<PAGE>
RULE NO. 424(b)(3)
REGISTRATION NO. 33-61559
PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED SEPTEMBER 1, 1995)
$3,887,405,763
[LOGO]
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES, SERIES B
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
---------------
Merrill Lynch & Co., Inc. (the "Company") may offer from time to time up to
$3,887,405,763 aggregate principal amount (except that with respect to Notes
sold at a discount, the initial offering price will be used), or the
equivalent thereof in one or more foreign currencies or currency units, of its
Medium-Term Notes, Series B (the "Notes"). Each Note will mature on a day nine
months or more from the date of issue, as selected by the purchaser and agreed
to by the Company, and may be subject to redemption by the Company or
repayment at the option of the Holder thereof, in each case, in whole or in
part, prior to its Stated Maturity, as set forth therein and specified in a
pricing supplement hereto (each, a "Pricing Supplement").
The interest rate, if any, or the formula for the determination of any such
interest rate, applicable to each Note and other variable terms of the Notes
as described herein will be established by the Company at the date of issue of
such Note and will be set forth therein and specified in a Pricing Supplement.
Interest rates, interest rate formulae and such other variable terms are
subject to change by the Company, but no change will affect any Note already
issued or as to which an offer to purchase has been accepted by the Company.
Each Note will be issued in fully registered book-entry form (a "Book-Entry
Note") or certificated form (a "Certificated Note"), as set forth in the
applicable Pricing Supplement, in denominations of $1,000 and integral
multiples thereof, unless otherwise specified in the applicable Pricing
Supplement. Each Book-Entry Note will be represented by one or more global
securities ("Global Notes") deposited with or on behalf of The Depository
Trust Company (or such other depository as is identified in an applicable
Pricing Supplement) (the "Depository") and registered in the name of the
Depository's nominee. Beneficial interests in Book-Entry Notes will be shown
on, and transfers thereof will be effected only through, records maintained by
the Depository (with respect to its participants) and the Depository's
participants (with respect to Beneficial Owners). Beneficial Owners of the
Book-Entry Notes will not have the right to receive physical certificates
evidencing their ownership except under the limited circumstances described
herein.
Unless otherwise specified in an applicable Pricing Supplement, the Notes
will bear interest at fixed rates (the "Fixed Rate Notes") or at floating
rates (the "Floating Rate Notes"). The applicable Pricing Supplement will
specify whether a Floating Rate Note is a Floating Rate/Fixed Rate Note,
Inverse Floating Rate Note or Regular Floating Rate Note and whether its rate
of interest is determined by reference to one or more of the CD Rate, the CMT
Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate, the
Federal Funds Rate, LIBOR, the Prime Rate or the Treasury Rate (each, an
"Interest Rate Basis"), or any other interest rate basis or formula, as
adjusted by any Spread and/or Spread Multiplier and will specify such other
terms applicable to such Note. Interest rates offered by the Company with
respect to the Notes may differ depending upon the aggregate principal amount
of Notes subject to purchase in any single transaction, and the Company
expects generally to distinguish, with respect to such offered rates, between
purchases which are for less than, and purchases which are for an amount equal
to or greater than, $100,000. See "Description of Notes."
See "Risk Factors" on page S-2 for a discussion of certain risks that should
be considered in connection with an investment in the Notes offered hereby.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY SUPPLEMENT
HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGENT'S DISCOUNTS
PRICE TO AND PROCEEDS TO
PUBLIC (1) COMMISSIONS(1)(2) COMPANY(1)(3)
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<S> <C> <C> <C>
Per Note......... 100% .125% --.750% 99.875% --99.250%
- ------------------------------------------------------------------------------
$4,859,257-- $3,882,546,506--
Total(4)......... $3,887,405,763 $29,155,543 $3,858,250,220
- ------------------------------------------------------------------------------
</TABLE>
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(1) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
(the "Agent") will purchase the Notes, as principal, from the Company, for
resale to investors and other purchasers at varying prices relating to
prevailing market prices at the time of resale as determined by the Agent,
or, if so specified in an applicable Pricing Supplement, for resale at a
fixed public offering price. Unless otherwise specified in an applicable
Pricing Supplement, any Note sold to the Agent as principal will be
purchased by such Agent at a price equal to 100% of the principal amount
thereof less a percentage of the principal amount equal to the commission
applicable to an agency sale (as described below) of a Note of identical
maturity. If agreed to by the Company and the Agent, the Agent may utilize
their reasonable efforts on an agency basis to solicit offers to purchase
the Notes at 100% of the principal amount thereof, unless otherwise
specified in an applicable Pricing Supplement. The Company will pay a
commission to an Agent, ranging from .125% to .750% (or, with respect to
Notes for which the Stated Maturity is in excess of 30 years, such
commission as shall be agreed upon by the Company and the related Agent at
the time of sale) of the principal amount of a Note, depending upon its
Stated Maturity, sold through such Agent.
(2) The Company has agreed to indemnify the Agent against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Plan of Distribution."
(3) Before deducting expenses payable by the Company.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
---------------
The Notes are being offered on a continuing basis by the Company through the
Agent. Unless otherwise specified in an applicable Pricing Supplement, the
Notes will not be listed on any securities exchange and there can be no
assurance that the Notes offered by this Prospectus Supplement will be sold or
that there will be a secondary market for the Notes. The Company reserves the
right to cancel or modify the offer made hereby without notice. The Company or
the Agent, if it solicits the offer, may reject any offer to purchase Notes in
whole or in part. See "Plan of Distribution."
This Prospectus Supplement and the accompanying Prospectus may be used by
the Agent, a wholly-owned subsidiary of the Company, in connection with offers
and sales related to market-making transactions in the Notes. The Agent may
act as principal or agent in such transactions.
---------------
MERRILL LYNCH & CO.
---------------
The date of this Prospectus Supplement is September 1, 1995.
<PAGE>
IN CONNECTION WITH ANY OFFERING OF NOTES OFFERED TO THE PUBLIC ON A FIXED
PRICE BASIS (AS INDICATED IN THE APPLICABLE PRICING SUPPLEMENT), THE AGENT
(ACTING AS PRINCIPAL) MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR
MAINTAIN THE MARKET PRICE OF SUCH NOTES AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER OF
INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE COMMISSIONER OF
INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF THIS DOCUMENT.
----------------
RISK FACTORS
This Prospectus Supplement does not describe all of the risks of an
investment in Notes that result from such Notes being denominated or payable in
or determined by reference to a currency or composite currency other than
United States dollars or to one or more interest rate, currency or other
indices or formulas. The Company and the Agent disclaim any responsibility to
advise prospective investors of such risks as they exist at the date of this
Prospectus Supplement or as they change from time to time. Prospective
investors should consult their own financial and legal advisors as to the risks
entailed by an investment in such Notes. Such Notes are not an appropriate
investment for investors who are unsophisticated with respect to foreign
currency transactions or transactions involving the applicable interest rate
index or currency index or other indices or formulas.
STRUCTURE RISKS
An investment in Notes indexed, as to principal, premium, if any, and/or
interest, if any, to one or more currencies or composite currencies (including
exchange rates and swap indices between currencies or composite currencies),
commodities, interest rates or other indices or formulas, either directly or
inversely, entails significant risks that are not associated with similar
investments in a conventional fixed rate or floating rate debt security. Such
risks include, without limitation, the possibility that such indices or
formulas may be subject to significant changes, that the resulting interest
rate will be less than that payable on a conventional fixed rate or floating
rate debt security issued by the Company at the same time, that the repayment
of principal and/or premium, if any, can occur at times other than that
expected by the investor, and that the investor could lose all or a substantial
portion of principal and/or premium, if any, payable on the Maturity Date (as
defined under "Description of Notes--General"). Such risks depend on a number
of interrelated factors, including economic, financial and political events,
over which the Company has no control. Additionally, if the formula used to
determine the amount of principal, premium, if any, and/or interest, if any,
payable with respect to such Notes contains a multiplier or leverage factor,
the effect of any change in the applicable index or indices or formula or
formulas will be magnified. In recent years, values of certain indices and
formulas have been highly volatile and such volatility may be expected to
continue in the future. Fluctuations in the value of any particular index or
formula that have occurred in the past are not necessarily indicative, however,
of fluctuations that may occur in the future.
Any optional redemption feature of Notes might affect the market value of
such Notes. Since the Company may be expected to redeem such Notes when
prevailing interest rates are relatively low, an investor might not be able to
reinvest the redemption proceeds at an effective interest rate as high as the
interest rate on such Notes.
The Notes will not have an established trading market when issued, and there
can be no assurance of a secondary market for the Notes or the continued
liquidity of such market if one develops. See "Plan of Distribution."
S-2
<PAGE>
The secondary market for such Notes will be affected by a number of factors
independent of the creditworthiness of the Company and the value of the
applicable index or indices or formula or formulas, including the complexity
and volatility of each such index or formula, the method of calculating the
principal, premium, if any, and/or interest, if any, in respect of such Notes,
the time remaining to the maturity of such Notes, the outstanding amount of
such Notes, any redemption features of such Notes, the amount of other debt
securities linked to such index or formula and the level, direction and
volatility of market interest rates generally. Such factors also will affect
the market value of such Notes. In addition, certain Notes may be designed for
specific investment objectives or strategies and, therefore, may have a more
limited secondary market and experience more price volatility than conventional
debt securities. Investors may not be able to sell such Notes readily or at
prices that will enable investors to realize their anticipated yield. No
investor should purchase Notes unless such investor understands and is able to
bear the risk that such Notes may not be readily saleable, that the value of
such Notes will fluctuate over time and that such fluctuations may be
significant.
CREDIT RATINGS
Any credit ratings assigned to the Company's medium-term note program may not
reflect the potential impact of all risks related to structure and other
factors on the market value of the Notes. Accordingly, prospective investors
should consult their own financial and legal advisors as to the risks entailed
by an investment in the Notes and the suitability of such Notes in light of
their particular circumstances.
S-3
<PAGE>
RECENT DEVELOPMENTS
The following summary of consolidated financial information was derived
from, and is qualified in its entirety by reference to, the financial
statements, condensed financial statements, and other information and data
contained in the Company's Annual Report on Form 10-K for the year ended
December 30, 1994, and Quarterly Report on Form 10-Q for the period ended June
30, 1995 (the "Quarterly Report"). See "Incorporation of Certain Documents by
Reference" in the accompanying Prospectus. The condensed consolidated
financial statements contained in the Quarterly Report are unaudited; however,
in the opinion of management of the Company, all adjustments (consisting only
of normal recurring accruals) necessary for a fair statement of the results of
operations have been included.
The Company conducts its business in highly volatile markets. Consequently,
the Company's results can be affected by many factors, including general
market conditions, the liquidity of secondary markets, the level and
volatility of interest rates and currency values, the valuation of securities
positions, competitive conditions, and the size, number, and timing of
transactions. In periods of unfavorable market activity, profitability can be
adversely affected because certain expenses remain relatively fixed. As a
result, net earnings and revenues can vary significantly from period to
period. Thus, interim results may not necessarily be representative of the
full year results of operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
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JULY 1, JUNE 30,
INCOME STATEMENT INFORMATION 1994 1995
- ---------------------------- --------------- ------------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C>
Revenues.......................................... $ 9,219,111 $ 10,788,871
Net revenues(1)................................... $ 5,229,547 $ 4,969,677
Earnings before income taxes...................... $ 1,084,870 $ 843,092
Net earnings...................................... $ 623,568 $ 510,071
Ratio of earnings to fixed charges(2)............. 1.3 1.1
<CAPTION>
AT DECEMBER 30, AT JUNE 30,
BALANCE SHEET INFORMATION 1994 1995
- ------------------------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Total assets...................................... $163,749,327 $174,852,533
Long-term borrowings(3)........................... $ 14,863,383 $ 15,703,594
Stockholders' equity.............................. $ 5,817,545 $ 5,883,238
</TABLE>
- --------
(1) Net revenues are revenues net of interest expense.
(2) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consists of earnings from continuing operations before income
taxes and fixed charges. "Fixed charges" consists of interest costs,
amortization of debt expense, preferred stock dividend requirements of
majority-owned subsidiaries, and that portion of rentals estimated to be
representative of the interest factor.
(3) To finance its diverse activities, the Company and certain of its
subsidiaries borrow substantial amounts of short-term funds on a regular
basis. Although the amount of short-term borrowings significantly varies
with the level of general business activity, on June 30, 1995,
$753,051,000 of bank loans and $14,975,863,000 of commercial paper were
outstanding. In addition, certain of the Company's subsidiaries lend
securities and enter into repurchase agreements to obtain financing. At
June 30, 1995, cash deposits for securities loaned and securities sold
under agreements to repurchase amounted to $3,614,152,000 and
$52,491,110,000, respectively. From July 1, 1995 to August 25, 1995, long-
term borrowings, net of repayments and repurchases, increased by
approximately $28,268,000.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995
Financial markets, which were particularly weak during the last half of
1994, improved during the first six months of 1995 as a result of a steadying
U.S. economy, declining interest rates, and heightened investor activity. Net
earnings were $227 million in the first quarter of 1995 and $283 million in
the second quarter,
S-4
<PAGE>
or $510 million for the 1995 first-half. Six-month 1995 net earnings, however,
were down 18% from the $624 million reported in the comparable 1994 period,
which included record first quarter net earnings of $372 million. Total
revenues for the first six months of 1995 were $10,789 million, up 17% over the
1994 first-half. Net revenues in the first six months of 1995 were $4,970
million, down 5% from the comparable 1994 period due primarily to lower
investment banking and commission revenues. Non-interest expenses were $4,127
million, virtually unchanged from the comparable 1994 period.
Commission revenues were $1,450 million for the first half of 1995, down 7%
from the 1994 first-half, primarily as a result of lower mutual fund revenues.
Mutual fund commissions were affected by lower volumes after the 1994 first
quarter as most stock and bond mutual funds declined in value. Sales of mutual
funds, however, increased during the 1995 second quarter as investors were more
active due to strong performances in both stock and bond markets.
Interest and dividend revenues were $6,325 million for the first half of
1995, up 40% from the comparable 1994 period. Interest expense, which includes
dividend expense, increased 46% from the first half of 1994 to $5,819 million.
Net interest profit declined 4% to $506 million primarily due to a more
significant increase in interest-bearing liabilities relative to the increase
in interest-earning assets during the period, as well as the continued
flattening of the yield curve.
Principal transactions revenues increased 5% from the first half of 1994 to
$1,289 million. Taxable fixed-income trading revenues increased due, in part,
to higher revenues from corporate bonds and preferred stock, high-yield bonds,
and non-U.S. government and agencies securities. Trading results in mortgage-
backed products were negatively affected by reduced market liquidity after the
1994 first quarter and fluctuations in interest rates, leading to a loss. Net
trading results from mortgage-backed products were positive, however, when
combined with related net interest income. Trading revenues in U.S. Government
and agencies securities were down from record 1994 levels as lower interest
rates in the current period reduced volatility. Revenues from interest rate and
currency swaps increased due to slightly higher volumes in non-U.S. dollar and
U.S. dollar denominated transactions. Municipal securities revenues were down
from record 1994 levels as declining interest rates and discussions of possible
tax law changes decreased investor demand. Equities and equity derivatives
trading revenues were virtually unchanged, while foreign exchange and
commodities trading revenues decreased due primarily to lower commodity trading
volume.
Investment banking revenues were $584 million, down 24% from the first half
of 1994, as domestic and global industrywide underwriting volume declined 24%
and 22%, respectively, compared to volumes in the 1994 first-half. Although
down for the 1995 six-month period, second quarter 1995 industrywide domestic
underwriting volume increased 30% from the 1995 first quarter and 16% from the
1994 second quarter as a result of declining interest rates and stronger stock
and bond markets. Lower underwriting revenues were reported in equities and
high-yield securities, partially offset by higher revenues from corporate debt
and preferred stock issuances, particularly in the 1995 second quarter.
Strategic services revenues, which include merger and acquisition fees and
advisory fees, benefited from increased merger and acquisition advisory
assignments in various industries.
Asset management and portfolio service fees rose 4% from the 1994 first-half
to $913 million, principally as a result of increased fees earned from mutual
fund investor services and asset management activities. Other revenues
decreased 17% from the 1994 first-half to $228 million, due primarily to
realized investment gains in the 1994 period, compared with break-even results
on sales of investments in the 1995 six-month period.
Non-interest expenses were $4,127 million, virtually unchanged from the 1994
first-half. Compensation and benefits expense, which represented approximately
62% of non-interest expenses, decreased 3% from the 1994 first-half due
primarily to lower levels of variable incentive and production-related
compensation. Compensation and benefits expense as a percentage of net revenues
was 51.9% in the first half of 1995, compared with 50.6% in the year-ago
period.
S-5
<PAGE>
Occupancy costs were virtually unchanged from the 1994 first-half. Other
facilities-related costs, which include communications and equipment rental
expense and depreciation and amortization expense, rose 10% primarily due to
increased usage of market information services, as well as higher depreciation
expense from the purchase of technology-related assets over the past year.
Advertising and market development expenses decreased 8% from the 1994 first-
half primarily due to lower travel and recognition program costs. Professional
fees increased 13% from the year ago period as higher legal fees were partially
offset by lower systems consulting fees. Brokerage, clearing, and exchange fees
increased 2% from the 1994 first-half as a result of higher volumes,
particularly in international markets. Other expenses increased 1% from the
1994 first-half and included a $26 million charge for the write-off of assets
related to a technology contract in the 1995 first quarter.
Income tax expense totaled $333 million for the first half of 1995. The
effective tax rate for the first six months of 1995 was 39.5%, compared with
42.5% in the year-ago period. The decrease in the effective tax rate was
primarily attributable to lower state income taxes, higher tax-exempt interest,
increased deductions for dividends received, and expanded international
business activities.
On July 21, 1995, the Company and Smith New Court PLC ("Smith New Court"), a
U.K.-based global securities firm, announced the terms of a cash offer under
which the Company expects to acquire Smith New Court. In the transaction,
Merrill Lynch Investments PLC, a wholly-owned subsidiary of the Company
("Merrill Lynch Investments"), offered to acquire all outstanding capital
shares of Smith New Court for cash, with the aggregate offer valued at
approximately $842 million. On August 21, 1995, Merrill Lynch Investments
announced that the offer had become unconditional in all respects and disclosed
that it either owned or had received valid acceptances with respect to
approximately 86% of the ordinary share capital and 83.8% of the convertible
share capital of Smith New Court.
CERTAIN BALANCE SHEET INFORMATION AS OF JUNE 30, 1995
The Company believes that its equity base is adequate relative to the level
and composition of its assets and the mix of its business.
In the normal course of business, the Company underwrites, trades, and holds
non-investment grade securities in connection with its investment banking,
market-making, and derivative structuring activities. These activities are
subject to risks related to the creditworthiness of the issuers of, and the
liquidity of the market for, such securities, in addition to the usual risks
associated with investing in, financing, underwriting, and trading in
investment grade instruments.
At June 30, 1995, the fair value of long and short non-investment grade
trading inventories amounted to $4,036 million and $455 million, respectively,
and in the aggregate (i.e. the sum of long and short trading inventories),
represented 4.8% of aggregate consolidated trading inventories.
At June 30, 1995, the carrying value of extensions of credit provided to
corporations entering into leveraged transactions aggregated $246 million
(excluding unutilized revolving lines of credit and other lending commitments
of $96 million), consisting primarily of senior term and subordinated
financings to 37 medium-sized corporations. At June 30, 1995, the Company had
no bridge loans outstanding. Loans to highly leveraged corporations are carried
at unpaid principal balances less a reserve for estimated losses. The allowance
for loan losses is estimated based on a review of each loan, and consideration
of economic, market, and credit conditions. Direct equity investments made in
conjunction with the Company's investment and merchant banking activities
aggregated $238 million at June 30, 1995, representing investments in 72
enterprises. Equity investments in privately-held companies for which sale is
restricted by government or contractual requirements are carried at the lower
of cost or estimated net realizable value. At June 30, 1995, the Company held
interests in partnerships, totaling $102 million (recorded on the cost basis),
that invest in highly leveraged transactions and non-investment grade
securities. At June 30, 1995, the Company also committed to invest an
additional $87 million in partnerships that invest in leveraged transactions.
S-6
<PAGE>
The Company's insurance subsidiaries hold non-investment grade securities. As
a percentage of total insurance investments, non-investment grade securities
were 4.8% at June 30, 1995. Non-investment grade securities of insurance
subsidiaries are classified as available-for-sale and are carried at fair
value.
At June 30, 1995, the largest non-investment grade concentration consisted of
government and corporate obligations of a Latin American sovereign totaling
$267 million, of which $47 million represented on-balance-sheet hedges for off-
balance-sheet financial instruments. No one industry sector accounted for more
than 19% of total non-investment grade positions. At June 30, 1995, the Company
held an aggregate carrying value of $344 million in debt and equity securities
of issuers in various stages of bankruptcy proceedings or in default, of which
88% of this amount resulted from the Company's market-making activities in such
securities.
DESCRIPTION OF NOTES
The Notes will be issued as a series of debt securities under a senior
indenture, dated as of October 1, 1993 (the "Chase Indenture"), between the
Company and The Chase Manhattan Bank (National Association), as trustee (as
used in this Prospectus Supplement, the "Trustee"). The term "Senior Debt
Securities," as used in this Prospectus Supplement, refers to all securities
issued and issuable from time to time under the Senior Indentures and includes
the Notes. The Senior Debt Securities and the Trustee are more fully described
in the accompanying Prospectus. The following summary of certain provisions of
the Notes and of the Chase Indenture does not purport to be complete and is
qualified in its entirety by reference to the Chase Indenture, a copy of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement and the accompanying Prospectus are a part. Capitalized
terms used but not defined herein have the meanings given to them in the Chase
Indenture or the Notes, as the case may be.
THE FOLLOWING DESCRIPTION OF NOTES WILL APPLY UNLESS OTHERWISE SPECIFIED IN
AN APPLICABLE PRICING SUPPLEMENT.
GENERAL
All Senior Debt Securities, including the Notes, issued and to be issued
under the Senior Indentures will be unsecured general obligations of the
Company and will rank pari passu with all other unsecured and unsubordinated
indebtedness of the Company from time to time outstanding. However, because the
Company is a holding company, the right of the Company, and hence the right of
creditors of the Company (including the Holders of the Notes), to participate
in any distribution of the assets of any subsidiary upon its liquidation or
reorganization or otherwise is necessarily subject to the prior claims of
creditors of the subsidiary, except to the extent that claims of the Company
itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including Merrill
Lynch, Pierce, Fenner & Smith Incorporated, to the Company are restricted by
net capital requirements under the Securities Exchange Act of 1934, as amended,
and under rules of certain exchanges and other regulatory bodies.
The Senior Indentures do not limit the aggregate principal amount of Senior
Debt Securities which may be issued thereunder and Senior Debt Securities may
be issued thereunder from time to time as a single series or in two or more
separate series up to the aggregate principal amount from time to time
authorized by the Company for each series. The Company may, from time to time,
without the consent of the Holders of the Notes, provide for the issuance of
Notes or other Senior Debt Securities under the Senior Indentures in addition
to the $3,887,405,763 aggregate principal amount of Notes offered hereby. As of
June 30, 1995, the Company had issued and outstanding Notes in an aggregate
principal amount of approximately $5,819,221,250. The aggregate principal
amount of Notes which may be offered hereby may be reduced by the issuance of
other securities of the Company pursuant to the registration statement of which
this Prospectus Supplement and the accompanying Prospectus are a part.
The Notes will be offered on a continuing basis and will mature on a day nine
months or more from the date of issue, as selected by the purchaser and agreed
to by the Company. Interest-bearing Notes will either
S-7
<PAGE>
be Fixed Rate Notes or Floating Rate Notes as specified in the applicable
Pricing Supplement. Notes may be issued at significant discounts from their
principal amount payable at Stated Maturity (or on any prior date on which the
principal or an installment of principal of a Note becomes due and payable,
whether by the declaration of acceleration, call for redemption at the option
of the Company, repayment at the option of the Holder or otherwise) (each such
date, a "Maturity"), and some Notes may not bear interest.
Unless otherwise indicated in a Note and in the applicable Pricing
Supplement, the Notes will be denominated in United States dollars and payments
of principal of, and premium, if any, and interest on, the Notes will be made
in United States dollars. If any of the Notes to be denominated other than in
United States dollars or if the principal of, and interest on, the Notes, and
any premium provided for in any Note is to be payable in or by reference to a
currency (or in composite currency units or in amounts determined by reference
to one or more currencies) other than that in which such Note is denominated,
provisions with respect thereto will be set forth in such Note and in the
applicable Pricing Supplement.
Interest rates, interest rate formulae and other variable terms of the Notes
are subject to change by the Company from time to time, but no such change will
affect any Note already issued or as to which an offer to purchase has been
accepted by the Company.
Each Note will be issued in fully registered book-entry form (a "Book-Entry
Note") or certificated form (a "Certificated Note"), in denominations of $1,000
and integral multiples thereof, unless otherwise specified in the applicable
Pricing Supplement. Book-Entry Notes may be transferred or exchanged only
through a participating member of The Depository Trust Company (or such other
depository as is identified in an applicable Pricing Supplement) (the
"Depository"). See "Book-Entry Notes." Registration of transfer of Certificated
Notes will be made at the Corporate Trust Office of the Trustee. No service
charge will be made by the Company, the Trustee or the Security Registrar for
any such registration of transfer or exchange of Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (other than exchanges pursuant to the
Chase Indenture, not involving any transfer).
Payments of principal of, and premium and interest, if any, on Book-Entry
Notes will be made by the Company through the Trustee to the Depository or its
nominee. See "Book-Entry Notes." Unless otherwise specified in the applicable
Pricing Supplement, a Beneficial Owner of Book-Entry Notes denominated in a
currency other than United States dollars (a "Specified Currency") electing to
receive payments of principal or any premium or interest in such Specified
Currency must notify the Participant through which its interest is held on or
prior to the applicable Record Date, in the case of a payment of interest, and
on or prior to the sixteenth day, whether or not a Business Day (as defined
below), prior to its Stated Maturity, in the case of principal or premium, of
such Beneficial Owner's election to receive all or a portion of such payment in
a Specified Currency. Such Participant must notify the Depository of such
election on or prior to the third Business Day after such Record Date. The
Depository will notify the Paying Agent of such election on or prior to the
fifth Business Day after such Record Date. If complete instructions are
received by the Participant and forwarded by the Participant to the Depository,
and by the Depository to the Paying Agent, on or prior to such dates, the
Beneficial Owner will receive payments in the Specified Currency.
In the case of Certificated Notes, payment of principal or premium, if any,
at the Maturity of each Certificated Note will be made in immediately available
funds upon presentation of the Certificated Note at the Corporate Trust Office
of the Trustee in the Borough of Manhattan, The City of New York, or at such
other place as the Company may designate. Payment of interest due at Maturity
will be made to the person to whom payment of the principal of the Certificated
Note shall be made. Payment of interest due on Certificated Notes other than at
Maturity will be made at the Corporate Trust Office of the Trustee or, at the
option of the Company, may be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register.
Notwithstanding the foregoing, a Holder of $1,000,000 or more in aggregate
principal amount of Certificated Notes having the same Interest Payment Dates
will, at the option of the Company, be entitled to receive interest payments
(other than at Maturity) by wire transfer of
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immediately available funds if appropriate wire transfer instructions have been
received in writing by the Trustee not less than 15 days prior to the
applicable Interest Payment Date.
TRANSACTION AMOUNT
Interest rates offered by the Company with respect to the Notes may differ
depending upon the aggregate principal amount of Notes purchased in any
transaction. The Company expects generally to distinguish, with respect to such
offered rates, between purchases which are for less than, and purchases which
are equal to or greater than, $100,000. Such different rates may be offered
concurrently at any time. The Company may also concurrently offer Notes having
different variable terms (as are described herein or in any Prospectus
Supplement) to different investors, and such different offers may depend upon
whether an offered purchase is for an aggregate principal amount of Notes equal
to or greater than, or for an amount less than $100,000.
REDEMPTION AT THE OPTION OF THE COMPANY
The Notes will not be subject to any sinking fund. The Notes will be
redeemable at the option of the Company prior to their Stated Maturity only if
an Initial Redemption Date is specified therein and in the applicable Pricing
Supplement. If so indicated in the applicable Pricing Supplement, Notes will be
subject to redemption at the option of the Company on any date on and after the
applicable Initial Redemption Date specified in such Pricing Supplement. On and
after the Initial Redemption Date, if any, the related Note may be redeemed at
any time in whole or from time to time in part (in increments of $1,000,
provided that any remaining principal amount shall be an authorized
denomination of the applicable Note) at the option of the Company at the
applicable Redemption Price (as defined below) together with interest thereon
payable to the Redemption Date, on notice given, unless otherwise specified in
the applicable Pricing Supplement, not more than 60 nor less than 30 days prior
to the Redemption Date. "Redemption Price" with respect to a Note will
initially mean a percentage, the Initial Redemption Percentage, of the
principal amount of such Note to be redeemed specified in the applicable
Pricing Supplement and shall decline at each anniversary of the Initial
Redemption Date by a percentage, the Annual Redemption Percentage Reduction, if
any, specified in the applicable Pricing Supplement, of the principal amount to
be redeemed until the Redemption Price is 100% of such principal amount.
REPAYMENT AT THE OPTION OF THE HOLDER
If so indicated in an applicable Pricing Supplement, Notes will be repayable
by the Company in whole or in part at the option of the Holders thereof on
their respective Optional Repayment Dates specified in such Pricing Supplement.
If no Optional Repayment Date is indicated with respect to a Note, such Note
will not be repayable at the option of the Holder prior to its Stated Maturity.
Any repayment in part will be in an amount equal to $1,000 or integral
multiples thereof, provided that any remaining principal amount shall be an
authorized denomination of the applicable Note. The repurchase price for any
Note so repurchased will be 100% of the principal amount to be repaid, together
with interest thereon payable to the date of repayment.
While the Book-Entry Notes are represented by Global Notes held by or on
behalf of the Depository, and registered in the name of the Depository or the
Depository's nominee, the option for repayment may be exercised by the
applicable Participant (as defined below under "Book-Entry Notes") on behalf of
the Beneficial Owners (as defined below) of such Book-Entry Notes by delivering
a written notice to the Trustee at the Corporate Trust Office, not more than 60
nor less than 30 days prior to the Optional Repayment Date. Notices of
elections from Participants on behalf of Beneficial Owners of the Book-Entry
Notes to exercise their option to have the Book-Entry Notes repaid must be
received by the Trustee by 5:00 p.m., New York City time, on the last day for
giving such notice. In order to ensure that a notice is received by the Trustee
on a particular day, the Beneficial Owner of Book-Entry Notes must so direct
the applicable Participant before such Participant's cut-off time for accepting
instructions for that day. Different firms may have different cut-off times for
accepting instructions from their customers. Accordingly, Beneficial Owners of
Book-Entry Notes should consult the Participants through which they own their
interest in the Book-Entry Notes for the cut-off times for such Participants.
All notices shall be executed by a duly authorized officer of such
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Participant (with signature guaranteed) and shall be irrevocable. In addition,
such Beneficial Owners of Book-Entry Notes shall effect delivery of such Book-
Entry Notes at the time such notices of election are given to the Depository by
causing the Participant to transfer such Beneficial Owner's interest in the
Book-Entry Notes, on the Depository's records, to the Trustee. Conveyance of
notices and other communications by the Depository to Participants, by
Participants to Indirect Participants (as defined below) and by Participants
and Indirect Participants to Beneficial Owners of the Book-Entry Notes will be
governed by agreements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
INTEREST
General
Each Note will bear interest from the date of issue at the rate per annum or,
in the case of a Floating Rate Note, pursuant to the interest rate formula
stated therein and in the applicable Pricing Supplement until the principal
thereof is paid or made available for payment. Interest will be payable in
arrears on each date specified in the applicable Pricing Supplement on which an
installment of interest is due and payable (an "Interest Payment Date") and at
Maturity. The first payment of interest on any Note originally issued between a
Regular Record Date and the related Interest Payment Date will be made on the
Interest Payment Date immediately following the next succeeding Regular Record
Date to the registered Holder on such next succeeding Regular Record Date. The
"Regular Record Date" shall be the fifteenth calendar day (whether or not a
Business Day) immediately preceding the related Interest Payment Date.
Fixed Rate Notes
Unless otherwise specified in an applicable Pricing Supplement, each Fixed
Rate Note will bear interest from, and including, the date of issue, at the
rate per annum stated on the face thereof until the principal amount thereof is
paid or made available for payment. Interest payments on Fixed Rate Notes will
equal the amount of interest accrued from and including the immediately
preceding Interest Payment Date in respect of which interest has been paid (or
from and including the date of issue, if no interest has been paid with respect
to such Fixed Rate Notes), to, but excluding, the related Interest Payment Date
or Maturity, as the case may be. Unless otherwise specified in the applicable
Pricing Supplement, interest on Fixed Rate Notes will be computed on the basis
of a 360-day year of twelve 30-day months.
Unless otherwise specified in the applicable Pricing Supplement, interest on
Fixed Rate Notes will be payable semiannually on May 15 and November 15 of each
year and at Maturity. If any Interest Payment Date or the Maturity of a Fixed
Rate Note falls on a day that is not a Business Day, the related payment of
principal, premium, if any, or interest will be made on the next succeeding
Business Day as if made on the date such payment was due, and no interest will
accrue on the amount so payable for the period from and after such Interest
Payment Date or Maturity, as the case may be.
Floating Rate Notes
Floating Rate Notes will be issued as described below. Each applicable
Pricing Supplement will specify certain terms with respect to which such
Floating Rate Note is being delivered, including: whether such Floating Rate
Note is a "Regular Floating Rate Note" (as defined below), an "Inverse Floating
Rate Note" (as defined below) or a "Floating Rate/Fixed Rate Note" (as defined
below); the Interest Rate Basis or Bases, Initial Interest Rate, Interest Reset
Dates, Interest Payment Dates, Index Maturity, Maximum Interest Rate and
Minimum Interest Rate, if any, and the Spread and/or Spread Multiplier, if any,
and, if one or more of the specified Interest Rate Bases is LIBOR, the Index
Currency, the Index Maturity and the Designated LIBOR Page or, if one or more
of the specified Interest Rate Bases is the CMT Rate, the Designated CMT
Telerate Page and Designated CMT Maturity Index, as described below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a Floating Rate/Fixed
Rate Note, an Inverse Floating Rate Note or as having an Addendum attached,
such Floating Rate Note will be designated a
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"Regular Floating Rate Note" and, except as described below or in an
applicable Pricing Supplement, bear interest at the rate determined by
reference to the applicable Interest Rate Basis (i) plus or minus the
applicable Spread, if any, and/or (ii) multiplied by the applicable Spread
Multiplier, if any. Commencing on the first Interest Reset Date, the rate
at which interest on such Regular Floating Rate Note shall be payable shall
be reset as of each Interest Reset Date; provided, however, that the
interest rate in effect for the period from the Original Issue Date to the
first Interest Reset Date will be the Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating Rate/Fixed
Rate Note", then such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis (i) plus or
minus the applicable Spread, if any, and/or (ii) multiplied by the
applicable Spread Multiplier, if any. Commencing on the first Interest
Reset Date, the rate at which interest on such Floating Rate/Fixed Rate
Note shall be payable shall be reset as of each Interest Reset Date;
provided, however, that (i) the interest rate in effect for the period from
the Original Issue Date to the first Interest Reset Date will be the
Initial Interest Rate, and (ii) the interest rate in effect commencing on,
and including, the Fixed Rate Commencement Date to Maturity shall be the
Fixed Interest Rate, if such rate is specified in the applicable Pricing
Supplement, or if no such Fixed Interest Rate is so specified, the interest
rate in effect thereon on the day immediately preceding the Fixed Rate
Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below, such Floating Rate Note will
bear interest equal to the Fixed Interest Rate specified in the related
Pricing Supplement minus the rate determined by reference to the applicable
Interest Rate Basis (i) plus or minus the applicable Spread, if any, and/or
(ii) multiplied by the applicable Spread Multiplier, if any; provided,
however, that unless otherwise specified in the applicable Pricing
Supplement, the interest rate thereon will not be less than zero percent.
Commencing on the first Interest Reset Date, the rate at which interest on
such Inverse Floating Rate Note is payable shall be reset as of each
Interest Reset Date; provided, however, that the interest rate in effect
for the period from the Original Issue Date to the first Interest Reset
Date will be the Initial Interest Rate.
Notwithstanding the foregoing, if such Floating Rate Note is designated as
having an Addendum attached as specified on the face thereof, such Floating
Rate Note shall bear interest in accordance with the terms described in such
Addendum and the applicable Pricing Supplement.
Each Interest Rate Basis shall be the rate determined in accordance with the
applicable provisions below. Except as set forth above, the interest rate in
effect on each day shall be (a) if such day is an Interest Reset Date, the
interest rate determined as of the Interest Determination Date (as defined
below) immediately preceding such Interest Reset Date or (b) if such day is not
an Interest Reset Date, the interest rate determined as of the Interest
Determination Date immediately preceding the applicable Interest Reset Date.
Interest on Floating Rate Notes will be determined by reference to an
"Interest Rate Basis," which may be one or more of (i) the "CD Rate," (ii) the
"CMT Rate," (iii) the "Commercial Paper Rate," (iv) the "Eleventh District Cost
of Funds Rate," (v) the "Federal Funds Rate," (vi) "LIBOR," (vii) the "Prime
Rate," (viii) the "Treasury Rate," or (ix) such other Interest Rate Basis or
interest rate formula as may be set forth in the applicable Pricing Supplement.
In addition, a Floating Rate Note may bear interest in respect of two or more
Interest Rate Bases.
The "Spread" is the number of basis points to be added to or subtracted from
the related Interest Rate Basis or Bases applicable to such Floating Rate Note.
The "Spread Multiplier" is the percentage of the related Interest Rate Basis or
Bases applicable to such Floating Rate Note by which such Interest Rate Basis
or Bases will be multiplied to determine the applicable interest rate on such
Floating Rate Note. The "Index Maturity" is the period to maturity of the
instrument or obligation with respect to which the Interest Rate Basis or Bases
will be calculated.
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Each applicable Pricing Supplement will specify the dates on which such
Interest Rate will be reset (each, an "Interest Reset Date"). Unless otherwise
specified in the applicable Pricing Supplement, the Interest Reset Date will
be, in the case of Floating Rate Notes which reset: (i) daily, each Business
Day; (ii) weekly, the Wednesday of each week (with the exception of weekly
reset Treasury Rate Notes which will reset the Tuesday of each week, except as
specified below); (iii) monthly, the third Wednesday of each month (with the
exception of monthly reset Eleventh District Cost of Funds Rate Notes, which
will reset on the first calendar day of the month); (iv) quarterly, the third
Wednesday of March, June, September and December of each year; (v)
semiannually, the third Wednesday of the two months specified in the applicable
Pricing Supplement; and (vi) annually, the third Wednesday of the month
specified in the applicable Pricing Supplement; provided, however, that with
respect to Floating Rate/Fixed Rate Notes, the fixed rate of interest in effect
for the period from the Fixed Rate Commencement Date until Maturity shall be
the Fixed Interest Rate or the interest rate in effect on the day immediately
preceding the Fixed Rate Commencement Date, as specified in the applicable
Pricing Supplement. If any Interest Reset Date for any Floating Rate Note would
otherwise be a day that is not a Business Day, such Interest Reset Date will be
postponed to the next succeeding day that is a Business Day, except that in the
case of a Floating Rate Note as to which LIBOR is an applicable Interest Rate
Basis, if such Business Day falls in the next succeeding calendar month, such
Interest Reset Date will be the immediately preceding Business Day. As used
herein, "Business Day" means any day other than a Saturday or Sunday or any
other day on which banks in The City of New York are generally authorized or
obligated by law or executive order to close and, with respect to Notes as to
which LIBOR is an applicable Interest Rate Basis, is also a London Business
Day. As used herein, "London Business Day" means any day (a) if the Index
Currency (as defined below) is other than the European Currency Unit ("ECU"),
on which dealings in deposits in such Index Currency are transacted in the
London interbank market or (b) if the Index Currency is the ECU, that is not
designated as an ECU Non-Settlement Day by the ECU Banking Association in Paris
or otherwise generally regarded in the ECU interbank market as a day on which
payments on ECUs shall not be made.
A Floating Rate Note may also have either or both of the following: (i) a
maximum numerical limitation, or ceiling, on the rate at which interest may
accrue during any interest period (a "Maximum Interest Rate"), and (ii) a
minimum numerical limitation, or floor, on the rate at which interest may
accrue during any period (a "Minimum Interest Rate"). The Indenture provides
that the Indenture and the Securities will be governed by and construed in
accordance with the laws of the state of New York. Under present New York law,
the maximum rate of interest is 25% per annum on a simple interest basis. This
limit may not apply to Securities in which $2,500,000 or more has been
invested. While the Company believes that New York law would be given effect by
a state or federal court sitting outside of New York, state laws frequently
regulate the amount of interest that may be charged to and paid by a borrower
(including, in some cases, corporate borrowers). It is suggested that
prospective investors consult their personal advisors with respect to the
applicability of such laws. The Company has covenanted for the benefit of the
beneficial owners of the Securities, to the extent permitted by law, not to
claim voluntarily the benefits of any laws concerning usurious rates of
interest against a beneficial owner of the Securities.
Each applicable Pricing Supplement will specify the dates on which interest
will be payable (each an "Interest Payment Date"). Each Floating Rate Note will
bear interest from the date of issue at the rates specified therein until the
principal thereof is paid or otherwise made available for payment. Unless
otherwise specified in the applicable Pricing Supplement and, except as
provided below, interest will be payable in the case of Floating Rate Notes
which reset: (i) daily, weekly or monthly, on the third Wednesday of each month
or on the third Wednesday of March, June, September and December of each year
as specified in the applicable Pricing Supplement; (ii) quarterly, on the third
Wednesday of March, June, September and December of each year; (iii)
semiannually, on the third Wednesday of the two months of each year specified
in the applicable Pricing Supplement; and (iv) annually, on the third Wednesday
of the month of each year specified in the applicable Pricing Supplement and,
in each case, at Maturity. If any Interest Payment Date for any Floating Rate
Note (other than an Interest Payment Date at Maturity) would otherwise be a day
that is not a Business Day, such Interest Payment Date will be postponed to the
next succeeding day that is a
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Business Day except that in the case of a Floating Rate Note as to which LIBOR
is an applicable Interest Rate Basis, if such Business Day falls in the next
succeeding calendar month, such Interest Payment Date will be the immediately
preceding Business Day. If the Maturity of a Floating Rate Note falls on a day
that is not a Business Day, the payment of principal, premium, if any, and
interest will be made on the next succeeding Business Day, and no interest on
such payment will accrue for the period from and after such Maturity.
All percentages resulting from any calculation on Floating Rate Notes will be
rounded to the nearest one hundred-thousandth of a percentage point, with five
one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts
used in or resulting from such calculation on Floating Rate Notes will be
rounded to the nearest cent (with one-half cent being rounded upward).
Interest payments on Floating Rate Notes will equal the amount of interest
accrued from and including the immediately preceding Interest Payment Date in
respect of which interest has been paid (or from and including the date of
issue, if no interest has been paid with respect to such Floating Rate Notes),
to but excluding the related Interest Payment Date or Maturity.
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its face amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the period for which accrued interest is being calculated. The interest
factor for each such day will be computed by dividing the interest rate
applicable to such day by 360, in the case of Notes for which the Interest Rate
Basis is the CD Rate, the Commercial Paper Rate, the Eleventh District Cost of
Funds Rate, the Federal Funds Rate, LIBOR or the Prime Rate, or by the actual
number of days in the year in the case of Notes for which the Interest Rate
Basis is the CMT Rate or the Treasury Rate. The interest factor for Notes for
which the interest rate is calculated with reference to two or more Interest
Rate Bases will be calculated in each period in the same manner as if only one
of the applicable Interest Rate Bases applied.
The interest rate applicable to each interest reset period commencing on the
Interest Reset Date with respect to such interest reset period will be the rate
determined as of the applicable "Interest Determination Date." The Interest
Determination Date with respect to the CD Rate, the CMT Rate and the Commercial
Paper Rate will be the second Business Day preceding each Interest Reset Date
for the related Note; the Interest Determination Date with respect to the
Federal Funds Rate and the Prime Rate, unless otherwise specified in the
applicable Pricing Supplement, will be the Business Day immediately preceding
each Interest Reset Date; the Interest Determination Date with respect to the
Eleventh District Cost of Funds Rate will be the last working day of the month
immediately preceding each Interest Reset Date on which the Federal Home Loan
Bank of San Francisco (the "FHLB of San Francisco") publishes the Index (as
defined below); the Interest Determination Date with respect to LIBOR will be
the second London Business Day preceding each Interest Reset Date. With respect
to the Treasury Rate, unless otherwise specified in an applicable Pricing
Supplement, the Interest Determination Date will be the day in the week in
which the related Interest Reset Date falls on which day Treasury Bills (as
defined below) are normally auctioned (Treasury Bills are normally sold at
auction on Monday of each week, unless that day is a legal holiday, in which
case the auction is normally held on the following Tuesday, except that such
auction may be held on the preceding Friday); provided, however, that if an
auction is held on the Friday of the week preceding the related Interest Reset
Date, the related Interest Determination Date will be such preceding Friday;
and provided, further, that if an auction falls on any Interest Reset Date,
then the related Interest Reset Date will instead be the first Business Day
following such auction. Unless otherwise specified in the applicable Pricing
Supplement, the Interest Determination Date pertaining to a Floating Rate Note
the interest rate of which is determined with reference to two or more Interest
Rate Bases will be the latest Business Day which is at least two Business Days
prior to such Interest Reset Date for such Floating Rate Note on which each
Interest Reset Basis is determinable. Each Interest Rate Basis will be
determined on such date, and the applicable interest rate will take effect on
the related Interest Reset Date.
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Unless otherwise provided in the applicable Pricing Supplement, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, a subsidiary of the Company, will
be the "Calculation Agent." Upon the request of the Holder of any Floating Rate
Note, the Calculation Agent will provide the interest rate then in effect and,
if determined, the interest rate that will become effective as a result of a
determination made for the next Interest Reset Date with respect to such
Floating Rate Note. Unless otherwise specified in the applicable Pricing
Supplement, the "Calculation Date," if applicable, pertaining to any Interest
Determination Date will be the earlier of (i) the tenth calendar day after such
Interest Determination Date, or, if such day is not a Business Day, the next
succeeding Business Day or (ii) the Business Day preceding the applicable
Interest Payment Date or Maturity, as the case may be.
CD Rate. CD Rate Notes will bear interest at the rates (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any)
specified in such CD Rate Notes and in any applicable Pricing Supplement.
"CD Rate" means, with respect to any Interest Determination Date relating to
a CD Rate Note or any Floating Rate Note for which the interest rate is
determined with reference to the CD Rate (a "CD Rate Interest Determination
Date"), the rate on such date for negotiable certificates of deposit having the
Index Maturity specified in the applicable Pricing Supplement as published by
the Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" or any successor publication ("H.15(519)")
under the heading "CDs (Secondary Market)," or, if not published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on such CD Rate
Interest Determination Date for negotiable certificates of deposit of the Index
Maturity specified in the applicable Pricing Supplement as published by the
Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" or any successor
publication ("Composite Quotations") under the heading "Certificates of
Deposit." If such rate is not yet published in either H.15(519) or Composite
Quotations by 3:00 P.M., New York City time, on the related Calculation Date,
then the CD Rate on such CD Rate Interest Determination Date will be calculated
by the Calculation Agent and will be the arithmetic mean of the secondary
market offered rates as of 10:00 A.M., New York City time, on such CD Rate
Interest Determination Date, of three leading non-bank dealers in negotiable
United States dollar certificates of deposit in The City of New York selected
by the Calculation Agent for negotiable certificates of deposit of major United
States money market banks with a remaining maturity closest to the Index
Maturity designated in the applicable Pricing Supplement in an amount that is
representative for a single transaction in that market at that time; provided,
however, that if the dealers so selected by the Calculation Agent are not
quoting as set forth above, the CD Rate with respect to such CD Rate Interest
Determination Date will be the CD Rate in effect on such CD Rate Interest
Determination Date.
CMT Rate. CMT Rate Notes will bear interest at the rates (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any)
specified in such CMT Rate Notes and in any applicable Pricing Supplement.
"CMT Rate" means, with respect to any Interest Determination Date relating to
any Floating Rate Note for which the interest rate is determined with reference
to the CMT Rate (a "CMT Rate Interest Determination Date"), the rate displayed
on the Designated CMT Telerate Page under the caption "...Treasury Constant
Maturities...Federal Reserve Board Release H.15...Mondays Approximately 3:45
P.M.," under the column for the Designated CMT Maturity Index for (i) if the
Designated CMT Telerate Page is 7055, the rate on such CMT Rate Interest
Determination Date and (ii) if the Designated CMT Telerate page is 7052, the
weekly or the monthly average, as specified in the Pricing Supplement, for the
week or the month, as applicable, ended immediately preceding the week in which
the related CMT Rate Interest Determination Date occurs. If such rate is no
longer displayed on the relevant page or is not displayed by 3:00 P.M., New
York City time, on the related Calculation Date, then the CMT Rate for such CMT
Rate Interest Determination Date will be such treasury constant maturity rate
for the Designated CMT Maturity Index as published in the relevant H.15(519).
If such rate is no longer published or is not published by 3:00 P.M., New York
City time, on the related Calculation Date, then the CMT Rate on such CMT Rate
Interest
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Determination Date will be such treasury constant maturity rate of the
Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Index) for the CMT Rate Interest Determination Date
with respect to such Interest Reset Date as may then be published by either the
Board of Governors of the Federal Reserve System or the United States
Department of the Treasury that the Calculation Agent determines to be
comparable to the rate formerly displayed on the Designated CMT Telerate Page
and published in the relevant H.15(519). If such information is not provided by
3:00 P.M., New York City time, on the related Calculation Date, then the CMT
Rate on the CMT Rate Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity, based on the arithmetic mean
of the secondary market closing offer side prices as of approximately 3:30
P.M., New York City time, on such CMT Rate Interest Determination Date
reported, according to their written records, by three leading primary United
States government securities dealers (each, a "Reference Dealer") in The City
of New York (which may include the Agent or its affiliates) selected by the
Calculation Agent (from five such Reference Dealers selected by the Calculation
Agent and eliminating the highest quotation (or, in the event of equality, one
of the highest) and the lowest quotation (or, in the event of equality, one of
the lowest)), for the most recently issued direct noncallable fixed rate
obligations of the United States ("Treasury Notes") with an original maturity
of approximately the Designated CMT Maturity Index and a remaining term to
maturity of not less than such Designated CMT Maturity Index minus one year. If
the Calculation Agent is unable to obtain three such Treasury Note quotations,
the CMT Rate on such CMT Rate Interest Determination Date will be calculated by
the Calculation Agent and will be a yield to maturity based on the arithmetic
mean of the secondary market offer side prices as of approximately 3:30 P.M.,
New York City time, on such CMT Rate Interest Determination Date of three
Reference Dealers in The City of New York (from five such Reference Dealers
selected by the Calculation Agent and eliminating the highest quotation (or, in
the even of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for Treasury Notes with an original
maturity of the number of years that is the next highest to the Designated CMT
Maturity Index and a remaining term to maturity closest to the Designated CMT
Maturity Index and in an amount of at least $100 million. If three or four (and
not five) of such Reference Dealers are quoting as described above, then the
CMT Rate will be based on the arithmetic mean of the offer prices obtained and
neither the highest nor the lowest of such quotes will be eliminated; provided,
however, that if fewer than three Reference Dealers so selected by the
Calculation Agent are quoting as mentioned herein, the CMT Rate determined as
of such CMT Rate Interest Determination Date will be the CMT Rate in effect on
such CMT Rate Interest Determination Date. If two Treasury Notes with an
original maturity as described in the second preceding sentence have remaining
terms to maturity equally close to the Designated CMT Maturity Index, the
Calculation Agent will obtain from five Reference Dealers quotations for the
Treasury Note with the shorter remaining term to maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page specified in the applicable Pricing Supplement (or any
other page as may replace such page on that service for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519)) for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519). If
no such page is specified in the applicable Pricing Supplement, the Designated
CMT Telerate Page shall be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of the
U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified
in the applicable Pricing Supplement with respect to which the CMT Rate will be
calculated. If no such maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be 2 years.
Commercial Paper Rate. Commercial Paper Rate Notes will bear interest at the
rates (calculated with reference to the Commercial Paper Rate and the Spread
and/or Spread Multiplier, if any) specified in such Commercial Paper Rate Notes
and in any applicable Pricing Supplement.
"Commercial Paper Rate" means, with respect to any Interest Determination
Date relating to a Commercial Paper Rate Note or any Floating Rate Note for
which the interest rate is determined with reference to the Commercial Paper
Rate (a "Commercial Paper Rate Interest Determination Date"), the
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Money Market Yield (as defined below) on such date of the rate for commercial
paper having the Index Maturity specified in the applicable Pricing Supplement
as published by the Board of Governors of the Federal Reserve System in
H.15(519) under the heading "Commercial Paper." In the event that such rate is
not published by 3:00 P.M., New York City time, on the related Calculation
Date, then the Commercial Paper Rate will be the Money Market Yield on such
Commercial Paper Rate Interest Determination Date of the rate for commercial
paper having the Index Maturity specified in the applicable Pricing Supplement
as published in Composite Quotations under the heading "Commercial Paper" (with
an Index Maturity of one month or three months being deemed to be equivalent to
an Index Maturity of 30 days or 90 days, respectively). If by 3:00 P.M., New
York City time, on the related Calculation Date such rate is not yet published
in either H.15(519) or Composite Quotations, then the Commercial Paper Rate for
such Commercial Paper Rate Interest Determination Date will be calculated by
the Calculation Agent and will be the Money Market Yield of the arithmetic mean
of the offered rates at approximately 11:00 A.M., New York City time, on such
Commercial Paper Rate Interest Determination Date of three leading dealers of
commercial paper in The City of New York selected by the Calculation Agent for
commercial paper having the Index Maturity designated in the applicable Pricing
Supplement placed for an industrial issuer whose bond rating is "AA", or the
equivalent, from a nationally recognized securities rating agency; provided,
however, that if the dealers so selected by the Calculation Agent are not
quoting as mentioned in this sentence, the Commercial Paper Rate determined on
such Commercial Paper Rate Interest Determination Date will be the rate in
effect on such Commercial Paper Rate Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated in
accordance with the following formula:
D X 360
Money Market Yield = ------------- X 100
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the interest period for which interest is being
calculated.
Eleventh District Cost of Funds Rate. Eleventh District Cost of Funds Rate
Notes will bear interest at the rates (calculated with reference to the
Eleventh District Cost of Funds Rate and the Spread and/or Spread Multiplier,
if any) specified in such Eleventh District Cost of Funds Rate Notes and in any
applicable Pricing Supplement.
"Eleventh District Cost of Funds Rate" means, with respect to any Interest
Determination Date relating to an Eleventh District Cost of Funds Rate Note or
any Floating Rate Note for which the interest rate is determined with reference
to the Eleventh District Cost of Funds Rate (an "Eleventh District Cost of
Funds Rate Interest Determination Date"), the rate equal to the monthly
weighted average cost of funds for the calendar month preceding such Eleventh
District Cost of Funds Rate Interest Determination Date as set forth under the
caption "11th District" on Telerate Page 7058 as of 11:00 A.M., San Francisco
time, on such Eleventh District Cost of Funds Rate Interest Determination Date.
If such rate does not appear on Telerate Page 7058 on any related Eleventh
District Cost of Funds Rate Interest Determination Date, the Eleventh District
Cost of Funds for such Eleventh District Cost of Funds Rate Interest
Determination Date shall be the monthly weighted average cost of funds paid by
member institutions of the Eleventh Federal Home Loan Bank District that was
most recently announced (the "Index") by the FHLB of San Francisco as such cost
of funds for the calendar month preceding the date of such announcement. If the
FHLB of San Francisco fails to announce such rate for the calendar month
immediately preceding such Eleventh District Cost of Funds Rate Interest
Determination Date, then the Eleventh District Cost of Funds Rate for such
Eleventh District Cost of Funds Rate Interest Determination Date will be the
Eleventh District Cost of Funds Rate in effect on such Eleventh District Cost
of Funds Rate Interest Determination Date.
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Federal Funds Rate. Federal Funds Rate Notes will bear interest at the rates
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any) specified in such Federal Funds Rate Notes and in
any applicable Pricing Supplement.
"Federal Funds Rate" means, with respect to any Interest Determination Date
relating to a Federal Funds Rate Note or any Floating Rate Note for which the
interest rate is determined with reference to the Federal Funds Rate (a
"Federal Funds Rate Interest Determination Date"), the rate on such date for
Federal Funds as published in H.15(519) under the heading "Federal Funds
(Effective)" or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, the Federal Funds Rate for such Federal Funds Rate
Interest Determination Date will be calculated by the Calculation Agent and
will be the arithmetic mean of the rates for the last transaction in overnight
United States dollar federal funds arranged by three leading brokers of federal
funds transactions in The City of New York selected by the Calculation Agent
prior to 9:00 A.M., New York City time on such Federal Funds Rate Interest
Determination Date; provided, however, that if the brokers so selected by the
Calculation Agent are not quoting as mentioned in this sentence, the Federal
Funds Rate with respect to such Federal Funds Rate Interest Determination Date
will be the Federal Funds Rate in effect on such Federal Funds Rate Interest
Determination Date.
LIBOR. LIBOR Notes will bear interest at the rates (calculated with reference
to LIBOR and the Spread and/or Spread Multiplier, if any) specified in such
LIBOR Notes and in any applicable Pricing Supplement.
"LIBOR" means the rate determined by the Calculation Agent in accordance with
the following provisions:
(i) With respect to an Interest Determination Date relating to a LIBOR
Note or any Floating Rate Note for which the interest rate is determined
with reference to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will
be either: (a) if "LIBOR Reuters" is specified in the applicable Pricing
Supplement, the arithmetic mean of the offered rates (unless the specified
Designated LIBOR Page (as defined below) by its terms provides only for a
single rate, in which case such single rate shall be used) for deposits in
the Index Currency (as defined below) having the Index Maturity designated
in the applicable Pricing Supplement, commencing on the second London
Business Day immediately following that LIBOR Interest Determination Date,
that appear on the Designated LIBOR Page specified in the applicable
Pricing Supplement as of 11:00 A.M., London time, on that LIBOR Interest
Determination Date, if at least two such offered rates appear (unless, as
aforesaid, only a single rate is required) on such Designated LIBOR Page,
or (b) if "LIBOR Telerate" is specified in the applicable Pricing
Supplement, the rate for deposits in the Index Currency having the Index
Maturity designated in the applicable Pricing Supplement commencing on the
second London Business Day immediately following that LIBOR Interest
Determination Date that appears on the Designated LIBOR Page specified in
the applicable Pricing Supplement as of 11:00 A.M., London time, on that
LIBOR Interest Determination Date. If fewer than two offered rates appear,
or no rate appears, as applicable, LIBOR in respect of the related LIBOR
Interest Determination Date will be determined as if the parties had
specified the rate described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear, or no rate appears, as the case may be, on
the applicable Designated LIBOR Page as specified in clause (i) above, the
Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits in the Index Currency for the period of the Index
Maturity designated in the applicable Pricing Supplement, commencing on the
second London Business Day immediately following such LIBOR Interest
Determination Date, to prime banks in the London interbank market at
approximately 11:00 A.M., London time, on such LIBOR Interest
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Determination Date and in a principal amount that is representative for a
single transaction in such Index Currency in such market at such time. If
at least two such quotations are provided, LIBOR determined on such LIBOR
Interest Determination Date will be the arithmetic mean of such quotations.
If fewer than two quotations are provided, LIBOR determined on such LIBOR
Interest Determination Date will be the arithmetic mean of the rates quoted
at approximately 11:00 A.M. (or such other time specified in the applicable
Pricing Supplement), in the applicable Principal Financial Center(s) (as
defined below), on such LIBOR Interest Determination Date by three major
banks in such Principal Financial Center selected by the Calculation Agent
for loans in the Index Currency to leading European banks, having the Index
Maturity designated in the applicable Pricing Supplement and in a principal
amount that is representative for a single transaction in such Index
Currency in such market at such time; provided, however, that if the banks
so selected by the Calculation Agent are not quoting as mentioned in this
sentence, LIBOR determined on such LIBOR Interest Determination Date will
be LIBOR in effect on such LIBOR Interest Determination Date.
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable Pricing
Supplement, the Index Currency shall be U.S. dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is designated in
the applicable Pricing Supplement, the display on the Reuters Monitor Money
Rates Service for the purpose of displaying the London interbank rates of major
banks for the applicable Index Currency, or (b) if "LIBOR Telerate" is
designated in the applicable Pricing Supplement, the display on the Dow Jones
Telerate Service (or such other service or services as may be nominated by the
British Bankers' Association for the purpose of displaying London interbank
offered rates for the Index Currency) for the purpose of displaying the London
interbank rates of major banks for the applicable Index Currency. If neither
LIBOR Reuters nor LIBOR Telerate is specified in the applicable Pricing
Supplement, LIBOR for the applicable Index Currency will be determined as if
LIBOR Telerate (and, if the U.S. dollar is the Index Currency, Page 3750) had
been specified.
"Principal Financial Center" will be, unless otherwise specified in the
applicable Pricing Supplement, the following city or cities for the related
Index Currency:
<TABLE>
<CAPTION>
PRINCIPAL FINANCIAL
INDEX CURRENCY CENTER(S)
-------------- -------------------
<S> <C>
Australian Dollar............................... Sydney
Belgian Franc................................... Brussels
Canadian Dollar................................. Toronto
Danish Krone.................................... Copenhagen
Dutch Guilder................................... Amsterdam
Finnish Markka.................................. Helsinki
French Franc.................................... Paris
Hong Kong Dollar................................ Hong Kong
Italian Lira.................................... Milan
Luxembourg Franc................................ Brussels and Luxembourg
New Zealand Dollar.............................. Wellington and Auckland
Norwegian Krone................................. Oslo
Spanish Peseta.................................. Madrid
Sterling........................................ London
Swedish Krona................................... Stockholm
Swiss Franc..................................... Zurich
U.S. Dollar..................................... New York
Yen............................................. Tokyo
</TABLE>
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Prime Rate. Prime Rate Notes will bear interest at the rates (calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any)
specified in such Prime Rate Notes and any applicable Pricing Supplement.
"Prime Rate" means the rate determined by the Calculation Agent in accordance
with the provisions set out in clause (i) or in clause (ii) below, depending
upon whether such rate is specified as "Prime Rate--Major Banks" or as "Prime
Rate--H.15" in the applicable Pricing Supplement:
(i) If the applicable Pricing Supplement indicates that the applicable
rate is "Prime Rate--Major Banks": "Prime Rate" means, with respect to any
Interest Determination Date relating to a Prime Rate Note or any Floating
Rate Note for which the interest rate is determined with reference to the
Prime Rate (a "Prime Rate Interest Determination Date"), the arithmetic
mean of the prime rates of interest publicly announced by three major banks
in The City of New York as its United States dollar prime rate or base
lending rate as in effect for that day. Each change in the prime rate or
base lending rate of any bank so announced by such bank will be effective
as of the effective date of the announcement or, if no effective date is
specified, as of the date of the announcement. If fewer than three such
quotations are provided, the Prime Rate will be calculated by the
Calculation Agent and will be determined as the arithmetic mean on the
basis of the prime rates quoted in The City of New York by three substitute
banks or trust companies organized and doing business under the laws of the
United States, or any state thereof, each having total equity capital of at
least $500 million and being subject to supervision or examination by a
federal or state authority, selected by the Calculation Agent to quote such
rate or rates; provided, however, that if the banks or trust companies so
selected by the Calculation Agent are not quoting as mentioned in this
sentence, the Prime Rate with respect to such Prime Rate Interest
Determination Date will be the Prime Rate in effect on such Prime Rate
Interest Determination Date.
(ii) If the applicable Pricing Supplement indicates that the applicable
rate is "Prime Rate--H.15": "Prime Rate" means, with respect to any Prime
Rate Interest Determination Date, the rate on such date as such rate is
published in H.15(519) under the heading "Bank Prime Loan". If such rate is
not published prior to 3:00 P.M., New York City time, on the related
Calculation Date, then the Prime Rate shall be the arithmetic mean of the
rates of interest publicly announced by each bank that appears on the
Reuters Screen NYMF Page as such bank's prime rate or base lending rate as
in effect for that Prime Rate Interest Determination Date. If fewer than
four such rates but more than one such rate appear on the Reuters Screen
NYMF Page for such Prime Rate Interest Determination Date, the Prime Rate
shall be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by a 360-day year as of the close
of business on such Prime Rate Interest Determination Date by four major
money center banks in The City of New York selected by the Calculation
Agent. If fewer than two such rates appear on the Reuters Screen NYMF Page,
the Prime Rate will be determined by the Calculation Agent on the basis of
the rates furnished in The City of New York by three substitute banks or
trust companies organized and doing business under the laws of the United
States, or any state thereof, having total equity capital of at least $500
million and being subject to supervision or examination by Federal or state
authority, selected by the Calculation Agent to provide such rate or rates;
provided, however, that if the banks or trust companies selected as
aforesaid are not quoting as mentioned in this sentence, the Prime Rate for
such Prime Rate Interest Determination Date will be the Prime Rate in
effect on such Prime Rate Interest Determination Date.
"Reuters Screen NYMF Page" means the display designated as page "NYMF" on
that service for the purpose of displaying prime rates or base lending rates of
major United States banks.
Treasury Rate. Treasury Rate Notes will bear interest at the rates
(calculated with reference to the Treasury Rate and the Spread and/or Spread
Multiplier, if any) specified in such Treasury Rate Notes and in any applicable
Pricing Supplement.
"Treasury Rate" means, with respect to an Interest Determination Date
relating to a Treasury Rate Note or any Floating Rate Note for which the
interest rate is determined by reference to the Treasury Rate
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(a "Treasury Rate Interest Determination Date"), the rate applicable to the
most recent auction of direct obligations of the United States ("Treasury
Bills") having the Index Maturity specified in the applicable Pricing
Supplement, as such rate is published in H.15(519) under the heading "Treasury
Bills-auction average (investment)" or, if not published by 3:00 P.M., New York
City time, on the related Calculation Date, the auction average rate (expressed
as a bond equivalent on the basis of a year of 365 or 366 days, as applicable,
and applied on a daily basis) as otherwise announced by the United States
Department of the Treasury. In the event that the results of the auction of
Treasury Bills having the Index Maturity designated in the applicable Pricing
Supplement are not reported as provided by 3:00 P.M., New York City time, on
such Calculation Date, or if no such auction is held in a particular week, then
the Treasury Rate will be calculated by the Calculation Agent and will be a
yield to maturity (expressed as a bond equivalent on the basis of a year of 365
or 366 days, as applicable, and applied on a daily basis) of the arithmetic
mean of the secondary market bid rates, as of approximately 3:30 P.M., New York
City time, on such Treasury Rate Interest Determination Date, of three leading
primary United States government securities dealers (which may include the
Agent) selected by the Calculation Agent, for the issue of Treasury Bills with
a remaining maturity closest to the Index Maturity designated in the applicable
Pricing Supplement; provided, however, that if the dealers so selected by the
Calculation Agent are not quoting as mentioned in this sentence, the Treasury
Rate with respect to such Treasury Rate Interest Determination Date will be the
Treasury Rate in effect on such Treasury Rate Interest Determination Date.
OTHER PROVISIONS; ADDENDA
Any provisions with respect to an issue of Notes, including the determination
of one or more Interest Rate Bases, the specification of one or more Interest
Rate Bases, calculation of the interest rate applicable to a Floating Rate
Note, its Interest Payment Dates or any other matter relating thereto may be
modified by the terms as specified under "Other Provisions" on the face thereof
or in an Addendum relating thereto, if so specified on the face thereof and in
the applicable Pricing Supplement.
ORIGINAL ISSUE DISCOUNT NOTES
Notes may be issued at a price less than their redemption price at Maturity,
resulting in such Notes being treated as if they were issued with original
issue discount for federal income tax purposes ("Original Issue Discount
Notes"). Such Original Issue Discount Notes may currently pay no interest or
interest at a rate which at the time of issuance is below market rates. Certain
additional considerations relating to any Original Issue Discount Notes may be
described in the Pricing Supplement relating thereto.
AMORTIZING NOTES
The Company may from time to time offer Amortizing Notes. Unless otherwise
specified in the applicable Pricing Supplement, interest on each Amortizing
Note will be computed on the basis of a 360-day year of twelve 30-day months.
Payments with respect to Amortizing Notes will be applied first to interest due
and payable thereon and then to the reduction of the unpaid principal amount
thereof. Further information concerning additional terms and conditions of any
issue of Amortizing Notes will be provided in the applicable Pricing
Supplement. A table setting forth repayment information in respect of each
Amortizing Note will be included in the applicable Pricing Supplement and set
forth on such Notes.
BOOK-ENTRY NOTES
Upon issuance, all Book-Entry Notes having the same Original Issue Date,
Maturity and otherwise having identical terms and provisions will be
represented by one or more fully registered global Notes (the "Global Notes").
Each such Global Note will be deposited with, or on behalf of, The Depository
Trust Company as Depository (the "Depository") registered in the name of the
Depository or a nominee thereof. Unless and until it is exchanged in whole or
in part for Notes in definitive form, no Global Note may be transferred except
as a whole by the Depository to a nominee of such Depository or by a nominee of
such
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Depository to such Depository or another nominee of such Depository or by such
Depository or any such nominee to a successor of such Depository or a nominee
of such successor.
The Depository has advised the Company as follows: the Depository is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. The Depository was created to hold securities
of its participants ("Participants") and to facilitate the clearance and
settlement of securities transactions among its Participants in such securities
through electronic book-entry changes in accounts of the Participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's Participants include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations, including
the Agent. The Depository is owned by a number of Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the Depository's book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Purchases of Book-Entry Notes must be made by or through Participants, which
will receive a credit on the records of the Depository. The ownership interest
of each actual purchaser of each Book-Entry Note (the "Beneficial Owner") is in
turn to be recorded on the Participants' or Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Depository of
their purchase, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Ownership of
beneficial interests in Global Notes will be shown on, and the transfer of such
ownership interests will be effected only through, records maintained by the
Depository (with respect to interests of Participants) and on the records of
Participants (with respect to interests of persons held through Participants).
The laws of some states may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to own, transfer or pledge beneficial interests in
Global Notes.
So long as the Depository, or its nominee, is the registered owner of a
Global Note, the Depository or its nominee, as the case may be, will be
considered the sole owner or Holder of the Notes represented by such Global
Note for all purposes under the Senior Indenture. Except as provided below,
Beneficial Owners of a Global Note will not be entitled to have the Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of the Notes in definitive form and
will not be considered the owners or Holders thereof under the Chase Indenture.
Accordingly, each person owning a beneficial interest in a Global Note must
rely on the procedures of the Depository and, if such person is not a
Participant, on the procedures of the Participant through which such person
owns its interest, to exercise any rights of a Holder under the Chase
Indenture. The Company understands that under existing industry practices, in
the event that the Company requests any action of Holders or that an owner of a
beneficial interest in such a Global Note desires to give or take any action
which a Holder is entitled to give or take under the Chase Indenture, the
Depository would authorize the Participants holding the relevant beneficial
interests to give or take such action, and such Participants would authorize
Beneficial Owners owning through such Participants to give or take such action
or would otherwise act upon the instructions of Beneficial Owners. Conveyance
of notices and other communications by the Depository to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Payment of principal of, and interest on, Notes registered in the name of the
Depository or its nominee will be made to the Depository or its nominee, as the
case may be, as the Holder of the Global Note or Global Notes representing such
Notes. None of the Company, the Trustee or any other agent of the Company
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or agent of the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests or for supervising or reviewing any records relating to
such beneficial ownership interests. The Company expects that the Depository,
upon receipt of any payment of principal or interest in respect of a Global
Note, will credit the accounts of the Participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in such Global Note as shown on the records of the Depository. The
Company also expects that payments by Participants to Beneficial Owners will be
governed by standing customer instructions and customary practices, as is now
the case with securities held for the accounts of customers in bearer form or
registered in "street name", and will be the responsibility of such
Participants.
If (x) the Depository is at any time unwilling or unable to continue as
Depository and a successor depository is not appointed by the Company within 60
days, or (y) the Company executes and delivers to the Trustee a Company Order
to the effect that the Global Notes shall be exchangeable, or (z) an Event of
Default has occurred and is continuing with respect to the Notes, the Global
Note or Global Notes will be exchangeable for Notes in definitive form of like
tenor and of an equal aggregate principal amount, in denominations of $1,000
and integral multiples thereof. Such definitive Notes shall be registered in
such name or names as the Depository shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depository
from Participants with respect to ownership of beneficial interests in Global
Notes.
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 laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It 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 (except where otherwise specifically
noted). 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. As used herein, the term
"non-U.S. Holder" means a beneficial owner of a Note that is not a U.S. Holder.
U.S. HOLDERS
Payments of Interest. Payments of interest on a Note 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).
Original Issue Discount. The following summary is a general discussion of the
United States Federal income tax consequences to U.S. Holders of the purchase,
ownership and disposition of Notes issued with original issue discount
("Discount Notes"). The following summary is based upon final Treasury
regulations
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(the "OID Regulations") released by the Internal Revenue Service ("IRS") on
January 27, 1994 under the original issue discount provisions of the Internal
Revenue Code of 1986, as amended (the "Code").
For United States Federal income tax purposes, original issue discount is the
excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of
1% of the Note's stated redemption price at maturity multiplied by the number
of complete years to its maturity from its issue date or, in the case of a Note
providing for the payment of any amount other than qualified stated interest
(as defined below) prior to maturity, multiplied by the weighted average
maturity of such Note). The issue price of each Note of an issue of Notes
equals the first price at which a substantial amount of such Notes has been
sold (ignoring sales to bond houses, brokers, or similar persons or
organizations acting in the capacity of underwriters, placement agents, or
wholesalers). The stated redemption price at maturity of a Note is the sum of
all payments provided by the Note other than "qualified stated interest"
payments. The term "qualified stated interest" generally means stated interest
that is unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually at a single fixed rate. In
addition, under the OID Regulations, if a Note bears interest for one or more
accrual periods at a rate below the rate applicable for the remaining term of
such Note (e.g., Notes with teaser rates or interest holidays), and if the
greater of either the resulting foregone interest on such Note or any "true"
discount on such Note (i.e., the excess of the Note's stated principal amount
over its issue price) equals or exceeds a specified de minimis amount, then the
stated interest on the Note would be treated as original issue discount rather
than qualified stated interest.
Payments of qualified stated interest on a Note are 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). A U.S. Holder of a Discount Note must include original issue
discount in income as ordinary interest for United States Federal income tax
purposes as it accrues under a constant yield method in advance of receipt of
the cash payments attributable to such income, regardless of such U.S. Holder's
regular method of tax accounting. In general, the amount of original issue
discount included in income by the initial U.S. Holder of a Discount Note is
the sum of the daily portions of original issue discount with respect to such
Discount Note for each day during the taxable year (or portion of the taxable
year) on which such U.S. Holder held such Discount Note. The "daily portion" of
original issue discount on any Discount Note is determined by allocating to
each day in any accrual period a ratable portion of the original issue discount
allocable to that accrual period. An "accrual period" may be of any length and
the accrual periods may vary in length over the term of the Discount Note,
provided that each accrual period is no longer than one year and each scheduled
payment of principal or interest occurs either on the final day of an accrual
period or on the first day of an accrual period. The amount of original issue
discount allocable to each accrual period is generally equal to the difference
between (i) the product of the Discount Note's adjusted issue price at the
beginning of such accrual period and its yield to maturity (determined on the
basis of compounding at the close of each accrual period and appropriately
adjusted to take into account the length of the particular accrual period) and
(ii) the amount of any qualified stated interest payments allocable to such
accrual period. The "adjusted issue price" of a Discount Note at the beginning
of any accrual period is the sum of the issue price of the Discount Note plus
the amount of original issue discount allocable to all prior accrual periods
minus the amount of any prior payments on the Discount Note that were not
qualified stated interest payments. Under these rules, U.S. Holders generally
will have to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal to
the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the Discount Note at an "acquisition premium." Under the acquisition
premium rules, the amount of original issue discount which such U.S. Holder
must include in its gross income with respect to such Discount Note for any
taxable year (or portion thereof in which the U.S. Holder holds the Discount
Note) will be reduced (but not below zero) by the portion of the acquisition
premium properly allocable to the period.
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Under the OID Regulations, Floating Rate Notes and Indexed Notes (hereinafter
"Variable Notes") are subject to special rules whereby a Variable Note will
qualify as a "variable rate debt instrument" if (a) its issue price does not
exceed the total noncontingent principal payments due under the Variable Note
by more than a specified de minimis amount and (b) it provides for stated
interest, paid or compounded at least annually, at current values of (i) one or
more qualified floating rates, (ii) a single fixed rate and one or more
qualified floating rates, (iii) a single objective rate, or (iv) a single fixed
rate and a single objective rate that is a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
equal to the product of a qualified floating rate and a fixed multiple that is
greater than zero but not more than 1.35 will constitute a qualified floating
rate. A variable rate equal to the product of a qualified floating rate and a
fixed multiple that is greater than zero but not more than 1.35, increased or
decreased by a fixed rate, will also constitute a qualified floating rate. In
addition, under the OID Regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the Variable Note (e.g., two or more qualified floating rates with
values within 25 basis points of each other as determined on the Variable
Note's issue date) will be treated as a single qualified floating rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute
a qualified floating rate but which is subject to one or more restrictions such
as a maximum numerical limitation (i.e., a cap) or a minimum numerical
limitation (i.e., a floor) may, under certain circumstances, fail to be treated
as a qualified floating rate under the OID Regulations unless such cap or floor
is fixed throughout the term of the Note. An "objective rate" is a rate that is
not itself a qualified floating rate but which is determined using a single
fixed formula and which is based upon (i) one or more qualified floating rates,
(ii) one or more rates where each rate would be a qualified floating rate for a
debt instrument denominated in a currency other than the currency in which the
Variable Note is denominated, (iii) either the yield or changes in the price of
one or more items of actively traded personal property (other than stock or
debt of the issuer or a related party) or (iv) a combination of objective
rates. The OID Regulations also provide that other variable interest rates may
be treated as objective rates if so designated by the IRS in the future.
Despite the foregoing, a variable rate of interest on a Variable Note will not
constitute an objective rate if it is reasonably expected that the average
value of such rate during the first half of the Variable Note's term will be
either significantly less than or significantly greater than the average value
of the rate during the final half of the Variable Note's term. A "qualified
inverse floating rate" is any objective rate where such rate is equal to a
fixed rate minus a qualified floating rate, as long as variations in the rate
can reasonably be expected to inversely reflect contemporaneous variations in
the cost of newly borrowed funds. The OID Regulations also provide that if a
Variable Note provides for stated interest at a fixed rate for an initial
period of less than one year followed by a variable rate that is either a
qualified floating rate or an objective rate and if the variable rate on the
Variable Note's issue date is intended to approximate the fixed rate (e.g., the
value of the variable rate on the issue date does not differ from the value of
the fixed rate by more than 25 basis points), then the fixed rate and the
variable rate together will constitute either a single qualified floating rate
or objective rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, then
any stated interest on such Note which is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually will
constitute qualified stated interest and will be taxed accordingly. Thus, a
Variable Note that provides for stated interest at either a single qualified
floating rate or a single objective rate throughout the term thereof and that
qualifies as a "variable rate debt instrument" under the OID Regulations will
generally not be treated as having been issued with original issue discount
unless the Variable Note is issued at a "true" discount (i.e., at a price below
the Note's stated principal amount) in excess of a specified de minimis amount.
Original issue discount on such a Variable Note arising from "true" discount is
allocated to an accrual period using the constant yield method described above
by
S-24
<PAGE>
assuming that the variable rate is a fixed rate equal to (i) in the case of a
qualified floating rate or qualified inverse floating rate, the value as of the
issue date, of the qualified floating rate or qualified inverse floating rate,
or (ii) in the case of an objective rate (other than a qualified inverse
floating rate), a fixed rate that reflects the yield that is reasonably
expected for the Variable Note.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed
rate that reflects the yield that is reasonably expected for the Variable Note.
In the case of a Variable Note that qualifies as a "variable rate debt
instrument" and provides for stated interest at a fixed rate in addition to
either one or more qualified floating rates or a qualified inverse floating
rate, the fixed rate is initially converted into a qualified floating rate (or
a qualified inverse floating rate, if the Variable Note provides for a
qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Variable Note as of the Variable
Note's issue date is approximately the same as the fair market value of an
otherwise identical debt instrument that provides for either the qualified
floating rate or qualified inverse floating rate rather than the fixed rate.
Subsequent to converting the fixed rate into either a qualified floating rate
or a qualified inverse floating rate, the Variable Note is then converted into
an "equivalent" fixed rate debt instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and
qualified stated interest as if the U.S. Holder held the "equivalent" fixed
rate debt instrument. Each accrual period appropriate adjustments will be made
to the amount of qualified stated interest or original issue discount assumed
to have been accrued or paid with respect to the "equivalent" fixed rate debt
instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Variable Note during the accrual period.
U.S. Holders should be aware that on December 15, 1994, the IRS released
proposed amendments to the OID Regulations which would broaden the definition
of an objective rate and would further clarify certain other provisions
contained in the OID Regulations. If ultimately adopted, these amendments to
the OID Regulations generally would be effective for debt instruments issued 60
days or more after the date on which such proposed amendments are finalized.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. It is not entirely clear under current law
how a Variable Note would be taxed if such Note were treated as a contingent
payment debt obligation. The proper United States Federal income tax treatment
of Variable Notes that are treated as contingent payment debt obligations will
be more fully described in the applicable Pricing Supplement. Furthermore, any
other special United States Federal income tax considerations, not otherwise
discussed herein, which are applicable to any particular issue of Notes will be
discussed in the applicable Pricing Supplement.
Certain of the Notes (i) may be redeemable at the option of the Company prior
to their stated maturity (a "call option") and/or (ii) may be repayable at the
option of the holder prior to their stated maturity (a "put option"). Notes
containing such features may be subject to rules that differ from the general
rules discussed above. Investors intending to purchase Notes with such features
should consult their own tax
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<PAGE>
advisors, since the original issue discount consequences will depend, in part,
on the particular terms and features of the purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
Foreign-Currency Notes. The United States Federal income tax consequences of
the purchase, ownership and disposition of Notes providing for payments
denominated in a currency other than U.S. dollars will be more fully described
in the applicable Pricing Supplement.
Short-Term Notes. Notes that have a fixed maturity of one year or less
("Short-Term Notes") will be treated as having been issued with original issue
discount. In general, an individual or other cash method U.S. Holder is not
required to accrue such original issue discount unless the U.S. Holder elects
to do so. If such an election is not made, any gain recognized by the U.S.
Holder on the sale, exchange or maturity of the Short-Term Note will be
ordinary income to the extent of the original issue discount accrued on a
straight-line basis, or upon election under the constant yield method (based on
daily compounding), through the date of sale or maturity, and a portion of the
deductions otherwise allowable to the U.S. Holder for interest on borrowings
allocable to the Short-Term Note will be deferred until a corresponding amount
of income is realized. U.S. Holders who report income for United States Federal
income tax purposes under the accrual method, and certain other holders
including banks and dealers in securities, are required to accrue original
issue discount on a Short-Term Note on a straight-line basis unless an election
is made to accrue the original issue discount under a constant yield method
(based on daily compounding).
Market Discount. If a U.S. Holder purchases a Note, other than a Discount
Note, for an amount that is less than its issue price (or, in the case of a
subsequent purchaser, its stated redemption price at maturity) or, in the case
of a Discount Note, for an amount that is less than its adjusted issue price as
of the purchase date, such U.S. Holder will be treated as having purchased such
Note at a "market discount," unless such market discount is less than a
specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment (or, in the case of a Discount Note, any payment that
does not constitute qualified stated interest) on, or any gain realized on the
sale, exchange, retirement or other disposition of, a Note as ordinary income
to the extent of the lesser of (i) the amount of such payment or realized gain
or (ii) the market discount which has not previously been included in income
and is treated as having accrued on such Note at the time of such payment or
disposition. Market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the Note, unless
the U.S. Holder elects to accrue market discount on the basis of semiannual
compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note or
certain earlier dispositions, because a current deduction is only allowed to
the extent the interest expense exceeds an allocable portion of market
discount. A U.S. Holder may elect to include market discount in income
currently as it accrues (on either a ratable or semiannual compounding basis),
in which case the rules described above regarding the treatment as ordinary
income of gain upon the disposition of the Note and upon the receipt of certain
cash payments and regarding the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as ordinary
interest for United States Federal income tax purposes. Such an election will
apply to all debt instruments acquired by the U.S. Holder on or after the first
day of the taxable year to which such election applies and may be revoked only
with the consent of the IRS.
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<PAGE>
Premium. If a U.S. Holder purchases a Note for an amount that is greater than
the sum of all amounts payable on the Note after the purchase date other than
payments of qualified stated interest, such U.S Holder will be considered to
have purchased the Note with "amortizable bond premium" equal in amount to such
excess. A U.S. Holder may elect to amortize such premium using a constant yield
method over the remaining term of the Note and may offset interest otherwise
required to be included in respect of the Note during any taxable year by the
amortized amount of such excess for the taxable year. However, if the Note may
be optionally redeemed after the U.S. Holder acquires it at a price in excess
of its stated redemption price at maturity, special rules would apply which
could result in a deferral of the amortization of some bond premium until later
in the term of the Note. Any election to amortize bond premium applies to all
taxable debt obligations then owned and thereafter acquired by the U.S. Holder
and may be revoked only with the consent of the IRS.
Disposition of a Note. Except as discussed above, upon the sale, exchange or
retirement of a Note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement (other than amounts representing accrued and unpaid interest) and
such U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax
basis in a Note generally will equal such U.S. Holder's initial investment in
the Note increased by any original issue discount included in income (and
accrued market discount, if any, if the U.S. Holder has included such market
discount in income) and decreased by the amount of any payments, other than
qualified stated interest payments, received and amortizable bond premium taken
with respect to such Note. Such gain or loss generally will be long-term
capital gain or loss if the Note were held for more than one year.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original
issue discount, if any) on a Note, unless such non-U.S. Holder is a direct or
indirect 10% or greater shareholder of the Company, a controlled foreign
corporation related to the Company or a bank receiving interest described in
section 881(c)(3)(A) of the Code. To qualify for the exemption from taxation,
the last United States payor in the chain of payment prior to payment to a non-
U.S. Holder (the "Withholding Agent") must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (i) is signed by the beneficial owner of the
Note under penalties of perjury, (ii) certifies that such owner is not a U.S.
Holder and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by
the beneficial owner to the organization or institution. The Treasury
Department is considering implementation of further certification requirements
aimed at determining whether the issuer of a debt obligation is related to
holders thereof.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes capital gain upon retirement or
disposition of a Note, provided the gain is not effectively connected with the
conduct of a trade or business in the United States by the non-U.S. Holder.
Certain other exceptions may be applicable, and a non-U.S. Holder should
consult its tax advisor in this regard.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of the
Company or, at the time of such individual's death, payments in respect of the
Notes would have been effectively connected with the conduct by such individual
of a trade or business in the United States.
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<PAGE>
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would
establish an exemption from backup withholding for those non-U.S. Holders who
are not exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be
reported by the broker to the IRS, unless either (i) the broker determines that
the seller is an exempt recipient or (ii) the seller certifies its non-U.S.
status (and certain other conditions are met). Certification of the registered
owner's non-U.S. status would be made normally on an IRS Form W-8 under
penalties of perjury, although in certain cases it may be possible to submit
other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis for sale by the Company,
through the Agent, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, who will purchase the Notes, as principal, from the Company, for
resale to investors and other purchasers at varying prices relating to
prevailing market prices at the time of resale as determined by the Agent, or,
if so specified in an applicable Pricing Supplement, for resale at a fixed
public offering price. Unless otherwise specified in an applicable Pricing
Supplement, any Note sold to the Agent as principal will be purchased by the
Agent at a price equal to 100% of the principal amount thereof less a
percentage of the principal amount equal to the commission applicable to an
agency sale (as described below) of a Note of identical maturity. If agreed to
by the Company and the Agent, the Agent may utilize their reasonable efforts on
an agency basis to solicit offers to purchase the Notes at 100% of the
principal amount thereof, unless otherwise specified in an applicable Pricing
Supplement. The Company will pay a commission to the Agent, ranging from .125%
to .750% of the principal amount of a Note, depending upon its Stated Maturity
(or, with respect to Notes for which the Stated Maturity is in excess of 30
years, such commission as shall be agreed upon by the Company and the related
Agent at the time of sale), sold through the Agent.
The Agent may sell Notes it has purchased from the Company as principal to
other dealers for resale to investors, and may allow any portion of the
discount received in connection with such purchases from the Company to such
dealers. After the initial public offering of Notes, the public offering price
(in the case of Notes to be resold at a fixed public offering price), the
concession and the discount allowed to dealers may be changed.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject orders in whole or in part whether placed
directly with the Company or through the Agent. The Agent will have the right,
in their discretion reasonably exercised, to reject in whole or in part any
offer to purchase Notes received by the Agent.
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<PAGE>
Unless otherwise specified in an applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in New York City of the date of settlement.
No Note will have an established trading market when issued. Unless specified
in the applicable pricing supplement, the Notes will not be listed on any
securities exchange. The Agent may from time to time purchase and sell Notes in
the secondary market, but the Agent is not obligated to do so, and there can be
no assurance that there will be a secondary market for the Notes or liquidity
in the secondary market if one develops. From time to time, the Agent may make
a market in the Notes.
The Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Act"). The Company has agreed to
indemnify the Agent against or to make contributions relating to certain civil
liabilities, including liabilities under the Act, or to contribute to payments
the Agent may be required to make in respect thereof. The Company has agreed to
reimburse the Agent for certain expenses.
LEGAL OPINION
The validity of the Notes will be passed upon for the Company and the Agent
by Brown & Wood, New York, New York.
S-29
<PAGE>
PROSPECTUS
LOGO
MERRILL LYNCH & CO., INC.
DEBT SECURITIES AND WARRANTS
Merrill Lynch & Co., Inc. (the "Company") intends to sell from time to time
up to $4,468,953,046 aggregate principal amount (or net proceeds in the case of
warrants and in the case of securities issued at an original issue discount),
or its equivalent in such foreign currencies or units of two or more
currencies, based on the applicable exchange rate at the time of offering, as
shall be designated by the Company at the time of offering, of its senior debt
securities ("Senior Debt Securities"), subordinated debt securities
("Subordinated Debt Securities" and, together with the Senior Debt Securities,
the "Debt Securities"), warrants to purchase Debt Securities ("Debt Warrants"),
warrants entitling the holders thereof to receive from the Company a payment or
delivery determined by reference to decreases or increases in the level of an
index or portfolio based on one or more equity or debt securities (including
the price or yield of such securities), any statistical measure of economic or
financial performance (including any consumer price, currency or mortgage
index) or the price or value of any commodity or a combination thereof (the
"Index Warrants") and warrants to receive from the Company the cash value in
U.S. dollars of the right to purchase ("Currency Call Warrants") or to sell
("Currency Put Warrants" and, together with the Currency Call Warrants, the
"Currency Warrants") such foreign currencies or units of two or more currencies
as shall be designated by the Company at the time of offering. The Debt
Securities, Debt Warrants, Index Warrants and Currency Warrants, which are
collectively called the "Securities", may be offered either jointly or
separately and will be offered to the public on terms determined by market
conditions at the time of sale and set forth in a prospectus supplement.
The Securities will be unsecured and, except in the case of Subordinated Debt
Securities, will rank equally with all other unsecured and unsubordinated
indebtedness of the Company. The Subordinated Debt Securities will be
subordinated to all existing and future Senior Indebtedness of the Company.
Each issue of Securities may vary, where applicable, as to aggregate
principal amount, maturity date, public offering or purchase price, interest
rate or rates, if any, and timing of payments thereof, provision for
redemption, sinking fund requirements, if any, exercise provisions, currencies
of denomination or currencies otherwise applicable thereto and any other
variable terms and method of distribution. The accompanying Prospectus
Supplement (the "Prospectus Supplement") sets forth the specific terms with
regard to the Securities in respect of which this Prospectus is being
delivered. The Company may elect to deliver to purchasers of Securities an
abbreviated term sheet setting forth a description of the Securities being
offered, or a summary thereof (a "Terms Sheet"), instead of a Prospectus
Supplement. This Prospectus may be delivered prior to or concurrently with a
Terms Sheet.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Securities may be sold directly or through Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") as agent or may be
offered and reoffered through, or through underwriting syndicates managed or
co-managed by, one or more of the following: MLPF&S; Bear, Stearns & Co. Inc.;
Donaldson, Lufkin & Jenrette Securities Corporation; CS First Boston
Corporation; Goldman, Sachs & Co.; Lehman Brothers Inc.; Morgan Stanley & Co.
Incorporated; Nomura Securities International, Inc.; PaineWebber Incorporated;
and Salomon Brothers Inc, or directly to purchasers by the Company. The Company
has entered into agreements with such firms with respect to the Securities
providing for agency sales of the Securities through MLPF&S or the purchase and
offering from time to time by one or more of such firms, either alone or with
the several members of any syndicate formed by them. Additional agreements
respecting the distribution of the Securities may be entered into from time to
time by the Company. Securities may not be sold without delivery of a
Prospectus Supplement describing such issue of Securities and the method and
terms of offering thereof or of a Terms Sheet.
----------------
The date of this Prospectus is September 1, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy and information statements and
other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and Northeast Regional Office, Seven
World Trade Center, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Reports, proxy and
information statements and other information concerning the Company may also be
inspected at the offices of the New York Stock Exchange, the American Stock
Exchange, the Chicago Stock Exchange and the Pacific Stock Exchange.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 30,
1994, Quarterly Reports on Form 10-Q for the periods ended March 31, 1995 and
June 30, 1995, and Current Reports on Form 8-K dated January 12, 1995, January
23, 1995, February 8, 1995, February 9, 1995, March 3, 1995, March 9, 1995,
April 18, 1995, May 2, 1995, May 23, 1995, July 18, 1995, July 21, 1995, August
1, 1995, and August 2, 1995 filed pursuant to Section 13 of the Exchange Act,
are hereby incorporated by reference into this Prospectus.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
(WITHOUT EXHIBITS OTHER THAN EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE)
OF ANY OR ALL DOCUMENTS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO MR. GREGORY T. RUSSO, SECRETARY,
MERRILL LYNCH & CO., INC., 100 CHURCH STREET, 12TH FLOOR, NEW YORK, NEW YORK
10080-6512; TELEPHONE NUMBER (212) 602-8435.
2
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MERRILL LYNCH & CO., INC.
Merrill Lynch & Co., Inc. is a holding company that, through its subsidiaries
and affiliates, provides investment, financing, insurance, and related services
on a global basis. Its principal subsidiary, MLPF&S, one of the largest
securities firms in the world, 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, its clients; and an
underwriter of selected insurance products. Other subsidiaries provide
financial services on a global basis similar to those of MLPF&S and are engaged
in such other activities as international banking, lending, and providing other
investment and financing services. Merrill Lynch International Incorporated,
through subsidiaries and affiliates, provides investment, financing, and
related services outside the United States and Canada. Merrill Lynch Government
Securities Inc. is a primary dealer in obligations issued or guaranteed by the
U.S. Government and by Federal agencies or instrumentalities. Merrill Lynch
Capital Services, Inc., Merrill Lynch Derivative Products, Inc., and Merrill
Lynch Capital Markets PLC are the Company's primary derivative product dealers
and enter into interest rate and currency swaps and other derivative
transactions as intermediaries and as principals. Merrill Lynch Asset
Management, L.P., with its related affiliates, is one of the largest mutual
fund managers in the world and provides investment advisory services. The
Company's insurance underwriting operations consist of the underwriting of life
insurance and annuity products. Banking, trust, and mortgage lending operations
conducted through subsidiaries of the Company include issuing certificates of
deposit, offering money market deposit accounts, making secured loans, and
providing foreign exchange facilities and other related services.
The principal executive office of the Company is located at World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281; its telephone
number is (212) 449-1000.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Securities
for general corporate purposes. Such uses may include the funding of
investments in, or extensions of credit to, its subsidiaries, the funding of
assets held by the Company or its subsidiaries, including securities
inventories, customer receivables and loans (including business loans, home
equity loans and loans in connection with investment banking-related merger and
acquisition activities) and the lengthening of the average maturity of the
Company's borrowings (including the refunding of maturing indebtedness). The
precise amount and timing of investments in, and extensions of credit to, its
subsidiaries will depend upon their funding requirements and the availability
of other funds to the Company and its subsidiaries. Pending such applications,
the net proceeds will be temporarily invested or applied to the reduction of
short-term indebtedness. A substantial portion of the proceeds from the sale of
any Currency Warrants or Index Warrants may be used to hedge market risks with
respect to such Warrants. Management of the Company expects that it will, on a
recurrent basis, engage in additional financings as the need arises to finance
the growth of the Company or to lengthen the average maturity of its
borrowings. To the extent that Securities being purchased for resale by MLPF&S
are not resold, the aggregate proceeds to the Company and its subsidiaries
would be reduced.
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SUMMARY FINANCIAL INFORMATION
The following summary of consolidated financial information was derived
from, and is qualified in its entirety by reference to, the financial
statements and other information and data contained in the Company's Annual
Report on Form 10-K for the year ended December 30, 1994. See "Incorporation
of Certain Documents by Reference." The year-end results include 52 weeks for
1990, 1991, 1992, and 1994 and 53 weeks for 1993.
The Company conducts its business in highly volatile markets. Consequently,
the Company's results can be affected by many factors, including general
market conditions, the liquidity of secondary markets, the level and
volatility of interest rates and currency values, the valuation of securities
positions, competitive conditions, and the size, number, and timing of
transactions. In periods of unfavorable market activity, profitability can be
adversely affected because certain expenses remain relatively fixed. As a
result, net earnings and revenues can vary significantly from period to
period.
<TABLE>
<CAPTION>
INCOME STATEMENT
INFORMATION YEAR ENDED LAST FRIDAY IN DECEMBER
- ---------------- ----------------------------------------------------------------
(IN THOUSANDS, EXCEPT 1990 1991 1992 1993 1994
RATIOS) ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $11,147,229 $12,352,812 $ 13,412,668 $ 16,588,177 $ 18,233,091
Net revenues(1)......... $ 5,783,329 $ 7,246,468 $ 8,577,401 $ 10,558,230 $ 9,624,521
Earnings before income
taxes and cumulative
effect of changes in
accounting
principles(2).......... $ 282,328 $ 1,017,418 $ 1,621,389 $ 2,424,808 $ 1,729,604
Cumulative effect of
changes in accounting
principles (net of
applicable income
taxes)(2).............. -- -- $ (58,580) $ (35,420) --
Net earnings(2)......... $ 191,856 $ 696,117 $ 893,825 $ 1,358,939 $ 1,016,761
Ratio of earnings to
fixed charges(3)....... 1.1 1.2 1.3 1.4 1.2
BALANCE SHEET
INFORMATION(4)(5)
- ------------------
(In thousands)
Total assets............ $68,129,527 $86,259,343 $107,024,173 $152,910,362 $163,749,327
Long-term borrowings.... $ 6,341,559 $ 7,964,424 $ 10,871,100 $ 13,468,900 $ 14,863,383
Stockholders' equity.... $ 3,225,430 $ 3,818,088 $ 4,569,104 $ 5,485,913 $ 5,817,545
</TABLE>
- --------
(1) Net revenues are revenues net of interest expense.
(2) Net earnings for 1992 were reduced by $58,580,000 to reflect the adoption
of Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
SFAS No. 109, "Accounting for Income Taxes." Net earnings for 1993 were
reduced by $35,420,000 to reflect the adoption of SFAS No. 112, "Employers'
Accounting for Postemployment Benefits."
(3) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consists of earnings from continuing operations before income
taxes and fixed charges. "Fixed charges" consists of interest costs,
amortization of debt expense, preferred stock dividend requirements of
majority-owned subsidiaries, and that portion of rentals estimated to be
representative of the interest factor.
(4) In 1994, the Company adopted Financial Accounting Standards Board ("FASB")
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts,"
and FASB Interpretation No. 41, "Offsetting of Amounts Related to Certain
Repurchase and Reverse Repurchase Agreements," which increased assets and
liabilities at December 30, 1994 by approximately $8,500,000,000.
(5) To finance its diverse activities, the Company and certain of its
subsidiaries borrow substantial amounts of short-term funds on a regular
basis. Although the amount of short-term borrowings significantly varies
with the level of general business activity, on December 30, 1994,
$557,776,000 of bank loans and $14,758,830,000 of commercial paper were
outstanding. In addition, certain of the Company's subsidiaries lend
securities and enter into repurchase agreements to obtain financing. At
December 30, 1994, cash deposits for securities loaned and securities sold
under agreements to repurchase amounted to $2,180,186,000 and
$51,864,594,000, respectively.
4
<PAGE>
FISCAL YEAR 1994
Financial markets, strong from 1991 through the first six weeks of 1994,
changed significantly after inflationary fears prompted the Federal Reserve to
increase short-term interest rates in February 1994. As the U.S. economy
continued to expand, the Federal Reserve acted to further curb inflation and to
moderate growth by increasing short-term interest rates five additional times
during the year. The combination of rising interest rates, a falling U.S.
dollar, unsettled global stock, bond, and currency markets, reduced foreign
investment in U.S. financial markets, and overall investor caution contributed
to lower earnings for most U.S. securities firms. These conditions affected the
Company's 1994 fourth quarter and full year results. Net earnings for the 1994
fourth quarter were $161.6 million, down 30% from the 1994 third quarter and
down 53% from the 1993 fourth quarter.
Net earnings for 1994 were $1,016.8 million, down 25% from record 1993
earnings of $1,358.9 million. Net earnings for 1993 included a $35.4 million
cumulative effect charge (net of $25.1 million of applicable income tax
benefits) related to the adoption of Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits." Earnings
for 1993 before the cumulative effect of the change in accounting principle
were $1,394.4 million. Earnings per common share in 1994 were $4.75 primary and
$4.74 fully diluted, compared with $5.98 primary and $5.95 fully diluted ($6.14
primary and $6.11 fully diluted before the accounting change) in 1993. As
previously reported, 1993 results included a non-recurring pretax lease charge
totaling $103.0 million ($59.7 million after income taxes) related to the
Company's decision not to occupy certain space at the World Financial Center
Headquarters ("Headquarters") facility. This space was sublet in 1994.
Total revenues were $18,233 million, up 10% from 1993. Net revenues (revenues
after interest expense) totaled $9,625 million in 1994, down 9% from 1993.
Commission revenues were $2,871 million, virtually unchanged from $2,894
million in 1993. Higher commission revenues from mutual funds and commodity
transactions were offset by lower revenues from money market instruments,
particularly medium-term notes, and listed securities transactions. Sales of
mutual funds, particularly front-end funds, declined as investors were less
active due to uncertain markets and rising interest rates. For the first time
since 1974, both stock and bond funds fell in value industrywide, on average,
in the same year. Distribution fees from deferred charge funds benefited from
strong mutual fund sales in prior periods, while redemption fees increased as
investors repositioned their portfolios primarily from fixed-income funds to
stock and money market funds. Commissions on listed securities transactions
decreased due to a decline in the relative amount of business by retail clients
versus institutional clients. Other commission revenues declined principally as
a result of lower commissions from money market instruments, partially offset
by higher revenues from commodity transactions.
Interest and dividend revenues increased 35% to $9,578 million from $7,099
million in 1993. Interest expense, which includes dividend expense, rose 43% to
$8,609 million from $6,030 million in 1993. Net interest and dividend profit
decreased 9% to $969 million as a significant increase in short-term interest
rates, year over year, led to a substantial flattening of the yield curve. The
change in the yield curve, the relationship between interest rates and
maturities, resulted from short-term interest rates rising faster than long-
term interest rates in 1994. As a result, interest spreads declined, while
financing and hedging costs increased from 1993.
Principal transactions revenues fell 20% to $2,335 million from the 1993
record $2,920 million due to rising interest rates, a declining U.S. dollar,
and volatile world financial markets. Revenues from taxable fixed-income
securities, equities and equity derivatives, and foreign exchange and
commodities decreased, while interest rate and currency swaps, and municipal
securities revenues increased. Taxable fixed-income revenues declined 52% to
$462 million as higher interest rates, wider credit spreads, and uncertainty in
emerging markets led to reduced demand and lower inventory values. Equities and
equity derivatives trading revenues decreased 28% to $627 million, reflecting
lower trading results in virtually all categories, including a loss in
5
<PAGE>
convertible securities. Foreign exchange and commodities revenues, in the
aggregate, declined 31% to $109 million. Weakness in the U.S. dollar versus
other major currencies depressed foreign exchange trading, while commodities
trading revenues benefited from increased volume. Interest rate and currency
swaps revenues advanced 24% to $749 million reflecting higher revenues from
U.S. dollar-denominated swap trading activities, particularly those related to
structured financing transactions. Municipal securities trading revenues
increased 20% to $388 million due to strong retail investor demand for tax-
exempt investments.
Investment banking revenues were $1,239 million, down 32% from $1,831 million
in 1993 due primarily to the effects of rising interest rates and reduced
demand. Underwriting revenues declined in almost all categories, with
significant decreases in equities, corporate bonds and preferred stock, and
convertible securities. Strategic services revenues, which include fees for
debt restructuring, merger and acquisition activity, and other advisory
services, benefited from increased merger and acquisition advisory assignments
in various industries.
Asset management and portfolio services fees rose 12% from $1,558 million in
1993 to a record $1,739 million. Asset management fees advanced due primarily to
an increase in stock funds under management. Portfolio service fees advanced due
to the continued growth in the number of Asset Power (Registered Trademark)
accounts, a product with fees and transaction limits based on asset levels, and
increased revenues from the ML Consults (Registered Trademark) product.
Other revenues were $471 million, up 65% from $285 million in 1993. The
increase in other revenues was attributable to net realized investment gains
related to merchant banking activities of $81 million, compared with unrealized
losses of $133 million in 1993.
Non-interest expenses were $7,895 million, down 3% from $8,133 million in the
year-ago period. Excluding the 1993 non-recurring lease charge totaling $103.0
million, non-interest expenses declined 2%.
Compensation and benefits expense, which represented approximately 63% of
total non-interest expenses, declined 6% due principally to lower incentive and
production-related compensation. Compensation and benefits expense, as a
percentage of net revenues, was 51.5% in 1994, compared with 49.8% in 1993.
Occupancy costs declined 24% (7% excluding the 1993 non-recurring lease
charge) benefiting from continued relocation of support staff to lower-cost
facilities and reduced space requirements at the Headquarters facility. Other
facilities costs, which include communications and equipment rental, and
depreciation and amortization, were up 9% due to increased use of market data,
news, and statistical services and higher depreciation expense from the
acquisition of technology-related equipment.
Advertising and market development expenses were down 1% with discretionary
costs decreasing as business conditions became less favorable. Lower sales
promotion and a reduction in advertising campaigns were partially offset by
increased travel related to international business activities. Professional
fees increased 26% due primarily to the use of system and management
consultants to upgrade technology and processing capabilities in trading,
credit, and customer services, as well as higher legal fees. Brokerage,
clearing, and exchange fees increased 20% reflecting higher international
equity volume and expanded risk management activities related to volatile
global market conditions. Other expenses increased 1% from 1993, due to an
increase in office supplies and postage costs.
Income tax expense totaled $713 million in 1994, down 31% from $1,030 million
in 1993. The effective tax rate was 41.2% in 1994 versus 42.5% in 1993 as a
result of lower state income taxes.
The Company's Annual Report on Form 10-K for the year ended December 30, 1994
describes an action commenced against the Company by Orange County, California
(the "County") and the Orange County Investment Pools (the "Pools"). See
"Incorporation of Certain Documents by Reference." The County and
6
<PAGE>
the Pools seek relief in excess of $2 billion in connection with various
securities transactions between the County and/or the Pools and the Company and
its subsidiaries. Other actions have also been commenced against the Company
and its subsidiaries arising out of the Company's dealings with the County
Treasurer and the Pools.
The Company will vigorously contest these actions and believes it has
meritorious defenses. Although the ultimate outcome of these actions cannot be
ascertained at this time and the results of legal proceedings cannot be
predicted with certainty, it is the opinion of management that the resolution
of these actions will not have a material adverse effect on the consolidated
financial condition or results of operations of the Company for the year ended
December 30, 1994.
The Company has also received inquiries from various governmental entities
examining the underlying events and is cooperating with these inquiries.
CERTAIN BALANCE SHEET INFORMATION AS OF DECEMBER 30, 1994
On January 1, 1994, the Company adopted Financial Accounting Standards Board
Interpretation No. 39 ("Interpretation No. 39"), "Offsetting of Amounts Related
to Certain Contracts." Interpretation No. 39 affects the financial statement
presentation of balances related to swap, forward, and other similar exchange
or conditional type contracts, and unconditional type contracts. To offset
unconditional contracts, such as resale and repurchase agreements, net cash
settlement of the related receivable and payable balances is also required by
Interpretation No. 39, as modified by Interpretation No. 41, "Offsetting of
Amounts Related to Certain Repurchase and Reverse Repurchase Agreements." Prior
to the adoption of these Interpretations, the Company followed industry
practice in reporting balances related to certain types of contracts on a net
basis. Unrealized gains and losses for swap, forward, and other similar
contracts were reported net on the balance sheet by contract type, while
certain receivables and payables related to resale and repurchase agreements
were reported net by counterparty. The effect of these Interpretations
increased assets and liabilities at December 30, 1994 by approximately $8.5
billion.
The Company believes that its equity base is adequate relative to the level
and composition of its assets and the mix of its business.
In the normal course of business, the Company underwrites, trades, and holds
non-investment grade securities in connection with its market-making,
investment banking, and derivative structuring activities. These activities are
subject to risks related to the creditworthiness of the issuers and the
liquidity of the market for such securities, in addition to the usual risks
associated with investing in, extending credit, underwriting, and trading in
investment grade instruments.
At December 30, 1994, the fair value of long and short non-investment grade
trading inventories amounted to $3,309 million and $456 million, respectively,
and in the aggregate (i.e., the sum of long and short trading inventories)
represented 4.3% of aggregate consolidated trading inventories.
At December 30, 1994, the carrying value of extensions of credit provided to
corporations entering into leveraged transactions aggregated $257 million
(excluding unutilized revolving lines of credit and other lending commitments
of $50 million), consisting primarily of senior term and subordinated
financings to 35 medium-sized corporations. At December 30, 1994, the Company
had no bridge loans outstanding. Loans to highly leveraged corporations are
carried at unpaid principal balance less a reserve for estimated losses. The
allowance for loan losses is estimated based on a review of each loan, and
consideration of economic, market, and credit conditions. Direct equity
investments made in conjunction with the Company's investment and merchant
banking activities aggregated $289 million at December 30, 1994, representing
investments in 80 enterprises. Equity investments in privately-held
corporations for which sale is restricted by government or contractual
requirements are carried at the lower of cost or estimated net realizable
value. At December 30, 1994, the Company held interests in partnerships,
totaling $93 million (recorded on the cost basis), that invest
7
<PAGE>
in highly leveraged transactions and non-investment grade securities. Prior to
July 1, 1994, the Company had a co-investment arrangement to enter into direct
equity investments. At December 30, 1994, the Company also committed to invest
an additional $80 million in partnerships that invest in leveraged
transactions.
The Company's insurance subsidiaries hold non-investment grade securities. As
a percentage of total insurance investments, non-investment grade securities
were 5.5% at December 30, 1994. Non-investment grade securities of insurance
subsidiaries were classified as available-for-sale and were carried at fair
value at December 30, 1994.
At December 30, 1994, the largest non-investment grade concentration
consisted of various issues of a South American sovereign totaling $235
million, of which $60 million represented on-balance-sheet hedges for off-
balance-sheet instruments. No one industry sector accounted for more than 21%
of total non-investment grade positions. At December 30, 1994, the Company held
an aggregate carrying value of $292 million in debt and equity securities of
issuers in various stages of bankruptcy proceedings. Approximately 71% of this
amount resulted from the Company's market-making activities in such securities.
DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in a Prospectus Supplement, the Senior Debt
Securities are to be issued under an indenture (the "Chemical Indenture"),
dated as of April 1, 1983, as amended and restated, between the Company and
Chemical Bank (successor by merger to Manufacturers Hanover Trust Company), as
trustee or issued under an indenture (the "Chase Indenture"), dated as of
October 1, 1993 between the Company and The Chase Manhattan Bank, N.A. as
trustee (each, a "Senior Debt Trustee"). The Chemical Indenture and the Chase
Indenture are referred to herein as the "Senior Indentures". The Subordinated
Debt Securities are to be issued under an indenture (the "Subordinated
Indenture"), between the Company and Chemical Bank, as trustee (the
"Subordinated Debt Trustee"). The Senior Debt Securities and Subordinated Debt
Securities may also be issued under one or more other indentures (each, a
"Subsequent Indenture") and have one or more other trustees (each, a
"Subsequent Trustee"). Any Subsequent Indenture relating to Senior Debt
Securities will have terms and conditions identical in all material respects to
the above-referenced Senior Indentures and any Subsequent Indenture relating to
Subordinated Debt Securities will have terms and conditions identical in all
material respects to the above-referenced Subordinated Indenture, including,
but not limited to, the applicable terms and conditions described below. Any
Subsequent Indenture relating to a series of Debt Securities, and the trustee
with respect thereto, will be identified in the applicable Prospectus
Supplement. The Senior Indentures, the Subordinated Indenture and any
Subsequent Indentures (whether senior or subordinated) are referred to herein
as the "Indentures"; and the Senior Debt Trustees, the Subordinated Debt
Trustee and any Subsequent Trustees are referred to herein as the "Trustees". A
copy of each Indenture is filed (or, in the case of a Subsequent Indenture,
will be filed) as an exhibit to the registration statements relating to the
Securities (collectively, the "Registration Statement"). The following
summaries of certain provisions of the Indentures do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
provisions of the respective Indentures, including the definitions therein of
certain terms.
GENERAL
Each Indenture provides that Debt Securities (Senior Debt Securities in the
case of the Senior Indentures or a Subsequent Indenture for Senior Debt
Securities, and Subordinated Debt Securities in the case of the Subordinated
Indenture or a Subsequent Indenture for Subordinated Debt Securities) may be
issued thereunder, without limitation as to aggregate principal amount, in one
or more series, by the Company from time to time upon satisfaction of certain
conditions precedent, including the delivery by the Company to the applicable
Trustee of a resolution of the Board of Directors, or the Executive Committee
thereof, of the
8
<PAGE>
Company which fixes or provides for the establishment of terms of such Debt
Securities, including: (1) the aggregate principal amount of such Debt
Securities and whether there is any limit upon the aggregate principal amount
of such Debt Securities that may be subsequently issued; (2) the date on which
such Debt Securities will mature; (3) the principal amount payable with
respect to such Debt Securities whether at maturity or upon earlier
acceleration, and whether such principal amount will be determined with
reference to an index, formula or other method; (4) the rate or rates per
annum (which may be fixed or variable) at which such Debt Securities will bear
interest, if any; (5) the dates on which such interest, if any, will be
payable; (6) the provisions for redemption of such Debt Securities, if any,
the redemption price and any remarketing arrangements relating thereto; (7)
the sinking fund requirements, if any, with respect to such Debt Securities;
(8) whether such Debt Securities are denominated or provide for payment in
United States dollars or a foreign currency or units of two or more of such
foreign currencies; (9) the form (registered or bearer or both) in which such
Debt Securities may be issued and any restrictions applicable to the exchange
of one form for another and to the offer, sale and delivery of such Debt
Securities in either form; (10) whether and under what circumstances the
Company will pay additional amounts ("Additional Amounts") in respect of such
Debt Securities held by a person who is not a U.S. person (as defined in the
Prospectus Supplement, as applicable) in respect of specified taxes,
assessments or other governmental charges and whether the Company has the
option to redeem the affected Debt Securities rather than pay such Additional
Amounts; (11) whether such Debt Securities are to be issued in global form;
(12) the title of the Debt Securities and the series of which such Debt
Securities shall be a part; and (13) the denominations of such Debt
Securities. Reference is made to the Prospectus Supplement for the terms of
the Debt Securities being offered thereby, including whether such Debt
Securities are Senior Debt Securities or Subordinated Debt Securities. The
Company may elect to deliver to purchasers of Securities a Terms Sheet instead
of a Prospectus. This Prospectus may be delivered prior to or concurrently
with a Terms Sheet. Debt Securities may also be issued under the Indentures
upon the exercise of Debt Warrants. See "Description of Debt Warrants".
Nothing in the Indentures or in the terms of the Debt Securities will prohibit
the issuance of securities representing subordinated indebtedness that is
senior or junior to the Subordinated Debt Securities.
The Debt Securities will be issued, to the extent provided in the Prospectus
Supplement, in fully registered form without coupons, and/or in bearer form
with or without coupons, and in denominations set forth in the Prospectus
Supplement. No service charge will be made for any registration of transfer of
registered Debt Securities or exchange of Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charges that may be imposed in connection therewith. Each Indenture provides
that Debt Securities issued thereunder may be issued in global form. If any
series of Debt Securities is issuable in global form, the applicable
Prospectus Supplement will describe the circumstances, if any, under which
beneficial owners of interest in any such global Debt Securities may exchange
such interests for Debt Securities of such series and of like tenor and
principal amount in any authorized form and denomination. Principal of, and
any premium, Additional Amounts and interest on, a global Debt Security will
be payable in the manner described in the applicable Prospectus Supplement.
The provisions of the Indentures described above provide the Company with
the ability, in addition to the ability to issue Debt Securities with terms
different from those of Debt Securities previously issued, to "reopen" a
previous issue of a series of Debt Securities and issue additional Debt
Securities of such series.
The Senior Debt Securities will be unsecured and will rank pari passu with
all other unsecured and unsubordinated indebtedness of the Company. The
Subordinated Debt Securities will be unsecured and will be subordinated to all
existing and future Senior Indebtedness (as defined below) of the Company.
Since the Company is a holding company, the right of the Company, and hence
the right of creditors of the Company (including the Holders of the Debt
Securities), to participate in any distribution of the assets of any
subsidiary upon its liquidation or reorganization or otherwise is necessarily
subject to the prior claims of creditors of the subsidiary, except to the
extent that claims of the Company itself as a creditor of the subsidiary may
be recognized. In addition, dividends, loans and advances from certain
subsidiaries, including MLPF&S, to the
9
<PAGE>
Company are restricted by net capital requirements under the Securities
Exchange Act of 1934 and under rules of certain exchanges and other regulatory
bodies.
Principal and any interest, premium and Additional Amounts will be payable in
the manner, at the places and subject to the restrictions set forth in the
applicable Indenture, the Debt Securities and the Prospectus Supplement
relating thereto, provided that payment of any interest and any Additional
Amounts may be made at the option of the Company by check mailed to the holders
of registered Debt Securities at their registered addresses.
Debt Securities may be presented for exchange, and registered Debt Securities
may be presented for transfer, in the manner, at the places and subject to the
restrictions set forth in the applicable Indenture, the Debt Securities and the
Prospectus Supplement relating thereto. Debt Securities in bearer form and the
coupons, if any, pertaining thereto will be transferable by delivery. No
service charge will be made for any transfer or exchange of Debt Securities,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
MERGER AND CONSOLIDATION
The Company may consolidate or merge with or into any other corporation, and
the Company may sell, lease or convey all or substantially all of its assets to
any corporation, provided that (i) the corporation (if other than the Company)
formed by or resulting from any such consolidation or merger or which shall
have received such assets shall be a corporation organized and existing under
the laws of the United States of America or a state thereof and shall assume
payment of the principal of, and any premium, Additional Amounts or interest
on, the Debt Securities and the performance and observance of all of the
covenants and conditions of the Indentures to be performed or observed by the
Company, and (ii) the Company or such successor corporation, as the case may
be, shall not immediately thereafter be in default under the Indentures.
MODIFICATION AND WAIVER
Modification and amendment of each Indenture may be effected by the Company
and the applicable Trustee with the consent of the Holders of at least 66 2/3%
in principal amount of the Outstanding Debt Securities of each series issued
pursuant to such Indenture and affected thereby, provided that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Debt Security affected thereby, (a) change the Stated Maturity of,
or any installment of interest or Additional Amounts on, any Debt Security or
any premium payable on the redemption thereof, or change the Redemption Price;
(b) reduce the principal amount of, or the interest or Additional Amounts
payable on, any Debt Security or reduce the amount of principal which could be
declared due and payable prior to the Stated Maturity; (c) change the place or
currency of any payment of principal of, or any premium, interest or Additional
Amounts on, any Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security; (e) reduce
the percentage in principal amount of the Outstanding Debt Securities of any
series, the consent of whose Holders is required to modify or amend such
Indenture; or (f) modify the foregoing requirements or reduce the percentage of
Outstanding Debt Securities necessary to waive any past default to less than a
majority. No modification or amendment of the Subordinated Indenture or any
Subsequent Indenture for Subordinated Debt Securities may adversely affect the
rights of any Holder of Senior Indebtedness without the consent of such Holder.
Except with respect to certain fundamental provisions, the Holders of at least
a majority in principal amount of Outstanding Debt Securities of any series
may, with respect to such series, waive past defaults under the applicable
Indenture and waive compliance by the Company with certain provisions of such
Indenture.
EVENTS OF DEFAULT
Under each Indenture, the following will be Events of Default with respect to
Debt Securities of any series issued thereunder: (a) default in the payment of
any interest or Additional Amounts upon any Debt
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Security of that series when due, and such default has continued for 30 days;
(b) default in the payment of any principal of or premium, if any, on any Debt
Security of that series when due; (c) default in the deposit of any sinking
fund payment, when due, in respect of any Debt Security of that series; (d)
default in the performance of any other covenant of the Company contained in
such Indenture for the benefit of such series or in the Debt Securities of such
series, and such default has continued for 60 days after written notice as
provided in such Indenture; (e) certain events in bankruptcy, insolvency or
reorganization; and (f) any other Event of Default provided with respect to
Debt Securities of that series. The applicable Trustee or the Holders of 25% in
principal amount of the Outstanding Debt Securities of that series may declare
the principal amount (or such lesser amount as may be provided for in the Debt
Securities of that series) of all Outstanding Debt Securities of that series
and the interest accrued thereon and Additional Amounts payable in respect
thereof, if any, to be due and payable immediately if an Event of Default with
respect to Debt Securities of such series shall occur and be continuing at the
time of declaration. At any time after a declaration of acceleration has been
made with respect to Debt Securities of any series but before a judgment or
decree for payment of money due has been obtained by the applicable Trustee,
the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series may rescind any declaration of acceleration and its
consequences, provided that all payments due (other than those due as a result
of acceleration) have been made and all Events of Default have been remedied or
waived. Any Event of Default with respect to Debt Securities of any series may
be waived by the Holders of a majority in principal amount of all Outstanding
Debt Securities of that series, except in a case of failure to pay principal of
or premium, if any, or interest or Additional Amounts, if any, on any Debt
Security of that series for which payment had not been subsequently made or in
respect of a covenant or provision which cannot be modified or amended without
the consent of the Holder of each Outstanding Debt Security of such series
affected.
The Holders of a majority in principal amount of the Outstanding Debt
Securities of a series may direct the time, method and place of conducting any
proceeding for any remedy available to the applicable Trustee or exercising any
trust or power conferred on such Trustee with respect to Debt Securities of
such series, provided that such direction shall not be in conflict with any
rule of law or the applicable Indenture. Subject to the provisions of each
Indenture relating to the duties of the appropriate Trustee, before proceeding
to exercise any right or power under an Indenture at the direction of such
Holders, the applicable Trustee shall be entitled to receive from such Holders
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in complying with any such direction.
The Company will be required to furnish to each Trustee annually a statement
as to the fulfillment by the Company of all of its obligations under the
applicable Indenture.
SPECIAL TERMS RELATING TO THE SENIOR DEBT SECURITIES
LIMITATIONS UPON LIENS
The Senior Indentures provide that the Company may not, and may not permit
any Subsidiary to, create, assume, incur or permit to exist any indebtedness
for borrowed money secured by a pledge, lien or other encumbrance (except for
certain liens specifically permitted by the Senior Indentures) on the Voting
Stock owned directly or indirectly by the Company of any Subsidiary (other than
a Subsidiary which, at the time of incurrence of such secured indebtedness, has
a net worth of less than $3,000,000) without making effective provision whereby
the Outstanding Senior Debt Securities will be secured equally and ratably with
such secured indebtedness.
LIMITATIONS ON DISPOSITION OF VOTING STOCK OF, AND MERGER AND SALE OF ASSETS
BY, MLPF&S
The Senior Indentures provide that the Company may not sell, transfer or
otherwise dispose of any Voting Stock of MLPF&S or permit MLPF&S to issue, sell
or otherwise dispose of any of its Voting Stock, unless, after giving effect to
any such transaction, MLPF&S remains a Controlled Subsidiary (defined in the
Senior Indentures to mean a corporation more than 80% of the outstanding shares
of Voting Stock of which
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are owned directly or indirectly by the Company). In addition, the Senior
Indentures provide that the Company may not permit MLPF&S to (i) merge or
consolidate, unless the surviving company is a Controlled Subsidiary, or (ii)
convey or transfer its properties and assets substantially as an entirety,
except to one or more Controlled Subsidiaries.
SPECIAL TERMS RELATING TO THE SUBORDINATED DEBT SECURITIES
Upon any distribution of assets of the Company resulting from any
dissolution, winding up, liquidation or reorganization, payments on
Subordinated Debt Securities are to be subordinated to the extent provided in
the Subordinated Indenture in right of payment to the prior payment in full of
all Senior Indebtedness, but the obligation of the Company to make payments on
the Subordinated Debt Securities will not otherwise be affected. No payment on
Subordinated Debt Securities may be made at any time when there is a default in
the payment of any principal, premium, interest, Additional Amounts, if any, or
sinking fund of or on any Senior Indebtedness. Holders of Subordinated Debt
Securities will be subrogated to the rights of holders of Senior Indebtedness
to the extent of payments made on Senior Indebtedness upon any distribution of
assets in any such proceedings out of the distributive shares of Subordinated
Debt Securities. By reason of such subordination, in the event of a
distribution of assets upon insolvency, certain creditors of the Company may
recover more, ratably, than Holders of Subordinated Debt Securities.
Senior Indebtedness is defined in the Subordinated Indenture as the principal
of, premium, if any, and unpaid interest on (a) indebtedness of the Company
(including indebtedness of others guaranteed by the Company), other than the
Subordinated Debt Securities, whether outstanding on the date of execution of
the Subordinated Indenture or thereafter created, incurred, assumed or
guaranteed, (i) for money owing to banks, (ii) for money borrowed from sources
other than banks or (iii) in connection with the acquisition by the Company or
a subsidiary of assets of any kind except in the ordinary course of business,
unless in the instrument creating or evidencing the same or pursuant to which
the same is outstanding it is provided that such indebtedness is not superior
in right of payment to the Subordinated Debt Securities, and (b) renewals,
extensions, modifications and refundings of any such indebtedness. As of June
30, 1995, a total of approximately $31.7 billion of the Company's indebtedness
would have been Senior Indebtedness as so defined.
DESCRIPTION OF DEBT WARRANTS
The Company may issue, together with Debt Securities, Currency Warrants or
Index Warrants or separately, Debt Warrants for the purchase of Debt
Securities. The Debt Warrants are to be issued under debt warrant agreements
(each a "Debt Warrant Agreement") to be entered into between the Company and a
bank or trust company, as debt warrant agent (the "Debt Warrant Agent"), all as
shall be set forth in the Prospectus Supplement relating to Debt Warrants being
offered thereby. A copy of the form of Debt Warrant Agreement, including the
form of warrant certificates representing the Debt Warrants (the "Debt Warrant
Certificates"), reflecting the alternative provisions to be included in the
Debt Warrant Agreements that will be entered into with respect to particular
offerings of Debt Warrants, is filed as an exhibit to the Registration
Statement. The following summaries of certain provisions of the Debt Warrant
Agreement and the Debt Warrant Certificates do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all the
provisions of the Debt Warrant Agreement and the Debt Warrant Certificates,
respectively, including the definitions therein of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of Debt Warrants
offered thereby, the Debt Warrant Agreement relating to such Debt Warrants and
the Debt Warrant Certificates representing such Debt Warrants, including the
following: (1) the designation, aggregate principal amount, price at which such
principal amount may be purchased upon exercise and terms of the Debt
Securities purchasable upon
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exercise of such Debt Warrants, including whether such Debt Securities are
Senior Debt Securities or Subordinated Debt Securities, and the procedures and
conditions relating to the exercise of such Debt Warrants; (2) the designation
and terms of any related Debt Securities with which such Debt Warrants are
issued, including whether such Debt Securities are Senior Debt Securities or
Subordinated Debt Securities, the number of such Debt Warrants issued with each
such Debt Security, and the Indenture under which the Debt Securities will be
issued; (3) the date, if any, on and after which such Debt Warrants and the
related Debt Securities will be separately transferable; (4) the date on which
the right to exercise such Debt Warrants shall commence and the date on which
such right shall expire (the "Expiration Date"); (5) if the Debt Securities
purchasable upon exercise of such Debt Warrants are original issue discount
Debt Securities, a discussion of United States Federal income tax
considerations applicable thereto; and (6) whether the Debt Warrants
represented by the Debt Warrant Certificates will be issued in registered or
bearer form, and, if registered, where they may be transferred and registered.
Debt Warrant Certificates will be exchangeable for new Debt Warrant
Certificates of different denominations and Debt Warrants may be exercised at
the corporate trust office of the Debt Warrant Agent or any other office
indicated in the Prospectus Supplement. Prior to the exercise of their Debt
Warrants, holders of Debt Warrants will not have any of the rights of Holders
of the Debt Securities purchasable upon such exercise and will not be entitled
to payments of principal of, and any premium, Additional Amounts, if any, or
interest on, the Debt Securities purchasable upon such exercise.
EXERCISE OF DEBT WARRANTS
Each Debt Warrant will entitle the Holder to purchase for cash such principal
amount of Debt Securities at such exercise price as shall in each case be set
forth in, or be determinable as set forth in, the Prospectus Supplement
relating to the Debt Warrants offered thereby. Debt Warrants may be exercised
at any time up to the close of business on the Expiration Date set forth in the
Prospectus Supplement relating to the Debt Warrants offered thereby. After the
close of business on the Expiration Date, unexercised Debt Warrants will become
void.
Debt Warrants may be exercised as set forth in the Prospectus Supplement
relating to the Debt Warrants offered thereby. Upon receipt of payment and the
Debt Warrant Certificate properly completed and duly executed at the corporate
trust office of the Debt Warrant Agent or any other office indicated in the
Prospectus Supplement, the Company will, as soon as practicable, forward the
Debt Securities purchasable upon such exercise. If less than all of the Debt
Warrants represented by such Debt Warrant Certificate are exercised, a new Debt
Warrant Certificate will be issued for the remaining amount of Debt Warrants.
DESCRIPTION OF CURRENCY WARRANTS
The Company may issue, together with Debt Securities, Debt Warrants or Index
Warrants or separately, Currency Warrants either in the form of Currency Put
Warrants entitling the Holders thereof to receive from the Company the cash
settlement value in U.S. dollars of the right to sell a specified amount of a
specified foreign currency or currency units for a specified amount of U.S.
dollars, or in the form of Currency Call Warrants entitling the Holders thereof
to receive from the Company the cash settlement value in U.S. dollars of the
right to purchase a specified amount of a specified foreign currency or units
of two or more currencies for a specified amount of U.S. dollars. The Currency
Warrants are to be issued under a currency put warrant agreement or a currency
call warrant agreement, as applicable (each a "Currency Warrant Agreement"), to
be entered into between the Company and a bank or trust company, as currency
warrant agent (the "Currency Warrant Agent"), all as shall be set forth in the
applicable Prospectus Supplement. Copies of the forms of Currency Put Warrant
Agreement and Currency Call Warrant Agreement, including the forms of warrant
certificates representing the Currency Put Warrants and Currency Call Warrants
(the "Currency Warrant Certificates"), reflecting the provisions to be included
in the Currency Warrant Agreements that will be entered into with respect to
particular offerings of Currency Warrants, are filed as exhibits to the
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Registration Statement. The following summaries of certain provisions of the
Currency Warrant Agreements and the Currency Warrant Certificates do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Currency Warrant Agreements and the
Currency Warrant Certificates, respectively, including the definitions therein
of certain terms.
GENERAL
The applicable Prospectus Supplement will describe the terms of Currency
Warrants offered thereby, the Currency Warrant Agreement relating to such
Currency Warrants and the Currency Warrant Certificates representing such
Currency Warrants, including the following: (1) whether such Currency Warrants
shall be Currency Put Warrants, Currency Call Warrants, or both; (2) the
formula for determining the cash settlement value of each Currency Warrant; (3)
the procedures and conditions relating to the exercise of such Currency
Warrants; (4) the circumstances which will cause the Currency Warrants to be
deemed to be automatically exercised; (5) any minimum number of Currency
Warrants which must be exercised at any one time, other than upon automatic
exercise; and (6) the date on which the right to exercise such Currency
Warrants shall commence and the date on which such right shall expire (the
"Expiration Date"), provided that the commencement date and the Expiration Date
may be the same date.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Except as may otherwise be provided in an applicable Prospectus Supplement,
the Currency Warrants will be issued in the form of global Currency Warrant
Certificates, registered in the name of a depository or its nominee. Beneficial
owners will not be entitled to receive definitive certificates representing
Currency Warrants. Ownership of a Currency Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains a
beneficial owner's account. In turn, the total number of Currency Warrants held
by an individual brokerage firm for its clients will be maintained on the
records of the depository in the name of such brokerage firm or its agent.
Transfer of ownership of any Currency Warrant will be effected only through the
selling beneficial owner's brokerage firm.
EXERCISE OF CURRENCY WARRANTS
Each Currency Warrant will entitle the Holder to the cash settlement value of
such Currency Warrant on the applicable Exercise Date, in each case as such
terms will be defined in the applicable Prospectus Supplement. If a Currency
Warrant has more than one exercise date and is not exercised prior to 1:30
P.M., New York City time, on the fifth New York Business Day preceding the
Expiration Date, Currency Warrants will be deemed automatically exercised.
LISTING
Each issue of Currency Warrants will be listed on a national securities
exchange, subject only to official notice of issuance, as a condition of sale
of any such Currency Warrants. In the event that the Currency Warrants are
delisted from, or permanently suspended from trading on, such exchange, the
Expiration Date for such Currency Warrants will be the date such delisting or
trading suspension becomes effective and Currency Warrants not previously
exercised will be deemed automatically exercised on the business day
immediately preceding such Expiration Date. The applicable Currency Warrant
Agreement will contain a covenant of the Company not to seek delisting of the
Currency Warrants, or suspension of their trading, on such exchange.
DESCRIPTION OF INDEX WARRANTS
The Company may issue from time to time Index Warrants consisting of put
warrants (the "Index Put Warrants") or call warrants (the "Index Call
Warrants"). The Index Warrants will entitle the holders to receive from the
Company a payment or delivery, subject to applicable law, determined by
reference to decreases (in the case of Index Put Warrants) or to increases (in
the case of Index Call Warrants) in the level
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of an index or portfolio based on one or more equity or debt securities
(including the price or yield of such securities), any statistical measure of
economic or financial performance (including any consumer price, currency or
mortgage index) or the price or value of any commodity or any combination
thereof (the "Index"). Unless otherwise specified in the accompanying
Prospectus Supplement, payments, if any, upon exercise (or deemed exercise) of
the Index Warrants will be made in U.S. dollars. The Index Warrants will be
offered on terms to be determined at the time of sale.
GENERAL
The applicable Prospectus Supplement will describe the Index Warrant
Agreement or Index Warrant Trust Indenture (each as defined below), as the case
may be, relating to the Index Warrants being offered thereby and the terms of
such Index Warrants, including, without limitation: (i) whether the Index
Warrants to be issued will be Index Put Warrants, Index Call Warrants or both;
(ii) the aggregate number and initial public offering price or purchase price;
(iii) the Index for such Index Warrants; (iv) whether the Index Warrants will
be deemed exercised as of a specified date or whether the Index Warrants may be
exercised during a period and the date on which the right to exercise such
Index Warrants commences and the date on which such right expires; (v) the
manner in which such Index Warrants may be exercised and any restrictions on,
or other special provisions relating to, the exercise of such Index Warrants;
(vi) the minimum number, if any, of such Index Warrants exercisable at any one
time; (vii) the maximum number, if any, of such Index Warrants that may,
subject to the Company's election, be exercised by all Index Warrantholders (or
by any person or entity) on any day; (viii) any provisions permitting an Index
Warrantholder to condition an exercise notice on the absence of certain
specified changes in the level of the applicable Index after the exercise date,
any provisions permitting the Company to suspend exercise of such Index
Warrants based on market conditions or other circumstances and any other
special provision relating to the exercise of such Index Warrants; (ix) any
provisions for the automatic exercise of such Index Warrants other than at
expiration; (x) any provisions permitting the Company to cancel such Index
Warrants upon the occurrence of certain events; (xi) any additional
circumstances which would constitute an Event of Default with respect to such
Index Warrants; (xii) the method of determining (a) the payment or delivery, if
any, to be made in connection with the exercise or deemed exercise of such
Index Warrants (the "Settlement Value"), (b) the minimum payment or delivery,
if any, to be made upon expiration of such Index Warrants (the "Minimum
Expiration Value"), (c) the payment or delivery to be made upon the exercise of
any right which the Company may have to cancel such Index Warrants and (d) the
value of the Index; (xiii) in the case of Index Warrants relating to an Index
for which the trading prices of underlying securities, commodities or rates are
expressed in a foreign currency, the method of converting amounts in the
relevant foreign currency or currencies into U.S. dollars (or such other
currency or composite currency in which the Index Warrants are payable); (xiv)
the method of providing for a substitute index or otherwise determining the
payment or delivery, if any, to be made in connection with the exercise of such
Index Warrants if the Index changes or ceases to be made available by its
publisher; (xv) the time or times at which payment or delivery, if any, will be
made in respect of such Index Warrants following exercise or deemed exercise;
(xvi) the self-regulatory organization on which such Index Warrants will be
traded, if any; (xvii) any provisions for issuing such Index Warrants in other
than book-entry form; (xviii) if such Index Warrants are not issued in book-
entry form, the place or places at which payment or delivery on cancellation,
if any, and the Minimum Expiration Value, if any, of such Index Warrants is to
be made by the Company; (xix) certain U.S. federal income tax consequences
relating to such Index Warrants; and (xx) other specific provisions.
Except as otherwise provided in the applicable Prospectus Supplement, each
issue of Index Warrants will contain the terms set forth below.
The Index Warrants which are issued without a Minimum Expiration Value will
be issued under one or more index warrant agreements (each, an "Index Warrant
Agreement") to be entered into between the Company and a bank or trust company,
as warrant agent (the "Index Warrant Agent"), all as described in the
Prospectus Supplement relating to such Index Warrants. The Index Warrant Agent
will act solely as the agent of the Company under the applicable Index Warrant
Agreement and will not assume any obligation or
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relationship of agency or trust for or with any Index Warrantholders. A single
bank or trust company may act as Index Warrant Agent for more than one issue of
Index Warrants.
The Index Warrants which are issued with a Minimum Expiration Value will be
issued under one or more index warrant trust indentures (each an "Index Warrant
Trust Indenture") to be entered into between the Company and a corporation (or
other person permitted to so act by the Trust Indenture Act of 1939, as amended
from time to time (the "Trust Indenture Act")), to act as trustee (the "Index
Warrant Trustee"), all as described in the Prospectus Supplement relative to
such Index Warrants. Any Index Warrant Trust Indenture will be qualified under
the Trust Indenture Act. To the extent allowed by the Trust Indenture Act, a
single qualified corporation may act as Index Warrant Trustee for more than one
issue of Index Warrants.
Forms of Index Warrant Agreement and Index Warrant Trust Indenture and the
respective global index warrant certificates related thereto are filed as
exhibits to the Registration Statement. The summaries herein of certain
provisions of the Index Warrant Agreement, the Index Warrant Trust Indenture
and global index warrant certificates do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Index Warrant Agreement, the Index Warrant Trust Indenture
and global index warrant certificates, respectively.
The Company will have the right to "reopen" a previous issue of Index
Warrants and to issue additional Index Warrants of such issue without the
consent of any Index Warrantholder.
The Index Warrants involve a high degree of risk, including the risk that the
Index Warrants will expire worthless except for the Minimum Expiration Value,
if any, of such Index Warrants. Investors should therefore be prepared to
sustain a total loss of the purchase price of the Index Warrants (except for
the Minimum Expiration Value, if applicable). Investors who consider purchasing
Index Warrants should be experienced with respect to options and option
transactions and reach an investment decision only after carefully considering
the suitability of the Index Warrants in light of their particular
circumstances and the information set forth below as well as additional
information contained in the Prospectus Supplement relating to such Index
Warrants.
Unless otherwise provided in the Prospectus Supplement, each Index Warrant
will entitle Index Warrantholders to receive from the Company upon exercise the
Settlement Value of such Index Warrant. Certain Index Warrants issued pursuant
to an Index Warrant Trust Indenture will, if specified in the Prospectus
Supplement, entitle the Index Warrantholder to receive from the Company, under
certain circumstances specified in the Prospectus Supplement, a payment or
delivery equal to the greater of the applicable Settlement Value and a Minimum
Expiration Value of such Index Warrants. In addition, certain Index Warrants
will, if specified in the Prospectus Supplement, entitle Index Warrantholders
to receive from the Company a certain payment or delivery upon cancellation of
the Index Warrants by the Company, upon the occurrence of specified events. In
addition, if so specified in the Prospectus Supplement, following the
occurrence of an extraordinary event, the Settlement Value of an Index Warrant
may, at the option of the Company, be determined on a different basis,
including in connection with automatic exercise at expiration.
Unless otherwise specified in the related Prospectus Supplement, the Index
Warrants will be deemed to be automatically exercised upon expiration or such
earlier date that may be specified. Upon such automatic exercise, Index
warrantholders will be entitled to receive a payment or delivery equal to the
Settlement Value of the Index Warrants, except that holders of Index Warrants
having a Minimum Expiration Value will be entitled to receive a payment or
delivery equal to the greater of such Settlement Value and the applicable
Minimum Expiration Value. The Minimum Expiration Value may be either a
predetermined payment or delivery or a payment or delivery that varies during
the term of the Index Warrants in accordance with a schedule or formula. Any
Minimum Expiration Value applicable to an issue of Index Warrants, as well as
any additional circumstances resulting in the automatic exercise of such Index
Warrants, will be specified in the related Prospectus Supplement.
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If so specified in the Prospectus Supplement, the Index Warrants may be
canceled by the Company, or the exercise or valuation of, or payment or
delivery for, such Index Warrants may be delayed or postponed upon the
occurrence of an extraordinary event. Any extraordinary events relating to an
issue of Index Warrants will be set forth in the related Prospectus Supplement.
Upon cancellation, the related Index warrantholders will be entitled to receive
only the applicable payment or delivery on cancellation specified in such
Prospectus Supplement. The payment or delivery on cancellation may be either a
predetermined payment or delivery or a payment or delivery that varies during
the term of the Index Warrants in accordance with a schedule or formula.
If the Company defaults with respect to any of its obligations under Index
Warrants which are issued with a Minimum Expiration Value pursuant to an Index
Warrant Trust Indenture, such default may be waived by the Index warrantholders
of a majority in interest of all outstanding Index Warrants, except a default
in the payment or delivery of the Settlement Value, Minimum Expiration Value or
cancellation payment or delivery (if applicable) on such Index Warrants or in
respect of a covenant or provision of the applicable Index Warrant Trust
Indenture which cannot be modified or amended without the consent of the Index
warrantholder of each outstanding Index Warrant affected.
The Index Warrants are unsecured contractual obligations of the Company and
will rank pari passu with the Company's other unsecured contractual obligations
and with the Company's unsecured and unsubordinated debt. Since the Company is
a holding company, the right of the Company, and hence the right of creditors
of the Company (including the Holders of the Debt Securities), to participate
in any distribution of the assets of any subsidiary upon its liquidation or
reorganization or otherwise is necessarily subject to the prior claims of
creditors of the subsidiary, except to the extent that claims of the Company
itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including MLPF&S, to
the Company are restricted by net capital requirements under the Securities
Exchange Act of 1934 and under rules of certain exchanges and other regulatory
bodies.
Certain special United States federal income tax considerations may be
applicable to instruments such as the Index Warrants. The related Prospectus
Supplement will describe such tax considerations. The summary of United States
Federal income tax considerations contained in the Prospectus Supplement will
be presented for informational purposes only, however, and will not be intended
as legal or tax advice to prospective purchasers. Prospective purchasers of
Index Warrants are urged to consult their own tax advisors prior to any
acquisition of Index Warrants.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Except as may otherwise be provided in an applicable Prospectus Supplement,
Index Warrants will be issued in book-entry form and represented by global
Index Warrants, registered in the name of a depository or its nominee. Except
as may otherwise be provided in an applicable Prospectus Supplement, Index
Warrantholders will not be entitled to receive definitive certificates
representing Index Warrants, unless the depository is unwilling or unable to
continue as depository or the Company decides to have the Index Warrants
represented by definitive certificates. A beneficial owner's interest in an
Index Warrant represented by a global Index Warrant will be recorded on or
through the records of the brokerage firm or other entity that maintains such
beneficial owner's account. In turn, the total number of Index Warrants held by
an individual brokerage firm or other entity for its clients will be maintained
on the records of the depository in the name of such brokerage firm or other
entity or its agent.
LISTING
Unless otherwise indicated in the Prospectus Supplement, the Index Warrants
will be traded pursuant to the rules of a self-regulatory organization as
specified in the Prospectus Supplement. It is expected that such self-
regulatory organization will cease trading an issue of Index Warrants at the
close of business on the related expiration date of such Index Warrants.
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MODIFICATION
Any Index Warrant Agreement or Index Warrant Trust Indenture and the terms of
the related Index Warrants may be amended by the Company and the Index Warrant
Agent or Index Warrant Trustee, as the case may be (which amendment shall take
the form of a supplemental index warrant agreement or supplemental index
warrant trust indenture (collectively referred to as "Supplemental
Agreements")), without the consent of the holders of any Index Warrants, for
the purpose of (i) curing any ambiguity, or of curing, correcting or
supplementing any defective or inconsistent provision contained therein, or of
making any other provisions with respect to matters or questions arising under
the Index Warrant Agreement or Index Warrant Trust Indenture, as the case may
be, which shall not be inconsistent with the provisions thereof or of the Index
Warrants, (ii) evidencing the succession of another corporation to the Company
and the assumption by any such successor of the covenants of the Company
contained in the Index Warrant Agreement or the Index Warrant Trust Indenture,
as the case may be, and the Index Warrants, (iii) appointing a successor
depository, (iv) evidencing and providing for the acceptance of appointment by
a successor Index Warrant Agent or Index Warrant Trustee with respect to the
Index Warrants, as the case may be, (v) adding to the covenants of the Company,
for the benefit of the Index Warrantholders or surrendering any right or power
conferred upon the Company under the Index Warrant Agreement or Index Warrant
Trust Indenture, as the case may be, (vi) issuing Index Warrants in definitive
form, or (vii) amending the Index Warrant Agreement or Index Warrant Trust
Indenture, as the case may be, in any manner which the Company may deem to be
necessary or desirable and which will not materially and adversely affect the
interests of the Index warrantholders.
The Company and the Index Warrant Agent may also amend any Index Warrant
Agreement or Index Warrant Trust Indenture, as the case may be, and the terms
of the related Index Warrants (which amendment shall take the form of a
Supplemental Agreement) with the consent of the Index warrantholders holding
not less than 66 2/3% in number of the then outstanding unexercised Index
Warrants affected by such amendment, for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the Index
Warrant Agreement or Index Warrant Trust Indenture, as the case may be, or of
modifying in any manner the rights of the Index warrantholders; provided that
no such amendment that (i) changes the determination of the Settlement Value or
the payment or delivery to be made on cancellation, if any, or Minimum
Expiration Value, if any, of the Index Warrants (or any aspects of such
determination) so as to reduce the payment or delivery to be made upon exercise
or deemed exercise, (ii) shortens the period of time during which the Index
Warrants may be exercised, or otherwise materially and adversely affects the
exercise rights of the Index warrantholders or (iii) reduces the number of
outstanding Index Warrants, the consent of whose holders is required for
amendment of the Index Warrant Agreement, the Index Warrant Trust Indenture or
the terms of the related Index Warrants, may be made without the consent of
each Index warrantholder affected thereby.
EVENTS OF DEFAULT
Certain events in bankruptcy, insolvency or reorganization of the Company
will constitute an Event of Default with respect to Index Warrants having a
Minimum Expiration Value which are issued under an Index Warrant Trust
Indenture. Upon the occurrence of an Event of Default, the holders of 25% of
unexercised Index Warrants may elect to receive a settlement payment or
delivery for such unexercised Index Warrants, which will immediately become due
to the Index warrantholders upon such election in an amount equal to the market
value of such Index Warrants (assuming the Company's ability to satisfy its
obligations under such Index Warrants as they would become due) as of the date
the Company is notified of the intended liquidation, as determined by a
nationally recognized securities broker-dealer unaffiliated with the Company
and mutually selected by the Company and the Index Warrant Trustee.
MERGER, CONSOLIDATION, SALE, LEASE OR OTHER DISPOSITIONS
The Company may consolidate or merge with or into any other corporation and
the Company may sell, lease or convey all or substantially all of its assets to
any corporation, provided that (i) the corporation (if
18
<PAGE>
other than the Company) formed by or resulting from any such consolidation or
merger or which shall have received such assets shall be a corporation
organized and existing under the laws of the United States of America or a
State thereof and shall assume the Company's obligations in respect of the
payment or delivery of the Settlement Value (or any Minimum Expiration Value or
cancellation payment or delivery, if applicable) with respect to all the
unexercised Index Warrants and the performance and observance of all of the
covenants and conditions of the Index Warrant Agreement or Index Warrant Trust
Indenture, as the case may be, to be performed or observed by the Company, and
(ii) the Company or such successor corporation, as the case may be, shall not
immediately be in default under the Index Warrant Agreement or Index Warrant
Trust Indenture, as the case may be.
ENFORCEABILITY OF RIGHTS BY INDEX WARRANTHOLDERS
Any Index warrantholder may, without the consent of the related Index Warrant
Agent, enforce by appropriate legal action, in and for its own behalf, its
right to exercise, and receive payment or delivery for, its Index Warrants.
PLAN OF DISTRIBUTION
The Company may sell Securities (i) through MLPF&S as agent, (ii) to the
public through, or through underwriting syndicates managed by, one or more of
the firms named on the cover page of this Prospectus or (iii) directly to
purchasers. The Prospectus Supplement with respect to the Securities of a
particular series describes the terms of the offering of such Securities,
including the name of the agent or the name or names of any underwriters, the
public offering or purchase price, any discounts and commissions to be allowed
or paid to the agent or underwriters, all other items constituting underwriting
compensation, the discounts and commissions to be allowed or paid to dealers,
if any, and the exchanges, if any, on which the Securities will be listed. Only
the agents or underwriters so named in the Prospectus Supplement are agents or
underwriters in connection with the Securities offered thereby. Under certain
circumstances, the Company may repurchase Securities and reoffer them to the
public as set forth above. The Company may also arrange for repurchases and
resales of such Securities by dealers.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters to solicit offers by certain institutions to purchase Debt
Securities from the Company pursuant to delayed delivery contracts providing
for payment and delivery on the date stated in the Prospectus Supplement. Each
such contract will be for an amount not less than, and, unless the Company
otherwise agrees, the aggregate principal amount of Debt Securities sold
pursuant to such contracts shall not be more than, the respective amounts
stated in the Prospectus Supplement. Institutions with whom such contracts,
when authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions, but shall in all cases be subject to the
approval of the Company. Delayed delivery contracts will not be subject to any
conditions except that the purchase by an institution of the Debt Securities
covered thereby shall not at the time of delivery be prohibited under the laws
of any jurisdiction in the United States to which such institution is subject.
The Company has agreed to indemnify the agent and the several underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933 (the "Act"), or contribute to payments the agent or the
underwriters may be required to make in respect thereof.
The distribution of Securities will conform to the requirements set forth in
the applicable sections of Schedule E to the By-Laws of the National
Association of Securities Dealers, Inc.
19
<PAGE>
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and its subsidiaries included or incorporated by
reference in the Company's 1994 Annual Report on Form 10-K, and incorporated by
reference in this Prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports incorporated by reference
herein. The information under the caption "Summary Financial Information" for
each of the five years in the period ended December 30, 1994 included in this
Prospectus and the Selected Financial Data under the captions "Operating
Results", "Financial Position" and "Common Share Data" for each of the five
years in the period ended December 30, 1994 included in the 1994 Annual Report
to Stockholders of the Company and incorporated by reference herein, has been
derived from consolidated financial statements audited by Deloitte & Touche
LLP, as set forth in their reports incorporated by reference herein. Such
consolidated financial statements and related financial statement schedules,
such Summary Financial Information and Selected Financial Data appearing or
incorporated by reference in this Prospectus and the Registration Statement of
which this Prospectus is a part, have been included or incorporated herein by
reference in reliance upon such reports of Deloitte & Touche LLP given upon
their authority as experts in accounting and auditing.
With respect to unaudited interim financial information for the periods
included in any of the Quarterly Reports on Form 10-Q which may be incorporated
herein by reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their report included in any such Quarterly Report on
Form 10-Q and incorporated by reference herein, they did not audit and they do
not express an opinion on such interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP are not subject to the liability provisions of Section 11 of the Act for
any such report on unaudited interim financial information because any such
report is not a "report" or a "part" of the registration statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the Act.
20
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE AGENT. NEITHER THE DELIVERY OF THIS PROSPECTUS SUP-
PLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL
UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk Factors............................................................... S-2
Recent Developments........................................................ S-4
Description of Notes....................................................... S-7
Certain United States Federal Income Tax Considerations.................... S-22
Plan of Distribution....................................................... S-28
Legal Opinion.............................................................. S-29
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Merrill Lynch & Co., Inc................................................... 3
Use of Proceeds............................................................ 3
Summary Financial Information.............................................. 4
Description of Debt Securities............................................. 8
Description of Debt Warrants............................................... 12
Description of Currency Warrants........................................... 13
Description of Index Warrants.............................................. 14
Plan of Distribution....................................................... 19
Experts.................................................................... 20
</TABLE>
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[LOGO]
$3,887,405,763
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES,
SERIES B
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
SEPTEMBER 1, 1995
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