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RULE NO. 424(B)(3)
REGISTRAITION 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 FROM AND EXCEEDING 9 MONTHS FROM DATE OF ISSUE
JPY YIELD CURVE FLATTENING NOTES
Original Issue Date: January 28, Interest Rate Bases: 7 Year JPY
1994 Swap Rate and JPY LIBOR
Maturity Date: January 30, 1995 Index Maturity: 3-Month (for JPY
Redemption Date: Not Applicable LIBOR)
Interest Payment Dates: April 28, Index Currency: Japanese Yen (for
1994, July 28, 1994, October 28, both Interest Rate Bases)
1994 and January 30, 1995 Designated LIBOR Page: LIBOR Telerate
Interest Reset Dates: April 28, Minimum Interest Rate: 0%
1994, July 28, 1994 and October Initial Interest Rate: 6.19%
28, 1994
Principal Amount: $5 million
DESCRIPTION OF THE NOTES
GENERAL
The Medium-Term Notes, Series B of Merrill Lynch & Co., Inc. (the
"Company") offered hereby are "JPY Yield Curve Flattening Notes" and are
referred to in this Prospectus Supplement as the "Notes". The Notes are Regular
Floating Rate Notes and certain provisions of the Notes are more fully described
in the accompanying Prospectus and Prospectus Supplement.
This Prospectus Supplement relates to $5,000,000 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.
The Notes will not be subject to redemption by the Company in whole or in
part prior to the Maturity Date.
INTEREST
The Notes will bear interest from and including January 28, 1994 to but
excluding the Maturity Date. Interest will be computed on the basis of a 360-
day year of twelve 30-day months. Interest will be payable on the Interest
Payment Dates specified above at a per annum rate equal to the greater of:
(i) 10.2 x (1.80% - (7 Year JPY Swap Rate - JPY LIBOR)) and (ii) 0%,
as determined by Merrill Lynch Capital Services, Inc. (the "Calculation Agent"),
a subsidiary of the Company; provided, however that the per annum rate of
interest payable prior to the first Interest Reset Date will equal the Initial
Interest Rate specified above.
The date of this Prospectus Supplement is January 27, 1994.
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As used in this Prospectus Supplement, "JPY LIBOR" means LIBOR with an
Index Currency of Japanese Yen, calculated as provided in the accompanying
Prospectus Supplement dated October 4, 1993.
The Interest Determination Date with respect to the 7 Year JPY Swap Rate
(the "7 Year Swap Rate Interest Determination Date") pertaining to an Interest
Reset Date will be the second Business Day prior to such Interest Reset Date.
"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 and Tokyo are generally
authorized or obligated by law or executive order to close.
"7 Year JPY 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 "SEVEN YEAR",
which appears as of 11:00 a.m., London time, on the applicable 7 Year JPY Swap
Rate Interest 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 7 Year JPY Swap Rate as described in clause (i) is not
available on a 7 Year JPY Swap Rate Interest Determination Date, the 7 Year JPY
Swap Rate will be calculated by the Calculation Agent and will the arithmetic
mean of the offer-side fixed rates for a Japanese Yen denominated interest rate
swap transaction with a seven 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 7 Year JPY Swap Rate Interest
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 (rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point with five
one-millionths of a percentage point rounded up). If fewer than five market-
makers are quoting as described in this clause, then the 7 Year JPY 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 7 Year JPY Swap
Rate will equal such quote.
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
Set forth in full below is the opinion of Brown & Wood, counsel to the
Company, as to certain United States Federal income tax consequences of the
purchase, ownership and disposition of the Notes. Such 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. 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.
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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. As used herein, the term "non-
U.S. Holder" means a holder of a Note that is not a U.S. Holder.
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 these principles, the amount payable with respect to a Note
at the Initial Interest Rate (the "Fixed Interest Payment") would be includible
in income by a U.S. Holder as ordinary interest at the time that the Fixed
Interest Payment is accrued or received (in accordance with the U.S. Holder's
regular method of tax accounting). Under these same principles, the amounts
payable with respect to a Note after the first Interest Payment Date (the
"Floating Interest Payments"), 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 respective dates that the Floating Interest Payments are accrued
or are received (in accordance with the U.S. Holder's regular method of tax
accounting.).Upon the sale, exchange or retirement of a Note, a U.S. Holder
generally would recognize taxable gain or loss in an amount equal to the
difference between the amount realized on the sale, exchange or retirement and
such U.S. Holder's tax basis in the Note. A U.S. Holder's tax basis in a Note
generally will equal such U.S. Holder's initial investment in the Note. Such
gain or loss generally would be long-term capital gain or loss if the Note were
held by the U.S. Holder for more than one year (subject to the market discount
rules, as discussed in the accompanying Prospectus Supplement).
On December 21, 1992, the Internal Revenue Service ("IRS") released
proposed Treasury regulations (the "Proposed 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 in 1986 dealing with debt instruments issued with original issue
discount. The Proposed OID Regulations, which are not proposed to be made
retroactive, would apply to debt instruments issued 60 days or more after the
date the Proposed OID Regulations become final; therefore by their terms they
would not apply to the Notes. Nevertheless, because the Proposed OID Regulations
represent the Treasury Department's most recent view with respect to the
qualification as and treatment of "variable rate debt instruments", they are
discussed below. Moreover, it is also possible that the Treasury Department
could change the effective date of the Proposed OID Regulations so that such
regulations would retroactively apply to the Notes. There is no assurance,
however, that the Proposed OID Regulations will be adopted or, if adopted,
adopted in their current form.
Under the Proposed 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. A
debt instrument would qualify as a "variable rate debt instrument" under the
Proposed OID Regulations (and would therefore not be treated as a contingent
payment debt obligation) if it (a) provides for total noncontingent principal
payments at least equal to its issue price and (b) provides for stated interest,
paid or compounded at least annually, at current values of (i) a single
qualified floating rate, (ii) a single qualified floating rate followed by a
second qualified floating rate, (iii) a single fixed rate followed by a single
qualified floating rate, or (iv) a single objective rate. A "qualified floating
rate" is any floating rate where variations in such rate can reasonably be
expected to measure contemporaneous variations in the cost of newly borrowed
funds. An "objective rate" is a rate that is not itself a qualified floating
rate but which is determined using a single formula that is fixed throughout the
term of the debt instrument and which is based upon one or more qualified
floating rates (e.g., a multiple of a qualified floating rate or an inverse
floater rate based upon a qualified floating rate) or that is based on the price
of actively traded property (other than foreign currency) or on an index
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of the prices of such property. The Notes would not qualify as "variable rate
debt instruments" under the Proposed OID Regulations, even if such regulations
are ultimately adopted in their current form and retroactively applied to the
Notes, because the Notes provide for stated interest at a single fixed rate
(i.e., the Initial Interest Rate) followed by a rate that is not a qualified
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floating rate. Since the Notes would not qualify as "variable rate debt
instruments" under the Proposed OID Regulations, the Notes would most likely 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 noted above, under
general principles of current United States Federal income tax law, the Fixed
Interest Payment would be includible in income by a U.S. Holder as ordinary
interest at the time that the Fixed Interest Payment is accrued or received (in
accordance with the U.S. Holder's regular method of tax accounting). Under
these same principles, the Floating Interest Payments, if any, would be treated
as contingent interest and would be taxable to a U.S. Holder as ordinary
interest income on the respective dates that the Floating Interest Payments are
accrued or are received (in accordance with the U.S. Holder's regular method of
tax accounting.).
However, in 1986, the Treasury Department issued proposed regulations (the
"1986 Proposed Regulations" and, together with the Proposed OID Regulations, the
"Proposed Regulations") under the original issue discount provisions of the Code
concerning contingent payment debt obligations. The 1986 Proposed Regulations
were not replaced by the Proposed OID Regulations and contain a retroactive
effective date of July 1, 1982. Thus, 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 would apply to the Notes and
such application of the 1986 Proposed Regulations would cause the timing of
income recognized on a Note to differ from the timing of income recognized on a
Note had the 1986 Proposed Regulations not applied.
Under the 1986 Proposed Regulations, the Fixed Interest Payment would be
treated entirely as original issue discount for United States Federal income tax
purposes and would be includible in income by a U.S. Holder as ordinary interest
as it accrues over the entire term of the Note under a constant yield method,
regardless of the U.S. Holder's regular method of tax accounting. As a result
of the foregoing, under the 1986 Proposed Regulations, a U.S. Holder would defer
recognition, for United States Federal income tax purposes, of a portion of the
Fixed Interest Payment until after receipt of the cash payment attributable to
such income. The Floating Interest Payments would be treated as contingent
interest under the 1986 Proposed Regulations and a U.S. Holder would be required
to include the Floating Interest Payments into income as ordinary interest on
the respective dates that the amount of the Floating Interest Payments are
determined (i.e., fixed), 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 recognition 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
recognition 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 recognized by a U.S.
Holder on the sale, exchange or retirement of a contingent payment debt
obligation would have been treated entirely as ordinary interest income and any
loss recognized on the sale, exchange or retirement of a contingent payment debt
obligation 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
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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 Proposed Regulations to their investment in the
Notes, if any, and the effect of possible changes to the Proposed Regulations.
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