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RULE NO. 424(b)(3)
REGISTRATION NO. 33-49947
PROSPECTUS SUPPLEMENT
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(TO PROSPECTUS SUPPLEMENT DATED OCTOBER 4, 1993 AND PROSPECTUS DATED AUGUST 27,
1993)
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES, SERIES B
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
JAPANESE YEN SWAP RATE LINKED NOTES DUE FEBRUARY 28, 1997
Original Issue Date: February 28, Principal Redemption
1994 Amount: The greater of (a) principal
Maturity Date: February 28, 1997 amount x 95% and (b) principal amount
Interest Rate: 4.65% x (95% + [42 x (3% - 3 Year Yen Offer
Interest Payment Dates: Each August Side Swap Rate)])
28 and February 28, commencing Redemption Date: Not applicable
August 28, 1994 Optional Repayment
Principal Amount: $25 million Dates: Not applicable
DESCRIPTION OF THE NOTES
GENERAL
The Medium-Term Notes, Series B of Merrill Lynch & Co., Inc. (the
"Company") offered hereby are "Japanese Yen Swap Rate Linked Notes due February
28, 1997" and are referred to in this Prospectus Supplement as the "Notes". The
Notes are Fixed Rate Notes and certain provisions of the Notes are more fully
described in the accompanying Prospectus and Prospectus Supplement. The
principal of the Notes repayable on the Maturity Date specified above (the
"Principal Redemption Amount") will be determined pursuant to the formula
described herein, and such amount may be less than, equal to or more than the
principal amount of the Notes (but will not be less than 95% of the principal
amount of each such Note). The Notes will be issued as Book-Entry Notes in
denominations of U.S. $1,000 and integral multiples thereof.
This Prospectus Supplement relates to $25,000,000 aggregate principal
amount of Notes which the Company has agreed to sell to Merrill Lynch, Pierce,
Fenner & Smith Incorporated (the "Underwriter"), and which the Underwriter has
agreed to purchase from the Company, at a price of 99.675% of the principal
amount thereof. The Underwriter has advised the Company that it proposes
initially to offer the Notes to the public at a public offering price equal to
100% of the principal amount thereof. After the initial public offering, such
public offering price may be changed.
IN CERTAIN CIRCUMSTANCES, THE PRINCIPAL REDEMPTION AMOUNT OF A NOTE PAYABLE
ON THE MATURITY DATE MAY BE LESS THAN THE PRINCIPAL AMOUNT OF SUCH NOTE, BUT MAY
NOT BE LESS THAN 95% OF THE PRINCIPAL AMOUNT OF SUCH NOTE.
The Notes will bear interest, payable in U.S. dollars, from and including
February 28, 1994 to but excluding the Maturity Date. Interest will be payable
semi-annually in arrears on each February 28 and August 28, commencing August
28, 1994.
The Notes will not be subject to redemption by the Company in whole or in
part prior to the Maturity Date.
The date of this Prospectus Supplement is February 25, 1994.
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PRINCIPAL REDEMPTION AMOUNT
The Principal Redemption Amount of the Notes payable by the Company on the
Maturity Date will be determined on the Principal Redemption Amount
Determination Date (as defined herein) by Merrill Lynch Capital Services, Inc.
(the "Calculation Agent"), a subsidiary of the Company, and will equal the
greater of:
(a) principal amount x 95% and (b) principal amount x (95% + [42 x (3% - 3 Year
Yen Offer Side Swap Rate)]).
"3 Year Yen Offer Side Swap Rate" means:
(i) The offer-side rate which appears on Telerate Page 42283, "YEN SWAP
INDICES - FIXED VS. 6 M LIBOR", corresponding to the row entitled "THREE YEAR",
which appears as of 11:00 a.m., London time, on the Principal Redemption Amount
Determination Date. "Telerate Page 42283" means the display designated as page
42283 on the Dow Jones Telerate Service (or such page as may replace page 42283
on that service).
(ii) If the 3 Year Yen Offer Side Swap Rate as described in clause (i) is
not available on the Principal Redemption Amount Determination Date, the 3 Year
Yen Offer Side Swap Rate will be calculated by the Calculation Agent and will be
the arithmetic mean of the offer-side fixed rates for a Japanese Yen denominated
interest rate swap transaction with a three year maturity in which a fixed rate
is exchanged for a floating rate equal to LIBOR for a period of six months as of
approximately 11:00 a.m., London time, on such Principal Redemption Amount
Determination Date of seven leading market-makers, or if seven are not quoting,
six leading market-makers, or if six are not quoting, five leading market-
makers, after, in any such case, eliminating the highest and lowest of such
quotes (or, in the event of equality of the highest and/or lowest quotes, after
eliminating one of such highest and/or lowest quotes, as the case may be) in
London or Tokyo in such interest rate swap transactions selected by the
Calculation Agent for an amount customary for such transactions. If fewer than
five market-makers are quoting as described in this clause, then the 3 Year Yen
Offer Side Swap Rate will equal the arithmetic mean of the offer rates obtained
and neither the highest nor the lowest of such quotations will be eliminated.
If only one market-maker is quoting as described in this clause, then the 3 Year
Yen Offer Side Swap Rate will equal such quote.
"Principal Redemption Amount Determination Date" means the second
Calculation Business Day immediately preceding the Maturity Date.
"Calculation Business Day" means any day other than a Saturday or Sunday or
any other day on which banks in The City of New York, London or Tokyo are
generally authorized or obligated by law or executive order to close.
All other capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the accompanying Prospectus and Prospectus
Supplement.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon the opinion, set forth in full below, of Brown & Wood, counsel to the
Company, which opinion is based upon laws, regulations, rulings and decisions
now in effect (or, in the case of certain regulations, in proposed form), all of
which are subject to change (including changes in effective dates) or possible
differing interpretations. The discussion below deals only with Notes held as
capital assets and does not purport to deal with persons in special tax
situations, such as financial institutions, insurance companies, regulated
investment companies, dealers in securities or currencies, persons holding Notes
as a hedge against currency risks or as a position in a "straddle" for tax
purposes, or persons whose functional currency is not the United States dollar.
It also does not deal with holders other than original purchasers nor does it
deal with holders other than U.S. Holders (as defined below). Persons
considering the purchase of the Notes should consult
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their own tax advisors concerning the application of United States Federal
income tax laws to their particular situations as well as any consequences of
the purchase, ownership and disposition of the Notes arising under the laws of
any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject to
United States Federal income taxation regardless of its source or (iv) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business.
GENERAL
There are no regulations (except the Treasury Regulations as described
below), published rulings or judicial decisions involving the characterization,
for United States Federal income tax purposes, of securities with terms
substantially the same as the Notes. However, although the matter is not free
from doubt, under current law, the Notes should be treated as debt instruments
of the Company for United States Federal income tax purposes. The Company
currently intends to treat the Notes as debt instruments of the Company for
United States Federal income tax purposes and, where required, intends to file
information returns with the Internal Revenue Service ("IRS") in accordance with
such treatment, in the absence of any change or clarification in the law, by
regulation or otherwise, requiring a different characterization. Prospective
investors in the Notes should be aware, however, that the IRS is not bound by
the Company's characterization of the Notes as indebtedness and that the IRS
could possibly take a different position as to the proper characterization of
the Notes for United States Federal income tax purposes. The following
discussion of the principal United States Federal income tax consequences of the
purchase, ownership and disposition of the Notes is based upon the assumption
that the Notes will be treated as debt obligations of the Company for the United
States Federal income tax purposes. If the Notes are not in fact treated as
debt obligations of the Company for United States Federal income tax purposes,
then the United States Federal income tax treatment of the purchase, ownership
and disposition of the Notes could differ from the treatment discussed below.
U.S. HOLDERS
Under general principles of current United States Federal income tax law,
payments of interest on a debt instrument generally will be taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). Under the foregoing principles, the amounts payable with respect
to a Note at the Interest Rate (the "Semiannual Interest Payments") should be
includible in income by a U.S. Holder as ordinary interest on the respective
dates that the Semiannual Interest Payments are accrued or are received (in
accordance with the U.S. Holder's regular method of tax accounting). Upon
retirement of a Note, the excess of the Principal Redemption Amount over the
Principal Amount (the "Supplemental Redemption Amount"), if any, would be
treated as contingent interest and generally would be includible in income by a
U.S. Holder as ordinary interest on the date that the Principal Redemption
Amount is accrued (i.e., determined) or when such amount is received (in
accordance with the U.S. Holder's regular method of tax accounting). If,
however, the Principal Redemption Amount is equal to or less than the Principal
Amount, then, under general principles of current United States Federal income
tax law, a Note would be treated as having been retired on the Maturity Date for
an amount equal to the Principal Redemption Amount. A U.S. Holder generally
would recognize taxable loss under such circumstances in an amount equal to the
excess, if any, of the U.S. Holder's tax basis in the Note over the Principal
Redemption Amount. A U.S. Holder's tax basis in a Note generally will equal
such U.S. Holder's initial investment in the Note (generally the Principal
Amount). Such loss generally would be long-term capital loss if the Note were
held by the U.S. Holder for more than one year. Upon the sale or exchange of a
Note prior to the Maturity Date, a U.S. Holder generally would recognize taxable
gain or loss in an amount equal to the difference between the amount realized on
such sale or exchange (other than amounts representing accrued and unpaid
interest) and such U.S. Holder's tax basis in the Note. Such gain or loss
generally should be long-term capital gain or loss if the Note were held by the
U.S. Holder for more than one year. It is possible, however, that the IRS may
assert that any amounts realized upon the sale
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or exchange of a Note prior to the Maturity Date in excess of the Principal
Amount constitutes ordinary interest income. Nonetheless, although the matter
is not free from doubt, under current law, any gain realized upon the sale or
exchange of a Note prior to the Maturity Date should be treated as capital gain.
On January 27, 1994, the IRS issued final Treasury regulations (the "OID
Regulations") under the original issue discount provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), which replaced certain proposed
Treasury regulations that were issued on December 21, 1992 dealing with debt
instruments issued with original issue discount. The OID Regulations would
apply to debt instruments issued on or after April 4, 1994; therefore by their
terms they would not apply to the Notes. Nevertheless, taxpayers may rely on
the OID Regulations for debt instruments issued after December 21, 1992.
Under the OID Regulations, if a debt instrument qualifies as a "variable
rate debt instrument," then a special set of rules would apply to the debt
instrument whereby all "qualified stated interest" payments on the debt
instrument generally would be taxable to a U.S. Holder as ordinary interest
income in accordance with the U.S. Holder's regular method of tax accounting.
The Notes would not qualify as "variable rate debt instruments" under the OID
Regulations, because the Principal Amount of the Notes (i.e., the issue price of
the Notes) exceeds 95% of the Principal Amount (the "Minimum Principal
Redemption Amount") by more than an amount equal to .015 multiplied by the
product of the Minimum Principal Redemption Amount and the number of complete
years to the Maturity Date from the Original Issue Date and because the Notes
provide for stated interest (i.e., the Supplemental Redemption Amount) that is
neither paid nor compounded at least annually.
Since the Notes would not qualify as "variable rate debt instruments" under
the OID Regulations, the Notes would be treated as contingent payment debt
obligations. It is not entirely clear under current law how the Notes would be
taxed since they are classified as contingent payment debt obligations. As
noted above, under general principles of current United States Federal income
tax law, the Semiannual Interest Payments should be includible in income by a
U.S. Holder as ordinary interest on the respective dates that the Semiannual
Interest Payments are accrued or are received (in accordance with the U.S.
Holder's regular method of tax accounting). Upon retirement of a Note, the
Supplemental Redemption Amount, if any, would be treated as contingent interest
and generally would be includible in income by a U.S. Holder as ordinary
interest on the date that the Principal Redemption Amount is accrued (i.e.,
determined) or when such amount is received (in accordance with the U.S.
Holder's regular method of tax accounting). If, however, the Principal
Redemption Amount is equal to or less than the Principal Amount, then, under
general principles of current United States Federal income tax law, a Note would
be treated as having been retired on the Maturity Date for an amount equal to
the Principal Redemption Amount.
However, in 1986, the Treasury Department issued proposed regulations with
a retroactive effective date of July 1, 1982 (the "1986 Proposed Regulations"
and, together with the OID Regulations, the "Treasury Regulations") under the
original issue discount provisions of the Code concerning contingent payment
debt obligations. Thus, if the 1986 Proposed Regulations are ultimately adopted
in their current form, such regulations would apply to the Notes and such
application of the 1986 Proposed Regulations would cause the timing and
character of income, gain or loss recognized on a Note to differ from the timing
and character of income, gain or loss recognized on a Note had the 1986 Proposed
Regulations not applied.
Under the 1986 Proposed Regulations, the Semiannual Interest Payments
should be includible in income by a U.S. Holder as ordinary interest on the
respective dates that the Semiannual Interest Payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). In addition, under the 1986 Proposed Regulations, a U.S. Holder
should be treated as having purchased a debt instrument with amortizable bond
premium in an amount equal to the excess of the Principal Amount over the
Minimum Principal Redemption Amount. A U.S. Holder would be permitted to elect
to amortize such premium using a constant yield method over the term of the Note
and may offset interest otherwise required to be included in income in respect
of the Note during any taxable year by the amortized amount of such premium for
the taxable year. Such election, if made, would apply to all debt instruments
held by the U.S. Holder at the beginning of the taxable year to which such
election applies and to all debt instruments acquired by the U.S. Holder
thereafter. Such election would also be irrevocable once made, unless the U.S.
Holder making such an election were to obtain the express consent of the
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IRS to revoke such election. In addition, under the 1986 Proposed Regulations,
a U.S. Holder should be required to include the Supplemental Redemption Amount,
if any, in income as ordinary interest on the date that the amount of the
Principal Redemption Amount is determined, regardless of the U.S. Holder's
regular method of tax accounting.
There is no assurance that the 1986 Proposed Regulations will be adopted
or, if adopted, adopted in their current form. In addition, on January 19,
1993, the Treasury Department issued proposed regulations (the "1993 Proposed
Regulations") concerning contingent payment debt obligations, which would have
replaced the 1986 Proposed Regulations and which would have provided for a set
of rules with respect to the timing and character of income, gain or loss on
contingent payment debt obligations that differ from the rules contained in the
1986 Proposed Regulations with respect to the timing and character of income,
gain or loss on contingent payment debt obligations. The 1993 Proposed
Regulations, which would have applied to debt instruments issued 60 days or more
after the date the 1993 Proposed Regulations became final, generally provided
for several alternative timing methods which would have required annual interest
accruals to reflect either a market yield for the debt instrument, determined as
of the issue date, or a reasonable estimate of the performance of contingencies.
The amount of interest deemed to accrue in a taxable year pursuant to such
methods would have been currently includible in income by a U.S. Holder, with
subsequent adjustments to the extent that the estimate of income was incorrect.
In addition, under the 1993 Proposed Regulations, any gain realized on the sale,
exchange or retirement of a contingent payment debt obligation generally would
have been treated entirely as ordinary interest income and any loss realized on
the sale, exchange or retirement of a contingent payment debt obligation
generally would have been treated entirely as a capital loss. However, on
January 22, 1993, the United States Government's Office of Management and Budget
announced that certain proposed regulations which had not yet been published in
the Federal Register, including the 1993 Proposed Regulations, had been
withdrawn. It is unclear whether the 1993 Proposed Regulations will be re-
proposed or, if re-proposed, what effect, if any, such regulations would have on
the Notes. Based upon the foregoing, the continued viability of the 1986
Proposed Regulations is uncertain. It should also be noted that proposed
Treasury regulations are not binding upon either the IRS or taxpayers prior to
becoming effective as temporary or final regulations. Prospective investors in
the Notes are urged to consult their own tax advisors regarding the application
of the 1986 Proposed Regulations, if any, and the effect of possible changes to
the 1986 Proposed Regulations to their investment in the Notes.
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