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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
ITL35,000,000,000
ITALIAN LIRA PRINCIPAL LINKED NOTES DUE FEBRUARY 3, 1995
Original Issue Date: February 3, 1994
Maturity Date: February 3, 1995
Redemption Date: Not Applicable
Interest Payment Dates: Maturity Date
Interest Rate: 16.20%
Specified Currency: Italian Lira
DESCRIPTION OF THE NOTES
GENERAL
The Medium-Term Notes, Series B of Merrill Lynch & Co., Inc. (the
"Company") offered hereby are "Italian Lira Principal Linked Notes due February
3, 1995" 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.
This Prospectus Supplement relates to ITL35,000,000,000 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 99.875% 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. References to "ITL" are to Italian Lira.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months for the period specified herein and will be payable to the person to whom
the principal of the Notes is payable.
The Notes will not be subject to redemption by the Company in whole or in
part prior to the Maturity Date.
The Notes will be Book-Entry Notes issued in denominations of
ITL5,000,000,000 and integral multiples thereof. The Specified Currency with
respect to the Notes is Italian Lira. Except as provided below, interest and
principal with respect to the Notes will be paid in Italian Lira.
All other capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the accompanying Prospectus and Prospectus
Supplement.
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 ZERO.
The Date of this Prospectus Supplement is February 1, 1994.
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REDEMPTION AMOUNT
At maturity, a Holder of a Note will be entitled to receive, with respect
to the principal amount of Notes owned by such Holder (the "Principal Amount"),
an amount equal to the Principal Redemption Amount which shall equal the
following:
(i) if the Spot Rate is less than 931 ITL/DEM (e.g., 930 ITL/DEM) at the
Calculation Time on any Exchange Rate Business Day during the period
from and including February 3, 1994 to and including the second
Exchange Rate Business Day prior to the Maturity Date (the
"Calculation Period"), the Principal Redemption Amount shall be the
Principal Amount;
(ii) if the Spot Rate is never less than 931 ITL/DEM at the Calculation
Time on any Exchange Rate Business Day during the Calculation Period,
the Principal Redemption Amount shall equal:
Principal Amount - (3 x Principal Amount x (the greater of (a) 0,
and (b) (Maturity Date Spot Rate - 976.50)/976.50))
provided, however, that the Principal Redemption Amount shall not be less than
zero. The "Spot Rate" shall equal the rate of exchange for ITL per German
Deutsche Mark ("DEM") as determined by Merrill Lynch International Bank (the
"Determination Agent"), based on the Determination Agent's open market spot
offer for ITL (spot bid for DEM) at the Calculation Time on an Exchange Rate
Business Day, for an amount of ITL equal to ITL35,000,000,000. "Calculation
Time" means 11:00 a.m. London time. The "Maturity Date Spot Rate" shall equal
the Spot Rate determined by the Determination Agent on the second Exchange Rate
Business Day prior to the Maturity Date (the "Determination Date").
On January 31, 1994 the exchange rate for ITL per DEM at the Calculation
Time as reported by the Determination Agent was 974.19.
In order for the Holders of the Notes to receive payments of interest and
principal by wire transfer, the Holder of a Note must designate an appropriate
account with a bank located in the country outside of the United States. Such
designation shall be made by filing the appropriate information with the Trustee
at its office in The City of New York at least sixteen days prior to maturity.
The Trustee will, subject to applicable laws and regulations and until it
receives notice to the contrary, make such payment to the Holder of a Note by
wire transfer to the designated account. If, however, a payment cannot be made
by wire transfer because the required information has not been received by the
Trustee on or before the requisite date, payment will be made by check or draft
mailed to the Holder of a Note at its registered address.
If ITL is not available for the payment of principal or interest with
respect to the Notes due to the imposition of exchange controls or other
circumstances beyond the control of the Company, the Company will be entitled to
satisfy its obligations to the Holder of a Note by making such payment in U.S.
dollars on the basis of the Market Exchange Rate (as defined below) on the date
of such payment, or if such Market Exchange Rate is not then available, on the
basis of the most recently available Market Exchange Rate. The "Market Exchange
Rate" means the noon buying rate in The City of New York for cable transfers in
foreign currencies as certified for customs purposes by the Federal Reserve Bank
of New York. Reference in this Note to "U.S. dollars" is to the currency of the
United States of America.
"Exchange Rate Business Day" means any day other than a Saturday or Sunday
or any other day on which banking institutions in London, Milan or Frankfurt are
generally authorized or obligated by law or executive order to close.
Any payment of principal or interest required to be made on the Maturity
Date which is not a Business Day need not be made on such day, but may be made
on the next succeeding Business Day with the same force and effect as if made on
such Maturity Date. "Business Day" means any day other than a Saturday or
Sunday or any other day on which banking institutions in Milan are generally
authorized or obligated by law or executive order to close.
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If an Event of Default (as defined in the Indenture) with respect to the
Medium-Term Notes, Series B shall occur and be continuing, the principal of all
the Notes may be declared due and payable in the manner and with the
effect provided in the Indenture. In case of an Event of Default with respect
to any of the Notes shall have occurred and be continuing, the amount payable to
the Holder of the Notes shall be equal to the Principal Redemption Amount
described above calculated as though the date of early repayment were the
Maturity Date, including that the Calculation Period shall be from and including
February 3, 1994 to and including the second Exchange Rate Business Day prior to
the date of early repayment.
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 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 1986 Proposed 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, the Company currently intends to
treat the Notes as debt obligations 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. Although there exists a
reasonable basis for the Company's characterization of the Notes as debt
obligations for United States Federal income tax purposes, the matter is not
free from doubt and prospective investors in the Notes should be aware 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). In addition, under Section 988 of the Internal Revenue Code of
1986, as amended (the "Code") and the regulations promulgated thereunder, in the
case of a debt instrument that provides for payments the amounts of which are
either denominated in terms of a nonfunctional currency (generally, a currency
other than the U.S. dollar) or determined by reference
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to the value of one or more nonfunctional currencies, any gain or loss realized
with respect to such debt instrument by reason of changes in foreign currency
exchange rates generally must be treated as foreign currency gain or loss
and must be treated as ordinary income (other than ordinary interest income) or
ordinary loss, as the case may be, to the extent such foreign currency gain or
loss does not exceed the total gain or loss realized on such debt instrument.
Although Code Section 988 and the regulations promulgated thereunder do not
specifically address the proper treatment of an instrument such as the Notes and
therefore the matter is not free from doubt, under the foregoing principles, the
U.S. dollar value of the amount payable with respect to a Note at the Interest
Rate (the "Interest Payment"), as determined on the date that the Interest
Payment is received, should be includible in income by a cash method U.S. Holder
as ordinary interest at the time that the Interest Payment is received
(regardless of whether the Interest Payment is in fact converted to U.S. dollars
at that time) and a cash method U.S. Holder should not be required to recognize
any foreign currency gain or loss with respect to the Interest Payment. A U.S.
Holder that reports income for United States Federal income tax purposes under
the accrual method of accounting, however, should be required to include in
income ordinary interest in an amount equal to the U.S. dollar value of the
portion of the Interest Payment that accrues during an accrual period. The U.S.
dollar value of such accrued income generally should be determined by
translating such accrued income at the average rate of exchange for the accrual
period or, with respect to an accrual period that spans two taxable years, at
the average rate of exchange for the partial period within the taxable year. An
accrual method U.S. Holder could elect, however, to translate such accrued
income using the rate of exchange on the last day of the accrual period, or,
with respect to an accrual period that spans two taxable years, using the rate
of exchange on the last day of the taxable year. If an accrual method U.S.
Holder were to make this election and if the last day of an accrual period is
within five business days of the date of receipt of the accrued interest, such
U.S. Holder would be permitted to translate such accrued interest using the rate
of exchange on the date of receipt. The above election would apply to other
debt obligations held by such U.S. Holder and could not be changed without the
consent of the IRS. Therefore, an accrual method U.S. Holder should consult its
tax advisor before making the above election. Upon receipt of the Interest
Payment, an accrual method U.S. Holder should recognize foreign currency gain or
loss under Section 988 of the Code in an amount equal to the difference, if any,
between the U.S. dollar value of the Interest Payment (as determined on the date
that the Interest Payment is made) and the U.S. dollar value of the interest
income that such U.S. Holder has previously included in income with respect to
the Note. Prospective investors in the Notes should be aware, however, that
Code Section 988 and the regulations promulgated thereunder could possibly be
interpreted as requiring a U.S. Holder to account for the Interest Payment and
any foreign currency gain or loss with respect thereto in a manner that differs
from the treatment described above.
Upon retirement of a Note, a U.S. Holder (whether a cash method or an
accrual method U.S. Holder) generally should recognize foreign currency gain or
loss under Section 988 of the Code in an amount equal to the difference, if any,
between the U.S. dollar value of the Principal Amount (as determined on the
Original Issue Date, i.e., the U.S. Holder's tax basis in the Note) and the U.S.
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dollar value of the Principal Redemption Amount (as determined on the Maturity
Date,). Upon the sale or exchange of a Note prior to the Maturity Date, a U.S.
Holder should recognize taxable gain or loss in an amount equal to the
difference, if any, between the U.S. dollar value of the amount realized upon
such sale or exchange (as determined on (i) the date payment is received in the
case of a cash method U.S. Holder or (ii) the date of disposition in the case of
an accrual method U.S. Holder) and the U.S. dollar value of the Principal Amount
(as determined on the Original Issue Date). Such gain or loss generally should
be short-term capital gain or loss. Nevertheless, any such gain or loss
realized upon the sale or exchange of a Note prior to the Maturity Date by
reason of changes in foreign currency exchange rates occurring between the
Original Issue Date and the date of such sale or exchange should constitute
foreign currency gain or loss under Section 988 of the Code and should be
treated as ordinary gain or loss, as the case may be.
Despite the foregoing, it is possible that the Notes could be treated as
contingent payment debt obligations. It is not entirely clear under current law
how the Notes would be taxed if they were treated as contingent payment debt
obligations. As previously discussed, although the matter is not free from
doubt, under general principles of current United States Federal income tax law,
the U.S. dollar value of the Interest Payment, as determined on the date that
the Interest Payment is received, should be includible in income by a cash
method U.S. Holder as ordinary interest at the time that the Interest Payment is
received. Under these same principles, an accrual method U.S. Holder should
generally be required to include an amount equal to the U.S. dollar value of the
portion of the Interest Payment that accrues during an accrual period in income
as ordinary interest. Upon receipt of the Interest Payment, an accrual method
U.S. Holder should be required to recognize foreign currency gain or loss
pursuant to Code Section 988 in an amount equal to the difference, if any,
between the U.S. dollar value of the Interest Payment (as determined on the date
that the Interest Payment is made) and the U.S. dollar value of the interest
income that such U.S. Holder has previously included in income with respect to
the Note. Upon retirement of a Note, a U.S. Holder
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(whether a cash method or an accrual method U.S. Holder) generally should
recognize foreign currency gain or loss under Section 988 of the Code in an
amount equal to the difference, if any, between the U.S. dollar value of the
Principal Amount (as determined on the Original Issue Date) and the U.S. dollar
value of the Principal Redemption Amount (as determined on the Maturity Date).
However, in 1986, the Treasury Department issued proposed regulations (the
"1986 Proposed Regulations") under the original issue discount provisions of the
Code concerning contingent payment debt obligations. The 1986 Proposed
Regulations contain a retroactive effective date of July 1, 1982. Although the
1986 Proposed Regulations would generally apply to any contingent payment debt
obligation where the issue price of the debt instrument exceeds the total
noncontingent payments due under the debt instrument by more than an
insubstantial amount, it is unclear to what extent the 1986 Proposed Regulations
would apply to a debt instrument providing for one or more payments the amount
of which is determined by reference to the value of a foreign currency (such as
the Notes). Nevertheless, if the Notes were treated as contingent payment debt
obligations and if the 1986 Proposed Regulations are ultimately adopted in their
current form, such regulations could apply to the Notes and such application of
the 1986 Proposed Regulations to the Notes 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.
As noted above, the 1986 Proposed Regulations set forth a special set of
rules applicable to debt instruments that fail to provide for total
noncontingent payments at least equal to their issue price. Under these rules,
if the sum of the Interest Payment and the Principal Redemption Amount (the
"Total Redemption Amount") equals or exceeds the Principal Amount, then the
Notes should be treated as having been retired on the Maturity Date for an
amount equal to the Principal Amount. A U.S. Holder (whether a cash method or
an accrual method U.S. Holder) generally should be required to recognize foreign
currency gain or loss under such circumstances in an amount equal to the
difference, if any, between the U.S. dollar value of the Principal Amount (as
determined on the Original Issue Date) and the U.S. dollar value of the
Principal Amount (as determined on the Maturity Date). In addition, under such
circumstances, the excess of the Total Redemption Amount over the Principal
Amount (the "Excess Amount"), if any, should be treated as ordinary interest and
the U.S. dollar value of the Excess Amount (as determined on the Maturity Date)
should be includible in income by a U.S. Holder 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. If, however, the Total Redemption Amount is
less than the Principal Amount, then a U.S. Holder should recognize foreign
currency gain or loss under this set of rules in an amount equal to the
difference between the U.S. dollar value of the Principal Amount (as determined
on the Original Issue Date) and the U.S. dollar value of the Total Redemption
Amount (as determined on the Maturity Date).
Despite the foregoing, in the event that the Principal Redemption Amount
becomes fixed prior to the Maturity Date (i.e., because the Spot Rate has been
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less than 931 ITL/DEM at the Calculation Time, or at such other time as the
Determination Agent may elect, on any Exchange Rate Business Day during the
Calculation Period) the Excess Amount should be treated as ordinary interest and
the U.S. dollar value of the Excess Amount (as determined on the date that the
Principal Redemption Amount becomes fixed) should be includible in income by a
U.S. Holder on the date that the Principal Redemption Amount becomes fixed,
regardless of the U.S. Holder's regular method of tax accounting. Under such
circumstances, a U.S. Holder should be required to recognize foreign currency
gain or loss pursuant to Code Section 988 on the Maturity Date in an amount
equal to the difference, if any, between the U.S. dollar value of the Excess
Amount (as determined on the date that the Principal Redemption Amount became
fixed) and the U.S. dollar value of the Excess Amount (as determined on the
Maturity Date). In addition, under such circumstances, a U.S. Holder should be
required to recognize foreign currency gain or loss pursuant to Section 988 of
the Code in an amount equal to the difference, if any, between the U.S. dollar
value of the Principal Amount (as determined on the Original Issue Date) and the
U.S. dollar value of the Principal Amount (as determined on the Maturity Date).
Nevertheless, in the event that the Principal Redemption Amount becomes
fixed six months or more prior to the Maturity Date, then an amount equal to the
excess of the Principal Redemption Amount over the present value (determined by
using a discount rate equal to the short-term applicable federal rate in effect
as of the Original Issue Date) of the Principal Redemption Amount should be
treated as original issue discount (such amount is hereinafter referred to as
the "OID Amount") and a U.S. Holder should be required to include such discount
into income under a constant yield method over a period commencing on the date
that the Principal Redemption Amount becomes fixed and concluding on the
Maturity Date. A U.S. Holder (whether a cash method or an accrual method U.S.
Holder) should be required to include in income ordinary interest in an amount
equal to the U.S. dollar value of the portion of such original issue discount
that accrues during an accrual period. The U.S. dollar value of such accrued
original issue discount generally should be determined in the same manner as
described above regarding the accrual of the
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Interest Payment by an accrual method U.S. Holder under general principles of
current United States Federal income tax law. On the Maturity Date, a U.S.
Holder should be required to recognize foreign currency gain or
loss pursuant to Section 988 of the Code in an amount equal to the difference
between the U.S. dollar value of the OID Amount (as determined on the Maturity
Date) and the U.S. dollar value of the original issue discount that such U.S.
Holder has previously included in income with respect to the Note. In addition,
under such circumstances, a U.S. Holder (whether a cash method or an accrual
method U.S. Holder) should be required to include in income the U.S. dollar
value (as determined on the date that the Principal Redemption Amount becomes
fixed) of an amount equal to the excess of the Excess Amount over the OID Amount
(the "Interest Amount") as ordinary interest on the date that the Principal
Redemption Amount becomes fixed. On the Maturity Date, a U.S. Holder should be
required to recognize foreign currency gain or loss pursuant to Section 988 of
the Code in an amount equal to the difference, if any, between the U.S. dollar
value (as determined on the date that the Principal Redemption Amount became
fixed) of the Interest Amount and the U.S. dollar value (as determined on the
Maturity Date) of the Interest Amount. Prospective investors in the Notes
should be aware, however, that if the 1986 Proposed Regulations were applied to
the Notes such regulations could possibly be interpreted as requiring a
treatment that differs from the treatment discussed above.
Furthermore, there is no assurance that the 1986 Proposed Regulations will
be adopted or, if adopted, adopted in their current form. 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 of income recognition on contingent payment
debt obligations that differ from the rules contained in the 1986 Proposed
Regulations with respect to the timing of income recognition. 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. In addition, it is unclear to what extent, if any, the 1993 Proposed
Regulations would have applied to debt instruments providing for one or more
payments determined, in whole or in part, by reference to the value of foreign
currency. Accordingly, 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. 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.
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