<PAGE>
RULE NO. 424(B)(5)
REGISTRATION NO. 33-65135
PROSPECTUS SUPPLEMENT
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(TO PROSPECTUS DATED APRIL 4, 1996)
$5,279,630,763
[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
$5,279,630,763 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.
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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%
- ------------------------------------------------------------------------------
$6,599,538-- $5,273,031,225--
Total(4)......... $5,279,630,763 $39,597,231 $5,240,033,532
- ------------------------------------------------------------------------------
</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 April 10, 1996.
<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>
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 $5,279,630,763 aggregate principal amount of Notes offered hereby. As of
December 29, 1995, the Company had issued and outstanding Notes in an aggregate
principal amount of approximately $6,519,503,943. 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 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.
S-4
<PAGE>
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 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.
S-5
<PAGE>
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 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.
S-6
<PAGE>
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
S-7
<PAGE>
"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.
S-8
<PAGE>
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
S-9
<PAGE>
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.
S-10
<PAGE>
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
S-11
<PAGE>
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 event 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
S-12
<PAGE>
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:
<TABLE>
<S> <C> <C> <C> <C>
Money Market Yield = D X 360 X 100
-------------
360 - (D X M)
</TABLE>
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.
S-13
<PAGE>
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
S-14
<PAGE>
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>
S-15
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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 USPRIME1 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
USPRIME1 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 USPRIME1,
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 USPRIME1" means the display designated as page "USPRIME1" 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
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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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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.
S-23
<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.
S-24
<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.
S-25
<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 on 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-26
<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
Description of Notes....................................................... S-4
Certain United States Federal Income Tax Considerations.................... S-19
Plan of Distribution....................................................... S-25
Legal Opinion.............................................................. S-26
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]
$5,279,630,763
MERRILL LYNCH & CO., INC.
MEDIUM-TERM NOTES,
SERIES B
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
APRIL 10, 1996
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