RULE NO. 424(b)(3)
REGISTRATION NO. 333-59997
PROSPECTUS SUPPLEMENT
(To prospectus dated July 30, 1998)
$6,554,900,000
[LOGO]
Merrill Lynch & Co., Inc.
Medium-Term Notes, Series B
Due Nine Months or More from Date of Issue
----------------
The notes:
. We will offer notes from . The notes may bear interest
time to time and specify at fixed or floating rates
the terms and conditions of or not at all. If the notes
each issue of notes in a bear interest at a floating
pricing supplement. rate, the floating rate may
be based on one or more
. The notes will be senior indices or formulas plus or
unsecured debt securities minus a factor or
of ML&Co. multiplied by a factor.
. The notes will have stated . We will specify whether the
maturities of nine months notes can be redeemed or
or more from the date they repaid before their
are originally issued. maturity and whether they
are subject to mandatory
. We will pay amounts due on redemption or at the option
the notes in U.S. dollars of ML&Co. or the holder of
or any other consideration the notes.
described in the applicable
pricing supplement.
Investing in the notes involves certain risks.
See "Risk Factors" on page S-3.
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.
Public
Offering Agent's Discounts Proceeds, before expenses, to
Price And Commissions Merrill Lynch & Co., Inc.
-------------- ---------------------- -----------------------------
Per note... 100% .050%-.600% 99.950%-99.400%
Total(1)... $6,554,900,000 $3,277,450-$39,329,400 $6,551,622,550-$6,515,570,600
(1)Or the equivalent in one or more foreign or composite currencies.
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 aggregate initial offering price of notes that we may offer and sell under
this prospectus supplement may be reduced.
----------------
Merrill Lynch & Co.
----------------
The date of this prospectus supplement is February 17, 1999.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Risk Factors.............................................................. S-3
Ratio of Earnings to Fixed Charges........................................ S-4
Description of the Notes.................................................. S-5
United States Federal Income Taxation..................................... S-24
Plan of Distribution...................................................... S-30
Validity of the Notes..................................................... S-31
Prospectus
Page
----
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Merrill Lynch & Co., Inc. ................................................ 3
Use of Proceeds........................................................... 3
Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.................................... 4
Description of Debt Securities............................................ 4
Description of Debt Warrants.............................................. 9
Description of Currency Warrants.......................................... 11
Description of Index Warrants............................................. 12
Description of Preferred Stock............................................ 17
Description of Depositary Shares.......................................... 21
Description of Preferred Stock Warrants................................... 25
Description of Common Stock............................................... 27
Description of Common Stock Warrants...................................... 30
Plan of Distribution...................................................... 32
Experts................................................................... 33
References in this prospectus supplement to "ML & Co.", "we", "us" and
"our" are to Merrill Lynch & Co., Inc.
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 the significant
components of their relationships.
Structure Risks of Notes Indexed to Interest Rate, Currency on 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 or are otherwise subject to
mandatory redemption, we may, in the case of optional redemption, or must, in
the case of mandatory redemption, choose to redeem your notes at times when
prevailing interest rates may be relatively low. Accordingly, 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 Be an Uncertain Trading Market for Your Notes; Many Factors May
Affect the Trading Value of Your Notes
We cannot assure you a trading market for your notes will ever develop or
be maintained. Many factors independent of our creditworthiness may affect the
trading market of your notes. These factors include:
.the complexity and volatility of the index or formula applicable to the
notes,
.the method of calculating the principal, premium and interest in respect
of the notes,
.the time remaining to the maturity of the notes,
.the outstanding amount of the notes,
.the redemption features of the notes,
.the amount of other securities linked to the index or formula applicable
to the notes, and
.the level, direction and volatility of market interest rates generally.
In addition, because some notes were designed for specific investment
objectives or strategies, these notes will have a more limited trading market
and experience 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 the related investment risks.
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.
RATIO OF EARNINGS TO FIXED CHARGES
In 1998, we acquired the outstanding shares of Midland Walwyn Inc.
("Midland"), in a transaction accounted for as a pooling-of-interests. The
following information has been restated, excluding the 1993 ratio, as if our
two entities had always been combined.
The following table sets forth our historical ratios of earnings to fixed
charges for the periods indicated:
Nine Months
Year Ended Last Friday in December Ended
-------------------------------------- September 25,
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ -------------
Ratio of earnings to
fixed charges(a)........ 1.4 1.2 1.2 1.2 1.2 1.1
(a) The effect of combining Midland did not change the ratios reported for the
fiscal years 1994 through 1997 and the effect would not have been material
for the 1993 fiscal year.
For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income taxes
and fixed charges. "Fixed charges" consist of interest costs, amortization of
debt expense, preferred stock dividend requirements of majority-owned
subsidiaries, and that portion of rentals estimated to be representative of
the interest factor.
S-4
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 The Chase Manhattan Bank, as trustee (as used in this
prospectus supplement, the "Trustee"). The term "senior debt securities", as
used in this prospectus supplement, refers to all securities issued and
issuable from time to time under ML&Co.'s Senior Indentures (as defined in the
accompanying prospectus) and includes the notes. The senior debt securities and
the Trustee are more fully described in the accompanying prospectus. The
following summary of certain provisions of the notes and of the 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. Capitalized terms used but not defined in this prospectus
supplement have the meanings given to them in the 1993 Indenture or the notes,
as the case may be.
The following description of notes will apply unless otherwise specified
in an applicable pricing supplement.
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 the agent 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 the agent 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
as of the date on the front cover of the applicable pricing supplement.
Terms of the Notes
All senior debt securities, including the notes, issued and to be issued
under the 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 the subsidiary, except to the extent that claims of
ML&Co. itself as a creditor of the subsidiary may be recognized. In addition,
dividends, loans and advances from certain subsidiaries, including Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), to ML&Co. are restricted
by net capital requirements under the Securities Exchange Act of 1934, as
amended, and under rules of certain exchanges and other regulatory bodies.
The Senior Indentures do not limit the aggregate principal amount of
senior debt securities which 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 the Senior Indentures in addition to the $6,554,900,000
aggregate principal amount of notes offered by this prospectus supplement. As
of September 25, 1998, ML&Co. had $19.5 billion aggregate principal amount of
notes issued and outstanding. The aggregate principal amount of notes which may
be offered by this prospectus supplement may be reduced by the issuance 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 issue, as selected by the purchaser and
agreed to by ML&Co. Interest-bearing notes will either be Fixed Rate Notes or
Floating Rate Notes as specified in the applicable pricing supplement. Notes
may be issued
S-5
at significant discounts from their principal amount payable at stated
maturity, or on any date before the 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.,
repayment at the option of the holder or otherwise (each such date, a
"Maturity"). Some notes may not bear interest.
Unless otherwise indicated in a note and in the applicable pricing
supplement, the notes will be denominated in United States dollars and payments
of principal of, and premium, if any, and interest on, the notes will be made
in United States dollars. If any of the notes to be denominated other than in
United States dollars or if the principal of, and interest on, the notes, and
any premium provided for in any note is to be payable in or by reference to a
currency or in composite currency units or in amounts determined by reference
to one or more currencies other than that in which the note is denominated,
provisions with respect thereto will be set forth in the applicable note and in
the applicable pricing supplement.
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 such 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,
unless otherwise specified in the applicable pricing supplement. Notes in book-
entry form may be transferred or exchanged only through a participating member
of The Depository Trust Company (or DTC), or such other depository as is
identified in an applicable pricing supplement (the "Depository"). See "Notes
in Book-Entry Form". Registration of transfer of notes in certificated form
will be made at the Corporate Trust Office of the Trustee. No service charge
will be made 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.
Payments of principal of, and premium and interest, if any, on notes in
book-entry form will be made by ML&Co. through the Trustee to the Depository or
its nominee. See "Notes in Book-Entry Form". Unless otherwise specified in the
applicable pricing supplement, a beneficial owner of notes in book-entry form
denominated in a currency other than United States dollars (a "Specified
Currency") electing to receive payments of principal or any premium or interest
in such Specified Currency must notify the participant of DTC through which its
interest is held on or before the applicable Record Date, in the case of a
payment of interest, and on or before the sixteenth day, whether or not a
Business Day, before its stated maturity, 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 Record Date. The
Depository will notify the Paying Agent of the election on or before the fifth
Business Day after the Record Date. If complete instructions are received and
forwarded by the participant to the Depository, and by the Depository to the
Paying Agent, on or before those 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, payment of principal or
premium, if any, at the Maturity of each note will be made 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 will be made to the person to whom payment of the principal of the
note in certificated form 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, having the
S-6
same Interest Payment Dates 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 holder.
Transaction Amount
Interest rates offered by ML&Co. with respect to the notes may differ
depending upon, among other things, the aggregate principal amount of notes
purchased in any transaction. ML&Co. may offer notes with similar variable
terms but different interest rates concurrently at any time. ML&Co. may also
concurrently offer notes having different variable terms as are described in
this prospectus supplement or in any pricing supplement to different investors.
Redemption at the Option of ML&Co.
The notes will not be subject to any sinking fund. The notes will be
redeemable at the option of ML&Co. prior to their stated maturity only if an
Initial Redemption Date is specified in the applicable notes and in the
applicable pricing supplement. If so indicated in the applicable pricing
supplement, notes will be subject to redemption at the option of ML&Co. 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, the related note may be redeemed at any time in whole or from time to time
in part at the option of ML&Co. at the applicable Redemption Price (as defined
below) together with interest on 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 prior to the Redemption
Date. The notes will be redeemed 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,
"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, the Annual
Redemption Percentage Reduction, if any, specified in the applicable pricing
supplement, of the principal amount to be redeemed until the Redemption Price
is 100% of the principal amount.
Repayment at the Option of the holder
If so indicated in an applicable pricing supplement, notes will be
repayable by ML&Co. in whole or in part at the option of the holders of the
notes on their respective Optional Repayment Dates 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 prior to its
stated maturity. 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 so repurchased will be 100% of the principal amount to be repaid,
together with interest on 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
calendar days before the date of repayment, (a) in the case of a note in
certificated form, the note and the form entitled "Option to Elect Repayment"
duly completed or (b) in the case of a note in book-entry form, instructions to
similar effect from the applicable beneficial owner of the notes 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
S-7
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
"Notes in Book-Entry Form".
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 note will bear interest from the date of issue at the rate per annum
or, in the case of a Floating Rate Note, pursuant to the interest rate formula
stated in the applicable note and 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 registered holder on the next succeeding Regular
Record Date. The "Regular Record Date" will be the fifteenth calendar day,
whether or not a Business Day (as defined below), immediately preceding the
related Interest Payment Date.
"Fixed Rate Notes"
Unless otherwise specified in an applicable pricing supplement, each
Fixed Rate Note will bear interest from, and including, the date of issue, at
the rate per annum stated on the face 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 related
Interest Payment Date or Maturity, as the case may be. Unless otherwise
specified in the applicable pricing supplement, interest on Fixed Rate Notes
will be computed on the basis of a 360-day year of twelve 30-day months.
Unless otherwise specified in the applicable pricing supplement, interest
on Fixed Rate Notes will be payable semiannually on May 15 and November 15 of
each year and at Maturity. If any Interest Payment Date or the Maturity of a
Fixed Rate Note falls on a day that is not a Business Day, the related payment
of principal, premium, if any, or interest will be made on the next succeeding
Business Day as if made on the date the applicable payment was due, and no
interest will accrue on the amount so payable for the period from and after
such Interest Payment Date or Maturity, as the case may be.
S-8
"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.
Floating Rate Notes will be issued as described below. Each applicable
pricing supplement will specify the terms of the Floating Rate Note being
delivered, including: whether the Floating Rate Note is a "Regular Floating
Rate Note" (as defined below), an "Inverse Floating Rate Note" (as defined
below) or a "Floating Rate/Fixed Rate Note" (as defined below); the Interest
Rate Basis or Bases, Initial Interest Rate, Interest Reset Dates, Interest
Payment Dates, Index Maturity, Maximum Interest Rate and Minimum Interest Rate,
if any, and the Spread and/or Spread Multiplier, if any, and, if one or more of
the specified Interest Rate Bases is LIBOR, the Index Currency, the Index
Maturity and the Designated LIBOR Page or, if one or more of the specified
Interest Rate Bases is the CMT Rate, the Designated CMT Telerate Page and
Designated CMT Maturity Index, as described below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(a) Unless a Floating Rate Note is designated as a Floating
Rate/Fixed Rate Note, 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, except as described below or in
an applicable pricing supplement, will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or
Bases (1) plus or minus the applicable Spread, if any, and/or (2)
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.
(b) 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 (1) plus
or minus the applicable Spread, if any, and/or (2) multiplied by
the applicable Spread Multiplier, if any. Commencing on the first
Interest Reset Date, the rate at which interest on the applicable
Floating Rate/Fixed Rate Note will be payable will be reset as of
each Interest Reset Date; provided, however, that (1) 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 (2) the interest rate in effect commencing on, and including,
the Fixed Rate Commencement Date to Maturity
S-9
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 Fixed Rate
Commencement Date.
(c) If a Floating Rate Note is designated as an "Inverse Floating
Rate Note", then, except as described below, 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 (1) plus or minus
the applicable Spread, if any, and/or (2) multiplied by the
applicable Spread Multiplier, if any; provided, however, that
unless otherwise specified in the applicable pricing supplement,
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 applicable
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.
Notwithstanding the foregoing, if a Floating Rate Note is designated as
having an Addendum attached or as having "Other Provisions" apply as specified
on the face of the applicable note, it will bear interest in accordance with
the terms described in the Addendum or specified under "Other Provisions" and
the applicable pricing supplement.
Each Interest Rate Basis shall be the rate determined in accordance with
the applicable provisions below. Except as set forth above, the interest rate
in effect on each day will be (a) 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 (b) if the
day is not an Interest Reset Date, the interest rate determined as of the
Interest Determination Date immediately preceding the applicable Interest
Reset Date.
The "Spread" is the number of basis points to be added to or subtracted
from the related Interest Rate Basis or Bases applicable to a Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases applicable to a Floating Rate Note by which the Interest Rate
Basis or Bases will be multiplied to determine the applicable interest rate on
the applicable Floating Rate Note. The "Index Maturity" is the period to
maturity of the instrument or obligation with respect to which the Interest
Rate Basis or Bases will be calculated.
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"). Unless otherwise specified in the applicable pricing
supplement, the Interest Reset Date will be, in the case of Floating Rate
Notes which reset:
. daily, each Business Day;
. 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, except as described below);
. 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 Fixed Rate Commencement
Date.
S-10
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 Interest Reset Date will be the immediately preceding Business Day. In
addition, in the case of a Floating Rate Note for which the Treasury Rate is an
applicable Interest Rate Basis and the Interest Determination Date would
otherwise fall on an Interest Reset Date, then the applicable Interest Reset
Date will be postponed to the next succeeding Business Day.
"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 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 hereinafter defined) 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 Business Day. "London Business Day" means a day on which commercial
banks are open for business, including dealings in the Index Currency (as
hereinafter defined), in London.
A Floating Rate Note may also have either or both of the following: (i) a
maximum numerical limitation, or ceiling, on the rate at which interest may
accrue during any interest period (a "Maximum Interest Rate"), and (ii) a
minimum numerical limitation, or floor, on the rate at which interest may
accrue during any period (a "Minimum Interest Rate"). The 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 such 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.
Each applicable pricing supplement will specify the dates on which
interest will be payable (each an "Interest Payment Date"). Each Floating Rate
Note will bear interest from the date of issue at the rates specified in the
applicable Floating Rate Note until the principal of the applicable note is
paid or otherwise made available for payment. Unless otherwise specified in the
applicable pricing supplement and, except as provided below, interest will be
payable in the case of Floating Rate Notes which reset:
. 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;
. annually, the third Wednesday of the month of each year specified in
the applicable pricing supplement; and
. at Maturity.
S-11
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, the
payment of principal, premium, if any, and interest will be made on the next
succeeding Business Day, and no interest on such payment will accrue for the
period from and after 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 such calculation on Floating Rate Notes will
be rounded to the nearest cent with one-half cent being rounded upward.
Interest payments on Floating Rate Notes will equal the amount of
interest accrued from and including the immediately preceding Interest Payment
Date in respect of which interest has been paid or from and including the date
of issue, if no interest has been paid with respect to the applicable Floating
Rate Notes, to but excluding the related Interest Payment Date or Maturity.
With respect to each Floating Rate Note, accrued interest is calculated
by multiplying its face amount by an accrued interest factor. 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. 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 CD Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds
Rate, the Federal Funds Rate, LIBOR or the Prime Rate, or by the actual number
of days in the year in the case of notes for which the Interest Rate Basis is
the CMT Rate or the Treasury Rate. The interest factor for notes for which the
interest rate is calculated with reference to two or more Interest Rate Bases
will be calculated in each period in the same manner as if only one of the
applicable Interest Rate Bases applied.
The interest rate applicable to each interest reset period commencing on
the Interest Reset Date with respect to such interest reset period will be the
rate determined as of the applicable "Interest Determination Date." The
Interest Determination Date with respect to the CD Rate, the CMT Rate and the
Commercial Paper Rate will be the second Business Day preceding each Interest
Reset Date for the related note; the Interest Determination Date with respect
to the Federal Funds Rate and the Prime Rate, unless otherwise specified in the
applicable pricing supplement, will be the Business Day immediately preceding
each Interest Reset Date; the Interest Determination Date with respect to the
Eleventh District Cost of Funds Rate will be the last working day of the month
immediately preceding each Interest Reset Date on which the Federal Home Loan
Bank of San Francisco publishes the Index (as defined below); the Interest
Determination Date with respect to LIBOR will be the second London Business Day
preceding each Interest Reset Date. With respect to the Treasury Rate, unless
otherwise specified in an applicable pricing supplement, the Interest
Determination Date will be the day in the week in which the related Interest
Reset Date falls on which day Treasury Bills (as defined below) are normally
auctioned (Treasury Bills are normally sold at auction on Monday of each week,
unless that day is a legal holiday, in which case the auction is normally held
on the following Tuesday, except that 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 related Interest Reset Date, the related Interest
Determination Date will be the preceding Friday; and provided, further, that if
an auction falls on any Interest Reset Date, then the related Interest Reset
Date will instead be the first Business Day following the auction. Unless
otherwise specified in the applicable pricing supplement, the Interest
Determination Date pertaining to a Floating Rate Note the interest rate of
which is determined with reference to two or more Interest Rate Bases will be
the latest Business Day which is at least two Business Days prior to the
applicable Interest Reset Date for the applicable
S-12
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.
Unless otherwise provided in the applicable pricing supplement, MLPF&S, a
subsidiary of ML&Co., 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 (a) 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
(b) the Business Day preceding the applicable Interest Payment Date or
Maturity, as the case may be.
"CD Rate". CD Rate Notes will bear interest at the rates (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any)
specified in the applicable CD Rate Notes and in any applicable pricing
supplement.
"CD Rate" means, with respect to any Interest Determination Date relating
to a CD Rate Note or any Floating Rate Note for which the interest rate is
determined with reference to the CD Rate (a "CD Rate Interest Determination
Date"), the rate on the applicable 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
hereinafter defined) under the heading "CDs (secondary market)", or, if not
published by 3:00 P.M., New York City time, on the related Calculation Date,
the rate on the applicable CD Rate Interest Determination Date for negotiable
United States dollar certificates of deposit of the Index Maturity specified in
the applicable pricing supplement as published in H.15 Daily Update (as
hereinafter defined), or other recognized electronic source used for the
purpose of displaying the applicable rate, under the caption "CDs (secondary
market)". If the applicable rate is not yet published in either H.15(519), H.15
Daily Update or other recognized electronic source by 3:00 P.M., New York City
time, on the related Calculation Date, then the CD Rate on the applicable CD
Rate Interest Determination Date will be calculated by the Calculation Agent
and will be the arithmetic mean of the secondary market offered rates as of
10:00 A.M., New York City time, on the applicable CD Rate Interest
Determination Date, of three leading non-bank dealers in negotiable United
States dollar certificates of deposit in The City of New York selected by the
Calculation Agent for negotiable United States dollar certificates of deposit
of major United States money center banks for negotiable certificates of
deposit with a remaining maturity closest to the Index Maturity specified in
the applicable pricing supplement in an amount that is representative for a
single transaction in that market at that time; provided, however, that if the
dealers so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the CD Rate with respect to the applicable CD Rate Interest
Determination Date will be the CD Rate in effect on the applicable CD Rate
Interest Determination Date.
"H.15(519)" means the weekly statistical release designated as the
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.bog.frb.fed.us/releases/h15/update, or any
successor site or publication.
"CMT Rate". CMT Rate Notes will bear interest at the rates (calculated
with reference to the CMT Rate and the Spread and/or Spread Multiplier, if any)
specified in the applicable CMT Rate Notes and in any applicable pricing
supplement.
S-13
"CMT Rate" means, with respect to any Interest Determination Date
relating to any Floating Rate Note for which the interest rate is determined
with reference to the CMT Rate (a "CMT Rate Interest Determination Date"), the
rate displayed on the Designated CMT Telerate Page under the caption
". . .Treasury Constant Maturities. . . Federal Reserve Board Release H.15.
Mondays Approximately 3:45 P.M.", under the column for the Designated CMT
Maturity Index for (a) if the Designated CMT Telerate Page is 7051, the rate on
the CMT Rate Interest Determination Date and (b) if the Designated CMT Telerate
Page is 7052, the weekly or the monthly average, as specified in the applicable
pricing supplement, for the week or the month, as applicable, ended immediately
preceding the week or the month, as applicable, in which the related CMT Rate
Interest Determination Date falls. If the applicable rate is no longer
displayed on the relevant page or is not so displayed by 3:00 P.M., New York
City time, on the related Calculation Date, then the CMT Rate for the
applicable CMT Rate Interest Determination Date will be the treasury constant
maturity rate for the Designated CMT Maturity Index as published in the
relevant H.15(519). If the applicable rate is no longer published or is not so
published by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate on the applicable CMT Rate Interest Determination Date will
be the applicable treasury constant maturity rate for the Designated CMT
Maturity Index (or other United States Treasury rate for the Designated CMT
Maturity Index) for the CMT Rate Interest Determination Date with respect to
the applicable Interest Reset Date as may then be published by either the Board
of Governors of the Federal Reserve System or the United States Department of
the Treasury that the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in
H.15(519). If the applicable information is not so provided by 3:00 P.M., New
York City time, on the related Calculation Date, then the CMT Rate on the CMT
Rate Interest Determination Date will be calculated by the Calculation Agent
and will be a yield to maturity, based on the arithmetic mean of the secondary
market closing offered rates as of approximately 3:30 P.M., New York City time,
on the CMT Rate Interest Determination Date reported, according to their
written records, by 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 the most
recently issued direct noncallable fixed rate obligations of the United States
("Treasury Notes") with an original maturity of approximately the Designated
CMT Maturity Index and a remaining term to maturity of not less than such
Designated CMT Maturity Index minus one year. If the Calculation Agent is
unable to obtain three applicable Treasury Note quotations, the CMT Rate on the
applicable CMT Rate Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity based on the arithmetic mean
of the secondary market offered rates as of approximately 3:30 P.M., New York
City time, on the applicable CMT Rate Interest Determination Date of three
Reference Dealers in The City of New York (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 Treasury Notes with an original
maturity of the number of years that is the next highest to the Designated CMT
Maturity Index and a remaining term to maturity closest to the Designated CMT
Maturity Index and in an amount of at least $100 million. If three or four and
not five of the Reference Dealers are quoting as described above, then the CMT
Rate will be based on the arithmetic mean of the offered rates obtained and
neither the highest nor the lowest of the quotes will be eliminated; provided,
however, that if fewer than three Reference Dealers selected by the Calculation
Agent are quoting as mentioned above, the CMT Rate determined as of the
applicable CMT Rate Interest Determination Date will be the CMT Rate in effect
on the applicable CMT Rate Interest Determination Date. If two Treasury Notes
with an original maturity as described in the second preceding sentence have
remaining terms to maturity equally close to the Designated CMT Maturity Index,
the Calculation Agent will obtain from five Reference Dealers quotations for
the Treasury Notes with the shorter remaining term to maturity.
"Designated CMT Telerate Page" means the display on Bridge Telerate, Inc.
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 Treasury Constant Maturities as reported in
H.15(519), or if no such page is specified in the applicable pricing
supplement, page 7052.
S-14
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable pricing supplement with respect to which the CMT
Rate will be calculated, or if no maturity is specified in the applicable
pricing supplement, 2 years.
"Commercial Paper Rate". Commercial Paper Rate Notes will bear interest at
the rates (calculated with reference to the Commercial Paper Rate and the
Spread and/or Spread Multiplier, if any) specified in the applicable Commercial
Paper Rate Notes and in any applicable pricing supplement.
"Commercial Paper Rate" means, with respect to any Interest Determination
Date relating to a Commercial Paper Rate Note or any Floating Rate Note for
which the interest rate is determined with reference to the Commercial Paper
Rate (a "Commercial Paper Rate Interest Determination Date"), the Money Market
Yield (as defined below) on the applicable 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, if not published by 3:00 P.M., New York City time, on
the related Calculation Date, the rate on the applicable Commercial Paper Rate
Interest Determination Date for commercial paper having the Index Maturity
specified in the applicable pricing supplement 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". If the applicable rate is not yet published in H.15(519), H.15
Daily Update or other recognized electronic source by 3:00 P.M., New York City
time, on the related Calculation Date, then the Commercial Paper Rate on the
applicable Commercial Paper Rate Interest Determination Date will be calculated
by the Calculation Agent and will be the Money Market Yield of the arithmetic
mean of the offered rates at approximately 11:00 A.M., New York City time, on
the applicable Commercial Paper Rate 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 Index Maturity specified in
the applicable pricing supplement placed for industrial issuers whose bond
rating is "Aa", or the equivalent, from a nationally recognized statistical
rating organization; provided, however, that if the dealers selected by the
Calculation Agent are not quoting as mentioned in this sentence, the Commercial
Paper Rate determined as of the applicable Commercial Paper Rate Interest
Determination Date will be the Commercial Paper Rate in effect on the
applicable Commercial Paper Rate Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated
in accordance with the following formula:
D X 360
Money Market Yield = ____________ X 100
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the interest period for which interest is being
calculated.
"Eleventh District Cost of Funds Rate". Eleventh District Cost of Funds
Rate Notes will bear interest at the rates (calculated with reference to the
Eleventh District Cost of Funds Rate and the Spread and/or Spread Multiplier,
if any) specified in the applicable Eleventh District Cost of Funds Rate Notes
and in any applicable pricing supplement.
"Eleventh District Cost of Funds Rate" means, with respect to any
Interest Determination Date relating to an Eleventh District Cost of Funds Rate
Note or any Floating Rate Note for which the interest rate is determined with
reference to the Eleventh District Cost of Funds Rate (an "Eleventh District
Cost of Funds Rate Interest Determination Date"), the rate equal to the monthly
weighted average cost of funds for the calendar month immediately preceding the
month in which the applicable Eleventh District Cost of Funds Rate
S-15
Interest Determination Date falls as set forth under the caption "11th
District" on the display on Bridge Telerate, Inc. or any successor service on
page 7058 or any other page as may replace the specified page on that service
("Telerate Page 7058") as of 11:00 A.M., San Francisco time, on the applicable
Eleventh District Cost of Funds Rate Interest Determination Date. If the
applicable rate does not appear on Telerate Page 7058 on the related Eleventh
District Cost of Funds Rate Interest Determination Date, then the Eleventh
District Cost of Funds on the applicable Eleventh District Cost of Funds Rate
Interest Determination Date will be the monthly weighted average cost of funds
paid by member institutions of the Eleventh Federal Home Loan Bank District
that was most recently announced (the "Index") by the Federal Home Loan Bank of
San Francisco as the cost of funds for the calendar month immediately preceding
the applicable Eleventh District Cost of Funds Rate Interest Determination
Date. If the Federal Home Loan Bank of San Francisco fails to announce the
Index on or before the applicable Eleventh District Cost of Funds Rate Interest
Determination Date for the calendar month immediately preceding the applicable
Eleventh District Cost of Funds Rate Interest Determination Date, then the
Eleventh District Cost of Funds Rate determined as of the applicable Eleventh
District Cost of Funds Rate Interest Determination Date will be the Eleventh
District Cost of Funds Rate in effect on the applicable Eleventh District Cost
of Funds Rate Interest Determination Date.
"Federal Funds Rate". Federal Funds Rate Notes will bear interest at the
rates (calculated with reference to the Federal Funds Rate and the Spread
and/or Spread Multiplier, if any) specified in the applicable Federal Funds
Rate Notes and in any applicable pricing supplement.
"Federal Funds Rate" means, with respect to any Interest Determination
Date relating to a Federal Funds Rate Note or any Floating Rate Note for which
the interest rate is determined with reference to the Federal Funds Rate (a
"Federal Funds Rate Interest Determination Date"), the rate on the applicable
Interest Determination Date for United States dollar federal funds as published
in H.15(519) under the heading "Federal Funds (Effective)", as the rate is
displayed on Bridge Telerate, Inc. or any successor service on page 120 or any
other page as may replace the applicable page on such service ("Telerate Page
120"), or, if the applicable rate does not appear on Telerate Page 120 or is
not so published by 3:00 P.M., New York City time, on the related Calculation
Date, the rate on the applicable Federal Funds Rate 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)". If the
applicable rate does not appear on Telerate Page 120 or is not yet published in
H.15(519), H.15 Daily Update or other recognized electronic source by 3:00
P.M., New York City time, on the related Calculation Date, then the Federal
Funds Rate on the applicable Federal Funds Rate Interest Determination Date
will be calculated by the Calculation Agent and will be the arithmetic mean of
the rates for the last transaction in overnight United States dollar federal
funds arranged by three leading brokers of 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 the applicable Federal Funds Rate Interest Determination Date;
provided, however, that if the brokers selected by the Calculation Agent are
not quoting as mentioned in this sentence, the Federal Funds Rate determined as
of the applicable Federal Funds Rate Interest Determination Date will be the
Federal Funds Rate in effect on the applicable Federal Funds Rate Interest
Determination Date.
"LIBOR". LIBOR notes will bear interest at the rates (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any) specified
in the applicable LIBOR Notes and in any applicable pricing supplement.
"LIBOR" means the rate determined by the Calculation Agent in accordance
with the following provisions:
(i) With respect to an Interest Determination Date relating to a
LIBOR Note or any Floating Rate Note for which the interest rate
is determined with reference to LIBOR (a "LIBOR Interest
Determination Date"), LIBOR will be either: (a) if "LIBOR
Telerate" is specified in the applicable pricing supplement or if
neither "LIBOR Reuters" nor "LIBOR Telerate" is
S-16
specified in the applicable pricing supplement as the method for
calculating LIBOR, the rate for deposits in the Index Currency (as
defined below) having the Index Maturity specified in the
applicable pricing supplement, commencing on the second London
Business Day immediately following that LIBOR Interest
Determination Date that appears on the Designated LIBOR Page as of
11:00 A.M., London time, on the applicable LIBOR Interest
Determination Date. If fewer than two offered rates so appear, or
no rate appears, as applicable, LIBOR on the applicable LIBOR
Interest Determination Date will be determined in accordance with
the provisions described in clause (ii) below, or (b) if "LIBOR
Reuters" is specified in the applicable pricing supplement, the
arithmetic mean of the offered rates (unless the Designated LIBOR
Page by its terms provides only for a single rate, in which case
the single rate will be used) for deposits in the Index Currency
having the Index Maturity specified in the applicable pricing
supplement, commencing on the second London Business Day
immediately following that LIBOR Interest Determination Date, that
appear (or, if only a single rate is required, appears) on the
Designated LIBOR Page specified in the applicable pricing
supplement as of 11:00 A.M., London time, on the applicable LIBOR
Interest Determination Date.
(ii) With respect to a LIBOR Interest Determination Date on which
fewer than two offered rates appear, or no rate appears, as the
case may be, on the Designated LIBOR Page as specified in clause
(i) above, the Calculation Agent will request the principal
London offices of each of four major reference banks (which may
include affiliates of the agent) in the London interbank market,
as selected by the Calculation Agent, to provide the Calculation
Agent with its offered quotation for deposits in the Index
Currency for the period of the Index Maturity specified in the
applicable pricing supplement, commencing on the second London
Business Day immediately following the applicable LIBOR Interest
Determination Date, to prime banks in the London interbank
market at approximately 11:00 A.M., London time, on the
applicable LIBOR Interest Determination Date and in a principal
amount that is representative for a single transaction in the
applicable Index Currency in that market at that time. If at
least two applicable quotations are provided, then LIBOR
determined on the applicable LIBOR Interest Determination Date
will be the arithmetic mean of the quotations. If fewer than two
quotations are provided, then LIBOR determined on the applicable
LIBOR Interest Determination Date will be the arithmetic mean of
the rates quoted at approximately 11:00 A.M., in the applicable
Principal Financial Center(s) (as defined below), on the
applicable LIBOR Interest Determination Date by three major
banks (which may include affiliates of the agent) in the
applicable Principal Financial Center selected by the
Calculation Agent for loans in the Index Currency to leading
European banks, having the Index Maturity specified designated
in the applicable pricing supplement and in a principal amount
that is representative for a single transaction in the
applicable Index Currency in that market at that time; provided,
however, that if the banks so selected by the Calculation Agent
are not quoting as mentioned in this sentence, LIBOR determined
as of the applicable LIBOR Interest Determination Date will be
LIBOR in effect on the applicable LIBOR Interest Determination
Date.
"Index 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.
"Designated LIBOR Page" means either (a) 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 applicable Index Currency, or (b) if "LIBOR Telerate" is
designated in the applicable pricing supplement or neither "LIBOR
S-17
Reuters" nor "LIBOR Telerate" is specified in the applicable pricing supplement
as the method for calculating LIBOR, the display on Bridge Telerate, Inc. or
any successor service on the page specified in the applicable 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
applicable Index Currency.
"Principal Financial Center" means, unless otherwise specified in the
applicable pricing supplement, (1) the capital city of the country issuing the
Specified Currency or (2) the capital city of the country to which the Index
Currency, if applicable, relates, except, in each case, that with respect to
United States dollars, Australian dollars, Canadian dollars, Deutsche marks,
Dutch guilders, Portuguese escudos, South African rand and Swiss francs, the
"Principal Financial Center" will be The City of New York, Sydney and (solely
in the case of the Specified Currency) Melbourne, Toronto, Frankfurt,
Amsterdam, London (solely in the case of the Index Currency), Johannesburg and
Zurich, respectively.
"Prime Rate". Prime Rate Notes will bear interest at the rates (calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier, if
any) specified in the applicable Prime Rate Notes and any applicable pricing
supplement.
"Prime Rate" means, with respect to any Interest Determination Date
relating to a Prime Rate Note or any Floating Rate Note for which the interest
rate is determined with reference to the Prime Rate (a "Prime Rate Interest
Determination Date"), the rate on the applicable Interest Determination Date as
is published in H.15(519) under the heading "Bank Prime Loan" or, if not
published by 3:00 P.M., New York City time, on the related Calculation Date,
the rate on the applicable Prime Rate 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".
If the applicable rate is not yet published in H.15(519), H.15 Daily Update or
other recognized electronic source by 3:00 P.M., New York City time, on the
related Calculation Date, then the Prime Rate will be 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 each bank's prime rate or
base lending rate as of 11:00 A.M., New York City time, on the applicable Prime
Rate Interest Determination Date. If fewer than four rates so appear on the
Reuters Screen US PRIME 1 Page for the applicable Prime Rate Interest
Determination Date, then the Prime Rate will be 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 the
applicable Prime Rate 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; provided, however, that if the banks selected by the
Calculation Agent are not quoting as mentioned in this sentence, the Prime Rate
determined as of the applicable Prime Rate Interest Determination Date will be
the Prime Rate in effect on the applicable Prime Rate 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 other
page as may replace the US PRIME 1 Page on such service for the purpose of
displaying prime rates or base lending rates of major United States banks.
"Treasury Rate". Treasury Rate Notes will bear interest at the rates
(calculated with reference to the Treasury Rate and the Spread and/or Spread
Multiplier, if any) specified in the applicable Treasury Rate Notes and in any
applicable pricing supplement.
"Treasury Rate" means, with respect to an Interest Determination Date
relating to a Treasury Rate Note or any Floating Rate Note for which the
interest rate is determined by reference to the Treasury Rate (a "Treasury Rate
Interest Determination Date"), the rate from the auction held on the applicable
Treasury Rate 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 Bridge Telerate, Inc. or any successor service on page 56 or any
other page as may replace page 56 on such service ("Telerate Page 56") or page
57 or any other page as may replace page 57 on
S-18
such service ("Telerate Page 57") or, if not so published by 3:00 P.M., New
York City time, on the related Calculation Date, the Bond Equivalent Yield (as
hereinafter defined) 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, if not so 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. In the event that the auction rate of
Treasury Bills having the Index Maturity specified in the applicable pricing
supplement is not so announced by the United States Department of the Treasury,
or if the Auction is not held, then the Treasury Rate will be the Bond
Equivalent Yield of the rate on the applicable Treasury Rate Interest
Determination Date of Treasury Bills having the Index Maturity specified in the
applicable pricing supplement as published in H.15(519) under the caption "U.S.
Government Securities/Treasury Bills/Secondary Market" or, if not yet published
by 3:00 P.M., New York City time, on the related Calculation Date, the rate on
the applicable Treasury Rate 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". If
the applicable rate is not yet published in H.15(519), H.15 Daily Update or
other recognized electronic source, then the Treasury Rate will be calculated
by the Calculation Agent and will be 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 the applicable Treasury Rate Interest
Determination Date, of three primary United States government securities
dealers (which may include the agent or its affiliates) selected by the
Calculation Agent, for the issue of Treasury Bills with a remaining maturity
closest to the Index Maturity specified in the applicable pricing supplement;
provided, however, that if the dealers so selected by the Calculation Agent are
not quoting as mentioned in this sentence, the Treasury Rate determined as of
the applicable Treasury Rate Interest Determination Date will be the Treasury
Rate in effect on the applicable Treasury Rate Interest Determination Date.
"Bond Equivalent Yield" means a yield (expressed as a percentage)
calculated in accordance with the following formula:
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, "N" refers to 365 or 366, as the case may be, and "M"
refers to the actual number of days in the interest period for which interest
is being calculated.
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 issue 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 described in the applicable pricing supplement.
S-19
Amortizing Notes
ML&Co. may from time to time offer notes ("Amortizing Notes") with
amount 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 applicable Amortizing
Notes. Further information concerning additional terms and conditions of any
issue of Amortizing Notes will be provided in the applicable pricing
supplement. A table setting forth repayment information in respect of each
Amortizing Note will be included in the applicable Amortizing Note and the
applicable pricing supplement.
Linked Notes
ML&Co. may from time to time issue 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,
(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 described
in the applicable pricing supplement.
Notes in Book-Entry Form
"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 (the "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 definitive 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 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 $200,000,000, one Global Note will be
issued with respect to each $200,000,000 of principal amount and an additional
Global Note will be issued with respect to any remaining principal amount of
the issue.
S-20
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 (including the agent), 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., 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 Securities and Exchange Commission.
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 such
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 of notes in
book-entry form, 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.
Principal, premium, if any, and/or interest, if any, payments on the
Global Notes representing the notes in book-entry form will be made 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
S-21
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.
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 such notes in book-entry form by causing
the direct participant to transfer the participant's interest in the Global
Note or notes representing the applicable 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 the 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.
Purchases of notes in book-entry form must be made by or through
participants, which will receive a credit on the records of the Depository. The
ownership interest of the beneficial owner or the actual purchaser of each Note
in book-entry form is in turn to be recorded on the participants' or indirect
participants' records. Beneficial owners will not receive written confirmation
from the Depository of their purchase, but beneficial owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the participant or indirect
participant through which the beneficial owner entered into the transaction.
Ownership of beneficial interests in Global Notes will be shown on, and the
transfer of such ownership interests will be effected only through, records
maintained by the Depository (with respect to interests of participants) and on
the records of participants (with respect to interests of persons held through
participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. These
limits and 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
S-22
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 action or
would otherwise act upon the instructions of beneficial owners. Conveyance of
notices and other communications by the Depository to participants, by
participants to indirect participants, and by participants and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
"Year 2000 Compliance"
DTC has advised ML&Co. that management of the Depository is aware that
some computer applications, systems and the like for processing data
("Systems") that are dependent upon calendar dates, including dates before, on,
and after January 1, 2000, may encounter "Year 2000 problems". The Depository
has informed direct and indirect participants and other members of the
financial community (the "Industry") that it has developed and is implementing
a program so that its Systems, as the same relate to the timely payment of
distributions (including principal and interest payments) to securityholders,
book-entry deliveries, and settlement of trades within the Depository
("Depository Services"), continue to function appropriately. This program
includes a technical assessment and a remediation plan, each of which is
complete. Additionally, the Depository's plan includes a testing phase, which
is expected to be completed within appropriate time frames.
However, the Depository's ability to perform properly its services is
also dependent upon other parties, including, but not limited to, issuers and
their agents, as well as the Depository's direct and indirect participants,
third party vendors from whom the Depository licenses software and hardware,
and third party vendors on whom the Depository relies for information or the
provision of services, including telecommunication and electrical utility
service providers, among others. The Depository has informed the Industry that
it is contacting (and will continue to contact) third party vendors from whom
the Depository acquires services to: (a) impress upon them the importance of
such services being Year 2000 compliant; and (b) determine the extent of their
efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, the Depository is in the process of developing such
contingency plans as it deems appropriate.
According to the Depository, the information in the preceding two
paragraphs with respect to the Depository has been provided to the Industry for
informational purposes only and is not intended to serve as a representation,
warranty, or contract modification of any kind.
"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 definitive
form of like tenor and of an equal aggregate principal amount, in denominations
of $1,000 and integral multiples of $1,000. The definitive notes will be
registered in the name or names as the Depository will instruct the Trustee. It
is expected that instructions may 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.
S-23
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" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal with
holders other than original purchasers (except where otherwise specifically
noted). Persons considering the purchase of the notes should consult their own
tax advisors concerning the application of United States Federal income tax
laws to their particular situations as well as any consequences of the
purchase, ownership and disposition of the notes arising under the laws of any
other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a note
that is for United States Federal income tax purposes (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 "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
S-24
greater of either the resulting foregone interest on the applicable 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 (1) 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
(2) the amount of any qualified stated interest payments allocable to such
accrual period. The "adjusted issue price" of a Discount Note at the beginning
of any accrual period is the sum of the issue price of the Discount Note plus
the amount of original issue discount allocable to all prior accrual periods
minus the amount of any prior payments on the Discount Note that were not
qualified stated interest payments. Under these rules, U.S. Holders generally
will have to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal to
the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the Discount Note at an "acquisition premium", Under the acquisition
premium rules, the amount of original issue discount which such U.S. Holder
must include in its gross income with respect to such Discount Note for any
taxable year (or portion thereof in which the U.S. Holder holds the Discount
Note) will be reduced (but not below zero) by the portion of the acquisition
premium properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes
(hereinafter "Variable Notes") are subject to special rules whereby a Variable
Note will qualify as a "variable rate debt instrument" if (a) its issue price
does not exceed the total noncontingent principal payments due under the
Variable Note by more than a specified "de minimis" amount and (b) it provides
for stated interest, paid or compounded at least annually, at current values of
(1) one or more qualified floating rates, (2) a single fixed rate and one or
more qualified floating rates, (3) a single objective rate, or (4) 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
S-25
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 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
S-26
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 current 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, 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.
Certain of the notes (1) may be redeemable at the option of ML&Co. prior
to their stated maturity (a "call option") and/or (2) 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.
S-27
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.
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 (1) the amount of such payment or
realized gain or (2) 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.
S-28
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 the applicable holding period. The
Taxpayer Relief Act of 1997 reduces the maximum rates on long-term capital
gains recognized on capital assets held by individual taxpayers for more than
eighteen months as of the date of disposition (and would further reduce the
maximum rates on such gains in the year 2001 and thereafter for certain
individual taxpayers who meet specified conditions). Prospective investors
should consult their own tax advisors concerning these tax law changes.
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States Federal income
taxes on payments of principal, premium (if any) or interest (including
original issue discount, if any) on a note, unless such non-U.S. Holder is a
direct or indirect 10% or greater shareholder of 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 last
United States payor in the chain of payment prior to payment to a non-U.S.
Holder (the "Withholding Agent") must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (1) is signed by the beneficial owner of the
note under penalties of perjury, (2) certifies that such owner is not a U.S.
Holder and (3) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by
the beneficial owner to the organization or institution. The Treasury
Department is considering implementation of further certification requirements
aimed at determining whether the issuer of a debt obligation is related to
holders thereof.
On October 6, 1997, the Treasury issued new regulations (the "New
Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on any amount which constitutes capital gain upon retirement or
disposition of a note, provided the gain is not effectively connected with the
conduct of a trade or business in the United States by the non-U.S. Holder.
Certain other exceptions may be applicable, and a non-U.S. Holder should
consult its tax advisor in this regard.
The notes will not be includible in the estate of a non-U.S. Holder
unless the individual is a direct or indirect 10% or greater shareholder of
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 rate of 31%
may apply to payments made in respect of the notes to registered owners who are
not "exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities
S-29
generally are exempt recipients. Payments made in respect of the notes to a
U.S. Holder must be reported to the IRS, unless the U.S. Holder is an exempt
recipient or establishes an exemption. Compliance with the identification
procedures described in the preceding section would establish an exemption from
backup withholding for those non-U.S. Holders who are not exempt recipients.
In addition, upon the sale of a note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (1) the broker
determines that the seller is a corporation or other exempt recipient or (2)
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 (1) the broker determines that
the seller is an exempt recipient or (2) the seller certifies its non-U.S.
status (and certain other conditions are met). Certification of the registered
owner's non-U.S. status would be made normally on an IRS Form W-8 under
penalties of perjury, although in certain cases it may be possible to submit
other documentary evidence. In addition, prospective U.S. Holders are strongly
urged to consult their own tax advisors with respect to the New Withholding
Regulations. See "United States Federal Income Taxation--Non-U.S. Holders".
Any amounts withheld under the backup withholding rules from a payment to
a beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
The notes are being offered on a continuing basis for sale by ML&Co.,
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 notes for which the stated maturity is in excess of 30 years, the commission
as will be 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.
Unless otherwise specified in an applicable pricing supplement, payment
of the purchase price of the notes will be required to be made in immediately
available funds in New York City on the date of settlement.
No note will have an established trading market when issued. Unless
specified in the applicable pricing supplement, the notes will not be listed on
any securities exchange. The agent may from time to time purchase and sell
notes in the secondary market, but the agent is not obligated to do so, and
there can be no assurance that there will be a secondary market for the notes
or liquidity in the secondary market if one develops. From time to time, the
agent may make a market in the notes.
S-30
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 offered by this
prospectus supplement is subject to reduction 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 notes in an aggregate principal
amount exceeding that set forth in the applicable pricing supplement), then the
agent may reduce that short position by purchasing notes in the open market. In
general, purchases of notes for the purpose of stabilization or to reduce a
short position could cause the price of the notes to be higher than in the
absence of these purchases.
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.
The distribution of the notes will conform to the requirements set forth
in the applicable sections of Rule 2720 of the Conduct Rules of the National
Association of Securities Dealers, Inc.
VALIDITY OF THE NOTES
The validity of the notes will be passed upon for ML&Co. and the agent by
Brown & Wood LLP, New York, New York.
S-31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
$6,554,900,000
Merrill Lynch & Co., Inc.
Medium-Term Notes,
Series B
---------------------------------
PROSPECTUS SUPPLEMENT
---------------------------------
Merrill Lynch & Co.
February 17, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------