vice Chairman of the Board since April 1992;
Executive Vice President from June 1985 to
April 1992; General Counsel since October
1984; General Counsel of MLPF&S since March
1981.
Jerome P. Kenney, 54 Executive Vice President, Corporate Strategy and
Research since October 1990; also Executive Vice
President, Corporate Credit from May 1993 to May
1995; Executive Vice President and President of
the Capital Markets Sector from September 1984
to October 1990.
David H. Komansky, 56 President and Chief Operating Officer since
January 1995; President and Chief Executive
Officer of MLPF&S since February 1995; Executive
Vice President, Debt and Equity Markets Group
from May 1993 to January 1995; Executive Vice
President, Debt Markets Group from June 1992 to
April 1993; Executive Vice President, Equity
Markets Group from October 1990 to May 1992.
- ----------
* Unless otherwise indicated, the offices listed are of the parent company.
Under ML & Co.'s By-Laws, elected officers are elected annually to hold
office until their successors are elected and qualify. All Executive Officers
are elected by the Board of Directors.
20
NAME AND AGE PRESENT TITLE AND PRINCIPAL OCCUPATION SINCE
MARCH 1991*
Winthrop H. Smith, Jr., 46 Executive Vice President, International since
June 1992; National Sales Director of Eastern
Division from November 1990 to May 1992; Regional
Director of Mid-Atlantic Region from July 1985 to
November 1990.
John L. Steffens, 54 Executive Vice President, Private Client Group
since October 1990; Executive Vice President and
President of the Consumer Markets Sector from
July 1985 to October 1990.
Daniel P. Tully, 64 Chairman of the Board since June, 1993; Chief
Executive Officer since May, 1992; President and
Chief Operating Officer from July, 1985 to
January, 1995; Chairman of the Board, President,
and Chief Executive Officer of MLPF&S from July,
1985 to February, 1995.
Joseph T. Willett, 44 Chief Financial Officer since April 1993;
Controller from April 1992 to September 1995;
Senior Vice President since February 1991;
Treasurer from February 1991 to April 1992; First
Vice President of MLPF&S from January 1988 to
February 1991.
Arthur Zeikel, 63 Executive Vice President, Asset Management
Group since October 1990; Director, Corporate
Strategy from July 1988 to October 1990;
President and Chief Investment Officer of Merrill
Lynch Asset Management since November 1976.
- ----------
* Unless otherwise indicated, the offices listed are of the parent company.
Under ML & Co.'s By-Laws, elected officers are elected annually to hold
office until their successors are elected and qualify. All Executive Officers
are elected by the Board of Directors.
21
PART II
ITEM 5. Market For Registrant's Common Equity And Related Stockholder Matters
Information relating to the principal market in which the Registrant's Common
Stock is traded, the high low sales prices per share for each full quarterly
period within the two most recent fiscal years, the approximate number of
holders of record of Common Stock and the frequency and amount of any cash
dividends declared for the two most recent fiscal years is set forth under the
captions "Dividends Per Common Share" and "Stockholder Information" on page 68
of the 1995 Annual Report to Stockholders and such information is hereby
incorporated herein by reference.
The Common Stock of ML & Co. (trading symbol MER) is listed on the following
stock exchanges: New York Stock Exchange, Chicago Stock Exchange, The Pacific
Stock Exchange, The Paris Stock Exchange, London Stock Exchange, and The Tokyo
Stock Exchange.
ITEM 6. Selected Financial Data
Selected financial data for the Registrant and its subsidiaries for each of the
last five fiscal years is set forth in the financial table "Selected Financial
Data" on page 26 of the 1995 Annual Report to Stockholders (excluding for this
purpose the financial ratio, leverage, and employee information set forth under
the headings "Financial Ratios" and "Other Statistics") and in the information
set forth on page 66 of the 1995 Annual Report to Stockholders. Such information
is hereby incorporated herein by reference and should be read in conjunction
with the Consolidated Financial Statements and the Notes thereto on pages 41 to
65 in the 1995 Annual Report to Stockholders.
ITEM 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations is set forth on pages 28 to 40 of the 1995 Annual Report to
Stockholders under the caption "Management's Discussion and Analysis" and is
hereby incorporated herein by reference. In addition, in response to this Item
7, the financial information set forth in the financial table "Selected
Financial Data" under the caption "Financial Ratios-Average Leverage" on page 26
of the 1995 Annual Report to Stockholders and the information in Note 14 to the
Consolidated Financial Statements in the 1995 Annual Report to Stockholders is
hereby incorporated herein by reference. All of such information should be read
in conjunction with the Consolidated Financial Statements and the Notes thereto
on pages 41 to 65 in the 1995 Annual Report to Stockholders.
ITEM 8. Financial Statements And Supplementary Data
The consolidated financial statements of the Registrant and its subsidiaries,
together with the Notes thereto and the Report of Independent Auditors thereon,
are contained in the 1995 Annual Report to Stockholders on pages 41 to 65 and
such information is hereby incorporated herein by reference. In addition, the
information on page 68 of the 1995 Annual Report to Stockholders under the
caption "Quarterly Information" is hereby incorporated by reference herein.
22
ITEM 9. Changes In And Disagreements With Accountants On Accounting
And Financial Disclosure
None.
PART III
ITEM 10. Directors And Executive Officers Of The Registrant
The information set forth under the caption "Election of Directors" on pages 5
to 8 of ML & Co.'s Proxy Statement dated March 11, 1996 for its 1996 Annual
Meeting of Stockholders (the "Proxy Statement") and the information set forth
in Part I hereof under the caption "Executive Officers of the Registrant" is
hereby incorporated herein by reference.
ITEM 11. Executive Compensation
Information relating to executive compensation is set forth under the caption
"Executive Compensation" on pages 14 to 27 of the Proxy Statement and is hereby
incorporated herein by reference.
ITEM 12. Security Ownership Of Certain Beneficial Owners And Management
Information respecting security ownership of management and certain beneficial
owners is set forth on pages 1 and 2 of the Proxy Statement and under the
caption "Election of Directors" on pages 5 to 8 of the Proxy Statement. Such
information is hereby incorporated herein by reference.
ITEM 13. Certain Relationships And Related Transactions
Information regarding certain relationships and related transactions set forth
under the caption "Certain Transactions" on pages 25 and 26 of the Proxy
Statement is hereby incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, And Reports On Form 8-K
(a) Documents filed as part of this Report:
1. Financial Statements
The financial statements are listed on page F-1 hereof by reference to
the corresponding page number in the 1995 Annual Report to
Stockholders.
2. Financial Statement Schedules
The financial statement schedules required to be filed hereunder are
listed on page F-1 hereof and the schedules included herewith appear on
pages F-3 through F-7 hereof.
23
3. Exhibits
Certain of the following exhibits were previously filed as exhibits to
other reports or registration statements filed by the Registrant and
are incorporated herein by reference to such reports or registration
statements as indicated parenthetically below by the appropriate report
reference date or registration statement number. For convenience,
Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, Current
Reports on Form 8-K, and Registration Statements on Form S-3 are
designated herein as "10-Q", "10-K", "8-K", and "S-3", respectively.
(3) Articles of Incorporation and By-Laws.
(i)(a) Restated Certificate of Incorporation of ML & Co., as
amended April 24, 1987 (Exhibit 3(i) to 10-K for fiscal
year ended December 25, 1992 ("1992 10-K")).
(b) Certificate of Amendment dated April 29, 1993 of the
Certificate of Incorporation of ML & Co. (Exhibit 3(i) to
10-Q for the quarter ended March 26, 1993 ("1st Quarter 1993
10-Q")).
(c) Form of certificate representing the 9% Cumulative Preferred
Stock, Series A, par value $1.00 per share, of ML & Co. (the
"9% Preferred Stock") (Exhibit 4(i) to 10-Q for the quarter
ended September 30, 1994 ("3rd Quarter 1994 10-Q")).
(d) Form of Depositary Receipt evidencing the Depositary Shares
for the 9% Preferred Stock (Exhibit 4(ii) to 3rd Quarter 1994
10-Q).
(e) Certificate of Designation of ML & Co. establishing the
rights, preferences, privileges, qualifications,
restrictions, and limitations relating to the 9% Preferred
Stock (Exhibit 4(iii) to 3rd Quarter 1994 10-Q).
(f) Deposit Agreement dated as of November 3, 1994 among ML &
Co., Citibank, N.A. as Depositary, and the holders from time
to time of the Depositary Receipts (Exhibit 4(iv) to 3rd
Quarter 1994 10-Q).
(g) Certificate of Designation dated March 30, 1988 for
Remarketed Preferred Stock, Series C (Exhibit 3(ii) to 1st
Quarter 1993 10-Q).
(h) Certificate of Designation dated December 17, 1987 for
Series A Junior Preferred Stock (Exhibit 3(f) to S-3 (File
No. 33-19975)).
(i) Form of Rights Agreement dated as of December 16, 1987
between ML & Co. and Chemical Bank (successor by merger to
Manufacturers Hanover Trust Company) (Exhibit 3(iv) to 1992
10-K).
(ii) By-Laws of ML & Co., effective as of October 25, 1993
(Exhibit 3(i) to 10-Q for the quarter ended September 24,
1993 ("3rd Quarter 1993 10-Q")).
24
(4) Instruments defining the rights of security holders,
including indentures.
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
hereby undertakes to furnish to the Commission, upon request, copies
of the instruments defining the rights of holders of long-term
debt securities of the Registrant, none of which instruments
authorize an amount of securities that exceed 10% of the total
assets of the Registrant and its subsidiaries on a consolidated
basis. For convenience purposes, the Registrant hereby lists as
Exhibits 4(iii) through 4(vi) each long-term security issued by
the Registrant since the filing of its latest registration statement
for debt securities and warrants.
(i) Senior Indenture dated as of April 1, 1983, as amended and
restated, between ML & Co. and Chemical Bank (successor by
merger to Manufacturers Hanover Trust Company) and the
Supplemental Indenture thereto dated as of March 15, 1990
(Exhibit 3 to ML & Co.'s Registration Statement on Form
8-A dated July 20, 1992).
(ii) Senior Indenture dated as of October 1, 1993 between ML & Co.
and The Chase Manhattan Bank, N.A. (Exhibit 4 to 8-K dated
October 7, 1993).
(iii) Form of ML & Co.'s 6% Notes due January 15, 2001 (Exhibit 4 to
8-K dated January 17, 1996).
(iv) Form of ML & Co.'s AMEX Hong Kong 30 Index Equity
Participation Notes due February 16, 1999 (Exhibit 4 to 8-K
dated February 7, 1996).
(v) Form of ML & Co.'s 6% Notes due March 1, 2001 (Exhibit 4 to
8-K dated February 29, 1996).
(vi) Form of ML & Co.'s 7% Notes due March 19, 2006 (Exhibit 4 to
8-K dated March 18, 1996).
(10) Material Contracts.
Management Contracts, Compensation Plans, and other Employee
Arrangements:
(i) ML & Co. 1978 Incentive Equity Purchase Plan, as amended
through January 16, 1995 (Exhibit 10(i) to 1994 10-K).
(ii) Form of ML & Co. Amended and Restated 1994 Deferred
Compensation Agreement for a Select Group of Eligible
Employees, as amended through November 10, 1994 (Exhibit
10(ii) to 1994 10-K).
25
*(iii) ML & Co. Long-Term Incentive Compensation Plan, as amended
through December 4, 1995.
(iv) ML & Co. Equity Capital Accumulation Plan, as amended through
December 5, 1994 (Exhibit 10(iv) to 1994 10-K).
(v) ML & Co. Executive Officer Compensation Plan (Exhibit 10(i) to
ML & Co.'s Proxy Statement for the 1994 Annual Meeting of
Stockholders contained in ML & Co.'s Schedule 14A filed on
March 14, 1994 ("1994 Proxy Statement")).
(vi) Written description of Retirement Program for Non-Employee
Directors of ML & Co., as amended June 29, 1988 (Page 24 of ML
& Co.'s Proxy Statement for the 1996 Annual Meeting of
Stockholders contained in ML & Co.'s Schedule 14A filed on
March 11, 1996 ("1996 Proxy Statement")).
(vii) ML & Co. Non-Employee Directors' Equity Plan (Exhibit 10(iv)
to 10-Q for the quarter ended September 25, 1992 (the "3rd
Quarter 1992 10-Q")).
(viii) Executive Annuity Agreement dated July 24, 1991 by and
between ML & Co. and Daniel P. Tully (Exhibit 10(iii) to
10-Q for the quarter ended June 28, 1991 (the "2nd Quarter
1991 10-Q")).
(ix) Amendment dated April 30, 1992 to Executive Annuity
Agreement dated July 24, 1991 by and between ML & Co. and
Daniel P. Tully (Exhibit 10(ii) to 10-Q for the quarter
ended June 26, 1992).
*(x) Form of Severance Agreement between ML & Co. and certain of
its directors and executive officers.
(xi) Form of Indemnification Agreement entered into with all
current directors of ML & Co. and to be entered into with all
future directors of ML & Co. (Exhibit 10(xi) to 1993 10-K).
(xii) Written description of ML & Co.'s incentive compensation
programs (Exhibit 10(xii) to 1993 10-K).
(xiii) Written description of ML & Co.'s compensation policy for
directors (Page 14 of ML & Co.'s 1996 Proxy Statement).
(xiv) Merrill Lynch KECALP Growth Investments Limited Partnership
1983 (Exhibit 1(b) to Registration Statement on Form N-2 (File
No. 2-81619)).
(xv) Merrill Lynch KECALP L.P. 1984 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 2-87962)).
(xvi) Merrill Lynch KECALP L.P. 1986 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 2-99800)).
(xvii) Merrill Lynch KECALP L.P. 1987 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 33-11355)).
- ----------
* Filed herewith.
26
(xviii) Merrill Lynch KECALP L.P. 1989 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 33-26561)).
(xix) Merrill Lynch KECALP L.P. 1991 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 33-39489)).
(xx) Merrill Lynch KECALP L.P. 1994 (Exhibit 1(a)(ii) to
Registration Statement on Form N-2 (File No. 33-51825)).
(xxi) Form of ML & Co. 1994 Deferred Restricted Unit Agreement for
Executive Officers (Exhibit 10(i) to 10-Q for the quarter
ended April 1, 1994 (the "1st Quarter 1994 10-Q")).
(xxii) Form of ML & Co. 1995 Deferred Compensation Plan for a Select
Group of Eligible Employees (Exhibit 10(xxii) to 1994 10-K).
(xxiii) Form of ML & Co. Fee Deferral Plan for Non-Employee
Directors, as amended through February 24, 1995 (Exhibit
10(xxiii) to 1994 10-K).
(xxiv) Form of ML & Co. 1996 Deferred Compensation Plan for a Select
Group of Eligible Employees (Exhibit 10(i) to 10-Q for the
quarter ended September 29, 1995).
-- 10(xxv) intentionally omitted --
Agreements Relating To The World Financial Center:
(xxvi) The following documents relate to the Registrant's occupation
of office space in buildings at the World Financial Center,
New York, New York:
(a) Reimbursement Agreement between Olympia & York Tower D
Company and Merrill Lynch/WFC/L, Inc. ("WFC/L") dated as
of August 24, 1984 (Exhibit 10(i) to 8-K dated January 22,
1990).
(b) Reimbursement Agreement between Olympia & York Tower B
Company ("B Company") and WFC/L dated as of August 24,
1984 (Exhibit 10(ii) to 8-K dated January 22, 1990).
+(c) Agreement of Lease (with respect to Parcel D) dated as
of February 26, 1988 between WFC Tower D Company
(formerly known as Olympia & York Tower D Company) ("D
Company") and WFC/L (Exhibit 10(xxx)(c) to 1992 10-K).
+(d) Guaranty and Assumption Agreement dated as of February
26, 1988 between ML & Co. and D Company (Exhibit
19(xxx)(d) to 1992 10-K).
+(e) Agreement of Lease (with respect to Parcel B) dated as
of September 29, 1988 between B Company and WFC/L (Exhibit
10(i) to 1st Quarter 1993 10-Q).
- ----------
+ Confidential treatment has been obtained for portions of this exhibit.
27
+(f) Guaranty and Assumption Agreement dated as of September
29, 1988 between ML & Co. and B Company (Exhibit 10(ii) to
1st Quarter 1993 10-Q).
+(g) Restated and Amended Partnership Agreement of D Company,
executed on December 24, 1986 (Exhibit 10(xxx)(g) to 1992
10-K).
+(h) Agreement of Sublease dated as of September 29, 1988
between WFC/L and Olympia & York Tower B Lease Company
(Exhibit 10(iii) to 1st Quarter 1993 10-Q).
+(i) Agreement of Sublease (with respect to a portion of
Parcel B) dated November 26, 1990 between WFC/L and
Nomura Holding America, Inc. (Exhibit 10(xxvi)(i) to 1993
10-K).
+(j) Agreement of Sublease (with respect to a portion of
Parcel B) dated December 17, 1993 between WFC/L and
Deloitte & Touche (Exhibit 10(xxvi)(j) to 1993 10-K).
(xxvii) The following are amendments to certain of the documents that
are related to Registrant's occupation of office space in
buildings at the World Financial Center, New York, New York:
(a) First Amendment to Building D Agreement to Lease,
Leasehold Improvements Agreement and Reimbursement
Agreement (with respect to Parcel D) dated as of July 12,
1985 between D Company and WFC/L (Exhibit 10(iii) to 8-K
dated January 22, 1990).
(b) First Amendment to Building B Agreement to Lease,
Reimbursement Agreement, Second Amendment to Leasehold
Improvements Agreement (with respect to Parcel B) dated
as of July 12, 1985 between B Company and WFC/L (Exhibit
10(iv) to 8-K dated January 22, 1990).
(c) Second Amendment to Reimbursement Agreement (with respect
to Parcel D) dated as of February 26, 1988 between D
Company and WFC/L (Exhibit 10(iv) to 1st Quarter 1993
10-Q).
+(d) Amended and Restated Second Amendment to Reimbursement
Agreement (with respect to Parcel B) dated as of
September 29, 1988 between B Company and WFC/L (Exhibit
10(v) to 1st Quarter 1993 10-Q).
(e) Amendment of Agreement of Lease (with respect to Parcel
D) dated as of September 29, 1988 between D Company and
WFC/L (Exhibit 10(vi) to 1st Quarter 1993 10-Q).
(f) First Amendment to Agreement of Sublease dated as of
September 29, 1988 between WFC/L and Olympia & York Tower
B Lease Company (Exhibit 10(v) to 10-Q for the quarter
ended March 24, 1989).
- ----------
+ Confidential treatment has been obtained for portions of this exhibit.
28
(g) Letter Amendment to the Restated and Amended Partnership
Agreement of WFC Tower D Company dated as of February 26,
1988 between O&Y Tower D Holding Company I ("O&Y I")
(which has succeeded to the interest of O&Y U.S.
Development Corp.), O&Y Tower D Holding Company II ("O&Y
II") and HQ North Company, Inc. (formerly known as O&Y
Delta Corp.) ("HQ North") (Exhibit 10(vii) to 1st Quarter
1993 10-Q).
(h) Third Amendment to Restated and Amended Partnership
Agreement of WFC Tower D Company dated as of July 12,
1990 among O&Y I, O&Y II, and HQ North (Exhibit
10(xxix)(i) to 10-K for the fiscal year ended
December 28, 1990 ("1990 10-K")).
+(i) Second Amendment dated as of December 26, 1990 to
Agreement of Sublease dated as of September 29, 1988
between WFC/L and Olympia & York Tower B Lease Company
(Exhibit 10(xxix)(j) to 1990 10-K).
+(j) Second Amendment dated as of January 5, 1994 to
Agreement of Sublease (with respect to a portion of Parcel
B) dated November 26, 1990 between WFC/L and Nomura
Holding America, Inc. (Exhibit 10(xxvii)(j) to 1993 10-K).
Certain Olympia & York entities have filed for bankruptcy
protection. The ML & Co. affiliates party to certain of the
above agreements are pursuing their claims. In addition to the
foregoing agreements, various guarantees, security agreements,
and related documents were granted by or to Olympia & York
Developments Limited and by or to O & Y Equity Corp. to or by
ML & Co. in connection with the World Financial Center
transactions. Exhibits to the documents listed in items
(xxvi) and (xxvii) above have been omitted, except where such
exhibits are material to the transactions.
* (11) Statement re computation of per share earnings.
* (12) Statement re computation of ratios.
* (13) 1995 Annual Report to Stockholders.
* (21) Subsidiaries of the Registrant.
* (23) Consent of Independent Auditors.
* (27) Financial Data Schedule.
- ----------
+ Confidential treatment has been obtained for portions of this exhibit.
* Filed herewith.
29
(b) Reports on Form 8-K:
The following Current Reports on Form 8-K were filed by the Registrant
during the fourth quarter of 1995 with the Commission under the caption
"Item 5. Other Events":
(i) Current Report on Form 8-K dated October 17, 1995 for the purpose of
filing Preliminary Unaudited Earnings Summaries for the three- and
nine-month periods ended September 29, 1995.
(ii) Current Report on Form 8-K dated November 2, 1995 for the purpose of
filing ML & Co.'s Preliminary Unaudited Consolidated Balance Sheet as
of September 29, 1995 and statements regarding computation of
ratios.
(ii) Current Report on Form 8-K dated November 27, 1995 for the purpose of
filing the form of Registrant's Index Warrant Agreement, including
form of Global Warrant Certificate, relating to ML & Co.'s
Russell 2000 Index Call Warrants expiring November 17, 1998.
INDEMNIFICATION
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
Registrant hereby undertakes as follows:
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
30
DESCRIPTION OF COMMON STOCK
The authorized capital stock of ML & Co. consists of 500,000,000 shares of
common stock, par value $1.33 1/3 per share ("Common Stock"), and 25,000,000
shares of preferred stock, par value $1.00 per share, issuable in series
("Preferred Stock"). As of March 15, 1996, 177,013,550 shares of Common Stock
were outstanding (including 4,012,519 shares held by Merrill Lynch & Co., Inc.
Employee Stock Ownership Plan that are not considered outstanding for accounting
purposes). The shares of Common Stock have no preemptive or conversion
rights, redemption provisions, or sinking fund provisions. The outstanding
shares of Common Stock are duly and validly issued, fully paid, and
nonassessable. Each share is eligible to participate under the Rights Agreement
referenced below, to the extent specified therein, to purchase certain
securities upon the occurrence of certain events specified in such Rights
Agreement.
The Board of Directors of ML & Co., without further action by stockholders, has
the authority to issue all of the 25,000,000 shares of Preferred Stock, which
are currently authorized, from time to time in one or more series and, with
respect to each such series, has authority to fix the powers (including voting
power), designations, preferences as to dividends and liquidation, and relative,
participating, optional, or other special rights and the qualifications,
limitations or restrictions thereof. As of March 15, 1996, there were 17,000,000
Depositary Shares issued, each representing a one-four hundredth interest in a
share of the 9% Preferred Stock. The 9% Preferred Stock is a single series
consisting of 42,500 shares with an aggregate liquidation preference of
$425,000,000. As of March 15, 1996, there were 42,500 shares of 9% Preferred
Stock outstanding. As of March 15, 1996, there were 3,000 shares of ML & Co.'s
Remarketed Preferred (service mark) Stock, Series C (the "RP (registered
trademark) Stock ") issued, of which 1,938 were outstanding. From time to
time, MLPF&S may occasionally acquire a temporary position in the Depositary
Shares and shares of RP Stock. At March 15, 1996, the Depositary Shares and
shares of RP Stock held by MLPF&S for the purpose of resale was not material.
The 9% Preferred Stock and RP Stock have dividend and liquidation preference
over the Common Stock and over the Series A Junior Preferred Stock issuable
pursuant to a Rights Agreement dated as of December 16, 1987 between ML & Co.
and Chemical Bank (successor by merger to Manufacturers Hanover Trust Company).
31
MERRILL LYNCH & CO., INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEMS 14 (A)(1) AND 14 (A)(2)
Page Reference
--------------
1995 Annual
Report to
Form 10-K Stockholders
--------- ------------
Financial Statements
- --------------------
Statements of Consolidated Earnings, Year Ended Last
Friday in December 1995, 1994, and 1993 41
Consolidated Balance Sheets, December 29, 1995 and
December 30, 1994 42-43
Statements of Changes in Consolidated Stockholders'
Equity, Year Ended Last Friday in December 1995,
1994, and 1993 44-45
Statements of Consolidated Cash Flows, Year Ended
Last Friday in December 1995, 1994, and 1993 46
Notes to Consolidated Financial Statements 47-65
Independent Auditors' Report 65
Financial Statement Schedules
- -----------------------------
Independent Auditors' Report F-2
Schedule I Condensed Financial Information of F-3 to F-7
Registrant
Specifically incorporated elsewhere herein by
reference are certain portions of the following
unaudited items:
(i) Selected Financial Data 26
(ii) Management's Discussion and Analysis 28-40
(iii) Five-Year Financial Summary 66
(iv) Quarterly Information 68
Schedules not listed are omitted because of the absence of the conditions under
which they are required or because the information is included in the
Consolidated Financial Statements and Notes thereto which are incorporated
herein by reference to the Registrant's 1995 Annual Report to Stockholders.
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Merrill Lynch & Co., Inc.:
We have audited the consolidated financial statements of Merrill Lynch & Co.,
Inc. and subsidiaries (the "Company") as of December 29, 1995 and December 30,
1994 and for each of the three years in the period ended December 29, 1995 and
have issued our report thereon dated February 26, 1996; such consolidated
financial statements and report are included in your 1995 Annual Report to
Stockholders and are incorporated herein by reference. Our audits also
included Schedule I listed in the Index to Financial Statements and Financial
Statement Schedules. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set
forth therein.
/s/ Deloitte & Touche LLP
New York, New York
February 26, 1996
F-2
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
MERRILL LYNCH & CO., INC.
(Parent Company Only)
CONDENSED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994, AND DECEMBER 31, 1993
(Dollars in Millions)
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
(52 weeks) (52 weeks) (53 weeks)
REVENUES
Management service fees (from affiliates) ... $ 282 $ 268 $ 262
Interest (principally from affiliates) ...... 2,002 1,423 921
Other ....................................... 80 14 2
------- ------- -------
Total Revenues .............................. 2,364 1,705 1,185
Interest Expense ............................ 2,061 1,514 948
------- ------- -------
Net Revenues ................................ 303 191 237
------- ------- -------
NON-INTEREST EXPENSES
Compensation and benefits ................... 198 186 206
Other ....................................... 206 232 355
------- ------- -------
Total Non-Interest Expenses ................. 404 418 561
------- ------- -------
LOSS BEFORE INCOME TAX EXPENSE (BENEFIT),
EQUITY IN EARNINGS OF AFFILIATES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ...... (101) (227) (324)
Income Tax Expense (Benefit) ................ 112 (21) (105)
------- ------- -------
LOSS BEFORE EQUITY IN EARNINGS OF AFFILIATES
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE .......................... (213) (206) (219)
Equity in Earnings of Affiliates ............ 1,327 1,223 1,613
------- ------- -------
EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE ....................... 1,114 1,017 1,394
Cumulative Effect of Change in
Accounting Principle (net of applicable
income taxes of $25) .......................... -- -- (35)
------- ------- -------
NET EARNINGS .................................. $ 1,114 $ 1,017 $ 1,359
======= ======= ========
NET EARNINGS APPLICABLE TO
COMMON STOCKHOLDERS ........................... $ 1,066 $ 1,004 $ 1,354
======= ======= ========
See Notes to Condensed Financial Statements
F-3
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
MERRILL LYNCH & CO., INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 29, 1995 AND DECEMBER 30 ,1994
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
ASSETS
------
Cash and cash equivalents ............................ $ 37 $ 88
Loans to, receivables from and preference
securities of affiliates............................ 39,366 33,059
Investments in affiliates, at equity ................. 6,017 5,722
Property, leasehold improvements and equipment (net of
accumulated depreciation and amortization of $223 in
1995 and $266 in 1994).............................. 153 253
Other receivables and assets ......................... 1,113 1,023
-------- ---------
TOTAL ASSETS ......................................... $ 46,686 $ 40,145
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Commercial paper and other short-term borrowings ..... $ 17,338 $ 14,747
Loans from and payables to affiliates ................ 2,657 2,137
Other liabilities and accrued interest ............... 2,707 2,154
Long-term borrowings ................................. 17,843 15,289
-------- ---------
Total Liabilities .................................... 40,545 34,327
-------- ---------
STOCKHOLDERS' EQUITY
Preferred Stockholders' Equity 619 619
-------- ---------
Common Stockholders' Equity:
Common stock, par value $1.33 1/3 per share;
authorized: 500,000,000 shares;
issued: 1995 and 1994 - 236,330,162 shares ....... 315 315
Paid-in capital ...................................... 1,237 1,196
Foreign currency translation adjustment .............. 11 4
Net unrealized gains (losses) on investment securities
available-for-sale (net of applicable income tax
expense (benefit) of $13 in 1995 and $(31) in 1994) 25 (57)
Retained earnings .................................... 6,492 5,606
-------- ---------
Subtotal ............................................ 8,080 7,064
Less: Treasury stock, at cost:
1995 - 60,929,278 shares
1994 - 48,423,944 shares ..................... 2,241 1,627
Unallocated ESOP reversion shares, at cost:
1995 - 4,012,519 shares
1994 - 6,427,091 shares ..................... 63 101
Employee stock transactions .................... 254 137
-------- ---------
Total Common Stockholders' Equity .................... 5,522 5,199
-------- ---------
Total Stockholders' Equity ........................... 6,141 5,818
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........... $ 46,686 $ 40,145
======== =========
See Notes to Condensed Financial Statements
F-4
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
MERRILL LYNCH & CO., INC.
(Parent Company Only)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994, AND DECEMBER 31, 1993
(Dollars in Millions)
- ------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings ................................... $ 1,114 $ 1,017 $ 1,359
Noncash items included in earnings:
Cumulative effect of change in
accounting principle ....................... - - 35
Equity in earnings of affiliates ............. (1,327) (1,223) (1,613)
Depreciation and amortization ................ 31 38 40
Other ........................................ (35) 57 104
(Increase) decrease in:
Intercompany receivables, net of payables .... (5,608) (435) (9,064)
Investments in affiliates .................... (363) (90) (176)
Other operating assets, net of liabilities ... 649 (12) 453
Proceeds from dividends from affiliates ...... 1,455 947 914
------- ------- -------
Cash (used for) provided by operating
activities ................................. (4,084) 299 (7,948)
------- ------- -------
Cash flows from investing activities:
Proceeds from (payments for):
Investment securities ........................ - - 8
Property, leasehold improvements and
equipment .................................. (12) (33) (22)
------- ------- -------
Cash used for investing activities ........... (12) (33) (14)
------- ------- -------
Cash flows from financing activities:
Proceeds from (payments for):
Commercial paper and other short-term
borrowings ................................. 2,592 (978) 6,010
Issuance and resale of long-term borrowings .. 9,458 8,450 7,282
Settlement and repurchases of long-term
borrowings ................................. (6,883) (6,917) (4,590)
Issuance of 9% Cumulative Preferred Stock .... - 425 -
Common stock transactions .................... (894) (1,048) (511)
Dividends .................................... (228) (188) (153)
------- ------- -------
Cash provided by (used for) financing
activities ................................. 4,045 (256) 8,038
------- ------- -------
Increase (decrease) in cash and cash equivalents . (51) 10 76
Cash and cash equivalents, beginning of year ..... 88 78 2
------- ------- -------
Cash and cash equivalents, end of year ........... $ 37 $ 88 $ 78
======= ======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Income taxes totaled $487 in 1995, $1,057 in 1994, and $1,004 in 1993.
Interest totaled $2,086 in 1995, $1,490 in 1994, and $897 in 1993.
See Notes to Condensed Financial Statements
F-5
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
MERRILL LYNCH & CO., INC.
(Parent Company Only)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Dollars in Millions, Except Per Share Amounts)
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
The condensed financial statements of Merrill Lynch & Co., Inc. (the
"Parent Company") should be read in conjunction with the consolidated
financial statements of Merrill Lynch & Co., Inc. and subsidiaries (the
"Corporation") and the notes thereto incorporated elsewhere herein by
reference. Where appropriate, prior years' financial statements have
been reclassified to conform to the 1995 presentation.
DIVIDENDS RECEIVED FROM AFFILIATES
Cash dividends totaling $1,455, $947, and $914 were received from
consolidated subsidiaries in 1995, 1994, and 1993, respectively.
LONG-TERM BORROWINGS AND GUARANTEES
Reference is made to page 58 of the Annual Report for additional
information on Parent Company long-term borrowings. At December 29,
1995, Parent Company borrowings totaling $619 were held for purposes of
resale by affiliates which also purchased $1,088 and resold $894 of
such borrowings during the year.
In certain instances, the Parent Company guarantees obligations of
subsidiaries that may include obligations associated with foreign
exchange forward contracts and swap transactions.
Substantially all of the Parent Company's fixed-rate long-term
borrowings are swapped into variable interest rates. These swaps,
generally made with an affiliated dealer in such instruments, are used
to hedge interest rate, foreign currency, and equity-linked exposures
associated with long-term borrowings. At December 29, 1995 and December
30, 1994, the notional amounts of these instruments were $20,416 and
$15,915, respectively.
F-6
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
MERRILL LYNCH & CO., INC.
(Parent Company Only)
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
(Dollars in Millions, Except Per Share Amounts)
ACCOUNTING CHANGES
In 1993, the Parent Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits"
and SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". SFAS No. 112 was effective as of the 1993 first
quarter. The cumulative effect of this change in accounting principle,
reported in the Condensed Statements of Earnings, resulted in a charge
of $35 (net of applicable income tax benefits), including $32 (net of
applicable income tax benefits) from equity in earnings of affiliates.
SFAS No. 115 was effective as of the last day of the 1993 fiscal year.
The effect of this change, reported in the Condensed Balance Sheet
under Stockholders' Equity, was an increase of $21 (net of applicable
income taxes), all from equity in affiliates.
Reference is made to page 49 of the Annual Report for additional
information on Accounting Changes.
NON-INTEREST EXPENSES - OTHER
The Parent Company recorded a non-recurring pretax charge totaling $103
($60 after income taxes) in 1993 related to the Corporation's decision
not to occupy certain office space at its World Financial Center
Headquarters facility and to sublease the unused space to third
parties.
STOCKHOLDERS' EQUITY
In 1994, the Corporation issued 17,000,000 Depositary Shares, each
representing a one-four-hundredth interest in a share of 9% Cumulative
Preferred Stock, Series A, $10,000 liquidation preference per share
("9% Preferred Stock"). The 9% Preferred Stock is a single series
consisting of 42,500 shares with an aggregate liquidation preference of
$425.
Reference is made to pages 56 and 57 of the Annual Report for
additional information on Stockholders' Equity.
COMMITMENTS AND CONTINGENCIES
Reference is made to pages 63 and 64 of the Annual Report for
information on litigation, leases, and other commitments and contingencies.
F-7
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 22nd day of March,
1996.
MERRILL LYNCH & CO., INC.
By: /s/ Daniel P. Tully
------------------------------
Daniel P. Tully
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities indicated on the 22nd day of March, 1996.
Signature Title
/s/ Daniel P. Tully Chairman of the Board,
----------------------------- Chief Executive Officer
(Daniel P. Tully) and Director
/s/ David H. Komansky President,
----------------------------- Chief Operating Officer and
(David H. Komansky) Director
/s/ Joseph T. Willett Senior Vice President and
----------------------------- Chief Financial Officer
(Joseph T. Willett)
/s/ Michael J. Castellano Senior Vice President and
----------------------------- Controller
Michael J. Castellano
/s/ William O. Bourke Director
-----------------------------
(William O. Bourke)
/s/ W. H. Clark Director
-----------------------------
(W.H. Clark)
/s/ Jill K. Conway Director
-----------------------------
(Jill K. Conway)
/s/ Stephen L. Hammerman Director
-----------------------------
(Stephen L. Hammerman)
/s/ Earle H. Harbison, Jr. Director
-----------------------------
(Earle H. Harbison, Jr.)
/s/ George B. Harvey Director
-----------------------------
(George B. Harvey)
/s/ William R. Hoover Director
-----------------------------
(William R. Hoover)
/s/ Robert P. Luciano Director
-----------------------------
(Robert P. Luciano)
/s/ Aulana L. Peters Director
-----------------------------
(Aulana L. Peters)
/s/ John J. Phelan, Jr. Director
-----------------------------
(John J. Phelan, Jr.)
/s/ William L. Weiss Director
-----------------------------
(William L. Weiss)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
MERRILL LYNCH & CO., INC.
EXHIBITS TO
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number 1-7182
December 29, 1995
EXHIBITS TO FORM 10-K
INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
3(i)(a) Restated Certificate of Incorporation of ML & Co., as
amended April 24, 1987 (Exhibit 3(i) to 10-K for fiscal
year ended December 25, 1992 ("1992 10-K")).
3(i)(b) Certificate of Amendment, dated April 29, 1993, of the
Certificate of Incorporation of ML & Co. (Exhibit 3(i) to
10-Q for the quarter ended March 26, 1993 ("1st Quarter 1993
10-Q")).
3(i)(c) Form of certificate representing the 9% Cumulative Preferred
Stock, Series A, par value $1.00 per share, of ML & Co. (the
"9% Preferred Stock") (Exhibit 4(i) to 10-Q for the quarter
ended September 30, 1994 ("3rd Quarter 1994 10-Q")).
3(i)(d) Form of Depositary Receipt evidencing the Depositary Shares
for the 9% Preferred Stock (Exhibit 4(ii) to 3rd Quarter 1994
10-Q).
3(i)(e) Certificate of Designation of ML & Co. establishing the
rights, preferences, privileges, qualifications,
restrictions, and limitations relating to the 9% Preferred
Stock (Exhibit 4(iii) to 3rd Quarter 1994 10-Q).
3(i)(f) Deposit Agreement dated as of November 3, 1994 among ML &
Co., Citibank, N.A. as Depositary, and the holders from time
to time of the Depositary Receipts (Exhibit 4(iv) to 3rd
Quarter 1994 10-Q).
3(i)(g) Certificate of Designation dated March 30, 1988 for
Remarketed Preferred Stock, Series C (Exhibit 3(ii) to 1st
Quarter 1993 10-Q).
3(i)(h) Certificate of Designation dated December 17, 1987 for
Series A Junior Preferred Stock (Exhibit 3(f) to S-3 (File
No. 33-19975)).
3(i)(i) Form of Rights Agreement dated as of December 16, 1987
between ML & Co. and Chemical Bank (successor by merger to
Manufacturers Hanover Trust Company) (Exhibit 3(iv) to 1992
10-K).
3(ii) By-Laws of ML & Co., effective as of October 25, 1993
(Exhibit 3(i) to 10-Q for the quarter ended September 24,
1993 ("3rd Quarter 1993 10-Q")).
- ----------
Certain of the exhibits in this index were previously filed as exhibits to other
reports or registration statements filed by the Registrant and are incorporated
herein by reference to such reports or registration statements as indicated
parenthetically by the appropriate report reference date or registration
statement number. For convenience, Quarterly Reports on Form 10-Q, Annual
Reports on Form 10-K, Current Reports on Form 8-K, and Registration Statements
on Form S-3 are designated herein as "10-Q", "10-K", "8-K", and "S-3",
respectively.
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
4(i) Senior Indenture dated as of April 1, 1983, as amended and
restated, between ML & Co. and Chemical Bank (successor by
merger to Manufacturers Hanover Trust Company) and the
Supplemental Indenture thereto dated as of March 15, 1990
(Exhibit 3 to ML & Co.'s Registration Statement on Form
8-A dated July 20, 1992).
4(ii) Senior Indenture dated as of October 1, 1993 between ML &
Co. and The Chase Manhattan Bank, N.A. (Exhibit 4 to 8-K dated
October 7, 1993).
4(iii) Form of ML & Co.'s 6% Notes due January 15, 2001 (Exhibit 4 to
8-K dated January 17, 1996).
4(iv) Form of ML & Co.'s AMEX Hong Kong 30 Index Equity
Participation Notes due February 16, 1999 (Exhibit 4 to 8-K
dated February 7, 1996).
4(v) Form of ML & Co.'s 6% Notes due March 1, 2001 (Exhibit 4 to
8-K dated February 29, 1996).
4(vi) Form of ML & Co.'s 7% Notes due March 19, 2006 (Exhibit 4 to
8-K dated March 18, 1996).
10(i) ML & Co. 1978 Incentive Equity Purchase Plan, as amended
through January 16, 1995 (Exhibit 10(i) to 1994 10-K).
10(ii) Form of ML & Co. Amended and Restated 1994 Deferred
Compensation Agreement for a Select Group of Eligible
Employees, as amended through November 10, 1994 (Exhibit
10(ii) to 1994 10-K).
*10(iii) ML & Co. Long-Term Incentive Compensation Plan, as amended
through December 4, 1995.
10(iv) ML & Co. Equity Capital Accumulation Plan, as amended through
December 5, 1994 (Exhibit 10(iv) to 1994 10-K).
10(v) ML & Co. Executive Officer Compensation Plan (Exhibit 10(i) to
ML & Co.'s Proxy Statement for the 1994 Annual Meeting of
Stockholders contained in ML & Co.'s Schedule 14A filed on
March 14, 1994 ("1994 Proxy Statement")).
10(vi) Written description of Retirement Program for Non-Employee
Directors of ML & Co., as amended June 29, 1988 (Page 24 of ML
& Co.'s Proxy Statement for the 1996 Annual Meeting of
Stockholders contained in ML & Co.'s Schedule 14A filed on
March 11, 1996 ("1996 Proxy Statement")).
- ----------
* Filed herewith.
E-2
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10(vii) ML & Co. Non-Employee Directors' Equity Plan (Exhibit 10(iv)
to 3rd Quarter 1992 10-Q for the quarter ended September 25,
1992 (the "3rd Quarter 1992 10-Q")).
10(viii) Executive Annuity Agreement dated July 24, 1991 by and
between ML & Co. and Daniel P. Tully (Exhibit 10(iii) to
10-Q for the quarter ended June 28, 1991 (the "2nd Quarter
1991 10-Q")).
10(ix) Amendment dated April 30, 1992 to Executive Annuity
Agreement dated July 24, 1991, by and between ML & Co. and
Daniel P. Tully (Exhibit 10(ii) to 2nd Quarter 1992 10-Q for
the quarter ended June 26, 1992).
*10(x) Form of Severance Agreement between ML & Co. and certain of
its directors and executive officers.
10(xi) Form of Indemnification Agreement entered into with all
current directors of ML & Co. and to be entered into with all
future directors of ML & Co. (Exhibit 10(xi) to 1993 10-K).
10(xii) Written description of ML & Co.'s incentive compensation
programs (Exhibit 10(xii) to 1993 10-K).
10(xiii) Written description of ML & Co.'s compensation policy for
directors (Page 14 of ML & Co.'s 1996 Proxy Statement).
10(xiv) Merrill Lynch KECALP Growth Investments Limited Partnership
1983 (Exhibit 1(b) to Registration Statement on Form N-2 (File
No. 2-81619)).
10(xv) Merrill Lynch KECALP L.P. 1984 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 2-87962)).
- ----------
* Filed herewith.
E-3
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10(xvi) Merrill Lynch KECALP L.P. 1986 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 2-99800)).
10(xvii) Merrill Lynch KECALP L.P. 1987 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 33-11355)).
10(xviii) Merrill Lynch KECALP L.P. 1989 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 33-26561)).
10(xix) Merrill Lynch KECALP L.P. 1991 (Exhibit 1(b) to Registration
Statement on Form N-2 (File No. 33-39489)).
10(xx) Merrill Lynch KECALP L.P. 1994 (Exhibit 1(a)(ii) to
Registration Statement on Form N-2 (File No. 33-51825)).
10(xxi) Form of ML & Co. 1994 Deferred Restricted Unit Agreement for
Executive Officers (Exhibit 10(i) to 10-Q for the quarter
ended April 1, 1994 (the "1st Quarter 1994 10-Q")).
10(xxii) Form of ML & Co. 1995 Deferred Compensation Plan for a Select
Group of Eligible Employees (Exhibit 10(xxii) to 1994 10-K).
10(xxiii) Form of ML & Co. Fee Deferral Plan for Non-Employee
Directors, as amended through February 24, 1995 (Exhibit
10(xxiii) to 1994 10-K).
10(xxiv) Form of ML & Co. 1996 Deferred Compensation Plan for a Select
Group of Eligible Employees (Exhibit 10(i) to 10-Q for the
quarter ended September 29, 1995).
10(xxv) Intentionally omitted.
E-4
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10(xxvi)(a) Reimbursement Agreement between Olympia & York Tower D
Company and Merrill Lynch/WFC/L, Inc. ("WFC/L") dated as
of August 24, 1984 (Exhibit 10(i) to 8-K dated January 22,
1990).
10(xxvi)(b) Reimbursement Agreement between Olympia & York Tower B
Company ("B Company") and WFC/L dated as of August 24,
1984 (Exhibit 10(ii) to 8-K dated January 22, 1990).
+10(xxvi)(c) Agreement of Lease (with respect to Parcel D) dated as
of February 26, 1988 between WFC Tower D Company
(formerly known as Olympia & York Tower D Company) ("D
Company") and WFC/L (Exhibit 10(xxx)(c) to 1992 10-K).
+10(xxvi)(d) Guaranty and Assumption Agreement dated as of February
26, 1988 between ML & Co. and D Company (Exhibit
19(xxx)(d) to 1992 10-K).
+10(xxvi)(e) Agreement of Lease (with respect to Parcel B) dated as
of September 29, 1988 between B Company and WFC/L (Exhibit
10(i) to 1st Quarter 1993 10-Q).
+10(xxvi)(f) Guaranty and Assumption Agreement dated as of September
29, 1988 between ML & Co. and B Company (Exhibit 10(ii) to
1st Quarter 1993 10-Q).
+10(xxvi)(g) Restated and Amended Partnership Agreement of D Company,
executed on December 24, 1986 (Exhibit 10(xxx)(g) to 1992
10-K).
+10(xxvi)(h) Agreement of Sublease dated as of September 29, 1988
between WFC/L and Olympia & York Tower B Lease Company
(Exhibit 10(iii) to 1st Quarter 1993 10-Q).
+10(xxvi)(i) Agreement of Sublease (with respect to a portion of
Parcel B) dated November 26, 1990 between WFC/L and
Nomura Holding America, Inc. (Exhibit 10(xxvi)(i) to 1993
10-K).
+10(xxvi)(j) Agreement of Sublease (with respect to a portion of
Parcel B), dated December 17, 1993 between WFC/L and
Deloitte & Touche (Exhibit 10(xxvi)(j) to 1993 10-K).
10(xxvii)(a) First Amendment to Building D Agreement to Lease,
Leasehold Improvements Agreement and Reimbursement
Agreement (with respect to Parcel D) dated as of July 12,
1985 between D Company and WFC/L (Exhibit 10(iii) to 8-K
dated January 22, 1990).
10(xxvii)(b) First Amendment to Building B Agreement to Lease,
Reimbursement Agreement, Second Amendment to Leasehold
Improvements Agreement (with respect to Parcel B) dated
as of July 12, 1985 between B Company and WFC/L (Exhibit
10(iv) to 8-K dated January 22, 1990).
10(xxvii)(c) Second Amendment to Reimbursement Agreement (with respect
to Parcel D), dated as of February 26, 1988 between D
Company and WFC/L (Exhibit 10(iv) to 1st Quarter 1993
10-Q).
+10(xxvii)(d) Amended and Restated Second Amendment to Reimbursement
Agreement (with respect to Parcel B) dated as of
September 29, 1988 between B Company and WFC/L (Exhibit
10(v) to 1st Quarter 1993 10-Q).
- ----------
+ Confidential treatment has been obtained for portions of this exhibit.
E-5
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
10(xxvii)(e) Amendment of Agreement of Lease (with respect to Parcel
D) dated as of September 29, 1988 between D Company and
WFC/L (Exhibit 10(vi) to 1st Quarter 1993 10-Q).
10(xxvii)(f) First Amendment to Agreement of Sublease dated as of
September 29, 1988 between WFC/L and Olympia & York Tower
B Lease Company (Exhibit 10(v) to 10-Q for the quarter ended
March 24, 1989).
10(xxvii)(g) Letter Amendment to the Restated and Amended Partnership
Agreement of WFC Tower D Company dated as of February 26,
1988 between O&Y Tower D Holding Company I ("O&Y I")
(which has succeeded to the interest of O&Y U.S.
Development Corp.), O&Y Tower D Holding Company II ("O&Y
II") and HQ North Company, Inc. (formerly known as O&Y
Delta Corp.) ("HQ North") (Exhibit 10(vii) to 1st Quarter
1993 10-Q).
10(xxvii)(h) Third Amendment to Restated and Amended Partnership
Agreement of WFC Tower D Company dated as of July 12,
1990 among O&Y I, O&Y II, and HQ North (Exhibit
10(xxix)(i) to 10-K, for the fiscal year ended
December 28, 1990 ("1990 10-K")).
+10(xxvii)(i) Second Amendment, dated as of December 26, 1990 to
Agreement of Sublease dated as of September 29, 1988
between WFC/L and Olympia & York Tower B Lease Company
(Exhibit 10(xxix)(j) to 1990 10-K).
+10(xxvii)(j) Second Amendment dated as of January 5, 1994 to
Agreement of Sublease (with respect to a portion of Parcel
B) dated November 26, 1990 between WFC/L and Nomura
Holding America, Inc. (Exhibit 10(xxvii)(j) to 1993 10-K).
* 11 Statement re computation of per share earnings.
* 12 Statement re computation of ratios.
* 13 1995 Annual Report to Stockholders.
* 21 Subsidiaries of the Registrant.
* 23 Consent of Independent Auditors.
* 27 Financial Data Schedule.
- ----------
+ Confidential treatment has been obtained for portions of this exhibit.
* Filed herewith.
E-6