Filed Pursuant to Rule 424(b)(5)
Registration No. 333-83374
PROSPECTUS SUPPLEMENT
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(To prospectus dated April 1, 2002)
$10,000,000,000
[LOGO]
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series B
Due Nine Months or More from Date of Issue
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The notes:
. We will offer notes from time to time and specify the terms and
conditions of each issue of notes in a pricing supplement.
. The notes may bear interest at fixed or floating rates or may not
bear any interest.
. If the notes bear interest at a floating rate, the floating rate may
be based on one or more indices or formulas plus or minus a fixed
amount or multiplied by a factor.
. The notes will be senior unsecured debt securities of ML&Co.
. The notes will have stated maturities of nine months or more from
the date they are originally issued.
. We will specify whether the notes can be redeemed or repaid before
their maturity and whether they are subject to mandatory redemption,
redemption at the option of ML&Co. or repayment at the option of the
holder of the notes.
. We will pay amounts due on the notes in U.S. dollars or any other
consideration described in the applicable pricing supplement.
Investing in the notes involves risks that are described in the "Risk
Factors" section beginning on page S-3 of this prospectus supplement.
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Per note Total
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Public offering price................................ 100% $10,000,000,000
Agent's discounts and commissions.................... 0.05%-.60% $5,000,000-$60,000,000
Proceeds, before expenses, to ML&Co.................. 99.95%-99.40% $9,995,000,000-$9,940,000,000
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement, the accompanying prospectus or any pricing
supplement is truthful or complete. Any representation to the contrary is a
criminal offense.
We may sell notes to the agent referred to below as principal for resale
at varying or fixed offering prices or through the agent as agent using its
reasonable efforts on our behalf. We may also sell notes without the assistance
of the agent, whether acting as principal or as agent.
If we sell other securities referred to in the accompanying prospectus,
the amount of notes that we may offer and sell under this prospectus supplement
may be reduced.
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Merrill Lynch & Co.
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The date of this prospectus supplement is April 1, 2002.
TABLE OF CONTENTS
Prospectus Supplement
Page
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Risk Factors.............................................................. S-3
Description of the Notes.................................................. S-4
United States Federal Income Taxation..................................... S-23
Plan of Distribution...................................................... S-30
Validity of the Notes..................................................... S-31
Prospectus
Page
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Merrill Lynch & Co., Inc.................................................. 2
Use of Proceeds........................................................... 2
Ratio of Earnings to Fixed Charges and Ratios of Earnings to Combined
Fixed Charges and Preferred Stock Dividends............................. 3
The Securities............................................................ 3
Description of Debt Securities............................................ 4
Description of Debt Warrants.............................................. 10
Description of Currency Warrants.......................................... 12
Description of Index Warrants............................................. 14
Description of Preferred Stock............................................ 19
Description of Depositary Shares.......................................... 24
Description of Preferred Stock Warrants................................... 28
Description of Common Stock............................................... 30
Description of Common Stock Warrants...................................... 34
Plan of Distribution...................................................... 36
Where You Can Find More Information....................................... 37
Incorporation of Information We File With the SEC......................... 37
Experts................................................................... 38
References in this prospectus supplement to "ML&Co.", "we", "us" and
"our" are to Merrill Lynch & Co., Inc.
References in this prospectus supplement to "MLPF&S" are to the agent,
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
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You should rely only on the information contained or incorporated by
reference in this prospectus supplement, the accompanying prospectus and any
pricing supplement. Neither we nor MLPF&S has authorized any other person to
provide you with different or additional information. If anyone provides you
with different or additional information, you should not rely on it. Neither we
nor MLPF&S is making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the
information contained or incorporated by reference in this prospectus
supplement, the accompanying prospectus and any pricing supplement is accurate
only as of the date on the front cover of the applicable pricing supplement.
S-2
RISK FACTORS
Your investment in the notes involves certain risks. In consultation with
your own financial and legal advisers, you should carefully consider, among
other matters, the following discussion of risks before deciding whether an
investment in the notes is suitable for you. The notes are not an appropriate
investment for you if you are unsophisticated with respect to their significant
components and interrelationships.
Structure Risks of Notes Indexed to Interest Rate, Currency or Other Indices or
Formulas
If you invest in notes indexed to one or more interest rate, currency or
other indices or formulas, there will be significant risks not associated with
a conventional fixed rate or floating rate debt security. These risks include
fluctuation of the indices or formulas and the possibility that you will
receive a lower, or no, amount of principal, premium or interest and at
different times than you expected. We have no control over a number of matters,
including economic, financial and political events, that are important in
determining the existence, magnitude and longevity of these risks and their
results. In addition, if an index or formula used to determine any amounts
payable in respect of the notes contains a multiplier or leverage factor, the
effect of any change in that index or formula will be magnified. In recent
years, values of certain indices and formulas have been volatile and volatility
in those and other indices and formulas may be expected in the future. However,
past experience is not necessarily indicative of what may occur in the future.
Redemption May Adversely Affect Your Return on the Notes
If your notes are redeemable at our option we may choose to redeem your
notes at times when prevailing interest rates are relatively low. In addition,
if your notes are subject to mandatory redemption, we may be required to redeem
your notes at times when prevailing interest rates are also relatively low. As
a result, you generally will not be able to reinvest the redemption proceeds in
a comparable security at an effective interest rate as high as that of the
notes.
There May Not Be Any Trading Market for Your Notes; Many Factors Affect the
Trading Market and Value of Your Notes
We cannot assure you a trading market for your notes will ever develop or
be maintained. In addition to our own creditworthiness, many other factors may
affect the trading market value of, and trading market for, your notes. These
factors include:
. the complexity and volatility of the index or formula
applicable to your notes,
. the method of calculating the principal, premium and interest
in respect of your notes,
. the time remaining to the maturity of your notes,
. the outstanding amount of your notes,
. any redemption features of your notes,
. the amount of other securities linked to the index or formula
applicable to your notes, and
. the level, direction and volatility of market interest rates
generally.
In addition, notes that are designed for specific investment objectives
or strategies often experience a more limited trading market and more price
volatility. There may be a limited number of buyers when you decide to sell
your notes. This may affect the price you receive for your notes or your
ability to sell your notes at all. You should not purchase notes unless you
understand and know you can bear all of the investment risks related to your
notes.
S-3
Our Credit Ratings May Not Reflect All Risks of an Investment in the Notes
Our credit ratings are an assessment of our ability to pay our
obligations. Consequently, real or anticipated changes in our credit ratings
will generally affect the market value of your notes. Our credit ratings,
however, may not reflect the potential impact of risks related to structure,
market or other factors discussed above on the value of your notes.
DESCRIPTION OF THE NOTES
The notes will be issued as a series of debt securities under a senior
indenture, dated as of October 1, 1993, as amended (the "1993 Indenture"),
between ML&Co. and JPMorgan Chase Bank, as trustee. The term "senior debt
securities," as used in this prospectus supplement, refers to all securities
issued and issuable from time to time under ML&Co.'s senior indentures and
includes the notes. The senior debt securities and ML&Co.'s senior indentures
are more fully described in the accompanying prospectus. The following summary
of the material provisions of the notes and of the 1993 Indenture is not
complete and is qualified in its entirety by reference to the 1993 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.
The following description of notes will apply unless otherwise specified
in an applicable pricing supplement.
Terms of the Notes
All senior debt securities, including the notes, issued and to be issued
under ML&Co.'s senior indentures will be unsecured general obligations of
ML&Co. and will rank equally with all other unsecured and unsubordinated
indebtedness of ML&Co. from time to time outstanding. Because ML&Co. is a
holding company, the right of ML&Co. and its creditors, 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 that subsidiary, except to the
extent that a bankruptcy court may recognize the claims of ML&Co. itself as a
creditor of that subsidiary. In addition, dividends, loans and advances to
ML&Co. from certain subsidiaries, including MLPF&S, 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.
ML&Co.'s senior indentures do not limit the aggregate principal amount of
senior debt securities which ML&Co. may issue. ML&Co. may issue its senior debt
securities 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
ML&Co. for each series. ML&Co. 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 its senior indentures in addition to the notes offered by
this prospectus supplement. As of December 28, 2001, ML&Co. had approximately
$52.987 billion aggregate principal amount of notes issued and outstanding. The
aggregate principal amount of notes which may be offered and sold by this
prospectus supplement may be reduced by the sale by ML&Co. of other securities
under 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 their issue (the "stated maturity date"),
as selected by the purchaser and agreed to by ML&Co., or on any date before the
stated maturity 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 ML&Co., notice of repayment at the option of
the holder or otherwise (the stated maturity date or such prior date, as the
case may be, is referred to as, a "Maturity"). Interest-bearing notes will bear
interest at either fixed or floating rates as specified in the applicable
pricing supplement. Some notes may not bear interest. In addition, notes may be
issued at significant discounts from their principal amount payable at Maturity.
S-4
Unless otherwise specified in the applicable pricing supplement, the
notes will be denominated in United States dollars and ML&Co. will make
payments of principal of, and premium, if any, and interest on, the notes in
United States dollars.
Interest rates offered by ML&Co. with respect to the notes may differ
depending upon, among other factors, the aggregate principal amount of notes
purchased in any single transaction. ML&Co. may offer notes with similar
variable terms but different interest rates concurrently at any time. ML&Co.
also may concurrently offer notes having different variable terms to different
investors. Interest rates, interest rate formulae and other variable terms of
the notes are subject to change by ML&Co. from time to time, but no change will
affect any note already issued or as to which ML&Co. has accepted an offer to
purchase.
Each note will be issued in fully registered book-entry form or
certificated form, in denominations of $1,000 and integral multiples of $1,000.
Notes in book-entry form may be transferred or exchanged only through a
participating member of The Depository Trust Company, also known as DTC, or any
other depository as is identified in an applicable pricing supplement. See
"--Book-Entry Notes". Registration of transfer of notes in certificated form
will be made at the corporate trust office of the trustee. There will be no
service charge for any registration of transfer or exchange of notes, but
ML&Co. may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection with any transfer or exchange, other
than exchanges pursuant to the 1993 Indenture not involving any transfer.
ML&Co. will make payments of principal of, and premium and interest, if
any, on notes in book-entry form 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 notes in book-entry form that are
denominated in a currency other than United States dollars (a "Specified
Currency") electing to receive payments of principal or any premium or interest
in that Specified Currency must notify the participant of DTC through which its
interest is held on or before the applicable regular record date, in the case
of a payment of interest, and on or before the sixteenth day, whether or not a
Business Day, as defined below, before its stated maturity date, in the case of
principal or premium, of the beneficial owner's election to receive all or a
portion of any payment in a Specified Currency. The participant must notify the
depository of any election on or before the third Business Day after the
regular record date. The depository will notify the paying agent of the
election on or before the fifth Business Day after the regular record date. If
complete instructions are received by the participant and forwarded to the
depository, and forwarded by the depository to the paying agent, on or before
the relevant dates, the beneficial owner of the notes in book-entry form will
receive payments in the Specified Currency.
In the case of notes in certificated form, ML&Co. will make payment of
principal or premium, if any, due at Maturity of each note in immediately
available funds upon presentation of the note and, in the case of any repayment
on an optional repayment date, upon submission of a duly completed election
form if and as required by the provisions described below, at the corporate
trust office of the trustee in the Borough of Manhattan, The City of New York,
or at any other place as ML&Co. may designate. Payment of interest due at
Maturity of the notes in certificated form will be made to the person to whom
payment of the principal thereof will be made. Payment of interest due on notes
in certificated form other than at Maturity will be made at the corporate trust
office of the trustee or, at the option of ML&Co., may be made by check mailed
to the address of the person entitled to receive payment as the address shall
appear in the security register. Notwithstanding the immediately
preceding sentence, a holder of $1,000,000 or more in aggregate principal
amount of notes in certificated form, whether having identical or different
terms and provisions will, at the option of ML&Co., 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. Any wire instructions received by the trustee shall remain in
effect until revoked by the applicable holder.
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which commercial banks are authorized or
required by law, regulation or executive order to close in The
S-5
City of New York; provided, however, that, with respect to non-United States
dollar-denominated notes, the day is also not a day on which commercial banks
are authorized or required by law, regulation or executive order to close in
the Principal Financial Center, as defined below, of the country issuing the
Specified Currency or, if the Specified Currency is Euro, the day is also a day
on which the Trans-European Automated Real-Time Gross Settlement Express
Transfer (TARGET) System is open; provided, further, that, with respect to
notes as to which LIBOR is an applicable Interest Rate Basis, the day is also a
London Banking Day. "London Banking Day" means a day on which commercial banks
are open for business, including dealings in the LIBOR Currency, as defined
below, in London.
"Principal Financial Center" means:
(1)the capital city of the country issuing the Specified Currency,
except that with respect to United States dollars, Australian
dollars, Canadian dollars, South African rand and Swiss francs, the
"Principal Financial Center" will be The City of New York, Sydney and
Melbourne, Toronto, Johannesburg and Zurich, respectively, or
(2)the capital city of the country to which the LIBOR Currency relates,
except that with respect to United States dollars, Australian
dollars, Canadian dollars, South African rand and Swiss francs, the
"Principal Financial Center" will be The City of New York, Sydney,
Toronto, Johannesburg and Zurich, respectively.
Redemption at the Option of ML&Co.
The notes will not be subject to, or entitled to the benefit of, any
sinking fund. ML&Co. may redeem the notes at its option before their stated
maturity date only if an initial redemption date is specified in the applicable
pricing supplement. If so indicated in the applicable pricing supplement,
ML&Co. may redeem the notes at its option on any date on and after the
applicable initial redemption date specified in the applicable pricing
supplement. On and after the initial redemption date, if any, ML&Co. may redeem
the related note at any time in whole or from time to time in part at its
option at the applicable redemption price referred to below together with
interest on the principal of the applicable note 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 before the redemption date.
ML&Co. will redeem the notes in increments of $1,000, provided that any
remaining principal amount will be an authorized denomination of the applicable
note. Unless otherwise specified in the applicable pricing supplement, the
redemption price with respect to a note will initially mean a percentage, the
initial redemption percentage, of the principal amount of the note to be
redeemed specified in the applicable pricing supplement and shall decline at
each anniversary of the initial redemption date by a percentage specified in
the applicable pricing supplement, of the principal amount to be redeemed until
the redemption price is 100% of the principal amount.
Repayment at the Option of the Holder
If so indicated in an applicable pricing supplement, ML&Co. will repay
the notes in whole or in part at the option of the holders of the notes on any
optional repayment date specified in the applicable pricing supplement. If no
optional repayment date is indicated with respect to a note, it will not be
repayable at the option of the holder before its stated maturity date. Any
repayment in part will be in an amount equal to $1,000 or integral multiples of
$1,000, provided that any remaining principal amount will be an authorized
denomination of the applicable note. The repurchase price for any note
repurchased will be 100% of the principal amount to be repaid, together with
interest on the principal of the applicable note payable to the date of
repayment. For any note to be repaid, the trustee must receive, at its office
maintained for such purpose in the Borough of Manhattan, The City of New York,
currently the corporate trust office of the trustee, not more than 60 nor less
than 30 days before the optional repayment date, the particular note being
repaid:
. in the case of a note in certificated form, the form entitled
"Option to Elect Repayment" duly completed, or
S-6
. in the case of a note in book-entry form, instructions to that
effect from the applicable beneficial owner thereof to the
depository and forwarded by the depository.
Notices of elections from a holder to exercise the repayment option must be
received by the trustee by 5:00 p.m., New York City time, on the last day for
giving notice. Exercise of the repayment option by the holder of a note will be
irrevocable.
Only the depository may exercise the repayment option in respect of
global securities representing notes in book-entry form. Accordingly,
beneficial owners of global securities that desire to have all or any portion
of the notes in book-entry form represented by global securities repaid must
instruct the participant through which they own their interest to direct the
depository to exercise the repayment option on their behalf by forwarding the
repayment instructions to the trustee as discussed above. In order to ensure
that the instructions are received by the trustee on a particular day, the
applicable beneficial owner must so instruct the participant through which it
owns its interest before that participant's deadline for accepting instructions
for that day. Different firms may have different deadlines for accepting
instructions from their customers. Accordingly, beneficial owners of notes in
book-entry form should consult the participants through which they own their
interest for the respective deadlines. All instructions given to participants
from beneficial owners of notes in book-entry form relating to the option to
elect repayment will be irrevocable. In addition, at the time instructions are
given, each beneficial owner will cause the participant through which it owns
its interest to transfer its interest in the global security or securities
representing the related notes in book-entry form, on the depository's records,
to the trustee. See "--Book-Entry Notes".
If applicable, ML&Co. will comply with the requirements of Section 14(e)
of the Exchange Act and the rules promulgated thereunder and any other
securities laws or regulations in connection with any repayment at the option
of the holder.
ML&Co. may at any time purchase notes at any price or prices in the open
market or otherwise. Notes so purchased by ML&Co. may, at the discretion of
ML&Co., be held, resold or surrendered to the trustee for cancellation.
Interest
Each interest-bearing note will bear interest from the date of issue at
the rate per annum, in the case of a fixed rate note, or pursuant to the
interest rate formula, in the case of a floating rate note, in each case as
stated in the applicable pricing supplement until the principal of the note is
paid or made available for payment. Interest will be payable in arrears on each
interest payment date specified in the applicable pricing supplement on which
an installment of interest is due and payable 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 holder on
the next succeeding regular record date. The regular record date will be the
fifteenth calendar day, whether or not a Business Day, immediately preceding
the related interest payment date.
Fixed Rate Notes
Each fixed rate note will bear interest from, and including, the date of
issue, at the rate per annum stated on the face of the note until the principal
amount of the note 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 the applicable fixed rate notes, to, but excluding,
the applicable 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.
S-7
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 the applicable payment was
due, and no interest will accrue on the amount payable for the period from and
after the interest payment date or Maturity, as the case may be.
Floating Rate Notes
Interest on floating rate notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may be 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,
. the Treasury Rate, or
. any other Interest Rate Basis or interest rate formula that is
specified in the applicable pricing supplement.
A floating rate note may bear interest with respect to two or more
Interest Rate Bases.
Each applicable pricing supplement will specify certain terms of the
floating rate note being delivered, including:
. whether the floating rate note is
. a "Regular Floating Rate Note",
. a "Inverse Floating Rate Note", or
. a "Floating Rate/Fixed Rate Note",
. the Interest Rate Basis or Bases,
. the Initial Interest Rate,
. the Interest Reset Dates,
. the interest payment dates,
. the period to maturity of the instrument or obligation with respect
to which the Interest Rate Basis or Bases will be calculated (the
"Index Maturity"),
. the Maximum Interest Rate and Minimum Interest Rate, if any,
. the number of basis points to be added to or subtracted from the
related Interest Rate Basis or Bases (the "Spread"),
. the percentage of the related Interest Rate Basis or Bases by which
the Interest Rate Basis or Bases will be multiplied to determine the
applicable interest rate (the "Spread Multiplier"), and
. if one or more of the specified Interest Rate Bases is LIBOR, the
LIBOR Currency and the LIBOR Page.
S-8
The interest rate borne by the floating rate notes will be determined as
follows:
Regular Floating Rate Notes. Unless a floating rate note is designated
as a Floating Rate/Fixed Rate Note or an Inverse Floating Rate Note or as
having an Addendum attached or as having "Other Provisions" apply relating to a
different interest rate formula, it will be a "Regular Floating Rate Note" and
will bear interest at the rate determined by reference to the applicable
Interest Rate Basis or Bases:
. plus or minus the applicable Spread, if any, and/or
. multiplied by the applicable Spread Multiplier, if any.
Commencing on the first Interest Reset Date, the rate at which interest on the
Regular Floating Rate Note will be payable will be reset as of each Interest
Reset Date; provided, however, that the interest rate in effect for the period
from the date of issue to the first Interest Reset Date will be the Initial
Interest Rate.
Floating Rate/Fixed Rate Notes. If a floating rate note is designated as
a "Floating Rate/Fixed Rate Note", it will bear interest at the rate determined
by reference to the applicable Interest Rate Basis or Bases:
. plus or minus the applicable Spread, if any, and/or
. multiplied by the applicable Spread Multiplier, if any.
Commencing on the first Interest Reset Date, the rate at which interest on the
Floating Rate/Fixed Rate Note will be payable will be reset as of each Interest
Reset Date; provided, however, that:
. the interest rate in effect for the period from the date of issue to
the first Interest Reset Date will be the Initial Interest Rate, and
. the interest rate in effect commencing on, and including, the date on
which interest begins to accrue on a fixed rate basis to Maturity
will be the Fixed Interest Rate, if the rate is specified in the
applicable pricing supplement, or if no Fixed Interest Rate is
specified, the interest rate in effect on the Floating Rate/Fixed
Rate Note on the day immediately preceding the date on which interest
begins to accrue on a fixed rate basis.
Inverse Floating Rate Notes. If a floating rate note is designated as an
"Inverse Floating Rate Note" it 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 or Bases:
. plus or minus the applicable Spread, if any, and/or
. multiplied by the applicable Spread Multiplier, if any;
provided, however, that the interest rate on the applicable Inverse Floating
Rate Note will not be less than zero percent. Commencing on the first Interest
Reset Date, the rate at which interest on the Inverse Floating Rate
Note is payable will be reset as of each Interest Reset Date; provided,
however, that the interest rate in effect for the period from the date of issue
to the first Interest Reset Date will be the Initial Interest Rate.
The interest rate derived from an Interest Rate Basis will be determined
in accordance with the applicable provisions below. The interest rate in effect
on each day will be based on:
. if the day is an Interest Reset Date, the interest rate determined as
of the Interest Determination Date, as defined below, immediately
preceding the applicable Interest Reset Date, or
. if the day is not an Interest Reset Date, the interest rate
determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
Interest Reset Dates. The applicable pricing supplement will specify the
dates on which the interest rate on the related floating rate note will be
reset, each, an "Interest Reset Date". The Interest Reset Date will be, in the
case of floating rate notes which reset:
. daily--each Business Day;
S-9
. weekly--the Wednesday of each week, with the exception of weekly
reset Floating Rate Notes as to which the Treasury Rate is an
applicable Interest Rate Basis, which will reset the Tuesday of each
week;
. monthly--the third Wednesday of each month, with the exception of
monthly reset Floating Rate Notes as to which the Eleventh District
Cost of Funds Rate is an applicable Interest Rate Basis, which will
reset on the first calendar day of the month;
. quarterly--the third Wednesday of March, June, September and December
of each year;
. semiannually--the third Wednesday of the two months specified in the
applicable pricing supplement; and
. 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
rate of interest will not reset after the applicable date on which interest on
a fixed rate basis begins to accrue.
If any Interest Reset Date for any floating rate note would otherwise be
a day that is not a Business Day, the applicable 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 the Business Day falls in the next succeeding calendar month, then
the applicable Interest Reset Date will be the immediately preceding Business
Day.
Maximum and Minimum Interest Rates. A floating rate note may also have
either or both of the following:
. a maximum numerical limitation, or ceiling, on the rate at which
interest may accrue during any interest period (a "Maximum Interest
Rate"), and
. a minimum numerical limitation, or floor, on the rate at which
interest may accrue during any period (a "Minimum Interest Rate").
The 1993 Indenture is, and any notes issued under the 1993 Indenture 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 ML&Co. 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 these laws. ML&Co. has agreed for the benefit
of the beneficial owners of the notes, 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 notes.
Interest Payments. Each applicable pricing supplement will specify the
dates on which interest will be payable. Each floating rate note will bear
interest from the date of issue at the rates specified in the applicable
floating rate note until the principal of the applicable note is paid or
otherwise made available for payment. The interest payment dates with respect
to floating rate notes will be, in the case of floating rate notes which reset:
. daily, weekly or monthly--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;
. quarterly--the third Wednesday of March, June, September and December
of each year;
. semiannually--the third Wednesday of the two months of each year
specified in the applicable pricing supplement;
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. annually--the third Wednesday of the month of each year specified in
the applicable pricing supplement; and
. 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, the interest payment 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 the
Business Day falls in the next succeeding calendar month, the applicable
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, we
will make the required payment of principal, premium, if any, and interest on
the next succeeding Business Day, and no additional interest on such payment
will accrue for the period from and after the 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. For example,
9.876545%, or .09876545, would be rounded to 9.87655%, or .0987655. All dollar
amounts used in or resulting from any 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, to but excluding the related interest
payment date or Maturity.
With respect to each floating rate note, accrued interest is calculated
by multiplying its principal amount by an accrued interest factor. The accrued
interest factor is computed by adding the interest factor calculated for each
day in the period for which accrued interest is being calculated.
. 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, the interest
factor for each day will be computed by dividing the interest rate
applicable to each day by 360.
. In the case of notes for which the Interest Rate Basis is the CMT
Rate or the Treasury Rate, the interest factor for each day will be
computed by dividing the interest rate applicable to each day by the
actual number of days in the year.
. 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.
Interest Determination Dates. The interest rate applicable to each
interest reset period commencing on the Interest Reset Date with respect to
that interest reset period will be the rate determined as of the applicable
"Interest Determination Date".
. The Interest Determination Date with respect to the Federal Funds
Rate and the Prime Rate will be the Business Day immediately
preceding the related Interest Reset 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 the related 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 the related Interest Reset Date on which the
Federal Home Loan Bank of San Francisco publishes the Index, as
defined below.
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. The Interest Determination Date with respect to LIBOR will be the
second London Banking Day preceding the related Interest Reset Date.
. The Interest Determination Date with respect to the Treasury Rate
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 the
auction may be held on the preceding Friday; provided, however, that
if an auction is held on the Friday of the week preceding the
Interest Reset Date, the related Interest Determination Date will be
the preceding Friday.
. 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 before the related Interest Reset Date for
the applicable floating rate note on which each Interest Reset Basis
is determinable. Each Interest Rate Basis will be determined on the
Interest Determination Date, and the applicable interest rate will
take effect on the related Interest Reset Date.
Calculation Date. MLPF&S 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 that 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:
. the tenth calendar day after the applicable Interest Determination
Date, or, if the tenth calendar day is not a Business Day, the next
succeeding Business Day, or
. the Business Day immediately preceding the applicable Interest
Payment Date or Maturity, as the case may be.
CD Rate. "CD Rate" means:
(1)the rate on the particular Interest Determination Date for
negotiable United States dollar certificates of deposit having the
Index Maturity specified in the applicable pricing supplement as
published in H.15(519), as defined below, under the caption "CDs
(secondary market)", or
(2)if the rate referred to in clause (1) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date for negotiable
United States dollar certificates of deposit of the particular
Index Maturity as published in H.15 Daily Update, as defined
below, or other recognized electronic source used for the purpose
of displaying the applicable rate, under the caption "CDs
(secondary market)", or
(3)if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date calculated by
the calculation agent as the arithmetic mean of the secondary
market offered rates as of 10:00 A.M., New York City time, on that
Interest Determination Date, of three leading non-bank dealers in
negotiable United States dollar certificates of deposit in The
City of New York, which may include the agent or its affiliates,
selected by the calculation agent for negotiable United States
dollar certificates of deposit of major United States money market
banks for negotiable United States certificates of deposit with a
remaining maturity closest to the particular Index Maturity in an
amount that is representative for a single transaction in that
market at that time, or
(4)if the dealers selected by the calculation agent are not quoting
as mentioned in clause (3), the CD Rate in effect on the
particular Interest Determination Date.
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"H.15(519)" means the weekly statistical release designated as H.15(519),
or any successor publication, published by the Board of Governors of the
Federal Reserve System.
"H.15 Daily Update" means the daily update of H.15(519), available
through the world-wide-web site of the Board of Governors of the Federal
Reserve System at http://www.federalreserve.gov/releases/h15/update, or any
successor site or publication.
CMT Rate. "CMT Rate" means:
(1)if CMT Moneyline Telerate Page 7051 is specified in the applicable
pricing supplement:
(a)the percentage equal to the yield for United States Treasury
securities at "constant maturity" having the Index Maturity
specified in the applicable pricing supplement as published in
H.15(519) under the caption "Treasury Constant Maturities", as
the yield is displayed on Moneyline Telerate, or any successor
service, on page 7051, or any other page as may replace page
7051 on that service ("Moneyline Telerate Page 7051"), for the
particular Interest Determination Date, or
(b)if the rate referred to in clause 1(a) does not appear on
Moneyline Telerate Page 7051, the percentage equal to the yield
for United States Treasury securities at "constant maturity"
having the particular Index Maturity and for the particular
Interest Determination Date as published in H.15(519) under the
caption "Treasury Constant Maturities", or
(c)if the rate referred to in clause 1(b) does not appear in
H.15(519), the rate on the particular Interest Determination
Date for the period of the particular Index Maturity as may
then be published by either the Federal Reserve System Board of
Governors or the United States Department of the Treasury that
the calculation agent determines to be comparable to the rate
which would otherwise have been published in H.15(519), or
(d)if the rate referred to in clause 1(c) is not published, the
rate on the particular Interest Determination Date calculated
by the calculation agent as a yield to maturity based on the
arithmetic mean of the secondary market bid prices at
approximately 3:30 P.M., New York City time, on that Interest
Determination Date of three leading primary United States
government securities dealers in The City of New York, which
may include the agent or its affiliates (each, a "Reference
Dealer"), selected by the calculation agent from five 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 United States Treasury securities with
an original maturity equal to the particular Index Maturity, a
remaining term to maturity no more than 1 year shorter than
that Index Maturity and in a principal amount that is
representative for a single transaction in the securities in
that market at that time, or
(e)if fewer than five but more than two of the prices referred to
in clause 1(d) are provided as requested, the rate on the
particular Interest Determination Date calculated by the
calculation agent based on the arithmetic mean of the bid
prices obtained and neither the highest nor the lowest of the
quotations will be eliminated, or
(f)if fewer than three prices referred to in clause 1(d) are
provided as requested, the rate on the particular Interest
Determination Date calculated by the calculation agent as a
yield to maturity based on the arithmetic mean of the secondary
market bid prices as of approximately 3:30 P.M., New York City
time, on that Interest Determination Date of three Reference
Dealers selected by the calculation agent from five 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 United States Treasury securities with
an original maturity greater than the
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particular Index Maturity, a remaining term to maturity closest
to that Index Maturity and in a principal amount that is
representative for a single transaction in the securities in
that market at that time, or
(g)if fewer than five but more than two prices referred to in
clause 1(f) are provided as requested, the rate on the
particular Interest Determination Date calculated by the
calculation agent based on the arithmetic mean of the bid
prices obtained and neither the highest nor the lowest of the
quotations will be eliminated, or
(h)if fewer than three prices referred to in clause 1(f) are
provided as requested, the CMT Rate in effect on the particular
Interest Determination Date.
(2)if CMT Moneyline Telerate Page 7052 is specified in the applicable
pricing supplement:
(a)the percentage equal to the one-week or one-month, as specified
in the applicable pricing supplement, average yield for United
States Treasury securities at "constant maturity" having the
Index Maturity specified in the applicable pricing supplement
as published in H.15(519) opposite the caption "Treasury
Constant Maturities", as the yield is displayed on Moneyline
Telerate, or any successor service, on page 7052, or any other
page as may replace page 7052 on that service ("Moneyline
Telerate Page 7052"), for the week or month, as applicable,
ended immediately preceding the week or month, as applicable,
in which the particular Interest Determination Date falls, or
(b)if the rate referred to in clause 2(a) does not appear on
Moneyline Telerate Page 7052, the percentage equal to the
one-week or one-month, as specified in the applicable pricing
supplement, average yield for United States Treasury securities
at "constant maturity" having the particular Index Maturity and
for the week or month, as applicable, preceding the particular
Interest Determination Date as published in H.15(519) opposite
the caption "Treasury Constant Maturities," or
(c)if the rate referred to in clause 2(b) does not appear in
H.15(519), the one-week or one-month, as specified in the
applicable pricing supplement, average yield for United States
Treasury securities at "constant maturity" having the
particular Index Maturity as otherwise announced by the Federal
Reserve Bank of New York for the week or month, as applicable,
ended immediately preceding the week or month, as applicable,
in which the particular Interest Determination Date falls, or
(d)the rate referred to in clause 2(c) is not published, the rate
on the particular Interest Determination Date calculated by the
calculation agent as a yield to maturity based on the
arithmetic mean of the secondary market bid prices at
approximately 3:30 P.M., New York City time, on that Interest
Determination Date of three Reference Dealers selected by the
calculation agent from five 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
United States Treasury securities with an original maturity
equal to the particular Index Maturity, a remaining term to
maturity no more than 1 year shorter than that Index Maturity
and in a principal amount that is representative for a single
transaction in the securities in that market at that time, or
(e)if fewer than five but more than two of the prices referred to
in clause 2(d) are provided as requested, the rate on the
particular Interest Determination Date calculated by the
calculation agent based on the arithmetic mean of the bid
prices obtained and neither the highest nor the lowest of the
quotations will be eliminated, or
(f)if fewer than three prices referred to in clause 2(d) are
provided as requested, the rate on the particular Interest
Determination Date calculated by the calculation agent as a
yield to
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maturity based on the arithmetic mean of the secondary market
bid prices as of approximately 3:30 P.M., New York City time,
on that Interest Determination Date of three Reference Dealers
selected by the calculation agent from five 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 United States Treasury securities with an original
maturity greater than the particular Index Maturity, a
remaining term to maturity closest to that Index Maturity and
in a principal amount that is representative for a single
transaction in the securities in that market at that time, or
(g)if fewer than five but more than two prices referred to in
clause 2(f) are provided as requested, the rate on the
particular Interest Determination Date calculated by the
calculation agent based on the arithmetic mean of the bid
prices obtained and neither the highest or the lowest of the
quotations will be eliminated, or
(h)if fewer than three prices referred to in clause 2(f) are
provided as requested, the CMT Rate in effect on the particular
Interest Determination Date.
If two United States Treasury securities with an original maturity
greater than the Index Maturity specified in the applicable pricing supplement
have remaining terms to maturity equally close to the particular Index
Maturity, the quotes for the United States Treasury security with the shorter
original remaining term to maturity will be used.
Commercial Paper Rate. "Commercial Paper Rate" means:
(1)the Money Market Yield, as defined below, on the particular
Interest Determination Date of the rate for commercial paper
having the Index Maturity specified in the applicable pricing
supplement as published in H.15(519) under the caption "Commercial
Paper-Nonfinancial", or
(2)if the rate referred to in clause (1) is not published by 3:00
P.M., New York City time, on the related calculation date, the
Money Market Yield of the rate on the particular Interest
Determination Date for commercial paper having the particular
Index Maturity as published in H.15 Daily Update, or other
recognized electronic source used for the purpose of displaying
the applicable rate, under the caption "Commercial
Paper--Nonfinancial", or
(3)if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date calculated by
the calculation agent as the Money Market Yield of the arithmetic
mean of the offered rates at approximately 11:00 A.M., New York
City time, on that Interest Determination Date of three leading
dealers of United States dollar commercial paper in The City of
New York, which may include the agent and its affiliates, selected
by the calculation agent for commercial paper having the
particular Index Maturity placed for industrial issuers whose bond
rating is "Aa", or the equivalent, from a nationally recognized
statistical rating organization, or
(4)if the dealers selected by the calculation agent are not quoting
as mentioned in clause (3), the Commercial Paper Rate in effect on
the particular Interest Determination Date.
"Money Market Yield" means a yield calculated in accordance with the
following formula and expressed as a percentage:
D X 360
Money Market Yield = ----------- x 100
360-(D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the applicable interest period.
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Eleventh District Cost of Funds Rate. "Eleventh District Cost of Funds
Rate" means:
(1)the rate equal to the monthly weighted average cost of funds for
the calendar month immediately preceding the month in which the
particular Interest Determination Date falls as set forth under
the caption "11th District" on the display on Moneyline Telerate,
or any successor service, on page 7058 or any other page as may
replace page 7058 on that service ("Moneyline Telerate Page 7058")
as of 11:00 A.M., San Francisco time, on that Interest
Determination Date, or
(2)if the rate referred to in clause (1) does not appear on Moneyline
Telerate Page 7058, 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
Federal Home Loan Bank of San Francisco as the cost of funds for
the calendar month immediately preceding that Interest
Determination Date, or
(3)if the Federal Home Loan Bank of San Francisco fails to announce
the Index on or prior to the particular Interest Determination
Date for the calendar month immediately preceding that Interest
Determination Date, the Eleventh District Cost of Funds Rate in
effect on the particular Interest Determination Date.
Federal Funds Rate. "Federal Funds Rate" means:
(1)the rate on the particular Interest Determination Date for United
States dollar federal funds as published in H.15(519) under the
caption "Federal Funds (Effective)" and displayed on Moneyline
Telerate or any successor service on page 120 or any other page as
may replace page 120 on that service ("Moneyline Telerate Page
120"), or
(2)if the rate referred to in clause (1) does not appear on Moneyline
Telerate Page 120 or is not published by 3:00 P.M., New York City
time, on the related calculation date, the rate on the particular
Interest Determination Date for United States dollar federal funds
as published in H.15 Daily Update, or other recognized electronic
source used for the purpose of displaying the applicable rate,
under the caption "Federal Funds (Effective)", or
(3)if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date calculated by
the calculation agent as the arithmetic mean of the rates for the
last transaction in overnight United States dollar federal funds
arranged by three leading brokers of United States dollar federal
funds transactions in The City of New York, which may include the
agent or its affiliates, selected by the calculation agent prior
to 9:00 A.M., New York City time, on that Interest Determination
Date, or
(4)if the brokers selected by the calculation agent are not quoting
as mentioned in clause (3), the Federal Funds Rate in effect on
the particular Interest Determination Date.
LIBOR. "LIBOR" means:
(1)if "LIBOR Moneyline Telerate" is specified in the applicable
pricing supplement or if neither "LIBOR Reuters" nor "LIBOR
Moneyline Telerate" is specified in the applicable pricing
supplement as the method for calculating LIBOR, the rate for
deposits in the LIBOR Currency, as defined below, having the Index
Maturity specified in the applicable pricing supplement,
commencing on the related Interest Reset Date, that appears on the
LIBOR Page, as defined below, as of 11:00 A.M., London time, on
the particular Interest Determination Date, or
(2)if "LIBOR Reuters" is specified in the applicable pricing
supplement, the arithmetic mean of the offered rates calculated by
the calculation agent, or the offered rate if the LIBOR Page by
its terms provides only for a single rate, for deposits in the
LIBOR Currency having the
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particular Index Maturity, commencing on the related Interest
Reset Date, that appear or appears, as the case may be, on the
LIBOR Page as of 11:00 A.M., London time, on the particular
Interest Determination Date, or
(3)if fewer than two offered rates appear, or no rate appears, as the
case may be, on the particular Interest Determination Date on the
LIBOR Page as specified in clause (1) or (2), as applicable, the
rate calculated by the calculation agent as the arithmetic mean of
at least two offered quotations obtained by the calculation agent
after requesting the principal London offices of each of four
major reference banks, which may include affiliates of the agent,
in the London interbank market to provide the calculation agent
with its offered quotation for deposits in the LIBOR Currency for
the period of the particular Index Maturity, commencing on the
related Interest Reset Date, to prime banks in the London
interbank market at approximately 11:00 A.M., London time, on that
Interest Determination Date and in a principal amount that is
representative for a single transaction in the LIBOR Currency in
that market at that time, or
(4)if fewer than two offered quotations referred to in clause (3) are
provided as requested, the rate calculated by the calculation
agent as the arithmetic mean of the rates quoted at approximately
11:00 A.M., in the applicable Principal Financial Center, on the
particular Interest Determination Date by three major banks, which
may include affiliates of the agent, in that Principal Financial
Center selected by the calculation agent for loans in the LIBOR
Currency to leading European banks, having the particular Index
Maturity and in a principal amount that is representative for a
single transaction in the LIBOR Currency in that market at that
time, or
(5)if the banks selected by the calculation agent are not quoting as
mentioned in clause (4), LIBOR in effect on the particular
Interest Determination Date.
"LIBOR Currency" means the currency specified in the applicable pricing
supplement as to which LIBOR will be calculated or, if no currency is specified
in the applicable pricing supplement, United States dollars.
"LIBOR Page" means either:
. if "LIBOR Moneyline Telerate" is specified in the applicable
pricing supplement or neither "LIBOR Reuters" nor "LIBOR
Moneyline Telerate" is specified in the applicable pricing
supplement as the method for calculating LIBOR, the display on
Moneyline Telerate or any successor service on the page
specified in the pricing supplement or any page as may replace
the specified page on that service for the purpose of
displaying the London interbank rates of major banks for the
LIBOR Currency, or
. if "LIBOR Reuters" is specified in the applicable pricing
supplement, the display on the Reuter Monitor Money Rates
Service or any successor service on the page specified in the
applicable pricing supplement or any other page as may replace
the specified page on that service for the purpose of
displaying the London interbank rates of major banks for the
LIBOR Currency.
Prime Rate. "Prime Rate" means:
(1)the rate on the particular Interest Determination Date as
published in H.15(519) under the caption "Bank Prime Loan", or
(2)if the rate referred to in clause (1) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date as published in
H.15 Daily Update, or other recognized electronic source used for
the purpose of displaying the applicable rate, under the caption
"Bank Prime Loan", or
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(3)if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date calculated by
the calculation agent as the arithmetic mean of the rates of
interest publicly announced by each bank that appears on the
Reuters Screen US PRIME 1 Page, as defined below, as the
applicable bank's prime rate or base lending rate as of 11:00
A.M., New York City time, on that Interest Determination Date, or
(4)if fewer than four rates referred to in clause (3) are published
by 3:00 P.M., New York City time, on the related calculation date,
the rate on the particular Interest Determination Date calculated
by the calculation agent as the arithmetic mean of the prime rates
or base lending 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 that Interest Determination Date by three major banks,
which may include affiliates of the agent, in The City of New York
selected by the calculation agent, or
(5)if the banks selected by the calculation agent are not quoting as
mentioned in clause (4), the Prime Rate in effect on the
particular Interest Determination Date.
"Reuters Screen US PRIME 1 Page" means the display on the Reuter Monitor
Money Rates Service or any successor service on the "US PRIME 1" page or any
other page as may replace that page on that service for the purpose of
displaying prime rates or base lending rates of major United States banks.
Treasury Rate. "Treasury Rate" means:
(1)the rate from the auction held on the particular Interest
Determination Date (the "Auction") of direct obligations of the
United States ("Treasury Bills") having the Index Maturity
specified in the applicable pricing supplement under the caption
"INVESTMENT RATE" on the display on Moneyline Telerate or any
successor service on page 56 or any other page as may replace page
56 on that service ("Moneyline Telerate Page 56") or page 57 or
any other page as may replace page 57 on that service ("Moneyline
Telerate Page 57"), or
(2)if the rate referred to in clause (1) is not published by 3:00
P.M., New York City time, on the related calculation date, the
Bond Equivalent Yield, as defined below, of the rate for the
applicable Treasury Bills as published in H.15 Daily Update, or
other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption "U.S. Government
Securities/Treasury Bills/Auction High", or
(3)if the rate referred to in clause (2) is not published by 3:00
P.M., New York City time, on the related calculation date, the
Bond Equivalent Yield of the auction rate of the applicable
Treasury Bills as announced by the United States Department of the
Treasury, or
(4)if the rate referred to in clause (3) is not announced by the
United States Department of the Treasury, or if the Auction is not
held, the Bond Equivalent Yield of the rate on the particular
Interest Determination Date of the applicable Treasury Bills as
published in H.15(519) under the caption "U.S. Government
Securities/Treasury Bills/Secondary Market", or
(5)if the rate referred to in clause (4) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date of the
applicable Treasury Bills as published in H.15 Daily Update, or
other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption "U.S. Government
Securities/Treasury Bills/Secondary Market", or
(6)if the rate referred to in clause (5) is not published by 3:00
P.M., New York City time, on the related calculation date, the
rate on the particular Interest Determination Date calculated by
the calculation agent as the Bond Equivalent Yield of the
arithmetic mean of the secondary market bid rates, as of
approximately 3:30 P.M., New York City time, on that Interest
Determination Date, of three primary United States government
securities dealers, which may include the
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agent or its affiliates, selected by the calculation agent, for
the issue of Treasury Bills with a remaining maturity closest to
the particular Index Maturity, or
(7)if the dealers selected by the calculation agent are not quoting
as mentioned in clause (6), the Treasury Rate in effect on the
particular Interest Determination Date.
"Bond Equivalent Yield" means a yield calculated in accordance with the
following formula and expressed as a percentage:
D X N
Bond Equivalent Yield = ----------- X 100
360-(D X M)
where "D" refers to the applicable per annum rate for Treasury Bills quoted on
a bank discount basis and expressed as a decimal, "N" refers to 365 or 366, as
the case may be, and "M" refers to the actual number of days in the applicable
interest period.
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, the calculation of the interest rate applicable to a
floating rate note, the applicable interest payment dates, the stated maturity
date, any redemption or repayment provisions or any other matter relating to
the applicable notes may be modified by the terms as specified under "Other
Provisions" on the face of the applicable notes or in an Addendum relating to
the applicable notes, if so specified on the face of the applicable notes and
in the applicable pricing supplement.
Original Issue Discount Notes
ML&Co. may from time to time offer notes at a price less than their
redemption price at Maturity, resulting in the applicable notes being treated
as if they were issued with original issue discount for federal income tax
purposes ("Original Issue Discount Notes"). Original Issue Discount Notes may
currently pay no interest or interest at a rate which at the time of issuance
is below market rates. Additional considerations relating to any Original Issue
Discount Notes will be specified in the applicable pricing supplement.
Amortizing Notes
ML&Co. may from time to time offer notes ("Amortizing Notes"), with
amounts of principal and interest payable in installments over the term of the
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 on the Amortizing Notes and then to
the reduction of the unpaid principal amount of the Amortizing Notes. Further
information concerning additional terms and conditions of any issue of
Amortizing Notes will be specified in the applicable pricing supplement. A
table setting forth repayment information in respect of each Amortizing Note
will be specified in the applicable pricing supplement.
Linked Notes
ML&Co. may from time to time offer notes ("Linked Notes") the principal
value of which at Maturity will be determined by reference to:
(a)one or more equity or debt securities, including, but not limited
to, the price or yield of such securities,
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(b)any statistical measure of economic or financial performance,
including, but not limited to, any currency, consumer price or
mortgage index, or
(c)the price or value of any commodity or any other item or index or
any combination,
(collectively, the "Linked Securities"). The payment or delivery of any
consideration on any Linked Note at Maturity will be determined by the decrease
or increase, as applicable, in the price or value of the applicable Linked
Securities. The terms of and any additional considerations, including any
material tax consequences, relating to any Linked Notes will be specified in
the applicable pricing supplement.
Extendible Maturity Notes
ML&Co. may from time to time offer notes ("Extendible Maturity Notes")
with the option to extend the maturity of the notes to one or more dates
indicated in the notes and the applicable pricing supplement. The terms of and
any additional considerations relating to any Extendible Maturity Notes will be
specified in the applicable pricing supplement.
Book-Entry Notes
Description of the Global Securities
Upon issuance, all notes in book-entry form having the same date of
issue, Maturity and otherwise having identical terms and provisions will be
represented by one or more fully registered global notes (the "Global Notes").
Each Global Note will be deposited with, or on behalf of, The Depository Trust
Company as depository registered in the name of the depository or a nominee of
the depository. Unless and until it is exchanged in whole or in part for notes
in certificated form, no Global Note may be transferred except as a whole by
the depository to a nominee of the depository or by a nominee of the depository
to the depository or another nominee of the depository or by the depository or
any such nominee to a successor of the depository or a nominee of the successor.
DTC Procedures
The following is based on information furnished by the depository:
The depository will act as securities depository for the notes in
book-entry form. The notes in book-entry form will be issued as fully
registered securities registered in the name of Cede & Co., the depository's
partnership nominee. One fully registered Global Note will be issued for each
issue of notes in book-entry form, each in the aggregate principal amount of
the issue, and will be deposited with the depository. If, however, the
aggregate principal amount of any issue exceeds $500,000,000, one Global Note
will be issued with respect to each $500,000,000 of principal amount and an
additional Global Note will be issued with respect to any remaining principal
amount of the issue.
The depository is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, 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 Exchange
Act. The depository holds securities that its participants deposit with the
depository. The depository also facilitates the settlement among participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct participants of the depository include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations. The depository is owned by a number of its direct participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc.,
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and the National Association of Securities Dealers, Inc. Access to the
depository's system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a direct participant, either directly or indirectly. The
rules applicable to the depository and its participants are on file with the
SEC.
Purchasers of notes in book-entry form under the depository's system must
be made by or through direct participants, which will receive a credit for
those notes in book-entry form on the depository's records. The ownership
interest of each actual purchaser of each note in book-entry form represented
by a Global Note is, in turn, to be recorded on the records of direct
participants and indirect participants. Beneficial owners of notes in
book-entry form 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 direct participants or indirect
participants through which the beneficial owner entered into the transaction.
Transfers of ownership interests in a Global Note representing notes in
book-entry form are to be accomplished by entries made on the books of
participants acting on behalf of beneficial owners. Beneficial owners of a
Global Note representing notes in book-entry form will not receive notes in
certificated form representing their ownership interests therein, except in the
event that use of the book-entry system for such notes in book-entry form is
discontinued.
To facilitate subsequent transfers, all Global Notes representing notes
in book-entry form which are deposited with, or on behalf of, the depository
are registered in the name of the depository's nominee, Cede & Co. The deposit
of Global Notes with, or on behalf of, the depository and their registration in
the name of Cede & Co. effect no change in beneficial ownership. The depository
has no knowledge of the actual beneficial owners of the Global Notes
representing the notes in book-entry form; the depository's records reflect
only the identity of the direct participants to whose accounts such notes in
book-entry form are credited, which may or may not be the beneficial owners.
The participants will remain responsible for keeping account of their holdings
on behalf of their customers.
Conveyance of notices and other communications by the depository to
direct participants, by direct participants to indirect participants, and by
direct 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.
Neither the depository nor Cede & Co. will consent or vote with respect
to the Global Notes representing the notes in book-entry form. Under its usual
procedures, the depository mails an omnibus proxy to ML&Co. as soon as possible
after the applicable record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those direct participants, identified in a
listing attached to the omnibus proxy, to whose accounts the notes in
book-entry form are credited on the applicable record date.
ML&Co. will make principal, premium, if any, and/or interest, if any,
payments on the Global Notes representing the notes in book-entry form in
immediately available funds to the depository. The depository's practice is to
credit direct participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the depository's records
unless the depository has reason to believe that it will not receive payment on
the applicable payment date. Payments by participants to beneficial owners will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name", and will be the responsibility of the applicable participant
and not of the depository, the trustee or ML&Co., subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal, premium, if any, and/or interest, if any, to the depository is the
responsibility of ML&Co. and the trustee, disbursement of payments to direct
participants will be the responsibility of the depository, and disbursement of
payments to the beneficial owners will be the responsibility of direct
participants and indirect participants.
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If applicable, redemption notices shall be sent to Cede & Co. If less
than all of the notes in book-entry form of like tenor and terms are being
redeemed, the depository's practice is to determine by lot the amount of the
interest of each direct participant in the issue to be redeemed.
A beneficial owner will give notice of any option to elect to have its
notes in book-entry form repaid by ML&Co., through its participant, to the
trustee, and will effect delivery of the applicable notes in book-entry form by
causing the direct participant to transfer the participant's interest in the
Global Note representing notes in book-entry form, on the depository's records,
to the trustee. The requirement for physical delivery of notes in book-entry
form in connection with a demand for repayment will be deemed satisfied when
the ownership rights in the Global Note or Notes representing such notes in
book-entry form are transferred by direct participants on the depository's
records.
The depository may discontinue providing its services as securities
depository with respect to the notes in book-entry form at any time by giving
reasonable notice to ML&Co. or the trustee. In the event that a successor
securities depository is not obtained, notes in certificated form are required
to be printed and delivered.
ML&Co. may decide to discontinue use of the system of book-entry
transfers through the depository or a successor securities depository. In that
event, notes in certificated form will be printed and delivered.
The laws of some states may require that certain purchasers of securities
take physical delivery of 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 1993 Indenture. Except as provided below,
beneficial owners of a Global Note will not be entitled to have the notes
represented by a 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 1993 Indenture.
Accordingly, each person owning a beneficial interest in a Global Note must
rely on the procedures of the depository and, if that person is not a
participant, on the procedures of the participant through which that person
owns its interest, to exercise any rights of a holder under the 1993 Indenture.
ML&Co. understands that under existing industry practices, in the event that
ML&Co. requests any action of holders or that an owner of a beneficial interest
in a Global Note desires to give or take any action which a holder is entitled
to give or take under the 1993 Indenture, the depository would authorize the
participants holding the relevant beneficial interests to give or take the
desired action, and the participants would authorize beneficial owners owning
through the participants to give or take the desired action or would otherwise
act upon the instructions of beneficial owners.
Exchange for Notes in Certificated Form
If:
(a)the depository is at any time unwilling or unable to continue as
depository and a successor depository is not appointed by ML&Co.
within 60 days,
(b)ML&Co. executes and delivers to the trustee a company order to the
effect that the Global Notes shall be exchangeable, or
(c)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 certificated
form of like tenor and of an equal aggregate principal amount, in denominations
of $1,000 and integral multiples of $1,000. The certificated notes will be
registered in the name or names as the depository instructs the trustee. It is
expected that instructions may
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be based upon directions received by the depository from participants with
respect to ownership of beneficial interests in Global Notes.
The information in this section concerning the depository and the
depository's system has been obtained from sources that ML&Co. believes to be
reliable, but ML&Co. takes no responsibility for the accuracy of the
information.
UNITED STATES FEDERAL INCOME TAXATION
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" or as part of a "hedging" or
"conversion" transaction 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 in this prospectus, the term "U.S. Holder" means a beneficial
owner of a note that is for United States Federal income tax purposes:
(1)a citizen or resident of the United States,
(2)a corporation or a partnership (including an entity treated as a
corporation or a partnership for United States Federal income tax
purposes) created or organized in or under the laws of the United
States, any state thereof or the District of Columbia (unless, in
the case of a partnership, Treasury regulations are adopted that
provide otherwise),
(3)an estate whose income is subject to United States Federal income
tax regardless of its source,
(4)a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one
or more United States persons have the authority to control all
substantial decisions of the trust, or
(5)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.
Certain trusts not described in clause (4) above in existence on August 20,
1996 that elect to be treated as a United States person will also be a U.S.
Holder for purposes of the following discussion. 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 (the
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"OID Regulations") released by the Internal Revenue Service on January 27,
1994, as amended on June 11, 1996, under the original issue discount provisions
of 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 the note). The issue price of each note of an issue of notes equals
the first price at which a substantial amount of the 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 the note (e.g., notes with
teaser rates or interest holidays), and if the greater of either the resulting
foregone interest on the note or any "true" discount on the 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 the 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 the
Discount Note for each day during the taxable year (or portion of the taxable
year) on which the U.S. Holder held the 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
. 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
. 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
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(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.
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
. 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
. it provides for stated interest, paid or compounded at least
annually, at current values of:
. one or more qualified floating rates,
. a single fixed rate and one or more qualified floating rates,
. a single objective rate, or
. 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 .65 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 .65 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 that is based on objective financial or economic information. A
rate will not qualify as an objective rate if it is based on information that
is within the control of the issuer (or a related party) or that is unique to
the circumstances of the issuer (or a related party), such as dividends,
profits, or the value of the issuer's stock (although a rate does not fail to
be an objective rate merely because it is based on the credit quality of the
issuer). 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 qualified floating rate. The OID Regulations
also provide that if a Variable Note provides for stated interest at a fixed
rate for an initial period of one year or less 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, and
if the interest on a Variable Note is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually, then
all stated interest on the Variable Note 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 Variable Note's
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stated principal amount) in excess of a specified de minimis amount. The amount
of qualified stated interest and the amount of original issue discount, if any,
that accrues during an accrual period on such a Variable Note is determined
under the rules applicable to fixed rate debt instruments by assuming that the
variable rate is a fixed rate equal to
(1)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
(2)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.
The qualified stated interest allocable to an accrual period is increased (or
decreased) if the interest actually paid during an accrual period exceeds (or
is less than) the interest assumed to be paid during the accrual period
pursuant to the foregoing rules.
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.
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. On June 11, 1996, the Treasury Department
issued final regulations (the "CPDI Regulations") concerning the proper United
States Federal income tax treatment of contingent payment debt instruments. In
general, the CPDI Regulations would cause the timing and character of income,
gain or loss reported on a contingent payment debt instrument to substantially
differ from the timing and character of income, gain or loss reported on a
contingent payment debt instrument under general principles of prior United
States Federal income tax law. Specifically, the CPDI Regulations generally
require a U.S. Holder of such an instrument to include future contingent and
noncontingent interest payments in income as such interest accrues based upon a
projected payment schedule. Moreover, in general,
S-26
under the CPDI Regulations, any gain recognized by a U.S. Holder on the sale,
exchange, or retirement of a contingent payment debt instrument will be treated
as ordinary income and all or a portion of any loss realized could be treated
as ordinary loss as opposed to capital loss (depending upon the circumstances).
The CPDI Regulations apply to debt instruments issued on or after August 13,
1996. 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.
ML&Co. may issue notes which;
. may be redeemable at the option of ML&Co. prior to their stated
maturity (a "call option") and/or
. 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 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 the note at a "market discount", unless such market discount is less
than a specified de minimis amount.
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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:
. the amount of such payment or realized gain or
. the market discount which has not previously been included in
income and is treated as having accrued on the 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.
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, the 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 the U.S. Holder's adjusted tax basis in the note. A U.S.
Holder's adjusted tax basis in a note generally will equal the 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 the note. Such gain or loss
generally will be long-term capital gain or loss if the note were held for more
than one year. Long-term capital gains of individuals are subject to reduced
capital gain rates while short-term capital gains are subject to ordinary
income rates. The deductibility of capital losses is subject to certain
limitations. Prospective investors should consult their own tax advisors
concerning these tax law provisions.
Non-U.S. Holders
A non-U.S. Holder who is an individual or corporation (or an entity
treated as a corporation for federal income tax purposes) holding notes on its
own behalf will not be subject to United States Federal income taxes
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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 ML&Co., a controlled foreign corporation
related to ML&Co. or a bank receiving interest described in section
881(c)(3)(A) of the Code. To qualify for the exemption from taxation, the
Withholding Agent, as defined below, must have received a statement from the
individual or corporation that:
. is signed under penalties of perjury by the beneficial owner of the
note,
. certifies that such owner is not a U.S. Holder, and
. provides the beneficial owner's name and address.
A "Withholding Agent" is any person, U.S. or foreign, that has control,
receipt or custody of an amount subject to withholding or who can disburse or
make payments of an amount subject to withholding. Generally, the
aforementioned statement is made on an IRS Form W-8BEN ("W-8BEN"), which is
effective for the period starting on the date the form is signed and ending on
the last day of the third succeeding calendar year, unless a change in
circumstances makes any information on the form incorrect. Notwithstanding the
preceding sentence, a W-8BEN with a U.S. taxpayer identification number will
remain effective until a change in circumstances makes any information on the
form incorrect, provided that the Withholding Agent reports at least annually
to the beneficial owner on IRS Form 1042-S. The beneficial owner must inform
the Withholding Agent within 30 days of a change in circumstances that makes
any information on the W-8BEN incorrect and must furnish a new W-8BEN. A holder
of a note which is not an individual or corporation (or an entity treated as a
corporation for Federal income tax purposes) holding the notes on its own
behalf may have substantially increased reporting requirements. In particular,
in the case of notes held by a foreign partnership (or foreign trust or
estate), the partnership (or trust or estate) will be required to provide the
certification from each of its partners (or beneficiaries), and the partnership
(or trust or estate) will be required to provide certain additional information.
A non-U.S. Holder whose income with respect to its investment in a note
is effectively connected with the conduct of a U.S. trade or business would
generally be taxed as if the holder was a U.S. person provided the holder
provides to the Withholding Agent an IRS Form W-8ECI.
Certain securities clearing organizations, and other entities who are not
beneficial owners, may be able to provide a signed statement to the Withholding
Agent. However, in such case, the signed statement may require a copy of the
beneficial owner's W-8BEN (or substitute form).
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, unless such non-U.S. Holder is an individual who is
present in the United States for 183 days or more in the taxable year of the
disposition and such gain is derived from sources within the United States.
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
ML&Co. 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.
Backup Withholding
Backup withholding of United States Federal income tax at a current rate
of 30% (which rate is scheduled to be reduced periodically through 2006) 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.
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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 backup withhold on the entire purchase price, unless either:
. the broker determines that the seller is a corporation or other
exempt recipient or
. 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:
. the broker determines that the seller is an exempt recipient or
. 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 normally be made
on an IRS Form W-8BEN 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
ML&Co. is offering the notes for sale on a continuing basis through the
agent, MLPF&S, who will purchase the notes, as principal, from ML&Co., 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 of the note 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
ML&Co. and the agent, the agent may utilize its reasonable efforts on an agency
basis to solicit offers to purchase the notes at 100% of the principal amount
of the notes, unless otherwise specified in an applicable pricing supplement.
ML&Co. will pay a commission to the agent, ranging from .050% to .600% of the
principal amount of a note, depending upon its stated maturity or, with respect
to a note for which the stated maturity is in excess of 30 years, a commission
as agreed upon by ML&Co. and the agent at the time of sale, sold through the
agent.
The agent may sell notes it has purchased from ML&Co. as principal to
other dealers for resale to investors, and may allow any portion of the
discount received in connection with such purchases from ML&Co. 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.
ML&Co. reserves the right to withdraw, cancel or modify the offer made by
this prospectus supplement without notice and may reject orders, in whole or in
part, whether placed directly with ML&Co. or through the agent. The agent will
have the right, in its discretion reasonably exercised, to reject in whole or
in part any offer to purchase notes received by the agent.
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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 United States dollars or the Specified Currency, as the case
may be, in The City of New York on the date of settlement.
No note will have an established trading market when issued. Unless
specified in the applicable pricing supplement, ML&Co. will not list the notes
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. ML&Co. has agreed to indemnify the agent
against or to make contributions relating to certain civil liabilities,
including liabilities under the Securities Act, or to contribute to payments
the agent may be required to make in respect thereof. ML&Co. has agreed to
reimburse the agent for certain expenses.
From time to time, ML&Co. may issue and sell other securities described
in the accompanying prospectus, and the amount of notes that ML&Co. may offer
and sell under this prospectus supplement may be reduced as a result of such
sales.
In connection with the offering of notes purchased by the agent as
principal on a fixed price basis, the agent is permitted to engage in certain
transactions that stabilize the price of the notes. These transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the notes. If the agent creates a short position in the notes in
connection with the offering, i.e., if it sells more notes than are set forth
on the cover page of this prospectus supplement, the agent may reduce that
short position by purchasing notes in the open market. In general, purchases of
a security for the purpose of stabilization or to reduce a short position could
have the effect of raising or maintaining the market price of the security or
preventing or retarding a decline in the market price of the security. "Naked"
short sales are sales in excess of the agent's overallotment option. Because
the agent has no overallotment option with respect to the notes, it would be
required to close out a short position in the notes by purchasing notes in the
open market.
Neither ML&Co. nor the agent make any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the notes. In addition, neither ML&Co. nor the agent
makes any representation that the agent will engage in any such transactions or
that such transactions, once commenced, will not be discontinued without notice.
MLPF&S may use this prospectus supplement and the accompanying prospectus
for offers and sales related to market-making transactions in the notes. MLPF&S
may act as principal or agent in these transactions, and the sales will be made
at prices related to prevailing market prices at the time of sale.
MLPF&S, a broker-dealer subsidiary of ML&Co. is a member of the National
Association of Securities Dealers, Inc. and will participate in distributions
of the notes. Accordingly, offerings of the notes will conform to the
requirements of Rule 2720 of the Conduct Rules of the NASD.
VALIDITY OF THE NOTES
The validity of the notes will be passed upon for ML&Co. and the agent by
Sidley Austin Brown & Wood LLP, New York, New York.
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[LOGO]
$10,000,000,000
Merrill Lynch & Co., Inc.
Medium-Term Notes,
Series B
Due Nine Months or More from Date of Issue
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PROSPECTUS SUPPLEMENT
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Merrill Lynch & Co.
April 1, 2002
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